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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13D 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
For the transition period from ____________ to ____________
Commission File Number 1-10321
THE ACKERLEY GROUP, INC.
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(Exact name of Registrant as specified in its charter)
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<S> <C>
Delaware 91-1043807
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1301 Fifth Avenue, Suite 4000
Seattle, Washington 98101
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 624-2888
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
N/A
(Title of class)
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 (or for such shorter periods that the
registrant was required to file such reports), 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 the 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 nonaffiliates of
the registrant as of March 1, 2000 was $197,781,190.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 1, 2000 was:
Title of Class Number of Shares Outstanding
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Common Stock, $.01 Par Value 23,877,107 shares
Class B Common Stock, $.01 Par Value 11,088,700 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 1, 2000, are incorporated by reference under Part
III of this Report.
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PART I
ITEM 1 - BUSINESS
GENERAL INFORMATION
The Ackerley Group, Inc. was founded in 1975 as a Washington
corporation. In 1978, we were reincorporated under Delaware law. We are a
diversified media and entertainment company which engages in four principal
businesses: outdoor media, television broadcasting, radio broadcasting, and
sports & entertainment. Our outdoor media, television broadcasting, radio
broadcasting, and sports & entertainment segments accounted for approximately
36%, 29%, 10%, and 25%, respectively, of our net revenue for the year ended
December 31, 1999.
- Outdoor Media. We engage in outdoor advertising in Massachusetts and
the Pacific Northwest and, until recently, in Florida. We have 6,519
outdoor displays in the markets of Boston-Worcester, Massachusetts;
Seattle-Tacoma, Washington; and Portland, Oregon. On January 5,
2000, we sold our outdoor advertising operations in Florida for
approximately $300.0 million. We believe that we have leading
positions in the primary markets in which we operate, based upon the
number of outdoor advertising displays.
- Television Broadcasting. We engage in television broadcasting in New
York, California, Oregon, Washington, and Alaska. We own twelve
television stations and program three additional television stations
under time brokerage or local marketing agreements ("LMAs").
Consistent with our strategy of local news leadership, nine of the
thirteen network-affiliated television stations we own or program
ranked first or second in their designated market areas ("DMAs"), in
terms of local news ratings points delivered, according to the
November 1999 Nielsen Station Index.
- Radio Broadcasting. We own and operate four radio stations in the
Seattle-Tacoma, Washington market. We also provide sales and other
services for KFNK(FM), another station in the Seattle-Tacoma market,
pursuant to a joint sales agreement with the owner of that station.
KUBE(FM) is tied for first place as the highest ranked FM station in
the market in terms of share of its market service area ("MSA"),
according to the Fall 1999 Arbitron Radio Market Report, and KJR(AM)
is the only sports talk station in the market.
- Sports & Entertainment. Our sports & entertainment business includes
ownership of the Seattle SuperSonics, the National Basketball
Association's Pacific Division Champions for the three of the last
five NBA seasons, and the Seattle Storm, a WNBA expansion team. Our
Full House Sports & Entertainment division provides marketing and
promotional support for the SuperSonics and the Storm and
coordinates related cross-media activities within our company. We
also consider investments in other Seattle-area sports and
entertainment activities that would utilize our marketing and
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promotional infrastructure, such as our recent arrangement with the
management of the Tacoma Dome to act as the exclusive booking agent
for events at that site.
BUSINESS STRATEGY
Our primary strategy is to develop and acquire media assets that enable
us to offer advertisers a choice of media outlets for distributing their
marketing messages. To this end, we have assembled a diverse portfolio of media
assets. We believe our businesses are linked by a common goal of increasing the
number of advertising impressions made, regardless of whether the impression is
made via radio, television, or outdoor media display. Further, we seek to
exploit the operating synergies that we believe exist from our ownership of both
distribution (the television broadcasting, radio broadcasting, and outdoor media
businesses) and content (the sports & entertainment business) assets.
We seek to grow by investing in the expansion of our existing operations
through additions and upgrades to our facilities and programming. We also look
to grow through opportunistic acquisitions in our existing business lines and by
exploring new synergistic business ventures and investments. We target markets
where we see an opportunity to improve market share, take advantage of regional
efficiencies, and develop our television stations into local news franchises.
We believe the following elements of our strategy provide us with
competitive advantages:
Maintain and Develop Leadership Positions in Markets Served. We seek to
be a leader in each of our markets. We believe that we own the most outdoor
advertising display faces in each of the primary geographic markets in which we
operate, based on the Traffic Audit Bureau's most recent Summary of Audited
Markets, issued in July 1999. Nine of the thirteen network-affiliated television
stations we own or program ranked first or second in their DMAs, in terms of
local news ratings points delivered, according to the November 1999 Nielsen
Station Index. Our four radio stations include KUBE(FM), which is tied for first
place as the highest ranked FM station in the Seattle-Tacoma market in terms of
share of its MSA, according to the Fall 1999 Arbitron Radio Market Report, and
KJR(AM), the only sports talk station in the market. We believe this market
leadership enables us to provide advertisers a cost-effective means of
delivering a quality message to their target audiences.
Use Advanced Communications Technology to Create Regional Television
Groups. On April 6, 1999, we announced the launch of Digital CentralCasting(TM),
a digital broadcast system which allows us to operate multiple television
stations using the back-office functions of a single station. The system
contemplates that all of our television stations in a geographic area will be
linked through a fiber optic-based communications network, and that the stations
themselves will switch from analog to digital broadcasting equipment. This
permits the stations to share digital programming and other data along the
fiber-optic network, as well as allowing a single station within the geographic
area to perform back-office functions such as operations, programming and
advertising scheduling, and accounting for all of our television stations in the
area. To
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implement this strategy, we have organized thirteen of the television stations
we own or program into the following regional station groups: New York (WIXT,
WOKR, WIVT, WBGH-LP, WUTR, and WETM), Central California (KCOY, KION, and KGET),
and North Coast (KCBA, KMTR, KVIQ, and KFTY).
While the advantages of owning multiple stations in a market are evident
in radio broadcasting, current television ownership rules prohibit the ownership
of more than one station in a designated market, with some exceptions. We
believe that the confluence of falling prices for fiber-optic-based
communications services and the advancement of digital transmission technology
has created an opportunity to realize the benefits of multi-station ownership by
linking several distinct television markets into one regional group. We believe
that we are among the first companies to introduce this technology in the
industry. We anticipate that Digital CentralCasting(TM) will enhance our
operational efficiency through economies of scale and the sharing of resources
and programming among our stations. However, we cannot guarantee that the
implementation of Digital CentralCasting(TM) will be achieved in an effective
manner and can give no assurance as to the timing or extent of the anticipated
benefits.
Capitalize Upon Our Ownership of the Seattle SuperSonics and the Seattle
Storm. We believe that our ownership of the Seattle SuperSonics and the Seattle
Storm enhances the effectiveness of our media operations by (1) providing
regionally significant programming, (2) generating listener loyalty for our
radio stations, and (3) increasing the number of individuals exposed to the
advertising we provide. We seek to extract additional value from our ownership
of the Seattle SuperSonics and the Seattle Storm through the sale of team
sponsorships, which includes sales of advertising on signs in Seattle's Key
Arena and on radio and television broadcasts of SuperSonics and Storm games. We
also receive revenue from our interest in activities coordinated by the NBA and
WNBA, such as advertising on nationally televised games and other licensing
arrangements. As a result of our ownership of different media outlets, our
sports & entertainment business can offer advertisers greater choice than a
single outlet entity. We believe this helps our advertisers to more effectively
reach their target audiences.
Utilize the Regional Marketing and Promotional Expertise of Our Sports &
Entertainment Segment. Historically, our sports & entertainment segment has
provided marketing and promotional support solely for the Seattle SuperSonics.
We have begun pursuing additional opportunities to provide marketing and
promotional services for other regional events and entertainment, capitalizing
upon the expertise developed from our experience with the Seattle SuperSonics.
Experienced Management; Decentralized Management Structure. We believe
that our efficient management structure and the experience of our management
team enable us to respond effectively to competitive challenges across our
markets and our business segments. We have granted the management of our
operating units the authority and autonomy necessary to run each unit as a
business and to respond to changes in each market environment. Experienced local
managers enhance our ability to respond to local challenges rapidly and
effectively. The average experience of our ten division managers in their
respective industries is approximately 18 years. These local managers are
supported and guided by an experienced and cohesive executive team. Four of our
five executive
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officers have worked together for over eight years. Our five executive officers
collectively have an aggregate of 108 years of experience in the various
industries in which we are involved.
Barry A. Ackerley, one of our founders and our current Chairman and
Chief Executive Officer, has been actively involved with this company since our
inception in 1975. Early in our history, Mr. Ackerley recognized the synergies
that could be achieved through ownership of outdoor advertising, television and
radio broadcasting, and sports and entertainment assets. With this vision, Mr.
Ackerley led our expansion from outdoor advertising into television and radio
broadcasting and sports and entertainment well before the current trend toward
consolidation among these industries
OUTDOOR MEDIA
Our outdoor media business sells advertising space on outdoor displays
and often participates in the design of advertisements and the construction of
outdoor structures that carry those displays. Until our airport advertising
operations were sold on June 30, 1998, we sold advertising space on displays
located in airport terminals.
OUTDOOR ADVERTISING
Industry Overview. During the nineteenth century, companies began to
lease out space on wooden boards for advertising messages, or "bills." Today,
outdoor advertising extends nationwide, providing advertisers with a relatively
low-cost means of reaching large audiences. Outdoor advertising is used by large
national advertisers as part of multi-media and other advertising campaigns, as
well as by local and regional advertisers seeking to reach local and regional
markets.
We believe that outdoor advertising is a cost-effective form of
advertising, particularly when compared to television, radio, and print, on a
"cost-per-rating point" basis (meaning cost per 1,000 impressions). Displays
provide advertisers with advertising targeted at a specified percentage of the
general population and are generally placed in appropriate well-traveled areas
throughout a geographic area. This results in the advertisement's broad exposure
within a market.
Outdoor advertising companies generally establish and publish "rate
cards" periodically, typically once a year, which list monthly rates for
bulletins, posters, and junior posters. Rates are based, in part, on surveys
made by independent traffic audits that determine a given display's exposure to
the public. Actual rates charged to customers are subject to negotiation.
Advertising contracts relating to bulletins, posters, and junior posters usually
have terms of one year or less.
While outdoor advertising has been a stable source of revenue for us
over the last five years, the number and diversity of our advertisers have
increased. For example, we have seen an increase in outdoor advertising revenues
from retail, real estate, entertainment, media, and financial services
companies. In addition, we have seen an increase in customers who have not
traditionally used outdoor advertising, such as fashion designers, internet
service providers and internet-based businesses, and telecommunications
companies.
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Operations. We operate primarily in the markets of Seattle-Tacoma,
Washington; Portland, Oregon; and Boston-Worcester, Massachusetts. Until we sold
our Florida outdoor advertising business in January 2000, we also operated in
Miami, Fort Lauderdale, West Palm Beach and Fort Pierce, Florida. Based on the
Traffic Audit Bureau's Summary of Audited Markets issued in July 1999, we had
more outdoor advertising displays in each of these markets than any other
outdoor advertising company.
We believe that our presence in large markets, the geographic diversity
of our operations, and our emphasis on local advertisers within each of our
markets lend stability to our revenue base, reduce our reliance on any
particular regional economy or advertiser, and mitigate the effects of
fluctuations in national advertising expenditures. However, because of zoning
and other regulatory limitations on the development of new outdoor advertising
displays, we anticipate that future growth in our outdoor advertising business
will result primarily through diversification of our customer base, increased
demand brought about by advertisers who have not historically used outdoor
media, such as internet-related companies, creative marketing, and increased
rates.
Our outdoor advertising operations involve the sale of space on
advertising display faces. They also include, in many cases, the design of
advertisements and the construction of outdoor structures that carry those
displays. Our principal outdoor advertising display is the billboard, of which
there are three standard sizes:
- Bulletins: Bulletins are generally 14 feet high and 48 feet wide.
Generally, bulletins are covered with a single sheet of vinyl,
called "Superflex," on which an image has been printed by computer.
The Superflex is then transported to the site of the billboard and
mounted to the face of the display. To attract more attention,
panels may extend beyond the linear edges of the display face and
may include three-dimensional embellishments. Bulletins are usually
located near major highways for maximum impact. Space is usually
sold to advertisers for periods of four to twelve months.
- Posters: The most common type of billboard, posters are generally 12
feet high by 25 feet wide. Lithographed or silk-screened paper
sheets are typically supplied by the advertiser and arrive prepasted
and packaged in airtight bags. They are applied like wallpaper to
the face of the display. Posters are usually located on major
traffic arteries. Space is usually sold to advertisers for periods
of one to twelve months.
- Junior posters: Junior posters are generally 6 feet high by 12 feet
wide. These displays are prepared and mounted in the same manner as
posters. Most junior posters, because of their smaller size, are
concentrated on city streets and are targeted to pedestrian traffic.
Space on junior posters usually is sold to advertisers for periods
of one to twelve months.
We have 824 bulletins, 5,263 posters, and 432 junior posters. The
following chart itemizes markets we served and their designated market area
(DMA) rank:
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DMA JUNIOR
MARKET(1) RANK(2) BULLETINS POSTERS POSTERS
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NORTHWEST(3):
Seattle-Tacoma........... 12 230 1,836 328
Portland................. 23 217 1,142 0
BOSTON:
Boston-Worcester......... 6(4) 377 2,285 104
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(1) Does not include our operations in Florida, which were sold in January
2000. See "-Sale of Florida Outdoor Advertising Operations."
(2) Source: Television & Cable Factbook, 1999 Edition. DMA rank is a measure of
market size in the United States based on population as reported by the
Nielsen Rating Service.
(3) In the first quarter of 2000, we purchased outdoor advertising assets in
Eugene and Salem, Oregon (which for operating purposes we deem to be part
of the Portland market) and Bellingham, Washington (which for operating
purposes we deem to be part of the Seattle-Tacoma market). See
"-Acquisitions."
(4) Reflects DMA rank for the Boston market.
We own substantially all of our outdoor displays. These displays
generally are located on leased property. The typical property lease provides
for a term ranging from 5 to 15 years and for a reduction in or termination of
rental payments if the display becomes obstructed during the lease term. In
certain circumstances leases may be terminated, such as where the property owner
develops or sells the property. If a lease is terminated, we generally seek to
relocate the display in order to maintain our inventory of advertising displays
in the particular geographic region. Display relocation is typically subject to
local zoning laws.
Sales and Marketing. We sell advertising space directly to advertisers
and also sell to advertising agencies and specialized media buying services.
These agencies charge us a commission for their services. In recent years, we
have focused increasingly on selling directly to local and regional advertisers.
Competition. We compete directly with other outdoor advertising
companies, and with other types of advertising media companies, including
television, radio, newspapers, magazines, transit advertising, yellow page
directories, direct mail, local cable systems, and satellite broadcasting
systems. Substantial competition exists among all advertising media on a
cost-per-rating-point basis and on the ability to effectively reach a particular
demographic section of the market. As a general matter, competition is confined
to defined geographic markets.
Regulation. Outdoor advertising displays are subject to governmental
regulation at the federal, state, and local levels. These regulations, in some
cases, limit the height, size, location, and operation of outdoor displays and,
in some circumstances, regulate the content of the advertising copy displayed on
outdoor displays. Certain jurisdictions have recently proposed or enacted
regulations restricting or banning outdoor advertising of tobacco or liquor.
Likewise, regulations in certain jurisdictions prohibit the construction of new
outdoor displays or the replacement, relocation, enlargement, or upgrading of
existing structures.
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Our outdoor advertising operations are significantly affected by local
zoning regulations. Some jurisdictions impose a limitation on the number of
outdoor advertising structures permitted within the city limits. In addition,
local zoning ordinances can restrict or prohibit outdoor advertising displays in
specific areas. Most of our outdoor advertising structures are located in
commercial and industrial zones subject to such regulations. Some states and
localities have also enacted restrictions on the content of outdoor advertising
signs.
Federal and corresponding state outdoor advertising statutes require
compensation payment for removal of existing structures by governmental order in
some circumstances. Some jurisdictions have adopted ordinances which have sought
the removal of existing structures without compensation. Ordinances requiring
the removal of a billboard without compensation have been challenged in various
state and federal courts on both statutory and constitutional grounds, with
differing results.
Federal law also imposes additional regulations upon our operations.
Under the Federal Highway Beautification Act of 1965, states are required to
adopt programs regulating outdoor advertising along federal highways. The Act
also provides for the payment of compensation to the owner of a lawfully erected
outdoor advertising structure that is removed by operation of the statute.
Our policy, when a governmental entity seeks to remove one of our
outdoor advertising displays, is to actively resist unless adequate compensation
is paid. Although we have been successful in the past in challenging
circumstances in which our displays have been subject to removal, we cannot
predict whether we will be successful in the future and what effect, if any,
such regulations may have on our operations. In addition, we are unable to
predict what additional regulations may be imposed on outdoor advertising in the
future. Legislation regulating the content of billboard advertisements has been
introduced in the U.S. Congress from time to time in the past.
Acquisitions. In 1999 and the first quarter of 2000, we acquired the
following outdoor advertising companies:
- On February 19, 1999, we purchased substantially all of the assets
of an outdoor advertising company in the Boston-Worcester,
Massachusetts market for approximately $11.0 million.
- On January 31, 2000, we purchased substantially all of the assets of
an outdoor advertising company in Bellingham, Washington, for
approximately $2.9 million.
- On January 13, 2000, we entered into agreements to purchase
substantially all of the assets of an outdoor advertising company
serving portions of Washington and Oregon for approximately $14.5
million plus the assumption of certain liabilities. The Company paid
$7.5 million of the purchase price on February 1, 2000 and the
remaining balance on March 1, 2000.
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- On February 22, 2000, we entered into an agreement to purchase
substantially all of the assets of an outdoor advertising company in
New Jersey and New York City for approximately $19.8 million.
Sale of Florida Outdoor Advertising Operations. On January 5, 2000, we
sold substantially all of the assets of our Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida outdoor billboard operations to Eller Media Company,
a subsidiary of Clear Channel Communications, Inc., for approximately $300.0
million in cash, plus the assumption of certain liabilities. We expect to
recognize a gain on the transaction of approximately $273.3 million.
AIRPORT ADVERTISING
On June 30, 1998, we sold substantially all of the assets of our airport
advertising operations to Sky Sites, Inc., a subsidiary of Havas, S.A., pursuant
to an agreement dated May 19, 1998. The sale price consisted of a base cash
price of $40.0 million, paid on the closing date of the transaction, and an
additional cash payment of approximately $2.8 million, of which $1.2 million was
paid in December 1998 and the remainder was paid in January 1999. Prior to the
sale, we engaged in airport advertising for 18 years.
TELEVISION BROADCASTING
Our television broadcasting operations involve the sale of advertising
time to a broad range of national, regional, and local advertisers. We own
and/or program fifteen television stations in markets that offer a large and
affluent population base that is attractive to many advertisers.
Industry Overview. Television stations in the United States are either
"very high frequency" or "VHF" stations, transmitting on channels 2 through 13,
or "ultra high frequency" or "UHF" stations, transmitting on channels 14 through
69. Broadcast licenses are issued by the Federal Communications Commission
("FCC"). Television station revenue comes primarily from local, regional and
national advertising. Revenue also comes, to a lesser extent, from network
compensation and from studio rental and commercial production activities.
Advertising rates are based upon (1) a program's popularity among the
viewers whom an advertiser wishes to attract, (2) the number of advertisers
competing for the available time, (3) the size and demographic makeup of the
market, and (4) the availability of alternative advertising media in the market
area. The size of a television station's audience is measured and reported by
independent rating service surveys.
Affiliation with a major network (e.g., ABC, NBC, CBS, or FOX) can have
a significant impact on a station's revenue, expenses and operations. A typical
affiliate receives a significant portion of its daily programming from a
network. Networks provide programming, and in some cases cash payments, to the
affiliate in exchange for a substantial majority of the advertising time during
network programs. The network sells this advertising time and retains the
revenues.
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Operations. We currently own twelve television stations and program
three stations under time brokerage or local marketing agreements ("LMAs"). The
following table sets forth information about our portfolio of television
stations and the markets in which they operate.
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NO. OF
COMMERCIAL
DATE PROPOSED DMA TV STATIONS
CALL ACQUIRED OR NETWORK NTSC DIGITAL MARKET RANKED IN
MARKET LETTERS AFFILIATED AFFILIATION CHANNEL(1) CHANNEL RANK(2) MARKET(3)
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NEW YORK
Syracuse, New York
(owned)................ WIXT May 1982 ABC 9 17 74 3 VHF
2 UHF(4)
Rochester, New York
(owned)................ WOKR April 1999 ABC 13 59 77 3 VHF
1 UHF
Binghamton, New York
(owned)................ WIVT July 1997(5) ABC 34 3 154 1 VHF
2 UHF
Binghamton, New York
(LMA).................. WBGH-LP February 2000(6) NBC 8 -(7) 154 1 VHF
2 UHF
Utica, New York (owned).. WUTR June 1997(8) ABC 20 30 168 1 VHF
2 UHF
Elmira, New York (LMA) .. WETM February 2000(9) NBC 18 2 171 3 UHF
CENTRAL COAST
Santa Barbara-Santa
Maria-San Luis Obispo,
California (owned)..... KCOY January 1999(10) CBS 12 19 116 3 VHF
Monterey-Salinas,
California (owned)..... KION April 1996(11) CBS 46 32 119 1 VHF
3 UHF(12)
Bakersfield, California
(owned)................ KGET October 1983 NBC 17 25 130 4 UHF(13)
NORTH COAST
Monterey-Salinas,
California (LMA)....... KCBA June 1986 (14) FOX 35 13 119 1 VHF
3 UHF(12)
Eugene, Oregon (owned)... KMTR December 1998(15) NBC 16 17 121 2 VHF
3 UHF
Eureka, California
(owned)................ KVIQ July 1998(16) CBS 6 17 191 2 VHF
2 UHF
Santa Rosa, California
(owned)................ KFTY April 1996 None 50 54 -(17) 6 VHF
12 UHF
</TABLE>
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<TABLE>
<CAPTION>
NO. OF
COMMERCIAL
DATE PROPOSED DMA TV STATIONS
CALL ACQUIRED OR NETWORK NTSC DIGITAL MARKET RANKED IN
MARKET LETTERS AFFILIATED AFFILIATION CHANNEL(1) CHANNEL RANK(2) MARKET(3)
- ------ ------- ----------- ----------- ---------- -------- ------- -----------
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PACIFIC NORTHWEST
Fairbanks, Alaska (owned).... KTVF August 1999 NBC/UPN 11 26 203 4 VHF
Vancouver, British
Columbia and portions
of Seattle, Washington
(owned).................... KVOS June 1985 None 12 35 -(18) -(18)
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(1) Refers to the current analog channel used by such station.
(2) Source: Television & Cable Fact Book, 1999 Edition
(3) Source: Television & Cable Fact Book, 1999 Edition. The number of stations
listed does not include digital television stations, public broadcasting
stations, satellite stations, low-power stations, or translators that
rebroadcast signals from distant stations, and also may not include
smaller television stations whose rankings fall below reporting
thresholds.
(4) One additional UHF channel has been allocated in the Syracuse market;
however, there has been no construction activity to date with respect to
this channels.
(5) We acquired WIVT in August 1998. Pending closing of the transaction, we
programmed the station under an LMA with the previous owner. The date in
this column reflects the date the LMA was entered into.
(6) In February 2000, we acquired substantially all of the assets of WBGH-LP,
other than the FCC license. Pending FCC approval of the transfer of the
FCC license to us, we are programming the station under an LMA with the
FCC licensee. The date in this column reflects the date the LMA was
entered into.
(7) As a low power station, WGBH-LP has not been assigned a proposed digital
channel.
(8) We acquired WUTR in January 2000. Pending closing of the transaction, we
programmed the station under an LMA with the previous owner. The date in
this column reflects the date the LMA was entered into.
(9) We do not own WETM but program the station under an LMA with the current
owner of the station. The date in this column reflects the date the LMA
was entered into. See "--Acquisitions and Local Marketing Agreements."
(10) In May 1999, we exchanged the assets of KKTV, our former television
station in Colorado Springs, Colorado for the assets of KCOY and a cash
payment. Pending closing of the transaction, we programmed KCOY under an
LMA with the previous owner. The date in this column reflects the date
that the LMA was entered into.
(11) We acquired KION in January 2000. Pending closing of the transaction, we
programmed the station under an LMA with the previous owner. The date in
this column reflects the date the LMA was entered into.
(12) One additional UHF channel has been allocated in the Salinas-Monterey
market; however, there has been no construction activity to date with
respect to this channel.
(13) Two additional UHF channels have been allocated in the Bakersfield market;
however, there has been no construction activity to date with respect to
these channels.
(14) In January 2000, we sold substantially all the assets of KCBA. We program
15% of the station's weekly broadcast hours and provide sales and other
services under an LMA with the purchaser. The date in this column reflects
the date we originally acquired the station.
(15) We acquired KMTR in March 1999. Pending closing of the transaction, we
programmed the station under an LMA with the previous owner. The date in
this column reflects the date the LMA was entered into. The acquisition
includes the assets of two satellite stations, KMTX (Roseburg, Oregon) and
KMTZ (Coos Bay, Oregon), and one low power station, KMOR-LP (Eugene,
Oregon).
(16) We acquired KVIQ in January 1999. Pending closing of the transaction, we
programmed the station under an LMA with the previous owner. The date in
this column reflects the date this LMA was entered into.
(17) While KFTY is included in the San Francisco-Oakland-San Jose DMA market,
which has a DMA rank of 5, the station principally serves the community of
Santa Rosa, which is not separately ranked.
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(18) KVOS, located in Bellingham, Washington, serves primarily the Vancouver,
British Columbia market (located in size, according to the Nielsen Rating
Service as of February 2000, between the markets of Denver, Colorado and
Pittsburgh, Pennsylvania, which have DMA rankings of 18 and 19,
respectively, and a portion of the Seattle, Washington market (DMA rank
12) and the Whatcom County, Washington market. The station's primary
competition consists of five Canadian stations. DMA rankings are from the
Television & Cable Factbook, 1999 Edition.
Programming. Our network-affiliated television stations operate under
standard contracts. These standard contracts are automatically renewed for
successive terms unless we or the network exercises cancellation rights. The
networks offer our network-affiliated stations a variety of programs. Our
network-affiliated stations have a right of first refusal to broadcast network
programs before those programs can be offered to any other television station in
the same market.
Our network-affiliated stations often pre-empt network programming with
alternative programming. By emphasizing non-network programming during certain
time periods, we increase the amount of commercial time available to us. Such
programming includes locally produced news, as well as syndicated and first-run
talk programs, children's programming and movies acquired from independent
sources.
KVOS(TV), which does not have a network affiliation, is located in
Bellingham, Washington and serves primarily the market of Vancouver, British
Columbia, Canada. Canadian regulations require Canadian cable television
operators to delete the signals of U.S.-based stations broadcasting network
programs in regularly scheduled time slots and to replace them with the signals
of the Canadian-based network affiliates broadcasting at the same time. By
broadcasting non-network programming, however, KVOS(TV) is able to increase the
amount of time it is on the air in the Vancouver market.
Acquisitions and Local Marketing Agreements. We seek to acquire
television broadcast stations generally in DMA markets ranking from 50 to 200.
We also enter into time brokerage or local marketing agreements ("LMAs") with
owners of television stations. Under those agreements, we provide programming
and sales services and make monthly payments to station owners in exchange for
the right to receive revenues from advertising and, in some cases, network
compensation. Over the past year, we have acquired, or entered into LMAs to
provide programming services to, the following stations:
- On January 5, 1999, we purchased substantially all of the assets of
KVIQ(TV), the CBS affiliate licensed to Eureka, California, for
approximately $5.5 million, pursuant to an agreement dated July 15,
1998. Pending closing of the transaction, we provided programming
and sales services under an LMA with the previous owner.
- On March 16, 1999, we purchased substantially all of the assets of
KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together
with two satellite stations licensed to Roseburg and Coos Bay,
Oregon, and a low power station licensed to Eugene. The purchase
price was approximately $26.0 million. From December 1, 1998 until
closing of the transaction, we provided programming and sales
services under an LMA with the previous owner.
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- On April 12, 1999, we purchased substantially all of the assets of
WOKR(TV), the ABC affiliate licensed to Rochester, New York, for
approximately $128.2 million. In September 1998, we paid $12.5
million of the purchase price into an escrow account, with the
balance paid at closing.
- On May 1, 1999, we exchanged substantially all of the assets plus
certain liabilities of KKTV(TV), the CBS affiliate licensed to
Colorado Springs, Colorado, for substantially all of the assets plus
certain liabilities of KCOY(TV), the CBS affiliate licensed to Santa
Maria, California. In conjunction with the transaction, we received
a cash payment of approximately $9.0 million. Pending closing of the
transaction, we programmed KCOY(TV) and the former owner of KCOY(TV)
programmed KKTV(TV) under LMAs.
- On August 2, 1999, we purchased substantially all of the assets of
KTVF(TV), the NBC affiliate licensed to Fairbanks, Alaska, for
approximately $7.2 million.
In addition, we have acquired, or entered into LMAs with respect to, the
following stations in 2000:
- On January 12, 2000, we sold substantially all of the assets of
KCBA(TV), the FOX affiliate licensed to Monterey, California, for
approximately $11.0 million, and entered into an LMA with the
purchaser to provide programming and sales services. Concurrent with
this sale, we purchased substantially all of the assets of KION(TV),
the CBS affiliate licensed to Salinas, California, for approximately
$7.7 million, subject to certain reductions. From April 24, 1996
until closing of the transaction, we provided programming and sales
services under an LMA with the previous owner.
- On January 20, 2000, we purchased substantially all of the assets of
WUTR(TV), the ABC affiliate licensed to Utica, New York, for
approximately $7.9 million. From June 30, 1997 until closing of the
transaction, we provided programming and sales services under an LMA
with the previous owner.
- On February 1, 2000, we entered into an LMA with Smith Television of
New York, Inc. ("STNY") to provide programming and sales services to
WETM(TV), the NBC affiliate licensed to Elmira, New York. We also
purchased a 20% non-voting equity interest in STNY for approximately
$17.0 million. Beginning in August 2003, STNY may require us to
exchange our interest in STNY, plus $11.0 million in cash, for all
of the assets of WETM(TV). Under certain circumstances we may have
an option to purchase all or a controlling interest in STNY.
- On February 1, 2000, we purchased substantially all of the assets,
other than the FCC license, of WBGH-LP, a low-power NBC affiliate
licensed to Binghamton, New York for approximately $9.0 million. We
entered into an LMA with the FCC licensee of WBGH-LP pending FCC
approval of the transaction. Upon closing of the transaction, the
FCC license will be transferred to us for no additional
consideration.
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Sales and Marketing. We receive revenues from our television
broadcasting operations from the sale of advertising time, usually in the form
of local, regional, and national spot or schedule advertising, and, to a much
lesser extent, network compensation. Spot or schedule advertising consists of
short announcements and sponsored programs either on behalf of advertisers in
the immediate area served by the station or on behalf of national and regional
advertisers.
During 1999, local spot or schedule advertising, which is sold by our
personnel at each broadcast station, accounted for approximately 48% of our
television stations' total revenue. National spot or schedule advertising, which
is sold primarily through national sales representative firms on a
commission-only basis, accounted for approximately 46% of our television
stations' total revenue.
In certain cases, we also receive revenue from our network affiliations.
The networks pay us an hourly rate that is tied to the number of network
programs that our television stations broadcast. Hourly rates are established in
our agreements with the networks and are subject to change by the networks. We
have the right, however, to terminate a network agreement if the network effects
a decrease in hourly rates. Overall, network compensation revenue was not a
significant portion of our television stations' total revenue for 1999.
Competition. We compete directly with other television stations, and
indirectly with other types of advertising media companies, including radio,
magazines, newspapers, outdoor advertising, transit advertising, yellow page
directories, direct mail marketing, local cable systems, and satellite
broadcasting systems. Substantial competition exists among all advertising media
on a cost-per-rating-point basis and on the ability to effectively reach a
particular demographic section of the market. As a general matter, competition
is confined to defined geographic markets.
Maintenance of our competitive positions in our broadcast markets
generally depends upon the management experience of each station's managers, the
station's authorized broadcasting power, the station's assigned frequency, the
station's network affiliation, the station's access to non-network programming,
the audience's identification with the station and its acceptance of the
station's programming, and the strength of the local competition.
In addition, our television stations compete for both audience and
advertising with cable television and other news and entertainment media serving
the same markets. Cable television systems, which operate generally on a
subscriber-payment basis, compete by carrying television signals from outside
the broadcast market and by distributing programming originated exclusively for
cable systems. Historically, cable operators have not competed with local
broadcast stations for a share of the local news audience. If they do, however,
the increased competition for local news audiences could have an adverse effect
on our advertising revenue.
We also face competition from high-powered direct broadcast satellite
services which transmit programming directly to homes equipped with special
receiving antennas or to cable television systems for transmission to their
subscribers. In addition, our television stations compete with other forms of
home entertainment, such as home videotape and video disc players.
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Moreover, the television industry is continually faced with technological change
and innovation, the possible rise in popularity of competing entertainment and
communications media, and changes in labor conditions and government
regulations.
We believe that the advertising revenues generated by our television
stations are significantly influenced by rankings of their local news programs
in their respective markets. Nine of the thirteen network-affiliated television
stations we currently own or program rank first or second in their respective
geographic markets in local news ratings points delivered, according to the
November 1999 Nielsen Station Index.
RADIO BROADCASTING
Our radio broadcasting operations involve the sale of air time to a
broad range of national, regional, and local advertisers. In addition, we earn
revenue from the sale of sponsorships to a variety of events, such as concerts.
We own and operate four radio stations and provide sales and other services to a
fifth radio station in the Seattle-Tacoma area.
Industry Overview. Radio stations in the United States operate either on
the "amplitude modulation" ("AM") band, comprising 107 different frequencies
located between 540 and 1700 kilohertz ("KHz") in the low frequency band of the
electromagnetic spectrum, or the "frequency modulation" ("FM") band, comprising
approximately 100 different frequencies located between 88 and 108 megahertz
("MHz") in the very high frequency band of the electromagnetic spectrum. FM
radio stations have captured a high percentage of the listening audience, in
part because of the public's perception that stereo broadcasting, which until
recently was only available on FM radio stations, provides enhanced sound
quality.
Our radio stations derive most of their revenue from local, regional,
and national advertising and, to a lesser extent, from network compensation. In
1999, approximately 68% of our radio broadcasting revenue was derived from local
advertising generated by the stations' local sales staffs. National sales, on
the other hand, are usually generated by national independent sales
representatives acting as agents for the stations. The representatives obtain
advertising from national advertising agencies and receive commissions based on
a percentage of gross advertising revenue generated. The principal costs
incurred in the operation of radio stations are salaries, programming, promotion
and advertising, sports broadcasting rights fees, rental of premises for
studios, costs of transmitting equipment, and music license royalty fees.
Operations. We own four radio stations, which consist of KHHO(AM) in
Tacoma, Washington and KJR(AM), KJR-FM and KUBE(FM) in Seattle, Washington. We
also provide sales and other services to KFNK(FM) in Eatonville, Washington.
The following table sets forth information about our portfolio of radio
stations.
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<TABLE>
<CAPTION>
NO. OF
COMMERCIAL RADIO STATION
MSA RADIO FORMAT AND
CALL DATE MARKET STATIONS PRIMARY
MARKET LETTERS ACQUIRED RANK(1) IN MARKET(1) DEMOGRAPHIC TARGET
------ ------- -------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Seattle-Tacoma, Washington KJR(AM) May 1984 14 11 AM Sports Talk;
(2) Men 25-54
(3)
KJR-FM October 1987 19 FM Classic Hits;
(2) Adults 25-54
KJR(AM) July 1994 Rhythmic Contemporary
(4) Hits;
Persons 18-34
KHHO(AM) March 1998 Sports Talk;
Men 24-54
KFNK(FM) September 1999 Alternative;
(5) Men 18-24
</TABLE>
- --------------
(1) Source: Fall 1999 Arbitron Radio Market Report. Metro Service Area ("MSA")
market rank is based on population as reported upon by The Arbitron
Company.
(2) Reflects the dates on which we originally acquired the stations. We
contributed the stations' assets to New Century Seattle Partners L.P., a
Delaware limited partnership ("the Partnership") in 1994. We first acquired
a limited partnership interest in the Partnership in 1994 and, in 1998, the
Partnership became a wholly-owned subsidiary. Since then, the broadcast
licenses have been transferred to one of our other subsidiaries, and the
Partnership has been dissolved.
(3) KJR (AM) serves as the Seattle SuperSonics' flagship radio station.
(4) The date shown in the column reflects the date on which the Partnership
acquired the station from Cook Inlet, Inc.
(5) The date shown in the column reflects the date on which we entered into an
agreement to provide sales and other services.
Acquisitions and Dispositions. Over the past year, we have entered into
the following transactions:
- On July 6, 1999, we sold a radio broadcasting tower for
approximately $2.8 million. In connection with the transaction, we
recorded a loss from disposition of assets of $1.2 million in the
second quarter of 1999.
- On September 13, 1999, we entered into a joint sales agreement with
the owner of radio station KFNK(FM) in Eatonville, Washington. Under
the agreement, we pay the owner a monthly fee for the right to sell
advertising on the station. In connection with the transaction, we
paid $4.0 million under a put and call agreement whereby we may
elect, or be required by the owner, to purchase the station's assets
any time after November 2002. The gross purchase price of the
station's assets, which is primarily based on the station's ratings
at the time of the sale, ranges from $4.5 million to $11.7 million.
The gross purchase price would be reduced by our $4.0 million
payment under the put and call agreement plus accrued interest.
Sales and Marketing. Most of our radio broadcasting revenue comes from
the sale of air time to local advertisers. Each station's advertising rates
depend upon, among other things, (1) the station's ability to attract audiences
in its target demographic group, and (2) the number of
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stations competing in the market area. The size of a radio station's audience is
measured by independent rating service surveys.
Much like our television broadcasting stations, the radio stations sell
local spot or schedule advertising. During 1999, such advertising accounted for
approximately 68% of the radio stations' revenue. In contrast, approximately 26%
of the radio stations' 1999 revenue was received from national spot or schedule
advertising, which is sold primarily through national sales representative firms
on a commission-only basis. The remaining revenue consisted of tower rentals and
production fees.
Competition. We compete directly with other radio stations and
indirectly with other types of advertising media companies, including
television, newspapers, magazines, outdoor advertising, transit advertising,
yellow page directories, direct mail, local cable systems, and satellite
broadcasting systems. Substantial competition exists among all advertising media
on a cost-per-rating-point basis and on the ability to effectively reach a
particular demographic section of the market. As a general matter, competition
is confined to defined geographic markets.
A radio station's ability to maintain its competitive position in a
market is dependent upon a number of factors, including (1) the station's rank
within the market, (2) transmitter power, (3) assigned frequency, (4) audience
characteristics, (5) audience acceptance of the station's local programming, and
(6) the number and types of other stations in the market area.
Radio stations frequently change their broadcasting formats and radio
personalities in order to seize a larger percentage of the market. Thus, our
radio stations' ratings are regularly affected by changing formats.
TELEVISION AND RADIO BROADCASTING REGULATION
General. Our television and radio operations are heavily regulated under
the Communications Act of 1934 and other federal laws. The Communications Act,
for instance, limits the number of broadcast properties that we may acquire and
operate. It also restricts ownership of broadcasting properties by foreign
individuals and foreign companies.
The Communications Act authorizes the FCC to supervise the
administration of federal communications laws, and to adopt additional rules
governing broadcasting. Thus, our television and radio broadcasting operations
are primarily regulated by the FCC. The FCC, for example, approves all
transfers, assignments and renewals of our broadcasting properties.
KVOS(TV), which derives much of its revenue from the Vancouver, British
Columbia market, is additionally regulated and affected by Canadian law. Unlike
U.S. law, for instance, a Canadian firm cannot deduct expenses for advertising
on a U.S.-based television station which broadcasts into a Canadian market. In
order to compensate for this disparity, KVOS(TV) sells advertising time in
Canada at a discounted rate. In addition, Canadian law limits KVOS(TV)'s ability
to broadcast certain programming.
Ownership. FCC rules limit the number and type of broadcasting
properties that we may own in the same geographic market. Thus, in a particular
geographic market, we cannot own the
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following combinations: more than one television station (with certain
exceptions); a cable system and a television station; or a radio station and a
daily newspaper. In addition, there are limitations which vary according to the
size of the market, on the number of radio stations that we may own in a market.
In addition, the Communications Act and FCC rules prohibit aliens from
owning of record or voting more than one-fifth of the capital stock of a
corporation holding a radio or television station license or more than
one-fourth of the capital stock of a corporation holding the stock of a
broadcast licensee. Our Bylaws provide that none of our shares of capital stock
may be issued or transferred to any person where such issuance or transfer will
result in a violation of the Communications Act or any regulations promulgated
thereunder, and that any purported transfer in violation of those restrictions
is void.
Local Marketing Agreements. Prior to November 16, 1999, FCC rules
prohibited the common ownership of two television stations in a single market.
Under rules effective November 16, 1999, common ownership of two television
stations (commonly known as a duopoly) in one market became permissible in
certain limited circumstances. The new rules also permit a television station
owner to program up to 15% of the weekly broadcast hours of another station in
the same market pursuant to agreements known as time brokerage agreements or
local marketing agreements ("LMAs"), provided that the licensee of the other
station maintains ultimate control and responsibility for the programming and
operations of the station and compliance with applicable FCC rules and policies.
Currently there are no television duopolies in any of our markets.
Programming and Advertising. The Communications Act requires
broadcasters to serve the public interest. Thus, our television and radio
stations are required to present some programming that is responsive to
community problems, needs, and interests. We must also broadcast informational
and educational programming for children, and limit the amount of commercials
aired during children's programming. We are also required to maintain records
demonstrating our broadcasting of public interest programming. FCC rules impose
restrictions on the broadcasting of political advertising, sponsorship
identifications, and the advertisement of contests and lotteries.
Affirmative Action. FCC rules require us to develop and implement
programs designed to promote equal employment opportunities. We must submit
annual reports to the FCC documenting our compliance with those rules.
Cable Television. In many parts of the country, cable television
operators rebroadcast television signals via cable. In connection with cable
rebroadcasts of those signals, each television station is granted, pursuant to
the Cable Television Consumer Protection and Competition Act of 1992, either
"must-carry rights" or "retransmission consent rights." Each television
broadcaster must choose either must-carry rights or retransmission consent
rights with regard to its local cable operators.
If a broadcaster chooses must-carry rights, then the cable operator will
probably will be required to carry the local broadcaster's signal. Must-carry
rights are not absolute, however, and
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their exercise depends on variables such as the number of activated channels on,
and the location and size of, the cable system, and the amount of duplicative
programming on the broadcast station which duplicates the programming of another
broadcast station with must-carry rights.
If a broadcaster chooses retransmission consent rights, the broadcaster
is entitled to (1) prohibit a cable operator from carrying its signal, or (2)
consent to a cable operator's rebroadcast of the broadcaster's signal, either
without compensation or pursuant to a negotiated compensation arrangement.
All of the television stations that we own or program have, in the
majority of cases, chosen retransmission consent rights, rather than must-carry
rights, within their respective markets.
Digital Television. The Telecommunications Act requires the FCC to
oversee the transition from current analog television broadcasting to Digital
Television ("DTV") broadcasting. During the transition period, the FCC will
issue one digital broadcast license to each existing television licensee that
files a license application. Network affiliates in larger broadcast markets were
required to begin DTV broadcasts during 1999. Our stations are required to begin
construction of their digital transmission facilities by May 1, 2002. All of the
television stations that we own or program have received construction permits
from the FCC for their DTV facilities. The stations will then be allowed to
broadcast two signals using two channels, one digital and one analog, during the
transition period, which will extend until December 31, 2006. At the end of the
transition period, broadcasters will be required to choose whether they will
continue broadcasting on the digital or the analog channel, and to return the
other channel to the FCC.
FCC Rule Changes. Communications laws and FCC rules are subject to
change. For example, the FCC recently adopted rules that reduce the required
distance between existing stations and allow the utilization of directional
antennas, terrain shielding, and other engineering techniques. Another recent
rule change resulted in the expansion of the AM radio band. Other changes may
result in the addition of more AM and FM stations, or increased broadcasting
power for existing AM and FM stations, thus increasing competition to our
broadcasting operations.
Congress and the FCC are currently considering many new laws,
regulations, and policies that could affect our broadcasting operations. For
instance, Congress and/or the FCC currently are considering proposals to:
- impose spectrum use or other fees upon broadcasters;
- revise rules governing political broadcasting, which may require
stations to provide free advertising time to political candidates;
- restrict or prohibit broadcast advertising of alcoholic beverages;
- change broadcast technical requirements; and
- expand the operating hours of daytime-only stations.
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We cannot predict the likelihood of Congress or the FCC adopting any of
these proposals. If any should be adopted, we cannot assess their impact on our
broadcasting operations. In addition, we cannot predict the other changes that
Congress or the FCC might consider in the future.
Low Power FM. The FCC has adopted rules creating a new, low power FM
(LPFM) radio service, which may create new competition in the radio industry.
The new LPFM service is limited to non-commercial operation. The LPFM service
will consist of two classes of LPFM radio stations with maximum power levels of
10 watts and 100 watts. The 10 watt stations would reach an area with a radius
of between one and two miles, the 100 watt stations would reach an area with a
radius of approximately three and a half miles. These LPFM stations would
operate throughout the FM band. There can be no assurance that the development
and introduction LPFM service will not have an adverse effect on the radio
broadcast industry.
Digital Audio Broadcasting. The radio broadcasting industry is subject
to competition from new media technologies that are being developed or
introduced, including the delivery of audio programming by digital audio
broadcasting ("DAB"). The FCC has issued a Notice of Proposed Rulemaking to
address alternative approaches to introducing DAB to the American public. DAB
may provide a medium for the delivery by satellite or terrestrial means of
multiple new audio programming formats to local and national audiences. This new
capability may provide an additional source of competition in our markets.
Historically, the radio broadcasting industry has grown in terms of total
revenues despite the introduction of new technologies for the delivery of
entertainment and information, such as television broadcasting, cable
television, audio tapes and compact disks. There can be no assurance, however,
that the development or introduction in the future of any new media technology
will not have an adverse effect on the radio broadcast industry. We are unable
to predict the effect such technologies will have on our broadcasting
operations, but the capital expenditures necessary to implement such
technologies could be substantial.
Equal Employment Opportunity Rules. On January 20, 2000, the FCC adopted
new Equal Employment Opportunity ("EEO") rules in response to the D.C. Circuit
Court of Appeals decision in 1998 in Lutheran Church Missouri Synod v. FCC
(Lutheran Church), which held that certain aspects of the FCC's previous
broadcast EEO outreach requirements were unconstitutional. The new rules require
broadcast licensees to widely disseminate information about job openings to all
segments of the community to ensure that all qualified applicants, including
minorities and women, have sufficient opportunities to compete for jobs in the
broadcast industry. The new rules do not require broadcasters to hire any
particular applicant, nor do they place pressure on such decisions. As in the
past, broadcast stations with fewer than five full-time employees and cable
entities with fewer than six full-time employees will not be required to
demonstrate compliance with the EEO program requirements. However, all other
broadcasters must place an annual EEO report in their public file detailing
their outreach efforts and must file a Statement of Compliance every second,
fourth and sixth year of the license term certifying compliance with the EEO
rule. In addition, all television stations and radio stations with more than 10
full-time employees must submit their annual EEO reports to the FCC midway
through the license term and at renewal. At these times, the FCC will review the
station's outreach efforts. The FCC also reinstated the requirement that
broadcasters file annual
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employment reports, which was suspended by the FCC following the Lutheran Church
decision and retains the requirement that cable entities file annual employment
reports. The FCC will use the information in the annual employment reports only
to monitor industry employment trends and prepare reports to Congress.
Satellite Home Viewer Improvements Act. The Satellite Home Viewer
Improvement Act of 1999 ("SHVIA"), signed into law on November 29, 1999, permits
satellite companies to provide local broadcast TV signals to all subscribers who
reside in a particular DMA. This ability to provide local broadcast channels is
commonly referred to as "local into local" service. The SHVIA also permits
satellite companies to provide "distant" network broadcast stations to eligible
satellite subscribers. A distant network signal is a signal from a market other
than the local market. To be eligible to receive a distant network signal, a
television viewing household must be an unserved household unable to receive a
local network signal, as determined pursuant to criteria established by the FCC.
The SHVIA generally seeks to place satellite carriers on an equal footing with
local cable television operators when it comes to the availability of broadcast
programming, and thus gives consumers more and better choices in selecting a
multichannel video program distributor (MVPD), such as cable or satellite
service. Local-into-local service is not available in any of our television
markets, however, and distant network signals are generally available only to a
limited number of unserved television households which cannot receive our
broadcast television signal using a conventional rooftop antenna. There can be
no assurance that satellite delivered television programming will not have an
adverse effect on our broadcasting operations.
Low Power Television Stations - Digital Television Maximization. The
Community Broadcasters Protection Act was signed into law on November 29, 1999.
This law gives many low power television ("LPTV") stations the opportunity to
achieve primary status. Presently, LPTV stations are secondary, meaning that
they are not protected from full power stations and are subject to being
displaced by applications to construct new or to modify existing full power
stations. LPTV stations that qualify will now be entitled to receive protection
from all other stations in their service area. This class of low power stations
will now be known as "Class A". There can be no assurance that the development
and introduction a new class of low power stations will not have an adverse
effect on our broadcasting operations. However, the legislation also gave full
power television stations an opportunity to maximize their digital facilities in
advance of the LPTV reclassification. Each full power station had an opportunity
to preserve its right to seek an authorization for digital facilities that
replicate its analog coverage area, and/or that maximize the digital facilities
for the digital television allotment in question, without regard to the
existence of low power stations. All of the full power stations that we own or
program have advised the FCC of their intent to maximize their facilities.
Purchase and Sale Transactions. We are seeking FCC approval to acquire
the broadcasting licenses for one television station and will be required to
obtain FCC approval to acquire additional broadcasting licenses and
authorizations in the future. In connection with the application to acquire a
broadcasting license, the FCC considers factors generally similar to those
discussed under "Renewal of Broadcasting Licenses" below. In addition, the
filing by third parties of petitions to deny, informal objections or comments to
a proposed transaction can result in significant delays to, as well as denial
of, FCC action on a particular application.
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Renewal of Broadcasting Licenses. Our broadcasting operations' success
depends upon our ability to renew our broadcasting licenses, and the ability of
the station owners to renew the licenses for the stations we operate under LMAs.
Television and radio licenses (including renewals) currently are issued for
terms of eight years.
In considering whether to renew a license, the FCC considers several
factors, including the licensee's compliance with the FCC's children's
television rules, the FCC's equal employment opportunity rules, and the FCC's
radio frequency rules. The FCC also considers the Communications Act's
limitations on license ownership by foreign individuals and foreign companies,
and rules limiting common ownership of broadcast, cable and newspaper
properties. The FCC also considers the licensee's general character, including
the character of persons holding interests in the licensee. In addition, the FCC
considers complaints from the public concerning the license holder, and
applications from third parties to acquire an existing license.
The FCC usually renews a license holder's broadcasting license. Because
the FCC may not grant renewal, however, we have no assurance that any of our
broadcasting licenses will be renewed, especially if third parties challenge our
renewal applications or file competing applications to acquire our licenses.
None of our primary broadcasting licenses, and broadcasting licenses
owned by the owners of television stations we program under LMAs, are subject to
renewal within the next two years. There are no pending challenges or competing
applications with respect to any of our broadcasting licenses.
SPORTS & ENTERTAINMENT
Our sports & entertainment business consists of ownership of our
professional sports franchise, the Seattle SuperSonics, and our sports marketing
business, Full House Sports & Entertainment ("Full House"). We also have been
awarded operating rights to a WNBA expansion team, the Seattle Storm. We are
also considering other investments in Seattle-area sports and entertainment
activities.
THE SEATTLE SUPERSONICS
The SuperSonics franchise is one of 29 members of the National
Basketball Association, or "NBA." NBA teams play a regular season schedule of 82
games from November through April, in addition to several preseason exhibition
games. Due to the NBA lockout, however, the 1998-99 NBA preseason and regular
season games scheduled through February 4, 1999, were cancelled. The season
resumed on February 5, 1999 and consisted of a shortened regular season in which
each team played 50 games (25 at home and 25 on the road) and playoffs in the
usual NBA format. Based on their regular season records, 16 teams qualify for
post-season play, which culminates in the NBA championship. The SuperSonics have
qualified for post-season play in four of the last five years and played for the
NBA championship in 1996.
Industry Overview. We are a member of the NBA by virtue of our ownership
of the SuperSonics franchise. Thus, we share in profits generated by the NBA as
a whole, and share joint and several liability for the NBA's debts and other
obligations. Revenues shared equally by
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NBA members include profits from television broadcasting agreements,
merchandising, the award of new NBA franchises, and related activities.
As a member of the NBA, we must abide by the NBA's Constitution and
Bylaws, NBA rules, and by the NBA Board of Governors' implementation of those
regulations. The Board of Governors consists of representatives appointed by
each NBA member. The Board of Governors, in turn, elects a Commissioner. The
Commissioner and the Board (1) arbitrate disputes between franchises, (2) assure
that the conduct of franchises, players, and officials is in accordance with the
NBA Constitution and Bylaws, (3) review and authorize player transactions
between franchises and (4) impose sanctions (including fines and suspensions) on
members, players, and officials who are found to have breached NBA rules. The
sale of any NBA franchise is subject to the approval of a majority of the NBA's
franchise owners.
The Constitution and Bylaws of the NBA impose limitations on the
transfer and ownership of our Common Stock. In particular, so long as we have
more than 500 stockholders, NBA approval is required for, among other things,
any transfer of any "interest" in The Ackerley Group if (1) the interest
proposed to be transferred represents a direct or indirect interest of 5% or
more in The Ackerley Group, (2) the transfer would result in any person or
entity (or group of persons or entities acting in concert) that has not been
approved by the NBA directly or indirectly owning a 5% or greater interest in
The Ackerley Group, or (3) the effect of such proposed transfer is or may be to
change the ownership or effective control of The Ackerley Group. As used in
these restrictions, references to an "interest" in The Ackerley Group include
Common Stock and Class B Common Stock and, although the matter is not free from
doubt, we believe that the number of outstanding shares of Common Stock and
Class B Common Stock should be aggregated for purposes of determining whether a
5% or greater interest has been transferred or acquired. Other similar
restrictions would apply if we have less than 500 stockholders.
Operations. The NBA granted Seattle an NBA franchise in 1966. The
SuperSonics, throughout their history, have played in the Seattle-Tacoma area.
In November 1995, the team began using the Key Arena, a 17,100-seat events
facility, under a 15-year lease with the City of Seattle.
We acquired the SuperSonics in 1983. The SuperSonics franchise, as
permitted by the NBA's Constitution and Bylaws, is authorized to operate for an
indefinite term of years, so long as we maintain our NBA membership in good
standing.
Currently, the SuperSonics maintain a full roster of 12 active players.
The minimum roster under NBA rules is 11 players. The SuperSonics acquire new
players primarily through the college draft, by signing veteran free agents
uncommitted to another NBA franchise or by trading players with another
franchise. NBA rules limit the aggregate annual salaries payable by each team to
its players. In addition, the SuperSonics' operations are subject to a NBA
collective bargaining agreement, which is discussed under "Employees" below.
Sales and Marketing. All sales and marketing activities for the
SuperSonics are managed by Full House. Our revenues from the SuperSonics come
from (1) our own activities, such as ticket sales, merchandising, concessions,
and multi-media advertising packages (called
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sponsorship packages) that include local television and radio broadcast
advertising and display and sign advertising in Key Arena, and (2) our share of
NBA revenues, such as network broadcasting rights, merchandising, and the
granting of new NBA franchises to new cities. In addition, Full House manages
sales and operations of the luxury suites and concessions for all events at Key
Arena.
A major source of revenue in the sports & entertainment segment is
ticket sales for home games. We receive substantially all of the revenue in this
segment from SuperSonics ticket sales. Revenue from ticket sales depends highly
on the SuperSonics win/loss record. Average paid attendance per game was 14,451
in the 1998-1999 season, down from 15,424 in the prior season due to the NBA
lockout.
A majority of the SuperSonics games are broadcast on a Seattle-Tacoma
area television station, KONG, and a cable station, FOX. All of the SuperSonics'
games are broadcast exclusively in the Seattle-Tacoma area over radio stations
KJR(AM) and KHHO(AM), which we own. We also license radio stations owned by
other broadcasting companies to carry SuperSonics games.
We share equally with the other NBA franchises in revenues generated by
the NBA as a whole. A large portion of these revenues consists of broadcast
licenses granted to networks. Such broadcast rights have increased significantly
in recent years and are expected to become a more significant portion of total
NBA revenue, primarily due to the growth of cable television. In the spring of
1993, the NBA entered into new contracts with NBC and TBS/TNT providing for the
television broadcast of certain league games through the 1997-98 season. These
contracts provide for minimum total payments to the NBA over the four-year
contract period of $1.1 billion. Recently, the NBA renewed its contracts with
NBC and TBS/TNT through the 2001-2002 season. These contracts provided for
minimum total payments to the NBA over the four-year contract period of $2.6
billion. However, as a result of the NBA lockout, the NBA may not receive the
full $2.6 billion over the life of these contracts.
THE SEATTLE STORM
The Storm is one of four WNBA expansion teams to commence play during
the 2000 WNBA season. The WNBA consists of 16 women's professional basketball
teams, each of which is associated with an NBA team. During the 2000 season,
each WNBA team will play a 32-game regular season schedule (16 home and 16
away). Eight teams will qualify for the WNBA playoffs. The Storm will commence
their pre-season games on May 13, and will play their first regular season game
on May 31.
Operations. Like the SuperSonics, the Storm will play at the Key Arena.
The Storm will maintain an active roster of 11 players. Unlike NBA players, WNBA
players contract directly with, and are paid by, the WNBA pursuant to a
collective bargaining agreement.
Sales and Marketing. All sales and marketing activities for the Storm
are managed by Full House. Our revenues from the Storm will come from ticket
sales, merchandising, concessions, and sponsorship packages.
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Certain WNBA games are televised nationally on NBC, ESPN, and Lifetime
stations. In addition, each WNBA team is required to televise at least six of
its games locally. Revenues from the national broadcast contracts are retained
by the WNBA and applied to operational costs and player salaries. Accordingly,
we will not receive income from the WNBA's national broadcast contracts.
COMPETITION
We compete directly with other professional and amateur sporting
franchises and events, both in the Seattle-Tacoma market area and nationally via
sports broadcasting. We also compete indirectly with other types of
entertainment, including television, radio, newspapers, live performances, and
other events. Because we own the only NBA and WNBA franchises located in the
Seattle-Tacoma metropolitan area, we experience no significant local competition
involving professional basketball. We compete with professional football and
baseball franchises located in the Seattle-Tacoma metropolitan area.
EMPLOYEES
As of December 31, 1999, we employed 1,626 full-time persons. The
following table sets forth a breakdown of employment in each of our operating
segments and our corporate offices:
<TABLE>
<CAPTION>
OPERATING SEGMENT/CORPORATE OFFICE PERSONS EMPLOYED
---------------------------------- ----------------
<S> <C>
Outdoor Media(1) 370
Television Broadcasting 1,003
Radio Broadcasting 78
Sports & Entertainment 109
Corporate Offices 66
</TABLE>
- ----------------
(1) On January 5, 2000, we sold our Florida outdoor advertising operations,
which had 116 full-time employees.
Approximately 124 of our employees are represented by unions under 15
collective bargaining agreements. Collective bargaining agreements covering
approximately 8% of our employees are terminable during 2000. We believe that
these collective bargaining agreements will be renegotiated or automatically
extended and that any renegotiation will not materially adversely affect our
operations.
Players in the NBA are covered by the terms of a collective bargaining
agreement, which was originally scheduled to expire on June 30, 2001. On March
23, 1998, the Board of Governors of the NBA voted to exercise their option to
reopen the NBA's collective bargaining agreement with the National Basketball
Players Association. As a result, the collective bargaining agreement expired on
June 30, 1998 and the players were locked out. Preseason and regular season
games scheduled through February 4, 1999 were cancelled. On January 7, 1999,
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the NBA Board of Governors ratified a new six-year collective bargaining
agreement between the NBA and the National Basketball Players Association, and
the season resumed on February 5, 2000.
RESTRICTIONS ON OUR OPERATIONS
In addition to restrictions on our operations imposed by governmental
regulations, franchise relationships and other restrictions discussed above, our
operations are subject to additional restrictions imposed by our current
financing arrangements.
Our operations are subject to restrictions imposed by (1) a credit
agreement with various lending banks, dated January 22, 1999, as amended (the
"1999 Credit Agreement"), and (2) an indenture (the "Indenture"), dated December
14, 1998, respecting our 9% Senior Subordinated Notes due 2009 (the "9% Senior
Subordinated Notes"). Some of those provisions restrict our ability to:
- apply cash flow in excess of certain levels or proceeds from our
sale of capital stock, debt securities or certain asset
dispositions;
- incur additional indebtedness;
- pay dividends on, redeem or repurchase our capital stock, or make
investments;
- issue or allow any person to own any preferred stock of restricted
subsidiaries;
- enter into sale and leaseback transactions;
- incur or permit to exist certain liens;
- sell assets;
- in the case of our subsidiaries (other than unrestricted
subsidiaries), guarantee indebtedness;
- in the case of our subsidiaries (other than unrestricted
subsidiaries), create or permit to exist dividend or payment
restrictions with respect to The Ackerley Group, Inc.;
- engage in transactions with affiliates;
- enter into new lines of business; and
- consolidate, merge, or transfer all or substantially all of our
assets and the assets of our subsidiaries on a consolidated basis.
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In addition, we are required to maintain specified financial ratios,
including maximum leverage ratios, a minimum interest ratio, and a minimum fixed
charge coverage ratio. The 1999 Credit Agreement also provides that it is an
event of default thereunder if the Ackerley family (as defined) owns less than
51% of the outstanding voting stock of our company. Similarly, upon a Change of
Control (as defined in the Indenture), the 9% Senior Subordinated Note holders
may require us to repurchase their notes.
The 1999 Credit Agreement also requires, subject to certain exceptions,
that we apply 50% of the net cash proceeds (as defined in the 1999 Credit
Agreement) received by us from the sale of our capital stock, 100% of the net
cash proceeds received by us from the sale of our debt securities, 100% of the
net cash proceeds received by us from certain asset dispositions, and, under
certain circumstances, up to 50% of our excess cash flow (as defined in the 1999
Credit Agreement) to repay borrowings under the 1999 Credit Agreement. It
further provides that the amount of borrowings available under the 1999 Credit
Agreement will be permanently reduced by the amount of such repayments.
We have pledged substantially all of the stock and material assets of
our subsidiaries to secure our obligations under the 1999 Credit Agreement. In
addition, nearly all of our subsidiaries are have provided guarantees of
obligations under the 1999 Credit Agreement and the Indenture. In the event of a
default under the 1999 Credit Agreement, the bank lenders could demand immediate
payment of the principal of and interest on all such indebtedness, and could
force a sale of all or a portion of our subsidiaries to satisfy our obligations.
Likewise, because of cross-default provisions in our debt instruments, a default
under the 1999 Credit Agreement or the Indenture could result in acceleration of
indebtedness outstanding under other debt instruments.
Additional information concerning the 1999 Credit Agreement and the
Indenture is set forth in Note 7 to the Consolidated Financial Statements.
FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS
Financial information concerning each of our business segments is set
forth in Note 15 to the Consolidated Financial Statements.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The following risk factors and other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risks actually occur, our business,
financial condition, and operating results could be materially adversely
affected.
LEVERAGE; RESTRICTIONS UNDER DEBT INSTRUMENTS; COVENANT COMPLIANCE
Financial Leverage. As of December 31, 1999, we had approximately $414.6
million of outstanding indebtedness. On January 5, 2000, we applied proceeds
from the sale of our Florida
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outdoor advertising operations to fully repay outstanding borrowings under our
1999 Credit Agreement of $193.0 million.
In addition, we intend to continue to acquire additional outdoor media
and television and radio broadcasting businesses, subject to the availability of
required financing. We may assume the indebtedness of businesses that we
acquire. We may also make acquisitions or capital expenditures that are financed
with the proceeds from borrowings. As a result of such acquisitions, our
outstanding indebtedness and interest expense will increase, perhaps
substantially. Likewise, further acquisitions will likely increase our
depreciation and amortization expenses, perhaps substantially.
Our degree of leverage could have important consequences to investors,
including the following:
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate
purposes, or other purposes may be impaired;
- restrictive covenants in debt instruments, as well as the need to
apply cash to make debt service payments, may limit payment of
dividends on our outstanding Common Stock and Class B Common Stock:
- Operating Cash Flow (defined as net revenue less operating expenses
before amortization, depreciation, interest, litigation, and stock
compensation expenses and net gain on dispositions of assets)
available for purposes other than payment of principal and interest
on indebtedness may be reduced;
- we may be exposed to the risk of increased interest rates since a
portion of our borrowings, including borrowings under the 1999
Credit Agreement (as defined below), bear interest at floating
rates;
- we may be at a competitive disadvantage compared to competitors that
are less leveraged than we are;
- we may have limited ability to adjust to changing market conditions;
- we may have decreased ability to withstand competitive pressures;
and
- we may have increased vulnerability to a downturn in general
economic conditions or our business.
Our ability to make scheduled payments on or to refinance our
indebtedness will depend on our financial and operating performance, which in
turn will be subject to economic conditions and to financial, business, and
other factors beyond our control. In order to fund our debt service and other
obligations, we may be forced to reduce or delay planned expansion and capital
expenditures, sell assets, obtain additional equity capital or debt financing
(if available), or restructure our debt. Accordingly, we cannot guarantee that
our operating results, Operating
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Cash Flow, and capital resources will be sufficient for future payments of our
indebtedness, to make planned capital expenditures, to finance acquisitions, or
to pay our other obligations.
Restrictions Imposed by Debt Instruments. We are subject to a number of
significant operating and financial restrictions and are required to maintain
specified financial ratios, which restrict our operations. See "-Restrictions on
Our Operations." Our ability to comply with such covenants and financial ratios
may be affected by events beyond our control.
Covenant Compliance. In the past, we have from time to time obtained
amendments or waivers to certain provisions of our debt instruments, including
the 1999 Credit Agreement, in order to remain in compliance with the financial
covenants thereunder. There can be no assurance that we will not be required to
seek additional waivers or amendments under our debt instruments in the future.
Any failure to obtain a necessary amendment or waiver could result in a default
under the relevant debt instrument. A default by us under our senior debt
instruments could result in an acceleration of indebtedness under the senior
debt instruments and other loan documents. If the indebtedness under any of
these debt instruments were accelerated, there can be no assurance that we would
be able to repay such indebtedness.
REGULATION OF OUTDOOR ADVERTISING
Outdoor advertising displays are subject to governmental regulation at
the federal, state, and local levels. These regulations, in some cases, limit
the height, size, location, and operation of outdoor displays and, in some
circumstances, regulate the content of the advertising copy displayed on outdoor
displays. Changes in laws and regulations affecting outdoor advertising at any
level of government may have a material adverse effect on our business,
financial condition, or results of operations. See "-Outdoor Media-Outdoor
Advertising-Regulation."
TELEVISION AND RADIO BROADCASTING
Government Regulation of Broadcasting Industry. Pursuant to the
Communications Act, the domestic broadcasting industry is subject to extensive
federal regulation. In addition, our television station, KVOS, which is located
in Bellingham, Washington and broadcasts into Vancouver, British Columbia, is
regulated and affected by Canadian law. The restrictions and obligations imposed
by these laws and regulations, including their amendment, interpretation, or
enforcement, could have a material adverse effect on our business, financial
condition, or results of operations. See "-Television and Radio Broadcasting
Regulation."
Renewal of Broadcasting Licenses. Our business will continue to be
dependent upon acquiring and maintaining broadcasting licenses issued by the
FCC. Such licenses are currently issued for a term of eight years. Historically,
we have been able to renew our broadcast licenses on a regular basis. However,
we cannot guarantee that pending or future applications to acquire or renew
broadcasting licenses will be approved, or will not include conditions or
qualifications adversely affecting our operations, any of which could have a
material adverse effect on us. Moreover, governmental regulations and policies
may change over time and we cannot guarantee that such changes would not have a
material adverse impact on our business, financial condition,
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or results of operations. See "--Television and Radio Broadcasting
Regulation--Renewal of Broadcasting Licenses."
Approval of Purchase and Sale Transactions. We are seeking FCC approval
to acquire the broadcasting license for one television station and will be
required to obtain FCC approval to acquire additional broadcasting licenses in
the future. We cannot guarantee that the FCC will approve our applications for
the broadcasting license we are seeking or in the future may seek to acquire.
There can be no assurance that the FCC will approve our disposition of
broadcasting stations we may seek to sell in the future. Failure to obtain FCC
approval to transfer broadcasting licenses in connection with such transactions
could adversely affect our business, financial condition, or results of
operations. See "--Television and Radio Broadcasting Regulation--Purchase and
Sale Transactions."
KJR (AM) Transmission Facilities. One of our radio stations, KJR(AM),
broadcasts from transmission facilities located on property leased from the Port
of Seattle, currently on a month-to-month basis. We are negotiating with the
Port of Seattle to continue broadcasting from the present tower location or from
an alternative site KJR(AM) can broadcast from the KHHO site and are exploring
our legal options in the event that the Port of Seattle attempts to evict us
from the current site before we are able to use the new site. See "Item
2--Properties." While management expects to successfully resolve this matter,
there can be no assurance that it will do so or that this matter will not have a
material adverse effect on our business, financial condition, or results of
operations.
SPORTS & ENTERTAINMENT
Labor Relations in Professional Sports. On March 23, 1998, the Board of
Governors of the NBA voted to exercise their option to reopen the NBA's
collective bargaining agreement with the National Basketball Players
Association, which was originally scheduled to expire on June 30, 2001. As a
result, the collective bargaining agreement expired on June 30, 1998 and the
players were locked out. Preseason and regular season games scheduled through
February 4, 1999 were cancelled, which adversely affected our results of
operations for fiscal year 1998 and the first quarter of 1999. On January 20,
1999, the NBA Board of Governors and the National Basketball Players Association
entered into a new six-year collective bargaining agreement.
The shortened 1998-99 season and other effects of NBA lockout adversely
affected our results for 1999 and may adversely affect our future results of
operations. There can be no assurance that the NBA or the Seattle SuperSonics
will not experience other labor relations difficulties in the future, which
could have a material adverse effect on our business, financial condition, or
results of operations.
Future Revenues From NBA Broadcast Contracts May Be Reduced. We share
equally with the other NBA members in revenues generated by the NBA as a whole.
Contracts between the NBA and two major television networks (NBC and TBS/TNT)
accounted for a total of approximately $12.0 million of our net revenue for
fiscal year 1997. In 1998, the NBA renewed its contracts with NBC and TBS/TNT
through the 2001-02 season. These contracts provide for total payments to the
NBA over the four-year contract period of up to $2.6 billion, plus, under
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certain circumstances, revenue sharing payments. Over the course of the year,
fees are paid by NBC in five installments and by TBS/TNT in six installments.
However, as a result of the NBA lockout, the NBA may not receive the full $2.6
billion over the life of these contracts.
Dependence on Competitive Success. Our financial results and those of
our sports & entertainment segment depend, to a large extent, on the performance
of the Seattle SuperSonics and its ranking relative to other NBA teams in its
division. By qualifying for the NBA playoffs, for example, we can receive
significant additional revenue from ticket sales for home playoff games and from
selling advertising during broadcasts of playoff games. In that regard, the
Seattle SuperSonics qualified for the NBA playoffs in their 1996-97 and 1997-98
seasons, which substantially increased our net revenue and Operating Cash Flow,
as well as the net revenue and Operating Cash Flow for our sports &
entertainment segment, for fiscal years 1997 and 1998. However, the Seattle
SuperSonics did not quality for the NBA playoffs for the 1998-99 season. Our
results of operations and those for our sports & entertainment segment were
adversely affected for the second quarter of 1999 and for fiscal year 1999 by
the fact that the Seattle SuperSonics did not qualify for the NBA playoffs for
the 1998-99 season, and may also be adversely affected in future years by poor
performance by the Seattle SuperSonics in subsequent seasons, and there can be
no assurance that the Seattle SuperSonics will perform well or qualify for the
playoffs in the future.
League Membership Risks. Because the NBA is a joint venture, the Seattle
SuperSonics and other members of the NBA are generally jointly and severally
liable for the debts and other liabilities of the NBA. Any failure of other
members of the NBA to pay their pro rata share of any such debts and other
liabilities could adversely affect our business, financial condition, or results
of operations. The success of the NBA and its member teams depends in part on
the competitiveness of other NBA teams and their ability to maintain fiscally
sound franchises. Certain NBA teams have at limes encountered financial
difficulties, and there can be no assurance that the NBA and its members will
continue to be able to operate on a fiscally stable and effective basis. In
addition, as a member of the NBA we must abide by a number of rules,
regulations, and agreements, including the Constitution and Bylaws of the NBA,
national television contracts, and collective bargaining agreements, and the NBA
Board of Governors' interpretation and implementation of those matters. For
example, the NBA Constitution requires that the sale of any NBA franchise, or
the transfer of an equity interest of more than 5% in an NBA member, is subject
to the approval of the NBA. See "--Restrictions on the Ownership and Transfer of
Common Stock." The Board of Governors consists of representatives appointed by
each NBA member. The Board of Governors, in turn elects a Commissioner. The
Commissioner and the Board of Governors (1) arbitrate disputes between
franchises, (2) assure that the conduct of franchises, players, and officials is
in accordance with the NBA Constitution and Bylaws, (3) review and authorize
player transactions between franchises and (4) impose sanctions (including fines
and suspensions) on members, players, and officials who are found to have
breached NBA rules. The Commissioner's interpretations are final and binding on
the Company, the Seattle SuperSonics, and its personnel. In addition, member
clubs of the NBA may not resort to the courts to enforce or maintain rights or
claims against other member clubs, or to seek resolution of any dispute or
controversy between member clubs. Instead, all such matters will be decided by
the Commissioner of the NBA without any right of appeal to the courts or
otherwise. Any interpretations of or changes to these rules, regulations, and
agreements
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adopted by the NBA will be binding upon us regardless of whether we agree or
disagree with them, and it is possible that any such interpretations or changes
could adversely affect our business, financial condition, or results of
operations.
Dependence on Talented Players; Risks Related to Player Salaries. The
success of the Seattle SuperSonics will depend upon the team's continued ability
to retain and attract talented players. The Seattle SuperSonics compete with
other United States and foreign basketball teams for available players. There
can be no assurance that the Seattle SuperSonics will be able to retain players
upon expiration of their contracts or identify and obtain new players of
comparable talent to replace players who retire or are injured, traded, or
released. Even if the Seattle SuperSonics are able to retain or obtain players
who have had successful college or professional careers, there can be no
assurance that their performance for the Seattle SuperSonics in subsequent years
will be at the same level as their prior performance. Players' salaries in the
NBA have increased significantly in recent years. Significant further increases
in players' salaries could occur and could have a material adverse effect on our
business, financial condition, or results of operations. NBA player contracts
generally provide that a player is entitled to receive his salary even if he is
unable to play as a result of injuries sustained from basketball-related
activities during the course of his employment. These salaries represent
significant financial commitments of the Seattle SuperSonics. Disability
insurance for NBA players (which in certain instances provides up to 80% of
salary reimbursement after 41 consecutive games are missed) is costly to
maintain, and, as required by NBA rules, the Seattle SuperSonics carry such
insurance for their six most highly compensated players. In the event an injured
player is not insured or insurance does not cover the entire amount of the
injured player's salary, we would be obligated to pay all or a portion, as the
case may be, of the injured player's salary. In addition, if we acquire a new
player to replace the injured player, we would also be required to pay the
salary of the replacement player. To the extent that our financial results are
dependent on the Seattle SuperSonics' competitive success (as discussed above),
the likelihood of achieving such success is substantially reduced by serious
injuries to key players. There can be no assurance that key players for the
Seattle SuperSonics will not sustain serious injuries during any given season.
As a result, injuries to players could have a material adverse effect on our
business, financial condition, or results of operations.
COMPETITION
Our four business segments are in highly competitive industries. Our
broadcasting and outdoor media businesses compete for audiences and advertising
revenue with other broadcasting stations and outdoor media advertising
companies, as well as with other media forms. Such other media forms may include
newspapers, magazines, transit advertising, yellow page directories, direct
mail, local cable systems, and satellite broadcasting systems. Audience ratings
and market shares are subject to many variables. Any change, and any adverse
change in a particular market, could have a material adverse effect on our
business, financial condition, or results of operations. Changes which could
have an adverse effect on us include economic conditions, both general and
local; shifts in population and other demographics; the level of competition for
advertising dollars; a station's market rank; broadcasting power, assigned
frequency, network affiliation, and audience identification; fluctuations in
operating costs; technological changes and innovations; changes in labor
conditions; and changes in
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governmental regulations and policies and actions of federal regulatory bodies.
There can be no assurance that we will be able to maintain or increase our
current audience ratings and advertising revenue. In this respect, the entrance
of a new television station in the Vancouver, British Columbia market in October
1997 has adversely affected the financial performance of our television station
in Bellingham, Washington (KVOS).
Certain of our competitors, including a few outdoor advertising
companies that are substantially larger than our outdoor advertising operations
have significantly greater financial, marketing, sales and other resources than
we have. There can be no assurance that we will be able to compete successfully
against our competitors in the future.
The Seattle SuperSonics and the Seattle Storm compete directly with
other professional and amateur sporting franchises and events, both in the
Seattle-Tacoma market area and nationally via sports broadcasting. See
"--Sports & Entertainment - Competition."
DEPENDENCE ON MANAGEMENT
Certain of our executive officers and divisional managers, including
Barry A. Ackerley, are especially important to our direction and management. The
loss of the services of such persons could have a material adverse effect on the
Company, and there can be no assurance that we would be able to find
replacements for such persons with equivalent business experience.
VOTING CONTROL BY PRINCIPAL STOCKHOLDER
Each share of Common Stock has one vote per share and each share of
Class B Common Stock has ten votes per share. As of March 1, 2000, Barry A.
Ackerley, our Chairman of the Board and Chief Executive Officer, beneficially
owns approximately 37.2% of the outstanding shares of Common Stock and
approximately 98.7% of the outstanding shares of Class B Common Stock, giving
him approximately 87.8% of the combined voting power of our voting securities.
See "Item 12 - Security Ownership of Certain Beneficial Owners and Management."
As a director, the Chairman and Chief Executive Officer, and the
majority stockholder of The Ackerley Group, Mr. Ackerley has certain fiduciary
duties to minority stockholders under applicable law. However, so long as Mr.
Ackerley continues to own or control stock having a majority of the combined
voting power of our voting securities, he will have the power to elect all of
our directors and effect fundamental corporate transactions, such as mergers,
asset sales, and "going private" transactions, without the approval of any other
stockholders. Moreover, Mr. Ackerley's voting control would effectively delay or
prevent any other person or entity from acquiring or taking control of The
Ackerley Group without his approval, whether or not the transaction could
provide stockholders with a premium over the then-prevailing market price of
their shares or would otherwise be in their best interests.
RESTRICTIONS ON THE OWNERSHIP AND TRANSFER OF COMMON STOCK
We are a member of the NBA and are subject to its Constitution and
Bylaws. See "--Sports & Entertainment--League Membership Risks." These
limitations may adversely affect the ability of investors to acquire, sell or
otherwise transfer our Common Stock. Any violation of
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the foregoing restrictions could result in the termination of our NBA franchise
and other sanctions by the NBA, which could have a material adverse effect on
our business, financial condition, or results of operations.
In addition, our Bylaws contain certain restrictions on the transfer of
our capital stock in order to comply with the prohibitions on foreign ownership
of radio and television stations contained in the Communications Act of 1934 and
FCC rules. See "--Television and Radio Broadcasting Regulation--Ownership."
These restrictions in our Bylaws, as well as certain related provisions in our
Certificate of Incorporation, may adversely affect the ability of investors to
acquire, hold, or otherwise transfer our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 1, 2000, 9,104,948 shares of Common Stock and 11,004,056
shares of Class B Common Stock were held by officers and directors who are
considered to be our "affiliates" for purposes of Rule 144 under the Securities
Act. As noted above, each share of Class B Common Stock is convertible by the
holder at any time into one share of Common Stock. Our affiliates may sell these
shares in the public market subject to the volume and other limitations (other
than the holding Period limitations, which have been satisfied) of Rule 144
under the Securities Act. No prediction can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock from time to time. Sales of
substantial amounts of Common Stock in the public market (including Common Stock
issued upon conversion of Class B Common Stock), or the perception that such
sales could occur, could have a material adverse effect on prevailing market
prices for the Common Stock.
YEAR 2000
The Year 2000 or Y2K problem is a result of the inability of computer
software programs to recognize the year 2000, as most programs and systems were
designed to store calendar years in the 1900s by assuming the "19" and storing
only the last two digits of the year.
We have not experienced any significant Y2K problems and have not been
informed of any material Y2K problems by our customers or vendors. However,
although January 1, 2000 is past, it is possible that some problems have gone
undetected, or that other dates in the future may further affect computer
software and systems, or equipment with embedded chip technology.
These problems could disrupt our business and require us to incur
significant, unanticipated expenses to remedy them. They could also result in
claims and litigation against us, which could subject us to significant costs
and could require substantial attention from our management. Similarly, our
business could be severely harmed if third parties on which our services depend
encounter Year 2000 issues, or if Year 2000 problems cause malfunctions at our
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Year 2000."
ITEM 2 - PROPERTIES
33
<PAGE> 35
Our principal executive offices are located at 1301 Fifth Avenue, Suite
4000, Seattle, Washington 98101. We lease the offices, which consist of
approximately 16,800 square feet, pursuant to a lease that expires in 2006.
The following table sets forth certain information regarding our
facilities as of December 31, 1999:
<TABLE>
<CAPTION>
Approximate
Square Approximate
Footage Square
Location Nature of Facility Owned Footage Leased
- -------- ------------------ ----------- --------------
<S> <C> <C> <C>
OUTDOOR MEDIA
Seattle, Washington (Outdoor Plant 35,889 1,185
Advertising)
Boston Massachusetts (Outdoor Plant 31,882 3,825
Advertising)
Miami, Florida (Outdoor Advertising)(1) Plant 242,980 ---
TELEVISION BROADCASTING
Syracuse, New York (WIXT) Station Operations 40,000 ---
Rochester (WOKR) Station Operations 45,000 ---
Binghamton, New York (WIVT) Station Operations 10,819 ---
Utica, New York (WUTR)(2) Station Operations 12,148 ---
Santa Barbara - Santa Maria - San Luis Station Operations 13,000 1,150
Obispo, California (KCOY)
Salinas-Monterey, California (KCBA, Station Operations 30,000 20,841
KION(2))
Bakersfield, California (KGET) Station Operations 30,450 ---
Eugene, Oregon (KMTR) Station Operations 3,000 9,230
Eureka, California (KVIQ) Station Operations 10,162 ---
Santa Rosa, California (KFTY) Station Operations 13,500 ---
Bellingham, Washington (KVOS) Station Operations 13,130 11,856
Fairbanks, Alaska (KTVF) Station Operations 84 12,967
RADIO BROADCASTING
Seattle, Washington (KJR(AM), KJR-FM, Station Operations -- 16,082
KUBE(FM))
Tacoma, Washington (KHHO(AM)) Station Operations -- 4,252
SPORTS & ENTERTAINMENT
Seattle, Washington Office & Operating 30,000 27,246
Facilities
OTHER
Seattle, Washington (Corporate Offices) Offices -- 16,814
National Sales Offices in New York,
Los Angeles, Offices -- 9,164
Chicago, and San Francisco
</TABLE>
- --------------------
(1) On January 5, 2000, we sold our Florida outdoor advertising operations.
(2) As of December 31, 1999, we programmed these stations under LMAs.
Accordingly, this table reflects data for the properties which are owned or
leased by the station owners for whom we program the stations.
In general, we believe that our facilities are adequate for our present
business and that additional space is generally available for expansion without
significant delay. Additionally, we are replacing and expanding our radio
broadcasting and sports & entertainment operating facilities in Seattle and our
outdoor advertising operating facilities in Portland. These facilities will be
completed in 2000. In 1999, we paid aggregate annual rentals on office space and
operating facilities of approximately $3.5 million.
KJR(AM) broadcasts from transmission facilities located on property
leased from the Port of Seattle, currently on a month-to-month basis. We have
filed an application with the FCC to co-locate KJR(AM)'s transmission facilities
with KHHO's facilities in Tacoma, Washington.
34
<PAGE> 36
On May 5, 1998 the FCC issued a construction permit granting us authority to
begin construction of the transmission facilities at the KHHO site. Construction
was substantially completed in February 2000, and testing of the facilities is
underway. We are negotiating with the Port of Seattle to continue broadcasting
from the present tower location or from an alternative site until KJR(AM) can
broadcast from the KHHO site and are exploring our legal options in the event
that the Port of Seattle attempts to eject us from the current site before we
are able to use the new site.
Effective October 1, 1995, we entered into a fifteen-year lease with the
City of Seattle for the Key Arena, a 17,100-seat events facility. It was first
occupied and used by the SuperSonics in November 1995, the beginning of the
1995-1996 season.
At December 31, 1999, we owned 285 vehicles and leased 190 vehicles of
various types for use in our operations. This included 64 owned vehicles and 15
leased vehicles at our Florida outdoor advertising operations, which we sold on
January 5, 2000. We own a variety of broadcast-related equipment, including
broadcast towers, transmitters, generators, microwave systems and audio and
video equipment used in our broadcasting business. We presently lease, under a
private carrier agreements, a Gulfstream jet and Lear jet that are used for
executive travel between our facilities. In February 1998, we purchased a Boeing
727 jet aircraft to replace the BAC 1-11 that we previously leased, which we use
for travel involving the SuperSonics.
We believe that all of our buildings and equipment are adequately
insured in accordance with industry practice.
ITEM 3 - LEGAL PROCEEDINGS
We become involved, from time to time, in various claims and lawsuits
incidental to the ordinary course of our operations, including such matters as
contract and lease disputes and complaints alleging employment discrimination.
In addition, we participate in various governmental and administrative
proceedings relating to, among other things, condemnation of outdoor advertising
structures without payment of just compensation and matters affecting the
operation of broadcasting facilities.
Lambert v. Ackerley. Following the U.S. Supreme Court's denial of our
petition for review of the decision of the Ninth Circuit Court of Appeals, we
paid the awarded damages, accrued interest thereon, and plaintiff's attorney's
fees of approximately $7.5 million in the first quarter of 2000. See Note 13 of
the Notes to Consolidated Financial Statements.
Van Alstyne v. The Ackerley Group, Inc. On June 7, 1996, a former sales
manager for television station WIXT, Syracuse, New York filed a complaint in the
U.S. District Court for the Northern District of New York against The Ackerley
Group, Inc., WIXT and the current and former general managers of WIXT. The
complaint seeks unspecified damages and injunctive relief for discrimination on
the basis of gender and disability, as well as unlawful retaliation, under both
state and federal law. We have filed a motion for summary judgment, which is
currently pending. A trial date has not been set.
35
<PAGE> 37
RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc.,
a supplier of outdoor advertising in Massachusetts, filed a complaint in the
U.S. District Court for the District of Massachusetts (the "Court") alleging
that we have unlawfully monopolized the Boston-area billboard market in
violation of the Sherman Antitrust Act, engaged in unlawful restraint of trade
in violation of the Sherman Antitrust Act, and committed unfair trade practices
in violation of Massachusetts state law. The plaintiff is seeking in excess of
$20.0 million in damages. On May 22, 1998, the Court, in a ruling from the
bench, dismissed count 2 of plaintiff's complaint, which alleged that the
existence of leases between us and landowners restricted the landowners' ability
to lease that same space to the plaintiff in violation of the Sherman Antitrust
Act. We have filed a motion for summary judgment which is currently pending. A
trial date has not been set.
ITEM 4 - SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Barry A. Ackerley 65 Chairman and Chief Executive Officer
Gail A. Ackerley 61 Co-Chairman
Denis M. Curley 52 Co-President, Chief Operating Officer and
Chief Financial Officer, Secretary and
Treasurer
Christopher H. Ackerley 30 Co-President
Keith W. Ritzmann 47 Senior Vice President and Chief Technology
Officer, Controller and Assistant
Secretary
</TABLE>
Mr. Barry A. Ackerley, one of our founders, has been the Chief Executive
Officer and a director of The Ackerley Group and its predecessor and subsidiary
companies since 1975. He currently serves as our Chairman.
Ms. Gail A. Ackerley was elected to our Board of Directors in May 1995,
and became Co-Chairman in September 1996. She served as one of our Co-Presidents
from November 1997 to February 15, 2000. Ms. Ackerley has served as our Chairman
of Ackerley Corporate Giving since 1986, supervising our charitable activities,
and also serves as Chairman of the Seattle Storm.
Mr. Denis M. Curley, who joined us in December 1984, was elected as
Chief Operating Officer on February 15, 2000, and as one of our Co-Presidents in
November 1997. Previously, he served as Executive Vice President from March 1995
until his election as one of our Co-Presidents. Before then, he served as Senior
Vice President from January 1990 through the date
36
<PAGE> 38
of his election as Executive Vice President. He has served as our Chief
Financial Officer since May 1988. Mr. Curley also presently serves as our
Secretary and Treasurer.
Mr. Christopher H. Ackerley was named Co-President on February 15, 2000,
with principal responsibility for overseeing our marketing, investor relations,
information technology, and technology-venture investments. He joined The
Ackerley Group in 1995, and was elected Vice President for Marketing and
Development in May 1998. He also served as Executive Vice President, Operations
and Development from December 1998 until his election as Co-President.
Mr. Keith W. Ritzmann was named Senior Vice President and Chief
Technology Officer on February 15, 2000. He has served as a Senior Vice
President since January 1998, and also served as Chief Information Officer from
such date until his election as Chief Technology Officer. He served as a Vice
President from January 1990 through the date of his election as Senior Vice
President. He also presently serves as our Assistant Secretary and Controller.
Barry A. Ackerley and Gail A. Ackerley are husband and wife. Christopher
H. Ackerley is their son. There are no other family relationships among any of
our executive officers. All officers serve at the pleasure of our Board of
Directors.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 1, 2000, 34,965,807 shares of our common stock were issued
and outstanding, of which 23,877,107 shares were Common Stock and 11,088,700
shares were Class B Common Stock. The Common Stock was held by 545 shareholders
of record; the Class B Common Stock was held by 28 shareholders of record.
Our Board of Directors declared a cash dividend of $.02 per share in
each of 1998 and 1999. Recently, the Board declared a cash dividend of $.02 per
share payable on April 14, 2000 to shareholders of record on March 23, 2000.
Payment of any future dividends is at the discretion of the Board of Directors
and depends on a number of conditions. Among other things, dividend payments
depend upon our results of operations and financial condition, capital
requirements and general economic conditions. The 1999 Credit Agreement and the
Indenture impose certain limits upon our ability to pay dividends and make other
distributions. In addition, we are subject to the General Corporation Law of
Delaware, which restricts our ability to pay dividends in certain circumstances.
COMMON STOCK
On December 15, 1997, our Common Stock became listed and began trading
on the New York Stock Exchange under the symbol "AK." Our Common Stock
previously traded on the American Stock Exchange.
37
<PAGE> 39
The table below sets forth the high and low sales prices of our Common
Stock for each full quarterly period in the two most recent fiscal years
according to the New York Stock Exchange.
<TABLE>
<CAPTION>
1999 High Low 1998 High Low
- ---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter $19 1/4 $16 1/2 First Quarter $24 3/8 $14 5/8
Second Quarter $20 $16 5/8 Second Quarter $22 1/2 $19 7/16
Third Quarter $19 1/4 $11 1/8 Third Quarter $24 7/8 $19 1/2
Fourth Quarter $18 1/2 $11 3/8 Fourth Quarter $21 1/16 $16 1/2
</TABLE>
On March 1, 2000, the high and low sales prices of our Common Stock,
according to the New York Stock Exchange, were $13 5/16 and $12 7/16,
respectively.
CLASS B COMMON STOCK
Our Class B Common Stock, which we initially issued in June 1987, is not
publicly traded. Persons owning shares of our Class B Common Stock may trade
such shares only as permitted by our Certificate of Incorporation, which imposes
restrictions on such transfer. Thus, there is no trading market for shares of
our Class B Common Stock.
ITEM 6 - SELECTED FINANCIAL DATA
The table below sets forth selected consolidated financial data
regarding our operations. The information in the table has been derived from
audited consolidated financial statements.
You should read the information in the table in conjunction with the
sections titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements (and Notes)
included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue $ 315,319 $ 292,907 $ 306,169 $ 279,662 $ 235,820
Agency commissions and discounts (37,131) (36,256) (34,994) (32,364) (28,423)
--------- --------- --------- --------- ---------
Net revenue 278,188 256,651 271,175 247,298 207,397
Expenses (other income):
Operating expenses 227,697 209,030 210,752 186,954 156,343
Restructuring expenses 1,125 -- -- -- --
Depreciation and amortization expense 28,348 16,574 16,103 16,996 13,243
Interest expense 35,632 25,109 26,219 24,461 25,010
Stock compensation expense 559 452 9,344(1) -- --
Net gain on dispositions of assets (28,999)(2) (33,524)(2) -- -- --
Litigation expense (adjustment) -- -- (5,000)(3) -- 14,200(3)
--------- --------- --------- --------- ---------
Total expenses and other income 264,362 217,641 257,418 228,411 208,796
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 13,826 39,010 13,757 18,887 (1,399)
Income tax expense (benefit) 5,863 15,487 (19,172)(4) 2,758 1,515
--------- --------- --------- --------- ---------
Income (loss) before 7,963 23,523 32,929 16,129 (2,914)
extraordinary item
Extraordinary item - loss on
extinguishment of debt (1,373) (4,346) -- (355) --
--------- --------- --------- --------- ---------
Net income (loss) applicable
to common shares $ 6,590 $ 19,177 $ 32,929 $ 15,774 $ (2,914)
========= ========= ========= ========= =========
Per common share:
Income (loss) before $ .24 $ .75 $ 1.05 $ .52 $ (.09)
extraordinary item
Extraordinary item (.04) (.14) -- (.01) --
--------- --------- --------- --------- ---------
Net income (loss) $ .20 $ .61 $ 1.05 $ .51 $ (.09)
========= ========= ========= ========= =========
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common shares used in per share
computation 32,932 31,627 31,345 31,166 31,052
Per common share - assuming dilution:
Income (loss) before $ .24 $ .74 $ 1.04 $ .51 $ (.09)
extraordinary item
Extraordinary item (.04) (.14) -- (.01) --
--------- --------- --------- --------- ---------
Net income (loss) $ .20 $ .60 $ 1.04 $ .50 $ (.09)
========= ========= ========= ========= =========
Common shares used in per share
computation - assuming dilution 33,110 31,883 31,652 31,760 31,052
Dividends $ .02 $ .02 $ .02 $ .02 $ .015
========= ========= ========= ========= =========
Consolidated Balance Sheet Data
(at end of period):
Working capital $ 21,704 $ 15,706 $ 12,019 $ 11,154 $ 15,110
Total assets 528,436 316,126 266,385 224,912 189,882
Total long-term debt 403,761 266,999 213,294 229,350 215,328
Total debt 414,593 270,100 229,424 235,141 220,147
Stockholders' equity (deficiency) 27,289 (25,841) (44,909) (83,839) (99,093)
</TABLE>
- -------------
(1) See Note 11 to the Consolidated Financial Statements.
(2) See Note 3 to the Consolidated Financial Statements.
(3) See Note 13 to the Consolidated Financial Statements.
(4) See Note 8 to the Consolidated Financial Statements.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements appearing in this section, Management's Discussion and
Analysis of Financial Condition and Results of Operations, which are not
historical in nature (including the discussions of the effects of recent
acquisitions and dispositions, business transactions, and similar information),
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. We caution our shareholders and potential
investors that any forward-looking statements or projections set forth in this
section are subject to risks and uncertainties which may cause actual results to
differ materially from those projected. After the date of this Annual Report, we
will not make any public announcements updating any forward-looking statement
contained in this section.
Important factors that could cause the results to differ materially from
those expressed in this section include:
- material adverse changes in general economic conditions, including
changes in inflation and interest rates;
- changes in laws and regulations affecting the outdoor advertising
and television and radio broadcasting businesses, including changes
in the FCC's treatment of local marketing agreements and related
matters, and the possible inability to obtain FCC consent to
proposed or pending acquisitions or dispositions of broadcasting
stations;
- competitive factors in the outdoor advertising, television
broadcasting, radio broadcasting, and sports & entertainment
businesses;
- material changes to accounting standards;
39
<PAGE> 41
- expiration or non-renewal of broadcasting licenses and local
marketing agreements;
- labor matters, including the aftereffects of the NBA lockout,
changes in labor costs, renegotiation of labor contracts, and risk
of work stoppages or strikes;
- matters relating to our level of indebtedness, including
restrictions imposed by financial covenants;
- the win-loss record of the SuperSonics, which has a substantial
influence on attendance, and whether the team participates in the
NBA playoffs;
- recessionary influences in the regional markets that we serve.
OVERVIEW
We reported net income of $6.6 million in 1999, compared to $19.2
million in 1998. Net revenue in 1999 increased by $21.5 million, or 8%, from
1998, and our Operating Cash Flow (as defined below) increased by $1.8 million,
or 4%.
Refinancing. In January 1999, we replaced our existing $300.0 million
credit agreement with a new $325.0 million credit agreement. In February 1999,
we issued additional 9% Senior Subordinated Notes due 2009 in the aggregate
amount of $25.0 million. In March 1999, we redeemed the $20.0 million
outstanding principal of the 10.48% Senior Subordinated Notes due 2000 with
borrowings under the revolving credit facility of the new credit agreement.
Acquisitions and Dispositions. During 1999, we acquired five television
stations and an outdoor advertising company, and we sold one television station
and a radio broadcasting tower. During the first quarter of 2000, we sold our
Florida outdoor advertising operations and acquired two outdoor advertising
companies. In addition, we acquired two television stations for which we
previously provided programming and sales services under local marketing
agreements. We also entered into local marketing agreements to provide
programming and sales services to two additional television stations.
Stock Offering. During the third quarter of 1999, we received
approximately $46.5 million in net proceeds from the issuance of 3,250,000
shares of common stock pursuant to an underwritten public offering.
As with many media companies, our acquisitions and dispositions have
resulted in significant non-cash and non-recurring charges to income. For this
reason, in addition to net income, our management believes that Operating Cash
Flow (defined as net revenue less operating expenses before amortization,
depreciation, interest, litigation, and stock compensation expenses and net gain
on dispositions of assets) is an appropriate measure of our financial
performance. Similarly, we believe that Segment Operating Cash Flow (defined as
Operating Cash Flow before corporate overhead) is an appropriate measure of our
segments' financial performance. These measures exclude certain expenses that
management does not consider to be costs of ongoing operations. We use Operating
Cash Flow to pay interest and principal on our long-term debt as well as to
finance capital expenditures. Operating Cash Flow and Segment
40
<PAGE> 42
Operating Cash Flow, however, are not to be considered as alternatives to net
income as an indicator of our operating performance or to cash flows as a
measure of our liquidity.
RESULTS OF OPERATIONS
The following tables set forth certain historical financial and
operating data for each of the three years in the period ended December 31,
1999, including net revenue, operating expenses, and Operating Cash Flow
information by segment:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
AS % OF AS % OF AS % OF
NET NET NET
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
--------- --------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ 278,188 100.0% $ 256,651 100.0% $ 271,175 100.0%
Segment operating expenses 212,475 76.4 194,539 75.8 200,739 74.0
Corporate overhead 16,347 5.9 14,491 5.6 10,013 3.7
--------- --------- ---------
Total operating expenses 228,822 82.3 209,030 81.4 210,752 77.7
--------- --------- ---------
Operating Cash Flow 49,366 17.7 47,621 18.6 60,423 22.3
Other expenses and (income):
Depreciation and
amortization expenses 28,348 10.2 16,574 6.5 16,103 5.9
Interest expense 35,632 12.8 25,109 9.8 26,219 9.7
Stock compensation expense 559 0.2 452 0.2 9,344 3.4
Net gain on dispositions of
assets (28,999) (10.4) (33,524) (13.1) -- --
Litigation adjustment -- -- -- -- (5,000) (1.8)
--------- --------- ---------
Total other expenses and
(income) 35,540 12.8 8,611 3.4 46,666 17.2
Income before income taxes and
extraordinary item 13,826 5.0 39,010 15.2 13,757 5.1
Income tax expense (benefit) 5,863 2.1 15,487 6.0 (19,172) (7.1)
--------- --------- ---------
Income before
extraordinary item 7,963 2.9 23,523 9.2 32,929 12.1
--------- --------- ---------
Extraordinary item (1,373) (0.5) (4,346) (1.7) -- --
--------- --------- ---------
Net income $ 6,590 2.4 $ 19,177 7.5 $ 32,929 12.1
========= ========= =========
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET REVENUE:
Outdoor media $ 98,751 $ 108,560 $ 113,162
Television broadcasting 81,669 68,467 63,611
Radio broadcasting 27,163 24,474 20,970
Sports & entertainment 70,605 55,150 73,432
--------- --------- ---------
Total net revenue $ 278,188 $ 256,651 $ 271,175
========= ========= =========
SEGMENT OPERATING EXPENSES:
Outdoor media $ 56,877 $ 65,605 $ 72,159
Television broadcasting 69,608 55,996 46,935
Radio broadcasting 15,563 14,819 12,983
Sports & entertainment 70,427 58,119 68,662
--------- --------- ---------
Total segment operating expenses $ 212,475 $ 194,539 $ 200,739
========= ========= =========
OPERATING CASH FLOW:
Outdoor media $ 41,874 $ 42,955 $ 41,003
Television broadcasting 12,061 12,471 16,676
Radio broadcasting 11,600 9,655 7,987
Sports & entertainment 178 (2,969) 4,770
--------- --------- ---------
Total Segment Operating Cash Flow 65,713 62,112 70,436
Corporate overhead (16,347) (14,491) (10,013)
--------- --------- ---------
Operating Cash Flow $ 49,366 $ 47,621 $ 60,423
========= ========= =========
CHANGE IN NET REVENUE FROM PRIOR PERIODS:
Outdoor media (9.0)% (4.1)% 13.4%
Television broadcasting 19.3 7.6 9.9
Radio broadcasting 11.0 16.7 16.8
Sports & entertainment 28.0 (24.9) 2.5
Change in total net revenue 8.4 (5.4) 9.7
SEGMENT OPERATING EXPENSES AS A % OF NET
REVENUE:
Outdoor media 57.6% 60.4% 63.8%
Television broadcasting 85.2 81.8 73.8
Radio broadcasting 57.3 60.5 61.9
Sports & entertainment 99.7 105.4 93.5
Total segment operating expenses as
a % of total net revenue: 76.4 75.8 74.0
OPERATING CASH FLOW AS A % OF NET REVENUE:
Outdoor media 42.4% 39.6% 36.2%
Television broadcasting 14.8 18.2 26.2
Radio broadcasting 42.7 39.5 38.1
Sports & entertainment 0.3 (5.4) 6.5
Operating Cash Flow as a % of total
net revenue 17.7 18.6 22.3
</TABLE>
42
<PAGE> 44
1999 COMPARED WITH 1998
Net Revenue. Our 1999 net revenue was $278.2 million. This represented
an increase of $21.5 million, or 8%, compared to $256.7 million in 1998. Changes
in net revenue were as follows:
- Outdoor Media. Our 1999 net revenue from our outdoor media segment
decreased by $9.8 million, or 9%, from 1998. This decrease was
primarily due to the absence of our airport advertising operations,
which we sold in June 1998. Excluding our airport advertising
operations, our 1999 net revenue from our outdoor media segment
increased by $6.4 million, or 7%, from 1998. This increase mainly
resulted from an increase in both national and local sales.
- Television Broadcasting. Our 1999 net revenue from our television
broadcasting segment increased by $13.2 million, or 19%, from 1998.
This increase was mainly due to the exchange of station KKTV for
station KCOY in January 1999 and the addition of stations KVIQ in
July 1998, KMTR in December 1998, WOKR in April 1999, and KTFV in
August 1999. Excluding these transactions, our 1999 net revenue from
our television broadcasting segment decreased by $3.2 million, or
6%, from 1998. This decrease was primarily due to the lack of
political advertising during 1999, partially offset by increased
national and local sales.
- Radio Broadcasting. Our 1999 net revenue from our radio broadcasting
segment increased by $2.7 million, or 11%, from 1998. This increase
was primarily due to an increase in both national and local sales.
- Sports & Entertainment. Our 1999 net revenue from our sports &
entertainment segment increased by $15.4 million, or 28%, from 1998.
This increase was primarily due to the commencement of a full
basketball season in the fourth quarter 1999 in contrast to the
delayed season in 1998 as result of the NBA lockout.
Segment Operating Expenses. Our 1999 segment operating expenses (which
exclude corporate overhead) were $212.5 million. This represented an increase of
$18.0 million, or 9%, compared to $194.5 million in 1998. Changes in segment
operating expenses were as follows:
- Outdoor Media. Our 1999 operating expenses from our outdoor media
segment decreased by $8.7 million, or 13%, from 1998. This decrease
was primarily due to the absence of our airport advertising
operations, which we sold in June 1998. Excluding our airport
advertising operations, our 1999 operating expenses from our outdoor
media segment increased by $6.1 million, or 12%, from 1998. This
increase was primarily due to higher lease costs, increased
employment-related expenses, and increased expenses related to the
expansion of our national sales force.
- Television Broadcasting. Our 1999 operating expenses from our
television broadcasting segment increased by $13.6 million, or 24%,
from 1998. This increase was mainly due to the exchange of station
KKTV for station KCOY in January 1999 and the addition of
43
<PAGE> 45
stations KVIQ in July 1998, KMTR in December 1998, WOKR in April
1999, and KTVF in August 1999. This increase was also due to a
restructuring charge of $1.1 million recognized in connection with
our ongoing implementation of Digital CentralCasting(TM). This
restructuring charge consisted primarily of costs associated with
employee staff reductions. See further discussion in Note 14 to the
Consolidated Financial Statements. Excluding these transactions, our
1999 operating expenses from our television broadcasting segment
increased by $0.8 million, or 2%, from 1998. This increase was
primarily due to higher program, promotion, and production expenses
relating to the expansion of local news.
- Radio Broadcasting. Our 1999 operating expenses from our radio
broadcasting segment increased by $0.8 million, or 5%, from 1998.
This increase was primarily due to higher expenses relating to
increased sales activity.
- Sports & Entertainment. Our 1999 operating expenses from our sports
& entertainment segment increased by $12.3 million, or 21%, from
1998. This increase was primarily due to the commencement of a full
basketball season in the fourth quarter of 1999 in contrast to the
delayed season in 1998 as result of the NBA lockout.
Corporate Overhead Expenses. Our corporate overhead expenses were $16.3
million in 1999. This represented an increase of $1.8 million, or 12%, from
1998. This increase was primarily a result of increased marketing costs,
increased travel costs, and higher utilization of outside services.
Operating Cash Flow. Our Operating Cash Flow was $49.4 million in 1999.
This represented an increase of $1.8 million, or 4%, compared to $47.6 million
in 1998. The increase in Operating Cash Flow from our radio broadcasting and
sports & entertainment segments was partially offset by the decrease in
Operating Cash Flow from our outdoor media and television broadcasting segments
and the increase in corporate overhead expenses. Operating Cash Flow as a
percentage of total net revenue decreased to 18% in 1999 compared to 19% in
1998.
Depreciation and Amortization Expenses. Our depreciation and
amortization expenses were $28.3 million in 1999. This represented an increase
of $11.7 million, or 70%, compared to $16.6 million in 1998. This increase
primarily resulted from depreciation and amortization expenses relating to our
business acquisitions during 1999.
Interest Expense. Our interest expense was $35.6 million in 1999. This
represented an increase of $10.5 million, or 42%, from 1998. This increase was
primarily due to higher average debt balances during 1999 reflecting the
financing of our various acquisitions.
Stock Compensation Expense. We recognized stock compensation expense of
$0.6 million in 1999 compared to $0.5 million in 1998. These expenses primarily
related to the amendment of certain stock option agreements.
Net Gain on Dispositions of Assets. We recognized a net gain on
disposition of assets of $29.0 million. This gain consisted primarily of a $28.6
million gain from the exchange of the
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<PAGE> 46
assets of television station KKTV for the assets of television station KCOY, a
$1.6 million gain relating to the sale of our airport advertising operations,
and a $1.2 million loss on the sale of a radio broadcasting tower. In 1998, we
recognized a $33.5 million gain on disposition of assets primarily relating to
the sale of our airport advertising operations in June 1998.
Income Tax Expense. We recognized income tax expense of $5.9 million in
1999, compared to $15.5 million in 1998. The effective rate in 1999 was 42%
compared to 40% in 1998.
Extraordinary Item. In 1999, we replaced our existing credit agreement
with a new $325.0 million credit agreement and redeemed our $20.0 million 10.48%
Senior Subordinated Notes. These transactions resulted in an aggregate charge of
$1.4 million, net of taxes, primarily consisting of the write-off of deferred
financing costs and prepayment fees. In 1998, we redeemed our 10.75% Senior
Secured Notes with proceeds under the 1998 Credit Agreement. This transaction
resulted in a charge of $4.3 million, net of taxes, consisting of the write-off
of deferred financing costs and prepayment fees.
Net Income. Our net income was $6.6 million in 1999. This represented a
decrease of $12.6 million, or 66%, from $19.2 million in 1998. Net income as a
percentage of net revenue decreased to 2% in 1999 from 8% in 1998.
1998 COMPARED WITH 1997
Net Revenue. Our 1998 net revenue was $256.7 million. This represented a
decrease of $14.5 million, or 5%, from $271.2 million in 1997. Changes in net
revenue were as follows:
- Outdoor Media. Our 1998 net revenue from our outdoor media segment
decreased by $4.6 million, or 4%, from 1997. This decrease was
mainly due to the absence of airport advertising operations in the
third and fourth quarters of 1998, partially offset by increased
national sales.
- Television Broadcasting. Our 1998 net revenue from our television
broadcasting segment increased by $4.9 million, or 8%, from 1997.
This increase resulted primarily from the addition of television
station KVIQ in July 1998, the completion of a full 12 months of
operations at WUTR and WIVT, higher political advertising, and
higher national and local sales.
- Radio Broadcasting. Our 1998 net revenue from our radio broadcasting
segment increased by $3.5 million, or 17%, from 1997. This increase
was primarily due to an increase in both national and local sales.
- Sports & Entertainment. Our 1998 net revenue from our sports &
entertainment segment decreased by $18.2 million, or 25%, from 1997.
This decrease was primarily due to decreased revenue in the fourth
quarter as a result of the NBA lockout, partially offset by
increased ticket and sponsorship sales during the 1997-98 basketball
season.
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<PAGE> 47
Segment Operating Expenses. Our 1998 segment operating expenses (which
exclude corporate overhead) were $194.5 million. This represented a decrease of
$6.2 million, or 3%, compared to $200.7 in 1997. Changes in segment operating
expenses were as follows:
- Outdoor Media. Our 1998 operating expenses from our outdoor media
segment decreased by $6.6 million, or 9%, from 1997. This decrease
was due mainly to the absence of airport advertising operations in
the third and fourth quarters of 1998, partially offset by higher
expenses related to increased sales activity.
- Television Broadcasting. Our 1998 operating expenses from our
television broadcasting segment increased by $9.1 million, or 19%,
from 1997. This increase was primarily a result of the addition of
television station KVIQ in July 1998, the completion of a full 12
months of operations at WUTR and WIVT, and higher program, promotion
and production expenses relating to the expansion of local news.
- Radio Broadcasting. Our 1998 operating expenses from our radio
broadcasting segment increased by $1.8 million, or 14%, from 1997.
This increase primarily resulted from higher expenses related to
increased sales activity.
- Sports & Entertainment. Our 1998 operating expenses from our sports
& entertainment segment decreased by $10.6 million, or 15%, from
1997. This decrease was mainly attributable to decreased expenses in
the fourth quarter due to the NBA lockout, partially offset by
increased basketball operating expenses related to team costs during
the 1997-98 basketball season.
Corporate Overhead Expenses. Our corporate overhead expenses were $14.5
million in 1998. This represented an increase of $4.5 million, or 45%, from
1997. This increase was mainly due to increased personnel costs, increased
travel costs, increased insurance costs, and higher utilization of outside
services.
Operating Cash Flow. Our Operating Cash Flow decreased from $60.4
million to $47.6 million. The decrease in Operating Cash Flow from our
television broadcasting and sports & entertainment segments and the increase in
our corporate overhead expenses were partially offset by the increase in our
Operating Cash Flow from our outdoor and radio broadcasting segments. Operating
Cash Flow as a percentage of net revenue decreased to 19% in 1998 from 22% in
1997.
Depreciation and Amortization Expenses. Our depreciation and
amortization expenses were $16.6 million in 1998. This represented an increase
of $0.5 million, or 3%, from 1997.
Interest Expense. Our interest expense was $25.1 million in 1998. This
represented a decrease of $1.1 million, or 4%, from 1997. This decrease is
primarily due to lower average interest rates and interest income from our
interest rate swap agreements in 1998.
Stock Compensation Expense. In 1998, we recognized stock compensation
expense of $0.5 million, primarily relating to the amendment of certain stock
option agreements. In 1997,
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<PAGE> 48
we recognized stock compensation expense of $9.3 million, which was primarily
due to the conversion of certain incentive stock options into nonqualified stock
options.
Net Gain on Disposition of Assets. In 1998, we recognized a gain of
$33.5 million relating to the sale of our airport advertising operations. There
was no gain on disposition of assets in 1997.
Litigation Adjustment. In 1997, we reduced an accrual for litigation expense by
$5.0 million. There was no such adjustment in 1998.
Income Tax Expense. Our income tax expense was $15.5 million in 1998,
which represented an effective rate of 40%. In 1997, we incurred an income tax
benefit of $19.2 million, which primarily resulted from the recognition of our
deferred tax asset.
Extraordinary Item. In 1998, we redeemed our 10.75% Senior Secured Notes
with proceeds under the 1998 Credit Agreement. This transaction resulted in a
charge of $4.3 million, net of taxes, consisting of prepayment fees and the
write-off of deferred financing costs. There were no extraordinary items in
1997.
Net Income. Our net income was $19.2 million in 1998. This represented a
decrease of $13.7 million, or 42%, from 1997. Net income as a percentage of net
revenue decreased to 8% in 1998 from 12% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
On January 22, 1999, we replaced the $300.0 million 1998 Credit
Agreement with the new $325.0 million 1999 Credit Agreement, consisting of a
$150.0 million term loan facility (the "Term Loan") and a $175.0 million
revolving credit facility (the "Revolver"), which includes up to $10.0 million
in standby letters of credit. This transaction resulted in a charge of
approximately $0.6 million, net of taxes, consisting of the write-off of
deferred financing costs.
Under the 1999 Credit Agreement, we can choose to have interest
calculated at rates based on either a base rate of LIBOR plus defined margins
which vary based on our total leverage ratio. As of December 31, 1999, the
weighted average interest rate of borrowings under the 1999 Credit Agreement was
approximately 9.00%.
As of December 31, 1999, we had borrowed $150.0 million of the Term Loan
and $43.0 million of the Revolver. Principal repayments under the Term Loan are
due quarterly from March 31, 2000 through December 31, 2005. The Revolver
requires scheduled annual commitment reductions, with required principal
repayments of outstanding amounts in excess of the commitment levels, quarterly
beginning March 31, 2001.
On February 24, 1999, we issued additional 9% Senior Subordinated Notes
due 2009 in the aggregate principal amount of $25.0 million. The total aggregate
amount of 9% Senior Subordinated Notes issued and outstanding is $200.0 million.
The 9% Senior Subordinated Notes bear interest at 9%, which is payable
semi-annually in January and July. Principal is payable in full in January 2009.
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<PAGE> 49
On March 15, 1999, we redeemed the $20.0 million outstanding principal
of our 10.48% Senior Subordinated Notes due 2000 with borrowings under the
Revolver. This transaction resulted in a charge of approximately $0.8 million,
net of taxes, consisting of prepayment fees and the write-off of deferred
financing costs.
On August 6, 1999, we issued 3,000,000 shares of common stock at a price
of $15.25 per share pursuant to an underwritten public offering. Our net
proceeds were approximately $42.9 million, which were used primarily to repay
borrowings outstanding under the Revolver. On September 7, 1999, we received
approximately $3.6 million in net proceeds from the issuance of 250,000 shares
of common stock upon the exercise of the underwriters' overallotment option,
which were also used to repay borrowings under the Revolver. Subject to the
terms of the 1999 Credit Agreement, we are entitled to make further borrowings
under the Revolver. Borrowings under the Revolver have historically been used
for general corporate purposes, including acquisitions and capital expenditures.
On August 6, 1999, we received proceeds of $2.0 million upon the
termination of an interest rate swap agreement with a notional principal amount
of $70.0 million.
During 1999, we purchased the assets of an outdoor advertising company
in the Boston-Worcester, Massachusetts market and television stations KVIQ,
KMTR, WOKR, and KTVF. These acquisitions were financed with borrowings under our
1998 and 1999 Credit Agreements. In addition, we exchanged television station
KKTV for television station KCOY and $9.0 million in cash. These transactions
are more fully described in Note 3 to the Consolidated Financial Statements.
We have pledged substantially all of our subsidiaries' outstanding stock
and assets as collateral for amounts due under the 1999 Credit Agreement. Thus,
if we default under the 1999 Credit Agreement, the lenders may take possession
of and sell substantially all of our subsidiaries and their assets.
In addition, the 1999 Credit Agreement and the 9% Senior Subordinated
Notes restrict, among other things, our ability to borrow, pay dividends,
repurchase outstanding shares of our stock, and sell or transfer our assets.
They also contain restrictive covenants requiring us to maintain certain
financial ratios.
Our working capital increased to $21.7 million at December 31, 1999 from
$15.7 million at December 31, 1998. This increase was primarily due to increased
accounts receivable, increased prepaid expenses, and decreased deferred revenue
relating to the commencement of a full basketball season in the fourth quarter
of 1999 in contrast to the delayed season in 1998 as a result of the NBA
lockout.
Capital expenditures were $29.1 million in 1999, compared to $32.7
million in 1998. Capital expenditures in 1999 were primarily for broadcasting
equipment, computer equipment, and advertising signs. Our management anticipates
that 2000 capital expenditures, consisting primarily of broadcast equipment,
buildings and leasehold improvements, and other capital additions, will be
between $30.0 million to $35.0 million. This includes the expansion of our
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<PAGE> 50
radio broadcasting and sports & entertainment operating facilities in Seattle
and our outdoor advertising operating facilities in Portland. This
forward-looking statement is, however, subject to the qualification set forth
under "Forward-Looking Statements" above.
For the periods presented, we financed our working capital needs
primarily from cash provided by operating activities and bank borrowings. Over
those periods, our long-term liquidity needs, including for acquisitions and to
refinance our indebtedness, have been financed through additions to our
long-term debt, principally through bank borrowings and the sale of senior and
subordinated debt securities and, to a lesser extent, through issuance of common
stock. Capital expenditures for new property and equipment have been financed
with both cash provided by operating activities and long-term debt. Cash used in
operating activities was $0.2 million in 1999, which represented a decrease from
cash provided by operating activities of $14.8 million in 1998.
SUBSEQUENT EVENTS
During the first quarter of 2000, we entered into the following
transactions:
Sale of Florida Outdoor Advertising Operations. On January 5, 2000, we
sold substantially all of our assets of our outdoor advertising operations
serving the Miami-Fort Lauderdale and West Palm Beach-Fort Pierce, Florida
markets for approximately $300.0 million in cash, plus the assumption of certain
liabilities. We expect to recognize a gain on the transaction of approximately
$273.3 million. Concurrent with the transaction, we applied net proceeds from
the sale to fully repay outstanding borrowings under the 1999 Credit Agreement,
consisting of $43.0 million under the Revolver and $150.0 million under the Term
Loan. These transactions are more fully described in Notes 3 and 7 to the
Consolidated Financial Statements.
Acquisitions and Local Marketing Agreements. In January and February
2000, we acquired two outdoor advertising companies and two television stations.
We also entered into local marketing agreements to provide programming and sales
services to two additional television stations. These transactions are more
fully described in Note 3 to the Consolidated Financial Statements.
Dividend Declaration. On February 15, 2000, our Board of Directors
declared an annual cash dividend of $.02 per share payable on April 14, 2000 to
shareholders of record as of March 23, 2000.
Award of WNBA Expansion Team. We have been awarded operating rights to a
WNBA expansion team, the Seattle Storm, which is scheduled to play its first
game on May 31, 2000.
QUARTERLY VARIATIONS
Our results of operations may vary from quarter to quarter due in part
to the timing of acquisitions or dispositions and to seasonal variations in the
operations of the television broadcasting, radio broadcasting, and sports &
entertainment segments. In particular, our net revenue and Operating Cash Flow
historically have been affected positively during the NBA
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<PAGE> 51
basketball season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters.
TAXES
At December 31, 1999, we had a net operating loss carryforward for
federal income tax purposes of approximately $17.7 million that expires in the
years 2006, 2007, and 2014, and an alternative minimum tax credit carryforward
of approximately $2.8 million.
INFLATION
The effects of inflation on our costs generally have been offset by our
ability to correspondingly increase our rate structure.
NEW ACCOUNTING STANDARD
In June 1999, the Financial Accounting Standards Board issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133. The Statement deferred for one
year the effective date of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Statement No. 133 will now apply to all
fiscal quarters of all fiscal years beginning after June 15, 2000. The impact of
the Statement is currently being studied, and the effect of the new statement on
the financial statements has not been determined.
YEAR 2000
The Year 2000 or Y2K problem is a result of the inability of computer
software programs to recognize the year 2000, as most programs and systems were
designed to store calendar years in the 1900s by assuming the "19" and storing
only the last two digits of the year. As we have reported in the past, we have
spent considerable effort in preparing for Y2K in the period leading up to
January 1, 2000.
We have not experienced any significant Y2K problems and have not been
informed of any material Y2K problems by our customers or vendors. However,
although January 1, 2000 is past, it is possible that some problems have gone
undetected, or that other dates in the future may further affect computer
software and systems, or equipment with embedded chip technology.
We will continue to monitor the Y2K compliance of our own computer
systems and equipment with embedded technology, as well as any Y2K related
problems that may be reported to us by third parties with whom we do business.
As discussed in our Form 10-Q for the fiscal quarter ended September 30,
1999, the estimated costs of remediation associated with the Y2K issue were
$750,000. We believe, based on our review of such costs to March 1, 2000, that
total remediation costs will not be materially higher than the amount previously
estimated. However, as noted above, it is possible that additional costs will be
incurred in connection with Y2K problems that may still occur in the future.
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ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Our interest income and expense are most sensitive to changes in the
general level of interest rates. In this regard, changes in LIBOR and U.S.
interest rates affect the interest earned on our cash equivalents as well as
interest paid on our debt. To mitigate the impact of fluctuations in interest
rates, we generally maintain a portion of our debt as fixed rate in nature
either by borrowing on a long-term basis or entering into interest rate swap
transactions.
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, which consist of interest rate swaps and debt obligations for
the years ended December 31, 1999 and 1998. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
maturity dates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contracts.
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
There-
1999: 2000 2001 2002 2003 2004 after Total 12/31/99
----------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, including
current portion
Fixed rate -- -- -- -- -- $200,000 $200,000 $194,000
Average interest rate -- -- -- -- -- 9.00%
Variable rate $ 7,500 $ 19,300 $31,100 $38,600 $48,250 $ 48,250 $193,000 $193,000
Average Interest Rate (a) (a) (a) (a) (a) (a)
Interest rate swaps
Pay fixed/receive variable -- $130,000 -- -- -- -- $130,000 $ 4,892
Average pay rate -- 4.60% -- -- -- --
Average receive rate -- 6.20% -- -- -- --
There-
1998: 1999 2000 2001 2002 2003 after Total 12/31/98
----------- -------- ------- ------- ------- -------- -------- --------
Long-term debt, including
current portion
Fixed rate $ 20,000 -- -- -- -- $175,000 $195,000 $195,875
Average interest rate 10.48% -- -- -- -- 9.00%
Variable rate -- $ 7,500 $15,000 $22,500 $ 6,811 -- $ 51,811 $ 51,811
Average Interest Rate -- (a) (a) (a) (a) --
Interest rate swaps
Pay fixed/receive variable $ 200,000 -- -- -- -- -- $200,000 $ 2,706
Average pay rate 4.61% -- -- -- -- --
Average receive rate 5.20% -- -- -- -- --
</TABLE>
(a) The interest rate is based on a base rate or LIBOR plus defined margins
which vary based on our total leverage ratio.
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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is included in Item 14, pages F-1
through F-27.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning our directors and certain executive officers,
see the sections entitled "Item 1 - Election of Directors" and "Management
Information" in our definitive Proxy Statement dated March 31, 2000, which is
incorporated into this section by reference and "Executive Officers of the
Registrant" under Part I of this report.
ITEM 11 - EXECUTIVE COMPENSATION
For information concerning executive compensation, see the sections
entitled "Item 1 - Election of Directors" and "Management Information" in our
definitive Proxy Statement dated March 31, 2000, which information is
incorporated into this section by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 2000, Barry A. Ackerley and Gabelli Funds, Inc. were the
only persons, to our knowledge, owning beneficially more than 5% of the
outstanding shares of Common Stock and Class B Common Stock. For information
concerning these shareholders' holdings as well as the security ownership of
management, see the section entitled "Management Information - Share Ownership"
in our definitive Proxy Statement dated March 31, 2000, which information is
incorporated into this section by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related
transactions, see the Section entitled "Management Information - Certain
Relationships and Related Transactions" in our definitive Proxy Statement dated
March 31, 2000, which information is incorporated into this section by
reference.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules.
The following documents are being filed as part of this Report:
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Ernst & Young, LLP, Independent Auditors.....................................F-1
Consolidated balance sheets as of December 31, 1999 and 1998...........................F-2
Consolidated statements of income for the years ended
December 31, 1999, 1998 and 1997.......................................................F-3
Consolidated statements of stockholders' equity (deficiency) for
the years ended December 31, 1999, 1998 and 1997.......................................F-4
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997.......................................................F-5
Notes to consolidated financial statements.............................................F-7
</TABLE>
Schedules are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the consolidated financial
statements or notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
- ------- -------
<S> <C>
3.1 Fourth Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.
10.1 Credit Agreement dated January 22, 1999, by and among The Ackerley
Group, Inc., certain lenders named therein, and First Union
National Bank, Fleet Bank, N.A., Union Bank of California, N.A.,
KeyBank National Association, and Bank of Montreal, Chicago
Branch, as agents.(2)
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
No. Exhibit
- ------- -------
<S> <C>
10.2 First Amendment to Credit Agreement, dated as of June 11, 1999,
among The Ackerley Group, Inc., certain lenders named therein, and
First Union National Bank, Fleet Bank, N.A., Union Bank of
California, N.A. and KeyBank National Association, as agents.
10.3 Second Amendment to Credit Agreement, dated as of September 10,
1999, among The Ackerley Group, Inc., certain lenders named
therein, and First Union National Bank, Fleet Bank, N.A., Union
Bank of California, N.A. and KeyBank National Association, as
agents.
10.4 Third Amendment to Credit Agreement, dated as of January 7, 2000,
among The Ackerley Group, Inc., certain lenders named therein, and
First Union National Bank, Fleet Bank, N.A., Union Bank of
California, N.A. and KeyBank National Association, as agents.
10.5 Fourth Amendment to Credit Agreement, dated as of February 11,
2000, among The Ackerley Group, Inc., certain lenders named
therein, and First Union National Bank, Fleet Bank, N.A., Union
Bank of California, N.A. and KeyBank National Association, as
agents.
10.6 Security Agreement dated January 22, 1999 between The Ackerley
Group, Inc. and First Union National Bank, as administrative
agent.(2)
10.7 Pledge Agreement dated January 22, 1999 between The Ackerley
Group, Inc. and First Union National Bank, as administrative
agent.(2)
10.8 Indenture dated December 14, 1998 between The Ackerley Group, Inc.
and The Bank of New York, as Trustee, relating to the 9% Senior
Subordinated Notes due 2009.(3)
10.9 First Supplemental Indenture dated as of April 8, 1999 between The
Ackerley Group, Inc., the guarantors named therein, and The Bank
of New York, as Trustee.
10.10 Employees Stock Option Plan, as amended and restated on May 11,
1999.(4)
10.11 Nonemployee-Director's Equity Compensation Plan.(5)
10.12 Employee Stock Purchase Plan.(6)
10.13 Premises Use and Occupancy Agreement between The City of Seattle
and SSI Sports, Inc. dated March 2, 1994.(7)
10.14 Purchase and Sale Agreement between Sky Sites, Inc. and Ackerley
Airport Advertising, Inc., dated as of May 19, 1998.(8)
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
No. Exhibit
- ------- -------
<S> <C>
10.15 Purchase and Sale Agreement between Sinclair Communications, Inc.
and The Ackerley Group, Inc., dated as of September 25, 1998.(9)
10.16 Asset Purchase Agreement dated as of November 10, 1999 between AK
Media, Inc. and Eller Media Company.(10)
10.17 Amendment No. 1 to Asset Purchase Agreement dated as of December
28, 1999 between AK Media, Inc., AK Florida, Inc. and Eller Media
Company.(10)
21 Subsidiaries of The Ackerley Group.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
</TABLE>
- -----------------
(1) Incorporated by reference to Exhibit 3.0 to The Ackerley Group's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
(2) Incorporated by reference to Exhibits 10.1, 10.2, and 10.3,
respectively, to Amendment No. 1 to The Ackerley Group's Registration
Statement on Form S-4 (Registration No. 333-71583), filed March 10, 1999.
(3) Incorporated by reference to Exhibit 4.1 to The Ackerley Group's
Registration Statement on Form S-4 (Registration No. 333-71583), filed
February 2, 1999.
(4) Incorporated by reference to Exhibit 10 to The Ackerley Group's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
(5) Incorporated by reference to Exhibit 99.1 to The Ackerley Group's
Registration Statement on Form S-8, filed on May 14, 1996.
(6) Incorporated by reference to Exhibit 4.1 to The Ackerley Group's
Registration Statement on Form S-8, filed on December 27, 1999.
(7) Incorporated by reference to Exhibit 10.22 to The Ackerley Group's 1994
Annual Report of Form 10-K.
(8) Incorporated by reference to Exhibit 10 to The Ackerley Group's Current
Report on Form 8-K, filed on July 15, 1998.
(9) Incorporated by reference to Exhibit 10 to The Ackerley Group's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
(10) Incorporated by reference to Exhibits 10.1 and 10.2, respectively, to The
Ackerley Group's Current Report on Form 8-K, filed on January 12, 2000.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1999.
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<PAGE> 58
(c) Exhibits required by Item 601 of Regulation S-K are being filed herewith.
See Item 14(a)(3) above.
(d) Financial statements required by Regulation S-X are being filed herewith.
See Item 14(a)(1) and (2) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Ackerley Group has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 29th
day of March, 2000.
THE ACKERLEY GROUP, INC.
By: /s/ BARRY A. ACKERLEY
----------------------------------
Barry A. Ackerley, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of The
Ackerley Group and in the capacities and on the dates indicated, on the 29th
day of March, 2000.
<TABLE>
<S> <C>
A Majority of the Board of Directors: Principal Executive Officer:
/s/ BARRY A. ACKERLEY By: /s/ BARRY A. ACKERLEY
- ------------------------------------- -------------------------------------
Barry A. Ackerley, Chairman Barry A. Ackerley, Chairman and
Chief Executive Officer
/s/ GAIL A. ACKERLEY
- -------------------------------------
Gail A. Ackerley, Co-Chairman
Principal Financial Officer:
/s/ CHRISTOPHER H. ACKERLEY /s/ DENIS M. CURLEY
- ------------------------------------- -------------------------------------
Christopher H. Ackerley, Director Denis M. Curley, Co-President, Chief
Operating Officer and Chief Financial
Officer, Treasurer and Secretary
/s/ EDWARD G. ACKERLEY
- -------------------------------------
Edward G. Ackerley, Director
Principal Accounting Officer:
/s/ DEBORAH L. BEVIER /s/ KEITH W. RITZMANN
- ------------------------------------- -------------------------------------
Deborah L. Bevier, Director Keith W. Ritzmann, Senior Vice President
and Chief Technology Officer, Assistant
Secretary and Controller
/s/ CHRIS W. BIRKELAND
- -------------------------------------
Chris W. Birkeland, Director
</TABLE>
58
<PAGE> 60
/s/ KIMBERLEY ACKERLEY CLEWORTH
- -------------------------------------
Kimberley Ackerley Cleworth, Director
/s/ KEITH GRINSTEIN
- -------------------------------------
Keith Grinstein, Director
/s/ MICHAEL T. LENNON
- -------------------------------------
Michael T. Lennon, Director
/s/ MICHEL C. THIELEN
- -------------------------------------
Michel C. Thielen, Director
*By: _________________________________
Attorney-in-Fact
59
<PAGE> 61
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The Ackerley Group, Inc.
We have audited the accompanying consolidated balance sheets of The Ackerley
Group, Inc., as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity (deficiency), and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Ackerley
Group, Inc. at December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
---------------------------------
Seattle, Washington
February 1, 2000 except for Note 3, as to which
the date is February 22, 2000
F-1
<PAGE> 62
THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
December 31,
-----------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,808 $ 4,630
Accounts receivable, net of allowance
(1999-$1,865, 1998-$1,435) 61,133 44,680
Current portion of broadcast rights 6,752 7,339
Prepaid expenses 15,777 10,212
Deferred tax asset 13,819 4,497
Other current assets 3,607 3,883
--------- ---------
Total current assets 103,896 75,241
Property and equipment, net 142,851 113,108
Goodwill, net 219,478 70,034
Other intangibles, net 22,899 7,780
Other assets 39,312 49,963
--------- ---------
Total assets $ 528,436 $ 316,126
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 6,827 $ 8,004
Accrued interest 10,936 694
Accrued wages and commissions 5,475 1,353
Other accrued liabilities 10,902 10,508
Deferred revenue 21,067 27,736
Current portion of broadcasting obligations 8,242 8,139
Litigation accrual 7,911 --
Current portion of long-term debt 10,832 3,101
--------- ---------
Total current liabilities 82,192 59,535
Long-term debt, less current portion 403,761 266,999
Litigation accrual -- 8,016
Other long-term liabilities 15,194 7,417
--------- ---------
Total liabilities 501,147 341,967
Commitments and contingencies
Stockholders' equity (deficiency)
Common stock, par value $.01 per share--authorized
50,000,000 shares; issued 1999-25,251,419 and
1998-21,951,380 shares; and outstanding 1999-23,876,473 252 219
and 1998-20,576,434
Class B common stock, par value $.01 per share--authorized
11,406,510 shares; issued and outstanding 1999-11,088,730
and 1998-11,051,230 shares 111 111
Capital in excess of par value 57,478 10,339
Accumulated deficit (20,463) (26,421)
Less common stock in treasury, at cost (1,374,946 shares) (10,089) (10,089)
--------- ---------
Total stockholders' equity (deficiency) 27,289 (25,841)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 528,436 $ 316,126
========= =========
</TABLE>
See accompanying notes
F-2
<PAGE> 63
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenue $ 315,319 $ 292,907 $ 306,169
Less agency commissions and discounts 37,131 36,256 34,994
--------- --------- ---------
Net revenue 278,188 256,651 271,175
Expenses (other income):
Operating expenses $ 227,697 209,030 210,752
Restructuring expenses 1,125 -- --
Amortization expense 14,167 4,839 4,146
Depreciation expense 14,181 11,735 11,957
Interest expense 35,632 25,109 26,219
Stock compensation expense 559 452 9,344
Net gain on dispositions of assets (28,999) (33,524) --
Litigation adjustment -- -- (5,000)
--------- --------- ---------
Total expenses and other income 264,362 217,641 257,418
Income before income taxes and extraordinary item 13,826 39,010 13,757
Income tax expense (benefit) 5,863 15,487 (19,172)
--------- --------- ---------
Income before extraordinary item 7,963 23,523 32,929
Extraordinary item: loss on debt extinguishment,
net of taxes 1999-$842 and 1998-$2,491 (1,373) (4,346) --
--------- --------- ---------
Net income $ 6,590 $ 19,177 $ 32,929
========= ========= =========
Earnings per common share:
Income per common share, before extraordinary item $ .24 $ .75 $ 1.05
Extraordinary item: loss on debt extinguishment (.04) (.14) --
--------- --------- ---------
Net income per common share $ .20 $ .61 $ 1.05
========= ========= =========
Earnings per common share - assuming dilution:
Income per common share, before extraordinary item $ .24 $ .74 $ 1.04
Extraordinary item: loss on debt extinguishment (.04) (.14) --
--------- --------- ---------
Net income per common share - assuming dilution $ .20 $ .60 $ 1.04
========= ========= =========
Weighted average number of shares 32,932 31,627 31,345
Weighted average number of shares - assuming dilution 33,110 31,883 31,652
</TABLE>
See accompanying notes
F-3
<PAGE> 64
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIENCY)
(In thousands, except share information)
<TABLE>
<CAPTION>
Class B Common
Common Stock Common Stock Capital in Stock in
------------------- ---------------------- Excess of Accumulated Treasury
Shares Amount Shares Amount Par Value Deficit (at cost) Total
---------- ------ ---------- ------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 21,186,724 $212 11,353,810 $ 114 $ 3,195 $(77,271) $(10,089) $(83,839)
Stock compensation, exercise
of stock options and stock
conversions 668,674 6 (300,300) (3) 6,621 -- -- 6,624
Cash dividend, $0.02 per share -- -- -- -- (623) (623)
Net income -- -- -- -- -- 32,929 -- 32,929
---------- ---- ---------- ------- ------- -------- -------- --------
Balance, December 31, 1997 21,855,398 218 11,053,510 111 9,816 (44,965) (10,089) (44,909)
Stock compensation, exercise
of stock options and stock
conversions 95,982 1 (2,280) -- 523 -- -- 524
Cash dividend, $0.02 per -- -- -- -- (633) (633)
share
Net income -- -- -- -- -- 19,177 -- 19,177
---------- ---- ---------- ------- ------- -------- -------- --------
Balance, December 31, 1998 21,951,380 219 11,051,230 111 10,339 (26,421) (10,089) (25,841)
Stock compensation, exercise
of stock options and stock
conversions 50,039 -- 37,500 -- 693 -- -- 693
Stock issued at $15.25 per
share, net of stock issuance
costs of $3,084 3,250,000 33 -- -- 46,446 -- -- 46,479
Cash dividend, $0.02 per share -- -- -- -- -- (632) -- (632)
Net income -- -- -- -- 6,590 6,590
---------- ---- ---------- ------- ------- -------- -------- --------
Balance, December 31, 1999 25,251,419 $252 11,088,730 $ 111 $57,478 $(20,463) $(10,089) $ 27,289
========== ==== ========== ======= ======= ======== ======== ========
</TABLE>
See accompanying notes
F-4
<PAGE> 65
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Reconciliation of net income to net cash provided by
(used in) operating activities:
Net income $ 6,590 $ 19,177 $ 32,929
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 28,348 16,574 16,103
Net gain on dispositions of assets (28,999) (33,524) (155)
Amortization of broadcast rights 11,094 10,283 8,957
Deferred tax expense (benefit) 5,453 15,130 (19,798)
Stock compensation expense 559 452 9,344
Litigation adjustment -- -- (5,000)
Loss on debt extinguishment, net of taxes 1,373 (394) --
Amortization of deferred financing costs 1,648 713 1,790
Income from barter transactions (1,785) (1,645) (1,535)
Gain on termination of interest rate
swap agreement (371) -- --
Change in assets and liabilities:
Accounts receivable (13,184) 7,760 (9,169)
Prepaid expenses (5,353) 1,958 976
Other current assets and other assets 1,413 (3,545) (3,418)
Accounts payable, accrued interest, and
accrued wages and commissions 13,154 (7,239) 4,260
Other accrued liabilities and other
long-term liabilities (2,560) (3,282) (1,803)
Deferred revenues (6,669) 3,879 3,807
Current portion of broadcast obligations (10,878) (11,453) (9,278)
--------- --------- --------
Net cash provided by (used in) operating activities (167) 14,844 28,010
Cash flows from investing activities:
Proceeds from disposition of assets 13,423 41,237 --
Proceeds from sale of property and equipment 510 294 275
Payments for acquisitions (166,625) (55,759) (2,483)
Capital expenditures (29,114) (32,719) (17,593)
Payments for investments (5,000) -- --
--------- --------- --------
Net cash used in investing activities (186,806) (46,947) (19,801)
Cash flows from financing activities:
Borrowings under credit agreements 309,063 461,100 27,000
Repayments under credit agreements (163,704) (419,588) (33,283)
Payments under capital lease obligations (903) (765) (817)
Note redemption prepayment fees (1,208) -- --
Dividends paid (632) (633) (623)
Payments of deferred financing costs (6,083) (7,109) --
Net proceeds from stock issuance 46,613 72 260
Proceeds from termination of interest rate
swap agreement 2,005 -- --
--------- --------- --------
Net cash provided by (used in) financing activities 185,151 33,077 (7,463)
========= ========= ========
</TABLE>
F-5
<PAGE> 66
<TABLE>
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents (1,822) 974 746
Cash and cash equivalents at beginning of period 4,630 3,656 2,910
--------- --------- --------
Cash and cash equivalents at end of period $ 2,808 $ 4,630 $ 3,656
========= ========= ========
</TABLE>
F-6
<PAGE> 67
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid, net of capitalized interest $22,073 $27,697 $23,163
Income taxes paid 670 1,069 836
Noncash transactions:
Broadcast rights acquired and broadcast
obligations assumed $ 7,531 $ 8,828 $12,201
Property and equipment acquired through
barter 969 1,234 1,053
Exchange of television station assets 24,000 -- --
</TABLE>
See accompanying notes
F-7
<PAGE> 68
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Summary of significant accounting policies
(a) Organization - The Ackerley Group, Inc. and its subsidiaries (the
"Company") is a diversified media and entertainment company that engages in four
principal business segments: (i) outdoor media, (ii) television broadcasting;
(iii) radio broadcasting; and (iv) sports & entertainment. The Company currently
conducts its outdoor media advertising operations principally in the markets of
Seattle-Tacoma, Washington; Portland, Oregon; and Boston-Worcester,
Massachusetts. The Company currently owns twelve television stations and
provides programming and sales services to three television stations located in
New York, California, Oregon, Washington, and Alaska. The Company currently owns
two AM and two FM radio stations and provides sales and other services to a
third FM radio station in the Seattle-Tacoma market. The sports & entertainment
segment includes ownership of the Seattle SuperSonics, a franchise of the
National Basketball Association, and the Seattle Storm, a WNBA expansion team.
(b) Principles of consolidation - The accompanying financial statements
consolidate the accounts of the Company, all of which are wholly-owned. All
significant intercompany transactions have been eliminated in consolidation.
(c) Revenue recognition - Outdoor display advertising revenue is
recognized ratably on a monthly basis over the period in which advertisement
displays are posted on the advertising structures or in the display units.
Broadcast revenue is recognized in the period in which the advertisements are
aired. Payments from clients received in excess of one month's advertising are
recorded as deferred revenue. Ticket payments are recorded as deferred revenue
when received and recognized as revenue ratably as home games are played.
(d) Barter transactions - The Company also accepts nonmonetary
compensation, such as goods and services, for its advertising space or time.
These barter transactions are recorded at the estimated fair value of the asset
or service received. Revenue is recognized when the advertising is provided and
assets or expenses are recorded when assets are received or services are used.
Goods and services due to the Company in excess of advertising provided are
recorded in other current assets. Advertising to be provided in excess of goods
and services received are recorded in other accrued liabilities.
(e) Property and equipment - Property and equipment are carried at cost.
The Company depreciates large groups of assets with homogeneous characteristics
and useful lives. Under group depreciation, no gain or loss on disposals is
recognized unless the asset group is fully depreciated. For assets accounted for
under group depreciation, the Company recognizes gains on disposals primarily
from proceeds received from condemnations of fully-depreciated advertising
structures. The Company recognizes gains and losses on disposals of individual,
non-homogeneous assets. Depreciation of property and equipment, including the
cost of assets recorded under capital lease agreements, is provided on the
straight-line and accelerated methods over the estimated useful lives of the
assets or lease terms.
F-8
<PAGE> 69
(f) Intangible assets - Intangible assets are carried at cost and
amortized principally on the straight-line method over estimated useful lives.
Goodwill represents the cost of acquired businesses in excess of amounts
assigned to certain tangible and intangible assets at the dates of acquisition.
Long-lived assets (including related goodwill and other intangible assets) are
reviewed on a regular basis for the existence of facts or circumstances that may
suggest impairment. If such impairment is identified, the impairment loss will
be measured by comparing the estimated future undiscounted cash flows to the
asset's carrying value. To date, no such impairment has been identified.
(g) Broadcast rights and obligations - Television films and syndication
rights acquired under license agreements (broadcast rights) and the related
obligations incurred are recorded as assets and liabilities for the gross amount
of the contract at the time the rights are available for broadcasting. Broadcast
rights are amortized on an accelerated basis over the contract period or the
estimated number of showings, whichever results in the greater aggregate monthly
amortization. Broadcast rights are carried at the lower of unamortized cost or
net realizable value. The estimated cost of broadcast rights to be amortized
during the next year has been classified as a current asset. Broadcast
obligations are stated at contractual amounts and balances due within one year
are reported as current obligations.
(h) Stock based compensation - The Company generally grants stock
options for a fixed number of shares to employees with an exercise price equal
to the fair value of the shares at the date of grant. The Company has elected to
account for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees and related Interpretations, and
recognizes compensation expense for incentive stock option grants using the
intrinsic method.
(i) Earnings per share - Basic earnings per share excludes dilution and
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution that could occur if options and rights to
purchase common stock were exercised.
The dilutive effects of the weighted-average number of shares
representing options and rights included in the calculation of diluted earnings
per share were 177,587 shares, 256,079 shares, and 306,982 shares in 1999, 1998,
and 1997, respectively. There were no differences between net income amounts
used to calculate basic and diluted earnings per share for any of the periods
presented.
(j) Cash equivalents - The Company considers investments in highly
liquid debt instruments with a maturity of three months or less when purchased
to be cash equivalents.
(k) Concentration of credit risk and financial instruments - The Company
sells advertising to local and national companies throughout the United States.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
credit losses. The Company invests its excess cash in short-term investments
with major banks. The carrying value of financial instruments, which include
cash, receivables, payables, and long-term debt, approximates fair value at
December 31, 1999.
F-9
<PAGE> 70
The Company uses interest rate swap agreements to modify the interest
rate characteristics of its long-term debt. Each interest rate swap agreement is
designated with all or a portion of the principal balance and term of a specific
debt obligation. These agreements generally involve the exchange of floating for
fixed-rate payment obligations over the life of the agreement without an
exchange of underlying principal amount. The differential to be paid or received
is accrued as interest rates change and is recognized as an adjustment to
interest expense related to the debt. The related net amount payable to or
receivable from counterparties is included in accrued interest. The fair values
of the swap agreements and changes in their fair value as a result of changes in
market interest rates are not recognized in the financial statements. Gains and
losses on termination of interest rate swap agreements are deferred and
amortized as an adjustment to interest expense related to the debt over the
remaining term of the original contract life of the terminated swap agreement.
(l) Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
(m) Reclassifications - Certain prior years' amounts have been
reclassified to conform to the 1999 presentation.
2. New accounting standard
In June 1999, the Financial Accounting Standards Board issued Statement
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133. The statement deferred for one
year the effective date of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Statement No. 133 will now apply to all
fiscal quarters of all fiscal years beginning after June 15, 2000. The impact of
the statement is currently being studied, and the effect of the new statement on
the financial statements has not been determined.
3. Acquisitions and dispositions
Partnership Redemption. The Company's wholly-owned subsidiary, KJR
Radio, Inc., was a limited partner in New Century Seattle Partners, L.P. (the
"Partnership") which owned and operated radio stations in the Seattle-Tacoma
area. On February 17, 1998, the Partnership redeemed the limited partnership
interests and satisfied certain other obligations of the former limited partners
for $18.0 million. Effective April 30, 1998, the Partnership redeemed all the
interests of Century Management, Inc., its general partner, for approximately
$17.8 million. Upon closing, KJR Radio, Inc. became the Partnership's sole
general partner and licensee of the radio stations held by the Partnership and
at that same time, AK Media Group, Inc., the Company's principal operating
subsidiary, became the Partnership's nominal and sole limited partner. Effective
December 31, 1998, the Partnership was dissolved and KJR Radio, Inc. was merged
into AK Media Group. Inc.
Sale of Airport Advertising Operations. On June 30, 1998, the Company
sold substantially all of the assets of its airport advertising operations to
Sky Sites, Inc., a subsidiary
F-10
<PAGE> 71
of Havas, S.A., pursuant to an agreement dated May 19, 1998. The sale price
consisted of a base cash price of $40.0 million, paid on the closing date of the
transaction, and an additional cash payment of approximately $2.8 million, of
which $1.2 million was paid in December 1998 and the remainder was paid in
January 1999. The pre-tax gain recognized from this transaction was
approximately $33.5 million in 1998 and approximately $1.6 million in 1999.
Acquisition of WIVT(TV). On August 31, 1998, the Company exercised its
option to purchase the assets of WIVT(TV), the ABC affiliate licensed to
Binghamton, New York, for $9.0 million. The Company recorded net assets with
estimated fair values aggregating $1.2 million and goodwill of $7.8 million. The
Company previously provided programming and sales services under a local
marketing agreement with the previous owner.
Acquisition of Outdoor Advertising Company in Miami, Florida. On
September 4, 1998, the Company purchased substantially all of the assets of an
outdoor advertising company in Miami, Florida for approximately $2.4 million.
Acquisition of KVIQ(TV). On January 5, 1999, the Company purchased
substantially all of the assets of KVIQ(TV), the CBS affiliate licensed to
Eureka, California, for approximately $5.5 million, pursuant to an agreement
dated July 15, 1998. Pending closing of the transaction, the Company provided
programming and sales services under a local marketing agreement with the
previous owner. The Company recorded net assets with estimated fair values
aggregating $0.5 million and goodwill of $5.0 million in connection with the
transaction.
Acquisition of Outdoor Advertising Company in Boston-Worcester,
Massachusetts. On February 19, 1999, the Company purchased substantially all of
the assets of an outdoor advertising company in the Boston-Worcester,
Massachusetts market for approximately $11.0 million. The Company recorded net
assets with estimated fair values aggregating $0.6 million and goodwill of $10.4
million in connection with the transaction.
Acquisition of KMTR(TV). On March 16, 1999, the Company purchased
substantially all of the assets of KMTR(TV), the NBC affiliate licensed to
Eugene, Oregon, together with two satellite stations licensed to Roseburg and
Coos Bay, Oregon, and a low power station licensed to Eugene. The purchase price
was approximately $26.0 million. From December 1, 1998 until closing of the
transaction, the Company provided programming and sales services under a local
marketing agreement with the previous owner. The Company recorded net assets
with estimated fair values aggregating $3.0 million and goodwill of $23.0
million in connection with the transaction.
Acquisition of WOKR(TV). On April 12, 1999, the Company purchased
substantially all of the assets of WOKR(TV), the ABC affiliate licensed to
Rochester, New York, for approximately $128.2 million. In September 1998, the
Company paid $12.5 million of the purchase price into an escrow account, with
the balance paid at closing. The Company recorded net assets with estimated fair
values aggregating $10.3 million and goodwill of $117.9 million in connection
with the transaction.
The following table summarizes, on an unaudited pro forma basis, the
consolidated results of operations of the Company for the year ended December
31, 1999 and 1998, giving pro
F-11
<PAGE> 72
forma effect to the acquisition of WOKR(TV) as if the acquisition had been made
at the beginning of the periods presented. These pro forma consolidated
statements do not necessarily reflect the results of operations which would have
occurred had such an acquisition taken place on the date indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1999 1998
--------- ---------
(In thousands, except per
share amounts)
<S> <C> <C>
Net revenue $ 282,086 $ 274,941
Operating expenses (231,374) (224,052)
Income before extraordinary item 8,078 25,441
Net income 6,705 21,095
Net income per common share .20 .67
Net income per common share, assuming dilution .20 .66
</TABLE>
Exchange of KKTV(TV) for KCOY(TV). On May 1, 1999, the Company exchanged
substantially all of the assets plus certain liabilities of KKTV(TV), the CBS
affiliate licensed to Colorado Springs, Colorado, for substantially all of the
assets plus certain liabilities of KCOY(TV), the CBS affiliate licensed to Santa
Maria, California. In conjunction with the transaction, the Company received a
cash payment of approximately $9.0 million. In connection with the transaction,
the Company recorded net assets with estimated fair values aggregating $7.2
million, intangible assets of $16.8 million, and a gain of $28.6 million in the
second quarter of 1999. Pending closing of the transaction, the Company
programmed KCOY(TV) and the previous owner of KCOY(TV) programmed KKTV(TV) under
local marketing agreements.
Sale of Radio Broadcasting Tower. On July 6, 1999, the Company sold a
radio broadcasting tower for approximately $2.8 million. In connection with the
transaction, the Company recorded a loss from disposition of assets of $1.2
million, which represented the write-down of the property and equipment's
carrying cost to fair value, in the second quarter of 1999.
Acquisition of KTVF(TV). On August 2, 1999, the Company purchased
substantially all of the assets of KTVF(TV), the NBC affiliate licensed to
Fairbanks, Alaska, for approximately $7.2 million. The Company recorded net
assets with estimated fair values aggregating $1.8 million and goodwill of $5.4
million in connection with the transaction.
Investment in KFNK(FM). On September 13, 1999, the Company entered into
a joint sales agreement with the owner of radio station KFNK(FM) in Eatonville,
Washington. Under the agreement, the Company pays the owner a monthly fee for
the right to sell advertising on the station. In connection with the
transaction, the Company paid $4.0 million under a put and call agreement
whereby the Company may elect, or be required by the owner, to purchase the
station's assets any time after November 2002. The gross purchase price of the
station's assets, which is primarily based on the station's ratings at the time
of the sale, ranges from $4.5 million to $11.7 million. The gross purchase price
would be reduced by the Company's $4.0 million payment under the put and call
agreement plus accrued interest.
Sale of Florida Outdoor Advertising Operations. On January 5, 2000, the
Company sold substantially all of the assets of its outdoor advertising
operations serving the Miami-Fort
F-12
<PAGE> 73
Lauderdale and West Palm Beach-Fort Pierce, Florida markets to Eller Media
Company, a subsidiary of Clear Channel Communications, Inc. for approximately
$300.0 million in cash, plus the assumption of certain liabilities.
Sale of KCBA(TV) and Acquisition of KION (TV). On January 12, 2000, the
Company sold substantially all of the assets of KCBA(TV), the FOX affiliate
licensed to Monterey, California, for approximately $11.0 million and entered
into a local marketing agreement with the purchaser to provide programming and
sales services. Concurrent with this sale, the Company purchased substantially
all the assets of KION(TV), the CBS affiliate licensed to Salinas, California,
for approximately $7.7 million, subject to certain reductions. From April 24,
1996 until closing of the transaction, the Company provided programming and
sales services under a local marketing agreement with the previous owner.
Acquisition of WUTR(TV). On January 20, 2000, the Company purchased
substantially all of the assets of WUTR(TV), the ABC affiliate licensed to
Utica, New York, for approximately $7.9 million. From June 30, 1997 until
closing of the transaction, the Company provided programming and sales services
under a local marketing agreement with the previous owner.
Acquisition of Outdoor Advertising Company in Bellingham, Washington. On
January 31, 2000, the Company purchased substantially all of the assets of an
outdoor advertising company in Bellingham, Washington for approximately $2.9
million.
Acquisition of Outdoor Advertising Company in Washington and Oregon. On
January 13, 2000, the Company entered into agreements to purchase substantially
all of the assets of an outdoor advertising company serving portions of
Washington and Oregon for approximately $14.5 million plus the assumption of
certain liabilities. The Company paid $7.5 million of the purchase price on
February 1, 2000 and the remaining balance on March 1, 2000.
Investment in WETM(TV). On February 1, 2000, the Company entered into a
local marketing agreement with Smith Television of New York, Inc. ("STNY") to
provide programming and sales services to WETM(TV), the NBC affiliate licensed
to Elmira, New York. The Company also purchased a 20% non-voting equity interest
in the STNY for approximately $17.0 million. Beginning in August 2003, STNY may
require the Company to exchange the interest in STNY, plus $11.0 million in
cash, for all the assets of WETM(TV). Under certain circumstances, the Company
may have an option to purchase all or a controlling interest in STNY.
Acquisition of WBGH-LP. On February 1, 2000, the Company purchased
substantially all of the assets, other than the FCC license, of WBGH-LP, a
low-power NBC affiliate licensed to Binghamton, New York, for approximately $9.0
million. The Company entered into a local marketing agreement with the FCC
licensee of WBGH-LP pending FCC approval of the transaction. Upon closing of the
transaction, the FCC license will be transferred to the Company for no
additional consideration.
Acquisition of Outdoor Advertising Company in New Jersey and New York
City. On February 22, 2000, the Company entered into an agreement to purchase
substantially all of the
F-13
<PAGE> 74
assets of an outdoor advertising company in New Jersey and New York City for
approximately $19.8 million.
4. Accounts receivable and allowance for doubtful accounts
As of December 31, 1999 and 1998, accounts receivable includes employee
receivables of $0.7 million and $2.4 million, respectively.
The activity in the allowance for doubtful accounts is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 1,435 $ 1,498
Additions charged to operating expense 1,611 1,023
Write-offs of receivables, net of recoveries (1,181) (1,086)
------- -------
Balance at end of year $ 1,865 $ 1,435
======= =======
</TABLE>
5. Property and equipment
At December 31, 1999 and 1998, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Life
--------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Land $ 9,735 $ 7,719
Advertising structures 79,171 75,023 6-20 years
Broadcast equipment 57,841 57,891 6-20 years
Building and improvements 50,310 40,387 3-40 years
Office furniture and equipment 32,341 26,909 5-10 years
Transportation and other equipment 31,870 29,573 5-6 years
Equipment under capital leases 8,008 8,008 10 years
Construction in progress 11,680 7,766
--------- ---------
280,956 253,276
Less accumulated depreciation 138,105 140,168
--------- ---------
$ 142,851 $ 113,108
========= =========
</TABLE>
6. Intangibles
At December 31, 1999 and 1998, intangibles consisted of the following:
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Life
--------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Goodwill $ 245,033 $ 84,032 15-40 years
Favorable leases and contracts 17,422 17,462 20 years
Broadcasting agreements 4,000 4,000 15 years
Other 22,877 6,196 5-30 years
------------ ------------
289,332 111,690
Less accumulated amortization 46,955 33,876
------------ ------------
$ 242,377 $ 77,814
============ ============
</TABLE>
F-14
<PAGE> 75
The increase in intangibles in 1999 is primarily due to the recording of
goodwill and other intangibles related to the acquisitions of an outdoor
advertising company and television stations KVIQ, KMTR, WOKR, KCOY, and KTVF, as
discussed in Note 3. Goodwill related to these acquisitions is being amortized
over an estimated useful life of fifteen years.
7. Debt
On January 28, 1998, the Company replaced the 1996 Credit Agreement with
a $265.0 million credit agreement (the "1998 Credit Agreement") and in October
1998 used borrowings to redeem its $120.0 million 10.75% Senior Secured Notes.
This resulted in a charge of approximately $4.3 million, net of applicable taxes
of $2.5 million, consisting of prepayment fees and the write-off of deferred
financing costs.
On December 14, 1998, the Company issued 9% Senior Subordinated Notes
due 2009 (the "9% Senior Subordinated Notes") in the aggregate principal amount
of $175.0 million. These notes were issued under an indenture which allows for
an aggregate principal amount of up to $250.0 million. These notes bear interest
at 9% which is payable semi-annually in January and July. Principal is payable
in full in January 2009.
On January 22, 1999, the Company replaced the 1998 Credit Agreement with
a new $325.0 million credit agreement (the "1999 Credit Agreement"), consisting
of a $150.0 million term loan facility (the "Term Loan") and a $175.0 million
revolving credit facility (the "Revolver"), which includes up to $10.0 million
in standby letters of credit. The transaction resulted in a charge of
approximately $0.6 million, net of applicable taxes of $0.4 million, consisting
of the write-off of deferred financing costs.
Principal repayments under the Term Loan are due quarterly from March
31, 2000 through December 31, 2005. The Revolver requires scheduled annual
commitment reductions, with required principal repayments of outstanding amounts
in excess of the commitment levels, quarterly beginning March 31, 2001 through
December 31, 2005.
The Company can choose to have interest calculated at rates based on
either a base rate or LIBOR plus defined margins which vary based on the
Company's total leverage ratio. The commitment fees under the Revolver are
payable quarterly at a rate based on the Company's total leverage ratio. At
December 31, 1999, the weighted average interest rate of borrowings under the
1999 Credit Agreement was approximately 9.0%.
On February 24, 1999, the Company issued additional 9% Senior
Subordinated Notes in the aggregate amount of $25.0 million. In connection with
the transaction, the Company recorded a premium of $1.1 million, which is being
amortized over the remaining term of the 9% Senior Subordinated Notes. The total
aggregate amount of 9% Senior Subordinated Notes issued
F-15
<PAGE> 76
and outstanding is $200.0 million. At December 31, 1999, the trading price of
the 9% Senior Subordinated Note was 97.00%.
On March 15, 1999, the Company redeemed its $20.0 million outstanding
principal of the 10.48% Senior Subordinated Notes due 2000 with borrowings under
the Revolver. This transaction resulted in a charge of approximately $0.8
million, net of applicable taxes of $0.5 million, consisting of prepayment fees
and the write-off of deferred financing costs.
On August 6, 1999, the Company received proceeds of $2.0 million upon
the termination of an interest rate swap agreement with a notional principal
amount of $70.0 million. In connection with the transaction, the gain on the
termination of the interest rate swap agreement has been deferred and is being
amortized as an adjustment to interest expense over the remaining term of the
interest rate swap agreement's original contract life.
On January 5, 2000, the Company applied proceeds from the sale of its
Florida outdoor advertising operations (as discussed in Note 3) to fully repay
outstanding borrowings under the 1999 Credit Agreement, consisting of $43.0
million under the Revolver and $150.0 million under the Term Loan. In connection
with the transaction, the Company amended the 1999 Credit Agreement to waive, on
a one-time basis, the mandatory requirement to apply 100% of net proceeds from
asset dispositions to permanently repay borrowings under the Revolver and to
provide for a new commitment amount under the Revolver of approximately $147.9
million. Additionally, the Company amended the 1999 Credit Agreement to provide
for a delayed-draw term loan facility of approximately $126.8 million (the "2000
Term Loan"). The Company may borrow, through no more than two separate
borrowings, the maximum amount available under the 2000 Term Loan.
At December 31, 1999 and 1998, outstanding balances under letter of
credit agreements totaled $1.1 million and $3.8 million, respectively.
Other debt consists primarily of notes payable related to the
acquisition of an aircraft for the Seattle SuperSonics and obligations under
deferred compensation agreements.
At December 31, 1999 and 1998, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Credit agreements $193,000 $ 51,811
Senior subordinated notes 201,027 195,000
Capital lease obligation (net of imputed
interest of $648 in 1999 and $987 in 1998) 4,782 5,686
Other debt 15,784 17,603
-------- --------
414,593 270,100
Less amounts classified as current 10,832 3,101
-------- --------
$403,761 $266,999
======== ========
</TABLE>
Approximately $0.8 million of interest was capitalized in 1998. There
was no capitalized interest in 1999.
F-16
<PAGE> 77
Future aggregate annual payments of long-term debt for the years ending
December 31 are as follows:
<TABLE>
<CAPTION>
Credit
Agreement Capital Lease Other
and Notes Obligation Debt Total
--------- ------------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
2000 $ 7,575 $ 963 $ 2,294 $ 10,832
2001 19,380 1,027 2,640 23,047
2002 31,188 1,094 2,775 35,057
2003 38,695 1,698 3,013 43,406
2004 48,353 --- 1,429 49,782
Later years 248,836 --- 3,633 252,469
--------- -------- -------- ---------
Total $ 394,027 $ 4,782 $ 15,784 $ 414,593
========= ======== ======== =========
</TABLE>
Substantially all of the outstanding stock and material assets of the
Company's subsidiaries are pledged as collateral under the 1999 Credit
Agreement. In addition, the 1999 Credit Agreement and the indenture under the 9%
Senior Subordinated Notes restrict, among other things, the Company's
borrowings, dividend payments, stock repurchases, sales or transfers of assets
and contain certain other restrictive covenants which require the Company to
maintain certain debt coverage and other financial ratios. On January 7, 2000,
the Company obtained a waiver through June 2001 to certain provisions under the
1999 Credit Agreement.
At December 31, 1999, the Company had outstanding interest rate contacts
with financial institutions which involve the exchange of fixed for floating
rate of LIBOR on a notional principal amount of $130.0 million. The Company's
risk in this transaction is the cost of replacing, at current market rates, the
contracts in the event of default by the counterparties. At December 31, 1999,
the fair value of the contracts, as quoted by the counterparties, were $4.9
million. Management believes the risk of incurring a loss as a result of
non-performance by the counterparties is remote as the contracts are with major
financial institutions.
8. Income taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. At December 31,
1999 and 1998 significant components of the Company's deferred tax assets and
liabilities are as follows:
F-17
<PAGE> 78
<TABLE>
<CAPTION>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 6,329 $ 5,497
Litigation accrual 3,006 3,046
Tax credit carryforwards 2,750 2,346
Capital lease obligation 1,817 2,160
Deferred compensation agreements 855 828
Other 3,723 3,095
------- -------
Total deferred tax assets 18,480 16,972
Deferred tax liabilities:
Tax over book depreciation 8,328 7,562
Basis difference in intangible assets 5,707 348
------- -------
Total deferred tax liabilities 14,035 7,910
------- -------
Net deferred tax assets $ 4,445 $ 9,062
======= =======
</TABLE>
Significant components of the income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 410 $ 387 $ 263
State -- (30) 363
------- -------- --------
410 357 626
Deferred:
Federal 5,070 14,094 (18,235)
State 383 1,036 (1,563)
------- -------- --------
5,453 15,130 (19,798)
------- -------- --------
Income tax expense (benefit) $ 5,863 $ 15,487 $(19,172)
======= ======== ========
</TABLE>
The reconciliation of income taxes computed at the U.S. federal
statutory tax rate to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- --------
(In thousands)
<S> <C> <C> <C>
Tax at U.S. statutory rate $4,839 $13,654 $ 4,815
Non-deductible expenses 659 831 929
State taxes and other 365 1,002 363
Net operating loss carryforwards -- -- (5,744)
Change in valuation account -- -- (19,535)
------ ------- --------
Income tax expense (benefit) $5,863 $15,487 $(19,172)
====== ======= ========
</TABLE>
In 1997, the Company's valuation allowance decreased by $27.2 million,
primarily through utilization of net operating loss carryforwards and the
elimination of the remaining balance due to improved recent and anticipated
future operating results.
F-18
<PAGE> 79
At December 31, 1999, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $17.7 million that expire in
the years 2006, 2007, and 2014 and alternative minimum tax credit carryforwards
of approximately $2.8 million.
9. Employee benefit plan
The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees, who may contribute
from 1% to 15% of their compensation up to a limit imposed by the Internal
Revenue Code. The Company matches participating employee contributions up to 4%
of their compensation and may also make an additional voluntary contribution to
the plan. The Company's contributions totaled $1.3 million in 1999, $1.4 million
in 1998, and $1.1 million in 1997.
10. Stockholders' equity
During the third quarter of 1999, the Company issued 3,250,000 shares of
common stock at $15.25 per share pursuant to an underwritten public offering. In
conjunction with the transaction, the Company received net proceeds of
approximately $46.5 million.
The Class B common stock has the same rights as common stock, except
that the Class B common stock has ten times the voting rights of common stock
and is restricted as to its transfer. Each outstanding share of Class B common
stock may be converted into one share of common stock at any time at the option
of the stockholder.
The Company had various stock purchase agreements to sell shares of its
common stock and Class B common stock to key employees and officers at fair
market value. These agreements expired in 1999. The agreements provided for
distribution of one share of Class B common stock at no extra cost to the holder
for each share of common stock at the time the shares were purchased. In 1998,
15,000 shares of common stock and 15,000 shares of Class B common stock were
purchased under these agreements. In 1999, the remaining 37,500 shares of common
stock and 37,500 shares of Class B common stock were purchased under these
agreements.
The Company's Nonemployee-Directors' Equity Compensation Plan (the
"Directors' Plan") was approved by the Board of Directors in 1995 and the
stockholders of the Company in 1996. The Directors Plan's purpose is to allow
nonemployee directors to elect to receive directors' fees in the form of common
stock instead of cash. There are 100,000 shares of common stock authorized under
the Directors' Plan.
At December 31, 1999, the Company had an aggregate of 12,157,607 shares
of common stock reserved for future issuance, consisting of 11,088,730 shares
reserved for conversion of Class B common stock, 980,250 shares reserved under
the Fourth Amended and Restated Employees Stock Option Plan, and 88,627 shares
reserved under the Directors' Plan.
11. Stock Option Plan
The Company's Employees Stock Option Plan (the "Plan") was approved by
the Board of Directors and the stockholders of the Company in 1983. In 1994, the
Plan was amended to extend the term of the Plan and to increase the amount of
common stock reserved for issuance to
F-19
<PAGE> 80
1,000,000 shares. On May 11, 1999, the Company amended the Plan to increase the
amount of common stock reserved for issuance to 1,500,000 shares. As of December
31, 1999, there were 520,250 shares of common stock available for future grants
under the Plan.
Under the Plan, the exercise price of the options equals the market
price of the Company's stock on the date of grant and the options' maximum life
is 10 years. The options vest at the end of five years of continuous employment.
In 1999 and 1998, the Company recognized stock compensation expense of
$0.5 million and $0.4 million, respectively, primarily due to the amendment of
certain stock option agreements.
In 1997, the Company amended certain employees' stock option agreements,
converting 338,000 incentive stock options to nonqualified stock options. In
conjunction with this transaction, the Company declared bonuses to the option
holders to pass on the Company's projected tax savings, representing deductions
attributable to the exercise of these nonqualified options, to the option
holders. Accordingly, the Company recognized total compensation expense of $8.3
million, consisting of stock compensation expense of $5.4 million and bonus
expense of $2.9 million. The Company also granted 70,000 nonqualified options at
below-market exercise prices and recorded compensation expense of $1.0 million.
A summary of the Company's stock option activity and related information
for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 260,000 $ 5.69 320,600 $ 4.75 658,000 $ 2.96
Granted 210,000 19.50 -- -- 70,000 0.69
Exercised (10,000) 7.63 (60,600) 0.69 (367,400) 0.69
Canceled -- -- -- -- (40,000) 5.53
------- ------- -------
Options outstanding at
end of year 460,000 $ 11.95 260,000 $ 5.69 320,600 $ 4.75
Exercisable at end of
year -- -- 10,000 $ 7.63 60,600 $ 0.69
Weighted average fair
value of options
granted during year $ 12.05 -- $ 14.00
</TABLE>
F-20
<PAGE> 81
Exercise prices for options outstanding at December 31, 1999 ranged from
$3.44 to $19.50. A summary of options outstanding as of December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Weighted-Average
Range of Options Remaining Weighted-Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable
-------------- ----------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C>
$0.00 - $ 3.44 120,000 5.1 $3.44 --
$3.45 - $ 7.63 130,000 6.0 7.63 --
$7.64 - $19.50 210,000 9.5 19.50 --
-------
$0.00 - $19.50 460,000 7.3 years $11.95
</TABLE>
As required by Financial Accounting Standards Board Statement No. 123,
the pro forma information regarding net income and earnings per share has been
calculated as if the Company had accounted for its employee stock options under
the fair value method of that statement. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1999 and 1997,
respectively (there were no grants in 1998): Dividend yield of 0%; expected
volatility of 52% and 55%; risk-free interest rate of 5.7% and 6.0%; and a
weighted-average expected life of the options of 7.5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
net income and earnings per common share follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Pro forma net income $ 6,103 $ 18,971 $ 32,742
Pro forma net income per common
share $ 0.19 $ 0.60 $ 1.04
Pro forma net income per common
share - assuming dilution $ 0.18 $ 0.60 $ 1.03
</TABLE>
The pro forma amounts above may not be representative of the pro forma
effect on reported net income in future years because options vest over several
years and additional options may be granted each year.
12. Commitments and contingencies
The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its operations, including such
matters as contract and lease disputes and complaints alleging employment
discrimination. In addition, the Company participates in various governmental
and administrative proceedings relating to, among other things, condemnation of
outdoor advertising structures without payment of just compensation and matters
affecting the operation of broadcasting facilities. The Company believes that
the
F-21
<PAGE> 82
outcome of any such pending claims or proceedings individually or in the
aggregate, will not have a material adverse effect upon its business or
financial condition, except for the matters discussed in Note 13.
The Company has employment contracts with certain employees, including
basketball coaches and players of the Seattle SuperSonics, extending beyond
December 31, 1999. Most of these contracts require that payments continue to be
made if the individual should be unable to perform because of death or
disability. Future minimum obligations under these contracts for the years
ending December 31 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000 $ 38,388
2001 37,122
2002 26,320
2003 24,941
2004 16,899
Later years 24,581
----------
$ 168,251
==========
</TABLE>
The Seattle SuperSonics maintains disability and life insurance policies
on most of its key players. The level of insurance coverage maintained is based
on the determination of the insurance proceeds which would be required to meet
its guaranteed obligations in the event of permanent or total disability of its
key players.
The Company is required to make future minimum payments for equipment
and facilities under non-cancelable operating lease agreements and broadcast
agreements which expire in more than one year for the years ending December 31
as follows:
<TABLE>
<CAPTION>
Equipment/Facilities Broadcast Obligations
-------------------- ---------------------
(In thousands)
<S> <C> <C>
2000 $ 7,568 $ 8,973
2001 7,177 4,852
2002 6,264 2,076
2003 5,806 151
2004 5,547 ---
Later years 24,642 ---
-------- --------
$ 57,004 $ 16,052
======== ========
</TABLE>
Rent expense for operating leases aggregated $5.8 million in 1999, $5.2
million in 1998, and $5.2 million in 1997. Broadcasting film and programming
expense aggregated $11.2 million in 1999, $10.4 million in 1998, and $8.4
million in 1997.
The Company incurred transportation costs under an operating lease
agreement of $1.3 million in 1998 and $2.0 million in 1997, to a company
controlled by the Company's major stockholder. There were no such amounts in
1999. Principal amounts outstanding on loans to the Company's major stockholder
was approximately $2.0 million at December 31, 1998. There
F-22
<PAGE> 83
were no outstanding amounts on loans to the Company's major stockholder at
December 31, 1999.
13. Litigation accrual
The Company and two of its executive officers were defendants in a
wrongful termination suit brought by former employees. On February 29, 1996, a
jury issued a verdict awarding the plaintiffs compensatory and punitive damages
of approximately $13.0 million. At December 31, 1995, the Company initially
recorded an accrual of $14.2 million, including estimated additional legal
costs, related to the verdict. Following post-trial motions, the punitive
damages award was reduced, and in 1997, the Company reduced the accrual related
to this litigation by $5.0 million.
On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit
ruled in the Company's favor, holding that the plaintiffs did not have a valid
claim under the Federal Fair Labor Standards Act and striking the award of
damages, including all punitive damages. The Court of Appeals remanded the case
for further consideration of whether the plaintiffs have a valid claim under the
Washington State Fair Labor Standards Act.
On March 9, 1999, the Court of Appeals issued an order referring the
case to an 11-judge panel for a new hearing, which was held on April 23, 1999.
On June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. The Company petitioned for review of this decision by
the U.S. Supreme Court, which was denied without comment by the Court on January
18, 2000. Accordingly, the Company paid awarded damages, accrued interest
thereon, and plaintiff attorney's fees, of approximately $7.5 million in the
first quarter of 2000.
14. Television Broadcasting Group Restructuring
On April 6, 1999, the Company announced the launch of Digital
CentralCasting(TM), a digital broadcasting system which allows the Company to
consolidate back-office functions such as operations, programming, advertising
scheduling, and accounting for all of the television stations within a regional
group at one station. To implement this strategy, the Company has organized
eleven of the television stations it owns and/or programs into the following
three regional station groups: New York (WIXT, WOKR, WIVT, WBGH-LP, WUTR, and
WETM), Central California (KCOY, KION, and KGET), and North Coast (KCBA, KMTR,
KVIQ, and KFTY).
The Company expects to complete the implementation of Digital
CentralCasting(TM) for all of its television station groups by the second
quarter of 2000. The Company recorded a $1.1 million restructuring charge in the
second quarter of 1999 relating to the implementation of Digital
CentralCasting(TM). This restructuring charge consisted primarily of costs
associated with employee staff reductions. As of December 31, 1999, termination
benefits of approximately $0.3 million, representing approximately 30 employees,
had been paid and charged to the restructuring accrual. Approximately 100 total
employees are currently estimated to be terminated in connection with the
restructuring.
15. Industry segment information
F-23
<PAGE> 84
The Company organizes its segments based on the products and services
from which revenues are generated. The Company evaluates segment performance and
allocates resources based on Segment Operating Cash Flow. The Company defines
Operating Cash Flow as net revenue less operating expenses before amortization,
depreciation, interest, litigation, and stock compensation expenses and net gain
on dispositions of assets. Segment Operating Cash Flow is defined as Operating
Cash Flow before corporate overhead.
Selected financial information for these segments for the years ended
December 31, 1999, 1998 and 1997 is presented as follows:
<TABLE>
<CAPTION>
Outdoor Television Radio Sports &
Media Broadcasting Broadcasting Entertainment Consolidated
--------- ------------ ------------ ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
1999:
-----
Net revenue $ 98,751 $ 81,669 $ 27,163 $ 70,605 $ 278,188
Segment operating expenses (56,877) (69,608) (15,563) (70,427) (212,475)
--------- --------- --------- --------- ---------
Segment Operating Cash Flow $ 41,874 $ 12,061 $ 11,600 $ 178 65,713
========= ========= ========= =========
Corporate overhead (16,347)
---------
Operating Cash Flow 49,366
Other (expenses) income:
Depreciation and
amortization (28,348)
Interest expense (35,632)
Stock compensation expense (559)
Net gain on dispositions
of assets 28,999
---------
Income before income taxes
and extraordinary item $ 13,826
=========
Segment assets $ 92,911 $ 273,072 $ 59,873 $ 45,470 $ 471,326
========= ========= ========= =========
Corporate assets 57,110
---------
Total assets $ 528,436
=========
Capital expenditures $ 7,346 $ 7,765 $ 3,780 $ 5,289 $ 24,180
========= ========= ========= =========
Corporate capital
expenditures 4,934
---------
Total capital expenditures $ 29,114
=========
</TABLE>
<TABLE>
<CAPTION>
Outdoor Television Radio Sports &
Media Broadcasting Broadcasting Entertainment Consolidated
--------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1998:
Net revenue $ 108,560 $ 68,467 $ 24,474 $ 55,150 $ 256,651
Segment operating expenses (65,605) (55,996) (14,819) (58,119) (194,539)
--------- --------- --------- --------- ---------
Segment Operating Cash Flow $ 42,955 $ 12,471 $ 9,655 $ (2,969) 62,112
========= ========= ========= =========
Corporate overhead (14,491)
---------
Operating Cash Flow 47,621
Other (expenses) income:
Depreciation and
amortization (16,574)
Interest expense (25,109)
Stock compensation
expense (452)
Net gain on dispositions
of assets 33,524
---------
Income before income taxes
and extraordinary item $ 39,010
=========
</TABLE>
F-24
<PAGE> 85
<TABLE>
<CAPTION>
Outdoor Television Radio Sports &
Media Broadcasting Broadcasting Entertainment Consolidated
--------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Segment assets $ 75,113 $ 87,308 $ 59,650 $ 31,546 $ 253,617
========= ========= ========= =========
Corporate assets 62,509
---------
Total assets $ 316,126
=========
Capital expenditures $ 6,986 $ 4,415 $ 1,389 $ 238 $ 13,028
========= ========= ========= =========
Corporate capital expenditures 19,691
---------
Total capital expenditures $ 32,719
=========
</TABLE>
F-25
<PAGE> 86
<TABLE>
<CAPTION>
Outdoor Television Radio Sports &
Media Broadcasting Broadcasting Entertainment Consolidated
--------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1997:
-----
Net revenue $ 113,162 $ 63,611 $ 20,970 $ 73,432 $ 271,175
Segment operating expenses (72,159) (46,935) (12,983) (68,662) (200,739)
--------- --------- --------- --------- ---------
Segment Operating Cash Flow $ 41,003 $ 16,676 $ 7,987 $ 4,770 70,436
========= ========= ========= =========
Corporate overhead (10,013)
---------
Operating Cash Flow 60,423
Other (expenses) income:
Depreciation and
amortization (16,103)
Interest expense (26,219)
Stock compensation expense (9,344)
Litigation adjustment 5,000
---------
Income before income taxes $ 13,757
=========
Segment assets $ 79,208 $ 75,955 $ 29,568 $ 45,261 $ 229,992
========= ========= ========= =========
Corporate assets 36,393
---------
Total assets $ 266,385
=========
Capital expenditures $ 6,523 $ 7,211 $ 873 $ 1,706 $ 16,313
========= ========= ========= =========
Corporate capital expenditures 1,280
---------
Total capital expenditures $ 17,593
=========
</TABLE>
16. Summary of quarterly financial data (unaudited)
The Company's results of operations may vary from quarter to quarter due
in part to the timing of acquisitions and to seasonal variations in the
operations of the broadcasting segment. In particular, the Company's net revenue
and Operating Cash Flow historically have been affected positively during the
NBA basketball season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters. For the fourth quarter
of 1998, net revenue and Operating Cash Flow were adversely affected by the NBA
lockout.
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1999
----
Net revenue $ 67,696 $71,400 $ 56,069 $ 83,023
Operating Cash Flow 7,532 13,540 11,466 16,828
Income before extraordinary item (2,548) 15,572(1) (3,742) (1,319)
Extraordinary loss (1,373)(2) -- -- --
Net income (3,921) 15,572 (3,742) (1,319)
Net income per share (.12) .49 (.11) (.04)
Net income per share - assuming dilution (.12) .49 (.11) (.04)
</TABLE>
F-26
<PAGE> 87
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- -------- --------
<S> <C> <C> <C> <C>
1998
----
Net revenue $ 81,046 $75,837 $ 48,087 $ 51,681
Operating Cash Flow 11,658 13,940 10,903 11,120
Income before extraordinary item 809 22,398(1) 229 87
Extraordinary loss -- -- -- (4,346)(2)
Net income 809 22,398 229 (4,259)
Net income per share .03 .71 .01 (.14)
Net income per share - assuming dilution .03 .70 .01 (.14)
</TABLE>
(1) Includes net gain on dispositions of assets, as discussed in Note 3.
(2) Represents loss on debt extinguishment, as discussed in Note 7.
F-27
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
THE ACKERLEY GROUP, INC.
(A CORPORATION INCORPORATED UNDER
THE LAWS OF THE STATE OF DELAWARE)
SECTION 1.
SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
1.1. Annual Meeting. The annual meeting of the shareholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held each year in the
City of Seattle, Washington, or at some other place, either within or without
the State of Delaware, as designated by the Board of Directors. The meeting
shall be held at 8:00 p.m. on May 1 of each year, provided such day is not a
legal holiday and if a legal holiday then on the next business day, or on such
other day or at such other time as designated by the Board of Directors.
1.2. Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time by the Board of Directors to be
held at such time and place as the Board of Directors may prescribe. Business
transacted at any special meeting of shareholders shall be limited to the
purposes specified in the Notice.
Upon the request of the Chairman of the Board, the President, the Board
of Directors or of any shareholder or shareholders holding in the aggregate
one-third (1/3) of the voting power of all shareholders, it shall be the duty of
the Secretary to call a special meeting of the shareholders to be held at the
registered office of the corporation at such time as the Secretary may fix, not
less than ten (10) nor more than sixty (60) days after the receipt of said
request, and if said Secretary shall neglect or refuse to issue such call, those
making the request may do so.
1.3. Notice of Meetings. Written notice of the place, day and hour of
the annual shareholders' meeting and written notice of the day, place, hour and
purpose or purposes of special shareholders' meetings shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Chairman of the
Board, the President, the Secretary or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid.
Except where expressly prohibited by law or the Certificate of
Incorporation, notice of the day, place, hour and purpose or purposes of any
shareholders' meeting may be waived in writing by any shareholder at any time,
either before or after the meeting, and attendance at the meeting in person or
by proxy shall constitute a waiver of such notice of the meeting unless prior to
or
1
<PAGE> 2
upon commencement of such meeting such person in attendance asserts that proper
notice was not given.
1.4. List of Shareholders. At least ten (10) days before any
shareholders' meeting, the Secretary of the Corporation shall compile a complete
list of the shareholders entitled to vote at any meeting or adjournment thereof,
arranged in alphabetical order, with the address of each shareholder and the
number of shares owned by each shareholder. Such list shall be open for
examination by any shareholder during usual business hours at a place within the
city where the voting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held, for a period of at least ten days prior to any such meeting. Such
list shall also be produced and kept open for examination at the time and place
and during the course of any such meeting.
1.5. Quorum. The holders of a simple majority of the shares entitled to
vote at a meeting, present in person or by proxy, shall constitute a quorum of
shareholders for the transaction of business and the act of a simple majority of
the shares present in person or by proxy at a meeting at which there is a
quorum, shall be the act of the Corporation, except as otherwise provided
herein, by law or by the Certificate of Incorporation.
1.6. Adjourned Meetings. Whether for failure to obtain a quorum or
otherwise, an adjournment or adjournments of any shareholders' meeting may be
taken to such time and place as the majority of those present may determine
without any other notice than announcement at such meeting being given. Any
meeting at which directors are to be elected shall be adjourned only from day to
day until such directors are elected.
1.7. Proxies. The holder of any proxy for a shareholder shall present
evidence of his appointment by an instrument in writing signed by the
shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid
after three (3) years from the date of its execution, unless the proxy provided
for a longer period, which in no case shall exceed the maximum period permitted
by law. Revocation of a shareholder's proxy shall not be effective until written
notice thereof has actually been received by the Secretary of the Corporation.
1.8. Shareholders' Action Without A Meeting. Any action required or
permitted to be taken at any annual or special meeting of shareholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent shall
be given to those shareholders who have not consented in writing to such action.
1.9. Restrictions on Issuance and Transfer. No shares may be issued or
transferred to any person where such issuance or transfer will result in a
violation of the Communications Act of 1934 or any regulations promulgated
thereunder as the same shall be in effect at the time of any such issuance or
transfer. Any person subscribing to the capital stock of the Corporation and any
person wishing to have capital stock of the Corporation transferred to such
person shall
2
<PAGE> 3
provide the Corporation or its transfer agent with such information as they may
reasonably require to enforce the provisions of this Section 1.9 prior to such
issuance or transfer. Any purported transfer in violation of this Section 1.9
shall be void.
SECTION 2.
BOARD OF DIRECTORS
2.1. Number and Qualification. The business affairs and property of the
Corporation shall be managed by a Board of Directors. The number of directors
which shall constitute the whole Board shall be not less than one nor more than
fifteen. The first Board shall consist of three directors. Thereafter, the
number of directors shall be two or such other number, within the limits above
specified, as may be established from time to time by resolution of the Board of
Directors. Directors need not be shareholders. No person shall be elected or
serve as a director of the Corporation whose election or service as a director
would cause the Corporation to be in violation of the Communications Act of 1934
or any regulations promulgated thereunder. If, while serving as a director of
the Corporation, any person becomes ineligible to so serve by operation of the
preceding sentence, then, notwithstanding any provision in these Bylaws to the
contrary, such person immediately shall be removed as a director and thereafter
may be replaced as provided in these Bylaws; provided, however, that no action
by the Board of Directors at which such director voted or was necessary to make
up a quorum shall be void by reason of the provisions of this sentence.
2.2. Election--Term of Office. The directors shall be elected by the
shareholders at each annual shareholders' meeting, to hold office until the next
annual shareholders' meeting and until their respective successors are elected
and qualified unless removed in accordance with the laws of Delaware. In the
event of failure to elect directors at any annual shareholders' meeting, or in
the event of failure to hold any annual shareholders' meeting as provided by
these Bylaws, directors may be elected at a special meeting of the shareholders
called for that purpose.
2.3. Removal By Shareholders. At any annual or special meeting of the
shareholders called for that purpose, the shareholders may, by vote of the
holders of a majority of the shares then entitled to vote at an election of
directors, with or without notice to any of the directors, and with or without
cause, remove any director or directors and elect a successor or successors.
2.4. Vacancies. Except as otherwise provided by law, vacancies in the
Board of Directors, whether caused by resignation, death, retirement,
disqualification, removal or otherwise, may be filled by a simple majority of
the remaining directors attending any meeting of the Board of Directors, even
though less than a quorum is present, or by a sole remaining director. A
director thus elected to fill any vacancy shall hold office for the unexpired
term of his predecessor and until his successor is elected and qualified.
2.5. Quorum and Voting. At any meeting of the Board of Directors, the
presence in person of a simple majority of the directors shall constitute a
quorum for the transaction of business. If a quorum is present, the act of a
simple majority of the directors present at such meeting shall be the act of the
Board of Directors and of the Corporation except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws.
3
<PAGE> 4
The directors present at a duly convened meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough directors to leave
less than a quorum. Abstention from voting on a motion by a director present at
a meeting at which there is a quorum shall be counted as a vote against the
motion. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
2.6. Annual Meeting. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof, and shall be held
immediately after the annual shareholders' meeting or any special shareholders'
meeting at which a Board of Directors is elected. Said meeting shall be held at
the same place as such shareholders' meeting unless some other place shall be
specified by resolution of the shareholders.
2.7. Regular Meetings. Regular meetings of the Board of Directors shall
be held at such place, day and hour as shall from time to time be fixed by
resolution of the Board.
2.8. Special Meetings. Special meetings of the Board of Directors may be
held at any place at any time whenever called by the Chairman of the Board, the
President, the Secretary, or any two or more directors.
2.9. Notice of Meetings. No notice of the annual meeting of the Board of
Directors shall be required. Notice of the time and place of all meetings of the
Board of Directors other than the annual meeting, shall be given by the
Secretary, or by the person calling the meeting, by mail, radio, telegram or by
personal communication over the telephone or otherwise, at least three (3) days
prior to the day upon which the meeting is to be held. However, no notice of any
regular meeting need be given, if the time and place thereof shall have been
fixed by resolution of the Board of Directors. Notice of any meeting of the
Board of Directors may be waived in writing by any director at any time, either
before or after such meeting, and attendance at such meeting in person shall
constitute a waiver of notice of the time, day, place and purpose of such
meeting except where a director attends for the express purpose of objecting to
the transaction of any business because the meeting was not lawfully convened.
2.10. Committees of the Board. The Board of Directors, by resolutions
adopted by a simple majority of the entire Board of Directors, may designate
from among its members an Executive Committee and one or more other committees.
Each such committee may exercise the authority of the Board of Directors to the
extent provided in such resolution and any subsequent resolutions pertaining
thereto and adopted in like manner, but no such committee shall have the power
or authority in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation, recommending to the shareholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the shareholders a dissolution of the
Corporation or a revocation of a dissolution, or amending these Bylaws; a
committee, if expressly authorized by a resolution of the Board of Directors,
may declare a dividend and authorize the issuance of stock. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such
4
<PAGE> 5
absent or disqualified member. The committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. Such committees shall keep regular minutes of their
proceedings and report to the Board of Directors when requested to do so.
2.11. Directors' Action Without A Meeting. The Board of Directors or a
committee thereof may take any action which it could properly take at a meeting
without such a meeting if a consent in writing setting forth the action so to be
taken shall be signed before such action by all the directors, or all of the
members of the committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
2.12. Telephone Meetings. Members of the Board of Directors or any
committee appointed by the Board of Directors may participate in a meeting of
such board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at a meeting.
2.13. Compensation. Directors as such shall receive no compensation for
their services except such fees for attending meetings as may be authorized by a
majority of the entire Board of Directors from time to time; provided, that this
does not preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor, nor does it preclude the Board of
Directors from authorizing the reimbursement of expenses incurred by directors
in attending meetings of the Board of Directors or of any committee created by
the Board of Directors.
SECTION 3.
OFFICERS
3.1. Officers Enumerated - Election. The officers of the corporation
shall be a Chairman of the Board, one or more Presidents, one or more Vice
Presidents, a Secretary, and a Treasurer (together with an Assistant Secretary
and Assistant Treasurer, if such are desired by the Board of Directors), all of
whom shall be elected by the Board of Directors, to hold office at the pleasure
of the Board of Directors.
3.2. Qualifications. None of the officers of the corporation need be a
director. Any two or more corporate offices may be held by the same person. No
person shall be elected or serve as an officer of the Corporation whose election
or service as an officer would cause the Corporation to be in violation of the
Communications Act of 1934 or any regulations promulgated thereunder. If, while
serving as an officer of the Corporation, any person becomes ineligible to so
serve by operation of the preceding sentence, then, notwithstanding any
provision in these Bylaws to the contrary, such person shall immediately be
removed as an officer and thereafter may be replaced as provided in these
Bylaws.
3.3. The Chairman of the Board. The Chairman of the Board shall be the
chief executive officer and shall be responsible for carrying out the plans and
directions of the Board of Directors. The Chairman of the Board shall preside at
all meetings of the Board of Directors
5
<PAGE> 6
and of the shareholders, shall report to and consult with the Board of Directors
and shall have such other powers and duties as the Board of Directors may from
time to time prescribe.
3.4. The Office of the President.
3.4.1 Duties. The President, or the Co-Presidents, shall be the
Chief Operating Officer of the corporation, unless (1) two or more Co-Presidents
have been elected and one or more of the Co-Presidents is specially designated
as Chief Operating Officer pursuant to Section 3.4.2, or (2) such position is
otherwise delegated to another executive officer as may be determined by
resolution of the Board of Directors. The President, or the Co-Presidents,
shall, subject to the authority granted to the Chairman of the Board, have
general and active supervision over the day-to-day operations of the
corporation. In the absence of the Chairman of the Board, the President, or the
Co-Presidents, shall preside at all meetings of the shareholders and at meetings
of the Board of Directors. The President, or the Co-Presidents, shall perform
such other duties as may be prescribed to him or her by the Board of Directors
or by the Chairman of the Board. Should the office of the Chairman of the Board
be vacated, the President, or the Co-Presidents, shall then perform the duties
of the Chairman of the Board until otherwise directed by the Board of Directors.
3.4.2 Co-Presidents. In the event that the office of the
President is held by two or more persons, the Board of Directors or the Chairman
of the Board shall determine those areas over which each Co-President shall have
primary responsibility, including but not limited to the designation of one or
more Co-Presidents as the Corporation's Chief Operating Officer. Any matters
upon which the Co-Presidents are unable to agree shall be referred to the
Chairman of the Board for resolution, if the Chairman of the Board is not also a
Co-President, and otherwise to the Board of Directors. If one Co-President is
absent or disabled, the remaining Co-Presidents shall exercise all of the duties
of the absent or disabled Co-President, until otherwise directed by the Board of
Directors or Chairman of the Board.
3.5. The Vice Presidents. The Vice Presidents shall act as President in
the absence or disability of the President and shall perform such other duties
as the directors may from time to time designate.
3.6. The Secretary. The Secretary, personally or with the assistance of
others, shall keep records of the proceedings of the directors and shareholders,
attest all certificates of stock, deeds, bonds, contracts and other obligations
or instruments in the name of the corporation; keep the corporate seal, if any,
and affix the same to certificates of stock and other proper documents; keep a
record of the issuance of certificates of stock and the transfers of the same;
and perform such other duties as the Board of Directors may from time to time
designate.
3.7. The Treasurer. The Treasurer shall have the care and custody, and
be responsible for, all funds and securities of the corporation, and shall cause
to be kept regular books of account. He shall cause to be deposited all funds
and other valuable effects in the name of the corporation in such depositories
as may be designated by the Board of Directors. In general, he
6
<PAGE> 7
shall perform all of the duties incident to the office of Treasurer, and such
other duties as from time to time may be assigned to him by the Board of
Directors.
3.8. Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting.
3.9. Other Officers and Agents. The Board of Directors may appoint such
other officers and agents as it shall deem necessary or expedient, who shall
hold their office for such terms, and shall exercise such powers and perform
such duties, as shall be determined from time to time by the Board of Directors.
3.10. Compensation. The compensation of all officers of the corporation
shall be fixed by the Board of Directors.
SECTION 4.
SHARES AND CERTIFICATES OF SHARES
4.1. Share Certificates. Share certificates shall be issued in numerical
order, and each shareholder shall be entitled to a certificate signed by the
Chairman of the Board, the Chief Executive Officer, the President or a Vice
President and by the Secretary, Treasurer or an Assistant Secretary and sealed
with the corporate seal. Facsimiles of the signatures and seal may be used, as
permitted by law. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of issue. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, provided that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each shareholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preference and/or
rights.
4.2. Consideration for Shares. Shares of this Corporation may be issued
for such consideration expressed in dollars (not less than par, if the shares
have par value) as shall be fixed from time to time by the Board of Directors.
The consideration for the issuance of shares may be paid in whole or in part in
money, in other property, tangible or intangible, or in labor or services
actually performed for the Corporation, as permitted by the laws of the State of
Delaware. The reasonable charges and expenses of organization or reorganization
and the reasonable expenses of and compensation for the sale or underwriting of
its shares may be paid
7
<PAGE> 8
or allowed by the Corporation out of the consideration received by it in payment
for its shares without rendering the shares not fully paid or assessable.
4.3. Transfers. Subject to the restrictions set forth in Section 1.9 of
these Bylaws, shares may be transferred by delivery of the certificate,
accompanied either by an assignment in writing on the back of the certificate,
or by a written power of attorney to sell, assign and transfer the same, signed
by the record holder of the certificate. Except as otherwise specifically
provided in these Bylaws, no shares of stock shall be transferred on the books
of the Corporation until the outstanding certificate therefor has been
surrendered to the Corporation.
4.4. Loss or Destruction of Certificates. In the event of the loss or
destruction of any certificate, no new certificate shall be issued in lieu
thereof except upon satisfactory proof to the Chairman of the Board, the
President of such loss or destruction, and upon the giving of security, by bond,
indemnity or otherwise, satisfactory to the President against loss to the
Corporation.
4.5. Closing Stock Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
the payment of any distribution, the allotment of rights, the conversion or
exchange of any securities by their terms or any other proper purpose, the Board
of Directors may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than sixty (60) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
SECTION 5.
BOOKS, RECORDS AND REPORTS
5.1. Records of Corporate Meetings and Share Registers. The Corporation
shall keep complete records of all proceedings of the Board of Directors and
shareholders and shall keep at its registered office or principal place of
business or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders, the number and
class of shares held by each and the dates they acquired same.
5.2. Copies of Resolutions. Any person dealing with the Corporation may
rely upon a copy of any of the records of the proceedings, resolutions, or votes
of the Board of Directors or shareholders, when certified by the Chairman of the
Board, the President, Vice President, Secretary or Assistant Secretary.
8
<PAGE> 9
5.3. Books of Account. The Corporation shall keep appropriate and
complete books of account.
SECTION 6.
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
SECTION 7.
DIVIDENDS
7.1. Declaration of Dividends. Dividends upon the capital stock of the
Corporation subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
7.2. Creation of Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 8.
MISCELLANEOUS PROCEDURAL PROVISIONS
The rules contained in the most recent edition of Robert's Rules of
Order, Revised, shall govern all meetings of shareholders and directors where
those rules are not inconsistent with the Certificate of Incorporation, these
Bylaws or special rules of order of the Corporation.
SECTION 9.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
9.1. The Corporation shall, to the full extent permitted by law,
including, without limitation, Section 145 of the Delaware General Corporation
Law, indemnify all directors, officers, employees, agents and other persons whom
it may indemnify pursuant thereto against any liability, and the expenses
incurred in defense of such liability, that may be asserted against or incurred
by such person arising out of such person's status with or service to or at the
request of the Corporation. The Corporation shall pay the expenses of any
director or officer in defense of such liability in advance of the final
disposition of the matter upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation. Nothing contained
herein shall be deemed to require or make mandatory the purchase and maintenance
of insurance as may be permitted under Section 145(g) of the Delaware General
Corporation Law.
9
<PAGE> 10
9.2. Payment of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this section.
9.3. Non-Exclusive. The indemnification provided by this Section shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
9.4. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
9.5. Amendments to Indemnification. The Board of Directors is
specifically authorized, without any action on the part of the shareholders, to
alter or amend this section, and other provisions of these bylaws, to such an
extent and in such manner as the law of Delaware, or other applicable law,
relating to indemnification of the directors, officers, employees and agents
therein referred to may, at any time and from time to time, authorize or permit.
SECTION 10.
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted at any regular meeting of the shareholders or of the Board of Directors
or at any special meeting of the shareholders or of the Board of Directors if
notice of such alteration or repeal be contained in the notice of such special
meeting.
10
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT
TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, effective as of June 11, 1999
(this "Amendment" or this "First Amendment"), is by and between The Ackerley
Group, Inc., a Delaware corporation (the "Borrower"), certain financial
institutions party to the Credit Agreement (as hereinafter defined)
(collectively, the "Lenders"), FIRST UNION NATIONAL BANK, a national banking
association, as administrative agent for the Lenders (the "Administrative
Agent"), FLEET BANK, N.A. as documentation agent ("Documentation Agent") and
UNION BANK OF CALIFORNIA, N.A., KEYBANK NATIONAL ASSOCIATION, and BANK OF
MONTREAL, CHICAGO BRANCH as co-agents ("Co-Agents").
This Amendment amends that certain Credit Agreement dated as of January
22, 1999, between the Borrower, the Lenders, the Administrative Agent, the
Documentation Agent and the Co-Agents (as amended hereby and as further
amended, modified, restated or supplemented from time to time, the "Credit
Agreement") and the other Credit Documents referred to therein. All capitalized
terms not otherwise defined in this Amendment shall have the meanings assigned
to them in the Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Lenders have agreed, among
other things, to provide to the Borrower term and revolving credit facilities
in an aggregate principal amount of $325,000,000.
B. The Borrower intends to issue additional shares of its common stock
pursuant to an amended registration statement on Form S-1 or S-3 (originally
filed on April 9, 1998) (the "1999 Equity Issuance").
C. The Credit Agreement requires that 50% of the Net Cash Proceeds
received in connection with any Equity Issuance be used to prepay the Loans,
which prepayments are to be applied, (i) first, to the Term Loans, (ii) second,
to the extent of any excess remaining after such application, to reduce the
outstanding principal amount of Revolving Loans (with a corresponding reduction
to the Revolving Credit Commitments), and (iii) third, to the extent of any
excess remaining after such application, to pay any outstanding Reimbursement
Obligations (and thereafter to cash-collaterize any Letter of Credit Exposure)
(collectively, the "Prepayment Application Requirements").
D. The Borrower has requested certain amendments relating to the
financial covenants contained in the Credit Agreement and that certain of the
Prepayment Application Requirements be waived in connection with the 1999
Equity Issuance.
<PAGE> 2
E. The Lenders, the Administrative Agent, the Documentation Agent
and the Co-Agents are willing to agree to so amend the Credit Agreement and to
grant such waiver on the terms and conditions set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each of the Borrower, the Lenders, the Administrative Agent, the Documentation
Agent and the Co-Agents hereby agree as follows:
ARTICLE I.
AMENDMENTS TO CREDIT AGREEMENT AND CREDIT DOCUMENTS
1.1 The Credit Agreement is hereby amended as follows:
(a) NEW DEFINED TERMS. The following definitions are hereby added,
in the appropriate alphabetical order, to SECTION 1.1 of the Credit Agreement:
"1999 Special Charges" shall mean the one-time charges to earnings of
the Borrower ($1,600,000 of which may be taken for each of the fourth quarter of
1998 and the first quarter of 1999, and $4,000,000 of which may be taken for the
second quarter of 1999), in an amount not to exceed $7,200,000 in the aggregate,
comprised of: (a) a restructuring charge in respect of the implementation of its
Digital CentralCasting broadcasting system; (b) a charge as the result of a
decrease in the Borrower's NBC/TNT revenue attributable to the 1998-99 National
Basketball Association ("NBA") lockout (the "Lockout"); and (c) a charge as the
result of a decrease in the Borrower's share of NBA licensing fees attributable
to the Lockout.
"First Amendment" shall mean the First Amendment to Credit Agreement,
effective as of June 11, 1999, between the Borrower, the Administrative Agent,
the Documentation Agent, the Co-Agents and the Lenders.
(b) REVISED DEFINITIONS. The following definitions set forth in
SECTION 1.1 to the Credit Agreement are hereby amended as follows:
(i) The definition of "Consolidated EBITDA" shall be
deleted in its entirety and shall be replaced with the following:
"Consolidated EBITDA" shall mean, with respect to the Borrower and for
any period, the sum (without duplication) of (i) Consolidated Net Income
and (ii) the extent Consolidated Net Income has been reduced thereby,
(A) all income taxes of such Person and its Subsidiaries paid or accrued
in accordance with GAAP for such period (other than income taxes
attributable to extraordinary or non-recurring gains or losses), (B)
Consolidated Interest Expense and
2
<PAGE> 3
(C) Consolidated Non-Cash Charges, all as determined on a consolidated
basis for such Person and its Subsidiaries in conformity with GAAP.
For purposes of this Agreement, calculations of Consolidated EBITDA for any
period shall (a) exclude net income from Investments in which the Borrower
or a Subsidiary holds a minority interest and (b) be adjusted with respect
to entities or assets that are acquired or disposed of during such period
as permitted under Sections 6.9, 6.10, 8.1 or 8.4 as if such transaction
had occurred as of the first day of such period (based on a certificate in
form and substance reasonably satisfactory to the Administrative Agent and
signed by a Financial Officer of the Borrower setting forth in reasonable
detail the portion of Consolidated EBITDA during such period attributable
to the entity or assets acquired or disposed of and stating that the
assumptions of the Borrower in respect thereof are reasonable).
Notwithstanding the foregoing, the calculation of Consolidated EBITDA shall
exclude (A) the operations and results thereof (whether positive or
negative) of FHS for the period from the Closing Date through the earlier
to occur of the following dates: (a) the end of the fiscal quarter
immediately preceding any fiscal quarter for which FHS EBITDA is greater
than zero; and (b) December 31, 1999 (the earlier of such dates, the "FHS
Covenant Calculation Date"); provided that from and after the FHS Covenant
Calculation Date, FHS EBITDA shall be included in the calculation of
Consolidated EBITDA only as follows: (i) for the fiscal quarter following
the fiscal quarter in which the FHS Covenant Calculation Date occurs,
Consolidated EBITDA shall include FHS EBITDA only for such quarter; (ii)
for the next succeeding fiscal quarter, Consolidated EBIDTA shall include
FHS EBITDA only for that quarter and the preceding fiscal quarter; (iii)
for the next succeeding fiscal quarter, Consolidated EBITDA shall include
FHS EBITDA only for that quarter and the preceding two fiscal quarters; and
(iv) thereafter, FHS EBITDA shall be treated in a manner consistent with
determining Consolidated EBITDA of the Borrower and its other Subsidiaries;
and (B) without duplication, the 1999 Special Charges.
(ii) The definition of "Consolidated Fixed Charges" shall be deleted
in its entirety and shall be replaced with the following:
"Consolidated Fixed Charges" shall mean, for any period, the aggregate
(without duplication) of the following, all determined on a consolidated
basis for the Borrower and its Subsidiaries in accordance with GAAP for
such period: (a) Consolidated Interest Expense for such period, (b)
aggregate cash expense for federal, state, local and other income taxes for
such period, (c) Capital Expenditures for such period, (d) the aggregate
(without duplication) of all scheduled payments of principal on
Consolidated Funded Debt required to have been made by the Borrower and its
Subsidiaries during such period (whether or not such payments are actually
made), including without limitation the aggregate principal amount of the
Term Loans due during
3
<PAGE> 4
such period under SECTION 2.6(a) (as such amounts may have been previously
adjusted in accordance with the terms of this Agreement as a result of
prior prepayments on the Term Loans, including adjustments made pursuant
to SECTION 2.6(h) or SECTION 2.7(b)) and (e) the amount of any payments
made under any LMA Agreements attributable to principal being paid by the
other parties to such LMA Agreements pursuant to their respective senior
credit facilities. Notwithstanding the foregoing, Consolidated Fixed
Charges shall not include (i) amounts of any Capital Expenditures in
respect of the Borrowers 1998 acquisition of its Seattle Supersonics
corporate jet or (ii) any amounts attributable to the Borrower's
$12,500,000 payment in connection with the satisfaction in full of its
10.48% Subordinated Notes due 2000.
(iii) The definition of "Credit Documents" is deemed to include the
First Amendment.
(c) SENIOR LEVERAGE RATIO. Section 7.1(b) of the Credit Agreement is
deleted in its entirety and is replaced with the following:
(c) Senior Leverage Ratio. The Borrower will not permit the Senior Leverage
Ratio as of the last day of any fiscal quarter during the periods set forth
below to be greater than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Date Maximum Senior Leverage Ratio
---- -----------------------------
<S> <C>
Closing through September 29, 1999 4.50 to 1.00
September 30, 1999 through December 30, 1999 4.25 to 1.00
Thereafter 4.00 : 1.00
</TABLE>
1.2. AMENDMENTS TO LOAN DOCUMENTS. As of the date hereof all references
to the Credit Agreement in any of the Credit Documents shall refer to the
Credit Agreement as amended prior to the date hereof and as amended by this
Amendment, and all references to any of the Credit Documents in any of the
other Credit Documents shall refer to such Credit Documents as amended prior to
the date hereof and as amended hereby or in connection herewith.
ARTICLE II.
WAIVER
The Administrative Agent, the Documentation Agent and the Lenders hereby
waive, on a one-time basis only, the Prepayment Application Requirements (as
defined in the Recitals), such that the required prepayment of Loans with 50%
of Net Cash Proceeds of such issuance shall be applied only to the Revolving
Loans (and not to the Term Loans), with no permanent reduction in the Revolving
Credit Commitments; provided, however, that such waiver shall become void and
4
<PAGE> 5
of no force or effect as of the close of business on December 31, 1999 if the
1999 Equity Issuance shall not have been consummated as of such time. This
waiver is limited to the express terms hereof and to the 1999 Equity Issuance
and shall not be deemed to apply to any other prepayment of Loans by the
Borrower.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
3.1 COMPLIANCE WITH CREDIT AGREEMENT. After giving effect to this
Amendment, the Borrower is in compliance with all terms and provisions set
forth in the Credit Agreement to be observed or performed by it.
3.2 REPRESENTATIONS IN CREDIT AGREEMENT. The representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct as of the date hereof, except to the extent such representations and
warranties relate solely to or are specifically expressed as of a particular
date or period.
3.3 NO EVENT OF DEFAULT. After giving effect to this Amendment and the
transactions contemplated hereby, no Event of Default or Default exists under
the Credit Agreement.
3.4 CONTINUING SECURITY INTERESTS. All Loans and advances by the Lenders
to the Borrower under the Credit Agreement, as amended hereby, and the Notes
will continue to be secured by the Administrative Agent's security interest in
all of the Collateral granted under the Credit Agreement or other Credit
Documents, and nothing herein will affect the validity, perfection or
enforceability of such security interests.
3.5 CONSENTS. The execution and delivery of this Amendment and the
Borrower's performance hereunder does not require the consent of approval of
any Person (other than the Lenders pursuant to the Credit Agreement).
ARTICLE IV.
CONDITIONS PRECEDENT
The effectiveness of the foregoing amendments, consents and waivers are
subject to the fulfillment of the following condition precedent:
4.1 AMENDMENT. The Borrower and the Required Lenders shall have executed
and delivered to the Administrative Agent this Amendment (in a sufficient
number of execution originals for each Lender).
5
<PAGE> 6
ARTICLE V.
GENERAL
5.1. FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended
hereby, shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Credit Agreement,
"hereinafter," "hereto," "hereof," and words of similar import shall, unless
the context otherwise requires, mean the Credit Agreement after amendment by
this Amendment.
5.2. APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
5.3. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
5.4. EXPENSES. Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Administrative Agent in connection with the
preparation, execution and delivery of this Amendment, including, without
limitation, all reasonable attorneys' fees.
5.5. FURTHER ASSURANCES. Each Borrower shall execute and deliver to
Administrative Agent such documents, certificates and opinions as the
Administrative Agent may reasonably request to effect the amendment
contemplated by this Amendment and to continue the existence, perfection and
first priority of the Administrative Agent's security interests in the
Collateral.
5.6. HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
(signatures begin on next page)
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers all as of the date
first above written.
THE ACKERLEY GROUP, INC.
By: [Signature illegible]
-------------------------------------
Title: Senior Vice President & CIO
----------------------------------
(signatures continued)
<PAGE> 8
FIRST UNION NATIONAL BANK,
as Administrative Agent and as Lender
By: /s/ [Signature Illegible]
-------------------------------------
Title: V.P.
----------------------------------
(signatures continued)
<PAGE> 9
FLEET BANK, N.A.
By: /s/ GARRET KOMJATHY
-------------------------------------
Garret Komjathy
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 10
BANK OF MONTREAL, CHICAGO
BRANCH
By: /s/ OLA ANDERSSEN
-------------------------------------
Ola Anderssen
Title: Director
----------------------------------
(signatures continued)
<PAGE> 11
KEYBANK NATIONAL ASSOCIATION
By: /s/ MARY K. YOUNG
-------------------------------------
Mary K. Young
Title: Assistant Vice President
----------------------------------
(signatures continued)
<PAGE> 12
UNION BANK OF CALIFORNIA, N.A.
By: /s/ JENNY DONAO
-------------------------------------
Jenny Donao
Title: Assistant Vice President
----------------------------------
(signatures continued)
<PAGE> 13
U.S. BANK NATIONAL ASSOCIATION
By: /s/ MATTHEW S. THORESON
-------------------------------------
Matthew S. Thoreson
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 14
BANK OF AMERICA, NT & SA
By: /s/ GEORGE V. HAUSLER
-------------------------------------
George V. Hausler
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 15
THE BANK OF NOVA SCOTIA
By: /s/ IAN A. HODGART
-------------------------------------
Ian A. Hodgart
Title: Authorized Signatory
----------------------------------
(signatures continued)
<PAGE> 16
DRESDNER BANK AG, NEW YORK &
GRAND CAYMAN BRANCHES
By: /s/ JANE A. MAJESKI
-------------------------------------
Jane A. Majeski
Title: First Vice President
----------------------------------
By: /s/ WILLIAM E. LAMBERT
-------------------------------------
William E. Lambert
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 17
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ J.E. PALMER
-------------------------------------
J.E. Palmer
Title: Assistant Vice President
----------------------------------
(signatures continued)
<PAGE> 18
BANQUE NATIONALE DE PARIS
By: /s/ SERGE DESRAYAUD
-------------------------------------
Serge Desrayaud
Title: Vice President
----------------------------------
By: /s/ STEPHANIE ROGERS
-------------------------------------
Stephanie Rogers
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 19
CITY NATIONAL BANK
By: /s/ DAVID C. BURDGE
-------------------------------------
David C. Burdge
Title: Senior Vice President
----------------------------------
(signatures continued)
<PAGE> 20
FIRST HAWAIIAN BANK
By: /s/ TRAVIS RUETENIK
-------------------------------------
Travis Ruetenik
Title: Corporate Banking Officer
----------------------------------
(signatures continued)
<PAGE> 21
THE FUJY BANK, LIMITED,
LOS ANGELES AGENCY
By: /s/ MASAHITO FUKUDA
-------------------------------------
Masahito Fukuda
Title: Senior Vice President
----------------------------------
(signatures continued)
<PAGE> 22
STATE STREET BANK AND TRUST
COMPANY
By: /s/ DIANE I. ROONEY
-------------------------------------
Diane I. Rooney
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 23
COMPAGNIE FINANCIERE DE CIC ET
DE I'UNION EUROPEENNE
By: /s/ MARCUS EDWARD
-------------------------------------
Marcus Edward
Title: Vice President
----------------------------------
By: /s/ BRIAN O'LEARY
-------------------------------------
Brian O'Leary
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 24
MICHIGAN NATIONAL BANK
By: /s/ JEFFREY W. BILLIG
-------------------------------------
Jeffrey W. Billig
Title: Relationship Manager
----------------------------------
(signatures continued)
<PAGE> 25
WASHINGTON MUTUAL BANK
(dba WESTERN BANK)
By: /s/ [Signature illegible]
-------------------------------------
Title: Vice President
----------------------------------
(signatures continued)
<PAGE> 26
NATEXIS BANQUE
By: /s/ EVAN S. KRAUS
-------------------------------------
Evan S. Kraus
Title: Assistant Vice President
----------------------------------
By: /s/ CYNTHIA E. SACHS
-------------------------------------
Cynthia E. Sachs
Title: VP, Group Manager
----------------------------------
(signatures continued)
<PAGE> 27
ACKNOWLEDGEMENT OF GUARANTY
Each of the undersigned, as a guarantor of the Obligations of The Ackerley
Group, Inc. (the "Company") under the Credit Agreement, dated as of January 22,
1999, among the Company, certain financial institutions party thereto, First
Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A.,
in its capacity as documentation agent, and Union Bank of California, N.A.,
KeyBank National association and Bank of Montreal, Chicago Branch, as co-agents
(the "Credit Agreement"), hereby consents to the foregoing First Amendment to
Credit Agreement, and further waives any defense to its guaranty liability
occasioned by such amendment (including without limitation the extension of the
maturity of the Loans as contemplated thereby). The foregoing consent and
waiver of the undersigned is made as of the date of the First Amendment.
ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF
MASSACHUSETTS, INC.
By: /s/ [Signature Illegible] By: /s/ [Signature Illegible]
------------------------------ ------------------------------
Title: Assistant Secretary Title: Assistant Secretary
--------------------------- -----------------------
AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC.
By: /s/ [Signature Illegible] By: /s/ [Signature Illegible]
------------------------------ ------------------------------
Title: Assistant Secretary Title: Assistant Secretary
--------------------------- -----------------------
KVOS TV, LTD. TC AVIATION, INC.
By: /s/ [Signature Illegible] By: /s/ [Signature Illegible]
------------------------------ ------------------------------
Title: Assistant Secretary Title: Assistant Secretary
--------------------------- -----------------------
<PAGE> 1
EXHIBIT 10.3
SECOND AMENDMENT
TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, effective as of September 10,
1999 (this "Amendment" or this "Second Amendment"), is by and between The
Ackerley Group, Inc., a Delaware corporation (the "Borrower"), certain financial
institutions party to the Credit Agreement (as hereinafter defined)
(collectively the "Lenders"), FIRST UNION NATIONAL BANK, a national banking
association, as administrative agent for the Lenders (the "Administrative
Agent"), FLEET BANK, N.A. as documentation agent ("Documentation Agent") and
UNION BANK OF CALIFORNIA, N.A., KEYBANK NATIONAL ASSOCIATION, and BANK OF
MONTREAL, CHICAGO BANK as co-agents ("Co-Agents").
This Amendment amends that certain Credit Agreement dated as of January
22, 1999, between the Borrower, the Lenders, the Administrative Agent, the
Documentation Agent and the Co-Agents (as previously amended, as amended hereby
and as further amended, modified, restated or supplemented from time to time,
the "Credit Agreement") and the other Credit Documents referred to therein. All
capitalized terms not otherwise defined in this Amendment shall have the
meanings assigned to them in the Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Lenders have agreed, among other
things, to provide to the Borrower term and revolving credit facilities in an
aggregate principal amount of $325,000,000.
B. The Borrower has requested that Section 8.5 of the Credit Agreement
be amended to enable the Borrower to make additional miscellaneous investments
of an amount up to $5,000,000 in the aggregate.
C. The Lenders, the Administrative Agent, the Documentation Agent and
the Co-Agents are willing to agree to so amend the Credit Agreement on the
terms and conditions set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and in the Credit Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each of the Borrower,
the Lenders, the Administrative Agent, the Documentation Agent and the
Co-Agents hereby agree as follows:
<PAGE> 2
ARTICLE I.
AMENDMENTS TO CREDIT AGREEMENTS AND CREDIT DOCUMENTS
1.1. The Credit Agreement is hereby amended as follows:
(a) NEW DEFINED TERMS. The following definitions are hereby added, in the
appropriate alphabetical order, to SECTION 1.1 of the Credit Agreement:
"Second Amendment" shall mean the Second Amendment to Credit Agreement,
effective as of September 10, 1999, between the Borrower, the Administrative
Agent, the Documentation Agent, the Co-Agents and the Lenders.
(b) REVISED DEFINITIONS. The following definitions set forth in SECTION
1.1 to the Credit Agreement are hereby amended as follows:
(i) The definition of "Credit Documents" is deemed to include the
Second Amendment.
(c) INVESTMENTS. Section 8.5(a) of the Credit Agreement is hereby amended
by the deletion of the word "and" at the end of clause (vii) thereof, the
replacement of the period (".") at the end of clause (viii) thereof with ";
and" and the addition of the following as new clause (ix) thereof:
(ix) Other Investments not to exceed $5,000,000 in the aggregate at
any time.
1.2 AMENDMENTS TO LOAN DOCUMENTS. As of the date hereof all references to
the Credit Agreement in any of the Credit Documents shall refer to the Credit
Agreement as amended prior to the date hereof and as amended by this Amendment,
and all references to any of the Credit Documents in any of the other Credit
Documents shall refer to such Credit Documents as amended prior to the date
hereof and as amended hereby or in connection herewith.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
2.1 COMPLIANCE WITH CREDIT AGREEMENT. After giving effect to this
Amendment, the Borrower is in compliance with all terms and provisions set
forth in the Credit Agreement to be observed or performed by it.
2.2 REPRESENTATIONS IN CREDIT AGREEMENT. The representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct as of the date hereof, except
2
<PAGE> 3
to the extent such representations and warranties relate solely to or are
specifically expressed as of a particular date or period.
2.3 NO EVENT OF DEFAULT. After giving effect to this Amendment and the
transactions contemplated hereby, no Event of Default exists under the Credit
Agreement.
2.4 CONTINUING SECURITY INTERESTS. All Loans and advances by the
Lenders to the Borrower under the Credit Agreement, as amended hereby, and the
Notes will continue to be secured by the Administrative Agent's security
interest in all of the Collateral granted under the Credit Agreement or other
Credit Documents, and nothing herein will affect the validity, perfection or
enforceability of such security interests.
2.5 CONSENTS. The execution and delivery of this Amendment and the
Borrower's performance hereunder does not require the consent or approval of
any Person (other than the Lenders pursuant to the Credit Agreement).
ARTICLE III.
CONDITIONS PRECEDENT
The effectiveness of the foregoing amendments, consents and waivers are
subject to the fulfillment of the condition precedent that the Borrower and the
Required Lenders shall have executed and delivered to the Administrative Agent
this Amendment (in a sufficient number of execution originals for each Lender).
ARTICLE IV.
GENERAL
4.1 FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended
hereby, shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Credit Agreement,
"hereinafter," "hereof," and words of similar import shall, unless the context
otherwise requires, mean the Credit Agreement after amendment by this Amendment.
4.2 APPLICABLE LAW. This Amendment shall be governed by and construed
in accordance with the internal laws and judicial decisions of the State of
North Carolina.
4.3 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
3
<PAGE> 4
4.4 EXPENSES. Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Administrative Agent in connection with the
preparation, execution and delivery of this Amendment, including, without
limitation, all reasonable attorneys' fees.
4.5 FURTHER ASSURANCES. Each Borrower shall execute and deliver to
Administrative Agent such documents, certificates and opinions as the
Administrative Agent may reasonably request to effect the amendment
contemplated by this Amendment and to continue the existence, perfection and
first priority of the Administrative Agent's security interests in the
Collateral.
4.6 HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
(signatures begin on next page)
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers all as of the date
first above written.
THE ACKERLEY GROUP, INC.
By: /s/ KEITH RITZMANN
---------------------------------------
Title: Keith Ritzmann -- Senior VP & CIO
(signatures continued)
5
<PAGE> 6
FIRST UNION NATIONAL BANK,
as Administrative Agent and as Lender
By: [SIGNATURE ILLEGIBLE]
---------------------------------
Title: Director
------------------------------
(signatures continued)
6
<PAGE> 7
FLEET BANK, N.A.
By: /s/ Garret Komjathy
-------------------------
Garret Komjathy
Title: Vice President
---------------------
(signatures continued)
7
<PAGE> 8
BANK OF MONTREAL, CHICAGO
BRANCH
By: /s/ OLA ANDERSSEN
---------------------------------
Ola Anderssen
Title: Director
------------------------------
(signatures continued)
8
<PAGE> 9
KEYBANK NATIONAL ASSOCIATION
By: /s/ MARY K. YOUNG
---------------------------------
Mary K. Young
Title: Assistant Vice President
------------------------------
(signatures continued)
9
<PAGE> 10
UNION BANK OF CALIFORNIA, N.A.
By: /s/ SETH YAKATAN
---------------------------------
Seth Yakatan
Title: Assistant Vice President
------------------------------
(signatures continued)
10
<PAGE> 11
U.S. BANK NATIONAL ASSOCIATION
By: /s/ [Signature Illegible]
---------------------------------
Title: Vice President
------------------------------
(signatures continued)
11
<PAGE> 12
BANK OF AMERICA, NT & SA
By: /s/ GEORGE V. HAUSLER
---------------------------------
George V. Hausler
Title: Vice President
------------------------------
(signatures continued)
12
<PAGE> 13
THE BANK OF NOVA SCOTIA
By: /s/ IAN A. HODGART
---------------------------------
Ian A. Hodgart
Title: Authorized Signatory
------------------------------
(signatures continued)
13
<PAGE> 14
DRESDNER BANK AG, NEW YORK &
GRAND CAYMAN BRANCHES
By: /s/ LAURA G. FAZIO
------------------------------------
Laura G. Fazio
Title: First Vice President
------------------------------------
By: /s/ CONSTANCE LOOSEMORE
------------------------------------
Constance Loosemore
Title: Assistant Vice President
------------------------------------
(signatures continued)
14
<PAGE> 15
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ DANIEL E. A. NICHOLS
------------------------------------
Daniel E. A. Nichols
Title: Assistant Vice President
------------------------------------
(signatures continued)
15
<PAGE> 16
BANQUE NATIONALE DE PARIS
By: /s/ SERGE DESRAYAUD
---------------------------------
Serge Desrayaud
Title: VP / Team Leader
------------------------------
By: /s/ GREGG W. BONARDI
---------------------------------
Gregg W. Bonardi
Title: Vice President
------------------------------
(signatures continued)
16
<PAGE> 17
CITY NATIONAL BANK
By:
---------------------------------
Title:
------------------------------
(signatures continued)
17
<PAGE> 18
FIRST HAWAIIAN BANK
By: /s/ TRAVIS RUETENIK
---------------------------------
Travis Ruetenik
Title: Assistant Vice President
------------------------------
(signatures continued)
18
<PAGE> 19
THE FUJI BANK, LIMITED
By: /s/ MASAHITO FUKUDA
---------------------------------
Masahito Fukuda
Title: Senior Vice President
------------------------------
(signatures continued)
19
<PAGE> 20
STATE STREET BANK AND TRUST COMPANY
By: /s/ DIANE I. ROONEY
---------------------------------
Diane I. Rooney
Title: Vice President
------------------------------
(signatures continued)
20
<PAGE> 21
COMPAGNIE FINANCIERE DE CIC ET
DE I'UNION EUROPEENNE
By: /s/ MARCUS EDWARD
---------------------------------
Marcus Edward
Title: Vice President
------------------------------
By: /s/ BRIAN O'LEARY
---------------------------------
Brian O'Leary
Title: Vice President
------------------------------
(signatures continued)
21
<PAGE> 22
MICHIGAN NATIONAL BANK
By: /s/ JEFFREY W. BILLIG
-----------------------------------
Jeffrey W. Billig
Title: Commercial Relationship Manager
--------------------------------
(signatures continued)
22
<PAGE> 23
WASHINGTON MUTUAL BANK
(DBA WESTERN BANK)
By: /s/ DAVID M. PURCELL
----------------------------------
David M. Purcell
Title: Vice President
-------------------------------
(signatures continued)
23
<PAGE> 24
NATEXIS BANQUE BFCE
By: /s/ EVAN S. KRAUS
----------------------------------
Evan S. Kraus
Title: Assistant Vice President
-------------------------------
By: /s/ CYNTHIA E. SACHS
----------------------------------
Cynthia E. Sachs
Title: VP, Group Manager
-------------------------------
24
<PAGE> 25
Acknowledgement of Guaranty
Each of the undersigned, as a guarantor of the Obligations of The Ackerley
Group, Inc. (the "Company") under the Credit Agreement, dated as January 22,
1999, among the Company, certain financial institutions party thereto, First
Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A.,
in its capacity as documentation agent, and Union Bank of California, N.A.,
KeyBank National Association and Bank of Montreal, Chicago Branch, as co-agents
(the "Credit Agreement"), hereby consents to the foregoing Second Amendment to
Credit Agreement, and further waives any defense to its guaranty liability
occasioned by such amendment (including without limitation the extension of the
maturity of the Loans as contemplated thereby). The foregoing consent and
waiver of the undersigned is made as of the date of the First Amendment.
<TABLE>
<S> <C>
ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF
MASSACHUSETTS, INC.
By: /s/ KEITH RITZMANN By: /s/ KEITH RITZMANN
-------------------------------------- --------------------------------------
Title: Keith Ritzmann - Asst. Secretary Title: Keith Ritzmann - Asst. Secretary
----------------------------------- -----------------------------------
AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC.
By: /s/ KEITH RITZMANN By: /s/ KEITH RITZMANN
-------------------------------------- --------------------------------------
Title: Keith Ritzmann - Asst. Secretary Title: Keith Ritzmann - Asst. Secretary
----------------------------------- -----------------------------------
KVOS TV, LTD TC AVIATION, INC.
By: /s/ KEITH RITZMANN By: /s/ KEITH RITZMANN
-------------------------------------- --------------------------------------
Title: Keith Ritzmann - Asst. Secretary Title: Keith Ritzmann - Asst. Secretary
----------------------------------- -----------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.4
THIRD AMENDMENT
TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of January 7, 2000 (this
"Amendment" or this "Third Amendment"), is by and between THE ACKERLEY GROUP,
INC., a Delaware corporation (the "Borrower"), certain financial institutions
party to the Credit Agreement (as hereinafter defined), FIRST UNION NATIONAL
BANK, a national banking association, as administrative agent for the Lenders
(the "Administrative Agent"), FLEET BANK, N.A. as documentation agent
("Documentation Agent") and UNION BANK OF CALIFORNIA, N.A., KEYBANK NATIONAL
ASSOCIATION, and BANK OF MONTREAL, CHICAGO BRANCH as co-agents ("Co-Agents").
This Amendment amends that certain Credit Agreement dated as of January 22,
1999, between the Borrower, the Lenders, the Administrative Agent, the
Documentation Agent and the Co-Agents (as previously amended, as amended hereby
and as further amended, modified, restated or supplemented from time to time,
the "Credit Agreement") and the other Credit Documents referred to therein. All
capitalized terms not otherwise defined in this Amendment shall have the
meanings assigned to them in the Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Lenders have agreed, among other
things, to provide to the Borrower term and revolving credit facilities in an
aggregate principal amount of $325,000,000.
B. The Borrower intends to sell its South Florida outdoor advertising
business for cash consideration of approximately $300,000,000 (the "South
Florida Outdoor Sale").
C. The Credit Agreement requires that, with certain exceptions, one hundred
percent (100%) of the Net Cash Proceeds of any Asset Disposition be used to
prepay the Loans, which prepayments are to be applied (i) first, to the Term
Loans, (ii) second, to the extent of any excess remaining after such
application, to reduce the outstanding principal amount of Revolving Loans (with
a corresponding reduction to the Revolving Credit Commitments) (the "Commitment
Reduction Requirement"), and (iii) third, to the extent of any excess remaining
after such application, to pay any outstanding Reimbursement Obligations (and
thereafter to cash-collaterize any Letter of Credit Exposure).
D. The Borrower (i) wishes to repay in full the Term Loans and amend the
Credit Agreement to provide for a delayed-draw term loan facility in the
principal amount of $150,000,000 to replace the Term Loan facility currently in
effect under the Credit Agreement, (ii) wishes to repay in full the Revolving
Loans and in connection therewith has requested that the Commitment Reduction
Requirement be waived in connection with such prepayment and (iii) has requested
<PAGE> 2
certain amendments relating to the prepayment, investment, and financial
covenants contained in the Credit Agreement.
E. The Required Lenders, the Administrative Agent, the
Documentation Agent and the Co-Agents are willing to agree to so amend the
Credit Agreement and grant such waiver on the terms and conditions set forth
herein (such amendments and waiver to take effect upon (and only upon) the
repayment in full of all outstanding Loans in connection with the South Florida
Outdoor Sale).
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each of the Borrower, the Lenders, the Administrative Agent, the Documentation
Agent and the Co-Agents hereby agree as follows:
ARTICLE I.
AMENDMENTS TO CREDIT AGREEMENT AND CREDIT DOCUMENTS
1.01. The Credit Agreement is hereby amended as follows:
(a) NEW DEFINED TERMS. The following definitions are hereby added,
in the appropriate alphabetical order, to SECTION 1.1 of the Credit Agreement:
"South Florida Outdoor Sale" shall have the meaning given such term in
the Recitals to the Third Amendment.
"Term Loan Borrowing Date" shall mean any Business Day during the Term
Loan Borrowing Period on which date the Borrower effects a Borrowing of Term
Loans; provided, however, that there shall not be in excess of two (2) Term
Loan Borrowing Dates during the Term Loan Borrowing Period.
"Term Loan Borrowing Period" shall mean the period commencing on the
Third Amendment Closing Date and ending on (but including) March 31, 2001.
"Third Amendment" shall mean the Third Amendment to Credit Agreement,
dated as of January 7, 2000, between the Borrower, the Administrative Agent,
the Documentation Agent, the Co-Agents and the Required Lenders.
"Third Amendment Closing Date" shall mean the date of the Third
Amendment.
"Unutilized Term Loan Commitment" shall mean, with respect to any
Lender with a Term Loan Commitment at any time, such Lender's Term Loan
Commitment at such time less the
2
<PAGE> 3
aggregate principal amount of all Term Loans made by such Lender that are
outstanding at such time.
(b) REVISED DEFINITIONS. (i) The following definitions set forth in
SECTION 1.1 are deleted in their entirety and are replaced with the following:
"Term Loans" shall have the meaning given to such term in SECTION 2.1(a).
"Term Notes" shall mean the promissory notes of the Borrower in
substantially the form of Exhibit A to the Third Amendment, together with
any amendments, modifications, and supplements thereto, substitutions
therefor and restatements thereof.
"Term Loan Commitment" shall mean, with respect to any Lender with a Term
Loan Commitment at any time, the amount set forth opposite such Lender's
name on Schedule 1 to the Third Amendment under the caption "Term Loan
Commitment" or, if such Lender has entered into one or more Assignment and
Acceptances, the amount set forth for such Lender at such time in the
Register maintained by the Administrative Agent pursuant to SECTION
11.7(b) as such Lender's "Term Loan Commitment," as such amount may be
reduced at or prior to such time pursuant to the terms hereof.
(ii) In the definition of "Applicable Margin Percentage," such
Applicable Margin Percentage is amended to equal (a) 0.500% at all such times as
the aggregate amount of Loans outstanding is greater than or equal to fifty
percent (50%) of the aggregate Commitments of all Lenders, and (b) 0.625% at all
other times.
(iii) For purposes of calculating "Consolidated EBITDA," "Consolidated
Funded Debt," "Consolidated Senior Funded Debt," "Consolidated Interest Expense"
and cash Taxes for the period ending December 31, 1999 and each period
thereafter, any consummation of the South Florida Outdoor Sale and the ensuing
repayment of Loans with the proceeds thereof shall be deemed to have been
consummated during the first fiscal quarter of the year ended December 31, 1999,
provided that such sale is actually consummated on or before January 31, 2000.
(iv) The following defined terms contained in Section 1.1 are hereby
deleted in their entirety (and any and all references to such terms in the
Credit Agreement are deemed to be references to such terms' counterparts in
respect of the Term Loans as contemplated by the Third Amendment): "Tranche A
Term Loans," "Tranche A Term Loan Commitment," "Tranche A Term Notes," "Tranche
B Term Loans," "Tranche B Term Loan Commitment," "Tranche B Term Loan Commitment
Expiration Date" and "Tranche B Term Notes."
(v) The definition of "Credit Documents" is deemed to include the
Third Amendment.
3
<PAGE> 4
(c) ARTICLE II AMENDMENTS. Sections 2.1(a), 2.2(a), 2.2(b), 2.2(c),
2.4(a), 2.4(b), 2.5(a), 2.6(f), 2.9(h) and 2.14 of ARTICLE II are hereby
deleted in their entirety and are replaced with the following corresponding
sections of ARTICLE II (it being expressly understood that all other provisions
set forth in Article II (including without limitation Section 2.6(a)) remain
in full force and effect and shall govern the Term Loans contemplated by the
Third Amendment):
2.1 COMMITMENTS. (a) Each Lender with a Term Loan Commitment
severally agrees, subject to and on the terms and conditions of this
Agreement, to make a loan (each, a "Term Loan," and collectively, the "Term
Loans") to the Borrower on each Term Loan Borrowing Date in a principal
amount not to exceed its Term Loan Commitment. No Term Loans shall be made
at any time after March 31, 2001. To the extent repaid, Term Loans may not
be reborrowed. No Borrowing of Term Loans shall be made hereunder if,
immediately after giving effect thereto, the sum of Term Loans outstanding
at such time exceeds the aggregate of the Term Loan Commitments at such
time.
2.2 BORROWINGS. (a) The Term Loans and the Revolving Loans (each a
"Class" of Loan) shall, at the option of the Borrower and subject to the
terms and conditions of this Agreement, be either Base Rate Loans or LIBOR
Loans (each, a "Type" of Loan), provided that (i) all Loans comprising the
same Borrowing shall, unless otherwise specifically provided herein, be of
the same Type, (ii) the Loans (whether Revolving or Term Loans) made on the
Closing Date or the Third Amendment Closing Date shall be made initially as
Base Rate Loans and (iii) LIBOR Loans may be made, or Base Rate Loans may
be converted into LIBOR Loans, on the date which is three (3) Business Days
following the Closing Date or Third Amendment Closing Date, as applicable
(so long as proper notice is given pursuant to SECTION 2.2(b) or SECTION
2.11(b)).
(b) In order to make a Borrowing of Term Loans or Revolving Loans
(other than Borrowings involving continuations or conversions of
outstanding Loans, which shall be made pursuant to SECTION 2.11), the
Borrower will give the Administrative Agent written notice not later than
12:00 noon, Charlotte time, three (3) Business Days prior to each Borrowing
to be comprised of LIBOR Loans and on the date of each Borrowing to be
comprised of Base Rate Loans; provided, however, that requests for the
Borrowing of Revolving Loans to be made on the Closing Date may, at the
discretion of the Administrative Agent, be given later than the times
specified hereinabove. Each such notice (each "Notice of Borrowing") shall
be irrevocable, shall be given substantially in the form of EXHIBIT B-1 and
shall specify (1) the aggregate principal amount, Class and initial Type of
the Loans to be made pursuant to such Borrowing, (2) in the case of a
Borrowing of LIBOR Loans, the initial Interest Period to be applicable
thereto, and (3) the requested date of such Borrowing (the "Borrowing
Date"), which shall be a Business Day. Upon its receipt of a Notice of
Borrowing, the Administrative Agent will promptly notify each Lender of the
proposed Borrowing. Notwithstanding anything to the contrary contained
herein;
4
<PAGE> 5
(i) the aggregate principal amount of all Borrowings of Term Loans
shall be in an amount not in excess of the aggregate Term Loan Commitments;
(ii) the aggregate principal amount of each Borrowing comprised of
Base Rate Loans shall not be less than $1,000,000 or, if greater, an
integral multiple of $500,000 in excess thereof (or, in the case of a
Borrowing of Revolving Loans, if less, in the amount of the aggregate
Unutilized Revolving Credit Commitments), and the aggregate principal
amount of each Borrowing comprised of LIBOR Loans shall not be less than
$5,000,000 or, if greater, an integral multiple of $1,000,000 in excess
thereof;
(iii) if the Borrower shall have failed to designate the Type of
Loans comprising a Borrowing, the Borrower shall be deemed to have
requested a Borrowing comprised of Base Rate Loans;
(iv) if the Borrower shall have failed to select the duration of the
Interest Period to be applicable to any Borrowing of LIBOR Loans, then the
Borrower shall be deemed to have selected an Interest Period with a
duration of one month; and
(v) the Borrower may effect not more than two (2) separate Borrowings
in respect of the Term Loans contemplated hereby.
(c) Not later than 1:00 p.m., Charlotte time, on the requested Borrowing
Date (which shall be a Term Loan Borrowing Date, in the case of the Term Loans),
each Lender will make available to the Administrative Agent at its office
referred to in SECTION 11.5 (or at such other locations as the Administrative
Agent may designate) an amount, in Dollars and in immediately available funds,
equal to the amount of the Loan or Loans to be made by such Lender. To the
extent the Lenders have made such amounts available to the Administrative Agent
as provided hereinabove, the Administrative Agent will make the aggregate of
such amounts available to the Borrower in accordance with SECTION 2.3(a) and in
like funds as received by the Administrative Agent.
2.4 NOTES. (a) The Loans made by each Lender shall be evidenced (i) in
the case of Term Loans, by a Term Note appropriately completed in substantially
the form of EXHIBIT A to the Third Amendment, and (ii) in the case of Revolving
Loans, by a Revolving Note appropriately completed in substantially the form of
EXHIBIT A-3 to the Credit Agreement. In the event the Borrower effects a second
Borrowing of Term Loans, the Term Loans will be evidenced by amended and
restated Term Notes that will supercede the Term Notes executed and delivered by
the Borrower in connection with the first Borrowing of Term Loans.
5
<PAGE> 6
(b) Each Term Note shall (i) be executed by the Borrower, (ii) be payable
to the order of such Lender, (iii) be dated as of the applicable Term Loan
Borrowing Date (or in the case of a Term Note issued on connection with an
Assignment and Acceptance, dated the effective date of the applicable Assignment
and Acceptance), (iv) be in a stated principal amount equal to such Lender's pro
rata share (based on the ratio determined by dividing such Lender's Term Loan
Commitment to the aggregate amount of all Lenders' Term Loan Commitments) of the
amount of such Borrowing being made on such Term Loan Borrowing Date (or (A) in
the case of a Term Note issued in connection with an Assignment and Acceptance,
in an amount equal to the unpaid principal amount of such Lenders' Term Loan;
and (B) in the case of a second Borrowing of Term Loans, in an amount equal to
such Lender's pro rata share (as determined above) of all outstanding Term Loans
(after giving effect to such second Borrowing of Term Loans), (v) bear interest
in accordance with the provisions of SECTION 2.8, as the same may be applicable
from time to time to the Term Loan made by such Lender, and (vi) be entitled to
all of the benefits of this Agreement and the other Credit Documents and subject
to the provisions hereof and thereof.
2.5 TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Term Loan
Commitments shall be automatically and permanently terminated on the earlier to
occur of (i) March 31, 2001 and (ii) any earlier date upon which the Lenders
having Term Loan Commitments shall have advanced the proceeds of the Term Loans
in an aggregate amount equal to the sum of all of such Lenders' Term Loan
Commitments, unless the Term Loans have been made in full on or prior to such
date. The Revolving Credit Commitments shall be automatically and permanently
terminated on the Revolving Credit Termination Date.
2.6 MANDATORY PAYMENTS AND PREPAYMENTS.
(f) Not later than 180 days after its receipt thereof (and in any event
promptly upon its determination not to acquire additional assets or properties
or otherwise to reinvest in its businesses), the Borrower will prepay the
outstanding principal amount of the Loans in an amount equal to 100% of the Net
Cash Proceeds from any Asset Disposition (except that with respect to Asset
Dispositions, the Borrower may elect, up to an aggregate cumulative amount of
Net Cash Proceeds of $35,000,000 while this Agreement remains in effect (so long
as, except for any Asset Swaps, no more than ten percent (10%) of gross sales
proceeds in respect thereof consists of non-cash payments and fees and expenses
incurred in connection therewith), to apply such proceeds to amounts of
Revolving Loans without a corresponding reduction to the Revolving Credit
Commitments) and will deliver to the Administrative Agent, concurrently with
such prepayment, a certificate signed by a Financial Officer of the Borrower in
form and substance satisfactory to the Administrative Agent and setting forth
the calculation of such Net Cash Proceeds. Notwithstanding the foregoing,
nothing in this subsection shall be deemed to permit any Asset Disposition not
expressly permitted under SECTION 8.4.
6
<PAGE> 7
2.9 FEES.
(h) To the Administrative Agent, for the account of each Lender with
a Term Loan Commitment, a commitment fee for each calendar quarter (or
portion thereof) for the period from the Third Amendment Closing Date to
the expiration of the Term Loan Borrowing Period (such expiration date, the
"Term Loan Commitment Fee Expiration Date"), at a per annum rate equal to
the Applicable Margin Percentage in effect for such fee from time to time
during such quarter, on such Lender's ratable share (based on the
proportion that its Term Loan Commitment bears to the aggregate Term Loan
Commitments) of the average daily aggregate Unutilized Term Loan
Commitments, payable in arrears (i) on the last Business Day of each
calendar quarter, beginning with the first such day to occur after the
Third Amendment Closing Date, and (ii) on the Term Loan Commitment Fee
Expiration Date.
2.14 USE OF PROCEEDS. The proceeds of the Loans shall be used to
finance Capital Expenditures, working capital and general corporate
purposes and in accordance with the terms and provisions of this Agreement
(including to finance Permitted Acquisitions in accordance with the terms
and provisions of this Agreement, including without limitation the
provisions set forth in SECTION 6.9).
(d) CONDITIONS PRECEDENT. Section 4.2 is hereby deleted in its entirety
and is replaced with the following:
4.2 Conditions of Term Loans. The obligation of each Lender having a
Term Loan Commitment (including any lender that was not a Lender prior to
the execution and delivery of a Lender Addition and Acknowledgment
Agreement) to make Term Loans on a Term Loan Borrowing Date is subject to
the satisfaction of the following additional conditions precedent:
(a) The Administrative Agent shall have received the following, each
dated as of the applicable Term Loan Borrowing Date and, in sufficient
copies for each Lender:
(i) A Term Note for each Lender having a Term Loan Commitment,
in accordance with SECTION 2.4(b); and
(ii) the favorable opinions of (A) Graham & Dunn, PC, or such
other law firm reasonably acceptable to the Administrative Agent, as
special counsel to the Borrower, as to the matters set forth in
EXHIBIT B-2 to the Third Amendment, and (B) Rubin, Winston, Diercks,
Harris & Cooke, L.L.P., or such other law firm reasonably acceptable
to the Administrative Agent, as FCC counsel to the Borrower, EXHIBIT
B-3 to the Third Amendment, in each case addressed to the
Administrative Agent and the Lenders and addressing such other matters
as the Administrative Agent or any Lender may reasonably request.
7
<PAGE> 8
(b) The Administrative Agent shall have received a certificate of the
secretary or an assistant secretary of the Borrower and each Subsidiary of the
Borrower, in form and substance satisfactory to the Administrative Agent,
certifying that subsequent to the delivery of the certificate with respect to
such entity required by SECTION 4.1(c), there has been no amendment to the
articles or certificate of incorporation or bylaws of such entity.
(c) The Administrative Agent shall have received a certificate as of a
recent date of the good standing of the Borrower and each Subsidiary under the
laws of its jurisdiction of organization, from the Secretary of State (or
comparable Governmental Authority) of such jurisdiction.
(d) The Administrative Agent shall have received evidence in form and
substance satisfactory to it that all filings, recordings, registrations and
other actions (including, without limitation, the filing of duly completed and
executed UCC-1 financing statements, if applicable) as necessary or, in the
reasonable opinion of the Administrative Agent, desirable to perfect the Liens
created by the Security Documents shall have been completed, or arrangements
satisfactory to the Administrative Agent for completion thereof shall have been
made.
(e) Each of the conditions set forth in SECTION 4.4 shall have been
satisfied.
(e) LEVERAGE RATIOS. Sections 7.1(a) and 7.1(b) are deleted in their
entirety and are replaced with the following:
7.1. LEVERAGE RATIOS.
(a) LEVERAGE RATIO. The Borrower will not permit the Leverage Ratio as of
the last day of any fiscal quarter during the periods set forth below to be
greater than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Date Maximum Leverage Ratio
<S> <C>
December 31, 1999 through 6.25 : 1.00
September 30, 2000
December 31, 2000 through 6.00 : 1.00
March 31, 2001
Thereafter 5.50 : 1.00
</TABLE>
(b) SENIOR LEVERAGE RATIO. The Borrower will not permit the Senior
Leverage Ratio as of the last day of any fiscal quarter during the periods set
forth below to be greater than the ratio set forth below opposite such period:
8
<PAGE> 9
<TABLE>
<CAPTION>
Date Maximum Senior Leverage Ratio
---- -----------------------------
<S> <C>
September 30, 1999 through December 30, 1999 4.25 : 1.00
Thereafter 3.75 : 1.00
</TABLE>
(f) CAPITAL EXPENDITURES. The following is hereby added as new Section 7.5
of the Credit Agreement:
7.5 CAPITAL EXPENDITURES. The Borrower and its Subsidiaries shall not
make Capital Expenditures in the aggregate in excess of $40,000,000
during the period beginning January 1, 2000 through the fiscal quarter
ending June 30, 2001.
(g) INVESTMENTS. Section 8.5(a) of the Credit Agreement is hereby amended
by the deletion of clause (ix) thereof and the replacement of such
clause with the following:
(ix) Other Investments not to exceed $10,000,000 in the aggregate at
any time.
1.02. AMENDMENTS TO LOAN DOCUMENTS. As of the date hereof all references to
the Credit Agreement in any of the Credit Documents shall refer to the Credit
Agreement as amended prior to the date hereof and as amended by this Amendment,
and all references to any of the Credit Documents in any of the other Credit
Documents shall refer to such Credit Documents as amended prior to the date
hereof and as amended hereby or in connection herewith.
ARTICLE II.
WAIVER AND CONSENT
A. The Administrative Agent, the Documentation Agent and the Lenders
hereby waive, on a one-time basis only in connection with the repayment
in full of Revolving Loans in connection with the South Florida Outdoor
Sale, the Commitment Reduction Requirement (as defined in the Recitals
to this Third Amendment) providing for a mandatory permanent reduction
in the Revolving Credit Commitments upon the repayment of Revolving
Loans with proceeds of Asset Dispositions; provided, however, that such
waiver shall become void and of no force or effect as of the close of
business on January 31, 2000 if the South Florida Outdoor Sale shall
not have been consummated and the Revolving Loans shall not have been
repaid in full as of such time. This waiver is limited to the express
terms hereof and to the South Florida Outdoor Sale and shall not be
deemed to apply to any other prepayment of Loans by the Borrower.
B. The Administrative Agent, the Documentation Agent and the Lenders
hereby waive, for each fiscal quarter ending December 31, 1999 through
June 30, 2001 only, the requirement under the Credit Agreement that the
Borrower comply with Section 7.3
9
<PAGE> 10
of the Credit Agreement. This waiver is limited to the express terms
hereof and shall not be deemed to apply to any other covenant of the
Borrower or to the application of Section 7.3 of the Credit Agreement
for any fiscal quarter ending after June 30, 2001.
C. Effective as of January 5, 2000, the Lenders consent to the South
Florida Outdoor Sale and waive any restriction under Section 8.4 with
respect to such sale.
D. The Lenders hereby (i) consent to the Borrower's sale of its Station
KCBA-TV in Salinas, California in connection with the Asset Swap
through which the Borrower acquires Station KION-TV in Monterey,
California and (ii) waive any restriction under Section 8.4 with
respect to such sale.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants that:
3.01 COMPLIANCE WITH CREDIT AGREEMENT. After giving effect to this
Amendment, the Borrower is in compliance with all terms and provisions set forth
in the Credit Agreement to be observed or performed by it.
3.02 REPRESENTATIONS IN CREDIT AGREEMENT. The representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct as of the date hereof, except to the extent such representations and
warranties relate solely to or are specifically expressed as of a particular
date or period.
3.03 NO EVENT OF DEFAULT. After giving effect to this Amendment and the
transactions contemplated hereby, no Event of Default or Default exists under
the Credit Agreement.
3.04 CONTINUING SECURITY INTERESTS. All Loans and advances by the Lenders
to the Borrower under the Credit Agreement, as amended hereby, and the Notes
will continue to be secured by the Administrative Agent's security interest in
all of the Collateral granted under the Credit Agreement or other Credit
Documents, and nothing herein will affect the validity, perfection or
enforceability of such security interests.
3.05 CONSENTS. The execution and delivery of this Amendment and the
Borrower's performance hereunder does not require the consent or approval of
any Person (other than the Lenders pursuant to the Credit Agreement).
10
<PAGE> 11
ARTICLE IV.
CONDITIONS PRECEDENT
The effectiveness of the foregoing amendments, consents and waivers are
subject to the fulfillment of the following conditions precedent:
(a) the Administrative Agent shall have received this Amendment (duly
executed and delivered by each Lender party to the Credit Agreement and by the
Borrower and, with respect to their respective consents hereto, each Subsidiary
party to the Subsidiary Guaranty), in a sufficient number of execution
originals for each Lender;
(b) the Administrative Agent shall have received (i) satisfactory evidence
of the consummation of the South Florida Outdoor Sale and (ii) repayment in
full of all outstanding Loans under the Credit Agreement; and
(c) the Administrative Agent shall have received the favorable opinion of
Graham & Dunn, special counsel to the Borrower, as to the matters set forth in
EXHIBIT B-1 hereto.
(d) the Administrative Agent shall have received payment of the fees
required to be paid pursuant to the fee letter executed by the Borrower in
connection herewith.
ARTICLE V.
GENERAL
5.01. FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended
hereby, shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Credit Agreement,
"hereinafter," "hereto," "hereof," and words of similar import shall, unless the
context otherwise requires, mean the Credit Agreement after amendment by this
Amendment.
5.02 APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
5.03 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
5.04 EXPENSES. Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Administrative Agent in connection with the
preparation, execution and delivery of this Amendment, including, without
limitation, all reasonable attorneys' fees.
11
<PAGE> 12
5.05 FURTHER ASSURANCES. Each Borrower shall execute and deliver to
Administrative Agent such documents, certificates and opinions as the
Administrative Agent may reasonably request to effect the amendment
contemplated by this Amendment and to continue the existence, perfection and
first priority of the Administrative Agent's security interests in the
Collateral.
5.06 HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
12
<PAGE> 13
5.07 LIENS. The Borrower acknowledges and confirms that notwithstanding
the repayment in full of all outstanding Loans as contemplated hereby, the
Liens granted to the Administrative Agent and the Lenders pursuant to the
Credit Documents remain in full force and effect to secure any future advances
by the Lenders pursuant to the Credit Agreement (as amended hereby) from and
after the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers all as of the date
first above written.
THE ACKERLEY GROUP, INC.
By: /s/
-------------------------------
Title: Senior Vice President & CIO
---------------------------
(signatures continued)
<PAGE> 14
FIRST UNION NATIONAL BANK,
as Administrative Agent and as Lender
By: /s/
--------------------------
Title: Director
--------------------------
(signatures continued)
13
<PAGE> 15
FLEET BANK, N.A.
By: /s/ Garret Komjathy
------------------------
GARRET KOMJATHY
Title: VICE PRESIDENT
------------------------
(signatures continued)
14
<PAGE> 16
BANK OF MONTREAL, CHICAGO BRANCH
By: /s/ Ola Anderssen
--------------------------
OLA ANDERSSEN
Title: DIRECTOR
--------------------------
(signatures continued)
15
<PAGE> 17
KEYBANK NATIONAL ASSOCIATION
By: /s/ Richard J. Ameny, Jr.
----------------------------
RICHARD J. AMENY, JR.
Title: ASSISTANT VICE PRESIDENT
----------------------------
(signatures continued)
16
<PAGE> 18
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Matthew S. Thoreson
--------------------------
MATTHEW S. THORESON
Title: VICE PRESIDENT
--------------------------
(signatures continued)
18
<PAGE> 19
BANK OF AMERICA, N.A.
By: /s/ George V. Hausler
-----------------------
George V. Hausler
Title: Vice President
-----------------------
(signatures continued)
19
<PAGE> 20
THE BANK OF NOVA SCOTIA
By: /s/ Ian A. Hodgart
----------------------
IAN A. HODGART
Title: AUTHORIZED SIGNATORY
----------------------
(signatures continued)
20
<PAGE> 21
DRESDNER BANK AG, NEW YORK &
GRAND CAYMAN BRANCHES
By: /s/ Jane A. Majeski
---------------------------
JANE A. MAJESKI
Title: FIRST VICE PRESIDENT
------------------------
By: /s/ Constance Loosemore
---------------------------
Constance Loosemore
Title: Assistant Vice President
------------------------
(signatures continued)
21
<PAGE> 22
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ J.E. Palmer
---------------------------
J.E. PALMER
Title: ASSISTANT VICE PRESIDENT
------------------------
(signatures continued)
22
<PAGE> 23
BANQUE NATIONALE DE PARIS
By: /s/
---------------------------
Title: Head Portfolio Manager
------------------------
By: /s/ Gregg W. Bonardi
---------------------------
GREGG W. BONARDI
Title: Vice President
------------------------
(signatures continued)
23
<PAGE> 24
FIRST HAWAIIAN BANK
By: /s/ Travis Ruetenik
---------------------------
TRAVIS RUETENIK
Title: ASST. VICE PRESIDENT
------------------------
(signatures continued)
25
<PAGE> 25
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Ralph H. Hinckley, Jr.
---------------------------
Ralph H. Hinckley, Jr.
Title: Loan Officer
------------------------
(signatures continued)
27
<PAGE> 26
COMPAGNIE FINANCIERE DE CIC ET DE
I'UNION EUROPEENNE
By: /s/ Marcus Edward
-------------------------
Marcus Edward
Title: Vice President
-------------------------
By: /s/ Brian O'Leary
-------------------------
Brian O'Leary
Title: Vice President
-------------------------
(signatures continued)
28
<PAGE> 27
MICHIGAN NATIONAL BANK
By: /s/ Jeffrey W. Billig
------------------------
JEFFREY W. BILLIG
Title: Vice President
------------------------
(signatures continued)
29
<PAGE> 28
WASHINGTON MUTUAL BANK
(dba WESTERN BANK)
By: /s/ David M. Purcell
-----------------------
David M. Purcell
Title: Vice President
-----------------------
(signatures continued)
30
<PAGE> 29
NATEXIS BANQUE
By: /s/ Evan S. Kraus
------------------------------
EVAN S. KRAUS
Title: ASSISTANT VICE PRESIDENT
------------------------------
By: /s/ Cynthia E. Sachs
------------------------------
CYNTHIA E. SACHS
Title: VP, GROUP MANAGER
------------------------------
31
<PAGE> 30
ACKNOWLEDGEMENT OF GUARANTY
Each of the undersigned, as a guarantor of the Obligations of The Ackerley
Group, Inc. (the "Company") under the Credit Agreement, dated as of January 22,
1999, among the Company, certain financial institutions party thereto, First
Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A.,
in its capacity as documentation agent, and Union Bank of California, N.A.,
KeyBank National association and Bank of Montreal, Chicago Branch, as co-agents
(the "Credit Agreement"), hereby consents to the foregoing Third Amendment to
Credit Agreement, and further waives any defense to its guaranty liability
occasioned by such amendment (including without limitation the extension of
the maturity of the Loans as contemplated thereby). The foregoing consent and
waiver of the undersigned is made as of the date of the Third Amendment.
ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF
MASSACHUSETTS, INC.
By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann
------------------------------ -------------------------
Title: Assistant Secretary Title: Assistant Secretary
--------------------------- ----------------------
AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC.
By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann
------------------------------ -------------------------
Title: Assistant Secretary Title: Assistant Secretary
--------------------------- ----------------------
KVOS TV, LTD. TC AVIATION, INC.
By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann
------------------------------ -------------------------
Title: Assistant Secretary Title: Assistant Secretary
--------------------------- ----------------------
<PAGE> 31
Schedule 1
The Ackerley Group, Inc.
Credit Agreement Dated January 22, 1999
Schedule of Lender Commitments After Giving Effect to Third Amendment
Dated as of January 7, 2000
<TABLE>
<CAPTION>
Revolver Term Loan Total
Lender Commitment Commitment Percentage Commitment
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Union National Bank $17,500,000.00 $15,000,000.00 11.8543195266% $32,500,000.00
Bank of America $10,500,000.00 $9,000,000.00 7.1005917160% $19,500,000.00
Bank of Montreal $13,125,000.00 $11,250,000.00 8.8757396450% $24,375,000.00
Bank of Nova Scotia $7,807,692.40 $6,692,307.70 5.2799271795% $14,500,000.10
Banque Nationale Paris $7,000,000.00 $6,000,000.00 4.7337278107% $13,000,000.00
CIT Group $4,307,692.31 $3,692,307.69 2.9130632663% $8,000,000.00
Citizens Bank of Mass. $7,000,000.00 $6,000,000.00 4.7337278107% $13,000,000.00
Compagnie Financiere (CIC) $7,000,000.00 $6,000,000.00 4.7337278107% $13,000,000.00
Dresdner Bank $10,500,000.00 $9,000,000.00 7.1005917160% $19,500,000.00
FUNB (Carolinas portfolio) $2,692,307.69 $2,307,692.31 1.8206645444% $5,000,000.00
First Hawaiian Bank $5,384,615.38 $4,615,384.62 3.6413290888% $10,000,000.00
Fleet Bank $14,875,000.00 $12,750,000.00 10.0591715976% $27,625,000.00
Key Bank $13,125,000.00 $11,250,000.00 8.8757396450% $24,375,000.00
Michigan National Bank $4,375,000.00 $3,750,000.00 2.9585798817% $8,125,000.00
NATEXIS Banque $5,384,615.30 $4,615,384.60 3.6413290730% $9,999,999.90
US Bank $11,375,000.00 $9,750,000.00 7.6923076923% $21,125,000.00
Western Bank $5,923,076.92 $5,076,923.08 4.0054619961% $11,000,000.00
---------------------------------------------------------------------------
Total $147,875,000.00 $126,750,000.00 100.0000000000% $274,625,000.00
</TABLE>
<PAGE> 32
EXHIBIT A
Borrower's Taxpayer Identification No. 91-1043807
FORM OF
TERM NOTE
$______________ ___________________, 200_
Charlotte, North Carolina
FOR VALUE RECEIVED, THE ACKERLEY GROUP, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of
_____________________________________(the "Lender"), at the offices of
FIRST UNION NATIONAL BANK (the "Agent") located at One First Union Center, 301
South College Street, Charlotte, North Carolina (or at such other place or
places as the Agent may designate), at the times and in the manner provided in
the Credit Agreement, dated as of January 22, 1999 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), among the Borrower, the
Lenders from time to time parties thereto, FLEET BANK, N.A., as Documentation
Agent and FIRST UNION NATIONAL BANK, as Administrative Agent, the principal sum
of
__________________________DOLLARS ($___________), under the terms and
conditions of this promissory note (this "Term Note") and the Credit Agreement.
The defined terms in the Credit Agreement are used herein with the same
meaning. The Borrower also unconditionally promises to pay interest on the
aggregate unpaid principal amount of this Term Note at the rates applicable
thereto from time to time as provided in the Credit Agreement.
This Term Note is one of a series of Term Notes referred to in the Credit
Agreement and is issued to evidence the Term Loans made by the Lender pursuant
to the Credit Agreement. All of the terms, conditions and covenants of the
Credit Agreement are expressly made a part of this Term Note by reference in
the same manner and with the same effect as if set forth herein at length, and
any holder of this Term Note is entitled to the benefits of and remedies
provided in the Credit Agreement and other Credit Documents. Reference is made
to the Credit Agreement for provisions relating to the interest rate, maturity,
payment, prepayment and acceleration of this Term Note.
In the event of an acceleration of the maturity of this Term Note, this
Term Note shall become immediately due and payable, without presentation,
demand, protest or notice of any kind, all of which are hereby waived by the
Borrower.
In the event this Term Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Term Note shall be governed by and construed in accordance with the
internal laws and judicial decisions of the State of North Carolina. The
Borrower hereby submits to the nonexclusive
<PAGE> 33
jurisdiction and venue of the federal and state courts located in Mecklenburg
County, North Carolina, although the Lender shall not be limited to bringing an
action in such courts.
IN WITNESS WHEREOF, the Borrower has caused this Term Note to be executed
under seal by its duly authorized corporate officer as of the day and year
first above written.
THE ACKERLEY GROUP, INC.
By:____________________________
Title:_________________________
2
<PAGE> 34
Exhibit B-1
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Credit Agreement, except that for purposes hereof, and the term "State"
shall mean the state whose laws are covered by the opinion. The opinion should
be addressed to the Administrative Agent and the Lenders under the Credit
Agreement and should permit reliance thereon by the assignees and participants
of the Lenders. The preamble to the following opinions should include a
recitation of the documents reviewed and other customary preliminary provisions.
1. Each of the Borrower and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
2. Each of the Borrower and its Subsidiaries has the full corporate power
and authority to execute, deliver and perform the Third Amendment to the Credit
Agreement (or, in the case of the Subsidiaries, the consent thereto)
(collectively, the "Amendment Documents"), to own and hold its property and to
engage in its business as presently conducted.
3. Each of the Borrower and its Subsidiaries has taken all necessary
corporate action to execute, deliver and perform, and has validly executed and
delivered, the Amendment Documents to which it is a party. Each Amendment
Document to which the Borrower or any Subsidiary is a party constitutes the
legal, valid and binding obligation of the Borrower or such Subsidiary, as the
case may be, enforceable against it in accordance with its terms.
4. The execution, delivery and performance by each of the Borrower and
its Subsidiaries of the Amendment Documents to which it is a party, and
compliance by it with the terms thereof, do not and will not (i) violate any
provision of its articles or certificate of incorporation or bylaws, (ii)
contravene any provisions of any applicable law, rule or regulation of the
United States of America or the State or, to the best of our knowledge, any
judgment, order, writ, injunction or decree to which it is subject, (iii)
conflict with, result in a breach of or constitute (with notice, lapse of time
or both) a default under any indenture, agreement or other instrument to which
it is a party, by which it or any of its properties is bound or to which it is
subject, or (iv) except for the Liens created in favor of the Agent pursuant to
the Security Documents, result in or require the creation or imposition of any
Lien upon any of its property or assets.
5. No consent, approval, authorization, exemption or other action by,
notice to, or registration or filing with, any Governmental Authority of the
United States of America or the State is required in connection with the due
execution, delivery and performance by each of the Borrower or its Subsidiaries
of the Amendment Documents to which it is a party, the legality, validity or
enforceability thereof or the consummation of the transactions contemplated
thereby.
6. There are no actions, investigations, suits or proceedings pending
or, to the best of our knowledge, threatened, at law, in equity or in
arbitration, before any court, other Governmental Authority or other Person, (i)
against or affecting the Borrower or its Subsidiaries
<PAGE> 35
or any of their respective properties that would, if adversely determined, be
reasonably likely to have a Material Adverse Effect, or (ii) with respect to any
of the Credit Documents.
7. Such other matters reasonably requested by the Administrative Agent as
a result of its due diligence or negotiation of the Credit Documents.
2
<PAGE> 36
Exhibit B-2
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Credit Agreement, except that for purposes hereof, and the term "State"
shall mean the state whose laws are covered by the opinion. The opinion should
be addressed to the Administrative Agent and the Lenders under the Credit
Agreement and should permit reliance thereon by the assignees and participants
of the Lenders. The preamble to the following opinions should include a
recitation of the documents reviewed and other customary preliminary provisions.
1. Each of the Borrower and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
2. Each of the Borrower and its Subsidiaries has the full corporate power
and authority to execute, deliver and perform the Credit Documents to which it
is a party, to own and hold its property and to engage in its business as
presently conducted.
3. Each of the Borrower and its Subsidiaries has taken all necessary
corporate action to execute, deliver and perform, and has validly executed and
delivered, each Credit Document to which it is a party (including without
limitation the Term Notes [and any amendments or restatements thereof and any
new Security Documents being executed in connection therewith]). Each Credit
Document to which the Borrower or any Subsidiary is a party (including without
limitation the Term Notes [and any amendments or restatements thereof and any
new Security Documents being executed in connection therewith] constitutes the
legal, valid and binding obligation of the Borrower or such Subsidiary, as the
case may be, enforceable against it in accordance with its terms.
4. The execution, delivery and performance by each of the Borrower and
its Subsidiaries of the Credit Documents to which it is a party (including
without limitation the Term Notes [and any amendments or restatements thereof
and any new Security Documents being executed in connection therewith]), and
compliance by it with the terms thereof, do not and will not (i) violate any
provision of its articles or certificate of incorporation or bylaws, (ii)
contravene any provisions of any applicable law, rule or regulation of the
United States of America or the State or, to the best of our knowledge, any
judgment, order, writ, injunction or decree to which it is subject, (iii)
conflict with, result in a breach of or constitute (with notice, lapse of time
or both) a default under any indenture, agreement or other instrument to which
it is a party, by which it or any of its properties is bound or to which it is
subject, or (iv) except for the Liens created in favor of the Agent pursuant to
the Security Documents, result in or require the creation or imposition of any
Lien upon any of its property or assets.
5. No consent, approval, authorization, exemption or other action by,
notice to, or registration or filing with, any Governmental Authority of the
United States of America or the State is required in connection with the due
execution, delivery and performance by each of the Borrower or its Subsidiaries
of the Credit Documents to which it is a party, the legality, validity or
enforceability thereof or the consummation of the transactions contemplated
thereby.
<PAGE> 37
6. There are no actions, investigations, suits or proceedings pending or,
to the best of our knowledge, threatened, at law, in equity or in arbitration,
before any court, other Governmental Authority or other Person, (i) against or
affecting the Borrower or its Subsidiaries or any of their respective properties
that would, if adversely determined, be reasonably likely to have a Material
Adverse Effect, or (ii) with respect to any of the Credit Documents.
7. Such other matters reasonably requested by the Administrative Agent as
a result of its due diligence or negotiation of the Credit Documents.
2
<PAGE> 38
Exhibit B-3
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Credit Agreement. The opinion should be addressed to the Administrative
Agent and the Lenders under the Credit Agreement and should permit reliance
thereon by the assignees and participants of the Lenders. The preamble to the
following opinions should include a recitation of the documents reviewed and
other customary preliminary provisions.
1. The consummation by the Borrower of the transactions contemplated by
the Credit Agreement do not and will not cause a violation of or default under
any of the licenses, permits, consents, approvals and other authorizations
issued by the Federal Communications Commission (the "FCC") for the operation of
the broadcast stations of the Borrower or its Subsidiaries (the "FCC Licenses"),
and all authorizations, approvals and consents of the FCC under the
Communications Act (the "Act") required in connection with such transactions
have been obtained, are in full force and effect, and have not been reversed,
stayed, enjoined, set aside, annulled or suspended.
2. Exhibit A hereto contains a true, correct and complete list of each
FCC License granted or issued to the Borrower or any of its Subsidiaries,
indicating, for each such license the corresponding broadcast station
(collectively, the "Broadcast Stations"), the call sign, service, name of the
authorized holder and the expiration date. The FCC Licenses constitute all of
the licenses, permits, consents and other authorizations required by the FCC for
the operation by the Borrower and its Subsidiaries of their respective Broadcast
Stations as currently operated and as proposed to be operated from and after the
Closing Date.
3. Each FCC License is valid and in full force and effect, and no such
license is subject to any material adverse condition. Each FCC License has been
granted or issued by an action of the FCC as to which all applicable periods for
administrative and judicial appeal, review and reconsideration have expired
without such appeal, review or reconsideration having been taken or instituted
by any party or by the FCC on its own motion. Counsel has no reason to believe
that any FCC Licenses will not, subject to the filing of license renewal
applications and payment of any applicable filing fees, be renewed for a full
term in the ordinary course.
4. There are (1) no judgments, decrees or orders issued or, to counsel's
knowledge, threatened by the FCC with respect to the Borrower or any of its
Subsidiaries, (2) no material complaints, petitions, applications,
investigations or other proceedings pending, or to counsel's knowledge,
threatened, before the FCC, including without limitation any notice of
violation, notice of apparent liability or order to show cause, and (3) to
counsel's knowledge, no events that have occurred that could result in (i) the
termination, revocation or adverse modification of any FCC License, (ii) the
imposition of any material financial penalty by the FCC upon the Borrower or any
Subsidiary or (iii) a material adverse effect upon, or cause material disruption
to, the business, operations or future prospects of any of the Broadcast
Stations or the performance by the Borrower and its Subsidiaries under the
Credit Documents.
5. The Borrower and its Subsidiaries, to counsel's knowledge, have filed
with the FCC all material reports, documents, instruments, information and
applications required to be
<PAGE> 39
filed and have undertaken all other actions required to be taken pursuant to the
Act and the rules promulgated thereunder or upon request of the FCC.
6. The execution, delivery and performance by the Borrower and its
Subsidiaries under the Credit Documents (a) do not and will not violate or
conflict with any provision of the Act, or with any rule, regulation or
published policy of the FCC; (b) do not and will not result in the forfeiture
or the suspension, termination prior to its expiration date, revocation,
material impairment, adverse modification or non-renewal of any FCC License; and
(c) do not and will not require any consent, authorization or approval of, or
notice to or filing with, the FCC.
7. Neither the Administrative Agent nor any Lender under the Credit
Documents will, solely by reason of the execution, delivery and performance of
any of the Credit Documents, be subject to the regulation or control of the FCC.
2
<PAGE> 1
Exhibit 10.5
FOURTH AMENDMENT
TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of February 11,
2000 (this "Amendment" or this "Fourth Amendment"), is by and between THE
ACKERLEY GROUP, INC., a Delaware corporation (the "Borrower"), certain financial
institutions party to the Credit Agreement (as hereinafter defined), FIRST UNION
NATIONAL BANK, a national banking association, as administrative agent for the
Lenders (the "Administrative Agent"), FLEET BANK, N.A. as documentation agent
("Documentation Agent") and KEYBANK NATIONAL ASSOCIATION, and BANK OF MONTREAL,
CHICAGO BRANCH as co-agents ("Co-Agents").
This Amendment amends that certain Credit Agreement dated as of January
22, 1999, between the Borrower, the Lenders, the Administrative Agent, the
Documentation Agent and the Co-Agents (as previously amended, as amended hereby
and as further amended, modified, restated or supplemented from time to time,
the "Credit Agreement"). All capitalized terms not otherwise defined in this
Amendment shall have the meanings assigned to them in the Credit Agreement.
RECITALS
A. The Borrower intends to purchase Station WETM-TV in Elmira,
New York (the "Station") by entering into a transaction with Smith Television of
New York, Inc. ("Seller") in which the Borrower will (i) purchase a 20% equity
interest in Seller and (ii) enter into an LMA with respect to the Station (which
LMA would terminate, among other reasons, upon any foreclosure thereon by the
Banks following any Event of Default under the Credit Agreement). The foregoing
transaction is defined herein as the "Elmira Station Transaction". The parties
to the Elmira Station Transaction intend that the Borrower or one of its
subsidiaries will ultimately own or control the Station through the exercise of
a put by Seller or an option by the Borrower pursuant to the documents governing
such transaction. The Borrower has requested that the Credit Agreement be
amended to make clear that the Elmira Station Transaction and any similarly
structured transaction in the future be treated as an Acquisition.
B. The Required Lenders, the Administrative Agent, the
Documentation Agent and the Co-Agents are willing to agree to so amend the
Credit Agreement on the terms and conditions set forth herein.
<PAGE> 2
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and in the Credit Agreement, and for other good and valuable considerations,
the receipt and sufficiency of which are hereby acknowledged, each of the
Borrower, the Lenders, the Administrative Agent, the Documentation Agent and
the Co-Agents hereby agree as follows:
ARTICLE I.
AMENDMENTS TO CREDIT AGREEMENT
1.1 New Defined Term. The following is hereby added in appropriate
alphabetical order to Section 1.1 of the Credit Agreement:
"Fourth Amendment" shall mean the Fourth
Amendment to Credit Agreement, dated as of
February 11, 2000, between the Borrower, the
Administrative Agent, the Documentation Agent,
the Co-Agents and the Required Lenders.
1.2 Elmira Acquisition: (a) The definition of "Acquisition" is hereby
amended by adding the following as the third sentence thereof: "For purposes of
this Agreement, the Elmira Station Transaction (as defined in the Fourth
Amendment) and any similarly structured transaction in which the Borrower (or
a Subsidiary), on terms and conditions satisfactory to the Administrative Agent,
purchases for value any shares of Capital Stock in any Person, together with an
option to acquire additional Capital Stock sufficient to give the Borrower (or
such Subsidiary) a majority interest in such Person, shall be considered to be
an Acquisition."
(b) The Elmira Transaction is deemed to be a Permitted Acquisition.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
The Borrower hereby certifies and warrants to the Administrative Agent and
the Lenders that (a) after giving effect to the amendments effected hereby,
each of the representations and warranties contained in ARTICLE V of the Credit
Agreement and in the other Credit Documents are true and correct on the date
hereof with the same effect as though made on the date hereof, both immediately
before and after giving effect to this Amendment (except to the extent any such
representation or warranty is expressly stated to have been made as of a
specific date, in which case such representation or warranty shall be true and
correct as of such specified date), and (b) after giving effect to the
amendments effected hereby, no Default or Event of Default shall have occurred
and be continuing on the date hereof.
2
<PAGE> 3
ARTICLE III.
GENERAL
3.1 FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended
hereby, shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Credit Agreement,
"hereinafter," "hereto," "hereof," and words of similar import shall, unless
the context otherwise requires, mean the Credit Agreement after amendment by
this Amendment.
3.2 APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
3.3 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
3.4 EXPENSES. The Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Administrative Agent in connection with the
preparation, execution and delivery of this Amendment, including, without
limitation, all reasonable attorneys' fees.
3.5 FURTHER ASSURANCES. The Borrower shall execute and deliver to
Administrative Agent such documents, certificates and opinions as the
Administrative Agent may reasonably request to effect the amendment contemplated
by this Amendment and to continue the existence, perfection and first priority
of the Administrative Agent's security interests in the Collateral.
3.6 HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
[This space intentionally left blank]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers all as of the date
first above written.
THE ACKERLEY GROUP, INC.
By: /s/ Keith Ritzmann
---------------------------------------------
Title: Keith Ritzmann - Senior Vice President/CIO
------------------------------------------
(signatures continued)
4
<PAGE> 5
FIRST UNION NATIONAL BANK
as Administrative Agent and as Lender
By: /s/
---------------------------------
Title: SVP
---------------------------------
(signatures continued)
5
<PAGE> 6
FLEET BANK, N.A.
By: /s/ Garret Komjathy
-----------------------------------
GARRET KOMJATHY
Title: VICE PRESIDENT
-----------------------------------
(signatures continued)
6
<PAGE> 7
BANK OF MONTREAL, CHICAGO BRANCH
By: /s/ Ola Anderssen
--------------------------------
OLA ANDERSSEN
Title: DIRECTOR
--------------------------------
(signatures continued)
7
<PAGE> 8
KEYBANK NATIONAL ASSOCIATION
By: /s/ Richard J. Ameny, Jr.
--------------------------------
RICHARD J. AMENY, JR.
Title: ASSISTANT VICE PRESIDENT
--------------------------------
(signatures continued)
8
<PAGE> 9
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Matthew S. Thoreson
--------------------------------
Matthew S. Thoreson
Title: Vice President
--------------------------------
(signatures continued)
9
<PAGE> 10
BANK OF AMERICA, N.A.
By: /s/ George V. Hausler
--------------------------------
George V. Hausler
Title: Vice President
--------------------------------
(signatures continued)
10
<PAGE> 11
THE BANK OF NOVA SCOTIA
By: /s/ Ian A. Hodgart
------------------------------------
IAN A. HODGART
Title: AUTHORIZED SIGNATORY
---------------------------------
(signatures continued)
11
<PAGE> 12
THE CIT GROUP/EQUIPMENT
FINANCING, INC.
By: /s/ Daniel E. A. Nichols
------------------------------------
DANIEL E. A. NICHOLS
Title: ASSISTANT VICE PRESIDENT
---------------------------------
(signatures continued)
13
<PAGE> 13
FIRST HAWAIIAN BANK
By: /s/ Travis Ruetenik
------------------------------------
TRAVIS RUETENIK
Title: ASST. VICE PRESIDENT
---------------------------------
(signatures continued)
15
<PAGE> 14
CREDIT INDUSTRIEL ET COMMERCIAL
By: /s/ Marcus Edward
------------------------------------
Marcus Edward
Title: Vice President
---------------------------------
By: /s/ Sean Mounier
------------------------------------
Sean Mounier
Title: First Vice President
---------------------------------
(signatures continued)
17
<PAGE> 15
MICHIGAN NATIONAL BANK
By: /s/ Jeffrey W. Billig
----------------------------------
Jeffrey W. Billig
Title: Vice President
-------------------------------
(signatures continued)
18
<PAGE> 16
WASHINGTON MUTUAL BANK
(dba WESTERN BANK)
By: /s/ David M. Purcell
----------------------------------
David M. Purcell
Title: Vice President
-------------------------------
(signatures continued)
19
<PAGE> 17
NATEXIS BANQUE POPULAIRES
(formerly known as Natexis Banque)
By: /s/ EVAN S. KRAUS
----------------------------------
EVAN S. KRAUS
Title: ASSISTANT VICE PRESIDENT
-------------------------------
By: /S/ WILLIAM C. MAIER
----------------------------------
WILLIAM C. MAIER
Title: SENIOR VICE PRESIDENT
-------------------------------
20
<PAGE> 18
ACKNOWLEDGEMENT OF GUARANTY
Each of the undersigned, as a guarantor of the Obligations of The Ackerley
Group, Inc. (the "Company") under the Credit Agreement, dated as of January 22,
1999, among the Company, certain financial institutions party thereto, First
Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A.,
in its capacity as documentation agent, and KeyBank National association and
Bank of Montreal, Chicago Branch, as co-agents (the "Credit Agreement"), hereby
consents to the foregoing Fourth Amendment to Credit Agreement, and further
waives any defense to its guaranty liability occasioned by such amendment
(including without limitation the extension of the maturity of the Loans as
contemplated thereby). The foregoing consent and waiver of the undersigned is
made as of the date of the Fourth Amendment.
ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF
MASSACHUSETTS, INC.
By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann
------------------------- -----------------------
Title: Keith Ritzmann -- Title: Keith Ritzmann --
Assistant Secretary Assistant Secretary
AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC.
By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann
------------------------- -----------------------
Title: Keith Ritzmann -- Title: Keith Ritzmann --
Assistant Secretary Assistant Secretary
KVOS TV, LTD. TC AVIATION, INC.
By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann
------------------------- -----------------------
Title: Keith Ritzmann -- Title: Keith Ritzmann --
Assistant Secretary Assistant Secretary
21
<PAGE> 1
EXHIBIT 10.9
================================================================================
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF APRIL 8, 1999
AMONG
THE ACKERLEY GROUP, INC., AS ISSUER
THE GUARANTORS NAMED HEREIN
AND
THE BANK OF NEW YORK, AS TRUSTEE
$250,000,000
9% SENIOR SUBORDINATED NOTES DUE JANUARY 15, 2009
================================================================================
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of April 8, 1999, by and between
The Ackerley Group, Inc., a Delaware corporation (the "COMPANY"), Ackerley
Airport Advertising, Inc., a Washington corporation, Ackerley Communications of
Massachusetts, Inc., a Washington corporation, AK Media Group, Inc., a
Washington corporation, Central NY News, Inc., a Washington corporation, T.C.
Aviation, Inc., an Oregon corporation, and KVOS TV Ltd., a British Columbia,
Canada corporation (collectively, the "GUARANTORS"), and The Bank of New York, a
New York banking corporation, as trustee (the "TRUSTEE").
RECITALS
The Company and the Trustee are parties to a certain Indenture dated as
of December 14, 1998 (the "INDENTURE") relating to up to $250,000,000 aggregate
principal amount of the Company's 9% Senior Subordinated Notes due 2009 (the
"SECURITIES"); and
Under the terms of the Indenture, the Guarantors, the Company and the
Trustee are required under certain circumstances to execute and deliver a
supplemental indenture pursuant to which each Guarantor becomes a guarantor of
the Securities and which evidences such Guarantor's guarantee of the Securities,
such guarantee to be a senior subordinated unsecured obligation of such
Guarantor; and
The Company, the Guarantors, and the Trustee now desire to enter into
this First Supplemental Indenture, which adds to the Indenture a new article,
entitled "Article 12. Guarantees of the Securities," and pursuant to which each
Guarantor will become a guarantor of the Securities in accordance with the terms
of the Indenture and the terms hereof.
Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
NOW, THEREFORE, for and in consideration of the promises and covenants
contained in the Indenture and other good and valuable consideration, it is
covenanted and agreed, for the benefit of each other and for the equal and
proportionate benefit of the Holders of the Securities issued under the
Indenture, as follows:
ARTICLE 12.
GUARANTEES OF THE SECURITIES
SECTION 12.01. GUARANTEES.
Subject to the provisions of this Article 12, each Guarantor hereby
jointly and severally unconditionally guarantees to each Holder of a Security
authenticated and made available for delivery by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Securities or the obligations of the Company or any other
Guarantors to the Holders or the Trustee
<PAGE> 3
hereunder, that: (a) the principal of and interest on the Securities will be
duly and punctually paid in full when due, whether at maturity, by acceleration
or otherwise, and interest on the overdue principal and (to the extent permitted
by law) interest, if any, on the Securities and all other Obligations on the
Securities will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (b) in case of any extension of time of
payment or renewal of any Securities or any of such other Obligations on the
Securities, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at final stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed, for whatever reason, each Guarantor will be obligated to pay the
same immediately. An Event of Default under this Indenture or the Securities
shall constitute an event of default under the Guarantees, and shall entitle the
Holders of Securities to accelerate the obligations of the Guarantors hereunder
in the same manner and to the same extent as the obligations of the Company on
the Securities.
Each of the Guarantors hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularly or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, any release of any other Guarantor,
the recovery of any judgment against the Company, an action to enforce the same,
whether or not a Guarantee is affixed to any particular Security, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each of the Guarantors hereby waives the benefit of
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
the Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, the Guarantees, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (a) subject to this Article 12, the maturity of the
obligations guaranteed hereby may be accelerated as provided in Section 6.02 for
the purposes of the Guarantees, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (b) in the event of any acceleration of such obligations
as provided in Section 6.02, such obligations (whether or not due and payable)
shall forthwith become due and payable by the Guarantors for the purpose of the
Guarantees.
The Guarantees shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Company for liquidation
or reorganization, should the Company become insolvent or make an assignment for
the benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be
2
<PAGE> 4
effective or be reinstated, as the case may be, if at any time payment and
performance of the Securities are, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee on
the Securities, whether as a "voidable preference," "fraudulent transfer" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Securities shall, to the fullest extent permitted by law, be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
No stockholder, officer, director, employer or incorporator, past,
present or future, of any Guarantor, as such, shall have any personal liability
under the Guarantees by reason of his, her or its status as such stockholder,
officer, director, employer or incorporator.
The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Guarantees.
Each Guarantor, and by its acceptance hereof each Holder, hereby
confirms that it is the intention of all such parties that in no event shall any
Guarantor's obligations under its Guarantee be subject to avoidance under any
applicable fraudulent conveyance or similar law of any relevant jurisdiction.
Therefore, in the event that the Guarantees would, but for this sentence, be
subject to avoidance, then the liability of the Guarantors under the Guarantees
shall be reduced to the extent necessary such that such Guarantees shall not be
subject to avoidance under the applicable fraudulent conveyance or similar law.
Subject to the preceding limitation on liability, the Guarantee of each
Guarantor constitutes a guarantee of payment in full when due and not merely
guarantee of collectibility.
SECTION 12.02. EXECUTION AND DELIVERY OF THE GUARANTEES.
To further evidence the Guarantees set forth in Section 12.01, each
Guarantor hereby agrees that a notation of such Guarantees, substantially in the
form included in Exhibit F hereto, shall be endorsed on each Security
authenticated and made available for delivery by the Trustee. The validity and
enforceability of any Guarantee shall not be affected by the fact that it is not
affixed to any particular Security.
Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 12.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Security no longer holds that office at the time the Trustee authenticates such
Security or at any time thereafter, such Guarantor's Guarantee of such Security
shall be valid nevertheless.
3
<PAGE> 5
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Guarantor.
SECTION 12.03. ADDITIONAL GUARANTORS.
Any Person may become a Guarantor by executing and delivering to the
Trustee (a) a supplemental indenture, in form and substance satisfactory to the
Trustee, which subjects such Person to the provisions of this Indenture as a
Guarantor, and (b) an Opinion of Counsel to the effect that such supplemental
indenture has been duly authorized and executed by such Person and constitutes
the legal, valid, binding and enforceable obligation of such Person (subject to
such customary exceptions concerning fraudulent conveyance laws, creditors'
rights and equitable principles as may be acceptable to the Trustee in its
discretion).
SECTION 12.04. LIMITATION OF GUARANTORS' LIABILITY.
The obligations of each Guarantor are limited to the maximum amount as
will after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees under the Credit
Agreement) and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to Section 12.06, result in the
obligations of such Guarantor under the Guarantees not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under the Guarantees shall be entitled to a
contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Guarantor.
SECTION 12.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor or shall prevent any sale or conveyance of the
property of a Guarantor, as an entirety or substantially as an entirety, to the
Company or another Guarantor. Upon any such consolidation, merger, sale or
conveyance, the Guarantee given by such Guarantor shall no longer have any force
or effect.
(b) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Guarantor with or into a Person
(provided such Person is a corporation, partnership or trust) other than the
Company or another Guarantor or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to any
such Person (whether or not an Affiliate of the Guarantor). Upon the sale or
disposition of a Guarantor (or all or substantially all of its assets) to a
Person which is not a Subsidiary of the Company, which is otherwise in
compliance with this Indenture (including Section 4.16), such Guarantor shall be
deemed
4
<PAGE> 6
released from all its obligations under this Indenture and its Guarantee and
such Guarantee shall terminate; provided that any such termination shall occur
only to the extent that all obligations of such Guarantor under the Credit
Agreement, and all its guarantees of, and under all of its pledges of assets or
other security interests which secure, Indebtedness of the Company shall also
terminate upon such release, sale or transfer.
(c) The Trustee shall, at the Company's expense, deliver an appropriate
instrument evidencing such release upon receipt of a request by the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 12.05. Any Guarantor not so released remains liable for the full
amount of principal and interest on the Securities as provided in this Article
12.
SECTION 12.06. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter alia, that in the event any payment or
distribution is made by any Guarantor (a "FUNDING GUARANTOR") under the
Guarantees, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company
obligations with respect to the Securities or any other Guarantor's obligations
with respect to the Guarantees; provided that such Funding Guarantor's
contribution right with respect to any such Guarantor shall be subordinated in
right of payment to such Guarantor's Guarantor Senior Debt on the same basis as
its Guarantee is subordinated to Guarantor Senior Debt pursuant to this Article
12.
SECTION 12.07. WAIVER OF SUBROGATION.
Each Guarantor hereby irrevocably waives any claim or other rights which
it may now or hereafter acquire against the Company that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under the Guarantees and this Indenture, including, without limitation, any
right of subrogation, reimbursement, exoneration or indemnification, and any
right to participate in any claim or remedy of any Holder of Securities against
the Company, whether or not such claim, remedy or right arises in equity, or
under contract, statute or common law, including, without limitation , the right
to take or receive from the Company, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim or other rights. If any amount shall be paid to any Guarantor in
violation of the preceding sentence and the Securities shall not have been paid
in full, such amount shall have been deemed to have been paid to such Guarantor
for the benefit of, and held in trust for the benefit of, the Holders of the
Securities, and shall, subject to the provisions of this Article 12, forthwith
be paid to the Trustee for the benefit of such Holders to be credited and
applied upon the Securities, whether matured or unmatured, in accordance with
the terms of this Indenture. Each Guarantor acknowledges that it will receive
direct or indirect benefits from the financing arrangements contemplated by this
Indenture and that
5
<PAGE> 7
the waiver set forth in this Section 12.07 is knowingly made in contemplation of
such benefits.
SECTION 12.08. GUARANTEE OBLIGATIONS SUBORDINATED TO GUARANTOR SENIOR DEBT.
Each Guarantor covenants and agrees, and the Trustee and each Holder of
the Securities, by its acceptance thereof, likewise covenants and agrees, that
all Guarantees shall be issued subject to the provisions of this Article 12; and
the Trustee and each Person holding any Guarantee, whether upon original issue
or upon transfer, assignment or exchange thereof, accepts and agrees that the
payment of all Obligations on the Securities pursuant to the Guarantees (except
for the payment of fees and expenses of the Trustee under Section 7.07) made by
or on behalf of such Guarantor shall, to the extent and in the manner herein set
forth, be subordinated and junior in right of payment to the prior payment in
full in cash or Cash Equivalents (or such payment shall be duly provided for to
the satisfaction of the holders of the Guarantor Senior Debt of any Guarantor)
of all existing and future Obligations on the Guarantor Senior Debt of such
Guarantor; that the subordination is for the benefit of, and shall be
enforceable directly by the holders of Guarantor Senior Debt of any Guarantor
and that each holder of Guarantor Senior Debt of any Guarantor whether now
outstanding or hereafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Guarantor Senior Debt of any Guarantor in reliance upon
the covenants and provisions contained in this Indenture and the Guarantees.
This Section 12.08 and the following Sections 12.09 through 12.22 of
this Article 12 shall constitute a continuing offer to all Persons who, in
reliance upon such provisions, become holders of, or continue to hold, Guarantor
Senior Debt of any Guarantor and, to the extent set forth in this Section 12.09,
holders of Designated Guarantor Senior Debt; and such provisions are made for
the benefit of the holders of Guarantor Senior Debt of each Guarantor and, to
the extent set forth in Section 12.09, holders of Designated Guarantor Senior
Debt; and such holders (to such extent) are made obligees hereunder and they or
each of them may enforce such provisions.
6
<PAGE> 8
SECTION 12.09. NO PAYMENT ON GUARANTEES IN CERTAIN CIRCUMSTANCES.
(a) If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of any
principal of, interest on or any other amounts owing with respect to any
Guarantor Senior Debt, no payment of any kind or character (except for
guarantees of Permitted Securities on the same basis as the Guarantees) shall be
made by any Guarantor or any other Person on behalf of such Guarantor with
respect to any Obligations on the Securities or under the Guarantees or to
acquire any of the Securities for cash or property or otherwise. In addition, if
any other event of default occurs and is continuing (or if such an event of
default would occur upon any payment with respect to the Securities or would
arise upon the passage of time as a result of such payment) with respect to an
Designated Guarantor Senior Debt (as such event of default is defined in the
instrument creating or evidencing such Designated Guarantor Senior Debt) and
such event of default permits the holders of such Designated Guarantor Senior
Debt then outstanding to accelerate the maturity thereof and if the
Representative for the respective issue of Designated Guarantor Senior Debt
gives a Default Notice to the Company, the Guarantors and the Trustee, then,
unless and until all events of default have been cured or waived or have ceased
to exist or the Company, the Guarantors and the Trustee receive notice from the
Representative for the respective issue of Designated Guarantor Senior Debt
terminating the Blockage Period, neither the Guarantors nor any other Person on
behalf of the Guarantors shall make any payment of any kind or character (except
for guarantees of Permitted Securities on the same basis as the Guarantees) with
respect to any Obligations of a Guarantor on the Securities or under the
Guarantees or to acquire any of the Securities for cash or property or
otherwise. Notwithstanding anything herein to the contrary, in no event will a
Blockage Period extend beyond 180 days from the date the payment on the
Securities was due and only one such Blockage Period may be commenced within any
360 consecutive days. For all purposes of this Section 12.09(a), no event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Guarantor Senior Debt initiating
such Blockage Period shall be, or be made, the basis for the commencement of a
second Blockage Period by the Representative of such Designated Guarantor Senior
Debt, whether or not within a period of 360 consecutive days, unless such event
of default shall have been cured or waived for a period of not less than 90
consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that in either case, would give rise to an
event of default pursuant to any provision under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
(b) In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee or any Holder of a Guarantee when such payment is
prohibited by Section 12.09(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Guarantor
Senior Debt (pro rata to such holders on the basis of the respective amounts of
Guarantor Senior Debt held by such holders) or their respective Representatives,
as their respective interests may appear. The Trustee shall be
7
<PAGE> 9
entitled to rely on information regarding amounts then due and owing on the
Guarantor Senior Debt, if any, received from the holders of Guarantor Senior
Debt (or their Representatives) or, if such information is not received from
such holders or their Representatives, from the Company or the Guarantors and
only amounts included in the information provided to the Trustee shall be paid
to the holders of Guarantor Senior Debt.
Nothing contained in this Article 12 shall limit the right of the
Trustee or the Holders of Securities to any action to accelerate the maturity of
the Securities pursuant to Section 6.02 or to pursue any rights or remedies
hereunder; provided that all Guarantor Senior Debt thereafter due or declared to
be due shall first be paid in full in cash or Cash Equivalents before the
Holders are entitled to receive any payment with respect to Obligations on the
Guarantees.
SECTION 12.10. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) Upon any payment or distribution of assets of any Guarantor of any
kind or character, whether in cash, property or securities, to creditors upon
any liquidation, dissolution, winding-up, reorganization, assignment for the
benefit of creditors or marshalling of assets of any Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to any Guarantor or its property, whether voluntary or involuntary, all
Obligations due or to become due upon ail Guarantor Senior Debt shall first be
paid in full in cash or Cash Equivalents, or such payment duly provided for to
the satisfaction of the holders of the Guarantor Senior Debt, before any payment
or distribution of any kind or character is made on account of any Obligations
of a Guarantor on the Guarantees, or for the acquisition of any of the
Securities for cash or property or otherwise. Upon any such dissolution,
winding-up, liquidation, reorganization, receivership or similar proceeding, any
payment, or distribution of assets of any Guarantor of any kind or character,
whether in cash, property or securities, to which the Holders of the Guarantees
or the Trustee under this Indenture would be entitled, except for the provisions
hereof, shall be paid by the Guarantors or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the Holders of the Guarantees or by the Trustee under this
Indenture if received by them, directly to the holders of Guarantor Senior Debt
(pro rata to such holders on the basis of the respective amounts of Guarantor
Senior Debt held by such holders) or their respective Representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Guarantor
Senior Debt may have been issued, as their respective interests may appear, for
application to the payment of Guarantor Senior Debt remaining unpaid until all
such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of Guarantor Senior Debt.
(b) To the extent any payment of Guarantor Senior Debt (whether by or on
behalf of a Guarantor, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to a receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under
8
<PAGE> 10
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor
Senior Debt or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of a Guarantor of any kind or character, whether in cash,
property or securities, shall be received by any Holder when such payment or
distribution is prohibited by Section 12.10(a), such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Guarantor Senior Debt (pro rata to such holders on the basis
of the respective amount of Guarantor Senior Debt held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Guarantor Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of
Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has
been paid in full in cash or Cash Equivalents, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
such Guarantor Senior Debt.
(d) The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
any Guarantor following the conveyance or transfer of all or substantially all
of its assets to another corporation upon the terms and conditions provided in
Section 12.05 as if the Guarantor were the Company and as long as permitted
under the terms of the Guarantor Senior Debt shall not be deemed a dissolution,
winding up, liquidation or reorganization for the purposes of this Section 12.10
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, assume such Guarantor's obligations hereunder in
accordance with Section 12.05 as if the Guarantor were the Company.
SECTION 12.11. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article 12 or elsewhere in this Indenture
shall prevent (i) a Guarantor, except under the conditions described in Sections
12.08 and 12.09, from making payments at any time for the purpose of making
payments of principal of and interest on the Securities, or from depositing with
the Trustee any moneys for such payments, or (ii) in the absence of actual
knowledge by the Trustee that a given payment would be prohibited by Sections
12.08 and 12.09, the application by the Trustee of any moneys deposited with it
for the purpose of making such payments of principal on, and interest on, the
Securities to the Holders entitled thereto unless, at least one Business Day
prior to the date upon which such payment would otherwise become due and
Payable, the Trustee shall have actually received the written notice provided
for in Section 12.09(a) or in Section 12.16. The Guarantor shall give prompt
written notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of any Guarantor.
9
<PAGE> 11
SECTION 12.12. SUBROGATION.
Subject to the payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt, the Holders of the Guarantees shall be subrogated to the
rights of the holders of Guarantor Senior Debt to receive payments or
distributions of cash, property or securities of a Guarantor applicable to the
Guarantor Senior Debt until the Securities shall be paid in full; and, for the
purposes of such subrogation, no such payments or distributions to the holders
of the Guarantor Senior Debt by or on behalf of any Guarantor or by or on behalf
of the holders of the Guarantees by virtue of this Article 12 which otherwise
would have been made to such holders shall, as between such Guarantor and the
holders of the Guarantees, be deemed to be a payment by such Guarantor to or on
account of the Guarantor Senior Debt.
SECTION 12.13. GUARANTEE PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The subordination provisions of this Article 12 are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Securities on the one hand and the holders of Guarantor Senior Debt of each
Guarantor and, to the extent set forth in Section 12.09, holders of Designated
Guarantor Senior Debt on the other hand. Nothing contained in this Article 12 or
elsewhere in this Indenture or in the Securities is intended to or shall (a)
impair, as among each Guarantor, its creditors other than holders of its
Guarantor Senior Debt and the Holders of the Securities, the obligation of such
Guarantor, which is absolute and unconditional, to make payments to the Holders
in respect of its obligations under its Guarantee as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against such Guarantor of the Holders of the Securities and
creditors of such Guarantor other than the holders of the Guarantor Senior Debt
of such Guarantor; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon a Default or
an Event of Default under this Indenture, subject to the rights, if any, under
the subordination provisions of this Article 12 of the holders of Guarantor
Senior Debt of the Guarantors hereunder and, to the extent set forth in Section
12.09, holders of Designated Guarantor Senior Debt on the other hand (1) in any
case, proceeding, dissolution, liquidation or other winding-up, assignment for
the benefit of creditors or other marshalling of assets and liabilities of the
Guarantor referred to in Section 12.10, to receive, pursuant to and in
accordance with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 12.09, to prevent any parent prohibited by such Section or enforce
their rights pursuant to Section 12.09(c).
The failure by any Guarantor to make a payment in respect of its
obligations under this Guarantee by reason of any provision of this Article 12
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
10
<PAGE> 12
SECTION 12.14. TRUSTEE TO EFFECTUATE SUBORDINATION OF OBLIGATIONS UNDER THE
GUARANTEE.
Each Holder of a Security by its acceptance of such Security authorizes
and expressly directs the Trustee to take on behalf of such Holder of Securities
such action as may be necessary or appropriate to effectuate as between the
holders of Guarantor Senior Debt and Holders of Guarantees, the subordination
provided in this Article 12, and appoints the Trustee its attorney-in-fact to
act for it and on its behalf for such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of any guarantor (whether
in bankruptcy, insolvency, receivership, reorganization or similar proceedings
or upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of such Guarantor, the filing of a claim
for the unpaid balance of its Guarantees and accrued interest in the form
required in those proceedings.
SECTION 12.15. NO WAIVER OF GUARANTEE SUBORDINATION PROVISIONS.
No right of any present or future holder of any Guarantor Senior Debt of
any Guarantor to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or any Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any non-compliance by the Company or any Guarantor with
the terms of this Indenture, regardless of any knowledge thereof any such holder
may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Guarantor Senior Debt of any Guarantor may, at any time and from
time to time, without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this Article 12 or the
obligations hereunder of the Holders of the Guarantees to the holders of such
Guarantor Senior Debt, do any one or more of the following:(1) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Guarantor Senior Debt or any Senior Debt as to which such Guarantor
Senior Debt relates, or otherwise amend or supplement in any manner such
Guarantor Senior Debt or any Senior Debt to which such Guarantor Senior Debt
relates; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Guarantor Senior Debt or any
Senior Debt as to which such Guarantor Senior Debt relates; (3) release any
person liable in any manner for the collection or payment of such Guarantor
Senior Debt or any Senior Debt as to which such Guarantor Senior Debt relates;
and (4) exercise or refrain from exercising any rights against such Guarantor
and any other Person.
SECTION 12.16. GUARANTORS TO GIVE NOTICE TO TRUSTEE.
The Company and each Guarantor shall give prompt written notice to the
Trustee of any fact known to such Guarantor the making of any payment to or by
the Trustee in
11
<PAGE> 13
respect of the Securities pursuant to the provisions of this Article 12.
Notwithstanding the subordination provisions of this Article 12 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any default or event of default with respect to any Guarantor
Senior Debt or of any other facts which would prohibit the making of any payment
to or by the Trustee unless and until the Trustee shall have received notice in
writing from the Company, such Guarantor or from a holder of Guarantor Senior
Debt or a Representative therefor, and, prior to the receipt of any such written
notice, the Trustee shall be entitled to assume (in the absence of actual
knowledge to the contrary) that no such facts exist. In the event that the
Trustee determines in good faith that any evidence is required with respect to
the right of any Person as a holder of Guarantor Senior Debt of any Guarantor to
participate in any payment or distribution pursuant to this Article 12, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Guarantor Senior Debt of each
Guarantor held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article 12, and if such evidence is not
furnished the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 12.17. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT
REGARDING DISSOLUTION, ETC., OF GUARANTORS.
Upon an payment or distribution of assets of a Guarantor referred to in
this Article 12, the Trustee, subject to the provisions of Article 7 hereof, and
the Holders shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such bankruptcy, liquidation,
reorganization, dissolution or winding-up proceeding are pending or, upon a
certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution, delivered to the Trustee or
to the Holders of the Guarantees, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of
Guarantor Senior Debt of such Guarantor and other Indebtedness of such
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other acts pertinent thereto or to this Article 12.
SECTION 12.18. RIGHTS OF TRUSTEE AS A HOLDER OF GUARANTOR SENIOR DEBT;
PRESERVATION OF TRUSTEE'S RIGHT.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 12 with respect to any Guarantor Senior Debt of
any Guarantor which may at any time be held by the Trustee, to the same extent
as any other holder of such Guarantor Senior Debt, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder. Nothing in this
Article 12 shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 7.07.
12
<PAGE> 14
SECTION 12.19. NO SUSPENSION OF REMEDIES.
Nothing contained in this Article 12 shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article 6 or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article 12 of the holders, from time to time, of Guarantor Senior Debt of
the Guarantors.
SECTION 12.20. TRUSTEE'S RELATION TO GUARANTOR SENIOR DEBT.
The Trustee and any agent of the Guarantor or the Trustee shall be
entitled to all the rights set forth in this Article 12 with respect to any
Guarantor Senior Debt which may at any time be held by it in its individual or
any other capacity to the same extent as any other holder of the Guarantor
Senior Debt and nothing in this Indenture shall deprive the Trustee or any such
agent of any of its rights as such holder and shall not be liable to any such
holders if the Trustee shall in good faith mistakenly pay over or distribute to
Holders of Securities or to the Company or to any other person cash, property or
securities to which any holders of Guarantor Senior Debt shall be entitled by
virtue of this Article 12 or otherwise.
With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform or to observe only such of its duties, covenants,
responsibilities and obligations as are specifically set forth in this Article
12, and no implied covenants or obligations with respect to the holders of
Guarantor Senior Debt shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary or other duty to the holders of
Guarantor Senior Debt.
Whenever a distribution is to be made or a notice given to holders or
owners of Guarantor Senior Debt, the distribution may be made and the notice may
be given to their Representative, if any.
SECTION 12.21. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE
GUARANTORS OR HOLDERS OF GUARANTOR SENIOR DEBT.
No right of any present or future holders of any Guarantor Senior Debt
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the
Guarantors or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Guarantors with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Guarantor Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this
13
<PAGE> 15
Article 12 or the obligations hereunder of the Holders of the Securities to the
holders of the Guarantor Senior Debt, do any one or more of the following: (i)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Guarantor Senior Debt, or otherwise amend or supplement in
any manner Guarantor Senior Debt, or any instrument evidencing the same or any
agreement under which Guarantor Senior Debt is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Guarantor Senior Debt; (iii) release any Person liable in any manner
for the payment or collection of Guarantor Senior Debt; and (iv) exercise or
refrain from exercising any rights against the Guarantors and any other Person.
SECTION 12.22. THIS ARTICLE 12 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of or interest on
the Securities by reason of any provision of this Article 12 will not be
construed as preventing the occurrence of an Event of Default.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed by its duly authorized officers as of the date first above written.
THE COMPANY
THE ACKERLEY GROUP, INC.
By:
----------------------------------------
Keith W. Ritzmann
Senior Vice President and Chief
Information Officer, Assistant
Secretary and Controller
THE GUARANTORS
ACKERLEY AIRPORT
ADVERTISING, INC.
By:
----------------------------------------
Keith W. Ritzmann
Assistant Secretary
(signatures continued)
14
<PAGE> 16
ACKERLEY COMMUNICATIONS OF
MASSACHUSETTS, INC.
By:
----------------------------------------
Keith W. Ritzmann
Assistant Secretary
AK MEDIA GROUP, INC.
By:
----------------------------------------
Keith W. Ritzmann
Assistant Secretary
CENTRAL NEW YORK NEWS, INC.
By:
----------------------------------------
Keith W. Ritzmann
Assistant Secretary
KVOS TV, LTD.
By:
----------------------------------------
Keith W. Ritzmann
Assistant Secretary
T.C. AVIATION, INC.
By:
----------------------------------------
Keith W. Ritzmann
Assistant Secretary
(signatures continued)
15
<PAGE> 17
THE TRUSTEE
THE BANK OF NEW YORK
By:
----------------------------------------
Title:
--------------------------------------
16
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 21
<S> <C>
SUBSIDIARIES OF THE ACKERLEY GROUP, INC.
Direct Subsidiaries of The Ackerley Group, Inc. Jurisdiction of Incorporation
Ackerley Airport Advertising, Inc. Washington
Ackerley Communications of Massachusetts, Inc. Washington
AK Media Group, Inc. Washington
Central NY News, Inc. Washington
SSI, Inc. Washington
TC Aviation, Inc. Oregon
Direct Subsidiaries of AK Media Group, Inc. Jurisdiction of Incorporation
Ackerley Ventures, Inc. Washington
AK Florida Outdoor, Inc. Washington
KVOS TV Ltd. British Columbia
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-93655) pertaining to the Employee Stock Purchase Plan; Fourth
Amended and Restated Employees Stock Option Plan of The Ackerley Group, Inc. of
our report dated February 1, 2000 (except for Note 3, as to which the date is
February 22, 2000) with respect to the consolidated financial statements of The
Ackerley Group, Inc. included in the Annual Report on Form 10-K for the year
ended December 31, 1999.
/s/ ERNST & YOUNG, LLP
Seattle, Washington
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,808
<SECURITIES> 0
<RECEIVABLES> 61,133
<ALLOWANCES> 1,865
<INVENTORY> 0
<CURRENT-ASSETS> 103,896
<PP&E> 142,851
<DEPRECIATION> 14,181
<TOTAL-ASSETS> 528,436
<CURRENT-LIABILITIES> 82,192
<BONDS> 0
0
0
<COMMON> 363
<OTHER-SE> 26,926
<TOTAL-LIABILITY-AND-EQUITY> 528,436
<SALES> 0
<TOTAL-REVENUES> 278,188
<CGS> 0
<TOTAL-COSTS> 227,697
<OTHER-EXPENSES> 36,665
<LOSS-PROVISION> 1,611
<INTEREST-EXPENSE> 35,632
<INCOME-PRETAX> 13,826
<INCOME-TAX> 5,863
<INCOME-CONTINUING> 7,963
<DISCONTINUED> 0
<EXTRAORDINARY> (1,373)
<CHANGES> 0
<NET-INCOME> 6,590
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
