Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Form S-1 - Acme Communications, Inc. 157 718K
2: EX-10.29 Joint Sales Agmt Dated 4/23/99 - Dp Media, Inc. 9 38K
3: EX-10.30 Option Agreement 4/23/99 - Dp Media, Inc. 12 48K
4: EX-10.40 Amend No.1 to 1st Amended & Restated Credit Agmt 12 43K
5: EX-10.41 Amend No.2 to 1st Amended & Restated Credit Agmt 6 20K
6: EX-10.42 Amend No.3 to 1st Amended & Restated Credit Agmt 9 31K
7: EX-10.43 Amend No.4 to 1st Amended & Restated Credit Agmt 10 36K
8: EX-10.53 Amended & Restated Investment and Loan Agreement 66 302K
9: EX-10.54 Form of Convertible Debenture Due June 30, 2008 3 13K
10: EX-10.60 Lease Agt 1/1/97 Btwn Tom Winter & Vcy/America Inc 8 27K
11: EX-10.61 Assignment & Assumption Lease - 10/6/97 3 14K
12: EX-10.62 Assignment & Assumption of Lease 4/23/99 3 14K
13: EX-10.71 Bridge Loan Agreement Dated 4/23/99 14 57K
14: EX-21.0 Subsidiaries of the Registrant 1 8K
15: EX-23.2 Consent of Kpmg Peat Marwick-Koplar Communications 1 7K
16: EX-23.3 Consent of Kpmg Peat Marwick Re: Channel 32, Inc. 1 7K
17: EX-27.1 Financial Data Schedule 1 9K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ACME COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4833 33-0866283
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
2101 E. FOURTH STREET, SUITE 202, SANTA ANA, CALIFORNIA 92705, (714) 245-9499
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMIE KELLNER
CHIEF EXECUTIVE OFFICER
ACME COMMUNICATIONS, INC.
2101 E. 4TH STREET, SUITE 202
SANTA ANA, CALIFORNIA 92705
(714) 245-9499
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
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DAVID A. KRINSKY, ESQ. ALVIN G. SEGEL, ESQ.
ALLISON M. KELLER, ESQ. IAN C. WIENER, ESQ.
O'MELVENY & MYERS LLP IRELL & MANELLA LLP
610 NEWPORT CENTER DRIVE, SUITE 1700 1800 AVENUE OF THE STARS, SUITE 900
NEWPORT BEACH, CALIFORNIA 92660-6429 LOS ANGELES, CALIFORNIA 90067-4276
(949) 760-9600 (310) 277-1010
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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Common stock, $0.01 par value...................... $115,000,000 $31,970
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(1) Includes shares subject to the underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This registration statement contains a prospectus relating to a public
offering in the United States and Canada and a separate international offering
(excluding Canada). We are selling a total of shares of common stock,
in the United States and Canada and internationally. In addition,
we and the selling stockholders have granted the underwriters an option to
purchase a combined additional shares of common stock to cover any
over-allotments. Immediately following this explanatory note is the complete
prospectus for the United States and Canada offering. After such prospectus are
the following alternate pages for the international offering: a front cover
page, an "Underwriting" section and a back cover page. The international
prospectus omits the "Notice to Canadian Residents" section. Each alternate page
for the international offering included herein is labeled "Alternate Page For
International Prospectus." All other pages of the prospectus are the same for
both offerings.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Subject to Completion, Dated , 1999
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ACME Communications, Inc.
Shares
Common Stock
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This is an initial public offering of common stock of ACME Communications, Inc.
No public market currently exists for our common stock. We anticipate that the
initial public offering price will be between $ and $ per
share.
We are selling all of the shares of common stock offered under this
prospectus. The U.S. underwriters are offering shares in the United
States and Canada and the international underwriters are offering shares
outside the United States and Canada.
We intend to apply to list our common stock on the Nasdaq National Market under
the symbol "ACME."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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PER SHARE TOTAL
--------- -----
PUBLIC OFFERING PRICE $ $
UNDERWRITING DISCOUNTS AND COMMISSIONS $ $
PROCEEDS, BEFORE EXPENSES, TO ACME $ $
We and the selling stockholders have granted the underwriters the right to
purchase up to an additional shares at the public offering price within
30 days from the date of this prospectus to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payments in Baltimore,
Maryland on , 1999.
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Morgan Stanley Dean Witter
CIBC World Markets
The date of this Prospectus is , 1999.
INSIDE FRONT COVER
[ACME COMMUNICATIONS LOGO]
[COLLAGE OF THE WB NETWORK AND SYNDICATED PROGRAMMING LOGOS]
FRONT GATEFOLD
[A MAP OF THE UNITED STATES IDENTIFYING THE LOCATION OF EACH OF OUR STATIONS AND
THE CALL LETTERS AND CHANNEL OF EACH OF OUR STATIONS]
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock we are selling in this
offering, including the risk factors and our financial statements and related
notes, included elsewhere in this prospectus. As used in this prospectus, unless
the context otherwise requires, "we," "us," "our" or "ACME" refers to ACME
Communications, Inc., the issuer of the common stock, its predecessor company
and its subsidiaries.
Unless otherwise indicated, the information in this prospectus assumes the
underwriters will not exercise their over-allotment option. In addition, unless
otherwise indicated, information throughout this prospectus gives effect to the
conversion of our business from a limited liability company into a C
corporation, and the conversion of the outstanding membership interests of the
limited liability company into shares of common stock immediately before the
closing of this offering.
THE COMPANY
We currently own and operate nine broadcast television stations in
medium-sized markets across the United States. Each of our stations is a network
affiliate of The WB Television Network, making us the third largest WB Network
affiliated station group in the country. Our television stations broadcast in
markets that cover in aggregate approximately 5.4% of the total U.S. population.
Jamie Kellner, our Chairman and Chief Executive Officer, is also a founder,
Chief Executive Officer and partner of The WB Network, and was President of Fox
Broadcasting Company from its inception in 1986 through 1993. Mr. Kellner and
our other founders formed our company to capitalize on the opportunity to
affiliate with The WB Network, the fastest growing English-language broadcast
television network in the country. We will continue to expand our station group
by selectively acquiring and building primarily WB Network affiliated stations
in medium-sized markets.
Since our formation in 1997, we have focused primarily on acquiring
independently-owned stations, under-performing stations and construction permits
for new stations in markets that we believe have the growth potential and
demographic profile to support the successful launch of a new WB Network
affiliate. We believe that medium-sized markets provide advantages such as fewer
competitors and lower operating costs compared to large markets. Our strategy is
to capitalize on these advantages and to grow our revenues and cash flow by
focusing on generating local sales. Since we centralize many of our stations'
administrative functions and primarily provide entertainment programming, our
station general managers are able to focus on increasing sales and improving
operating margins. We have experienced significant revenue and broadcast cash
flow growth and anticipate further growth because many of our stations are newly
launched. For the three months ended March 31, 1999, we generated $11.1 million
in revenues and $2.6 million in broadcast cash flow, representing an increase of
43.4% in revenues and 53.0% in broadcast cash flow over the three months ended
March 31, 1998.
Like The WB Network, we target our programming to younger audiences, in
particular, young adults, teens and kids. We believe that these younger
audiences are a growing and increasingly important demographic target for
advertisers, and that our affiliation with The WB Network affords us a
significant competitive advantage over other network affiliated television
broadcasters in attracting these younger audiences. Since its launch in 1995,
The WB Network is the only English-language broadcast network in the United
States to increase its audience share in these key target demographic groups. To
build and retain our audience share during non-network hours, we also acquire
the broadcast rights to popular syndicated
1
programming that we believe complements The WB Network programming. In addition,
we broadcast local programming such as news in St. Louis, local weather updates
and local and regional sports programming in selected markets. We believe this
programming enhances our ability to sell advertising time to local and regional
advertisers and increases audience awareness of our newly launched stations.
The following table provides general information concerning our
stations(1):
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MAY 1999 AUDIENCE SHARE
-----------------------------------
TV HOUSEHOLDS(2) ADULTS 18-34 TEENS 12-17
-------------------- ---------------- ---------------- BEGINNING OF
STATION - CHANNEL MARKET PRIME SIGN-ON/ PRIME SIGN-ON/ ACME
MARKETPLACE RANKING NUMBER TIME SIGN-OFF TIME SIGN-OFF OPERATION
----------------- -------- --------- ----- -------- ----- -------- ------------
KPLR - 11
St. Louis, MO.............. 21 1,110,000 14 16 21 23 October 1997
KWBP - 32
Portland, OR............... 23 994,000 4 4 5 4 January 1997
KUWB - 30
Salt Lake City, UT(3)...... 36 707,000 2 3 4 7 April 1998
KWBQ - 19
Albuquerque-Santa Fe,
NM(4).................... 49 566,000 n/a n/a n/a n/a March 1999
WBDT - 26
Dayton, OH(5).............. 54 504,000 n/a n/a n/a n/a June 1999
WBXX - 20
Knoxville, TN.............. 63 447,000 5 6 3 3 October 1997
WIWB - 14
Green Bay-Appleton,
WI(5).................... 69 385,000 n/a n/a n/a n/a June 1999
WBUI - 23
Champaign-Springfield-
Decatur, IL(5)........... 82 335,000 n/a n/a n/a n/a June 1999
WTVK - 46
Ft. Myers - Naples, FL..... 83 330,000 3 3 8 5 March 1998
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(1) Statistical information is from BIA Publishing, Inc. and Nielsen Media
Research.
(2) All television stations throughout the United States are grouped into 210
markets that are ranked in size according to the number of households with
televisions in the market.
(3) We operate but do not currently own KUWB. We own, but do not operate
KUPX - also in the Salt Lake City market. We and the owner of KUWB have
agreed to swap our stations, which we expect to occur in the third quarter
of 1999.
(4) KWBQ will be sold once we acquire KASY, also in the Albuquerque-Santa Fe
market. We intend to operate KWBQ under a local marketing agreement. KWBQ
was not reportable in the market in May 1999.
(5) We acquired and began operating these stations in June 1999. Prior to our
acquisition they did not carry The WB Network programming and did not
generate any measurable audience shares in May 1999.
THE WB TELEVISION NETWORK
The WB Network was created by Time Warner, Inc., Tribune Broadcasting and
Mr. Kellner as a new broadcast television network in 1995. The WB Network
enhances distribution for Time Warner's Warner Bros. unit, a leading producer of
prime time and kids programming. For Tribune, The WB Network provides an
important source of programming and branding for their formerly independent
stations. The WB Network's focus is to provide quality programming to young
adults, teens and kids. The WB Network has a highly experienced management team,
several of whom worked with Mr. Kellner at Fox
2
Broadcasting Company and contributed to the launch and development of the Fox
network. The WB Network is a more demographically focused network than ABC, CBS,
NBC and Fox. Mr. Kellner believes that the future of broadcast television, much
like radio, requires that programming be targeted more directly to specific
audiences rather than attempting to appeal to all demographic groups.
Over the last five years, The WB Network is the only English-language
broadcast network in the country to increase its ratings and has increased its
audience share for young adults from a three share to a six share and teens from
a six share to a 14 share. The WB Network's success is due in large part to its
ability to provide popular, targeted prime time programming each season such as
7th Heaven, Dawson's Creek, Buffy the Vampire Slayer, Felicity and Charmed. In
addition to its prime time programming, The WB Network provides popular animated
weekday and Saturday morning programming through Kids' WB!. Programming on Kids'
WB! includes the number one rated kids show, Pokemon, as well as Batman Beyond
and Animaniacs. In the 1999/2000 season, The WB Network will provide 13 hours of
prime time programming Sunday through Friday and 19 hours of kids programming
Monday through Saturday. In addition, The WB Network has announced plans to
provide two hours of prime time programming on Saturday for the 2000/2001
season.
OUR SENIOR MANAGEMENT TEAM
Our highly experienced senior management team has an average of over 20
years of experience owning and operating broadcast television stations and
selling television advertising time. Mr. Kellner, our Chairman and Chief
Executive Officer, is also a founder, Chief Executive Officer and partner of The
WB Network, and was President of Fox Broadcasting Company from its inception in
1986 through 1993. Doug Gealy, our President and Chief Operating Officer, began
his broadcast television career in sales and since then has held various
management positions, including station general manager and group executive
responsible for eight stations. Tom Allen, our Chief Financial Officer, has
spent 13 years as an executive in the entertainment industry, including seven
years as Chief Financial Officer of Fox Broadcasting Company.
OUR BUSINESS AND GROWTH STRATEGY
The principal components of our business and growth strategy are:
- OUR WB NETWORK AFFILIATION. Our WB Network affiliation provides our
stations with popular prime time and kids programming and the opportunity
to co-brand our stations with the Warner Bros. brand, which is one of the
most recognized brands in the entertainment industry. We believe our
stations' affiliation with The WB Network provides us with a significant
competitive advantage in attracting the younger audiences we believe are
a growing and increasingly important demographic target for advertisers.
We expect that stations we acquire in new markets will enter into
affiliation agreements with The WB Network.
- POPULAR AND PROVEN SYNDICATED PROGRAMMING. While The WB Network
programming provides the foundation of our programming, we also acquire
popular syndicated programming, which is an important part of building
our stations' audience and revenue share. Our syndicated programming for
the 1999 and 2000 seasons includes newly syndicated programming such as
The Drew Carey Show, Suddenly Susan, Caroline in the City and Spin City,
as well as proven programs such as Friends, Seinfeld and Star Trek: The
Next Generation.
3
- FOCUS ON SALES. To grow our revenues, we aggressively market our
advertising time to local advertisers and also sell advertising time to
regional and national advertisers. We believe that our focus on local
sales enables us to capture existing local advertising revenues and to
create new television advertising revenues by selling to first-time
buyers of television advertising time. Our station general managers have
an average of over 18 years of experience selling television advertising
time and are directly involved in their stations' sales management.
- SELECTIVE AND OPPORTUNISTIC EXPANSION IN MEDIUM-SIZED MARKETS. We will
continue to expand our group of television stations selectively and
opportunistically by acquiring independently-owned stations,
under-performing stations and construction permits for new stations. We
target medium-sized markets because they are typically characterized by
fewer and less sophisticated competing television station operators and
other media, and lower operating costs than larger markets.
OUR HISTORY
Our predecessor, ACME Television Holdings, LLC, was formed in April 1997,
as a Delaware limited liability company. We own approximately 92% of ACME
Intermediate Holdings, LLC ("ACME Intermediate"), which in turns owns 100% of
ACME Television, LLC ("ACME Television"). ACME Television is the holding company
of all of our operating subsidiaries and the subsidiaries that hold our
stations' Federal Communications Commission, or FCC, licenses. Immediately
before the closing of this offering, we will convert our business from a limited
liability company to a C corporation. After our reorganization, we will own 100%
of ACME Intermediate. For more information, see "The Reorganization."
Consummation of the reorganization is conditioned on receipt of FCC approval. We
have filed the necessary application with the FCC regarding our change of
control as a result of our reorganization.
4
THE OFFERING(1)
The offering of shares of our common stock in the United States and
Canada and the offering of shares of our common stock outside the United
States and Canada are collectively referred to in this prospectus as this
"offering."
COMMON STOCK OFFERED BY
ACME....................... shares
COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING(2)................ shares
USE OF PROCEEDS.............. We intend to use the net proceeds of this
offering to repay all indebtedness under our
revolving credit facility, fund the acquisition
of KASY, repay debt incurred in connection with
the acquisition of WBDT, WIWB and WBUI, and for
general corporate purposes, including working
capital and future acquisitions.
RISK FACTORS................. See "Risk Factors" beginning on page 9 for a
discussion of factors you should carefully
consider before deciding to invest in our common
stock.
PROPOSED NASDAQ NATIONAL
MARKET SYMBOL.............. "ACME"
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(1) Does not include shares of common stock subject to a 30-day
over-allotment option granted to the underwriters by us and the selling
stockholders.
(2) Based on the number of shares that will be outstanding after our
reorganization. Excludes approximately shares of common stock
reserved for issuance pursuant to our 1999 Stock Incentive Plan,
of which are subject to options that will be outstanding
before the consummation of this offering.
Our principal executive offices are located at 2101 E. Fourth Street, Suite
202, Santa Ana, California 92705. Our telephone number is (714) 245-9499.
5
OUR SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes our financial data. The share information
gives effect to the conversion of our business from a limited liability company
into a C corporation at the beginning of each period indicated. The data
presented in this table are derived from the "Selected Consolidated Financial
Data" and the financial statements and notes which are included elsewhere in
this prospectus. You should read those sections for a further explanation of the
financial data summarized here.
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YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------------
1997 1998 1998 1999
--------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 11,347 $ 43,928 $ 7,757 $ 11,123
--------- -------- ------- --------
Operating expenses:
Station operating expenses........................ 10,158 32,973 5,951 8,430
Depreciation and amortization..................... 1,215 11,355 848 3,766
Corporate......................................... 1,415 2,627 589 721
Equity-based compensation......................... -- -- -- 2,500
--------- -------- ------- --------
Operating income (loss)............................. (1,441) (3,027) 369 (4,294)
Other income (expenses):
Interest income..................................... 287 231 45 9
Interest expense.................................... (6,562) (23,953) (5,500) (6,466)
Gain on sale of assets.............................. -- 1,112 -- --
Other............................................... -- (380) 5 5
--------- -------- ------- --------
Loss before taxes and minority interest............. (7,716) (26,017) (5,081) (10,746)
Income tax benefit (expense)........................ -- 2,393 (20) 745
--------- -------- ------- --------
Loss before minority interest....................... (7,716) (23,624) (5,101) (10,001)
Minority interest................................... 237 1,684 358 723
--------- -------- ------- --------
Net loss............................................ $ (7,479) $(21,940) $(4,743) $ (9,278)
========= ======== ======= ========
SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION(1):
Pro forma net loss.................................. $ (7,479) $(14,484) $(2,834) $ (5,998)
Pro forma basic and diluted net loss per share......
Basic and diluted weighted average shares
outstanding(2)....................................
OTHER OPERATING DATA:
Broadcast cash flow(3).............................. $ 1,024 $ 11,380 $ 1,721 $ 2,633
Broadcast cash flow margin(3)....................... 9.0% 25.9% 22.2% 23.7%
EBITDA(3)........................................... $ (391) $ 8,752 $ 1,132 $ 1,911
EBITDA margin(3).................................... NM 19.9% 14.6% 17.2%
Amortization of program rights...................... $ 2,573 $ 10,942 $ 1,612 $ 2,420
Adjusted program payments(3)........................ (2,738) (10,746) (1,754) (2,481)
Time brokerage fees................................. -- 228 57 --
Cash flows provided by (used in) operations:
Operating activities.............................. $ (599) $ 319 $ 1,732 $ 1,419
Investing activities.............................. (191,730) (15,504) (6,916) (6,108)
Financing activities.............................. 201,153 7,362 (70) 4,642
ADJUSTED STATEMENT OF OPERATIONS AND OTHER DATA(4):
Adjusted interest expense........................... $(25,103) $(10,301)
Adjusted net loss................................... (13,857) (15,107)
Adjusted net loss per share.........................
Adjusted basic and diluted weighted average shares
outstanding(5)....................................
6
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YEARS ENDED
DECEMBER 31, AS OF MARCH 31, 1999
------------------- ----------------------
1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -----------
(UNAUDITED)
BALANCE SHEET DATA:
Total assets........................................... $220,475 $288,082 $290,902 $389,222
Long-term debt......................................... 192,452 220,256 230,390 192,734
Total shareholders' equity (deficiency)................ 16,306 1,413 (5,365) 131,005
-------------------------
(1) Our supplemental pro forma financial information gives effect to our
reorganization. Supplemental pro forma net loss represents the results of
operations adjusted to reflect (A) a provision for income taxes on
historical net loss before income taxes and minority interest which gives
effect to the change in our income tax status to a C corporation and (B) the
impact of the tax adjustment on the net loss allocated to minority
interests. There was no impact on the results for the year ended December
31, 1997, as all deferred tax assets would have been fully offset by a
valuation allowance. The supplemental pro forma tax benefit for the periods
subsequent to December 31, 1997, are based on an estimated combined federal
and state income tax rate of 40%. Supplemental pro forma net loss per share
has been computed by dividing supplemental pro forma net loss by the
weighted average shares of common stock outstanding during the period
(giving effect to our reorganization as if it had occurred at the beginning
of the period).
(2) See note 1 to our consolidated financial statements.
(3) We define broadcast cash flow as operating income, plus depreciation and
amortization, program amortization, non-cash equity based compensation, time
brokerage fees and corporate overhead, less program payments -- the latter
as adjusted to reflect reductions for impaired or expired rights in
connection with acquisitions. We define broadcast cash flow margin as
broadcast cash flow as a percentage of net revenues. We define EBITDA as
broadcast cash flow less corporate expenses. We define EBITDA margin as
EBITDA as a percentage of net revenues. We have included broadcast cash
flow, broadcast cash flow margin, EBITDA and EBITDA margin data because
these measures are widely used in the television broadcasting industry to
evaluate a television broadcast company's operating performance. However,
you should not consider broadcast cash flow, broadcast cash flow margin,
EBITDA and EBITDA margin in isolation or as substitutes for net income, cash
flows from operating activities and other statement of operations or cash
flows data prepared in accordance with generally accepted accounting
principles as a measure of liquidity or profitability. These measures are
not necessarily comparable to similarly titled measures employed by other
companies.
(4) The adjusted data give effect to this offering and application of the net
proceeds of this offering to repay all amounts outstanding under the
revolving credit facility ($12.9 million at March 31, 1999), as if the
offering and the application of net proceeds had occurred as of January 1,
1998 in the case of the adjusted statement of operations data and March 31,
1999 in the case of the adjusted balance sheet data. The adjusted statement
of operations data includes adjustments to the supplemental pro forma
financial information as follows: a reduction of interest expense of
$914,000 for 1998 and $446,000 for the quarter ended March 31, 1999 and
related decreases in income tax benefits of $366,000 for 1998 and $178,000
for the quarter ended March 31, 1999, and a reduction in the loss allocation
to minority interests of $44,000 for 1998 and $22,000 for the quarter ended
March 31, 1999.
We will record a compensation charge of approximately $27.5 million relating
to the following: (A) a $3.0 million bonus to be paid to our senior
management in the first quarter of 2000 and (B) a non-cash charge of $24.5
million as a result of the exchange of management carry units in our
predecessor for shares of our common stock in connection with our
reorganization and this offering (compensation calculated as the difference
between the expense recorded by us relating to management carry units ($2.5
million through March 31, 1999) and the fair value of the common stock). The
adjusted statement
7
of operations data exclude this compensation charge since this will be a
non-recurring charge. The adjusted balance sheet data reflect the estimated
cash and equity effects of this compensation charge.
(5) Based on weighted average number of shares of common stock outstanding for
all periods presented (giving effect to our reorganization as if it had
occurred at the beginning of the period), including the number of shares to
be issued in the offering and the number of shares exchanged for the
management carry units, assuming the offering and issuances occurred on
January 1, 1998.
8
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually occurs,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You should
also refer to the other information in this prospectus, including our financial
statements and the related notes.
WE ARE HIGHLY LEVERAGED AND OUR FUTURE CASH FLOWS MAY NOT BE SUFFICIENT TO MEET
OUR OBLIGATIONS.
After giving effect to this offering as if it had occurred on March 31,
1999, we had outstanding consolidated indebtedness of approximately $198.4
million and $40.0 million available under our revolving credit facility. Our
highly leveraged financial position poses substantial risks to stockholders,
including the risks that:
- a substantial portion of our cash flow from operations will be required
to service our indebtedness;
- our highly leveraged position may impede our ability to obtain financing
in the future for working capital, capital expenditures and general
corporate purposes, including acquisitions; and
- our highly leveraged financial position may make us more vulnerable to
economic downturns and may limit our ability to withstand competitive
pressures.
Our ability to pay interest and principal on our indebtedness, along with
any future amounts outstanding under our revolving credit facility, will depend
on our future operating performance and events outside of our control.
Additionally, interest on amounts outstanding under our revolving credit
facility will fluctuate with certain prevailing interest rates which could
adversely affect us if interest rates were to increase.
If we are unable to generate sufficient cash flow from operations in the
future to meet our obligations and commitments, we will be required to adopt one
or more alternatives, such as refinancing or restructuring our indebtedness,
selling material assets or operations or seeking to raise additional debt or
equity capital.
OUR FINANCIAL FLEXIBILITY IS LIMITED AND THERE MAY BE ADVERSE CONSEQUENCES IF WE
DO NOT COMPLY WITH OUR RESTRICTIVE COVENANTS.
Our revolving credit facility allows for revolving credit borrowings of up
to $40.0 million, reducing quarterly beginning in 2000 and terminating entirely
in 2002. As of July 15, 1999, we had approximately $39.4 million outstanding
under our revolving credit facility. Although we plan to repay all amounts
outstanding under our revolving credit facility with a portion of the net
proceeds of this offering, we anticipate that we will use our revolving credit
facility to fund future acquisitions and other capital requirements. Cash
interest on ACME Intermediate's 12% senior secured notes due 2005 ($71.6 million
fully accreted principal amount) will begin accruing in 2002 and will be payable
starting in 2003. Cash interest on ACME Television's 10 7/8% senior discount
notes due 2004 ($175.0 million fully accreted principal amount) will begin
accruing in 2000 and be payable starting in 2001.
The indenture governing the 12% senior secured notes, the indenture
governing the 10 7/8% senior discount notes and the credit agreement governing
our revolving credit facility contain various restrictive covenants which, with
specified exceptions, limit our ability to enter into affiliate transactions,
pay dividends, incur additional indebtedness, consolidate,
9
merge, or effect certain asset sales, make specified investments, acquisitions
and loans or change the nature of our business and require us to meet certain
financial requirements, for example with respect to EBITDA levels. These
restrictions and financial requirements, in combination with our leveraged
balance sheet, could limit our ability to respond to market conditions or to
meet extraordinary capital needs, or could adversely effect our ability to
finance our future operations, capital needs, or to engage in other business
activities which could be in our interest.
If we were to experience a decline in our operating results, we could
experience difficulty in complying with the covenants governing our
indebtedness. The failure to comply with such covenants could result in an event
of default under these agreements, thereby triggering acceleration of the
indebtedness incurred under the agreements as well as indebtedness under other
instruments containing cross-acceleration or cross-default provisions.
OUR OUTSTANDING INDEBTEDNESS MAY ACCELERATE IF THERE IS A CHANGE OF CONTROL.
The indebtedness under our revolving credit facility may be accelerated,
and we also could be required to make an offer to repurchase the 12% senior
secured notes and the 10 7/8% senior discount notes upon a change of control.
Under the credit agreement, a change of control is defined as the failure of
certain stockholders to own, through their interest in us, at least 50.1% of the
economic value of ACME Television. Under the terms of the indentures, a change
of control is defined as any event that would cause the current stockholders, in
aggregate, to hold less than 30%, and any other person to hold more than 20%, of
our outstanding stock. Under the terms of both the 12% senior secured notes and
the 10 7/8% senior discount notes, we could be required to make an offer to
repurchase the notes at 101% of their accreted value, plus any accrued and
unpaid interest, at the time of a change of control. If we experience a change
of control, either with respect to the credit agreement or either indenture, we
may not have sufficient funds to repay all amounts outstanding under our
revolving credit facility and to repurchase the notes, as may be required.
Alternatively, if we are able to satisfy the change of control provisions, it
would require a substantial diversion of cash flow from our operations and our
acquisition plans and could have a material adverse effect on our economic
viability.
WE HAVE A LIMITED OPERATING HISTORY AND A HISTORY OF NET LOSSES, WHICH WE EXPECT
TO CONTINUE IN THE FUTURE.
We were formed in April 1997 as a limited liability company. We have
incurred losses from continuing operations in each of our fiscal years since
inception. We expect to continue to experience net losses in the foreseeable
future, principally as a result of interest expense on our outstanding debt and
non-cash charges for depreciation and amortization expense related to fixed
assets and goodwill related to acquisitions, which may be greater than our net
losses in the past.
WE MAY NOT BE ABLE TO GROW THROUGH ACQUISITIONS.
To date, we have acquired nine television stations and entered into
definitive agreements to acquire two additional television stations that will be
swapped for two stations we already own. We intend to continue to pursue the
acquisition of additional television stations. Our business will be harmed if we
are unable to successfully implement our acquisition plans. We cannot be sure
that we will be successful in integrating the acquired stations or that such
integration will not divert our limited management resources.
10
Our ability to acquire additional television stations involves risks
including:
- we may be unable to obtain required approval by the FCC of the
assignments or transfers of control of licenses issued by the FCC;
- the law limits the number and location of broadcasting properties that
any one person or entity (including its affiliates) may own and could
limit our ability to pursue desired stations;
- the market to purchase television stations is highly competitive, and
many potential acquirers have greater resources available to make such
acquisitions than we have;
- desired stations may not be available for purchase;
- we may be unable to obtain The WB Network affiliation for all of the
stations we acquire in the future; and
- we may not have the financial resources necessary to acquire additional
stations.
Generally when we sign acquisition agreements, we enter into interim local
marketing agreements with the seller under which we receive all station revenues
and pay all station expenses. Because the seller retains ultimate programming
control, we bear the economic risks of paying station expenses until closing the
acquisition.
WE INCUR IMMEDIATE LOSSES ON NEW STATIONS.
Generally, it takes a few years for our newly acquired or built stations to
generate operating cash flow. During the initial period after acquisition or
construction, we incur significant expenses related to:
- acquiring syndicated programming;
- improving technical facilities;
- increasing and improving cable distribution;
- hiring new personnel; and
- marketing the station to viewers.
In addition, it requires time to gain viewer awareness of new station
programming and to attract advertisers. Accordingly, we have incurred, and
expect to continue to incur, with newly acquired or built stations, losses at a
station in the first few years after we acquire or build the station. This
requires our established stations to generate revenues and cash flow sufficient
to meet our business plan.
Rapidly growing businesses frequently experience unforeseen expenses and
delays in completing acquisitions, as well as difficulties and complications in
integrating the acquired operations without disrupting overall operations. As a
result, acquisitions could harm our operating results in the short term as a
result of several factors, including increased capital requirements.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF
OUR MANAGEMENT TEAM.
Our success is largely dependent on the continued services of our senior
management team, which includes Messrs. Kellner, Gealy and Allen. Although we
believe we can
11
adequately replace key employees in an orderly fashion should the need arise,
the loss of the services of key personnel could harm our business. Our success
will also be dependent in part on our ability to attract and retain quality
general managers and other management personnel for our stations.
OUR CHIEF EXECUTIVE OFFICER MAY HAVE CONFLICTS OF INTEREST WITH OUR BUSINESS.
We have entered into a consulting agreement with Mr. Kellner that includes
non-competition covenants. However, Mr. Kellner's agreement provides that he may
perform services for other businesses unaffiliated with ours which, in certain
limited circumstances, may be competitive. If one of the businesses Mr. Kellner
provides services to were competing with us, it could materially affect us in an
adverse manner.
Mr. Kellner is also an owner and the Chief Executive Officer of The WB
Network. Mr. Kellner's ownership and position at The WB Network may create
conflicts with his position with us. Because Mr. Kellner is both our Chief
Executive Officer and The WB Network's Chief Executive Officer, The WB Network
requires that he recuse himself from any material transaction between the
network and us. Due to his responsibilities with The WB Network, Mr. Kellner may
have limited time available to devote to us.
OUR RELATIONSHIP WITH THE WB NETWORK IS CRITICAL TO OUR SUCCESS.
All of our television stations are affiliates of The WB Network and we
anticipate that almost all television stations we acquire will become affiliates
of The WB Network. Accordingly, our success largely depends on our stations'
continued relationship with The WB Network and on The WB Network's continued
success as a broadcast network. The WB Network's relationships with Time Warner
and Tribune Broadcasting are important to The WB Network's continued success and
we cannot be sure that those relationships will continue to exist. In addition,
we cannot be sure that The WB Network will renew, or will not adversely change
any of our station affiliation agreements. We cannot be sure that the ratings of
The WB Network programming will continue to improve or that The WB Network will
continue to provide programming, marketing and other support to its affiliates
on the same basis as currently provided. Finally, by aligning ourselves closely
with The WB Network, we may forego other opportunities that could provide
diversity of our network affiliation and avoid dependence on any one network.
WE RELY ON BROADCAST CASH FLOW FROM KPLR.
Our ability to fulfill our current and future obligations and commitments
is dependent on the operating cash flow from KPLR. Due to negative net cash flow
at our start-up stations, broadcast cash flow from KPLR accounted for more than
100% of our total broadcast cash flow in 1998 and for the quarter ended March
31, 1999. A significant decline in broadcast cash flow from KPLR would have a
material adverse effect on our financial results.
SYNDICATED PROGRAMMING COSTS MAY INCREASE AND REQUIRED PROGRAMS MAY NOT BE
AVAILABLE.
One of our most significant operating costs is syndicated programming. We
may be exposed in the future to increased syndicated programming costs that may
adversely affect our operating results. In addition, syndicated programs that
meet our criteria may not be available in the future or may not be available at
prices that are acceptable to us. We believe that the prices of the most sought
after syndicated programming will continue to increase.
12
Syndicated programming rights are often acquired several years in advance and
may require multi-year commitments, making it difficult to accurately predict
how a program will perform. In some instances, programs must be replaced before
their costs have been fully amortized, resulting in write-offs that increase
station operating costs.
WE FACE SIGNIFICANT AND INCREASING COMPETITION.
Market Competition
The broadcast television industry is highly competitive, and our success
depends in large part on our ability to compete successfully with other network
affiliated and independent broadcast television stations and other media for
viewers and advertising revenues. The ability of broadcast television stations
to generate advertising revenues depends to a significant degree upon audience
ratings. Through the 1970s, network television broadcasting generally enjoyed
dominance in viewership and television advertising revenues, because
network-affiliated television stations competed principally with each other in
local markets. Beginning in the 1980s, however, this dominance began to decline.
Technological innovation and the resulting proliferation of programming
alternatives, such as independent broadcast stations, cable television and other
multi-channel competitors, pay-per-view and home videos have fragmented
television viewing audiences and subjected television broadcast stations to new
types of competition. Since the mid-1980s, cable television and formerly
independent stations now affiliated with new networks have captured increasing
market share and overall viewership from general broadcast network television.
Cable-originated programming in particular has emerged as a significant
competitor for broadcast television programming. We also face increasing
competition from home satellite delivery, direct broadcast satellite television
systems and video delivery systems utilizing telephone lines. Many of our
competitors have longer operating histories and greater resources than us.
Competition From New Technologies
Advances in technology may increase competition for viewers and advertising
revenue. For example, advances in video compression technology could lower entry
barriers for new video channels and encourage the development of increasingly
specialized "niche" programming. This may increase the number of competitors
targeting the same demographic group as us. Future competition in the television
industry may include the provision of interactive video and data services
capable of providing two-way interaction with commercial video programming,
together with information and data services, that may be delivered by commercial
television stations, cable television, direct broadcast satellite television and
other video delivery systems. We cannot predict the effect that these or other
technological changes will have on the broadcast television industry or on our
future results of operations.
WE ARE UNCERTAIN OF THE COSTS AND REVENUE IMPACT OF THE TRANSITION TO DIGITAL
TELEVISION.
In recent years, the FCC has adopted policies providing for authorization
of new technologies and a more favorable operating environment for certain
existing technologies that have the potential to provide additional competition
for television stations. For example, we may be affected by the development and
regulation of digital television, or DTV. All of the stations we own or are
under contract to acquire have been allocated a DTV channel. FCC policies
require that we deliver a digitally transmitted signal on these channels by
2002, terminate our analog signals and return our licenses to operate on the
analog frequencies to the FCC by 2006 (unless specified conditions exist that,
in effect, reflect the public's ability
13
to receive DTV transmissions in a particular market). Although we have entered
into lease agreements for some of our currently owned stations providing for
options to operate and install digital television antennas and transmitters at
the stations, we are unable to project accurately the costs or benefits
associated with DTV at this time. DTV will require significant new capital
investments in DTV broadcasting capacity, and we may not have adequate financial
resources to make such capital investments. While DTV technology is currently
available in some of the top-ten viewing markets, a successful transition may
take many years. Although we are required by the FCC to convert to DTV, we are
unable to predict the extent or timing of consumer demand for digital services.
Additionally, the extent to which cable channels will be required to carry
broadcast stations' new digital channels is not clear. Therefore, if the FCC
imposes limited or no carriage requirements on cable systems to carry DTV
signals, it could adversely effect our operations.
WE RELY ON ADVERTISING SALES FOR MOST OF OUR REVENUES.
We derive substantially all of our revenues from advertisers in diverse
industries. The loss of our major advertisers, or a reduction in their
advertising expenditures or a general decrease in advertising rates, could harm
our business. For example, the 1998 strike at General Motors resulted in
significant decreases in its television advertising expenditures, which resulted
in decreases in our revenues.
OUR REVENUES ARE AFFECTED BY SEASONAL TRENDS.
The revenues and cash flows of our television stations are subject to
various seasonal factors that influence the television broadcasting industry as
a whole. Like other broadcasters, we have higher revenues and cash flows in the
second and fourth quarters of the year when television viewing and advertising
is higher compared to the first and third quarters.
GOVERNMENT REGULATION OF THE BROADCASTING INDUSTRY AND THE CABLE TELEVISION
INDUSTRY COULD HARM OUR BUSINESS.
Our operations are subject to extensive and changing regulation on an
ongoing basis by the Congress, the FCC and the courts. The prior approval of the
FCC is required for the issuance, renewal, modification, assignment and transfer
of control of station permits and licenses. We cannot be sure that the FCC will
approve any future acquisitions that require an assignment or transfer of
control of an FCC license to us. In addition, the FCC construction permits and
licenses we hold are subject to renewal from time to time. Although in
substantially all cases licenses are renewed by the FCC, we cannot be sure that
the license for any television station owned or that will be owned by us will be
renewed or, if renewed, will not be issued subject to certain conditions. The
non-renewal or conditional renewal of one or more of our television broadcast
licenses could harm our business.
Recent and prospective actions by the Congress, the FCC and the courts
could cause us to face significant competition in the future. Such measures
could include the elimination or modification of:
- restrictions on television station ownership;
- restrictions on the participation by regional telephone operating
companies in cable television and other direct-to-home video
technologies;
- restrictions on the offering of multiple network services by the existing
major television networks; and
- restrictions in the use of local marketing agreements.
14
For example, we own one station and have received FCC approval for the
purchase of another station in Albuquerque. We intend to sell the station we own
in the Albuquerque market at the same time that we purchase the other station.
However, we also intend to operate the station we sell under a local marketing
agreement. In the future, the FCC may restrict or prohibit the right of one
party to have a local marketing agreement in a market where it also owns a
commercial television station, a circumstance that would force us either to sell
the station we will own in Albuquerque or to terminate the local marketing
agreement in that market. Either result could adversely affect our financial
performance. We could incur a loss on any forced sale of a station. We are
unable to predict whether other potential changes in the regulatory environment
could restrict or curtail our ability to acquire, operate and dispose of
stations in the future or, in general, to compete with other television stations
and other media.
We believe that the growth and success of our television operations has
depended and will continue to depend upon our access to households served by
cable television systems. Pursuant to the "must carry" provisions of the Cable
Television Consumer Protection and Competition Act of 1992, a broadcaster may
demand carriage on a specific channel on cable systems within its market. These
"must carry" rights are not absolute, and their exercise depends on variables
such as the number of activated channels on a cable system, the location and
size of a cable system, and the amount of duplicative programming on a broadcast
station. Therefore, under certain circumstances, a cable system can decline to
carry a given station. Our television stations are currently exercising their
"must carry" rights and are currently carried by the local cable operators.
However, the future of those "must carry" rights is uncertain. The current FCC
rules relate to only the carriage of analog television signals. It is not clear
what, if any, "must carry" rights television stations will have after they make
the transition to DTV. Various proposals on that issue are currently being
reviewed by the FCC and Congress. Some of those proposals would defer cable
carriage of DTV signals until complete conversion of station operations from
analog transmissions to DTV. Adoption of that proposal or others being
considered by the FCC could reduce public access to our stations' programming in
one or more of the markets we serve. It is impossible to predict how the issue
will be resolved. It is possible that new laws or regulations may eliminate, or
at least limit the scope of, our cable carriage rights. Either of those results
could have a material adverse impact on our operations.
AFTER THIS OFFERING, OUR EXISTING INVESTORS AND SENIOR MANAGEMENT MAY HAVE THE
ABILITY TO CONTROL A MAJORITY OF OUR BOARD.
Messrs. Kellner, Gealy and Allen and affiliates of Alta Communications,
BancBoston, CEA Capital, TCW Asset Management Company will enter into a voting
agreement that will become effective upon completion of this offering. This
agreement provides that the parties will vote for the election to our board of
three individuals designated by a majority in interest of Messrs. Kellner, Gealy
and Allen and three individuals designated by a majority in interest of the four
institutional investors. The parties to the agreement will collectively hold
approximately % of our stock, and the institutional investors as a group
will own approximately % of our stock, following completion of this offering.
Accordingly, the parties to this agreement may be able to elect a majority of
our board and effectively control our company so long as they continue to hold a
significant percentage of our stock. As the institutional investors' aggregate
percentage ownership decreases, the number of board members they will be able to
designate will decline. In any event, this agreement will expire two years from
the closing of this offering.
15
OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HINDER ACQUISITION OF OUR
COMPANY.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change of control of our
company or a change in our management. These provisions could also discourage
proxy contests and make it more difficult for you and other stockholders to
elect directors and take other corporate actions. As a result, these provisions
could limit the price that investors are willing to pay in the future for shares
of our common stock. These provisions:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to those of common stock,
subject to any limitations that may be imposed by the terms of our
indebtedness;
- prohibit stockholder action by written consent instead of at a meeting;
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting;
- prohibit stockholders from calling special meetings; and
- restrict transfers of our common stock to non-U.S. citizens and entities.
WE COULD BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES.
Year 2000, or Y2K, issues are a result of computer software applications
using a two-digit format, as opposed to a four-digit format, to indicate the
year. Some computer software applications might be unable to distinguish between
dates beyond the year 1999, which could cause system failures or miscalculations
in our broadcast and corporate locations which could cause disruptions of
operations, including, a temporary inability to produce broadcast signals or
engage in normal business activities. All of our internal software and hardware
is purchased, leased or licensed from third party vendors. Most of our station
facilities are new or have been recently upgraded and we have polled all of our
significant software vendors and have been advised by them that their software
is Y2K compliant.
We may also be at risk from Y2K disruptions at our suppliers and business
partners, including The WB Network, syndicated programmers, advertisers,
communications service providers, utilities and financial institutions. These
possible risks include loss of power and communications links which are crucial
to our operations, but largely beyond our control.
At this point in time we are not aware of any additional significant
upgrades or changes that will need to be made to our internal software and
hardware to become Y2K ready, and we are not aware of any material supplier with
Y2K readiness problems, but this is subject to change as the compliance testing
process continues. We cannot be sure that there will not be a delay in, or
increased costs associated with the implementation of such changes. In addition,
disruptions in the economy generally resulting from Y2K issues could also
materially adversely affect us.
OUR COMMON STOCK HAS NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock. The trading market price of our common stock may decline below the
initial public offering price. The initial public offering price will be
determined by negotiations between us and the representatives of the
underwriters. See "Underwriting" for a discussion of the factors
16
considered in determining the initial public offering price. In addition, an
active public market for our common stock may not develop or be sustained after
this offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock. As a result,
purchasers of common stock in this offering will suffer immediate and
substantial dilution. This dilution will reduce the net tangible book value of
the shares sold in this offering, since these investments will be at a
substantially higher per share price than they were for our existing
stockholders. The dilution will be per share in the net tangible book
value of the common stock from the initial public offering price. If additional
shares are sold by the underwriters following exercise of their over-allotment
option, or if outstanding options to purchase shares of common stock are
exercised, there will be further dilution.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common stock
to decline. After this offering, we will have outstanding shares of
common stock. All the shares sold in this offering will be freely tradable. Of
the remaining shares of common stock outstanding after this offering,
shares will be eligible for sale in the public market beginning 181
days after the date of this prospectus. The remaining shares will
become available at various times thereafter. We also intend to register up to
additional shares of our common stock after this offering for sale
pursuant to our 1999 Stock Incentive Plan.
17
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "intend," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative of such terms or other comparable terminology.
Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause our and the television broadcast industry's
actual results, levels of activity, performance, achievements and prospects to
be materially different from those expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors include those
identified under "Risk Factors" in this prospectus.
We are under no duty to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date of this prospectus. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
USE OF PROCEEDS
We will receive estimated net proceeds of approximately $92 million from
the sale of shares of common stock in the offering, based on an assumed initial
public offering price of $ per share (the midpoint of the range set forth on
the cover page of this prospectus) and after deducting underwriting discounts
and estimated offering expenses. We expect to use the net proceeds of this
offering to repay all indebtedness outstanding under our revolving credit
facility ($39.4 million), fund the acquisition of KASY ($25.0 million due at
closing), repay debt incurred in connection with the acquisition of WBDT, WIWB
and WBUI ($15.0 million), and provide funds for general corporate purposes,
including working capital requirements and future acquisitions.
Indebtedness under our revolving credit facility accrues interest at
variable rates and must be repaid in full by September 30, 2002. At March 31,
1999, the weighted average interest rate on revolving credit facility borrowings
was 8.1%. Indebtedness incurred in connection with the acquisition of WBDT, WIWB
and WBUI accrues interest at a rate of 22.5% and must be repaid in full by April
23, 2002.
Pending use of the net proceeds as described above, we will invest the net
proceeds in investment grade, short-term marketable securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends or distributions on our
common stock since our inception. We anticipate that, for the foreseeable
future, all earnings will be retained for use in our business and no cash
dividends will be paid on our common stock. Any payment of cash dividends in the
future on our common stock will be dependent upon the ability of our
subsidiaries to pay dividends or otherwise make cash payments or advances to us
and restrictions, if any, under present and any future debt obligations, as well
as other factors that our board of directors deems relevant. The revolving
credit facility and the indentures related to notes at our subsidiaries impose
restrictions on our subsidiaries' ability to make these payments.
18
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 1999 (1) on an actual basis, and (2) on a pro
forma basis as adjusted to reflect (a) the application of the estimated net
proceeds of $92 million from this offering, (b) the acquisitions of KASY, WDPX,
WPXG and WPXU, (c) the estimated compensation expense of $27.5 million relating
primarily to the exchange of management carry units by our senior management
team, (d) the acquisition of the minority interests of ACME Intermediate in
exchange for shares of common stock and (e) the conversion of convertible
debentures and related accrued interest into common stock.
The table should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this prospectus.
[Download Table]
AS OF MARCH 31, 1999
---------------------
PRO FORMA
AS
ACTUAL ADJUSTED
-------- ---------
(IN THOUSANDS)
Cash and cash equivalents(1)............................... $ 954 $ 15,054
Current portion of obligations under lease................. 1,304 1,304
Obligations under lease, net of current portion............ 4,348 4,348
Long-term debt:
Revolving credit facility................................ 12,900 --
10 7/8% Senior discount notes............................ 149,298 149,298
12% Senior secured notes................................. 43,436 43,436
Convertible debentures(2)................................ 24,756 --
-------- ---------
Total long-term debt.................................. 230,390 192,734
-------- ---------
Minority interest(3)....................................... 1,510 --
Stockholders' equity (deficiency)(4):
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding actual
and as adjusted....................................... -- --
Common stock, $0.01 par value; 50,000,000 shares
authorized; shares issued and outstanding
actual; shares issued and outstanding as
adjusted(5)...........................................
Additional paid-in capital(6)............................ 33,332 197,245
Accumulated deficit(6)................................... (38,697) (66,240)
-------- ---------
Total stockholders' equity (deficiency)............... (5,365) 131,005
-------- ---------
Total capitalization............................. $232,187 $ 329,391
======== =========
-------------------------
(1) Cash and cash equivalents pro forma as adjusted includes estimated net
proceeds of $92 million offset by the repayment of the following: (a) $12.9
million of revolving credit facility borrowings at March 31, 1999, (b) $25.0
million of debt to be incurred in the acquisition of KASY, and (c) $40.0
million of debt incurred in the acquisitions of WBDT, WIWB and WBUI of which
$15.0 million was funded from a loan by certain of our investors and $25.0
million was funded from borrowings under our revolving credit facility.
(2) Reflects the conversion of convertible debt and accrued interest of $4.1
million into shares of our common stock in connection with the
reorganization.
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(3) Reflects the acquisition of minority interest in ACME Intermediate in
exchange for shares of our common stock with an estimated value of
$ in connection with the closing of this offering.
(4) Adjusted to reflect the conversion of our predecessor's limited liability
membership units into shares of our common stock.
(5) Based on actual number of shares outstanding as of March 31, 1999 after
giving effect to the reorganization and as adjusted to reflect
shares issued in this offering. Excludes an aggregate of to be
issued at the offering price under our 1999 Stock Incentive Plan.
(6) Reflects a compensation charge of $27.5 million relating to a non-cash
charge of $24.5 million as a result of the exchange of management carry
units for shares of our common stock (compensation calculated as the
difference between the expense recorded by us relating to management carry
units and the fair value of the common stock) and a $3.0 million bonus to be
paid to our senior management in the first quarter of 2000.
20
DILUTION
Our net tangible book value (deficit) as of March 31, 1999 was $( )
million or $( ) per share of common stock. Net tangible book value (deficit)
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares of common stock
outstanding. Our net tangible book value, on a pro forma basis, as adjusted for
the sale of shares of common stock in this offering by us and the
application of the net proceeds from the sale, and after deducting underwriting
discounts and estimated offering expenses, would have been $ million or $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this dilution on a per
share basis:
[Download Table]
Assumed initial public offering price per share......... $ .
Net tangible book value (deficit) per share before the
offering........................................... $ ( .)
Increase per share attributable to new investors...... .
-------
Pro forma net tangible book value per share after the
offering.............................................. .
------
Dilution per share to new investors..................... $ .
======
The following table summarizes, after giving effect to the offering, the
differences between existing stockholders and new investors with respect to the
number of shares of common stock purchased from us, the total consideration paid
to us and the average price per share paid, based on an assumed initial public
offering price of $ per share:
[Download Table]
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
----------------- ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------- ------- ---------
Existing stockholders(1)..... .% $ .% $ .
New investors................ .% .% .
------ ----- ------- ------
Total...................... 100.0% $ 100.0% $ .
====== ===== ======= ======
-------------------------
(1) Reflects our reorganization as if it had occurred as of the inception of
ACME Television Holdings, LLC.
21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our consolidated financial statements and accompanying notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in the prospectus. The selected consolidated financial data
presented below as of and for the years ended December 31, 1997 and 1998 are
derived from our consolidated financial statements, which have been audited by
KPMG LLP, independent auditors. The selected consolidated financial data
presented below as of March 31, 1998 and 1999 and for the three months ended
March 31, 1998 and 1999 are derived from our unaudited financial statements,
which in the opinion of our management, contain all necessary adjustments of a
normal recurring nature, to present the financial statements in conformity with
generally accepted accounting principles. Our quarterly results for the period
ended March 31, 1999 are not necessarily indicative of the results for the year
ended December 31, 1999. Our selected financial data is not comparable from
period to period because of our acquisition of television broadcast stations.
[Enlarge/Download Table]
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- -------------------
1997 1998 1998 1999
--------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net revenues........................................... $ 11,347 $ 43,928 $ 7,757 $ 11,123
--------- -------- ------- --------
Operating expenses:
Station operating expenses........................... 10,158 32,973 5,951 8,430
Depreciation and amortization........................ 1,215 11,355 848 3,766
Corporate............................................ 1,415 2,627 589 721
Equity-based compensation............................ -- -- -- 2,500
--------- -------- ------- --------
Operating income (loss)................................ (1,441) (3,027) 369 (4,294)
Other income (expenses):
Interest income........................................ 287 231 45 9
Interest expense....................................... (6,562) (23,953) (5,500) (6,466)
Gain on sale of assets................................. -- 1,112 -- --
Other.................................................. -- (380) 5 5
--------- -------- ------- --------
Loss before taxes and minority interest................ (7,716) (26,017) (5,081) (10,746)
Income tax benefit (expense)........................... -- 2,393 (20) 745
--------- -------- ------- --------
Loss before minority interest.......................... (7,716) (23,624) (5,101) (10,001)
Minority interest...................................... 237 1,684 358 723
--------- -------- ------- --------
Net loss............................................... $ (7,479) $(21,940) $(4,743) $ (9,278)
========= ======== ======= ========
SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION(1):
Pro forma net loss..................................... $ (7,479) $(14,484) $(2,834) $ (5,998)
Pro forma basic and diluted net loss per share.........
Basic and diluted weighted average shares
outstanding(2).......................................
OTHER OPERATING DATA:
Broadcast cash flow(3)................................. $ 1,024 $ 11,380 $ 1,721 $ 2,633
Broadcast cash flow margin(3).......................... 9.0% 25.9% 22.2% 23.7%
EBITDA(3).............................................. $ (391) $ 8,752 $ 1,132 $ 1,911
EBITDA margin(3)....................................... NM 19.9% 14.6% 17.2%
Amortization of program rights......................... $ 2,573 $ 10,942 $ 1,612 $ 2,420
Adjusted program payments(3)........................... (2,738) (10,746) 1,754 (2,481)
Time brokerage fees.................................... -- 228 57 --
Cash flows provided by (used in) operations:
Operating activities................................. $ (599) $ 319 $ 1,732 $ 1,419
Investing activities................................. (191,730) (15,504) (6,916) (6,108)
Financing activities................................. 201,153 7,362 (70) 4,642
ADJUSTED STATEMENT OF OPERATIONS AND OTHER DATA(4):
Adjusted interest expense.............................. $(25,103) $(10,301)
Adjusted net loss...................................... (13,857) (15,107)
Adjusted net loss per share............................
Adjusted basic and diluted weighted average shares
outstanding(5).......................................
22
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31, AS OF MARCH 31, 1999
------------------------ -------------------------
1997 1998 ACTUAL AS ADJUSTED
--------- --------- -------- -----------
(UNAUDITED)
BALANCE SHEET DATA:
Total assets..................................... $220,475 $288,082 $290,902 $389,222
Long-term debt................................... 192,452 220,256 230,390 192,734
Total shareholders' equity (deficiency).......... 16,306 1,413 (5,365) 131,005
-------------------------
(1) Our supplemental pro forma financial information gives effect to our
reorganization. Supplemental pro forma net loss represents the results of
operations adjusted to reflect (A) a provision for income taxes on
historical net loss before income taxes and minority interest which gives
effect to the change in our income tax status to a C corporation and (B) the
impact of the tax adjustment on the net loss allocated to minority
interests. There was no impact on the results for the year ended December
31, 1997, as all deferred tax assets would have been fully offset by a
valuation allowance. The supplemental pro forma tax benefit for the periods
subsequent to December 31, 1997 are based on an estimated combined federal
and state income tax rate of 40%. Supplemental pro forma net loss per share
has been computed by dividing supplemental pro forma net loss by the
weighted average shares of common stock outstanding during the period
(giving effect to our reorganization as if it had occurred at the beginning
of the period).
(2) See note 1 to our consolidated financial statements.
(3) We define broadcast cash flow as operating income, plus depreciation and
amortization, program amortization, non-cash equity based compensation, time
brokerage fees and corporate overhead, less program payments -- the latter
as adjusted to reflect reductions for impaired or expired rights in
connection with acquisitions. We define broadcast cash flow margin as
broadcast cash flow as a percentage of net revenues. We define EBITDA as
broadcast cash flow less corporate expenses. We define EBITDA margin as
EBITDA as a percentage of net revenues. We have included broadcast cash
flow, broadcast cash flow margin, EBITDA and EBITDA margin data because
these measures are widely used in the television broadcasting industry to
evaluate a television broadcast company's operating performance. However,
you should not consider broadcast cash flow, broadcast cash flow margin,
EBITDA and EBITDA margin in isolation or as substitutes for net income, cash
flows from operating activities and other statement of operations or cash
flows data prepared in accordance with generally accepted accounting
principles as a measure of liquidity or profitability. These measures are
not necessarily comparable to similarly titled measures employed by other
companies.
(4) The adjusted data give effect to this offering and application of the net
proceeds of this offering to repay all amounts outstanding under the
revolving credit facility ($12.9 million at March 31, 1999), as if the
offering and the application of net proceeds had occurred as of January 1,
1998 in the case of the adjusted statement of operations data and March 31,
1999 in the case of the adjusted balance sheet data. The adjusted statement
of operations data include adjustments to the supplemental pro forma
financial information as follows: a reduction of interest expense of
$914,000 for 1998 and $446,000 for the quarter ended March 31, 1999 and
related decreases in income tax benefits of $366,000 for 1998 and $178,000
for the quarter ended March 31, 1999, and a reduction in the loss allocation
to minority interests of $44,000 for 1998 and $22,000 for the quarter ended
March 31, 1999.
We will record a compensation charge of approximately $27.5 million relating
to the following: (A) a $3.0 million bonus to be paid to our senior
management in the first quarter of 2000 and (B) a non-cash charge of $24.5
million as a result of the exchange of management carry units in our
predecessor for shares of our common stock in connection with our
reorganization and this offering (compensation calculated as the difference
between the expense recorded by us relating to management carry units ($2.5
million through March 31, 1999) and the fair value of the common stock). The
adjusted statement of operations data excludes this compensation charge
since this will be a non-recurring charge. The adjusted balance sheet data
reflect the estimated cash and equity effects of this compensation charge.
(5) Based on weighted average number of shares of common stock outstanding for
all periods presented (giving effect to our reorganization as if it had
occurred during the period), including the number of shares to be issued in
the offering and the number of shares exchanged for the management carry
units, assuming the offering and issuances occurred on January 1, 1998.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus.
OVERVIEW
We derive our revenues primarily from the sale of advertising time to
local, regional and national advertisers. Our revenues depend on our ability to
provide popular programming that attracts audiences in the demographic groups
targeted by advertisers, thereby allowing us to sell advertising time at
satisfactory rates. Our revenues also depend significantly on factors such as
the national and local economy and the level of local competition.
Our revenues are generally highest during the fourth quarter of each year,
primarily due to increased expenditures by advertisers in anticipation of
holiday season consumer spending and an increase in viewership during this
period. We generally pay commissions to advertising agencies on local, regional
and national advertising and to national sales representatives on national
advertising. Our revenues reflect deductions from gross revenues for commissions
payable to advertising agencies and national sales representatives.
Our primary operating expenses are programming costs, employee
compensation, advertising and promotion expenditures and depreciation and
amortization. Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as news production and
sports rights fees. Changes in employee compensation expense result primarily
from increases in total staffing levels, from adjustments to fixed salaries
based on individual performance and inflation and from changes in sales
commissions paid to our sales staff based on levels of advertising revenues.
Advertising and promotion expenses consist primarily of media and related
production costs resulting from the promotion of our stations and programs. This
amount is net of any reimbursement received or due for such advertisement and
promotion from any network, including The WB Network, or other program provider.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 compared to Quarter Ended March 31, 1998
Net revenues increased to $11.1 million for the quarter compared to $7.8
million in the same period of 1998, or 43%. The significant increase in net
revenues is attributable to growth at all of our stations, including those that
were in operation during the first quarter of 1998 and those which were signed
on or acquired after March 31, 1998.
Operating costs for the quarter ended March 31, 1999 were $15.4 million, an
increase of $8.0 million, or 109%, over the corresponding quarter of 1998.
Station operating expenses increased by $2.5 million, or 42%, in the aggregate,
during the quarter primarily due to the continued development and growth of our
stations, including the acquisition of new programming, the increase in the size
of our sales staff to support our sales growth and the impact of our start-up
stations since March 1998. Corporate expense increased from $589,000 to
$721,000, or 22%, reflecting primarily increased employment costs for the
additional staff needed to manage our growing company. A first-time $2.5 million
provision for equity-based compensation expense was recorded in the first
quarter of 1999 relating to equity issued in June 1997 to our senior management
team. Depreciation and amortization expense increased by $2.9 million from the
quarter ended March 31, 1998 to the quarter ended March 31, 1999 due primarily
to the amortization of intangible assets at KPLR and
24
KUWB, which we began to amortize subsequent to March 31, 1998, and to higher
depreciation of property, plant and equipment related to our continued build-out
and upgrade of our studio and broadcast facilities since the first quarter of
1998.
Interest expense for the three months ended March 31, 1999 was $6.5 million
compared to interest expense of $5.5 million for the corresponding quarter of
the prior year. This increase of $1.0 million, or 18%, is attributable primarily
to increases in the principle balances of both the 10 7/8% senior discount notes
and the 12% senior secured notes due to the continued amortization of original
issuance discount, interest on amounts outstanding under our revolving credit
facility for the WTVK acquisition and other advances during the first quarter of
1999 and interest on increased capital lease financings.
We recorded a net income tax benefit of $745,000 of which $770,000 related
to KPLR. This tax benefit relates to a net operating loss carryforward and a
reduction of a deferred tax liability primarily related to KPLR's FCC license.
Minority interest represents the allocation of the loss for the first quarters
of 1998 and 1999 to the minority holders in ACME Intermediate.
Our net loss for the quarter ended March 31, 1999 was $9.3 million compared
to a net loss for the first quarter of 1998 of $4.7 million. This $4.5 million
increase in our net loss is attributable primarily to increased interest expense
and amortization of intangibles, and the equity-based compensation expense, net
of improved operating results (exclusive of depreciation and amortization) at
the stations.
Our broadcast cash flow for the quarter ended March 31, 1999 increased
$912,000, or 53%, to $2.6 million compared to $1.7 million in the corresponding
period in 1998. This increase was driven primarily by the increased revenue
gains at all of our stations which outpaced the growth in operating expenses. As
a percentage of net revenues, broadcast cash flow margin increased to 24% for
the three months ended March 31, 1999 from 22% for the three months ended March
31, 1998.
EBITDA for the quarter ended March 31, 1999 increased $779,000, or 69%, to
$1.9 million compared to $1.1 million in the first quarter of 1998. This
increase was primarily driven by increased broadcast cash flow of $912,000,
offset by an increase in corporate expense during the quarter ended March 31,
1999 of $132,000 from the quarter ended March 31, 1998.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
Net revenues for the year ended December 31,1998 increased $32.6 million,
or 287%, to $43.9 million as compared to $11.3 million for the year ended
December 31, 1997. The most significant reason for this increase is that our
1997 net revenues included only the fourth quarter results of KPLR, which we
began managing on October 1, 1997, compared to 1998, which included KPLR's full
year results. Also favorably impacting the 1998 comparison to 1997 was our
fourth quarter 1997 launch of WBXX, the second quarter 1998 launch of KUWB,
increased revenues at KWBP and our acquisition of WTVK, which we began operating
in March 1998.
Operating expenses increased to $47.0 million compared to the prior year's
operating expenses of $12.8 million, or 267%. Station operating and corporate
expenses increased significantly in 1998 due to the significant increase in the
number of stations added or launched since the third quarter of 1997.
Depreciation and amortization expense for the year includes $9.4 million in
the amortization of intangible assets. As of December 31, 1997, only KWBP and
WBXX stations
25
had been acquired and, accordingly, there was only $1.1 million in amortization
expense for that period.
Interest expense for 1998 was $24.0 million, primarily representing the
amortization of original issuance discount of our 10 7/8% senior discount notes,
12% senior secured discount notes and interest on our 10% convertible
debentures, along with related amortization of prepaid financing costs. The
interest expense of $6.6 million for 1997 represents primarily the interest
expense on the 10 7/8% senior discounted notes and 12% senior secured notes,
which were outstanding only during the fourth quarter of the year and interest
on the convertible debentures, which were issued in June 1997 and therefore only
outstanding for a little more than six months during 1997.
Our operations related to KPLR, our only operating C corporation, after
deduction of allocable interest charges, generated a net taxable loss, and a
corresponding deferred tax benefit of $2.4 million for 1998.
Our net loss for 1998 was $21.9 million compared to a net loss of $7.5
million for 1997. This increased net loss is due primarily to the increased
amortization of intangible assets relating to our newly acquired and operating
stations and the substantially increased interest expense incurred in connection
with the September 1997 issuance of long-term debt to finance our acquisitions,
offset by improved operating performance attributable to the inclusion of full
year results related to KPLR.
Our broadcast cash flow for 1998 was $11.4 million, compared to a $1.0
million broadcast cash flow in 1997. This increase is primarily attributable to
the profitable operations of KPLR -- only the fourth quarter of 1997 is included
in the full year 1997 results whereas the full year results are included in
1998. To a lesser extent, significantly reduced losses in 1998 compared to 1997
at KWBP also contributed to the increase in broadcast cash flow.
INCOME TAXES
Historically, we and all of our other operating subsidiaries, other than
our subsidiary related to KPLR which is a C corporation, have been organized as
limited liability companies. Accordingly, although we have been subject to
various minimum state taxes, all federal tax attributes have been passed through
to our members. Our operations related to KPLR, after deduction of allocable
interest charges, generated a net taxable loss, and a corresponding deferred tax
benefit of $2.4 million. Upon our reorganization into a C corporation, we will
be subject to federal and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our revolving credit facility allows for borrowings of up to a maximum of
$40.0 million, dependent upon our meeting certain financial ratio tests in the
credit agreement. The revolving credit facility can be used to fund future
acquisitions of broadcast stations and for general corporate purposes. At March
31, 1999, $12.9 million was outstanding and $27.1 million was available under
the revolving credit facility. Amounts outstanding under our revolving credit
facility bear interest at a base rate, at our option, of the bank's prime rate
or LIBOR, plus a spread. At July 15, 1999, we had $39.4 million outstanding
under our revolving credit facility. Most of the increase in the revolver
balance since March 31, 1999 was used for the acquisitions of WBDT, WIWB and
WBUI in April 1999. We will repay all amounts outstanding under our revolving
credit facility with a portion of the net proceeds of this offering.
26
Cash provided by our operating activities during 1998 was $319,000 and for
the quarter ended March 31, 1999 was $1.4 million.
Cash used in our investing activities during 1998 was $15.5 million and
related partially to the acquisition of WTVK and the purchase of property and
equipment, offset by the net gain related to the acquisition and subsequent sale
of a construction permit in the Springfield, Missouri market. Cash used in
investing activities during the first three months of 1999 was $6.1 million and
related primarily to our investment in a digital tower joint venture in the
Portland, Oregon market, the purchase of property and equipment and the final
payment in connection with our acquisition of KUPX.
Cash provided by our financing activities during 1998 was $7.4 million and
related primarily to net borrowings under our revolving credit facility in
connection with our acquisition of WTVK offset by repayments of capital leases.
Cash provided by financing activities during the first three months of 1999 was
$4.6 million consisting of revolving credit borrowings in connection with the
completion of our acquisition of KUPX, our digital tower joint venture
investment in Portland and capital expenditures.
We expect that we will incur approximately $12 million in capital
expenditures over the next twelve months in connection with the build-out,
upgrade and initial digital conversion of our current facilities.
We believe that the proceeds from this offering, internally generated funds
from operations and borrowings under our revolving credit facility, if
necessary, will be sufficient to satisfy our cash requirements for our existing
operations for at least the next twelve months. We expect that any future
acquisitions of television stations would be financed through funds generated
from operations, through borrowings under our revolving credit facility, and
through additional debt and equity financings. However there is no guarantee
that such additional debt and/or equity financing will be available or available
at rates acceptable to us.
YEAR 2000
The Year 2000 issues are a result of computer software applications using a
two-digit format, as opposed to a four-digit format, to indicate the year. Some
computer software applications might then be unable to uniquely distinguish
dates beyond the year 1999, which could cause system failures or miscalculations
at our broadcast and corporate locations which could cause disruption of
operations, including a temporary inability to produce broadcast signals or
engage in normal business activities.
We are in the process of evaluating potential Y2K issues for both our
information technology and non-information technology systems such as
telephone/PBX systems, fax machines, editing equipment, cameras, microphones,
etc). All of our internal software and hardware is purchased, leased or licensed
from third party vendors. Most of our station facilities are new or have been
recently upgraded and we have polled all of our significant software vendors and
have been advised by them that their software is Y2K compliant.
We have completed our assessment and planning phase of our Y2K readiness
project, and have commenced the testing phase of our Y2K project which consists
of independently verifying that the systems are, in fact, Y2K compliant. In
addition to testing internal systems for compliance, this phase also includes
polling key suppliers, such as program suppliers, utilities, etc., to determine
their Y2K readiness. At the conclusion of the testing phase, we will commence
the final phase of our Y2K project, implementation. During this phase, we will
fix, retest and implement critical applications that were discovered to be Y2K
deficient during the preceding phases.
27
At this point in time, we are not aware of any additional significant
upgrades or changes that will need to be made to our internal software and
hardware to become Y2K ready, nor are we aware of any material supplier with Y2K
readiness problem, but this is subject to change as the compliance testing
process continues. We expect to be able to implement the systems and programming
changes necessary to address Y2K information technology and non-information
technology readiness issues and, based on preliminary estimates, we do not
believe that the costs of doing so will have a material effect on our results of
operations or financial condition. As of March 31, 1999, we have spent less than
$100,000 on Y2K activities and have budgeted expenditures less than $50,000 in
total on Y2K activities. However, we cannot be sure that there will not be a
delay in, or increased costs associated with the implementation of such changes.
RECENT DEVELOPMENTS
On February 19, 1999, we entered into an asset purchase agreement with
Ramar Communications II, Ltd. to acquire the television broadcast assets of
KASY, serving the Albuquerque-Santa Fe, New Mexico market, for approximately
$27.3 million, $25.0 million of which will be paid at closing, $500,000 of which
has been deposited into escrow. In a related transaction, we are selling KWBQ,
our existing station serving the Albuquerque - Santa Fe market, to Ramar for
$100,000. At the closing, Ramar will grant Montecito Communications, LLC, a
limited liability company owned entirely by members of our senior management, an
option to purchase KWBQ for an exercise price of $100,000. We anticipate that
Montecito will assign the option to us immediately after the closing of the sale
of KWBQ. The closings of both the KASY and the KWBQ transactions, which have
been approved by the FCC, are subject to various conditions and are expected to
occur shortly after the completion of this offering. Under the KASY purchase
agreement we are required to close the transaction by August 13, 1999. We expect
to enter into an amendment with Ramar, pursuant to which we will deposit an
additional $1.0 million into escrow and extend the closing deadline under the
KASY purchase agreement until either the closing of this offering or January 31,
2000, as Ramar determines. If the closing occurs after October 31, 1999, we will
pay Ramar approximately $550,000 plus additional costs based on the number of
days which elapse between October 31, 1999 and the closing date. After the
closing, we intend to operate KWBQ under a local marketing agreement with Ramar.
We believe this transaction will allow us to enhance revenues and cash flows in
this market through cross-promotion and achieving operating efficiencies,
including operating from one facility.
In June 1999, we acquired WDPX, serving the Dayton, Ohio market, WPXG,
serving the Green Bay-Appleton, Wisconsin market, and WPXU, serving the
Champaign-Springfield-Decatur, Illinois market, from Paxson Communications
Corporation for $40.0 million. We converted all three stations from Pax Net
primary affiliates to The WB Network primary affiliates in June 1999 and changed
the call letters for the stations to WBDT, WIWB and WBUI. We agreed to run Pax
Net prime time programming on these three stations in certain non-prime time
periods on a secondary affiliation basis for five years. The $40.0 million
purchase price was paid in cash and financed by a $25.0 million borrowing under
our revolving credit facility and a $15.0 million loan from some of our
investors. We anticipate that both the revolving credit facility and the $15.0
million loan will be repaid with the proceeds of this offering.
In April 1999, we entered into a joint sales agreement with DP Media for
WZPX, serving the Grand Rapids, Michigan market. WZPX is a primary affiliate of
Pax Net. In connection with this agreement, WZPX will enter into a secondary
affiliation agreement with The WB Network for five years. Under our joint sales
agreement, we sell certain advertising time for WZPX and as compensation, we
retain a portion of the excess of station revenues over
28
station operating expenses, if any. DP Media has the right to sell the station
to us at any time during the next four years for $30.0 million. We have limited
rights to acquire the station for the same amount if DP Media chooses to sell
the station.
In April 1999, we received FCC approval to consummate the swap of KUPX,
serving the Salt Lake City, Utah market, which we currently own but do not
manage, for KUWB, serving the same market. We currently manage but do not own
KUWB. We expect this swap to be finalized in the third quarter of 1999. We
intend to account for the swap as a non-monetary transaction using our
historical cost. We believe that the fair value of KUWB approximates the
historical cost of KUPX.
FUTURE NON-RECURRING CHARGES
We expect to incur approximately $27.5 million of non-recurring
compensation expense related charges in connection with this offering. Of these
charges, a $3.0 million cash bonus to be paid in first quarter 2000 will be
earned by senior management upon completion of this offering. In addition, a
non-cash charge of approximately $24.5 million will be incurred in connection
with the exchange of senior management carry units for shares of our common
stock.
PENDING ADOPTION OF ACCOUNTING STANDARD
The FASB (Financial Accounting Standards Board) has issued FASB statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which we
will be required to adopt for its year ending December 31, 2000. This
pronouncement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This pronouncement is not expected to have a significant impact
on our financial statements since we currently have no derivative instruments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our revolving credit facility has a variable interest rate and our interest
expense can therefore be materially affected by future fluctuations in the
applicable interest rate. At March 31, 1999, a hypothetical 100 basis point
increase in the prime rate would result in additional interest expense of
approximately $1.3 million on an annualized basis.
29
INDUSTRY OVERVIEW
Commercial television broadcasting. Commercial television broadcasting
began in the United States on a regular basis in the 1940s over a portion of the
broadcast spectrum commonly know as the VHF Band (very high frequency broadcast
channels numbered 2 through 13). Additional television channels were later
assigned by the FCC under broadcast spectrum commonly known as the UHF Band
(ultra-high frequency broadcast channels numbered 14 through 83; channels 70
through 83 have been reassigned to non-broadcast services). Currently, there are
a limited number of channels available for broadcasting in any one designated
market area, and the license to operate a broadcast station in a designated
market area is granted by the FCC.
Although UHF and VHF stations compete in the same market, UHF stations have
historically suffered a competitive disadvantage, as UHF signals are more
subject to obstructions such as terrain than VHF signals and VHF stations are
able to provide higher quality signals to a wider area. Over time, the
disadvantage of UHF stations has gradually declined through UHF stations'
carriage on local cable systems and improved receivers and transmitters.
A majority of the commercial television stations in the United States are
affiliated with NBC, CBS or ABC -- the traditional networks -- or with Fox. Each
traditional network provides the majority of its affiliates' programming each
day without charge in exchange for a substantial majority of the available
advertising time in the programs supplied. Fox has operating characteristics
similar to ABC, CBS and NBC, although the hours of network programming provided
for Fox affiliates is less than that provided by the traditional networks. Each
of the traditional networks and Fox sell this advertising time and retain the
revenues. The affiliate typically receives compensation from the traditional
network and retains the revenues from advertising time sold in and between
network programs and in programming the affiliate produces or purchases from
non-network sources.
Stations not affiliated with one of the traditional networks were
historically considered independent stations. Independent stations generally
rely on and broadcast syndicated programming, which is acquired by the station
for cash or occasionally barter. Through the acquisition of syndicated
programming the acquiring station generally obtains exclusive rights to
broadcast a program in the market for a specified period of time or number of
episodes agreed upon between the independent station and the distributor of the
syndicated programming. Types of syndicated programming include feature films,
popular television series previously shown on network television and current
television series produced for direct distribution to television stations.
Through barter and cash-plus-barter arrangements, a national syndicated program
distributor typically retains and sells a portion of the available advertising
time for programming it supplies, in exchange for reduced fees to the station
for such programming.
Like Fox, United Paramount Network ("UPN") and The WB Network have each
established affiliations predominantly with formerly independent stations, and
in some cases, with newly constructed stations. These networks supply their
affiliates with significantly less programming than ABC, CBS and NBC. As a
result, these stations retain a significantly higher portion of their available
inventory of advertising time for their own use than do traditional network
affiliates. In August 1998, Pax Net, an affiliate of Paxson Communications and a
seventh broadcast network, was launched. Unlike the other networks, Pax Net
provides substantially all of the programming to its affiliates, most of which
were previously independent or religious broadcasters or are newly built
television stations.
30
Ratings. All television stations in the United States are grouped into 210
television markets that are ranked by size according to the number of households
with televisions in each market. Almost all commercial television stations, and
all of our stations, subscribe to Nielsen Media Research ("Nielsen"), which
periodically publishes reports on the estimated audience for television stations
in the various television markets throughout the country. These audience
reports, which are based on a randomly selected sample of homes in each market,
provide audience data on the basis of total television households and selected
demographic groupings in 15-minute or half-hour increments for each program and
market. The audience estimates are expressed in terms of the number of
households or demographic groups watching a given program:
- as a percentage of all households or demographic groups in the market
(the program's "rating"); and
- as a percentage of households or demographic groups actually viewing
television during that program's time period (the program's "share").
For example, a program generating a 3.5 household rating and a 6 household
share means that 3.5% of the total homes with televisions were watching that
show and of the homes watching television at that time, 6% were watching that
program.
Each specific geographic television market is called a designated market
area. A designated market area is determined as an exclusive geographic area
consisting of all counties in which the home-market commercial stations receive
the greatest percentage of total viewing hours.
In larger markets, Nielsen measures audience viewing through a combination
of meters connected directly to selected television sets which report the
household rating and share results on a daily basis and weekly diaries of
television viewing that are periodically prepared over a four-week period by the
actual viewers. Nielsen refers to these markets as "metered markets". In smaller
markets, only weekly diaries are completed periodically by the actual viewers
and Nielsen refers to these markets as "diary markets". The periodic four-week
diary periods are commonly known as "sweeps periods" and are critical to
stations since they provide independent information to advertisers about the
viewing level of a given station's programming to a multitude of demographic age
and gender groups. Due to the underlying costs of installing meters in a market,
the monthly Nielsen subscription fees for each station in a metered market are
significantly higher than those for diary markets.
While meters do not provide daily demographic ratings, the daily reported
household ratings and shares give the stations in metered markets key
information about the general performance of a given show. Also, results in
metered markets tend to more accurately reflect viewing since measurement is not
totally dependent on the memory of the viewer and timeliness of the diary entry.
Currently, we operate in three metered markets: St. Louis, Portland and
Salt Lake City. All of our other markets are diary markets. Over the past five
years, Nielsen has expanded the number of metered markets from 32 to 46, and we
believe that they will continue to convert markets from diary to metered
markets. In most cases where such conversions have taken place, affiliates of
The WB Network and Fox show immediate increases in ratings and share, which we
believe are related to a number of factors, including more accurate reporting
and a shift in the audience sample to those (usually younger households) more
comfortable with using electronic measurement devices.
31
Advertising. The advertising rates charged by competing stations within a
designated market depend primarily on four factors:
- the station's ratings of households viewing its programs as a percentage
of total households with televisions in that designated market area;
- audience share of households viewing its programs as a percentage of
households actually watching television at a specific time;
- the time of day the advertising is aired; and
- the demographic qualities of the program's viewers, primarily age and
gender.
Additional factors include the size of the designated market area in which
the station operates, the number of advertisers competing for available
advertising time, demographic characteristics of the designated market area
served by the station, the availability and pricing of alternative advertising
media in the designated market area, relative ability of competing sales forces
and the development of projects, features and marketing programs that tie
advertiser messages to programming.
All network affiliated stations, including those affiliated with Fox, UPN,
The WB Network and Pax Net are required to carry national and regional spot
advertising sold by their networks. This reduces the amount of advertising time
available for sale directly by the network-affiliated stations.
Advertisers wishing to reach a national audience usually purchase time
directly from the traditional networks, Fox, UPN, The WB Network, Pax Net and
cable networks, or advertise nationwide on an ad hoc basis. National advertisers
who wish to reach a particular regional or local audience buy advertising time
directly from local stations through national advertising sales representative
firms, or in the cases of some large stations groups, from the station group
itself. Local businesses purchase advertising time directly from the station's
local sales staff.
32
BUSINESS
COMPANY OVERVIEW
We currently own and operate nine broadcast television stations in
medium-sized markets across the United States. Each of our stations is a network
affiliate of The WB Network, making us the third largest WB Network affiliated
station group in the country. Our television stations broadcast in markets that
cover in aggregate approximately 5.4% of the total U.S. population. Mr. Kellner,
our Chairman and Chief Executive Officer, is also a founder, Chief Executive
Officer and partner of The WB Network, and was President of Fox Broadcasting
Company from its inception in 1986 through 1993. Mr. Kellner and our other
founders formed our company to capitalize on the opportunity to affiliate with
The WB Network, the fastest growing English-language broadcast television
network in the country. We will continue to expand our station group by
selectively acquiring and building primarily WB Network affiliated stations in
medium-sized markets.
Since our formation in 1997, we have focused primarily on acquiring
independently-owned stations, under-performing stations and construction permits
for new stations in markets that we believe have the growth potential and
demographic profile to support the successful launch of a new WB Network
affiliate. We believe that medium-sized markets provide advantages such as fewer
competitors and lower operating costs compared to large markets. Our strategy is
to capitalize on these advantages and to grow our revenues and cash flow by
focusing on generating local sales. Since we centralize many of our stations'
administrative functions and primarily provide entertainment programming, our
station general managers are able to focus on increasing sales and improving
operating margins. We have experienced significant revenue and broadcast cash
flow growth and we anticipate further growth because many of our stations are
newly launched. For the three months ended March 31, 1999, we generated $11.1
million in revenues and $2.6 million in broadcast cash flow, representing an
increase of 43.4% in revenues and 53.0% in broadcast cash flow over the three
months ended March 31, 1998.
Like The WB Network, we target our programming to younger audiences, in
particular, young adults, teens and kids. We believe that these younger
audiences are a growing and increasingly important demographic target for
advertisers, and that our affiliation with The WB Network affords us a
significant competitive advantage over other network affiliated television
broadcasters in attracting these younger audiences. Since its launch in 1995,
The WB Network is the only English-language broadcast network in the United
States to increase its audience share in these key target demographic groups. To
build and retain our audience share during non-network hours, we also acquire
the broadcast rights to popular syndicated programming that we believe
complements The WB Network programming. In addition, we broadcast local
programming such as news in St. Louis, local weather updates and local and
regional sports programming in selected markets. We believe this programming
will enhance our ability to sell advertising time to local and regional
advertisers and increase audience awareness of our newly launched stations.
OUR STRATEGY
The principal components of our business and growth strategy are:
- Our WB Network Affiliation. Our WB Network affiliation provides our
stations with popular prime time and kids programming and the opportunity
to co-brand our stations with the Warner Bros. brand, which is one of the
most recognized brands in the entertainment industry. We believe that
affiliating and co-branding a start up station with The WB Network gives
that station immediate brand recognition and
33
audience awareness. In addition, we believe our stations' affiliation
with The WB Network provides us with a significant competitive advantage
in attracting the younger audiences we believe are a growing and
increasingly important demographic target for advertisers. The
traditional networks attract viewers with a median age ranging from 42 to
53. Fox attracts viewers with a median age of 34 years while the median
age of The WB Network viewers is 27 years of age. We expect that stations
we acquire in new markets will enter into affiliation agreements with The
WB Network.
- Popular and Proven Syndicated Programming. While The WB Network
programming provides the foundation of our programming, we also acquire
popular syndicated programming, which is an important part of building
our stations' audience and revenue share. We believe that broadcasting
popular and targeted programming before and after The WB Network prime
time programs builds and retains our audience share during these critical
dayparts. We seek to acquire programming that targets demographic groups
similar to those targeted by The WB Network during its prime time
programming. Our syndicated programming for the 1999 and 2000 seasons
includes newly syndicated programming such as The Drew Carey Show,
Suddenly Susan, Caroline in the City and Spin City, as well as proven
programs such as Friends, Seinfeld and Star Trek: The Next Generation.
- Focus on Sales. To grow our revenues, we aggressively market our
advertising time to local advertisers and also sell advertising time to
regional and national advertisers. We believe that our focus on local
sales enables us to capture existing local advertising revenues and to
create new television advertising revenues by selling to first-time
buyers of television advertising time. Our station general managers have
an average of over 18 years of experience selling television advertising
time and are directly involved in their stations' sales management. When
we acquire or build a station, we focus on building the station's sales
force and provide on-going in-house sales training and development.
- Selective and Opportunistic Expansion in Medium-Sized Markets. We will
continue to expand our group of television stations selectively and
opportunistically by acquiring independently-owned stations,
under-performing stations and construction permits for new stations.
Since our inception in 1997, we have acquired six stations, built three
stations and entered into joint services agreements with two other
stations. We target medium-sized markets because they are typically
characterized by fewer and less sophisticated competing television
station operators and other media, and lower operating costs than larger
markets.
- Focus on a young and growing audience. We target our programming
primarily to young adults, teens and kids, demographic groups that are
growing in size and purchasing power. For example, in 1998 teens spent
and/or influenced $140 billion in purchases, up from $120 billion in
1997. As a population, teens are growing at approximately twice the rate
of the rest of the U.S. population. Kids also exert indirect influence
over approximately $400 billion each year in purchases such as cars,
vacations and household goods. We believe that our programming strategy
enhances our ability to sell advertising time by providing direct access
to these attractive demographic groups.
- Significant Economic and Operating Efficiencies. We believe that we
benefit from significant economic and operating efficiencies as a result
of the size of our station group. We centralize our scheduling,
purchasing, national sales and some accounting and treasury functions at
our corporate headquarters. For example, because we buy
34
syndicated programming on a centralized basis, we believe that we have
access to higher quality syndicated programming at attractive prices.
PROGRAMMING
We broadcast programs to attract young adults, teens and kids. Our
programming includes:
- The WB Network prime time programming;
- Kids' WB!;
- syndicated programming; and
- local programming.
Prime Time Programming. In prime time, The WB Network is currently ranked
number one among teens. Prime time programming includes: 7th Heaven, Buffy the
Vampire Slayer, Dawson's Creek, Charmed and Felicity. When The WB Network began
broadcasting in 1995, it provided two hours of prime time programming per week.
In the 1999/2000 season, The WB Network will provide 13 hours of prime time
programming Sunday through Friday and has announced plans to provide two hours
of prime time programming on Saturday for the 2000/2001 season.
[BARGRAPH]
[Two bar graphs presenting ratings and share information for The WB Network
prime time programming. The bar graph on the left side presents rating and share
data for adults 18 to 34 years of age for the 1994/1995 through the 1998/1999
broadcast seasons. The growth achieved in ratings points over in the five year
period among adults 18 to 34 is included above the bar representing the
1998/1999 broadcast season. The bar graph on the right side presents rating and
share data for teens 12 to 17 years of age for the 1994/1995 through the
1998/1999 broadcast seasons. The growth achieved in ratings points over in the
five year period among teens 12 to 17 is included above the bar representing the
1998/1999 broadcast season].
Kids' WB! Programming. The WB Network launched Kids' WB! in September 1995
with three hours of programming on Saturdays, and currently provides 19 hours of
kids' programming Monday through Saturday. Kids' WB! programming includes
Pokemon, the number one rated kids animated program, as well as Warner Bros.
produced shows such as Batman Beyond, Animaniacs, Pinky and the Brain and
Superman. Many of Warner Bros.' animated programs also feature popular Looney
Toons characters such as Bugs Bunny, Daffy Duck, Tazmanian Devil, Tweety Bird,
Sylvester, Road Runner and Wile E. Coyote.
[BARGRAPH]
[One bar graph presenting ratings and share information for The WB
Network's Kids' WB! Saturday programming from the 1995/1996 through the
1998/1999 broadcast season. The growth achieved in ratings points over in the
four year period among teens 12 to 17 is included above the bar representing the
1998/1999 broadcast season].
Syndicated Programming. In addition to The WB Network programming, our
stations air syndicated programs. Our most profitable programming time periods
are those immediately before and after The WB Network programming. Consequently,
during these time periods, we air programs that are targeted to the audiences
that watch The WB
35
Network prime time programs. These important syndicated programs include
Friends, Star Trek: Next Generation, and Seinfeld, and we have acquired the
broadcast rights to The Drew Carey Show, Suddenly Susan, Caroline in the City,
and Spin City. We have multi-year contracts to air most of our syndicated
programming.
Local Programming. Each of our stations airs programming of local interest,
which we believe creates immediate viewership at our start-up stations,
increases local awareness of our stations and expands our advertiser base. At
KWBP, our station in Portland, we air weather updates throughout each evening, a
format we intend to replicate at our other stations. At many of our stations, we
acquire broadcast rights and air certain regional and local sporting events
including games of the St. Louis Cardinals and St. Louis Blues (KPLR), the
Seattle Mariners and the University of Oregon Ducks (KWBP), the Atlanta Braves
and the Atlanta Hawks (WBXX) and the Colorado Rockies (KUWB). In addition, KPLR
airs a nightly 30-minute local newscast.
OUR STATIONS
Unless otherwise indicated, all ownership and statistical information is
from BIA Publications, Inc. and Nielsen Media Research.
KPLR: ST. LOUIS, MISSOURI
Designated Market Area: 21 TV Households: 1,110,000
Total Age 2+ Population: 2,819,000
Market Description. Thirty-three percent of the total population of St.
Louis is under 25 years of age. The estimated average household income in the
St. Louis market is approximately $45,000 per year. Major employers in the
market include Emerson Electric, May Department Stores, Anheuser-Busch,
Monsanto, Ralston Purina and TWA. The television advertising revenue in the St.
Louis marketplace was estimated at $219.9 million in 1998 and has grown at a
compound annual rate of approximately 6.1% over the past five years.
Station Overview. We began operating KPLR under a local marketing agreement
in October 1997 and acquired the station in March 1998. KPLR signed on the air
in 1959 and has been affiliated with The WB Network since the network's launch.
In addition to carrying The WB Network prime time programming and Kids8 WB!, the
station broadcasts a daily 9pm, half-hour local newscast and also has the
exclusive broadcast rights to air games of the St. Louis Cardinals and the St.
Louis Blues. In addition, the station's syndicated programming currently
includes Friends, Seinfeld, Sister Sister, Martin and Cheers. The station has
contracted for the future exclusive market broadcast rights to popular shows
such as The Drew Carey Show (9/99), Spin City (9/00) and Sabrina (9/00). In the
May 1999 sweeps period, KPLR was the first or second most watched station in the
market in important demographic audiences such as teens, persons 12 - 24 years
of age, adults 18 - 34 years of age and adults 18 - 49 years of age. On an
adults 18 - 49 years of age share basis, the station is regularly one of the top
three performing WB Network affiliates in the country in both prime time and
kids' dayparts.
36
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the St. Louis designated
market area:
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
--------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
ACME................. KPLR - 11 WB 18 3
Belo Corporation..... KMOV - 4 CBS 9 -1
Fox.................. KTVI - 2 FOX 11 0
Gannett.............. KSDK - 5 NBC 19 -5
Sinclair Broadcast... KDNL - 30 ABC 11 1
KWBP: PORTLAND, OREGON
[Download Table]
Designated Market Area: 23 TV Households: 994,000
Total Age 2 Population: 2,493,000
Market Description. Thirty-two percent of the total population of Portland
is under 25 years of age. The estimated average household income in the Portland
market is approximately $42,000 per year. Major employers in the market include
Intel, Fred Meyer, Providence Health System, U.S. Bank of Oregon, Tektronix and
Safeway. The television advertising revenue in the Portland marketplace was
estimated at $179.8 million in 1998 and has grown at a compound annual rate of
approximately 8.4% over the past five years.
Station Overview. We began operating KWBP under a local marketing agreement
in January 1997 and acquired the station in June 1997. KWBP signed on the air in
1989 and has been affiliated with The WB Network since the network's launch. In
addition to carrying The WB Network prime time programming and Kids' WB!, the
station's syndicated programming currently includes Star Trek: The Next
Generation, Full House, Xena: Warrior Princess and America's Funniest Home
Videos. To date, the audience share at KWBP has been adversely affected
primarily by the lack of available quality syndicated programming for that
market and, to a lesser extent, due to a transmission site located further away
from the market's population center than our competitors' sites. We have
recently acquired a transmission site that will improve our signal coverage. In
addition, the station has contracted for the future exclusive market broadcast
rights to popular shows such as The Drew Carey Show (9/99), Caroline in the City
(9/99) and King of the Hill (9/01). In the May 1999 sweeps period, KWBP
delivered an average weekly cumulative number of 438,000 households from sign-on
to sign-off, representing an 11% increase over May 1998.
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Portland designated
market area:
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
ACME................... KWBP - 32 WB 3 +1
Belo Corporation....... KGW - 8 NBC 18 -1
BHC Corporation........ KPTV - 12 UPN 8 -4
Fisher Broadcasting.... KATU - 2 ABC 13 +2
Lee Enterprises........ KOIN - 6 CBS 8 +1
Meredith Corporation... KPDX - 49 FOX 16 +1
Paxson
Communications....... KPXG - 22 PAX 1 +1
37
KUWB: SALT LAKE CITY, UTAH
[Download Table]
Designated Market Area: 36 TV Households: 707,000
Total Age 2+ Population: 2,131,000
Market Description. Forty-four percent of the total population of Salt Lake
City is under 25 years of age. The estimated average household income in the
Salt Lake City market is approximately $43,000 per year. Major employers in the
market include Intermountain Health Care, Brigham Young University, IOMEGA, ICON
Health and Fitness and Smith Food & Drug Centers. Salt Lake City is the site of
the 2002 winter Olympic Games. The television advertising revenue in the Salt
Lake City marketplace was estimated at $155.2 million in 1998 and has grown at a
compound annual rate of approximately 8.6% over the past five years.
Station Overview. We began operating KUWB in April 1998 under a local
marketing agreement and expect to acquire the station during the third quarter
of 1999. KUWB is currently owned by Paxson Communications, which manages our
station in the market, KUPX. We have agreed to swap KUPX to Paxson
Communications in exchange for KUWB and have received FCC approvals for this
transaction. KUWB has been affiliated with The WB Network since the network's
launch. When we acquired the station, we replaced the primarily religious paid
programming and infomercials that were being run on the station in all non-WB
Network time periods with syndicated programming. This station's syndicated
programming currently includes The Fresh Prince, Cheers, Roseanne and Full
House. It also carries the NBC-affiliated Saturday Night Live and the daytime
drama Sunset Beach. The station has contracted for the future exclusive market
broadcast rights to popular shows such as The Drew Carey Show (9/99), Caroline
in the City (9/99), Spin City (9/00) and Sabrina (9/00). In the May 1999 sweeps
period, KUWB delivered an average weekly cumulative number of 293,000 households
from sign-on to sign-off, up 144,000 homes compared to May 1998. The WB Network
prime time programming contributed significantly to KUWB's success in the
market. In The WB Network prime time, KUWB increased its share of the teen
audience by five share points compared to May 1998 and its adult demographics
gained approximately two share points during the same time period.
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Salt Lake City
designated market area:
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
--------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ----------------- ------------------
ACME (Paxson
Communications local
marketing
agreement).......... KUPX - 16 PAX 0 0
CBS................... KUTV - 2 CBS 8 0
Fox................... KSTU(1) - 13 FOX 17 -2
KSL - International... KSL - 5 NBC 19 -2
Larry Miller
Broadcasting........ KJZZ - 14 UPN 10 -4
Paxson Communications
(ACME local
marketing
agreement).......... KUWB - 30 WB 4 13
United Television..... KTVX - 4 ABC 10 -1
-------------------------
(1) The ratings reported by Nielsen for this station include information for
total satellite stations. These satellite stations are fully licensed for
broadcasting on a regular channel assignment but they carry only programming
which duplicates entirely the programming
38
and commercial content of a parent station. Nielsen viewing credit is
generally given to the total satellite station.
KWBQ: ALBUQUERQUE - SANTA FE, NEW MEXICO
[Download Table]
Designated Market Area: 49 TV Households: 566,000
Total Age 21 Population: 1,513,000
Market Description. Thirty-six percent of the total population of
Albuquerque - Santa Fe is under 25 years of age. The estimated average household
income in the Albuquerque - Santa Fe market is approximately $37,000 per year.
Major employers in the market include Intel, Motorola, General Electric, General
Mills, Philips and Levi Strauss. The television advertising revenue in the
Albuquerque - Santa Fe marketplace was estimated at $94.4 million in 1998 and
has grown at a compound annual rate of approximately 9.1% over the past five
years.
Station Overview. We launched KWBQ in March 1999 with The WB Network prime
time programming and Kids' WB!. In addition, the station's syndicated
programming currently includes Full House, Step By Step, The Fresh Prince,
America's Funniest Home Videos and Roseanne. The station has contracted for the
future exclusive market broadcast rights to popular shows such as Star Trek:
Voyager (9/99), Caroline in the City (9/99) and Spin City (9/00). After only two
months of broadcast time, KWBQ entered its first major sweeps period in May
1999. From sign-on to sign-off, KWBQ reached an average of 41,000 households, or
7% of the total designated market area. However, in the Albuquerque - Santa Fe
metropolitan service area, KWBQ reached 13% of the households.
Shortly after the completion of this offering, we will acquire KASY serving
the Albuquerque - Santa Fe market from Ramar. KASY is currently a UPN affiliated
station. Concurrent with our purchase of KASY, we will sell the KWBQ broadcast
license to Ramar. At the closing, Ramar will grant Montecito an option to
purchase KWBQ for an exercise price of $100,000. We anticipate that Montecito
will assign the option to us immediately after the closing of the sale of KWBQ.
Under the KASY purchase agreement we are required to close the transaction by
August 13, 1999. We expect to enter into an amendment with Ramar, pursuant to
which we will deposit an additional $1.0 million into escrow and extend the
closing deadline under the KASY purchase agreement until either the closing date
of this offering or January 31, 2000, as Ramar determines. If the closing occurs
after October 31, 1999, we will pay Ramar approximately $550,000 plus additional
costs based on the number of days which elapse between October 31, 1999 and the
closing date. We will continue to operate KWBQ as a WB Network affiliate under a
separate local marketing agreement with Ramar, therefore allowing us to manage
two stations in the market. We plan to aggressively cross-promote the two
stations and operate them in a single facility.
39
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Albuquerque - Santa Fe
designated market area:
[Enlarge/Download Table]
SIGN-ON/ SIGN-OFF: MON - SUN 7AM - 1AM
---------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/-SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ----------------- -------------------
ACME................... KWBQ - 19 WB 0 0
Belo Corporation....... KASA - 2 FOX 10 +1
Hubbard Broadcasting... KOB(1) - 4 NBC 16 -3
Lee Enterprises........ KRQE(1) - 13 CBS 7 +1
Pulitzer
Broadcasting......... KOAT(1) - 7 ABC 12 0
Ramar Communications... KASY(1) - 50 UPN 2 -1
Univision Television
Group................ KLUZ - 41 UNI 4 +1
-------------------------
(1) The ratings reported by Nielsen for this station include information for
total satellite stations. These satellite stations are fully licensed for
broadcasting on a regular channel assignment but they carry only programming
which duplicates entirely the programming and commercial content of a parent
station. Nielsen viewing credit is generally given to the total satellite
station.
WBDT: DAYTON, OHIO
[Download Table]
Designated Market Area: 54 TV Households: 504,000
Total Age 2+ Population: 1,268,000
Market Description. Thirty-three percent of the total population of Dayton,
Ohio is under 25 years of age. The estimated average household income in the
Dayton market is approximately $43,000 per year. Major employers in the market
include Chrysler Corp/ Acustar Inc., General Motors, Bank One Dayton, American
Matsushita and BF Goodrich. The television advertising revenue in the Dayton
marketplace was estimated at $88.4 million in 1998 and has grown at a compound
annual rate of approximately 5.9% over the past five years.
Station Overview. We acquired WBDT in June 1999 after the May 1999 sweeps
period. WBDT signed on the air in October 1980 and has been affiliated with The
WB Network since our acquisition of the station. WBDT, former Pax Net station,
currently carries a combination of Pax Net and WB Network programming. Pax Net
programming including Dr. Quinn, Diagnosis Murder and Touched by an Angel is
shown during the morning and prime access time periods. The WB Network prime
time programming and Kids' WB! is shown at The WB Network scheduled times. In
addition, the station has contracted for the future exclusive market broadcast
rights to popular shows such as Full House (9/99), Family Matters (9/99), Fresh
Prince (9/99), America's Funniest Home Videos (9/99), Sabrina (9/00), Clueless
(9/00) and Everybody Loves Raymond (9/01). We believe that our programming
changes, in particular the airing of The WB Network and new syndicated programs,
will improve WBDT's ratings.
40
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Dayton designated market
area, prior to our purchase of WBDT (formerly WDPX).
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
Cox Broadcasting....... WHIO - 7 CBS 16 +1
Glencairn Ltd.......... WRGT - 45 FOX 10 +1
Paxson
Communications....... WDPX - 26 PAX 1 +1
Sinclair Broadcast..... WKEF - 22 NBC 12 0
STC Broadcasting....... WDTN - 2 ABC 11 -1
Trinity Broadcasting
Network.............. WKOI - 43 Ind. 0 0
WBXX: KNOXVILLE, TENNESSEE
[Download Table]
Designated Market Area: 63 TV Households: 447,000
Total Age 2+ Population: 1,098,000
Market Description. Thirty-one percent of the total population of Knoxville
is under 25 years of age. The estimated average household income in the
Knoxville market is approximately $37,000 per year. Major employers in the
market include the University of Tennessee, TVA, Oakridge National Laboratories,
Alcoa and Nippondenso. The television advertising revenue in the Knoxville
marketplace was estimated at $68.0 million in 1998 and has grown at a compound
annual rate of approximately 7.9% over the past five years.
Station Overview. We launched WBXX in October 1997. In addition to carrying
The WB Network prime time programming and Kids' WB!, the station has broadcast
rights to air games of the Atlanta Braves. In addition, the station's syndicated
programming currently includes Friends, Sister Sister, Full House and Cheers.
The station has contracted for the future exclusive market broadcast rights to
popular shows such as The Drew Carey Show (9/99), Caroline in the City (9/99),
Sabrina (9/00), Spin City (9/00) and Suddenly Susan (9/00). In the May 1999
sweeps period, WBXX delivered an average weekly cumulative number of 135,000
households from sign-on to sign-off, an increase of 3,000 households compared to
May 1998. From May 1998 to May 1999, WBXX was the only station in the market to
increase its average weekly number of households.
In April 1999, we entered into a ten year joint services agreement with
Paxson Communications under which we provide certain sales and operational
services to WPXK, serving the Knoxville, Tennessee market. Through April 2009,
WPXK will carry solely the Pax Net supplied programming and we will share
equally with Paxson Communications the excess of station revenues over certain
operating expenses.
41
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Knoxville designated
market area:
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
ACME................... WBXX - 20 WB 5 0
Gannett................ WBIR - 10 NBC 16 -4
Gray Communications.... WVLT - 8 CBS 7 -2
Raycom Media........... WTNZ - 43 FOX 6 -2
Young Broadcasting..... WATE - 6 ABC 13 +4
Paxson
Communications....... WPXK - 54 PAX 0 0
WIWB: GREEN BAY - APPLETON, WISCONSIN
[Download Table]
Designated Market Area: 69 TV Households: 385,000
Total Age 2+ Population: 982,000
Market Description. Thirty-four percent of the total population of Green
Bay - Appleton is under 25 years of age. The estimated average household income
in the Green Bay - Appleton market is approximately $41,000 per year. Major
employers in the market include Fort James Corporation, the Oneida Tribe of
Indians of Wisconsin, Schneider National, Humana, Shopko Stores, American
Medical Security, Bellin Memorial Hospital and Procter & Gamble Paper Products.
The television advertising revenue in the Green Bay - Appleton marketplace was
estimated at $53.9 million in 1998 and has grown at a compound annual rate of
approximately 7.4% over the past five years.
Station Overview. We acquired WIWB in June 1999 after the May 1999 sweeps
period. WIWB signed on the air in August 1998 and has been affiliated with The
WB Network since our acquisition of the station. WIWB, a former Pax Net station,
currently carries a combination of Pax Net and WB Network programming. Pax Net
programming including Dr. Quinn, Diagnosis Murder and Touched by an Angel is
shown during the morning and prime access time periods. The WB Network prime
time and Kids' WB! is shown at The WB Network scheduled times. The station has
contracted for the future exclusive market broadcast rights to popular shows
such as Step by Step (9/99), Fresh Prince (9/99), Jerry Springer (9/99), Sabrina
(9/00), Clueless (9/00), Suddenly Susan (9/00), Jamie Foxx (9/00) and Everybody
Loves Raymond (9/01). We believe that our programming changes, in particular the
airing of the WB Network programming and new syndicated programs, will improve
WIWB's ratings.
42
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Green Bay - Appleton
designated market area, prior to our purchase of WIWB (formerly WPXG).
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
Ace TV................. WACY - 32 UPN 4 -2
Aires
Telecommunications... WGBA - 26 NBC 16 -2
CBS.................... WFRV - 5 CBS 8 -3
SF Broadcasting........ WLUK - 11 FOX 12 +1
Paxson
Communications....... WPXG - 14 PAX 1 +1
Young Broadcasting..... WBAY - 2 ABC 15 -1
WBUI: CHAMPAIGN - SPRINGFIELD - DECATUR, ILLINOIS
[Download Table]
Designated Market Area: 82 TV Households: 335,000
Total Age 2+ Population: 814,000
Market Description. Thirty-three percent of the total population of
Champaign - Springfield - Decatur is under 25 years of age. The estimated
average household income in the Champaign - Springfield - Decatur market is
approximately $42,000 per year. Major employers in the market include ADM,
Staley's, Caterpillar, Mueller, Illinois Power, Kraft and the University of
Illinois. The television advertising revenue in the Champaign - Springfield -
Decatur marketplace was estimated at $42.7 million in 1998 and has grown at a
compound annual rate of approximately 6.6% over the past five years.
Station Overview. We acquired WBUI in June 1999 after the May 1999 sweeps
period. WBUI signed on the air in May 1984 and has been affiliated with The WB
Network since our acquisition of the station. WBUI, a former Pax Net station,
currently carries a combination of Pax Net and WB Network programming. Pax Net
programming including Dr. Quinn, Diagnosis Murder and Touched by an Angel is
shown during the morning and prime access time periods. WB Network prime time
and Kids' WB! is shown at The WB Network scheduled times. The station has
contracted for the future exclusive market broadcast rights to popular shows
such as Full House (9/99), Star Trek: Voyager (9/99), Fresh Prince (9/99),
Entertainment Tonight (9/99), Sabrina (9/00), Suddenly Susan (9/00), Spin City
(9/00) and Clueless (9/00). We believe that our programming changes, in
particular the airing of The WB Network and new syndicated programs, will
improve WBUI's ratings.
43
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the
Champaign - Springfield - Decatur designated market area, prior to our purchase
of WBUI (formerly WPXU).
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
---------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ------------------ ------------------
Bahakel
Communications..... WRSP(1) - 55 FOX 11 +3
Gannett.............. WICS(1) - 20 NBC 20 -3
LIN Television....... WAND - 17 ABC 12 0
Midwest Television... WCIA(1) - 3 CBS 11 -2
Paxson
Communications..... WPXU - 23 PAX 1 +1
-------------------------
(1) The ratings reported by Nielsen for this station include information for
total satellite stations. These satellite stations are fully licensed for
broadcasting on a regular channel assignment but they carry only programming
which duplicates entirely the programming and commercial content of a parent
station. Nielsen viewing credit is generally given to the total satellite
station.
WTVK: FT. MYERS - NAPLES, FLORIDA
[Download Table]
Designated Market Area: 83 TV Households: 330,000
Total Age 2+ Population: 782,000
Market Description. Twenty-five percent of the total population of Ft.
Myers - Naples is under 25 years of age. The estimated average household income
in the Ft. Myers - Naples market is approximately $45,000 per year. Major
employers in the market include The Lee County School District, Lee Memorial
Health System, Columbia Healthcare and Publix SuperMarkets. The television
advertising revenue in the Ft. Myers - Naples marketplace was estimated at $56.2
million in 1998 and has grown at a compound annual rate of approximately 7.4%
over the past five years.
Station Overview. We began operating WTVK in March 1998 under a local
marketing agreement and acquired the station in June 1998. WTVK signed on the
air in October 1990 and has been affiliated with The WB Network since our
acquisition of the station. In addition to carrying The WB Network prime time
programming and Kids' WB!, the station's syndicated programming currently
includes Sister Sister, The Nanny, Mad About You, NewsRadio, X-Files and
Stargate. The station has contracted for the future exclusive market broadcast
rights to popular shows such as Star Trek: Voyager (9/99), Drew Carey (9/99),
Sabrina (9/00), Suddenly Susan (9/00), Spin City (9/00) and Caroline in the City
(9/00). In the May 1999 sweeps period WTVK delivered a two household share from
sign-on to sign-off for the third consecutive sweeps period. WTVK delivered an
average weekly household cumulative number of 76,000 in May 1999, an increase of
3,000 households since May 1998. WTVK has increased its share of the teen
audience significantly Monday through Wednesday 8pm to 10pm. In May 1999, WTVK
held an 18 share of the teen audience making it the number one station in the
time period in that demographic.
44
Competition. The following table outlines summary information regarding the
commercially-rated broadcast television stations in the Ft. Myers - Naples
designated market area:
[Enlarge/Download Table]
SIGN-ON/SIGN-OFF: MON - SUN 7AM - 1AM
-------------------------------------
CALL LETTERS - MAY '99 SHARE OF +/- SHARE POINTS
OWNER CHANNEL AFFILIATION PERSONS 12 - 34 MAY '99 VS MAY '98
----- -------------- ----------- ---------------- ------------------
ACME................... WTVK - 46 WB 3 +1
Calusa Television...... WEVU - 7 UPN 0 0
Emmis Communications... WFTX - 36 FOX 13 0
Ft. Myers
Broadcasting......... WINK - 11 CBS 11 +1
Montclair
Communications....... WZVN - 26 ABC 6 -3
Waterman Broadcasting.. WBBH - 20 NBC 14 -3
West Coast Christian
TV................... WRXY - 49 Ind. 0 0
WZPX: GRAND RAPIDS, MICHIGAN
In addition to the nine stations described above, in April 1999, we entered
into a joint sales agreement with DP Media for WZPX, serving the Grand Rapids,
Michigan market. WZPX is a primary affiliate of Pax Net. In connection with this
agreement, WZPX will enter into a secondary affiliation agreement with The WB
Network for five years. Under our joint sales agreement, we sell certain
advertising time for WZPX, and as compensation, we retain a portion of the
excess of station revenues over station operating expenses, if any. DP Media has
the right to sell the station to us at any time during the next four years for
$30.0 million. We have limited rights to acquire the station for that same
amount if DP Media chooses to sell the station.
OUR AFFILIATION AGREEMENTS
Each of our stations has entered into a station affiliation agreement with
The WB Network that provides each station with the exclusive right to broadcast
The WB Network programming in its respective market. These affiliate agreements
generally have three to ten year terms.
Under the affiliation agreements, The WB Network retains the right to
program and sell approximately 75% of the advertising time available during The
WB Network prime time schedule with the remaining 25% available for sale by our
stations. The WB Network retains approximately 50% of the advertising time
available during Kids' WB! programs aired in other dayparts.
In addition to the advertising time retained for sale by The WB Network,
each station is also required to pay annual compensation to The WB Network. The
amount of compensation is determined by taking into account the station's
average ratings among adults ages 18 - 49 during The WB Network prime time
programming, as well as the number of prime time programming hours provided per
week by The WB Network. Pursuant to the affiliation agreements, we participate
in cooperative marketing efforts with The WB Network whereby the network
reimburses up to 50% of certain approved advertising expenditures by a station
to promote network programming. The affiliation agreements, with the exception
of the Ft. Myers agreement, also entitle the stations to the most favorable
terms agreed to by The WB Network and any affiliate, except for superstation
WGN, during the term of the affiliation agreements, and any subsequent
modifications.
In addition, as part of our acquisition of WBDT, WIWB and WBIU, we entered
into a five-year secondary affiliation agreement with Pax Net at these stations.
We are generally
45
obligated to run the Pax Net prime time programming in certain morning dayparts.
We retain national spot and local advertising time during this programming, and
Pax Net retains network national advertising time.
ADVERTISING/SALES
Virtually all of our revenues for 1997 and 1998 and the first three months
of 1999 consisted of advertising revenues, and no single advertiser accounted
for more than 10% of our gross advertising revenues in these periods. Our
advertising revenues are generated both by local advertising and national spot
advertising.
Local Advertising. Local advertising revenues are generated by both local
merchants and service providers and by regional and national businesses and
advertising agencies located in a particular designated market area. Local
advertising revenues represented 52% of our net advertising revenues in 1997,
53% in 1998 and 53% in the first quarter of 1999.
National Spot Advertising. National spot advertising represents time sold
to national and regional advertisers based outside a station's designated market
area. National spot advertising revenues represented 48% of our net advertising
revenues in 1997, 47% in 1998 and 47% in the first three months of 1999.
National spot advertising primarily comes from:
- new advertisers wishing to test a market;
- advertisers who are regional retailers and manufacturers without national
distribution;
- advertisers who need to enhance network advertising in given markets; and
- advertisers wishing to place more advertisements in specified geographic
areas.
OUR COMPETITION
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations in their respective markets and, to a
lesser but an increasing extent, with radio stations, cable television system
operators, newspapers, outdoor (i.e. billboard) companies, direct mail and
internet sites. Traditional network and Fox programming generally achieves
higher household audience levels than that of The WB Network and syndicated
programming aired by independent stations which is attributable to a number of
factors, including:
- the traditional networks' efforts to reach a broader audience;
- historically, less competition;
- generally better channel positions;
- more network programming being broadcast weekly;
- the traditional networks' cross-promotions; and
- the traditional networks' more established market presence than The WB
Network.
However, because more advertising time is available for local station sale
during The WB Network programs and non-network syndicated programs, our programs
achieve a share of television market advertising revenues greater than their
share of the market's audience. We believe that this available advertising time,
combined with our efforts to attract audiences with our programming which are
key targets of advertisers and our focus on advertising sales allows us to
compete effectively for advertising revenues within our stations' markets.
46
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have a
material adverse effect on a television station's operations and profits.
Sources of video service other than conventional television stations, the most
common being cable television, can increase competition for a broadcast
television station by bringing distant broadcasting signals not otherwise
available to the station's audience, serving as a distribution system for
national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling advertising time to local advertisers.
Other principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television ("DBS") entertainment services and
multichannel multipoint distribution services ("MMDS"). Currently, two FCC
permitees, DirecTV and Echostar provide subscription DBS services via high-power
communications satellites and small dish receivers, and other companies provide
direct-to-home video service using lower powered satellites and larger
receivers. Other technology advances and regulatory changes affecting
programming delivery through fiber optic telephone lines and video compression
could lower entry barriers for new video channels and encourage the development
of increasingly specialized "niche" programming. The Telecommunications Act of
1996, which amended the Communications Act of 1934, permits telephone companies
to provide video distribution services via radio communication, on a common
carrier basis, as "cable systems" or as "open video systems," each pursuant to
different regulatory schemes. We are unable to predict the effect that these and
other technological and regulatory changes will have on the broadcast television
industry and on the future profitability and value of a particular broadcast
television station.
Broadcast television stations compete with other television stations in
their designated market areas for the acquisition of programming. Generally,
cable systems do not compete with local stations for programming, but various
national cable networks do from time to time and on an increasing basis acquire
programming that could have been offered to local television stations. Public
broadcasting stations generally compete with commercially-rated broadcasters for
viewers, but do not compete for advertising revenues. Historically, the cost of
programming has increased because of an increase in the number of independent
stations and a shortage of quality programming.
FEDERAL REGULATION OF TELEVISION BROADCASTING
Introduction. Television broadcasting is a regulated industry and is
subject to the jurisdiction of the FCC under the Communications Act of 1934, as
amended from time to time. The Communications Act prohibits the operation of
television broadcasting stations except under a license issued by the FCC. The
Communications Act empowers the FCC, among other things, to issue, revoke and
modify broadcast licenses, decide whether to approve a change of ownership or
control of station licenses, regulate the equipment used by stations, and adopt
and implement regulations to carry out the provisions of the Communications Act.
Failure to observe FCC or other governmental rules and policies can result in
the imposition of various sanctions, including monetary forfeitures, the grant
of "short" (less than maximum) license renewal terms or, for a particularly
egregious violations, the denial of a license renewal application, the
revocation of a license or denial of FCC consent to acquire additional broadcast
properties.
License Grant, Renewal, Transfer and Assignment. A party must obtain a
construction permit from the FCC in order to build a new television station.
Once a station is constructed and commences broadcast operations, the permittee
will receive a license which must be renewed by the FCC at the end of each
license term. On January 24, 1997, pursuant to the
47
Telecommunications Act of 1996 (which in turn amended the Communications Act),
the FCC increased the original terms of such licenses and their renewal to eight
years. The Telecommunications Act directs the FCC to grant renewal of a
broadcast license if it finds that the station has served the public interest,
convenience, and necessity and that there have been no serious violations (or
other violations which would constitute a "pattern of abuse") by the licensee of
the Communications Act or FCC rules and policies. If the FCC finds that a
licensee has failed to meet these standards, and there are no sufficient
mitigating factors, the FCC may deny renewal or condition renewal appropriately,
including renewing for less than a full term. Any other party with standing may
petition the FCC to deny a broadcaster's application for renewal. However, only
if the FCC issues an order denying renewal will the FCC accept and consider
applications from other parties for a construction permit for a new station to
operate on the channel subject to such denial. The FCC may not consider any
applicant in making determinations concerning the grant or denial of the
licensee's renewal application. Although renewal of licenses is granted in the
majority of cases even when petitions to deny have been filed, we cannot be sure
that the licenses of our stations will be renewed for a full term or without
modification. Following are the expiration dates of our current licenses:
[Download Table]
STATION EXPIRATION DATE
------- ----------------
KPLR.......................................... February 1, 2006
KWBP.......................................... February 1, 2007
KUWB(1)....................................... October 1, 2006
KWBQ.......................................... October 1, 2006
WBDT.......................................... October 1, 2005
WBXX.......................................... August 1, 2005
WIWB.......................................... December 1, 2005
WBUI.......................................... December 1, 2005
WTVK.......................................... February 1, 2005
-------------------------
(1) We operate KUWB and own KUPX. The expiration date for KUPX and KUWB are the
same. We plan to swap ownership of these stations.
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including compliance with various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership. The reference to
"character" generally refers to the likelihood that the licensee or applicant
will comply with applicable law and regulation; the reference to "attributable"
interests generally refers to the level of ownership or other involvement in
station operations which would result in the FCC attributing ownership of that
station or other media outlet to the person or entity in determining compliance
with FCC ownership limitations.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, an appropriate application must be filed with
the FCC. If the application involves a "substantial change" in ownership or
control, the application must be placed on public notice for a period of no less
than 30 days during which petitions to deny the application may be filed by
interested parties, including certain members of the public. If the FCC grants
the application, interested parties have no less than 30 days from the date of
public notice of the grant to seek reconsideration or review of that grant by
the full commission or, as the case may be, a court of competent jurisdiction.
The full FCC commission has an additional 10 days to set aside on its own motion
any action taken by the
48
FCC's staff. When passing on an assignment or transfer application, the FCC is
prohibited from considering whether the public interest might be served by an
assignment or transfer to any party other than the assignee or transferee
specified in the application.
Our reorganization from a limited liability company into a corporation will
be deemed to result in a non-substantial change of ownership. As a result, we
must receive FCC approval before we can complete our reorganization. We have
filed an application with the FCC to obtain the necessary approval.
Ownership Restrictions. The officers, directors and certain equity owners
of a company holding one or more broadcast licenses are deemed to have
"attributable interests" in the broadcast company. In the case of a C
corporation, ownership is generally attributed to officers, directors and equity
holders who own directly or indirectly 5% or more of the company's outstanding
voting stock except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. Certain specified institutional investors,
including mutual funds, insurance companies and banks acting in a fiduciary
capacity, may own up to 10% of the outstanding voting stock without being
subject to attribution, provided that such equity holders exercise no control
over the management or policies of the broadcast company.
Under current FCC rules, a license to operate a television station will not
be granted (unless established waiver standards are met) to any party (or
parties under common control) that has an attributable interest in another
television station with an overlapping service contour (the "Duopoly Rule"). FCC
regulations also prohibit one owner from having attributable interests in
television broadcast stations that reach in the aggregate more than 35% of the
nation's television households. For purposes of this calculation, stations in
the UHF band (channels 14 - 69) are attributed with only 50% of the households
attributed to stations in the VHF band (channels 2 - 13). The rules further
prohibit (with certain qualifications and subject to waiver standards) the
holder of an attributable interest in a television station from also having an
attributable interest in a radio station, daily newspaper or cable television
system serving a community located within the relevant coverage area of that
television station. Separately, the FCC's "cross-interest" policy may, in
certain circumstances, prohibit the common ownership of an attributable interest
in one media outlet and a non-attributable equity interest in another media
outlet, among other significant interests, in the same market. In pending
rulemaking proceedings, the FCC is considering, among other possible changes,
(1) the modification of its attribution rules and the "cross-interest" policy,
and (2) the relaxation of Duopoly Rule.
In those proceedings, the FCC also sought comment on whether the FCC should
modify its attribution rules by (1) raising the attribution stock benchmark from
5% to 10%; (2) raising the attribution stock benchmark for passive investors
from 10% to 20%; (3) restricting the availability of the single majority
shareholder exemption; and (4) attributing certain interests such as non-voting
stock, debt instruments and certain holdings by limited liability corporations
in certain circumstances. More recently, the FCC has solicited comment on
proposed rules that would (1) treat an otherwise nonattributable equity or debt
interest in a licensee as an attributable interest where the interest holder is
a program supplier or the owner of a broadcast station in the same market and
the equity and/or debt holding is greater than a specified benchmark; (2) in
certain circumstances, treat the licensee of a broadcast station that sells
advertising time on another station in the same market pursuant to a joint
service agreement as having an attributable interest in the station whose
advertising is being sold; and (3) change the standard for defining a television
market and allow a party to hold an attributable interest in more than one
television station in the market.
49
Restrictions on Foreign Ownership. The Communications Act prohibits the
issuance of broadcast licenses to, or the holding of a broadcast license by, any
corporation of which more than 20% of the capital stock is owned of record or
voted by non-U.S. citizens or their representatives or by a foreign government
or a representative thereof, or by any corporation organized under the laws of a
foreign country, collectively, aliens. The Communications Act also authorizes
the FCC, if the FCC determines that it would be in the public interest, to
prohibit the issuance of a broadcast license to, or the holding of a broadcast
license by, any corporation directly or indirectly controlled by any other
corporation of which more than 25% of the capital stock is owned of record or
voted by aliens. The FCC staff has interpreted this provision to require finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. The FCC has interpreted
these restrictions to apply to other forms of business organizations, including
partnerships. As a result of these provisions the licenses granted to our
subsidiaries which hold FCC licenses could be revoked if, among other
restrictions imposed by the FCC, more than 25% of our stock were directly or
indirectly owned or voted by aliens. Our certificate of incorporation contains
limitations on alien ownership and control that are substantially similar to
those contained in the Communications Act. Pursuant to the Certificate of
Incorporation, the Company has the right to refuse to sell shares to aliens or
to repurchase alien-owned shares at their fair market value to the extent
necessary, in the judgment of the Board of Directors, to comply with the alien
ownership restrictions.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest, convenience and necessity." The FCC has gradually
restricted or eliminated many of the more formalized procedures it had developed
in the past to promote the broadcast of certain types of programming responsive
to the needs of the station's community of license. Licensees continue to be
required, however, to present programming that is responsive to community
problems, needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from listeners concerning a station's programming
will be considered by the FCC when it evaluates the licensee's renewal
application, but such complaints may be filed and considered at any time.
Stations must also pay regulatory and application fees and follow various
FCC rules that regulate, among other things, political advertising, children's
programming, the broadcast of obscene or indecent programming, sponsorship
identification, and technical operations and equal employment opportunity
requirements.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the maximum) renewal terms, or for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
Review of "Must-Carry" Rules. FCC regulations implementing the Cable
Television Consumer Protection and Competition Act of 1992 require each
television broadcaster to elect, at three year intervals beginning October 1,
1993, to either (i) require carriage of its signal by cable systems in the
station's market ("must carry") or (ii) negotiate the terms on which such
broadcast station would permit transmission of its signal by the cable systems
within its market ("retransmission consent"). The United States Supreme Court
upheld the must-carry rules in a 1997 decision. These must carry rights are not
absolute, and their exercise is dependent on a variety of factors such as the
number of active channels on the cable system, the location and size of the
cable system and the amount of programming on a broadcast station that
duplicates the programming of another broadcast station carried by the cable
system. Therefore under certain circumstance, a cable system may choose to
50
decline to carry a given station. We have elected must carry with respect to
each of our stations which are each carried on the related cable system.
Local Marketing Agreements. We have, from time to time, entered into local
marketing agreements, generally in connection with pending station acquisitions.
By using local marketing agreements, we gain the ability to provide programming
and other services to a station proposed to be acquired before and pending
receipt of all applicable FCC and other governmental approvals with respect to
the transfer of control of the station licensee or assignment of the applicable
station license.
FCC rules and policies generally permit local marketing agreements if the
station licensee retains ultimate responsibility for and control of the
applicable station, including finances, personnel, programming and compliance
with the FCC's rules and policies. We cannot be sure that we will be able to air
all of our scheduled programming on a station with which we have local marketing
agreements, or that in such event, we will receive the anticipated revenue from
the sale of advertising for such programming.
At present, the licensee of a television station providing programming on
another television station pursuant to a local marketing agreement is not
considered to have an attributable interest in the other station. However, in
connection with its ongoing rulemaking proceeding regarding the television
Duopoly Rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which provides programming for more than 15% of the time on
another television station serving the same market would be deemed to have an
attributable interest in the latter station for purposes of the national and
local multiple ownership rules. In its pending rulemaking proceeding regarding
the television Duopoly Rule, the FCC has proposed to adopt a grandfathering
policy providing that, in the event that television local marketing agreements
become attributable interests, local marketing agreements that are in compliance
with existing FCC rules and policies and were entered into before November 5,
1996 would be permitted to continue in force until the original term of the
local marketing agreement expires. Under the FCC's proposal, television local
marketing agreements that are entered into, renewed, or assigned after November
5, 1996 would have to be terminated if local marketing agreements are made
attributable interests and the local marketing agreements in question resulted
in a violation of the television multiple ownership rules.
The Duopoly Rule currently prevents us from acquiring the licenses of
television stations in those markets where we already own a television station.
As a result, if the FCC were to decide that the provider of programming services
under a television local marketing agreements should be treated as having an
attributable interest in the station receiving the programming, and if it did
not relax its television Duopoly Rule, we could be required to modify or
terminate those of our local marketing agreements in markets where we already
own a station, as none were in existence on the date of enactment of the
Telecommunications Act or on November 5, 1996.
Digital Television Services. The FCC has adopted rules for implementing DTV
service in the United States. Implementation of DTV will improve the technical
quality of television signals and will provide broadcasters the flexibility to
offer new services, including high-definition television ("HDTV") and data
broadcasting.
The FCC has established service rules and adopted a Table of Allotments for
DTV. Under the Table, all eligible broadcasters with a full-power television
station are allocated a separate channel for DTV operation. Stations will be
permitted to phase in their DTV operations over a period of years following the
adoption of a final table of allotments, after which they will be required to
surrender their license to broadcast the analog, or non-DTV, signal. Affiliates
of the top four networks in the top ten markets are already required to be on
the air with a
51
digital signal. Affiliates of the top four networks in the next twenty largest
markets must be on the air with a digital signal by November 1, 1999. Our
stations must be on the air with a digital signal by May 1, 2002. Under
applicable law and regulation, television broadcasters must return of their
analog license to the government by 2006 (unless certain specified conditions
exist, which in effect, affect the public's limited access to DTV transmissions
in a particular market.
The Communications Act and the FCC's rules impose certain conditions on the
FCC's implementation of DTV service. Among other requirements, the FCC must:
- limit the initial eligibility for licenses to existing television
broadcast licensees or permittees;
- allow DTV licensees to offer ancillary and supplementary services; and
- charge appropriate fees to broadcasters that supply ancillary and
supplementary services for which such broadcasters derive certain
nonadvertising revenues.
Equipment and other costs associated with the DTV transition, including the
necessity of temporary dual-mode operations, will impose some near-term
financial costs on television stations providing the services. The potential
also exists for new sources of revenue to be derived from DTV. We cannot predict
the overall effect the transition to DTV might have on our business.
Children's Television Act. FCC rules limit the amount of commercial matter
that a television station may broadcast during programming directed primarily at
children 12 years old and younger. FCC rules further require television stations
to serve the educational and informational needs of children 16 years old and
younger through the stations' own programming as well as through other means.
Television broadcasters must file periodic reports with the FCC to document
their compliance with foregoing obligations.
Other Pending FCC and Legislative Proceedings. In 1995, the FCC issued
notices of proposed rulemaking proposing to modify or eliminate most of its
remaining rules governing the broadcast network-affiliate relationship. The
network-affiliate rules were originally intended to limit networks' ability to
control programming aired by affiliates or to set station advertising rates and
to reduce barriers to entry by networks. The dual network rule, which generally
prevents a single entity from owning more than one broadcast television network,
is among the rules under consideration in these proceedings. However, the
Telecommunications Act substantially relaxed the dual network rule by providing
that an entity may own more than one television network; however, no two
national television networks in existence on February 8, 1996 may merge or be
acquired by the same party. We are unable to predict how or when the FCC
proceeding will be resolved or how those proceedings or the relaxation of the
dual network rule may affect our business.
The Satellite Home Viewer Act ("SHVA") allows satellite carriers to deliver
broadcast programming to subscribers who are unable to obtain television network
programming over the air from local television stations. Congress is currently
considering legislation to amend the SHVA to facilitate the ability of satellite
carriers to provide subscribers with programming from a non-local television
station. We are unable to predict whether any such legislation will be enacted
or what, if any, impact such legislation may have on our company.
The FCC has also initiated a proceeding to reexamine rules which previously
required broadcast licensees to provide equal employment opportunities. The
reexamination was prompted by a court decision which voided the FCC's rules. If
the FCC does adopt new rules governing equal employment opportunities we may
have additional administrative burdens. However, adoption of any new rules will
not affect our continuing obligation to comply with other federal and state laws
concerning equal employment opportunities.
52
Proposals for additional or revised rules are considered by federal
regulatory agencies and Congress from time to time. We are unable to predict the
resolution of these issues or other issues discussed above, although their
outcome could, over a period of time, affect, either adversely or favorable, the
broadcasting industry generally or us specifically.
The foregoing summary of FCC and other governmental regulations is not
intended to be comprehensive. For further information concerning the nature and
extent of federal regulation of broadcast stations, you should refer to the
Communications Act, the Telecommunications Act, other Congressional acts, FCC
rules and the public notices and rulings of the FCC.
EMPLOYEES
At March 31, 1999, we had 237 employees, including 42 at KPLR in St. Louis
who were subject to collective bargaining agreements. We believe that our
relationships with our employees and the unions representing our unionized
employees are good.
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PROPERTIES AND FACILITIES
All of our leased studio, office and tower facilities are leased pursuant
to long-term leases. We believe that all facilities and equipment are adequate,
with minor changes and additions, for conducting operations as presently
contemplated. Set forth below is information with respect to our existing
studios and other facilities. Information as to tower size reflects the height
above average terrain (HAAT) of the antenna radiation center.
[Download Table]
MARKET APPROXIMATE SIZE OWNERSHIP
------ ---------------- ---------
St. Louis, Missouri
Studio and office facilities(1).................. 36,000 sq. ft. Owned
Tower............................................ 1,011 ft. Leased
Portland, Oregon
Studio and office facilities..................... 15,255 sq. ft. Owned
Tower............................................ 1,785 ft. Leased
Knoxville, Tennessee
Studio and office facilities..................... 8,000 sq. ft. Leased
Tower............................................ 2,399 ft. Leased
Salt Lake City, Utah
Studio and office facilities..................... 9,500 sq. ft. Leased
Tower............................................ 3,839 ft. Leased
Tower(2)......................................... 2,779 ft. Leased
Ft. Myers - Naples, Florida
Studio and office facilities..................... 5,000 sq. ft. Leased
Tower............................................ 1,000 ft. Leased
Albuquerque - Santa Fe, New Mexico
Studio and office facilities..................... 9,000 sq. ft. Owned
Tower............................................ 1,234 ft. Leased
Dayton, Ohio
Studio and office facilities..................... 14,150 sq. ft Owned
Tower............................................ 485 ft. Owned
Green Bay - Appleton, Wisconsin
Studio and office facilities..................... 2,640 sq. ft. Leased
Tower............................................ 682 ft. Leased
Champaign - Springfield - Decatur, Illinois
Studio and office facilities..................... 9,600 sq. ft. Owned
Tower............................................ 1,046 ft. Owned
-------------------------
(1) Excludes 30,000 square feet of apartment space located above the studio and
office facilities.
(2) Station owned but not operated by us. We sublease this tower from Paxson
Communications.
LEGAL PROCEEDINGS
We are currently and from time to time involved in litigation incidental to
the conduct of our business. We maintain comprehensive general liability and
other insurance which we believe to be adequate for the purpose. We are not
currently a party to any lawsuit or proceeding that we believe would have a
material adverse effect on our financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers and
directors as of July 30, 1999.
[Download Table]
NAME AGE POSITION
---- --- --------
Jamie Kellner...... 51 Chairman of the Board and Chief Executive Officer
Doug Gealy......... 39 President, Chief Operating Officer and Director
Tom Allen.......... 46 Executive Vice President, Chief Financial Officer
and Director
Edward Danduran.... 46 Vice President, Controller
James Collis....... 36 Director
Thomas Embrescia... 53 Director
Brian McNeill...... 43 Director
Michael Roberts.... 50 Director
Darryl Schall...... 38 Director
Jamie Kellner is a founder of ACME and has served as our Chief Executive
Officer and Chairman of the Board since 1997. Mr. Kellner is also a founder,
Chief Executive Officer and partner of The WB Network since 1993. Previously,
Mr. Kellner was President of Fox Broadcasting Company since its inception in
1986 to 1993. He currently serves on the board of directors of NELVANA LTD., a
Canadian company internationally recognized for its children's and family
programming, worldwide distribution and merchandise licensing.
Doug Gealy is a founder of ACME and has served as our President and Chief
Operating Officer and as a member of our Board since 1997. Since December of
1996, Mr. Gealy has been involved in development activities for ACME. Before
founding ACME, Mr. Gealy served for one year as Executive Vice President of
Benedek Broadcasting Corporation. From 1991 to 1996, Mr. Gealy was a Vice
President and General Manager of WCMH and its local marketing agreement, WWHO,
both in Columbus, Ohio, and following the acquisition of these stations by NBC,
served as President and General Manager of these stations.
Tom Allen is a founder of ACME and has served as our Executive Vice
President and Chief Financial Officer and as a member of our Board since 1997.
Since June 1996, Mr. Allen has been involved in development activities for ACME.
From August 1993 to May 1996, Mr. Allen was the Chief Operating Officer and
Chief Financial Officer for Virgin Interactive Entertainment. Before that Mr.
Allen served as the Chief Financial Officer of the Fox Broadcasting Company from
1986 to 1993.
Edward Danduran has been our Vice President and Controller since July 1997.
From November 1995 until April 1997, Mr. Danduran was a Financial Consultant for
Virgin Interactive Entertainment, Inc. From 1989 to 1995, Mr. Danduran was the
Chief Financial Officer of Phoneby, a business communications company.
James Collis has served as a member of our Board since July 1999. Mr.
Collis is an Executive Vice President of CEA Management Corp., a corporation
formed to manage CEA Capital Partners USA, L.P. and CEA Capital Partners USA CI,
L.P. Mr. Collis has served in this role since 1997. Prior to joining CEA
Management Corp., Mr. Collis was a Vice President of The Chase Manhattan Bank.
Mr. Collis has been an investor in the media and communications industry for
nine years and serves on the board of directors for numerous private media and
communication companies.
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Thomas Embrescia has served as a member of our Board since we acquired WTVK
from Second Generation Television, Inc. in June 1998. Mr. Embrescia is the
Chairman and principal investor of Second Generation Television, a company he
formed in 1993. In addition, he also serves as chairman or Chief Executive
Officer and is a principal investor in several other media and marketing related
businesses. Mr. Embrescia has over 31 years of experience in the broadcasting
and media industry.
Brian McNeill has served as a member of our Board since July 1999. Since
1986, Mr. McNeill has been a general partner of Burr, Egan, Deleage & Co., a
major private equity firm which specializes in investments in the communications
and technology industries. He has served as a director in many private radio and
television broadcasting companies such as Tichenor Media Systems, OmniAmerica
Group, Panache Broadcasting and Shockley Communications. From 1979 to 1986, he
worked at the Bank of Boston where he started and managed the broadcast lending
group.
Michael Roberts has served as a member of our Board since April 1999. Mr.
Roberts is a co-founder of Roberts Broadcasting which owns several television
stations in medium-sized markets in the U.S. and has served as its Chairman and
Chief Executive Officer since 1989. Mr. Roberts is also the founder of companies
active in commercial real estate development, construction program management
and corporate management consulting.
Darryl Schall has served as a member of our Board since July 1999. Mr.
Schall has been a Senior Vice President of Trust Company of the West since
November 1995. Mr. Schall was Director of Research at Crescent Capital
Corporation from July 1994 until its acquisition by Trust Company of the West in
1995.
Shortly before or after the closing of this offering, we expect to appoint
a ninth director to our Board.
COMMITTEES OF OUR BOARD OF DIRECTORS
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of Messrs. Schall and
Collis. The audit committee will make recommendations to the board of directors
regarding the selection of independent auditors, review the results and scope of
the audit and other services provided by our independent auditors and will
review and evaluate our audit and control functions.
The compensation committee consists of Messrs. Embrescia and McNeill. The
compensation committee makes recommendations regarding our equity compensation
plans and makes decisions concerning salaries and incentive compensation for our
employees.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services
on our board of directors or any committee of our board. However, directors may
be reimbursed for expenses they incur in attending board and committee meetings.
All directors are eligible to participate in our 1999 Stock Incentive Plan.
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EXECUTIVE COMPENSATION
The following table sets forth compensation earned for the years ended
December 31, 1998 and 1997 (year of formation) by our Chief Executive Officer,
and our next three most highly paid executive officers.
SUMMARY COMPENSATION TABLE(1)
[Enlarge/Download Table]
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION(3) COMPENSATION(4)
--------------------------- ---- -------- -------- --------------- ---------------
Jamie Kellner.............. 1998 $175,000(5) $100,000 $ -- $ --
Chairman of the Board and 1997 -- -- -- --
Chief Executive Officer
Doug Gealy................. 1998 300,000 25,000 5,351 93,900
President and Chief 1997 250,000 50,000 -- 2,449
Operating Officer
Tom Allen.................. 1998 300,000 25,000 -- 6,334
Executive Vice President 1997 145,833 50,000 105,000 2,171
and Chief Financial
Officer
Edward Danduran............ 1998 106,016 20,000 -- 3,000
Vice President,
Controller 1997 67,017 -- -- --
-------------------------
(1) We did not have restricted stock, stock appreciation rights or payouts on
long term incentive compensation plans during the periods covered.
(2) Amounts disclosed in the column reflect payments under the incentive
provisions of employment agreements which are described under "Employment
Agreements and Arrangements."
(3) Amounts disclosed in this column include:
(a) For Mr. Gealy, a company leased automobile; and
(b) For Mr. Allen, a signing bonus that was paid upon the closing of
acquisitions of KPLR, KWPB, WBXX and KWBQ.
(4) Amounts disclosed in this column include:
(a) Our contributions under our 401K Savings Plan, a defined contribution
plan;
(b) Reimbursements of COBRA expenses;
(c) Payments on behalf of the named executives for life insurance; and
(d) For Mr. Gealy, reimbursement of moving expenses in the amount of
$86,251.
(5) For Mr. Kellner, this amount is his consulting fee.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
We have entered into a five-year non-exclusive consulting agreement with
Mr. Kellner which expires June 30, 2002, and five-year full-time exclusive
employment agreements with each of Messrs. Gealy and Allen that expire June 30,
2002. The employment agreements provide for annual compensation reviews by our
compensation committee, with stipulated minimum annual adjustments equal to
increases in the Consumer Price Index. Mr. Kellner's consulting compensation is
set annually on a discretionary basis by the compensation committee.
As of July 30, 1999, Mr. Kellner's annual consulting fee is $175,000. For
the year, beginning January 1, 2000, Mr. Kellner's annual consulting fee will be
$250,000. Mr. Kellner
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is entitled to annual cash bonuses as determined by our compensation committee.
In addition, in January 2000, we will pay Mr. Kellner a $1.2 million cash bonus.
As of July 30, 1999, each of Mr. Gealy's and Mr. Allen's base salary is
$300,000. For the year beginning January 1, 2000, each of Mr. Gealy's and Mr.
Allen's base salary will be $375,000. Mr. Gealy and Mr. Allen are entitled to
annual cash bonuses as determined by our compensation committee. In addition, in
January 2000, we will pay each of Mr. Gealy and Mr. Allen a $900,000 cash bonus.
Mr. Danduran is employed by us pursuant to employment agreement that
expires December 31, 2001. The employment agreement requires Mr. Danduran to
devote substantially all of his business time to our business and precludes Mr.
Danduran from engaging in activities competitive with our business throughout
the term of the employment agreement. As of July 30, 1999, Mr. Danduran's base
salary is $106,016. Mr. Danduran is entitled to an annual cash bonus as
determined by our compensation committee.
1999 STOCK INCENTIVE PLAN
Before this offering, we had long-term incentive compensation plans in
which all general managers and non-founder corporate office executives
participated. The awards generally vested in equal thirds on the third, fourth
and fifth anniversaries of the effective date of the awards. For 1998, we
recorded an expense of $399,000 representing the estimated awards earned during
1998 related to this plan. No amounts are vested and earned portions were
converted to discounted options. See "Certain Specific Awards" below for a
description of the options granted in lieu of these discounted awards.
In August 1999, we adopted our 1999 Stock Incentive Plan to provide an
additional means to attract, motivate, reward and retain key personnel. The plan
gives the administrator the authority to grant different types of stock and cash
incentive awards and to select participants. While only stock options and
restricted stock awards are contemplated at this time, the other forms of awards
that may be granted give us flexibility to structure future incentives. Our
employees, officers, directors, and consultants may be selected to receive
awards under the plan. The following summary is qualified by reference to the
complete plan, which is on file with the SEC.
Share Limits. A maximum of shares of our common stock may be
issued under the plan, or approximately % of our outstanding shares after
giving effect to the public offering. The aggregate number of shares subject to
stock options and stock appreciation rights granted under the plan to any one
person in a calendar year can not exceed shares. The aggregate
number of shares subject to all awards granted under the plan to any one person
in a calendar year cannot exceed shares. Performance-based awards
payable solely in cash that are granted under the plan to any one person in a
calendar year cannot provide for payment of more than $ .
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
Awards. Awards under the plan may be in the form of nonqualified stock
options, incentive stock options, stock appreciation rights (SARs), limited
stock appreciation rights (these are SARs limited to specific events, such as in
a change of control or other special circumstances), restricted stock,
performance shares, stock units, stock bonuses, or cash bonuses based on
performance. Awards may be granted individually or in combination with other
awards. Any cash bonuses and certain types of stock-based performance awards
under
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the plan will depend upon the extent to which performance goals set by the
administrator are met during the performance period.
Awards under the plan generally will be nontransferable, subject to such
exceptions (such as a transfer to a family member or to a trust) as authorized
by the administrator.
Nonqualified stock options and other awards may be granted at prices below
the fair market value of the common stock on the date of grant. Restricted stock
awards can be issued for nominal or the minimum lawful consideration. Incentive
stock options must have an exercise price that is at least equal to the fair
market value of the common stock (110% of fair market value of the common stock
for any owner of more than 10% of our common stock) on the date of grant. These
and other awards may also be issued solely or in part for services.
Administration. The plan will be administered by our board of directors or
a committee of directors appointed by the board. Currently, our board has
delegated general administrative authority over the plan to our compensation
committee.
The administrator of the plan has broad authority to:
- designate recipients of awards;
- determine or modify, subject to any required consent, the terms and
provisions of awards, including the price, vesting provisions, terms of
exercise and expiration dates;
- approve the form of award agreements;
- determine specific objectives and performance criteria with respect to
performance awards;
- construe and interpret the plan; and
- reprice, accelerate and extend the exercisability or term, and establish
the events of termination or reversion of outstanding awards.
Change of Control. Upon a change of control event, each option and stock
appreciation right will become immediately exercisable, restricted stock will
immediately vest free of restrictions, and the number of shares, cash or other
property covered by each performance award will be issued to the holder of the
award, unless our board of directors determines to the contrary. Generally
speaking, a change of control event will be triggered under the plan:
- upon our dissolution or liquidation;
- in connection with certain mergers or consolidations of ACME
Communications, Inc. into or with, or upon a sale of all or substantially
all of our assets to another entity (other than one of our affiliates)
where our stockholders before the transaction own less than 50% of the
surviving entity;
- if a change in ownership of more than 50% of our outstanding common stock
occurs; or
- if a majority of our board of directors changes, other than through
normal appointments and succession, over a period of two years or less.
The administrator of the plan may also provide for alternative settlements
(including cash payments) of awards, the assumption or substitution of awards,
or other adjustments of awards, in connection with a change of control or other
reorganization of ACME Communications, Inc.
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Plan Amendment, Termination and Term. Our board of directors may amend,
suspend or discontinue the plan at any time, but no such action will affect any
outstanding award in any manner materially adverse to a participant without the
consent of the participant. Plan amendments will generally not be submitted to
stockholders for their approval unless such approval is required by applicable
law.
The plan will remain in existence as to all outstanding awards until such
awards are exercised or terminated. The maximum term of options, SARs and other
rights to acquire common stock under the plan is 10 years after the initial date
of award, subject to provisions for further deferred payment in certain
circumstances. No award can be granted after 2009.
Payment for Shares. The exercise price of options or other awards may
generally be paid in cash or, subject to certain restrictions, shares of common
stock. Subject to any applicable limits, we may finance or offset shares to
cover any minimum withholding taxes due in connection with an award.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the plan follow certain basic patterns. Generally,
awards under the plan that are includable in the income of the recipient at the
time of exercise, vesting or payment (such as nonqualified stock options, SARs,
restricted stock and performance awards), are deductible by us, and awards that
are not required to be included in the income of the recipient (such as
incentive stock options) are not deductible by us.
Generally speaking, Section 162(m) of the Internal Revenue Code provides
that a public company may not deduct compensation (except for certain
compensation that is commission or performance-based) paid to its chief
executive officer or to any of its four other highest compensated officers to
the extent that the compensation paid to such person exceeds $1 million in a tax
year. The regulations exclude from these limits compensation that is paid
pursuant to a plan in effect before the time that a company is publicly held. We
expect that compensation paid under the plan will not be subject to Section
162(m) in reliance on this transition rule, as long as such compensation is paid
(or stock options, SARs, and/or restricted stock awards are granted) before the
earlier of a material amendment to the plan or our annual stockholders meeting
in the year 2003.
In addition, we may not be able to deduct certain compensation attributable
to the acceleration of payment and/or vesting of awards in connection with a
change of control event should that compensation exceed certain threshold limits
under Section 280G of the Internal Revenue Code.
Non-Exclusive Plan. The plan is not exclusive. Our board of directors (or
its delegate), under Delaware law, may grant stock and performance incentives or
other compensation, in stock or cash, under other plans or authority.
Certain Specific Awards. Approximately shares are subject to
currently outstanding options, and the balance of shares remain
available for grant purposes.
The shares covered by currently outstanding options represent the 10-year
stock option grants authorized by our compensation committee on ,
1999. Of these outstanding options, options for shares of our common
stock from our discontinued long-term compensation incentive plan have an
exercise price ranging from $ to $ and options to purchase
shares of our common stock have an exercise price equal to the public offering
price set forth on the cover of this Prospectus. Each grant is effective upon
consummation of this offering. Options with respect to our discontinued
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long-term compensation incentive plan vest and all other options vest in
equal installments over years.
We will also grant stock options equal to an aggregate of 12% of our common
stock, after giving effect to this offering to Mr. Kellner,
to Mr. Gealy and to Mr. Allen. The exercise price
will be equal to the price to the public of this offering and will vest in equal
installments over four years, starting from the date of this offering.
In 1998, we established a 401(k) defined contribution plan which covers all
eligible employees. Participants in the 401(k) are allowed to make
nonforfeitable contributions up to 15% of their annual salary, but may not
exceed the annual maximum contribution limitations established by the Internal
Revenue Service. We currently match 50% of the amounts contributed by each
participant but do not match participant's contributions in excess of 6% of
their contribution per pay period. We contributed and expensed $200,000 to the
401(k) in 1998.
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PRINCIPAL STOCKHOLDERS
The following contains information regarding the beneficial ownership of
our common stock for:
- certain holders or groups of related holders who, individually or as a
group, are the beneficial owners of 5% or more of our common stock;
- the executive officers;
- each director who beneficially owns shares of our common stock; and
- our executive officers and directors as a group.
Because our reorganization will not be completed until after the date of
this prospectus, we have calculated the conversion of the limited liability
company membership interests into shares of our common stock assuming that the
mid-point of the range of offering price per share on the cover of this
prospectus will be the actual offering price. Because this table assumes no
exercise of the underwriters' over-allotment options, existing stockholders will
only sell to the extent the option is exercised, the table below does not
reflect any shares they may sell.
[Enlarge/Download Table]
PERCENTAGE OF COMMON
STOCK BENEFICIALLY OWNED(2)(3)
NUMBER --------------------------------------------------------------------
OF SHARES AFTER OFFERING AFTER OFFERING AFTER OFFERING
NAME AND ADDRESS OF BENEFICIALLY BEFORE AT LOWEST POINT AT MID-POINT AT HIGHEST POINT
BENEFICIAL OWNER(1) OWNED OFFERING OF RANGE OF RANGE OF RANGE
------------------- ------------ -------- ----------------- ----------------- -----------------
Jamie Kellner......................... 5.27%
Doug Gealy............................ 3.82
Tom Allen............................. 3.80
Edward Danduran....................... -- *
James Collis(4)(5).................... 13.60
Thomas Embrescia(6)................... 2.82
Brian McNeill(7)(8)................... 13.60
Michael Roberts....................... 4.18
Darryl Schall(9)(10).................. 13.00
BancBoston Ventures Inc.(11).......... 13.69
Alta Communications(8)................ 13.60
CEA ACME, Inc.(5)(12)................. 15.36
TCW Asset Management Company(11)...... 13.00
Peregrine Capital, Inc.(13)........... 6.25
Continental Casualty/Loews(14)........ 7.47
All directors and executive officers
as a group (8 persons)..............
-------------------------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, the address for each person or entity named below
is c/o ACME Communications, Inc. 2101 E. Fourth Street, Suite 202, Santa
Ana, California 92705. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them.
(2) The relative percentage ownership of our existing stockholders assumes an
actual offering price equal to the mid-point of the range of offering price
on the cover of this prospectus, and also assumes our conversion from a
limited liability company into a C corporation immediately before the
closing of this offering. The table below shows the percentage of common
stock beneficially owned after this offering: (a) if the offering price
were $ (the lowest point of the offering price range), (b) if the
offering price were $ (the mid-point of the offering price range),
and (c) if the offering price were $ (the highest point of the
offering price
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range). However, the aggregate number of shares and aggregate percentage
ownership of our existing stockholders will not change.
(3) Assumes the underwriters' over-allotment option is not exercised.
(4) Includes shares held by CEA ACME, Inc. Mr. Collis, one of
our directors, is an Executive Vice President of CEA Management Corp., a
corporation formed to manage CEA Capital Partners USA, L.P. and CEA Capital
Partners USA CI, L.P. Mr. Collis has no pecuniary interest in and disclaims
beneficial ownership of these shares.
(5) The address for CEA ACME, Inc. is 17 State Street, 35th Floor, New York, NY
10004.
(6) Includes shares of common stock held by trusts of which Mr. Embrescia is
trustee. Mr. Embrescia is deemed to be the beneficial owner of these
shares.
(7) Includes shares held by entities affiliated with Alta ACME,
Inc. Mr. McNeill is general partner of Burr, Egan, Deleage & Co. which
manages Alta ACME, Inc. Mr. McNeill has no pecuniary interest in and
disclaims beneficial ownership of these shares.
(8) Includes shares held by Alta Comm VI, LP and shares held
by Alta Comm S by S, LLC, affiliates of Alta Communications. The address
for Alta Communications is 1 Post Office Square, Suite 3800, Boston, MA
02109.
(9) Includes shares held by investment funds that are clients of
TCW Asset Management Company, L.P., of which Mr. Schall is a Senior Vice
President. Mr. Schall has no pecuniary interest in and disclaims beneficial
ownership of these shares.
(10) Includes shares held by investment funds that are clients of
TCW Asset Management Company. The address for TCW Asset Management Company
is 11100 Santa Monica Boulevard, Suite 2000, Los Angeles, CA 90025.
(11) Includes shares held by investment funds that are clients of
BancBoston Ventures Inc. The address for BancBoston Ventures Inc. is 100
Federal Street, Boston, MA 02110.
(12) Includes shares held by ACME Capital Partners. CEA ACME, Inc. is
the managing general partner of ACME Capital Partners and disclaims
beneficial ownership of these shares.
(13) The address for Peregrine Capital, Inc. is 9725 SW Beaverton-Hillsboro
Hwy., Suite 350, Beaverton, OR 97005-3366.
(14) The address for Continental Casualty/Loews is 667 Madison Ave., 7th Fl.,
New York, NY 10021.
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CERTAIN TRANSACTIONS
THE WB TELEVISION NETWORK
Our stations have entered into affiliation agreements and, from time to
time, related marketing arrangements with The WB Network. Mr. Kellner is an
owner and the Chief Executive Officer of The WB Network. We believe that the
terms of each of these affiliation agreements or marketing agreements are or
were at least as favorable to us or our affiliates as those that could be
obtained from an unaffiliated party.
AGREEMENTS WITH VARIOUS SELLERS OF STATIONS
Pursuant to an agreement among Koplar Communications Inc. (the company from
which we acquired KPLR), Roberts Broadcasting, and its owners, Michael Roberts
and his brother Steven Roberts, Roberts Broadcasting cannot (a) transfer its
license for WHSL, East St. Louis, Illinois, (b) commit any programming time of
the station for commercial programming or advertising or (c) enter into a local
marketing agreement with respect to such station until June 1, 2000. If the
current affiliation agreement for WHSL is terminated, the substitute format must
be substantially similar to the current home shopping network format or, in the
alternative, an infomercial format. The annual payment under the agreement was
$200,000 in each of 1995, 1996 and 1997 and subsequent to our acquisition of
KPLR, we paid $300,000 in each of 1998 and 1999. Both Michael and Steven Roberts
are stockholders of our Company and Michael Roberts is one of our directors.
In connection with our stations in Utah and New Mexico, we entered into
long-term agreements to lease studio facilities and/or transmission tower space
from an affiliate of Michael and Steven Roberts. These leases have terms of
approximately fifteen years and provide for monthly payments aggregating
approximately $25,000, subject to adjustment based on the Consumer Price Index.
In addition, upon consummation of this offering, entities affiliated with
Michael and Steven Roberts have the option to purchase the studio building in
Albuquerque from us at its original cost and to lease it back to us at fair
market value.
In connection with our purchase of KWBP in June 1997, Peregrine Capital,
Inc., one of our stockholders, acquired 4,400 membership units in our
predecessor, ACME Television Holdings, LLC as part of the purchase price for
KWBP. In addition, we loaned the seller of KWBP, an affiliate of Peregrine
Capital, approximately $119,000. This loan was repaid in July 1999. In January
1998, we purchased the construction permit for KWBQ (formerly KAOU) from an
affiliate of Michael Roberts and Steven Roberts for $10,000. In connection with
our purchase of WTVK in June 1998, Thomas Embrescia, one of our directors and
stockholders, acquired 2,062.5 membership units in our predecessor, ACME
Television Holdings, LLC, as part of the purchase price for WTVK. In connection
with our purchase of KUPX, one of our directors, Michael Roberts and Steven
Roberts, each acquired 3,000 membership units in our predecessor, ACME
Television Holdings, LLC, as part of the purchase price for KUPX in December
1998. In addition, in December 1998, we loaned Michael Roberts and Steven
Roberts $4.0 million, in connection with the purchase of KUPX. This loan was
repaid in connection with the closing of the KUPX sale in February 1999.
AGREEMENTS WITH OTHER STOCKHOLDERS AND DIRECTORS
On October 1, 1997, in connection with our acquisition of KWBP, we paid
CEA, Inc., an affiliate of one of our stockholders, CEA Capital Partners, a
broker's fee of approximately $176,000. On the same day, we paid CEA, Inc.,
$132,000 in connection with the purchase of
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KBXX, $25,000 in connection with the purchase of the construction permit for
KWBQ (formerly KAOU), $45,000 in connection with the purchase of the
construction permit for KUPX (formerly KZAR) and $889,000 in connection with the
purchase of KPLR, as broker's fees in each of the transactions. Additionally, in
connection with the recent acquisition of WBUI, WIWB and WBDT, we paid CEA, Inc.
a broker's fee of $125,000. CEA, Inc. also received compensation from the seller
in connection with the purchase of WBUI, WIWB and WBDT. One of our directors,
Mr. Collis, is an officer of an affiliate of CEA Capital Partners.
In June and September 1997, we issued 10% convertible debentures with the
right to convert into 24,775,970 membership units in our predecessor, ACME
Television Holdings, LLC, to affiliates of Alta Communications, Banc Boston, CEA
Capital Partners and TCW Asset Management Company, each of which are
stockholders in our company. Another of our directors, Mr. Schall, is an officer
of an affiliate of TCW Asset Management Company.
In connection with the sale of the 12% senior secured notes in September
1997, we paid CEA, Inc. $165,622 in financing fees and $527,378 in connection
with the sale of the 10 7/8% senior discount notes. Additionally, in connection
with each of the June and September 1997 issuances of membership units and 10%
convertible debentures, we paid CEA, Inc. a financing fee of $440,000 and $1.1
million.
In February 1999, we exercised our option to purchase the property where
the KWBP corporate office is located for $1.5 million from an affiliate of
Peregrine Holdings. Before the purchase we leased the property from the same
affiliate, from which we purchased KWBP.
We believe that the terms of each of the foregoing transactions are or were
at least as favorable to us or our affiliates as those that could be obtained
from an unaffiliated party.
FORMATION TRANSACTIONS
In June 1997, we issued to each of Mr. Kellner, Mr. Gealy and Mr. Allen
membership units with a preferential return at 2.0 times the rate of return on
all non-founder membership units. Mr. Kellner acquired 290 membership units, Mr.
Gealy acquired 160 membership units and Mr. Allen acquired 150 membership units,
all at $1,000 per unit. In June and September 1997, we issued 1,342.5 membership
units, all at $1,000 per unit, to affiliates of BancBoston, CEA Capital
Partners, Alta Communications, ACME Capital Partners and TCW Asset Management
Company with a preferential return at 1.5 times the rate of return on all
non-founder membership units.
Also in connection with our formation, we issued to Mr. Kellner an
additional 40 management carry units, to Mr. Gealy 30 management carry units and
to Mr. Allen 30 management carry units in consideration for services to us.
BRIDGE LOAN
On April 23, 1999, to finance in part the acquisition of WBDT, WIWB and
WBUI affiliates of certain of our stockholders, Alta Communications, TCW Asset
Management Company, BancBoston and CEA Capital Partners made a $15.0 million
loan to us. Interest on the loan accrues beginning at 22.5% per year and
escalates quarterly after six months and is due in April 2002. We anticipate
that we will use the proceeds of this offering to repay the investors in full
for the loan. Three of our directors are officers of entities making the loans.
Brian McNeill is an officer of an affiliate of Alta Communications, Darryl
Schall is an officer of an affiliate of TCW Asset Management Company and James
Collis is an officer of an affiliate of CEA Capital Partners.
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KWBQ OPTION
In connection with the closing of the KASY purchase and the KWBQ sale, we
anticipate that Ramar Communications will grant Montecito Communications, LLC, a
limited liability company owned entirely by Messrs. Kellner, Gealy and Allen, an
option to purchase KWBQ for an exercise price of $100,000. We anticipate that
Montecito will assign the option to us immediately after the closing of the sale
of KWBQ. We anticipate that the closing of these transactions will take place in
the third quarter of 1999.
REGISTRATION RIGHTS
Before completion of this offering, we will enter into an amended and
restated registration rights agreement with all of our existing stockholders on
substantially the same terms as our current registration rights agreements
described below.
Rights of ACME Television Holdings, LLC Unitholders
We have entered into a Registration Rights Agreement with some of our
existing investors. At any time after the earlier to occur of (a) June 30, 2002
or (b) 180 days after the consummation of this offering, a majority in interest
of these holders may demand that we file a registration statement under the
Securities Act covering all or a portion of the securities of ours held by them.
However, the securities to be registered must have an anticipated aggregate
public offering price of at least $7.5 million. These holders can effect two
such demand registrations.
When we are eligible to use a Registration Statement on Form S-3 to
register an offering of our securities, these stockholders may request that we
file a registration statement on Form S-3, covering all or a portion of
securities of ours held by them, provided that the aggregate public offering
price is at least $2.0 million. These stockholders can request that we file one
S-3 registration statement per year.
These registration rights will be subject to our right to delay the filing
of a registration statement, not more than once in any 12-month period, for not
more than 90 days.
In addition, these stockholders will have certain "piggyback" registration
rights. If we propose to register any common stock under the Securities Act,
other than pursuant to the registration rights noted above, these stockholders
may require us to include all or a portion of their securities in such
registration. However, the managing underwriter, if any, of any such offering
has certain rights to limit the number of registrable securities proposed to be
included in such registration. , and
have exercised these rights in connection with this offering.
We would bear all registration expenses incurred in connection with these
registrations. The stockholders would pay all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of its securities.
The registration rights of these stockholders under the registration rights
agreement terminate when that entity may transfer its securities under rule 144
promulgated under the Securities Act or have otherwise been transferred.
Rights of Holders of Membership Units Issued September 1997
In September 1997, ACME Intermediate privately placed 71,634 units
consisting of the 12% senior secured notes and membership units in ACME
Intermediate, pursuant to which certain investors acquired approximately 6% of
the membership interests of ACME Intermediate. Concurrently, an affiliate of TCW
Asset Management Company acquired convertible debentures and preferred
membership units issued by one of our subsidiaries which are convertible into
membership units representing approximately 2% of the membership interests in
ACME Intermediate. In conjunction with the September 1997 private placement, we
entered into the membership unitholders agreement, dated
66
September 27, 1997 with CIBC Wood Gundy Securities Corp. which provides the
purchasers of the membership units and convertible securities with certain
registration rights. As described in the section entitled "The Reorganization"
we will exchange shares of our common stock for these interests in ACME
Intermediate. At any time after the consummation of this offering, holders of
25% of the common stock issued in exchange for the securities related to ACME
Intermediate may demand that we file a registration statement under the
Securities Act covering all or a portion of their shares of our common stock.
These holders can effect two such demand registrations.
In addition, these holders will have certain "piggyback" registration
rights. If we propose to register any common stock under the Securities Act,
other than pursuant to the registration rights noted above, these holders may
require us to include all or a portion of their securities in such registration.
However, the managing underwriter, if any, of such offering has certain rights
to limit the number of registrable securities proposed to be included in such
registration. , and have exercised
these rights in connection with this offering.
The holders making the demand would bear all registration expenses incurred
in connection with any demand registrations and we would bear all registration
expenses incurred with any other registrations. The holders would pay all
underwriting discounts, selling commissions and stock transfer taxes applicable
to the sale of its securities.
THE REORGANIZATION
Immediately before the closing of the offering, we will complete the
reorganization described below. Before the following steps may be completed, we
must receive FCC approval, for which we have filed the necessary application.
First, a subsidiary of ACME Communications, Inc. will merge into ACME
Television Holdings, LLC. In this merger, ACME Television Holdings, LLC's
membership units will be exchanged for shares of common stock of ACME
Communications. After this merger, ACME Communications will own 100% of the
membership units of ACME Television Holdings, LLC.
Second, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC.
Third, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will be merged into ACME Communications, which will be
the surviving corporation.
As a result of the mergers, ACME Communications will acquire membership
units representing approximately 92% of ACME Intermediate, which were held by
ACME Subsidiary Holdings, LLC and ACME Television Holdings, LLC.
Fourth, ACME Communications will exchange shares of its common stock for
(a) membership units representing approximately 6% of ACME Intermediate and (b)
all of the convertible debentures and preferred membership units of another
subsidiary of ACME Television Holdings, LLC that owns approximately 2% of ACME
Intermediate, thereby acquiring 100% of ACME Intermediate.
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately before the closing of this offering, our authorized capital
stock will consist of 50,000,000 shares of common stock, $0.01 par value and
10,000,000 shares of preferred stock, $0.01 par value.
As of March 31, 1999, assuming the conversion of our business form into a C
corporation, and the simultaneous conversion of limited liability company
membership interests into shares of common stock, there were outstanding
shares of common stock, each with a par value of $0.01, held of
record by stockholders.
COMMON STOCK
Subject to the preferences of any preferred stock outstanding at the time,
the holders of our common stock are entitled to receive dividends out of legally
available assets as and when determined by our board. Holders of our common
stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders. Our certificate of incorporation does not authorize
cumulative voting for the election of our directors, which means that the
holders of a majority of the shares voted can elect all of our directors then
standing for election. Our common stock is not entitled to preemptive rights and
is not subject to conversion or redemption. Upon liquidation, dissolution or
winding-up, the assets legally available for distribution to our stockholders
are distributable ratably among the holders of our common stock after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of our common stock is, and
all shares of our common stock to be outstanding upon completion of this
offering will be upon payment therefor, duly and validly issued, fully paid and
nonassessable.
PREFERRED STOCK
Our board is authorized, subject to any limitations prescribed by Delaware
law, to issue preferred stock in one or more series. Our board can fix the
rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions thereon.
Our board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of our common stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, under certain circumstances, have
the effect of delaying, deferring or preventing a change of control of our
company. We have no current plan to issue any shares of preferred stock.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Advance Notice. Our bylaws provide that advance notice of all director
nominations or other business matters proposed to be brought before an annual
meeting of our stockholders be delivered to our secretary at our corporate
office not later than 90 nor more than 120 days prior to the first anniversary
of the preceding year's annual meeting. This provision may make it more
difficult for stockholders to nominate or elect directors or take action opposed
by the board.
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Special Meetings. Our bylaws provide that special meetings of the
stockholders may be called only by the board of directors, the chairman of the
board of directors or the president. This provision may make it more difficult
for stockholders to take action opposed by the board.
No Stockholder Action by Written Consent. Our certificate of incorporation
provides that stockholders can take action only at an annual or special meeting
of stockholders duly called in accordance with our bylaws. Accordingly, our
stockholders will not be able to take action by written consent in lieu of a
meeting. This provision may have the effect of deterring hostile takeovers or
delaying changes in control or management of our company.
Indemnification of Directors and Officers. Our certificate of incorporation
and bylaws provide a right to indemnification to the fullest extent permitted by
law for expenses, attorney's fees, damages, punitive damages, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by any person whether or not the indemnified liability arises or arose from any
threatened, pending or completed proceeding by or in our right by reason of the
fact that such person is or was serving as a director or officer at our request,
as a director, officer, partner, venturer, proprietor, employee, agent, or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. Our certificate of incorporation and bylaws
provide for the advancement of expenses to an indemnified party upon receipt of
an undertaking by the party to repay those amounts if it is finally determined
that the indemnified party is not entitled to indemnification. In addition, we
have entered into indemnification agreements with each of our directors and
executive officers.
Our bylaws authorize us to take steps to ensure that all persons entitled
to the indemnification are properly identified and indemnified, including, if
the board of directors so determines, purchasing and maintaining insurance.
FOREIGN OWNERSHIP RESTRICTIONS
Our certificate of incorporation includes provisions designed to ensure
that our control and management remains with citizens of the United States
and/or corporations formed under the laws of the United States or any of the
states of the United States, as required by the Communications Act.
These provisions include restrictions on transfers of our capital stock by
an "Alien." For the purpose of these restrictions, an Alien is (a) a person who
is a citizen of a country other than the United States; (b) any entity organized
under the laws of a government other than the government of the United States or
any state, territory, or possession of the United States; (c) a government other
than the government of the United States or of any state, territory, or
possession of the United States, or (d) a representative of, or an individual or
entity controlled by, any of the foregoing.
Specifically, our foreign ownership restrictions provide:
- We shall not issue to an Alien any shares of our capital stock if such
issuance would result in the total number of shares of such capital stock
held or voted by Aliens (or for or by the account of Aliens) to exceed
25% of (a) the total number of all shares of such capital stock
outstanding at any time and from time to time or (b) the total voting
power of all shares of such capital stock outstanding and entitled to
vote at any time and from time to time. We shall not permit the transfer
on our books of any capital stock to any Alien that would result in the
total number of shares of such capital stock held or voted by Aliens (or
for or by the account of Aliens) exceeding such 25% limits.
69
- No Alien or Aliens, individually or collectively, shall be entitled to
vote or direct or control the vote of more than 25% of (a) the total
number of all shares of our capital stock outstanding at any time and
from time to time or (b) the total voting power of all shares of our
capital stock outstanding and entitled to vote at any time and from time
to time. Issuance or transfer of our capital stock in violation of this
provision is prohibited.
Our board of directors shall have all powers necessary to implement these
provisions of our certificate of incorporation and to ensure compliance with the
alien ownership restrictions (the "Alien Ownership Restrictions") of the
Communications Act, including, without limitation, the power to prohibit the
transfer of any shares of our capital stock to any Alien and to take or cause to
be taken such action as it deems appropriate to implement such prohibition,
including placing a legend regarding restrictions on foreign ownership of the
capital stock on certificates representing such capital stock.
In addition, any shares of our capital stock determined by the board of
directors to be owned beneficially by an Alien or Aliens shall always be subject
to redemption by us by action of the board of directors or any other applicable
provision of law, to the extent necessary, in the judgment of the board of
directors, to comply with the Alien Ownership Restrictions. The terms and
conditions of such redemption are as follows:
- the redemption price shall be equal to the lower of (a) the fair market
value of the shares to be redeemed, as determined by the board of
directors in good faith, and (b) such Alien's purchase price for such
shares;
- the redemption price may be paid in cash, securities or any combination
thereof;
- if less than all the shares held by Aliens are to be redeemed, the shares
to be redeemed shall be selected in any manner determined by the board of
directors to be fair and equitable;
- at least 10 days' prior written notice of the redemption date shall be
given to the holders of record of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the
redemption date may be the date on which written notice shall be given to
holders if the cash or securities necessary to effect the redemption
shall have been deposited in trust for the benefit of such holders and
subject to immediate withdrawal by them upon proper surrender;
- from and after the redemption date, the shares to be redeemed shall cease
to be regarded as outstanding and any and all rights of the holders in
respect of the shares to be redeemed or attaching to such shares of
whatever nature (including without limitation any rights to vote or
participate in dividends declared on capital stock of the same class or
series as such shares) shall cease and terminate, and the holders thereof
thereafter shall be entitled only to receive the cash or securities
payable upon redemption; and
- such other terms and conditions as the board of directors shall
determine.
CERTAIN PROVISIONS OF DELAWARE LAW
We are a Delaware corporation and are subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction by which that person became an
interested stockholder, unless the business combination is
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approved in a prescribed manner. For purposes of Section 203, a "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and an "interested stockholder"
is a person who, together with affiliates and associates, owns, or within three
years prior did own, 15% or more of our voting stock.
VOTING AGREEMENT
Messrs. Kellner, Gealy and Allen and affiliates of Alta Communications,
BancBoston, CEA Capital and TCW Asset Management Company will enter into a
voting agreement that will become effective upon the completion of this
offering. Under this agreement, the parties will vote for the election to our
board of three individuals designated by Messrs. Kellner, Gealy and Allen and
three individuals designated by the four institutional investors. In each case,
the designations are subject to reasonable approval of the group that has not
made the designations. The parties to the agreement will collectively hold
approximately % of our common stock, and the institutional investors as a
separate group will own approximately % following completion of this
offering. As the institutional investors' aggregates percentage ownership
decreases, the number of board members they will be able to designate will
decline. In any event, this agreement will expire two years from the closing of
this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is U.S. Stock
Transfer Corporation.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "ACME."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding (assuming that the underwriters do not exercise their
over-allotment option). The shares of common stock to be sold by us
in this offering will be freely tradeable without restriction or limitation
under the Securities Act, except for shares held by our "affiliates," as defined
under Rule 144 of the Securities Act. Shares of common stock held by our
affiliates may be sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as Rule 144. Our
directors, executive officers and our existing stockholders have agreed not to
sell, directly or indirectly, any shares owned by them for a period of 180 days
after the date of this prospectus without the prior written consent of Deutsche
Bank Securities Inc. See "Underwriting." Upon the expiration of this 180 day
lock-up period, substantially all of these shares will become eligible for sale,
subject to the restrictions of Rule 144.
RULE 144
In general, under Rule 144, a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year, including
our affiliates, would be entitled to sell, within any three-month period, that
number of shares that does not exceed the greater of 1% of the then-outstanding
shares of common stock and the average weekly trading
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volume in the common stock during the four calendar weeks immediately preceding
the date on which the notice of sale is filed with the Securities and Exchange
Commission, provided certain manner of sale and notice requirements and
requirements as to the availability of current public information about us are
satisfied. A holder of "restricted securities" who is not deemed an affiliate of
the issuer and who has beneficially owned shares for at least two years would be
entitled to sell shares under Rule 144(k) without regard to these limitations.
Our affiliates must comply with the restrictions and requirements of Rule 144,
other than the one-year holding period requirement, in order to publicly sell
shares of common stock. As defined in Rule 144, an "affiliate" of an issuer is a
person who, directly or indirectly, through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer.
RULE 701
In general, under Rule 701, any of our employees, consultants or advisors
who purchases or receives shares from us in connection with a compensatory
option plan will be eligible to resell their shares beginning 90 days after the
date of this prospectus. Non-affiliates will be able to sell their shares
subject only to the manner-of-sale provisions of Rule 144. Affiliates will be
able to sell their shares without compliance with the holding period
requirements of Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of
our common stock will be entitled to rights with respect to the registration of
their shares under the Securities Act. See "Certain Transactions -- Registration
Rights." Except for shares purchased by affiliates, registration of their shares
under the Securities Act would result in such shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of the registration.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering the shares of common stock reserved for
issuance upon exercise of outstanding options. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under the registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market beginning 180 days after the effective
date of the registrant statement of which this prospectus is a part.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of common stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a foreign
estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of common stock, including the consequences under the laws
of any state, local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to withholding tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. For purposes
of determining whether tax is to be withheld at a 30% rate or at a reduced rate
as specified by an income tax treaty, we ordinarily will presume that dividends
paid on or before December 31, 1999 to an address in a foreign country are paid
to a resident of such country absent knowledge that such presumption is not
warranted.
Under United States Treasury Regulations issued on October 6, 1997, which
are applicable to dividends paid after December 31, 2000 (the "New
Regulations"), to obtain a reduced rate of withholding under a treaty, a
Non-U.S. Holder will generally be required to provide an Internal Revenue
Service Form W-8 certifying such Non-U.S. Holder's entitlement to benefits under
a treaty. The New Regulations also provide special rules to determine whether,
for purposes of determining the applicability of a tax treaty, dividends paid to
a Non-U.S. Holder that is an entity should be treated as paid to the entity or
those holding an interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with us. Instead, the effectively connected dividends will
be subject to regular U.S. income tax in the same manner as if the Non-U.S.
Holder were a U.S. resident. A non-U.S. corporation receiving effectively
connected dividends may also be subject to an additional "branch profits tax"
that is imposed, under certain circumstances, at a rate of 30% (or such lower
rate as may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
Under the New Regulations, Form W-8 will replace Form 4224.
Generally, we must report to the U.S. Internal Revenue Service the amount
of dividends paid, the name and address of the recipient, and the amount, if
any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
such reports available to tax authorities in the recipient's country of
residence.
73
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information.
Under current United States federal income tax law, backup withholding
imposed at a rate of 31% generally will not apply to dividends paid on or before
December 31, 2000 to a Non-U.S. Holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. Person). Under the New
Regulations, however, a Non-U.S. Holder will be subject to backup withholding
unless applicable certification requirements are met.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of common stock
unless (i) the gain is effectively connected with a trade or business of such
holder in the United States, (ii) in the case of certain Non-U.S. Holders who
are non-resident alien individuals and hold the common stock as a capital asset,
such individuals are present in the United States for 183 or more days in the
taxable year of the disposition, (iii) the Non-U.S. Holder is subject to a tax
pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) we are or have been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. We are not, and do not anticipate becoming, a U.S. real
property holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of common stock by a non-corporate holder through a U.S. office of a
broker unless the disposing holder certifies as to its non-U.S. status or
otherwise establishes an exemption. Generally, U.S. information reporting and
backup withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, unless the broker has documentary evidence that the
holder is a Non-U.S. Holder, U.S. information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the United States by or through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of its gross income for certain periods
form the conduct of a trade or business in the United States, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes or (iv) in
the case of payments made after December 31, 2000, a foreign partnership with
certain connections to the United States, unless such broker has documentary
evidence in its files of the holder's non-U.S. status and has no actual
knowledge to the contrary or unless the holder establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
74
UNDERWRITING
We intend to offer our common stock in the United States and Canada through
a number of underwriters. Deutsche Bank Securities Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and CIBC World
Markets Corp. are acting as representatives (the "U.S. Representatives") of each
of the underwriters named below (the "U.S. Underwriters"). Subject to the terms
and conditions set forth in an underwriting agreement (the "U.S. Underwriting
Agreement") among us and the U.S. Representatives on behalf of the U.S.
Underwriters, we have agreed to sell to the U.S. Underwriters, and each of the
U.S. Underwriters severally and not jointly has agreed to purchase from us, the
number of shares of common stock set forth opposite its name below.
[Download Table]
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Deutsche Bank Securities Inc. ..............................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Morgan Stanley & Co. Incorporated...........................
CIBC World Markets Corp.....................................
--------
Total
========
We intend to offer our common stock outside of the United States and
Canada. Deutsche Bank AG London, Merrill Lynch International, Morgan Stanley &
Co. International Limited and CIBC World Markets International Limited are
acting as representatives (the "International Representatives" and together with
the U.S. Representatives, the "Representatives") for certain international
underwriters (collectively, the "International Underwriters", and together with
the U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions
set forth in the international underwriting agreement (the "International
Underwriting Agreement") between us and the International Representatives on
behalf of the International Underwriters, and concurrently with the sale of
shares of common stock to the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement, we have agreed to sell to the International
Underwriters, and each of the International Underwriters severally and not
jointly has agreed to purchase from us, an aggregate of shares of
common stock. The public offering price per share of common stock and the
underwriting discount per share of common stock are identical under the U.S.
Underwriting Agreement and the International Underwriting Agreement.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of our common stock, directly or indirectly, only in the
U.S. (including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States"),
in Canada and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b) any
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of common stock in the United States
or to any U.S. persons or to any person who it believes intends to reoffer,
resell or deliver the shares in the United States or to any U.S. persons, and
(ii) cause any dealer to whom it may sell such shares at any concession to agree
to observe a similar restriction.
75
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
common stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold under the
terms of such agreement are purchased. In a default by an underwriter, the U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that, in certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the such agreements may be terminated. The
closing with respect to the sale of shares of common stock to be purchased by
the U.S. Underwriters and the International Underwriters are conditioned upon
one another.
We have agreed to indemnify the Underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to consummation of the reorganization, approval of certain legal matters by
counsel for the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part.
COMMISSIONS AND DISCOUNTS
The Representatives have advised us that the Underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common
stock. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the Underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the Underwriters of the over-allotment option.
[Download Table]
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price....................... $ $ $
Underwriting discount....................... $ $ $
Proceeds, before expenses, to ACME.......... $ $ $
Proceeds, before expenses, to the selling
stockholders.............................. $ $ $
The expenses of the offering, exclusive of underwriting discounts, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National Market listing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
road show expenses, Blue Sky fees and expenses, transfer agent and registrar
fees and other miscellaneous fees. The expenses of the offering, exclusive of
the underwriting discount, are estimated at $ and are payable by us.
76
OVER-ALLOTMENT OPTION
We and the selling stockholders have granted an option to the Underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of additional shares of our common stock at the public offering
price set forth on the cover page of this prospectus, less the underwriting
discount. The Underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our common stock offered hereby. To
the extent that the Underwriters exercise this option, each Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of our common stock proportionate to such underwriter's initial amount
reflected in the foregoing table.
RESERVED SHARES
At our request, the Underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to some
of our directors, officers, employees, business associates and related persons.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent that those persons purchase the reserved
shares. Any reserved shares that are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
LOCK-UP
We and our executive officers and directors and all existing stockholders
have agreed, for a period of 180 days after the date of this prospectus, not to
offer, sell, contract to sell, loan, pledge, grant any option to purchase, make
any short sale or otherwise dispose of (1) any shares of our common stock, (2)
any options or warrants to purchase any shares of our common stock, or (3) any
securities convertible into, exchangeable for or that represent the right to
receive shares of our common stock. Certain gifts, transfers to trusts, and
distributions to partners or shareholders of a stockholder are permitted where
the transferee agrees to be similarly bound. Transfers may also be made where
Deutsche Bank Securities Inc. on behalf of the Underwriters consents in advance.
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the Representatives. The factors considered in determining the initial
public offering price, in addition to prevailing market conditions, are the
valuation multiples of publicly traded companies that the Representatives
believe to be comparable to us, certain of our financial information, our
history, our prospects, the industry in which we compete, and an assessment of
our management, its past and present operations, the prospects for, and timing
of, our future revenue, the present state of our development, and the above
factors in relation to market values and various valuation measures of other
companies engaged in activities similar to ours. There can be no assurance that
an active trading market will develop for our common stock or that our common
stock will trade in the public market subsequent to the offering at or above the
initial public offering price.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the Representatives are permitted to engage in
transactions that stabilize the price of our
77
common stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of our common stock.
If the Underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the
Representatives may reduce that short position by purchasing our common stock in
the open market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the Representatives purchase shares of
our common stock in the open market to reduce the Underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the Underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither ACME nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
ACME nor any of the Underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
CERTAIN RELATIONSHIPS AND ARRANGEMENTS
Canadian Imperial Bank of Commerce ("CIBC"), an affiliate of CIBC Word
Markets Corp. and CIBC World Markets International Limited, is a primary lender
and the agent under our credit agreement. We pay CIBC a commitment fee on the
unused portion of the its commitment as a lender under our credit agreement;
CIBC also receives a fee for its services as administrative agent. As a lender,
CIBC may receive more than 10% of the net proceeds of this offering to repay
debt under our credit agreement. Under the Conduct Rules of the National
Association of Securities Dealers, Inc., special considerations apply where a
"member" or "person associated with a member" (as defined by the NASD)
participating in an offering is paid more than 10% of the net proceeds.
Accordingly, this offering is being made pursuant to Rule 2710(c)(8) of the
NASD's Conduct Rules, in conjunction with which Deutsche Bank Securities Inc., a
Representative, is acting as a "qualified independent underwriter" in pricing
this offering, preparing this prospectus and conducting due diligence.
78
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of our common stock in Canada is being made
only on a private placement basis exempt from the requirement that we prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of our common stock are effected. Accordingly, any resale
of our common stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Canadian purchasers are advised to
seek legal advice prior to any resale of our common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of our common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as agent
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The shares of our common stock being offered are those of a foreign issuer
and Ontario purchasers will not receive the contractual right of action
prescribed by section 32 of the Regulation under the Securities Act (Ontario).
As a result, Ontario purchasers must rely on other remedies that may be
available, including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S. federal
securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of our directors and officers as well as the experts named in this
prospectus may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
us or such persons. All or a substantial portion of our assets and such persons
may be located outside of Canada and, as a result, it may not be possible to
satisfy a judgment against us or such persons in Canada or to enforce a judgment
obtained in Canadian courts against us or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares of our common stock to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any of our common stock acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from us. Only one such report must be filed in respect of all shares of our
common stock acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of our common stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
79
LEGAL MATTERS
O'Melveny & Myers LLP, Newport Beach, California will pass upon the
validity of the shares of common stock offered by this prospectus. Irell &
Manella LLP, Los Angeles, California will pass upon certain legal matters for
the underwriters.
EXPERTS
The consolidated financial statements and schedules of ACME Communications,
Inc. as of December 31, 1998 and 1997, and for each of the years in the two-year
period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Koplar Communications, Inc. for
each of the years in the two-year period ended December 31, 1998, have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Channel 32, Incorporated for each of the years
in the two-year period ended June 30, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock offered by this prospectus. As permitted by the rules and
regulations of the SEC, this prospectus, which is part of the registration
statement, omits certain information included in the registration statement and
the exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and the common stock offered
by this prospectus, reference is made to our registration statement and its
exhibits and schedules. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to in the prospectus are
not necessarily complete. In each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
We file reports and other information with the Securities and Exchange
Commission. Such reports and other information, as well as a copy of the
registration statement may be inspected without charge at the SEC's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees
prescribed by the SEC. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval system, including our registration statement and all exhibits and
amendments to our registration statement, are publicly available through the
SEC's Web site at http://www.sec.gov.
Upon approval of our common stock for listing on the Nasdaq National
Market, such reports, proxy and information statements and other information may
also be inspected at the office of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
80
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
[Download Table]
PAGE
----
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of KPMG LLP, Independent Auditors.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1998 and the
three months ended March 31, 1998 and 1999 (unaudited).... F-4
Consolidated Statements of Stockholders' Equity (Deficiency)
for each of the years in the two-year period ended
December 31, 1998 and the three months ended March 31,
1999 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1998 and the
three months ended March 31, 1998 and 1999 (unaudited).... F-6
Notes to Consolidated Financial Statements.................. F-7
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
Report of KPMG LLP, Independent Auditors.................... F-23
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1997............ F-24
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1997............ F-25
Notes to Financial Statements............................... F-26
CHANNEL 32 INCORPORATED
Report of KPMG LLP, Independent Auditors.................... F-35
Statements of Operations for each of the years in the
two-year period ended June 30, 1996 and the period from
July 1, 1996 to June 17, 1997 (unaudited)................. F-36
Statements of Cash Flows for each of the years in the
two-year period ended June 30, 1996 and the period from
July 1, 1996 to June 17, 1997 (unaudited)................. F-37
Notes to Financial Statements............................... F-38
F-1
When the Reorganization referred to in note 14 has been consummated, we
will be in a position to render the following report.
/s/ KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ACME Communications, Inc.:
We have audited the accompanying consolidated balance sheets of ACME
Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations and stockholders' equity
(deficiency) and cash flows for the years ended December 31, 1998 and 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ACME
Communications, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of operations and cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
Los Angeles, California
July 28, 1999, except as to
note 14, which is as of
, 1999
F-2
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
[Enlarge/Download Table]
AS OF DECEMBER 31, AS OF
-------------------- MARCH, 31
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 8,824 $ 1,001 $ 954
Accounts receivable, net.................................. 888 10,840 9,245
Current portion of program rights......................... 614 6,357 6,591
Prepaid expenses and other current assets................. 3,121 416 645
-------- -------- --------
Total current assets................................... 13,447 18,614 17,435
Property and equipment, net................................. 7,346 16,441 18,420
Program rights, net of current portion...................... 587 8,046 6,858
Deposits.................................................... 143,000 37 616
Deferred income taxes....................................... -- 3,811 3,811
Intangible assets, net...................................... 36,004 222,987 229,528
Other assets................................................ 20,091 18,146 14,234
-------- -------- --------
Total assets........................................... $220,475 $288,082 $290,902
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable.......................................... $ 3,363 $ 4,425 $ 3,187
Accrued liabilities....................................... 651 4,210 7,373
Current portion of program rights payable................. 653 7,649 6,913
Current portion of obligations under lease................ 292 1,273 1,304
-------- -------- --------
Total current liabilities.............................. 4,959 17,557 18,777
Program rights payable, net of current portion.............. 1,351 6,512 5,804
Obligations under lease, net of current portion............. 443 4,199 4,348
Other liabilities........................................... 1,047 4,671 4,967
Deferred income taxes....................................... -- 31,241 30,471
Revolving credit facility................................... -- 8,000 12,900
Convertible debentures...................................... 24,756 24,756 24,756
10 7/8% senior discount notes............................... 130,833 145,448 149,298
12% senior secured notes.................................... 36,863 42,052 43,436
-------- -------- --------
Total liabilities...................................... 200,252 284,436 294,757
-------- -------- --------
Minority interest........................................... 3,917 2,233 1,510
Stockholder's equity (deficiency):
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding.............. -- -- --
Common stock, $ par value, shares
authorized, shares issued and
outstanding............................................... -- -- --
Additional paid-in capital.................................. 23,785 30,832 33,332
Accumulated deficit......................................... (7,479) (29,419) (38,697)
-------- -------- --------
Total stockholders' equity (deficiency)................ 16,306 1,413 (5,365)
-------- -------- --------
Total liabilities and stockholders' equity
(deficiency)......................................... $220,475 $288,082 $290,902
======== ======== ========
See accompanying notes to the consolidated financial statements.
F-3
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
[Download Table]
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- ----------------------
1997 1998 1998 1999
------- -------- ------- -----------
(UNAUDITED)
Net revenues......................... $11,347 $ 43,928 $ 7,757 $ 11,123
------- -------- ------- --------
Operating expenses:
Station operating expenses......... 10,158 32,973 5,951 8,430
Depreciation and amortization...... 1,215 11,355 848 3,766
Corporate.......................... 1,415 2,627 589 721
Equity-based compensation.......... -- -- -- 2,500
------- -------- ------- --------
Total operating expenses........ 12,788 46,955 7,388 15,417
------- -------- ------- --------
Operating income (loss)....... (1,441) (3,027) 369 (4,294)
Other income (expenses):
Interest income...................... 287 231 45 9
Interest expense..................... (6,562) (23,953) (5,500) (6,466)
Gain on sale of assets............... -- 1,112 -- --
Other................................ -- (380) 5 5
------- -------- ------- --------
Loss before taxes and minority
interest........................... (7,716) (26,017) (5,081) (10,746)
Income tax benefit (expense)......... -- 2,393 (20) 745
Loss before minority interest........ (7,716) (23,624) (5,101) (10,001)
Minority interest............... 237 1,684 358 723
------- -------- ------- --------
Net loss...................... $(7,479) $(21,940) $(4,743) $ (9,278)
======= ======== ======= ========
Supplemental pro forma financial
information (Unaudited) (Note 1):
Net loss before taxes and minority
interest, as presented............. $(7,716) $(26,017) $(5,081) $(10,746)
Pro forma income tax benefit......... -- 10,407 2,032 4,298
------- -------- ------- --------
Pro forma loss before minority
interest........................... (7,716) (15,610) (3,049) (6,448)
Pro forma minority interest.......... 237 1,126 215 450
------- -------- ------- --------
Pro forma net loss................... $(7,479) $(14,484) $(2,834) $ (5,998)
======= ======== ======= ========
Pro forma basic and diluted net loss
per share.......................... $ $ $ $
======= ======== ======= ========
Shares used in the calculation of
basic and diluted net loss per
share..............................
======= ======== ======= ========
See accompanying notes to the consolidated financial statements.
F-4
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
[Enlarge/Download Table]
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
---------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY)
------ ------- ---------- ----------- -------------
Balance at December 31,
1996...................... $ $ -- $ -- $ --
Issuance of common stock,
net.................... 23,785 -- 23,785
Net Loss............... -- (7,479) (7,479)
------ ------- ------- -------- --------
Balance at December 31,
1997...................... 23,785 (7,479) 16,306
Issuance of common stock,
net.................... 7,047 7,047
Net Loss............... -- (21,940) (21,940)
------ ------- ------- -------- --------
Balance at December 31,
1998...................... 30,832 (29,419) 1,413
Equity-based compensation
(unaudited)............ 2,500 -- 2,500
Net Loss (unaudited)... -- (9,278) (9,278)
------ ------- ------- -------- --------
Balance at March 31, 1999
(unaudited)............... $ $33,332 $(38,697) $ (5,365)
====== ======= ======= ======== ========
See accompanying notes to the consolidated financial statements.
F-5
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ------------------
1997 1998 1998 1999
--------- -------- ------- -------
(UNAUDITED)
Cash flows from operating activities:
Net loss.................................................. $ (7,479) $(21,940) $(4,743) $(9,278)
Adjustments to reconcile net loss to net cash:
provided by operating activities:
Depreciation and amortization............................. 1,215 11,355 848 3,766
Amortization of program rights............................ 590 10,484 1,009 1,582
Amortization of debt issuance costs....................... 445 989 611 739
Amortization of discount on Senior Discount Notes......... 3,463 14,170 3,463 3,850
Amortization of discount on Senior Secured Notes.......... 1,213 5,189 1,212 1,384
Minority interest allocation.............................. (237) (1,684) (358) (736)
Equity-based compensation................................. -- -- -- 2,500
Deferred taxes............................................ -- (2,393) -- (770)
Gain on sale of assets.................................... -- (1,112) -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net.......... (888) (5,479) (323) 1,595
(Increase) decrease in prepaid expenses................... (3,060) 364 779 (249)
(Increase) decrease in due from affiliates................ (7) 7 (15) --
Increase in deposits...................................... -- -- -- (80)
(Increase) other assets................................... (576) -- --
Increase (Decrease) in accounts payable................... 3,363 59 (42) (1,238)
Increase in accrued expenses.............................. 651 2,639 442 682
Payments on programming rights payable.................... (915) (11,751) (1,151) (2,072)
Increase (decrease) in other liabilities.................. 1,047 (2) -- (256)
--------- -------- ------- -------
Net cash provided by (used in) operating activities..... (599) 319 1,732 1,419
--------- -------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (6,077) (2,945) (2,970) (2,171)
Purchases of and deposits for station interests........... (175,129) (16,675) (4,725) (1,509)
Cash acquired in acquisition -- St. Louis................. -- 779 779 --
Proceeds from sale of station interest.................... -- 3,337 -- --
Purchase of Sylvan Tower interest......................... -- -- -- (2,428)
Other..................................................... (10,524) -- -- --
--------- -------- ------- -------
Net cash used in investing activities................... (191,730) (15,504) (6,916) (6,108)
--------- -------- ------- -------
Cash flows from financing activities:
Increase in notes payable to bank......................... -- 11,000 -- 4,900
Payments of notes payable to banks........................ -- (3,000) -- --
Payments on capital leases................................ (97) (638) (70) (258)
Issuance of common stock.................................. 19,385 -- -- --
Issuance of convertible debentures........................ 24,756 -- -- --
Issuance of Senior Discount Notes......................... 127,370 -- -- --
Issuance of Senior Secured Notes.......................... 35,650 -- -- --
Debt issuance costs....................................... (10,065) -- -- --
Minority interest......................................... 4,154 -- -- --
--------- -------- ------- -------
Net cash provided by (used in) financing activities..... 201,153 7,362 (70) 4,642
--------- -------- ------- -------
Net increase (decrease) in cash........................... 8,824 (7,823) (5,254) (47)
Cash at beginning of period............................... -- 8,824 8,824 1,001
--------- -------- ------- -------
Cash at end of period..................................... $ 8,824 $ 1,001 $ 3,570 $ 954
========= ======== ======= =======
Supplemental disclosures of cash flow information:
Cash Payments for:
Interest.................................................. $ 514 $ 864 $ 24 $ 372
Taxes..................................................... -- 70 -- 25
Non-Cash Transactions:
Purchases of property and equipment in exchange for
capital lease obligations............................... $ -- $ 5,375 $ -- $ 438
Issuance of equity in purchase transactions............... 4,400 7,047 6,000 --
Use of deposit as consideration for purchase
transaction............................................. -- 143,000 -- --
Exchange of note receivable and option deposit as purchase
consideration for station interest...................... $ -- $ -- $ -- $ 7,000
========= ======== ======= =======
See accompanying notes to the consolidated financial statements.
F-6
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
PRESENTATION
The accompanying consolidated financial statements are presented for ACME
Communications, Inc. ("ACME" or the "Company") and its majority and wholly-owned
subsidiaries. Segment information is not presented since all of the Company's
revenues are attributed to a single reportable segment.
Information with respect to the three months ended March 31, 1999 and 1998
is unaudited. The accompanying unaudited consolidated financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company and subsidiaries, for the periods
presented. The results of operations for the three month period are not
necessarily indicative of the results of operations for the full year.
FORMATION AND REORGANIZATION
Our predecessor, ACME Television Holdings, LLC was formed on April 24,
1997. The Company was incorporated on July 23, 1999. For a description of the
reorganization of ACME Television Holdings, LLC into the Company, see Note 14.
NATURE OF BUSINESS
The Company is a holding company with no assets or independent operations
other than its investment in it's majority-owned subsidiary, ACME Intermediate.
ACME Intermediate, through its wholly-owned subsidiary, ACME Television, owns
and/or operates six commercially licensed broadcast television stations (the
"Stations" or "Subsidiaries") located throughout the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated.
REVENUE RECOGNITION
Revenue from the sale of airtime related to advertising and contracted time
is recognized at the time of broadcast. The Company generally receives such
revenues net of commissions deducted by the advertising agencies and national
sales representatives.
F-7
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
CASH AND CASH EQUIVALENTS
For purposes of reporting the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the related allowance for doubtful
accounts which totaled $599,000, $555,000 and $51,000 at March 31, 1999,
December 31, 1998 and 1997, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable and cash. Due to the
short-term nature of these instruments, the carrying value approximates the fair
market value. The Company believes that concentrations of credit risk with
respect to accounts receivable, which are unsecured, are limited due to the
Company's ongoing relationship with its clients. The Company provides its
estimate of uncollectible accounts. The Company has not experienced significant
losses relating to accounts receivable.
PROGRAM RIGHTS
Program rights represent costs incurred for the right to broadcast certain
features and syndicated television programs. Program rights are stated at the
lower of amortized cost or estimated realizable value. The cost of such program
rights and the corresponding liability are recorded when the initial program
becomes available for broadcast under the contract. Generally, program rights
are amortized over the life of the contract on a straight-line basis related to
the usage of the program. The portion of the cost estimated to be amortized
within one year and after one year rare reflected in the balance sheets as
current and noncurrent assets, respectively. The payments under these contracts
that are due within one year and after one year are similarly classified as
current and noncurrent liabilities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of maintenance is
expensed when incurred. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the respective assets.
When property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the appropriate
F-8
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
accounts and any gain or loss is included in the results of current operations.
The principal lives used in determining depreciation rates of various assets are
as follows:
[Download Table]
Buildings and Improvements.......................... 20 - 30 years
Broadcast and other equipment....................... 3 - 20 years
Furniture and fixtures.............................. 5 - 7 years
Vehicles............................................ 5 years
INTANGIBLE ASSETS
Intangible assets consist of broadcast licenses and goodwill, both of which
are amortized on a straight-line basis over a 20-year life. At March 31, 1999,
December 31, 1998 and 1997, the total accumulated amortization for intangible
assets was $13,310,000, $10,172,000 and $761,000, respectively.
BARTER AND TRADE TRANSACTIONS
Revenue and expenses associated with barter agreements in which broadcast
time is exchanged for programming rights are recorded at the estimated average
rate of the airtime exchanged. Trade transactions, which represent the exchange
of advertising time for goods or services, are recorded at the estimated fair
value of the products or services received. Barter and trade revenue is
recognized when advertisements are broadcast. Merchandise or services received
from airtime trade sales are charged to expense or capitalized when used or
received.
CARRYING VALUE OF LONG-LIVED ASSETS
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The carrying value of long-lived assets
(tangible and intangible) is reviewed if the facts and circumstances suggest
that they may be impaired. For purposes of this review, assets are grouped at
the operating company level, which is the lowest level for which there are
identifiable cash flows. If this review indicates that an asset's carrying value
will not be recoverable, as determined based on future expected, undiscounted
cash flows, the carrying value is reduced to fair market value.
INCOME TAXES
The Company is a limited liability company, therefore, no income taxes have
been provided for its operations other than at its subsidiary ACME Television of
Missouri, Inc. which is a "C" Corporation subject to federal and state taxation.
Any liability or benefit from the Company's non-taxable entities' consolidated
income or loss is the responsibility of, or benefit to, the individual members.
F-9
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
BASIC AND DILUTED NET LOSS PER SHARE
The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding for the
period. The calculation of diluted net loss per share excludes shares of common
stock issuable upon exercise of employee stock options as the effect of the
exercise would be antidilutive.
PRO FORMA FINANCIAL INFORMATION
Pro forma net earnings represents the results of operations adjusted to
reflect (i) a provision for income taxes on historical earnings before income
taxes, which gives effect to the change in the Company's income tax status to a
C corporation as a result of the public sale of its common stock and (ii) the
impact on the net loss allocated to minority interests. When the Company
terminates its limited liability corporation status, which is expected to occur
immediately prior to the consummation of the offering, it will record an
earnings benefit resulting from the establishment of net deferred tax assets.
The amount of the benefit to be recorded (approximately $400,000 at March 31,
1999) will be dependent upon temporary differences existing at the date of
termination of the Company's limited liability corporation status.
Pro forma net loss per share has been computed by dividing pro forma net
loss by the weighted average number of shares of common stock outstanding during
the period.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include the allowance for doubtful accounts
net of the realizable value of programming rights and the evaluation of the
recoverability of intangible assets. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts previously reported for 1997 and 1998 have been
reclassified to conform to the 1999 financial statement presentation.
F-10
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
[Download Table]
MARCH
DECEMBER 31, 31,
----------------- ---------
1997 1998 1999
------ ------- ---------
Land........................................ $ -- $ 553 $ 869
Buildings & Improvements.................... 365 2,529 3,202
Broadcast and Other Equipment............... 7,201 13,163 14,000
Furniture and Fixtures...................... 60 287 271
Vehicles.................................... 61 185 185
Construction in process..................... -- 1,935 2,734
------ ------- -------
Total.................................. $7,687 $18,652 $21,261
Less Accumulated Depreciation............... (341) (2,211) (2,841)
------ ------- -------
Net Property and equipment.................. $7,346 $16,441 $18,420
====== ======= =======
Included in property and equipment are assets acquired under capital leases
with a total cost of $6,645,000 and the associated accumulated depreciation of
$1,099,000 at March 31, 1999.
(4) ACQUISITIONS
On June 30, 1998, the Company acquired substantially all the assets and
assumed certain liabilities of WTVK-Channel 46 serving the Fort Myers-Naples,
Florida marketplace for approximately $14.5 million in cash and 1,047 membership
units (valued at approximately $1.0 million). The acquisition was accounted for
using the purchase method. The excess of the purchase price over the fair value
of the net assets assumed of approximately $15.5 million has been recorded as an
intangible asset and is being amortized over a period of 20 years. The Company
had entered into a local marketing agreement with WTVK wherein the Company,
effective March 3, 1998, retained all revenues generated by the station, bore
all operating expenses of the station and had the right to program the station
(subject to WTVK's ultimate authority for programming) and the station's
existing programming commitments. The local marketing agreement terminated upon
the consummation of the acquisition. Consequently, under the local marketing
agreement the revenues and operating expenses of the station are included in the
Company's results of operations from March 3, 1998 to June 30, 1998. The
purchase transaction was recorded on the consolidated balance sheet of the
Company on June 30, 1998 and the Company's results of operations includes
revenues and expenses (including amortization of intangible assets) beginning
July 1, 1998.
On July 29, 1997, the Company entered into a stock purchase agreement to
acquire Koplar Communications, Inc. (KCI). On September 30, 1997, the Company
placed $143 million in to an escrow account (classified as a deposit on the
December 31, 1997 consolidated balance sheet). In connection with this
acquisition, the Company entered into a
F-11
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
long-term local marketing agreement with KPLR and filed the requisite
applications with the FCC for the transfer of the Station's license to the
Company.
Pursuant to the local marketing agreement relating to KPLR, the Company
retained all revenues generated by the station, bore substantially all operating
expenses of the station and was obligated to pay a local marketing agreement
fee. These revenues and expenses for the period October 1 through December 31,
1997 are included in the Company's operating results for the year ended December
31, 1997.
On March 13, 1998, the Company completed its acquisition of Koplar
Communications, Inc. ("KCI") and acquired all of the outstanding stock of KCI
for a total consideration of approximately $146.3 million. The acquisition was
accounted for using the purchase method. Pursuant to the local marketing
agreement referred to above, all revenues and operating expenses of the station
for the period from September 30, 1997 to March 31, 1998 (the effective date of
the purchase transaction) are included in the Company's operating results. The
purchase transaction was recorded on the consolidated balance sheet of the
Company effective March 31, 1998 and the Company's results of operations
includes revenues and expenses (including amortization of intangible assets)
beginning April 1, 1998.
The fair value of the assets acquired and liabilities assumed relating to
the acquisition of KPLR (in thousands):
[Download Table]
Assets acquired:
Cash and cash equivalents................................. $ 779
Accounts receivables, net................................. 1,703
Program broadcast rights.................................. 8,490
Property and equipment.................................... 2,233
Prepaid expenses and other current assets................. 416
FCC License............................................... 93,775
Goodwill.................................................. 82,563
Other assets.............................................. 395
--------
Total assets acquired.................................. $190,354
========
Liabilities assumed:
Accounts payable.......................................... $ (1,005)
Accrued liabilities....................................... (1,332)
Program broadcast rights payable.......................... (8,258)
Deferred income taxes..................................... (29,889)
Other liabilities......................................... (3,531)
--------
Total liabilities assumed.............................. $(44,015)
--------
Total purchase price........................................ $146,339
========
During 1997, the Company entered into an agreement that provided it with
the right to: (i) acquire 49% of the licensee of KUPX (formerly KZAR) in
exchange for membership units valued at $6 million, and (ii) pay $3 million for
an option to acquire the remaining 51% interest in the licensee of KUPX for $5
million, exercisable immediately after the station
F-12
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
commences on-air operations. On December 15, 1997, the Company acquired the 49%
interest in the licensee of KUPX, paid $3 million to acquire the option and
loaned the sellers $4 million (to be applied to the subsequent majority interest
purchase price). On January 22, 1998, the Company issued $6 million of its
member units to the sellers for the 49% interest in the license of KUPX in
connection with the above transaction. The amount of the issuance was based upon
a fixed dollar amount of consideration. The Company accounted for the 49%
investment with the equity method of accounting. In February 16, 1999, the
Company acquired the remaining 51% interest in KUPX. The $4 million loan was
applied against the remaining purchase price of $5 million.
In May 1998 the Company and the majority owners of KUPX entered into an
agreement with another broadcaster in Salt Lake City to (i) swap KUPX for KUWB,
subject to FCC approval (ii) enable the Company to operate KUWB under a local
marketing agreement and enable the owner of KUWB to operate KUPX under a local
marketing agreement. In March 1999, the FCC approved the swap of KUPX for KUWB,
which is expected to close during the third quarter of 1999. The Company intends
to account for the swap as a non-monetary transaction using its historical cost.
The Company believes that the fair value of KUWB approximates the historical
cost of KUPX.
On August 22, 1997, the Company entered into an agreement with affiliates
of the sellers of KZAR to acquire 100% of the interests in the construction
permit for KAUO for a consideration of $10,000. This agreement was consummated
on January 22, 1998. Subsequently, the call letters of KAUO were changed to
KWBQ. Construction of KWBQ was completed and the station commenced broadcasting
in March 1999.
On June 17, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Channel 32, Incorporated, relating to the
operations of KWBP, in exchange for $18,675,000 in cash and $4,400,000 of
membership units in the Company. The acquisition was accounted for using the
purchase method. The excess of the purchase price plus the fair value of net
liabilities assumed of approximately $23,478,000, has been recorded as an
intangible asset and is being amortized over a period of 20 years. In addition,
the results of KWBP were recorded by the Company beginning January 1, 1997
pursuant to a local marketing agreement whereby ACME Oregon effectively operated
the station and funded the station's losses during the period from January 1,
1997 to June 17 1997 (the acquisition date).
On October 7, 1997, the Company acquired Crossville Limited Partnership,
the owner of WINT, in exchange for $13,200,000 in cash. Subsequent to the
acquisition, the Company changed the call letters of the station to WBXX. The
acquisition was accounted for using the purchase method. The excess of the
purchase price over the fair value of net assets acquired of approximately
$13,287,000, has been recorded as an intangible asset and is being amortized
over a period of 20 years.
On February 19, 1999, the Company entered into an agreement in principle
with Ramar Communications ("Ramar") to acquire Ramar's KASY TV-50, serving the
Albuquerque market for approximately $27 million. In a related transaction, the
Company will concurrently sell to Ramar its station KWBQ, also serving the
Albuquerque market. The Company will also enter
F-13
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
into a 10-year local marketing agreement with Ramar to operate KWBQ. This
transaction is subject to FCC approval.
The unaudited pro forma financial information for the year ended December
31, 1998 and 1997, set forth below reflects the net revenues and net loss
assuming the KWBP, WBXX, KPLR, WTVK and KWBQ transactions had taken place at the
beginning of each respective year. This unaudited pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the acquisitions occurred on January 1, 1998 and 1997.
[Download Table]
YEAR ENDED DEC. 31,
--------------------
1997 1998
-------- --------
Net Revenues.......................................... $35,410 $44,275
Net loss.............................................. (24,044) (24,173)
(5) UNIT OFFERING
On September 30, 1997, ACME Intermediate issued 71,634 Units (the Unit
Offering) consisting of 71,634 membership units (representing 8% of the ACME
Intermediate's outstanding membership equity) and $71,635,000 (par value at
maturity) in 12% Senior Secured Discount Notes Due 2005 (Intermediate Notes).
Cash interest on the Intermediate Notes is payable semi-annually in arrears,
commencing with the six-month period ending March 31, 2003. The net proceeds
from the Unit Offering, after the deduction of underwriter fees and other
related offering costs, were $38.3 million and were received by the Company on
September 30, 1997. The Company has allocated approximately $4.2 million of such
net proceeds to minority interest, $35.6 million to the discounted note payable
and $1.5 million to prepaid financing costs -- the latter which is being
amortized over the eight year term of the notes. In connection with the
reorganization the minority interest will be acquired by the Company. See Note
14. The Intermediate Notes contain certain covenants and restrictions including
restrictions on future indebtedness and restricted payments, as defined, and
limitations on liens, investments, transactions with affiliates and certain
asset sales. The Company was in compliance with all such covenants and
restrictions at December 31, 1998 and 1997.
The Intermediate Notes are secured by a first priority lien on the limited
liability company interests in ACME Television and ACME Subsidiary Holdings II,
LLC, both of which are direct wholly-owned subsidiaries of ACME Intermediate.
The consolidated financial statements of ACME Television are included herein.
ACME Subsidiary Holdings II, LLC was formed solely to own a 0.5% interest in
ACME Television, has no other assets or operations and does not constitute a
substantial portion of the collateral for the Intermediate Notes.
(6) 10 7/8% SENIOR DISCOUNT NOTES
On September 30, 1997, ACME Television issued 10.875% Senior Discount Notes
Due 2004 (Notes) with a face value of $175,000,000 and received $127,370,000 in
gross proceeds from such issuance. These Notes provide for semi-annual cash
interest payments beginning
F-14
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
in the fourth year with the first interest payment due on March 31, 2001. The
Notes are subordinated to ACME Television's bank revolver (see Note 7) and to
the ACME Television's capital equipment finance facilities (see Note 9). The
Notes mature on September 30, 2004 and may not be prepaid without penalty.
The Notes contain certain covenants and restrictions including restrictions
on future indebtedness and limitations on investments, and transactions with
affiliates. ACME Television was in compliance with all such covenants and
restrictions at March 31, 1999, December 31, 1998 and December 31, 1997.
Costs associated with the issuance of these notes, including the
underwriters fees and related professional fees are included in long-term other
assets and will be amortized over the seven year term of the notes.
ACME Television's subsidiaries (hereinafter referred to in this section
collectively as Subsidiary Guarantors) are fully, unconditionally, and jointly
and severally liable for ACME Television's notes. The Subsidiary Guarantors are
wholly owned and constitute all of ACME Television's direct and indirect
subsidiaries except for ACME Finance Corporation, a wholly owned finance
subsidiary of ACME Television with essentially no independent operations that is
jointly and severally liable with the Company on the Notes (as defined). ACME
Television has not included separate financial statements of the aforementioned
subsidiaries because (i) ACME Television is a holding company with no assets or
independent operations other than its investments in its subsidiaries and (ii)
the separate financial statements and other disclosures concerning such
subsidiaries are not deemed material to investors.
Various agreements to which ACME Television and/or the Subsidiary
Guarantors are parities restrict the activity of the Subsidiary Guarantors to
make distributions to the Company. The Investment and Loan Agreement (the
Investment Agreement), dated June 17, 1997, as amended, among the Company and
the parties thereto and the Limited Liability Company Agreement (the LLC
Agreement), dated June 17, 1997, as amended, among the Company and the parties
thereto each contain certain restrictions on the ability of the Subsidiary
Guarantors to declare or pay dividends to ACME Television in the absence of the
consent of certain parties thereto. The Indenture governing the Notes prevents
the Subsidiary Guarantors from declaring or paying any dividend or distribution
to ACME Television unless certain financial covenants are satisfied and there
has been no default thereof. The revolving credit facility with Canadian
Imperial Bank Corporation (see Note 7) also prohibits distributions from the
Subsidiary Guarantors to ACME Television except in certain circumstances during
which default has not occurred thereunder.
(7) BANK REVOLVER
On August 15, 1997, ACME Television entered into a $22.5 million revolving
credit facility (the Loan Agreement) with Canadian Imperial Bank Corporation
(CIBC), as agent and lead lender. Under the terms of the Loan Agreement,
advances bear interest at either the alternative base rate or the adjusted LIBOR
rate, as defined in the Loan Agreement. Commitment fees are charged at a rate of
.5% per annum, paid quarterly, of the unused portion of the facility. On
December 2, 1997, the Loan Agreement was amended to provide
F-15
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
ACME Television with an increased credit line to $40 million, more favorable
interest rates and a lengthened term. As of March 31, 1999 there was an
outstanding balance of $12.9 million and $27.1 million available under the Loan
Agreement. As of December 31, 1998 there was an outstanding balance of $8.0
million and $32.0 million available under the Loan Agreement. There was no
outstanding balance due at December 31, 1997.
The Loan Agreement contains certain covenants and restrictions including
restrictions on future indebtedness and limitations on investments and
transactions with affiliates. ACME Television was in compliance with all such
covenants and restrictions at March 31, 1999, December 31, 1998 and December 31,
1997.
Costs associated with the procuring of bank credit facilities, including
loan fees and related professional fees, are included in long-term other assets
and are amortized over the term of the Loan Agreement.
(8) CONVERTIBLE DEBENTURES
On June 30, 1997 and on September 30, 1997 the Company issued convertible
debentures to certain investors in the aggregate amount of $24,756,000. The
debentures bear interest at the rate of 10% per annum, compounded annually.
Accrued interest, along with the principle balance is due and payable on June
30, 2008, or earlier in the event of certain specified events of default or in
connection with a change of control of the Company.
Pursuant to the terms of the debentures, the holders may elect at any time
prior to maturity to convert a portion or all of the then outstanding principal
and accrued interest into membership units of the Company. The conversion rate
is fixed by contract and represents, in the aggregate, and assuming the entire
original principal and interest were converted, an additional 24,756 units of
membership. As of March 31, 1999, December 31, 1998 and 1997, the amount of
accrued interest due to the holders of the convertible debt is $4,134,000,
$3,523,000 and $1,048,000, respectively, and is included in other liabilities on
the Company's balance sheets.
(9) COMMITMENTS AND CONTINGENCIES
OBLIGATIONS UNDER OPERATING LEASES
The Company is obligated under noncancelable operating leases for office
space and its transmission sites. Future minimum lease payments as of the year
ended December 31, 1998,
F-16
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
under noncancelable operating leases with initial or remaining terms of one year
or more are:
[Download Table]
1999................................................. $ 1,125,000
2000................................................. 1,118,000
2001................................................. 1,068,000
2002................................................. 970,000
2003................................................. 916,000
Thereafter........................................... 4,806,000
-----------
Total.............................................. $10,003,000
===========
Total future minimum lease payments under non-cancelable operating leases
were $10,003,000 and $6,615,000 at December 31, 1998 and 1997, respectively.
Total rental expense under operating leases for the three months ended
March 31, 1999 and the twelve months ended December 31, 1998 and 1997 was
approximately $281,000, $967,463 and $166,000, respectively.
OBLIGATIONS UNDER CAPITAL LEASES
As of December 31, 1998, approximately $5.5 million of equipment was leased
under capital equipment facilities. These obligations are reflected as current
obligations under capital leases of $1,273,000 and $292,000, and as non-current
liabilities under capital lease of $4,199,000 and $443,000 at December 31, 1998
and 1997 respectively. These capital lease obligations expire over the next five
years. Future minimum lease payments as of December 31, 1998 under capital
leases are:
[Download Table]
1999.................................................. $ 1,638,000
2000.................................................. 1,431,000
2001.................................................. 1,371,000
2002.................................................. 1,351,000
2003.................................................. 931,000
-----------
Total............................................... $ 6,722,000
Less interest......................................... (1,250,000)
-----------
Present value of minimum lease payments............. $ 5,472,000
===========
PROGRAM RIGHTS PAYABLE
Commitments for program rights that have been executed, but which have not
been recorded in the accompanying financial statements, as the underlying
programming is not yet available for broadcast, were approximately $28,265,000
and $7,010,000 as of December 31, 1998 and December 31, 1997, respectively.
F-17
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
Maturities on the Company's program rights payables (including commitments
not recognized in the accompanying financial statements due to the lack of
current availability for broadcast) for each of the next five years are:
[Download Table]
1999................................................. $ 9,316,000
2000................................................. 9,903,000
2001................................................. 8,897,000
2002................................................. 6,322,000
2003................................................. 3,838,000
Thereafter........................................... 4,150,000
-----------
Total.............................................. $42,426,000
===========
CERTAIN COMPENSATION ARRANGEMENTS
The Company has issued Management Carry Units to certain members of
management. These units entitle holders to certain distribution rights upon
achievement of certain returns by non-management investors and are subject to
forfeiture or repurchase by the Company in the event of termination of each
individual's employment by the Company under certain specified circumstances.
The Company has determined the value of these at the issuance date to be
immaterial. These Management Carry Units will be accounted for as a variable
plan resulting in an expense when it is probable that any such distributions
will be made. The Company will record any such expense relating to the
Management Carry Units issued by the Company. As of December 31, 1998 and 1997
there were 100 Management Carry Units outstanding. During the quarter ended
March 31, 1999, the Company recorded an expense of $2.5 million relating to the
units.
LEGAL PROCEEDINGS
The Company is party to routine claims and suits brought against it in the
ordinary course of business. In the opinion of management, the outcome of such
routine claims will not have a material adverse effect on the Company's
business, financial condition, results of operations or liquidity.
(10) INCOME TAXES
The income tax expense (benefit) consists of the following:
[Download Table]
(IN THOUSANDS) 1998
-------------- -------
Current
Federal income taxes...................................... $ --
State income taxes........................................ --
-------
Total current tax expense (benefit)......................... --
Deferred tax benefit........................................ (2,393)
-------
Total income tax expense (benefit).......................... $(2,393)
=======
F-18
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
The differences between the income tax benefit and income taxes computed
using the U.S. Federal statutory income tax rates (35%) consist of the
following:
[Download Table]
(IN THOUSANDS) 1998
-------------- -------
Tax expense (benefit) at U.S. Federal rate.................. $(3,471)
State income taxes, net of Federal tax expense (benefit).... (261)
Nondeductible expenses...................................... 1,430
Other....................................................... $ (91)
-------
Income tax benefit........................................ $(2,393)
=======
DEFERRED INCOME TAXES
The Company's subsidiary, ACME Television Holdings of Missouri, Inc. is a
"C" Corporation and is subject to state and federal income taxes (see Note 2
"Income Taxes"). The deferred tax asset of $3,811,000 and liability of
$31,241,000 for the year ended December 31, 1998, were related to the following:
[Download Table]
1998
---------
LONG TERM
---------
Assets:
Allowances and reserves................................... $ 2,211
Net operating loss carryforwards.......................... 1,255
Other..................................................... 345
---------
Deferred tax asset........................................ $ 3,811
Liabilities:
Program Amortization...................................... $ (944)
Intangibles............................................ (30,297)
---------
Deferred tax liability.................................... $ (31,241)
---------
Net deferred tax liability................................ $ (27,430)
=========
The primary difference in the book basis and tax basis of the Company's
non-taxable entities relates to intangible assets. Intangible assets of the
non-taxable entities had a book and tax basis of approximately $59 million and
$58 million at December 31, 1998, respectively.
(11) RELATED PARTY TRANSACTIONS
The Company's stations have entered into affiliation agreements and, from
time to time, related marketing arrangements with The WB Network and related
marketing arrangements. Jamie Kellner is an owner and the chief executive
officer of The WB Network.
Pursuant to an agreement among Koplar Communications, Roberts Broadcasting,
Michael Roberts and Steven C. Roberts, Roberts Broadcasting cannot (i) transfer
its license for WHSL, East St. Louis, Illinois, (ii) commit any programming time
of the station for
F-19
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
commercial programming or advertising or (iii) enter into a local marketing
agreement with respect to such station until June 1, 2000. In the event that the
current affiliation agreement for WHSL is terminated, the substitute format must
be substantially similar to the current home shopping network format or, in the
alternative, an infomercial format. The annual payment from the Company for
these agreements was $200,000 during the first three years (paid by the prior
owner of KPLR). The Company paid $300,000 in 1998 and will pay $300,000 in 1999
under this agreement.
In connection with ACME Utah and ACME New Mexico, the Company has entered
into long-term agreements to lease studio facilities and/or transmission tower
space for KUWB and KWBQ from an affiliate of Michael and Steven Roberts. Both
Michael and Steven C. Roberts are members of ACME Parent and Michael Roberts is
a proposed Member of ACME Parent's Board of Advisors. These leases have terms of
approximately fifteen years and provide for monthly payments aggregating
approximately $25,000, subject to adjustment based on the Consumer Price Index.
On October 1, 1997, in connection with our acquisition of KWBP, we paid
CEA, Inc., an affiliate of one of our stockholders, CEA Capital Partners, a
broker's fee of approximately $176,000. On the same day, we paid CEA, Inc.,
$132,000 in connection with the purchase of KBXX, $25,000 in connection with the
purchase of the construction permit for KWBQ (formerly KAOU), $45,000 in
connection with the purchase of the construction permit for KUPX (formerly KZAR)
and $889,000 in connection with the purchase of KPLR, as broker's fees in each
of the transactions. Additionally, in connection with the recent acquisition of
WBUI, WIWB and WBDT, we paid CEA, Inc. a broker's fee of $125,000. CEA, Inc.
also received compensation from the seller in connection with the purchase of
WBUI, WIWB and WBDT. One of our directors, Mr. Collis, is an officer of an
affiliate of CEA Capital Partners.
In June and September 1997, we issued 10% convertible debentures with the
right to convert into 24,775,970 membership units in our predecessor, ACME
Television Holdings, LLC, to affiliates of Alta Communications, Banc Boston, CEA
Capital Partners and TCW Asset Management Company, each of which are
stockholders in our company. Another of our directors, Mr. Schall, is an officer
of an affiliate of TCW Asset Management Company.
In February 1999, we exercised our option to purchase the property where
the KWBP corporate office is located for $1.5 million from an affiliate of the
seller of KWBP. Before the purchase we leased the property from the same
affiliate, from which we purchased KWBP.
In connection with our purchase of KWBP in June 1997, we loaned the seller
of KWBP approximately $119,000. This loan was repaid in July 1999.
(12) DEFINED CONTRIBUTION PLAN
In 1998, the Company established a 401(k) defined contribution plan (the
Plan) which covers all eligible employees (as defined in the Plan). Participants
are allowed to make nonforfeitable contributions up to 15% of their annual
salary, but may not exceed the annual maximum contribution limitations
established by the Internal Revenue Service. The Company currently matches 50%
of the amounts contributed by each participant but does
F-20
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
not match participants' contributions in excess of 6% of their contribution per
pay period. The Company contributed and expensed $200,000 to the Plan in 1998,
$43,000 for the three months ended March 31, 1998 and $48,000 for the three
months ended March 31, 1999.
(13) MEMBERS' CAPITAL
The Company's membership units are held in various classes, each class of
which entitles the holders to differing levels of distribution. As of December
31, 1997 and 1998, the Company's membership units outstanding were as follows:
[Download Table]
DECEMBER 31,
1998
DECEMBER 31, AND MARCH 31,
1997 1999
----------------- -----------------
CLASS UNITS $000'S UNITS $000'S
----- ------- ------ ------- ------
Founders Class A........................... 943 943 943 943
Founders Class B........................... 533 533 533 533
Investor................................... 18,210 18,210 16,757 16,757
Sellers.................................... 10,400 10,400 12,900 12,900
------- ------ ------- ------
Total.................................... 30,086 30,086 31,133 31,133
======= ====== ======= ======
Excludes membership units held by the Company's senior management team.
(14) SUBSEQUENT EVENT -- REORGANIZATION
Immediately before the closing of the offering, we will complete the
reorganization described below. Before the following steps may be completed, we
must receive FCC approval, for which we have filed an application.
First, a subsidiary of ACME Communications, Inc. will merge into ACME
Television Holdings, LLC. In this merger, ACME Television Holdings, LLC's
membership units will be exchanged for shares of common stock of ACME
Communications. After this merger, ACME Communications will own 100% of the
membership units of ACME Television Holdings, LLC.
Second, ACME Communications will issue common stock in exchange for all of
the convertible debentures of ACME Television Holdings, LLC.
Third, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will be merged into ACME Communications, which will be
the surviving corporation.
As a result of the mergers, ACME Communications will own membership units
representing approximately 92% of ACME Intermediate.
Third, ACME Communications will exchange shares of its common stock for (a)
membership units held by current owners of approximately 6% of ACME Intermediate
and (b) all of the convertible debentures and preferred membership units of
another
F-21
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1999 IS UNAUDITED)
subsidiary of ACME Television Holdings, LLC that owns approximately 2% of ACME
Intermediate. Consequently, ACME Communications will own 100% of ACME
Intermediate.
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
In addition, the Company established the 1999 Incentive Stock Option Plan
under which awards of stock options may be granted. An aggregate of
shares of the Company's common stock will be reserved for issuance under the
plan.
(15) SUBSEQUENT EVENTS -- ACQUISITION (UNAUDITED)
On April 23, 1999, the Company acquired the non-FCC license assets of three
Paxson Communication Corporation stations serving the Dayton, OH, Green Bay, WI
and Champaign-Decatur, IL markets for $32 million. On June 23, 1999, following
FCC approval of the transfer of the FCC licenses to ACME, the Company acquired
the licenses and completed the acquisition of the three stations by making to
PCC a final payment of $8.0 million. The Company financed this $40 million
transaction by a $25 million borrowing under its revolver and a $15 million loan
from certain of its members (the "Bridge Loan"). The Bridge Loan bears interest
at 22.5% per annum, is unsecured, may be prepaid at any time without penalty and
is due, along with all accrued interest, on April 23, 2002.
F-22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Koplar Communications, Inc.:
We have audited the consolidated statements of operations and cash flows of
Koplar Communications, Inc. and subsidiary for the years ended December 31, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Koplar Communications, Inc. and subsidiary for the years ended December 31,
1996 and 1997 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
July 23, 1999
F-23
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
[Download Table]
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
------- ---------
Revenues, net............................................. $27,381 $ 21,488
Operating expenses:
Programming............................................. 11,385 8,458
Selling, general and administrative..................... 11,455 13,896
Depreciation and amortization........................... 702 556
------- ---------
Total operating expenses............................. 23,542 22,910
------- ---------
Operating income (loss).............................. 3,839 (1,422)
------- ---------
Other expense:
Interest expense........................................ 2,155 1,200
Other expense........................................... 663 2,006
------- ---------
Total other expense.................................. 2,818 3,206
------- ---------
Income (loss) before income taxes and extraordinary
item.................................................... 1,021 (4,628)
Provision (benefit) for income taxes...................... 462 (1,081)
------- ---------
Net income (loss) before extraordinary item.......... 559 (3,547)
------- ---------
Extraordinary item:
Loss on early extinguishment of debt, net of taxes of
$868 and $93, respectively........................... (1,359) (146)
------- ---------
Net loss............................................. $ (800) $ (3,693)
======= =========
See accompanying notes to consolidated financial statements.
F-24
KOPLAR COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
[Download Table]
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
-------- --------
Cash flows from operating activities:
Net loss................................................ $ (800) $ (3,693)
-------- --------
Adjustments to reconcile net loss to net cash:
Deferred income taxes................................... (173) (361)
Amortization of programming rights...................... 5,360 4,514
Adjustment to carrying value of programming rights...... 1,500 --
Amortization of deferred financing costs................ 411 47
Loss on early extinguishment of debt.................... 2,227 239
Depreciation and amortization........................... 702 556
Changes in operating assets and liabilities:
Receivables............................................. 643 (544)
Prepaid expenses and other current assets............... (142) 150
Other assets............................................ 44 350
Accounts payable and accrued expenses................... (561) 5,247
Accrued interest........................................ (301) (76)
Income taxes receivable/payable......................... (773) (694)
Other long-term liabilities............................. (182) (58)
-------- --------
Net cash provided by operating activities............ 7,955 5,677
-------- --------
Cash flows from investing activities:
Purchases of property and equipment..................... (687) (293)
Deposits for PCS Auction................................ (468) --
Return of deposits for PCS Auction...................... 468 468
Investment in affiliate................................. (100) (384)
-------- --------
Net cash used in investing activities................ (787) (209)
-------- --------
Cash flows from financing activities:
Repayment of notes payable officer/shareholder.......... (1,168) --
Payment on other debt and obligations under capital
leases............................................... (21) (195)
Payment on programming obligations...................... (5,515) (5,567)
Cash overdraft, net..................................... 1,244 (678)
Repayment of long-term debt............................. (11,640) (13,950)
Proceeds from long-term debt............................ 14,159 --
Proceeds from short-term ACME advances.................. -- 14,899
Payments on revolver, net............................... (4,130) --
Payment on deferred financing costs..................... (318) --
-------- --------
Net cash used in financing activities................ (7,389) (5,491)
-------- --------
Net decrease in cash................................. (221) (23)
Cash, beginning of year................................... 244 23
-------- --------
Cash, end of year......................................... $ 23 $ --
======== ========
Cash paid for interest.................................... $ 1,575 $ 1,216
======== ========
Cash paid for income taxes................................ $ 120 $ --
======== ========
Non-cash transactions:
Programming rights purchased under installment
obligations.......................................... $ 3,430 $ 3,205
======== ========
See accompanying notes to consolidated financial statements.
F-25
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(1) ORGANIZATION
The Company operates an independent television station in St. Louis,
Missouri (KPLR-TV). The broadcasting license of KPLR-TV is owned by Koplar
Television Co., L.L.C., a 99.9%-owned subsidiary of Koplar Communications, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies
followed in the preparation of these financial statements:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Koplar
Communications, Inc. and subsidiary (collectively, the Company). Accordingly,
all references herein to Koplar Communications, Inc. include the consolidated
results of its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CREDIT CONCENTRATIONS
The Company maintains several cash accounts, including a lockbox account,
in a financial institution. The cash balances in these accounts may at times
exceed insured limits. The majority of the Company's receivables are due from
local and national advertising agencies and are not collateralized.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the
related assets. The accelerated cost recovery system (ACRS) and modified
accelerated cost recovery system (MACRS) are used for income tax purposes.
Renewals and betterments are capitalized to the related asset accounts, while
repair and maintenance costs, which do not improve or extend the lives of the
respective assets, are charged to operations as incurred.
When assets are retired or otherwise disposed of, the assets and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recorded in operations.
F-26
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
PROGRAMMING RIGHTS
Programming rights are recorded at cost when the program is available to
the Company for broadcasting. Programming rights and related obligations are
recorded at cost without recognition of any imputed interest charges. Agreements
define the lives of the rights and the number of showings. The cost of
programming rights is charged against earnings either on the straight-line basis
over the term of the agreement or per play for certain syndicated contracts
based on the number of plays specified in the contract. Programming rights for
programs which management expect to be broadcast in the succeeding fiscal year
are shown as a current asset.
The Company assesses the valuation of its programming rights on an ongoing
basis by evaluating the unamortized rights and future programming rights
commitments and comparing the anticipated future number of plays and related
revenue potential with the related unamortized cost. When unamortized cost
exceeds the undiscounted estimated future revenue, the Company will recognize an
adjustment to the related carrying value. During 1996, the Company recorded an
adjustment to the carrying value of certain programming rights totaling
approximately $1,500,000.
DEFERRED FINANCING COSTS
Financing costs incurred in connection with obtaining financing are
deferred and amortized on a straight-line basis over the term of the borrowings.
Amortization of deferred financing costs, included in interest expense, totaled
approximately $411,000 and $47,000, for the years ended December 31, 1996 and
1997, respectively. In addition, the Company expensed approximately $2,227,000
and $239,000 of deferred financing costs during 1996 and 1997, respectively, as
a result of the Company's refinancing of its long-term debt (see note 6).
Accordingly, the expense related to these transactions has been reflected as an
extraordinary item, net of tax effects, in the consolidated statements of
operations.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of temporary differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the temporary
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
INTEREST RATE HEDGE AGREEMENTS
The Company enters into interest rate swap agreements which involve the
exchange of fixed and floating rate interest payments periodically over the life
of the agreement without the exchange of the underlying principal amounts. All
agreements entered into by the Company relate to outstanding debt obligations.
Accordingly, the Company accounts for these instruments similar to a hedge
agreement and the differential to be paid or received is
F-27
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
accrued as interest rates change and recognized over the life of the agreements
as an adjustment to interest expense.
REVENUE RECOGNITION
Revenues from advertisements are recognized as commercials are broadcast.
The Company receives such revenues net of commissions deducted for advertising
agencies.
BARTER REVENUES
Barter transactions in which the Company accepts products or services in
exchange for commercial airtime are recorded at the estimated fair values of the
products or services received. Barter revenues are recognized when commercials
are broadcast. The assets or services received in exchange for broadcast time
are recorded when received or used. Certain of the Company's programming
agreements involve the exchange of advertising time for programming. The Company
does not record revenues and cost of revenues related to these arrangements,
which have no impact on earnings. The Company estimates that revenues and costs
associated with these agreements were approximately $2,612,000 and $2,800,000
for 1996 and 1997, respectively.
LOCAL MARKETING AGREEMENTS
The Company entered into a local marketing agreement (LMA) upon its
acquisition by ACME Television Holdings, LLC (see note 15). As of December 31,
1997, regulatory approval of the transfer of the Company's License Assets was
pending. Under the terms of the agreement, the Company receives specified
periodic payments to operate KPLR-TV in exchange for the grant to ACME of the
right to program and sell advertising on a specified portion of the station's
inventory of broadcast time. In addition, ACME assumes the obligation to pay all
operating expenses subsequent to September 30, 1998. Accordingly, ACME has
recorded all operating revenues and expenses during the LMA period from October
1, 1997 through December 31, 1997. All other non-operating results are recorded
by the Company during the LMA period.
(3) PREPAID EXPENSES AND OTHER CURRENT ASSETS
In 1995, the Company placed a refundable deposit of $1,235,000 with the FCC
in order to bid on the regional rights for a personal communications system. The
Company expects this product to replace cell phones, beepers and other portable
communications technology. The Company was the successful bidder on a number of
PCS licenses. During 1996, $468,000 of the initial deposit was returned to the
Company.
In fourth quarter 1996, another round of PCS bidding was opened by the FCC.
The auction was concluded and the deposit was returned in the first quarter of
1997.
F-28
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1996 and 1997 is as
follows (dollars in thousands):
[Enlarge/Download Table]
ESTIMATED
1996 1997 USEFUL LIVES
------- ------- --------------
Land............................................... $ 464 $ 464 --
Buildings and improvements......................... 1,780 1,705 15 to 40 years
Equipment, furniture and fixtures.................. 6,463 6,311 3 to 15 years
------- -------
8,707 8,480
Less accumulated depreciation...................... (6,069) (6,105)
------- -------
$ 2,638 $ 2,375
======= =======
Depreciation expense for the years ended December 31, 1996 and 1997 was
approximately $702,000 and $556,000, respectively.
(5) NOTE PAYABLE -- REVOLVER
The note payable - revolver was repaid in July 1996 as part of a debt
refinancing with a financial institution (see note 6).
(6) LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 totaled $13,650,000.
Based upon the borrowing rates available to the Company for bank loans with
similar terms and average maturities, the fair value of long-term debt
approximated carrying value.
On July 10, 1996, the Company refinanced certain existing debt and received
a revolving commitment totaling $19,000,000 (the Loan Agreement), of which
approximately $14,266,000 was drawn from the commitment to satisfy certain
existing obligations and refinancing costs.
At December 31, 1996, the Company had borrowed $13,650,000 against the
revolving commitment agreement. Under the terms of the Loan Agreement, the
Company was required to repay the loan and all unpaid interest thereon on July
1, 2001. The loan interest was based on either the alternative base rate or the
adjusted LIBOR rate, as defined in the Loan Agreement.
In order to limit interest rate risk, the Company entered into a five-year
interest rate swap for $5,000,000 of the borrowings, which locked in an interest
rate of approximately 10%. The Company also entered into a three-year interest
rate swap for $2,000,000 of the borrowings, which locked in an interest rate of
approximately 10%. In addition, the Company entered into a 30-day interest rate
swap for $5,000,000 of the outstanding borrowings, which locked in an interest
rate of approximately 8.87% at December 31, 1996. The remaining borrowings
accrued interest, payable monthly at the prime interest rate plus 0.25% - 0.75%
per annum based on certain criteria. In addition, the Company is required to
F-29
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
pay quarterly a commitment fee of 0.5% per annum of the unused portion of the
revolving commitment.
During 1997, in conjunction with the acquisition by ACME, the outstanding
loan balances were paid in full and certain short-term advances were extended to
the Company by ACME. The total of outstanding advances at December 31, 19997 was
approximately $14,899,000.
(7) PROGRAMMING OBLIGATIONS
Programming obligations are generally classified as current or noncurrent
liabilities according to the payment terms of the various contracts.
At December 31, 1997, future minimum payments based on contractual
agreements are as follows (in thousands):
[Download Table]
YEAR ENDING
DECEMBER 31,
------------
1998........................................................ $5,030
1999........................................................ 3,295
2000........................................................ 1,373
------
$9,698
======
(8) NOTE PAYABLE -- PROGRAMMER
Note payable -- programmer represents an additional amount owed to Warner
Bros. ("WB") in connection with the restructuring of certain programming
obligations in 1994. During 1996, the Company entered into a Stock Purchase,
Option and Repurchase Agreement with WB, under which the Company had an
obligation in the amount of $3,692,000 to WB in addition to the liability
recorded as programming obligations.
Under this agreement, the Company issued a promissory note for $3,092,000
to WB (payable in even installments over 36 months, plus interest at 1% over the
prime rate per annum, payments to begin upon notification by WB to the Company),
and also transferred to WB stock in an entity which is partially owned by the
shareholder of the Company (see note 14). However, the agreement granted the
programmer a "Put Right" under which the stock may be transferred by WB to the
Company at any time until either June 28, 1997 or the exercise of the First
Option (see below). In 1995, $100,000 was paid on the Put Right.
The Company replaced the note payable-programmer with a restructured
agreement on December 31, 1996. The previous note payable and the related
accrued interest were replaced with Note A and Note B. Note A was in the amount
of $2,000,000 and at December 31, 1996 and 1997, $1,900,000 was outstanding.
Interest accrues at prime plus 0.5%. Principal of $100,000 plus accrued interest
to date are payable quarterly until the note is satisfied. There was no accrued
interest on Note A at December 31, 1996 and 1997.
Note B was an option note for $2,250,000. At December 31, 1996 and 1997,
$2,250,000 was outstanding on Note B. The programmer was granted an option
callable between
F-30
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
January 1, 2000 and December 31, 2001. If called, WB would receive 12% of a
related entity's stock instead of cash payments on the $2,250,000 promissory
note. The Company's "Put Right" was exercisable between January 1, 1997 and
December 31, 2001. If exercised, WB would receive 12% of the related entity's
stock instead of cash payments on the $2,250,000 promissory note. Interest
accrues at prime. There was no accrued interest on Note B at December 31, 1996
and 1997.
(9) COMMITMENTS
In conjunction with obtaining new programming and other related
considerations, the Company's commitments amounted to approximately $5,395,000
as of December 31, 1997.
The aggregate payments for these commitments over the next five years are
as follows (in thousands):
[Download Table]
YEAR ENDING
DECEMBER 31,
------------
1998........................................................ $ 298
1999........................................................ 1,250
2000........................................................ 1,731
2001........................................................ 1,476
2002........................................................ 640
------
$5,395
======
In January 1995 KPLR-TV became an affiliate of the WB Network. Under the
affiliation agreement, the Company was required to make an annual payment to
Warner Brothers if the ratings and revenue in prime time broadcasts of WB
Network programming for the current year exceed ratings and revenues achieved by
the Company in the preceding year. No such payments were payable to Warner
Brothers for the years ended December 31, 1996 and 1997.
The Company had an operating lease for certain equipment that requires
annual payments of approximately $42,000 for a remaining period of twelve years.
Total rent expense under operating leases for the years ended December 31, 1996
and 1997 was approximately $123,000 and $115,000, respectively.
(10) NOTES PAYABLE -- OFFICER/SHAREHOLDER
Indebtedness to a shareholder of the Company consists of a promissory note
for $1,023,000 and debentures payable for approximately $145,000, totaling
$1,168,000 at December 31, 1995. The notes and interest were repaid in July 1996
when the Company refinanced certain debt with a financial institution (see note
6).
F-31
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(11) INCOME TAXES
The provisions for income taxes on continuing operations for the years
ended December 31, 1996 and 1997 consists of the following (in thousands):
[Download Table]
1996 1997
----- -------
Current:
Federal................................................... $ 552 $ (557)
State..................................................... 83 (163)
Deferred:
Federal................................................... (150) (315)
State..................................................... (23) (46)
----- -------
Provision for income tax............................... $ 462 $(1,081)
===== =======
The difference between the actual tax provision and the amounts obtained by
applying the statutory U.S. federal income tax rate of 34% to income before
income taxes and extraordinary items for the years ended December 31 is as
follows (in thousands):
[Download Table]
YEARS ENDED
DECEMBER 31,
-----------------
1996 1997
------ -------
Income before income taxes and extraordinary items.......... $1,021 $(4,628)
------ -------
Tax provision computed at statutory rate.................... $ 347 $(1,574)
Increases (reductions) in taxes due to:
State income taxes (net of federal tax benefit)........... 40 (138)
Investment in affiliate................................... -- 570
Other..................................................... 75 61
------ -------
Actual tax provision........................................ $ 462 $(1,081)
====== =======
The tax effect of temporary differences between the tax basis of assets and
liabilities and their corresponding amounts for financial statement reporting
purposes at the tax rates expected to be in effect when such differences reverse
are as follows (in thousands):
[Download Table]
1996 1997
------ ------
Current deferred income tax asset:
Allowance for doubtful accounts........................... $ (83) $ (97)
Accrued vacation payable.................................. (64) (61)
Bonus payable............................................. (195) --
Charitable contributions carryforward..................... -- (40)
Option Agreement.......................................... -- (175)
Noncurrent deferred income tax liability:
Book over tax basis of fixed assets....................... 22 3
Book over tax basis of programming rights................. 1,918 1,607
------ ------
Net deferred income tax liability......................... $1,598 $1,237
====== ======
F-32
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
(12) 401(K) PLAN
Substantially all employees are eligible to participate in a 401(k) Plan
sponsored by the Company. The plan provides that the Company may match a
specified percentage of an employee's contribution up to a defined limit at its
discretion. The amount charged to expense by the Company for the years ended
December 31, 1996 and 1997 was approximately $55,000 and $60,000, respectively.
(13) INVESTMENT IN AFFILIATE
In 1995, the Company entered into an agreement with another television
station in St. Louis which provides that the Company make annual payments of
$200,000 to the owners of the station (the Owners) for three years, in return
for programming and other considerations over a three-year period. The agreement
may be extended by the Owners for an additional two years. Under a separate
agreement, the Company has agreed to make up to $3,500,000 in capital
contributions to a limited liability company, owned by the Company and the
Owners, formed to acquire television stations and invest in other communications
opportunities, as approved by the Company. No such additional contributions had
been made as December 31, 1997.
(14) RELATED PARTY TRANSACTIONS
During previous years, the Company advanced funds under a loan agreement to
ISW, Inc. (ISW), a company which is partially owned by a shareholder of the
Company. In 1996 and 1997, the Company advanced approximately $443,000 and
$1,200,000, respectively, to ISW. This amount was included in a loan receivable
balance and is fully reserved.
At December 31, 1996, the remaining balance of loans and interest
receivable by the Company from ISW was approximately $3,251,000 with a
corresponding allowance. Both amounts were written off and removed from the
records in 1997.
During 1996 and 1997, the Company was charged approximately $139,000 in
rent and parking charges by Koplar Properties, Inc., an entity owned by a
shareholder of the Company.
(15) SALE OF COMPANY
On July 29, 1997, the shareholders of the Company (Shareholders) agreed to
sell all of their shares of the Company's common and preferred stock to ACME
Television Holdings, LLC (ACME) for $146,000,000. On September 30, 1997,
pursuant to the stock purchase agreement between ACME and the Shareholders, ACME
placed $143,000,000 into an escrow account and ACME and the Shareholders filed
with the FCC a request to transfer the Company's broadcast license. The Company
has also entered into a local marketing agreement with ACME under the terms of
which ACME received the economic benefit of the Company's earnings, effective
October 1, 1997. As a result, the consolidated statements of operations reflect
the operating results of the Company through September 30, 1997, as well as any
other non-operating results from October 1, 1997 through December 31, 1997. On
F-33
KOPLAR COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
March 13, 1998, ACME acquired all of the outstanding common and preferred stock
of the Company and the local marketing agreement was terminated.
In connection with the ACME transaction, the Company recorded at December
31, 1997 approximately $5,900,000 in non-recurring bonus expense paid to a
certain executive and other employees of the Company. This amount is included in
other selling, general and administrative expense for the year ending December
31, 1997.
F-34
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Channel 32, Incorporated:
We have audited the accompanying statements of operations and cash flows of
Channel 32, Incorporated (a wholly owned subsidiary of Peregrine Communications,
Ltd. effectively as of July 1, 1995) for the years ended June 30, 1995
(Predecessor) and 1996 (Successor). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of Channel 32 Incorporated's operations
and its cash flows for the years ended June 30, 1995 (Predecessor) and 1996
(Successor) in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
November 13, 1997
F-35
CHANNEL 32 INCORPORATED
STATEMENTS OF OPERATIONS
[Download Table]
PERIOD FROM
JULY 1, 1996
JUNE 30, JUNE 30, TO
1995 1996 JUNE 17, 1997
------------- ----------- -------------
(SUCCESSOR)
(PREDECESSOR) (SUCCESSOR) (UNAUDITED)
Broadcast revenues, net............... $ 288,178 $ 2,728,857 $ 1,305,886
----------- ----------- -----------
Operating expenses:
Programming and production.......... 622,688 3,273,608 1,303,808
Selling, general and
administrative................... 273,422 1,462,360 1,060,497
Depreciation and amortization....... 234,498 541,878 346,469
----------- ----------- -----------
Total operating expenses......... 1,130,608 5,277,846 2,710,774
----------- ----------- -----------
Operating loss................. (842,430) (2,548,989) (1,404,888)
----------- ----------- -----------
Other income (expense):
Interest expense.................... (200,112) (3,252,202) (2,221,688)
Interest income..................... -- 44,821 --
Write-off of due from parent........ -- (188,586) --
Other expenses, net................. -- (70,254) (10,181)
----------- ----------- -----------
Other expense, net............... (200,112) (3,466,221) (2,231,869)
----------- ----------- -----------
Loss before income taxes.............. (1,042,542) (6,015,210) (3,636,757)
Income taxes.......................... -- -- --
----------- ----------- -----------
Net Loss....................... $(1,042,542) (6,015,210) $(3,636,757)
=========== ===========
F-36
CHANNEL 32 INCORPORATED
STATEMENTS OF CASH FLOWS
[Download Table]
PERIOD FROM
JULY 1, 1996
JUNE 30, JUNE 30, TO
1995 1996 JUNE 17, 1997
------------- ----------- -------------
(SUCCESSOR)
(PREDECESSOR) (SUCCESSOR) (UNAUDITED)
Cash flows from operating activities:
Net loss.............................. $(1,042,542) $(6,015,210) $(3,636,757)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash:
Depreciation and Amortization......... 288,083 951,377 1,322,513
Changes in assets and liabilities:
Increase in programming rights........ (122,500) (401,559) (380,400)
Increase in accounts receivable....... (59,470) (167,353) 23,242
Increase (decrease) in due from
related
party.............................. -- 14,700 (692,301)
Increase in other assets.............. (5,000) (82,646) (357,606)
Increase (decrease) in due to related
party.............................. -- 63,887 (63,887)
Increase (decrease) in accounts
payable............................ 252,704 (56,523) 651,014
Increase in accrued expenses.......... 179,117 184,414 182,932
Increase in programming rights
payable............................ 97,437 249,377 308,612
----------- ----------- -----------
Net cash used in operating
activities.................... (412,171) (5,259,536) (2,642,638)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and
equipment.......................... (978,711) (998,429) (355,717)
Disposal of property and equipment.... -- 236,910 --
Increase in broadcast licenses........ (243,785) (315,000) --
----------- ----------- -----------
Net cash used in investing
activities.................... (1,222,496) (1,076,519) (355,717)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings.............. 1,793,519 8,038,056 3,110,138
Payment of borrowings................. (159,417) (1,793,519) (2,635)
Payments of obligations under capital
lease.............................. -- -- (10,217)
Proceeds from issuance of common
stock.............................. 1,600 100,108 --
----------- ----------- -----------
Net cash provided by financing
activities.................... 1,635,702 6,344,645 3,097,286
----------- ----------- -----------
Net increase in cash............. 1,035 8,590 98,931
Cash, beginning of period............... -- 1,035 9,625
----------- ----------- -----------
Cash, end of period..................... $ 1,035 $ 9,625 $ 108,556
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.............................. 51,845 732,582 370,095
Income taxes.......................... 120 -- --
Non-cash transactions:
Acquisition of property and equipment
in exchange for capital lease
obligations........................ 650,000 185,000 --
See notes to consolidated financial statements
F-37
CHANNEL 32 INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND FORMATION
Channel 32, Incorporated was incorporated under the laws of the state of
Oregon on December 16, 1993. Channel 32, Incorporated (the Company) owns and
operates KWBP-TV Channel 32, a television station (and The WB Network affiliate)
in Portland, Oregon. The Company is a wholly owned subsidiary of Peregrine
Communications, Ltd. (Peregrine) subsequent to Peregrine's acquisition of the
Company effective July 1, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective July 1, 1995, Peregrine acquired Channel 32, Incorporated, for
approximately $350,000. The Company paid $315,000 of this amount on behalf of
Peregrine. The acquisition was accounted for using the purchase method of
accounting. The Company has applied push-down accounting reflecting the full
acquisition cost and resulting equity in the accompanying financial statements
subsequent to the acquisition date. As a result of the acquisition, the
financial information for periods after the acquisition (Successor) is presented
on a different cost basis than for the periods prior to the acquisition
(Predecessor) and, therefore, is not comparable. The purchase price has been
allocated to the tangible assets of the Company acquired and liabilities assumed
based on their estimated fair market value at the acquisition date. The net
liabilities assumed plus the purchase price totaled approximately $1,400,000 and
was allocated to broadcast licenses.
The financial statements are presented as if the acquisition occurred on
July 1, 1995, rather than the actual purchase dates which occurred between March
and November 1995. The impact of recording the purchase as of July 1, 1995,
instead of the actual acquisition dates, is not material to the accompanying
financial statements.
LOCAL MARKETING AGREEMENT
Effective January 1, 1997, the operations of KWBP-TV were transferred to
ACME Television of Oregon, LLC pursuant to a local marketing agreement.
Accordingly, the Company's financial statements subsequent to December 31, 1996
only include the Company's net activity pursuant to such local marketing
agreement.
REVENUE RECOGNITION
Revenue related to the sale of airtime related to advertising and
contracted time is recognized at the time of broadcast. The Company receives
such revenues net of commissions deducted by advertising agencies and national
sales representatives.
F-38
CHANNEL 32 INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
CASH AND CASH EQUIVALENTS
For purposes of reporting the statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
PROGRAMMING RIGHTS
Programming rights represent costs incurred for the right to broadcast
certain features and syndicated television programs. Programming rights are
stated at the lower of amortized cost or estimated realizable value. The cost of
such programming rights and the corresponding liability are recorded when the
initial program becomes available for broadcast under the contract. Programming
rights are amortized over the life of the contract on an accelerated basis
related to the usage of the program. Programming rights expected to be amortized
during the next fiscal year are classified as current in the balance sheets. The
payments under these contracts that are due within one year and after one year
are reflected in the balance sheets as current and noncurrent liabilities,
respectively.
Commitments for programming rights that have been executed, but which have
not been recorded in the accompanying financial statements, as the underlying
programming is not available for broadcast, were approximately $0, $222,249 and
$262,500 as of June 30, 1995, 1996 and March 31, 1997, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of maintenance is
expensed.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the respective assets. The principal lives
used in determining depreciation and amortization rates of various assets are as
follows:
[Download Table]
Buildings................................................... 39 years
Broadcasting equipment...................................... 5 - 15 years
Furniture and fixtures...................................... 5 - 7 years
Vehicles.................................................... 5 years
Equipment under capital leases.............................. 5 - 15 years
BARTER TRANSACTIONS
Revenue and expenses associated with barter agreements in which broadcast
time is exchanged for programming rights are recorded at the average rate of the
airtime exchanged. Barter transactions, which represent the exchange of
adverting time for goods or services, are recorded at the estimated fair value
of the products or services received. Barter revenue is recognized when
advertisements are broadcast. Merchandise or services received from airtime
trade sales are charged to expense or capitalized when used or received.
F-39
CHANNEL 32 INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
Revenues and expenses include approximately $1,267,600 of barter
transaction for the year ended June 30, 1996. The Company did not record
revenues and expenses associated with barter transactions for the year ended
June 30, 1995. The Company does not believe the omission of such barter
transactions for the year ended June 30, 1995 is material to the Financial
Statements taken as a whole.
CARRYING VALUE OF LONG-LIVED ASSETS
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The carrying value of long-lived assets
(tangible and intangible) is reviewed if the facts and circumstances suggest
that they may be impaired. If this review indicates that an asset's carrying
value will not be recoverable, as determined based on future expected
undiscounted cash flows, the carrying value is reduced to fair market value.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. Under SFAS
No. 109 deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
to differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. The
Company believes that concentrations of credit risk with respect to accounts
receivable, which are unsecured, are limited due to the Company's ongoing
relationship with its clients. The Company provides for its estimate of
uncollectible accounts on a periodic basis. The Company has not experienced
significant losses relating to accounts receivable. For periods ended June 30,
1994, 1995, 1996 and March 31, 1997 and 1996 no customer accounted for more than
10% of revenues.
(3) INTANGIBLE ASSETS
Intangible assets are stated at cost, less accumulated amortization, and
are comprised of broadcast licenses. Broadcast licenses are being amortized on a
straight-line basis over
F-40
CHANNEL 32 INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
15 years. The amount of amortization related to broadcast licenses was
approximately $0, $11,000, $97,567, and $93,000 for the periods ended June 30,
1994, 1995 and 1996 and June 17, 1997, respectively.
(4) STOCKHOLDERS' EQUITY
At June 30, 1995, the Company had 2,000 shares of authorized common stock
with 1,000 shares issued to its four original stockholders and an option to
purchase 818 shares representing 45% of the Company, with an exercise price of
$452,000 held by Peregrine (Peregrine Option).
In November 1995, the stockholders approved an increase in the number of
authorized shares to 4,000 shares of common stock. The Company sold 250 shares
of common stock for $100,000 to Aspen TV, LLC and sold an option for $108 to
purchase 51% of the outstanding common stock, or 791 shares, for an exercise
price of $150,000. This option is automatically cancelled and the Company will
be obligated to repurchase the stock sold to Aspen TV, LLC for the sale price
plus interest upon the Company's timely repayment of its debt obligation to
Aspen TV, LLC. The Peregrine Option was cancelled at this time.
(5) RELATED PARTY TRANSACTIONS
Due (to) from related party represent temporary advances in the form of
expenses paid by or on behalf of the Company by Peregrine. The following is a
summary of these amounts:
[Download Table]
JUNE 30,
------------------- MARCH 31,
1995 1996 1997
------- -------- ---------
Due from related party -- Peregrine.............. $14,700 $ -- $ --
Due from related party -- ACME Television of
Oregon......................................... -- -- 692,301
Due to related party -- Peregrine................ -- (63,887) --
------- -------- --------
Total.......................................... $14,700 $(63,887) $692,301
======= ======== ========
Due from related party, ACME Television of Oregon, LLC relates to the
balance due to the Company pursuant to the local marketing agreement effective
January 1, 1997.
(6) INCOME TAXES
The Company did not record any tax benefit during the period from December
16, 1993 (inception) to June 30, 1994, the years ended June 30, 1995 and 1996
and the nine months ended March 31, 1996 and 1997.
F-41
CHANNEL 32 INCORPORATED (NOTE 1)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1996
(INFORMATION RELATING TO THE PERIOD FROM
JULY 1, 1996 TO JUNE 17, 1997 IS UNAUDITED)
The provision for income taxes differs from the amount computed by applying
the Federal statutory income tax rate of 34% to income before income taxes as
shown below:
[Download Table]
1994 1995 1996
------- --------- -----------
Computed "expected" income tax benefit......... $(8,000) $(355,000) $(2,100,000)
Increase in valuation allowance................ 8,000 355,000 2,100,000
------- --------- -----------
Income tax expense (benefit)................. $ -- $ -- $ --
======= ========= ===========
Deferred income tax assets and liabilities result from temporary
differences. Temporary differences are differences in the recognition of income
and expenses for income tax and financial reporting purposes that will result in
taxable or deductible amounts in future years. At June 30, 1996 and March 31,
1997, the net deferred income tax assets, related primarily to net operating
loss carryforwards, were approximately $1,158,000 and $6,177,000, respectively.
In 1995, the Company experienced an ownership change as defined in Section 382
of the Internal Revenue Code. This change in ownership restricts the utilization
of the Company's net operating loss (NOL) carryforwards to offset future taxable
income. NOL carryforwards arising subsequent to the change of control are not
subject to the limitation. The amount of NOL carryforwards subject to the
limitation is approximately $1,000,000 with an annual limitation of $75,000. The
carryforwards available at June 30, 1996 expire in 2011.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. At June 30, 1995, 1996 and March 31, 1997, based on the level of
historical taxable income and projections for future taxable losses over the
periods in which the level of deferred tax assets are deductible, management
believes that it is not more likely than not that the Company will not realize
the benefits of these deductible differences.
(7) SALE
On June 17, 1997, ACME Television Holdings, LLC (ACME) acquired certain of
the Company's assets, including the broadcast license of KWBP-TV and assumed
certain liabilities, including all of the Company's programming commitments and
the Company's equipment leases, in exchange for $18,675,000 in cash and
$4,400,000 in ACME Parent membership interests.
In addition, pursuant to a local marketing agreement, ACME effectively
operated the station and funded the losses from January 1, 1997 through June 17,
1997 (the acquisition date). Accordingly, there were no operating revenues or
expenses incurred by the Company subsequent to January 1, 1997.
F-42
INSIDE BACK COVER
[ACME COMMUNICATIONS LOGO]
[LOGO'S OF SOME OF THE KIDS' WB PROGRAMMING AND PHOTOGRAPHS OF SEVERAL LOONEY
TOONS CHARACTERS]
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common stock
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these shares in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
[Download Table]
Page
----
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 9
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS.......... 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 21
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
INDUSTRY OVERVIEW..................... 30
BUSINESS.............................. 33
MANAGEMENT............................ 55
PRINCIPAL STOCKHOLDERS................ 62
CERTAIN TRANSACTIONS.................. 64
THE REORGANIZATION.................... 67
DESCRIPTION OF CAPITAL STOCK.......... 68
SHARES ELIGIBLE FOR FUTURE SALE....... 71
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 73
UNDERWRITING.......................... 75
NOTICE TO CANADIAN RESIDENTS.......... 79
LEGAL MATTERS......................... 80
EXPERTS............................... 80
ADDITIONAL INFORMATION................ 80
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Dealers
are also obligated to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
[LOGO]
ACME
Communications, Inc.
Shares
Common Stock
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
Morgan Stanley Dean Witter
CIBC World Markets
Prospectus
, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Subject to Completion, Dated , 1999
[LOGO]
--------------------------------------------------------------------------------
ACME Communications, Inc.
Shares
Common Stock
--------------------------------------------------------------------------------
THIS IS AN INITIAL PUBLIC OFFERING OF COMMON STOCK OF ACME COMMUNICATIONS, INC.
NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR COMMON STOCK. WE ANTICIPATE THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER
SHARE.
WE ARE SELLING ALL OF THE SHARES OF COMMON STOCK OFFERED UNDER THIS
PROSPECTUS. THE INTERNATIONAL UNDERWRITERS ARE OFFERING SHARES OUTSIDE
THE UNITED STATES AND CANADA AND THE U.S. UNDERWRITERS ARE OFFERING
SHARES IN THE UNITED STATES AND CANADA.
WE INTEND TO APPLY TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "ACME."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[Download Table]
PER SHARE TOTAL
--------- -----
PUBLIC OFFERING PRICE $ $
UNDERWRITING DISCOUNTS AND COMMISSIONS $ $
PROCEEDS, BEFORE EXPENSES, TO ACME $ $
WE AND THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO
PURCHASE UP TO AN ADDITIONAL SHARES AT THE PUBLIC OFFERING PRICE WITHIN
30 DAYS FROM THE DATE OF THIS PROSPECTUS TO COVER OVER-ALLOTMENTS.
THE UNDERWRITERS ARE SEVERALLY UNDERWRITING THE SHARES BEING OFFERED. THE
UNDERWRITERS EXPECT TO DELIVER THE SHARES AGAINST PAYMENTS IN BALTIMORE,
MARYLAND ON , 1999.
IN THIS PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
Deutsche Bank
Merrill Lynch International
Morgan Stanley Dean Witter
CIBC World Markets
The date of this Prospectus is , 1999.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
We intend to offer our common stock outside of the United States and Canada
through a number of underwriters. Deutsche Bank AG London, Merrill Lynch
International, Morgan Stanley & Co. International Limited and CIBC World Markets
International Limited are acting as representatives (the "International
Representatives") of each of the underwriters named below (the "International
Underwriters"). Subject to the terms and conditions set forth in an underwriting
agreement (the "International Underwriting Agreement") among us and the
International Representatives on behalf of the International Underwriters, we
have agreed to sell to the International Underwriters, and each of the
International Underwriters severally and not jointly has agreed to purchase from
us, the number of shares of common stock set forth opposite its name below.
[Download Table]
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Deutsche Bank AG London ....................................
Merrill Lynch International.................................
Morgan Stanley & Co. International Limited..................
CIBC World Markets International Limited....................
--------
Total.....................................................
========
We intend to offer our common stock in the United States and Canada.
Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and CIBC World Markets Corp. are
acting as representatives (the "U.S. Representatives" and together with the
International Representatives, the "Representatives") for certain international
underwriters (collectively, the "U.S. Underwriters", and together with the
International Underwriters, the "Underwriters"). Subject to the terms and
conditions set forth in the underwriting agreement (the "U.S. Underwriting
Agreement") between us and the U.S. Representatives on behalf of the U.S.
Underwriters, and concurrently with the sale of shares of common stock to
the International Underwriters pursuant to the International Underwriting
Agreement, we have agreed to sell to the U.S. Underwriters, and each of the U.S.
Underwriters severally and not jointly has agreed to purchase from us, an
aggregate of shares of common stock. The public offering price per
share of common stock and the underwriting discount per share of common stock
are identical under the U.S. Underwriting Agreement and the International
Underwriting Agreement.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of our common stock, directly or indirectly, only in the
U.S. (including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction (the "United States"),
in Canada and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b) any
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of common stock in the United States
or to any U.S. persons or to any person who it believes intends to reoffer,
resell or deliver the shares in the United States or to any U.S. persons, and
(ii) cause any dealer to whom it may sell such shares at any concession to agree
to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
common stock as may be mutually agreed. The
75
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
price of any shares so sold shall be the initial public offering price, less an
amount not greater than the selling concession.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and International Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of common stock being sold pursuant to
each such agreement if any of the shares of common stock being sold under the
terms of such agreement are purchased. In a default by an underwriter, the U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that, in certain circumstances, the purchase commitments of the nondefaulting
underwriters may be increased or the such agreements may be terminated. The
closing with respect to the sale of shares of common stock to be purchased by
the U.S. Underwriters and the International Underwriters are conditioned upon
one another.
Pursuant to the Agreement Between, each International Underwriter has
represented and agreed that (a) it has not offered or sold and, prior to the
date six months after the closing date for the sale of our shares to the
International Underwriters, will not offer or sell any shares in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing, or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to our shares
in, from, or otherwise involving the United Kingdom; and (c) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the offering of our shares to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, or to any person to whom
such document may lawfully be issued or passed on.
Buyers of the shares offered hereby may be required to pay stamp taxes and
other charges in accordance with the laws and practices of the country of
purchase in addition to the initial public offering price.
We have agreed to indemnify the Underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to consummation of the reorganization, approval of certain legal matters by
counsel for the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part.
COMMISSIONS AND DISCOUNTS
The Representatives have advised us that the Underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common
stock. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share of common stock on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may change.
76
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the Underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the Underwriters of the over-allotment option.
[Enlarge/Download Table]
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price................................ $ $ $
Underwriting discount................................ $ $ $
Proceeds, before expenses, to ACME................... $ $ $
Proceeds, before expenses, to the selling
stockholders....................................... $ $ $
The expenses of the offering, exclusive of underwriting discounts, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National Market listing
fee, printing expenses, legal fees and expenses, accounting fees and expenses,
road show expenses, Blue Sky fees and expenses, transfer agent and registrar
fees and other miscellaneous fees. The expenses of the offering, exclusive of
the underwriting discount, are estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We and the selling stockholders have granted an option to the Underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of additional shares of our common stock at the public offering
price set forth on the cover page of this prospectus, less the underwriting
discount. The Underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our common stock offered hereby. To
the extent that the Underwriters exercise this option, each Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of our common stock proportionate to such underwriter's initial amount
reflected in the foregoing table.
RESERVED SHARES
At our request, the Underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to some
of our directors, officers, employees, business associates and related persons.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent that those persons purchase the reserved
shares. Any reserved shares that are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
LOCK-UP
We and our executive officers and directors and all existing stockholders
have agreed, for a period of 180 days after the date of this prospectus, not to
offer, sell, contract to sell, loan, pledge, grant any option to purchase, make
any short sale or otherwise dispose of (1) any shares of our common stock, (2)
any options or warrants to purchase any shares of our common stock, or (3) any
securities convertible into, exchangeable for or that represent the right to
receive shares of our common stock. Certain gifts, transfers to trusts, and
distributions to partners or shareholders of a stockholder are permitted where
the transferee agrees to be similarly bound. Transfers may also be made where
Deutsche Bank Securities Inc. on behalf of the Underwriters consents in advance.
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the Representatives. The factors considered in determining the initial
public offering price, in addition to prevailing market conditions, are the
valuation multiples of publicly traded companies that the Representatives
believe to be
77
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
comparable to us, certain of our financial information, our history, our
prospects, the industry in which we compete, and an assessment of our
management, its past and present operations, the prospects for, and timing of,
our future revenue, the present state of our development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to ours. There can be no assurance that an active
trading market will develop for our common stock or that our common stock will
trade in the public market subsequent to the offering at or above the initial
public offering price.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the Representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the Underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of our common
stock than are set forth on the cover page of this prospectus, the
Representatives may reduce that short position by purchasing our common stock in
the open market. The Representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the Representatives purchase shares of
our common stock in the open market to reduce the Underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the Underwriters and selling group members who sold
those shares.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither ACME nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
ACME nor any of the Underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
CERTAIN RELATIONSHIPS AND ARRANGEMENTS
Canadian Imperial Bank of Commerce ("CIBC"), an affiliate of CIBC Word
Markets Corp. and CIBC World Markets International Limited, is a primary lender
and the agent under our credit agreement. We pay CIBC a commitment fee on the
unused portion of its commitment as a lender under our credit agreement; CIBC
also receives a fee for its services as administrative agent. As a lender, CIBC
may receive more than 10% of the net proceeds of this offering to repay debt
under our credit agreement. Under the Conduct Rules of the National Association
of Securities Dealers, Inc., special considerations apply where a "member" or
"person associated with a member" (as defined by the NASD) participating in an
offering is paid more than 10% of the net proceeds. Accordingly, this offering
is being made pursuant to Rule 2710(c)(8) of the NASD's Conduct Rules, in
conjunction with which Deutsche Bank Securities Inc., a Representative, is
acting as a "qualified independent underwriter" in pricing this offering,
preparing this prospectus and conducting due diligence.
78
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
LEGAL MATTERS
O'Melveny & Myers LLP, Newport Beach, California will pass upon the
validity of the shares of common stock offered by this prospectus. Irell &
Manella LLP, Los Angeles, California will pass upon certain legal matters for
the underwriters.
EXPERTS
The consolidated financial statements and schedules of ACME Communications,
Inc. as of December 31, 1998 and 1997, and for each of the years in the two-year
period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Koplar Communications, Inc. for
each of the years in the two-year period ended December 31, 1998, have been
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Channel 32, Incorporated for each of the years
in the two-year period ended June 30, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock offered by this prospectus. As permitted by the rules and
regulations of the SEC, this prospectus, which is part of the registration
statement, omits certain information included in the registration statement and
the exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and the common stock offered
by this prospectus, reference is made to our registration statement and its
exhibits and schedules. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to in the prospectus are
not necessarily complete. In each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
We file reports and other information with the Securities and Exchange
Commission. Such reports and other information, as well as a copy of the
registration statement may be inspected without charge at the SEC's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from such offices upon the payment of the fees
prescribed by the SEC. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval system, including our registration statement and all exhibits and
amendments to our registration statement, are publicly available through the
SEC's Web site at http://www.sec.gov.
Upon approval of our common stock for listing on the Nasdaq National
Market, such reports, proxy and information statements and other information may
also be inspected at the office of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
79
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common stock
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these shares in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
[Download Table]
Page
----
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 9
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS.......... 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 21
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
INDUSTRY OVERVIEW..................... 30
BUSINESS.............................. 33
MANAGEMENT............................ 55
PRINCIPAL STOCKHOLDERS................ 62
CERTAIN TRANSACTIONS.................. 64
THE REORGANIZATION.................... 67
DESCRIPTION OF CAPITAL STOCK.......... 68
SHARES ELIGIBLE FOR FUTURE SALE....... 71
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF COMMON STOCK..................... 73
UNDERWRITING.......................... 75
LEGAL MATTERS......................... 79
EXPERTS............................... 79
ADDITIONAL INFORMATION................ 79
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
There are restrictions on the offer and sale of the common stock in the United
Kingdom. All applicable provisions of the Financial Services Act of 1986 and the
Public Offers of Securities Regulations 1995 with regard to anything done by any
person in relation to the common stock, in, from or otherwise involving the
United Kingdom must be complied with. See "Underwriting."
[LOGO]
ACME
Communications, Inc.
Shares
Common Stock
Deutsche Bank
Merrill Lynch International
Morgan Stanley Dean Witter
CIBC World Markets
Prospectus
, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered. All amounts are estimates except the
SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee.
[Download Table]
SEC Registration fee........................................ $31,970
NASD fee.................................................... $12,000
Nasdaq National Market listing fee.......................... $
Printing and engraving expenses............................. $
Legal fees and expenses..................................... $
Accounting fees and expenses................................ $
Blue sky fees and expenses.................................. $
Transfer agent fees......................................... $
Miscellaneous fees and expenses............................. $
-------
Total..................................................... $
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and bylaws provide a right to
indemnification to the fullest extent permitted by law for expenses, attorney's
fees, damages, punitive damages, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by any person whether or not the
indemnified liability arises or arose from any threatened, pending or completed
proceeding by or in our right by reason of the fact that such person is or was
serving as a director or officer at our request, as a director, officer,
partner, venturer, proprietor, employee, agent, or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. Our certificate of incorporation and bylaws provide for the
advancement of expenses to an indemnified party upon receipt of an undertaking
by the party to repay those amounts if it is finally determined that the
indemnified party is not entitled to indemnification. In addition, we have
entered into indemnification agreements with each of our directors and executive
officers.
Our bylaws authorize us to take steps to ensure that all persons entitled
to the indemnification are properly identified, indemnified, including, if the
board of directors so determines, purchasing and maintaining insurance.
We have entered into indemnification agreements with each of our directors
and officers. Pursuant to the indemnification agreements, we have agreed to
indemnify each director or officer, to the maximum extent provided by applicable
law, from claims, liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by each director or officer in or arising
out of such person's capacity as our director, officer, employee and/or agent or
any other corporation of which such person is a director or officer at our
request. In addition, each director or officer is entitled to an advance of
expenses to the maximum extent authorized or permitted by law.
To the extent that our board of directors or the stockholders may in the
future wish to limit or repeal our ability to provide indemnification as set
forth in the certificate of incorporation, such repeal or limitation may not be
effective as to directors and officers who are parties to the indemnification
agreements, because their rights to full protection would
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be contractually assured by the indemnification agreements. We anticipate
entering similar contracts, from time to time, with our future directors.
In addition, the Form of Underwriting Agreement filed as Exhibit 1.1 to
this registration statement provides for indemnification by the underwriters of
us and our officers and directors, and by us of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 17, 1997, we sold (a) to our initial investors, 6,467 membership
units for an aggregate of $6.5 million and 14,700 convertible debentures for an
aggregate of $14.7 million, (b) 4,400 membership units to Channel 32
Incorporated as partial consideration for the assets of KWBP and (c) 40
management carry units to Mr. Kellner and 30 management carry units to each of
Mr. Gealy and Mr. Allen in partial consideration for their services as founders
of our company. We relied on 4(2) under the Securities Act for an exemption from
registration under the Securities Act.
On September 30, 1997, we sold to our initial investors and additional
investors 13,820.5 membership units for an aggregate of $13.8 million and 10,000
convertible debentures for an aggregate of $10.0 million. We relied on 4(2)
under the Securities Act for exemption from registration under the Securities
Act.
In each of the June 1997 and September 1997 issuance of membership units
(other than the units we sold to Channel 32 Incorporated) we paid CEA, Inc. a
financing fee of $440,000 and $1.1 million.
In January 1998, we issued 3,000 membership units to each of Michael
Roberts and Steven Roberts as partial consideration for 49% of membership units
of Roberts Broadcasting of Salt Lake City, LLC. We relied on 4(2) under the
Securities Act for exemption from registration under the Securities Act.
In June 1998, we sold 2,500 membership units to the sellers of Second
Generation of Florida, Ltd. in partial consideration for the assets of that
entity. We relied on 4(2) under the Securities Act for exemption under the
Securities Act.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
1.1* Form of Underwriting Agreement.
2.1* Form of Merger Agreement by and among ACME Television
Holdings, LLC, ACME Subsidiary Holdings, LLC and ACME
Communications, Inc.
3.1* Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2* Restated Bylaws of ACME Communications, Inc.
4.1(1) Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.
4.2(1) Indenture, dated September 30, 1997, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers,
the Guarantors named therein, and Wilmington Trust Company.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.
4.6* Form of Stock Certificate of ACME Television Holdings, Inc.
5.1* Opinion of O'Melveny & Myers LLP regarding the legality of
the securities being registered.
10.1(9) Asset Purchase Agreement, dated April 23, 1999, by and among
Paxson Communications Corporation, Paxson Communications
License Company, LLC, Paxson Communications of Green Bay-14,
Inc., Paxson Communications of Dayton-26, Inc., Paxson
Dayton License, Inc., Paxson Communications of Decatur-23,
Inc., Paxson Decatur License, Inc., ACME Television of Ohio,
LLC, ACME Television Licenses of Ohio, LLC, ACME Television
of Wisconsin, LLC, ACME Television Licenses of Wisconsin,
LLC, ACME Television of Illinois, LLC and ACME Television
Licenses of Illinois, LLC for WDPX(TV), Springfield, Ohio,
WPXG(TV), Suring, WI and WPXU(TV), Decatur, IL.
10.2(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Communications License Company, LLC, Paxson
Communications of Green Bay-14, Inc., and ACME Television of
Wisconsin, LLC for Station WPXG-TV, Suring, Wisconsin.
10.3(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Decatur License, Inc., Paxson Communications of
Decatur-23, Inc., and ACME Television of Illinois, LLC for
Station WPXU-TV, Decatur, Illinois.
10.4(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Dayton License, Inc., Paxson Communications of
Dayton-26, Inc., and ACME Television of Ohio, LLC for
Station WDPX-TV, Springfield, Ohio.
10.5(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KWBQ-TV, Santa Fe, New Mexico.
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[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.6(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KASY-TV, Albuquerque, New Mexico.
10.7(7) Purchase Agreement, dated October 30, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.8(7) Option Agreement, dated November 5, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.9(1) Asset Purchase Agreement, dated August 22, 1997, by and
between ACME Television Licenses of New Mexico, LLC and
Minority Broadcasters of Santa Fe, Inc.
10.10(1) Management Agreement, dated August 22, 1997, by and between
Minority Broadcasters of Santa Fe, Inc. and ACME Television
of New Mexico, LLC.
10.11(1) Membership Contribution Agreement, dated August 22, 1997, by
and among ACME Television Holdings, LLC, Roberts
Broadcasting of Salt Lake City, LLC, Michael V. Roberts and
Steven C. Roberts.
10.12(8) Membership Purchase Agreement, dated July 10, 1998, by and
between Roberts Broadcasting of Salt Lake City, L.L.C.,
Michael V. Roberts and Steven C. Roberts and ACME Television
Holdings, LLC for a majority interest in Roberts
Broadcasting of Salt Lake City, L.L.C.
10.13(8) Asset Exchange Agreement, dated April 20, 1998 by and among
Paxson Salt Lake City License, Inc., Paxson Communications
of Salt Lake City-30, Inc. and Roberts Broadcasting of Salt
Lake City, L.L.C.
10.14(5) Time Brokerage Agreement, dated April 20, 1998, for KUPX-TV,
by and among Paxson Salt Lake City License, Inc., Paxson
Communications of Salt Lake City-30, Inc. and ACME
Television of Utah, LLC.
10.15(1) Management Agreement, dated August 22, 1997, by and between
Roberts Broadcasting of Salt Lake City, LLC and ACME
Television of Utah, LLC.
10.16(4) Asset Purchase Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.17(4) Time Brokerage Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.18* Station Affiliation Agreement, dated March 15, 998, by and
between ACME Television Holdings, LLC and The WB Television
Network Partners, L.P.
10.19(4) Agreement, dated January 30, 1998, by and between ACME
Television Licenses of Tennessee, LLC, Ruth Payne Carman
(dba E&R Communications) and the Carman-Holly Partnership.
10.20(5) Assignment Agreement, dated June 16, 1998, by and between
ACME Television Licenses of Tennessee, LLC, Ruth Payne
Carman (dba E&R Communications), Carman-Harrison, LLC and
Donald E. Holley.
10.21(1) Stock Purchase Agreement, dated July 29, 1997, by and among
ACME Television Holdings, LLC, Koplar Communications, Inc.
and the shareholders named therein.
10.22(1) Escrow Agreement, dated September 8, 1997, by and among ACME
Television Holdings, LLC, ACME Television Licenses of
Missouri, Inc., Koplar Communications, Inc. the shareholders
of Koplar Communications, Inc. and NationsBank, N.A.
10.23(1) Time Brokerage Agreement for KPLR-TV, dated September 8,
1997, by and among ACME Television Licenses of Missouri,
Inc., ACME Television Holdings, LLC, Koplar Communications
Television, LLC and Koplar Communications, Inc.
10.24(1) Station Affiliation Agreement, dated September 24, 1997, by
and between ACME Holdings of St. Louis, LLC and The WB
Television Network Partners, L.P.
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[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.25(3) Management Agreement between Edward J. Koplar and ACME
Television Licenses of Missouri, Inc.
10.26(1) Escrow Agreement, dated May 28, 1997, by and among ACME
Television Licenses of Tennessee, LLC, ACME Television of
Tennessee, LLC, Crossville TV Limited Partnership, the
Sellers names therein and NationsBank, N.A., as escrow
agent.
10.27(1) Station Affiliation Agreement, dated August 18, 1997, by and
between ACME Holdings of Knoxville, LLC and The WB
Television Network Partners, L.P.
10.28(1) Station Affiliation Agreement, dated June 10, 1997, by and
between ACME Holdings of Oregon, LLC and The WB Television
Network Partners, L.P.
10.29 Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.30 Option Agreement dated April 23, 1999 by and between ACME
Television Holdings, LLC and DP Media, Inc., dated April 23,
1999.
10.31(1) Programming Agreement, dated June 1, 1995, by and among
Koplar Communications, Inc., Roberts Broadcasting Company,
Michael V. Roberts and Steven C. Roberts.
10.32(5) Master Lease Agreement, dated June 30, 1998, by and between
General Electric Capital Corporation and ACME Television,
LLC.
10.33(1) Station Affiliation Commitment Letter dated August 21, 1997,
to ACME Communications, Inc. from The WB Television Network.
10.34* 1999 Stock Incentive Plan.
10.35* Employment Agreement, as amended, by and between ACME
Communications, Inc. and Doug Gealy.
10.36* Employment Agreement, as amended, by and between ACME
Communications, Inc. and Tom Allen.
10.37* Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.
10.38(1) First Amended and Restated Credit Agreement, dated as of
December 2, 1997, by and among ACME Television, LLC, the
Lenders named therein and Canadian Imperial Bank of
Commerce, New York Agency, as agent for the Lenders.
10.39(3) Securities and Pledge Agreement, dated December 2, 1997, by
and between ACME Subsidiary Holdings III, LLC and Canadian
Imperial Bank of Commerce, as agent for the benefit of CIBC,
Inc. and other financial institutions.
10.40 Amendment No. 1 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.41 Amendment No. 2 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.42 Third Amendment to First Amended and Restated Credit
Agreement, dated March 1, 1999.
10.43 Fourth Amendment to First Amended and Restated Credit
Agreement, dated April 23, 1998.
10.44(3) Form of Guaranty by and among ACME subsidiaries, Canadian
Imperial Bank of Commerce, as agent, and the Lenders under
the First Amended and Restated Credit Agreement.
10.45(3) Form of Security and Pledge Agreement by and among ACME
subsidiaries, Canadian Imperial Bank of Commerce, as agent,
and the Lenders under the First Amended and Restated Credit
Agreement.
10.46* Registration Rights Agreement, dated as of ,
1999, by and among ACME Communications, Inc. and the parties
on the signature pages thereto.
10.47(1) Note Purchase Agreement, dated September 24, 1997, by and
among ACME Intermediate Holdings, LLC, ACME Intermediate
Finance, Inc. and CIBC Wood Gundy Securities Corp., as
Initial Purchaser.
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[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.48(2) Note Purchase Agreement, dated September 24, 1997, by and
among ACME Television, LLC, ACME Finance Corporation, CIBC
Wood Gundy Securities Corp. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
10.49(1) Securities Pledge Agreement, dated September 30, 1997, by
and between ACME Intermediate Holdings, LLC and ACME
Intermediate Finance, Inc., as Pledgers, and Wilmington
Trust Company, as Trustee.
10.50(3) Limited Liability Company Agreement of ACME Television
Holdings, LLC.
10.51(3) First Amendment to Limited Liability Company Agreement of
ACME Television Holdings, LLC.
10.52* Employment Agreement by and between ACME Communications,
Inc. and Ed Danduran.
10.53 Amended and Restated Investment and Loan Agreement, dated as
of June 17, 1999, by and among ACME Television Holdings, LLC
and Jamie Kellner, Douglas Gealy, Thomas Allen, CEA Capital
Partners USA, L.P. CEA ACME, Inc., Alta Communications VI,
L.P., Alta Subordinated Debt Partners III, L.P., Alta-Comm S
by S, LLC, Alta ACME, Inc., BancBoston Ventures, Inc., CEA
Inc. and Alta Inc.
10.54 Form of Convertible Debenture of ACME Television Holdings,
LLC. Due June 30, 2008.
10.55(8) Agreement of Lease, dated May 16, 1986, by and between CBS,
Inc. and Koplar Communications Inc.
10.56(8) Amendment to Agreement of Lease, dated September 2, 1986, by
and between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.57(1) Amended and Restated Lease Agreement, dated July 1, 1986, by
and between KKSN, Inc. and Channel 32 Incorporated.
10.58(8) Tower Lease Agreement, dated August 22, 1997, by and between
Roberts Broadcasting Company of Utah, Inc. and Roberts
Broadcasting Company of Salt Lake City, LLC.
10.59(3) Amendment to Tower Lease Agreement, dated December 9, 1997,
by and between Roberts Broadcasting Company of Utah, Inc.
and Roberts Broadcasting Company of Salt Lake City LLC.
10.60 Lease Agreement, dated January 1, 1997, by and between Mr.
Tom Winter and VCY/America, Inc.
10.61 Assignment and Assumption of Lease and Estoppel Certificate,
dated October 6, 1997.
10.62 Assignment and Assumption of Lease, dated April 23, 1999.
10.63(7) Tower Lease Agreement, dated December 30, 1998, by and
between Roberts Broadcasting Company of New Mexico, LLC and
ACME Television of New Mexico, LLC.
10.64* Tower License Agreement, dated May 21, 1992, by and between
Caloosa Television Corporation and Southwest Florida
Telecommunications, Inc.
10.65* Station Affiliation Agreement by and between ACME Television
of Utah and The WB Television Network.
10.66* Station Affiliation Agreement by and between ACME Television
of New Mexico and The WB Television Network.
10.67* Station Affiliation Agreement by and between ACME Television
of Wisconsin and The WB Television Network.
10.68* Station Affiliation Agreement by and between ACME Television
of Illinois and The WB Television Network.
10.69* Station Affiliation Agreement by and between ACME Television
of Ohio and The WB Television Network.
10.70* Station Affiliation Agreement by and between ACME Television
of Michigan and Pax Net.
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[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.71 Bridge Loan Agreement, dated April 23, 1999, by and among
ACME Television Holdings, LLC, Alta Communications VI, L.P.,
Alta Comm S by S, LLC, Alta Subordinated Debt Partners III,
L.P., BancBoston Investments Inc., CEA Capital Partners USA,
L.P., CEA Capital Partners USA CI, L.P., TCW Shared
Opportunity Fund III, L.P., Shared Opportunity Fund IIB, LLC
and TCW Leveraged Income Trust II, L.P.
10.72* Voting Agreement.
21.0 Subsidiaries of Registrant.
23.1* Form of Consent of KPMG LLP regarding ACME Communications,
Inc.
23.2 Consent of KPMG LLP regarding Koplar Communications, Inc.
and Subsidiary.
23.3 Consent of KPMG LLP regarding Channel 32 Incorporated.
23.4* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page hereto).
27.1 Financial Data Schedule.
-------------------------
* To be filed by amendment.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on November
14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4 No. 333-40281, filed on November 14, 1997.
(3) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4/A No. 333-40281, filed on January 16, 1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual Report
on Form 10-K for the For the year ended December 31, 1998.
(8) Incorporated by reference to ACME Television Holdings LLC's Quarterly Report
on Form 10-Q for the period ending March 31, 1999.
(9) Incorporated by reference to ACME Intermediate Holdings LLC's Report on Form
8-K filed May 7, 1999.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule I -- Condensed Financial Information
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions referenced in Item 14 of this Registration Statement or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or
II-7
controlling person in connection with the securities being registered hereunder,
the Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The Company hereby undertakes to provide to the underwriters at the
Closing, as specified in the Underwriting Agreement, certificates in such
denomination and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa Ana,
State of California, on this day of July 30, 1999.
ACME COMMUNICATIONS, INC.
/s/ THOMAS ALLEN
--------------------------------------
Thomas Allen
Executive Vice President
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jamie Kellner, Douglas Gealy and Thomas Allen,
and each of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement, and any registration
statement relating to the offering covered by this Registration Statement and
filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
[Enlarge/Download Table]
NAME TITLE DATE
---- ----- ----
/s/ JAMIE KELLNER Chairman of the Board and Chief July 30, 1999
--------------------------------------------- Executive Officer (Principal
Jamie Kellner Executive Officer)
/s/ DOUGLAS GEALY President and Chief Operating July 30, 1999
--------------------------------------------- Officer and Director
Douglas Gealy
/s/ THOMAS ALLEN Executive Vice President, Chief July 30, 1999
--------------------------------------------- Financial Officer (Principal
Thomas Allen Financial and Accounting
Officer) and Director
/s/ JAMES COLLIS Director July 30, 1999
---------------------------------------------
James Collis
/s/ THOMAS EMBRESCIA Director July 30, 1999
---------------------------------------------
Thomas Embrescia
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[Download Table]
NAME TITLE DATE
---- ----- ----
/s/ BRIAN MCNEILL Director July 30, 1999
---------------------------------------------
Brian McNeill
/s/ MICHAEL ROBERTS Director July 30, 1999
---------------------------------------------
Michael Roberts
/s/ DARRYL SCHALL Director July 30, 1999
---------------------------------------------
Darryl Schall
II-10
SCHEDULE I
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
[Download Table]
AS OF DECEMBER 31,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4 $ 48
Due from affiliates....................................... 7 --
------- --------
Total current assets................................... 11 48
------- --------
Notes Receivable and accrued interest....................... 211 231
Investment in subsidiaries.................................. 40,806 28,456
Prepaid financing costs..................................... 1,081 959
------- --------
Total assets........................................... $42,109 $ 29,694
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Other current liabilities................................. -- 2
------- --------
Total current liabilities.............................. -- 2
Accrued interest payable.................................... 1,047 3,523
Convertible debentures...................................... 24,756 24,756
------- --------
Total liabilities...................................... $25,803 $ 28,281
======= ========
Common stock, $ par value, shares
authorized, shares issued and
outstanding............................................... -- --
Additional paid-in capital.................................. 23,785 30,832
Accumulated deficit......................................... (7,479) (29,419)
------- --------
Total stockholders' equity............................. 16,306 1,413
Total liabilities and stockholders' equity............. $42,109 $ 29,694
======= ========
See accompanying notes to the consolidated financial statements.
S-1
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
[Download Table]
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
Net Revenues................................................ $ -- $ --
------- --------
Other Income (Expenses)..................................... 4 (13)
Interest income............................................. -- 20
Interest expense............................................ (1,096) (2,575)
------- --------
Net other expenses........................................ (1,092) (2,568)
Equity in the net loss of subsidiaries...................... (6,397) (19,372)
------- --------
Net Loss.................................................. $(7,479) $(21,940)
======= ========
See accompanying notes to the consolidated financial statements.
S-2
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
[Enlarge/Download Table]
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
Balance at December 31, 1996....... $-- $-- $ -- $ -- $ --
Issuance of common stock, net.... -- -- 23,785 -- 23,785
Net Loss....................... -- -- -- (7,479) (7,479)
--- --- ------- -------- --------
Balance at December 31, 1997....... -- -- 23,785 (7,479) 16,306
Issuance of common stock, net.... -- -- 7,047 7,047
Net Loss....................... -- -- -- (21,940) (21,940)
--- --- ------- -------- --------
Balance at December 31, 1998....... $-- $-- $30,832 $(29,419) $ 1,413
=== === ======= ======== ========
See accompanying notes to the consolidated financial statements.
S-3
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
[Download Table]
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net loss.................................................. $ (7,479) $(21,940)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of debt issuance costs....................... 34 122
Equity in net loss of subsidiary.......................... 6,397 19,372
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net.......... (211) (20)
(Increase) decrease in prepaid expenses................... -- 25
(Increase) decrease in due from affiliates................ (7) 7
(Increase) other assets................................... -- --
Increase in other current liabilities..................... -- 2
Increase in accrued expenses.............................. 1,047 2,476
-------- --------
Net cash provided by (used in) operating activity...... (219) 44
-------- --------
Cash flows from investing activities:
Purchase of station interests............................. (18,675) --
Investments in and advances to subsidiaries............... (24,128) --
-------- --------
Net cash used in investing activities.................. (42,803) --
-------- --------
Cash flows from financing activities:
Issuance of units......................................... 19,385 --
Debt issuance costs....................................... (1,115) --
Issuance of convertible debt.............................. 24,756 --
-------- --------
Net cash provided by (used in) financing activities.... 43,026 --
-------- --------
Net increase (decrease) in cash........................... 4 44
Cash at beginning of period............................... -- 4
-------- --------
Cash at end of period..................................... $ 4 $ 48
======== ========
Supplemental disclosures of cash flow information:
Non-cash transactions:
Issuance of equity as purchase consideration.............. 4,400 7,047
Contribution of station interest to subsidiary............ 18,675 --
See accompanying notes to the consolidated financial statements.
S-4
ACME COMMUNICATIONS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION
(1) BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of ACME Communications, Inc.,
does not include all of the information and notes normally included with
financial statements prepared in accordance with generally accepted accounting
principles. It is therefore suggested that these Condensed Financial Statements
be read in conjunction with the Consolidated Financial Statements and Notes
thereto included at Item 8 of this filing.
(2) CASH DIVIDENDS
There have been no cash dividends declared by the Company.
(3) LONG-TERM DEBT
There are no cash interest payments due on the Company's convertible debt
until June 30, 2008. There are no cash interest payments due on ACME
Intermediate Holdings, LLC's Senior Secured Discount Notes until March 31, 2003.
There are no cash interest payments due on ACME Television, LLC's Senior
Discount Notes until March 31, 2001.
(4) SUBSEQUENT EVENT -- REORGANIZATION
Immediately before the closing of the offering, we will complete the
reorganization described below. Before the following steps may be completed, we
must receive FCC approval, for which we have filed applications.
First, a subsidiary of ACME Communications, Inc. will merge into ACME
Television Holdings, LLC. In this merger, ACME Television Holdings, LLC's
membership units will be exchanged for shares of common stock of ACME
Communications. After this merger, ACME Communications will own 100% of the
membership units of ACME Television Holdings, LLC.
Second, ACME Subsidiary Holdings, LLC, a wholly-owned subsidiary of ACME
Television Holdings, LLC, will be merged into ACME Communications, which will be
the surviving corporation.
As a result of the mergers, ACME Communications will acquire membership
units representing approximately 92% of ACME Intermediate, which were held by
ACME Subsidiary Holdings, LLC and ACME Television Holdings, LLC.
Third, ACME Communications will exchange shares of its common stock for
membership units representing approximately 8% of ACME Intermediate, thereby
acquiring 100% of ACME Intermediate.
Concurrent with the mergers, ACME Communications will issue common stock in
exchange for (a) all of the convertible debentures of ACME Television Holdings,
LLC and (b) all of the convertible debentures and preferred membership units of
another subsidiary of ACME Television Holdings, LLC.
After the mergers and exchanges, ACME Communications will own 100% of ACME
Intermediate.
S-5
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
Lastly, our board of directors will effect a stock split in the form of a
stock dividend to our stockholders so that we will have shares
outstanding immediately before this offering.
S-6
SCHEDULE II.
ACME COMMUNICATIONS, INC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
[Enlarge/Download Table]
ADDITIONS
BALANCE AT ADDITIONS ACQUIRED IN BALANCE AT
ALLOWANCE FOR DOUBTFUL BEGINNING CHARGED TO PURCHASE END OF
ACCOUNTS OF PERIOD EXPENSE TRANSACTIONS(1) DEDUCTIONS PERIOD
---------------------- ---------- ---------- --------------- ---------- ----------
Year ended December
31, 1997............ -- -- 51,000 -- 51,000
Year ended December
31, 1998............ 51,000 223,776 280,224 -- 555,000
Three months ended
March 31, 1999...... 555,000 44,000 -- -- 599,000
-------------------------
(1) Additions relating to purchase transactions.
Other schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the consolidated
financial statements or the related notes.
S-7
EXHIBIT INDEX
[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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1.1* Form of Underwriting Agreement.
2.1* Form of Merger Agreement by and among ACME Television
Holdings, LLC, ACME Subsidiary Holdings, LLC and ACME
Communications, Inc.
3.1* Restated Certificate of Incorporation of ACME
Communications, Inc., a Delaware corporation.
3.2* Restated Bylaws of ACME Communications, Inc.
4.1(1) Indenture, dated September 30, 1997, by and among ACME
Intermediate Holdings, LLC and ACME Intermediate Finance,
Inc., as Issuers, and Wilmington Trust Company.
4.2(1) Indenture, dated September 30, 1997, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers,
the Guarantors named therein, and Wilmington Trust Company.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by
and among ACME Television, LLC and ACME Finance Corporation,
the Guarantors named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, the
Guarantors named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and
among ACME Television, LLC and ACME Finance Corporation, as
issuers, the Guarantors named therein, and Wilmington Trust
Company.
4.6* Form of Stock Certificate of ACME Television Holdings, Inc.
5.1* Opinion of O'Melveny & Myers LLP regarding the legality of
the securities being registered.
10.1(9) Asset Purchase Agreement, dated April 23, 1999, by and among
Paxson Communications Corporation, Paxson Communications
License Company, LLC, Paxson Communications of Green Bay-14,
Inc., Paxson Communications of Dayton-26, Inc., Paxson
Dayton License, Inc., Paxson Communications of Decatur-23,
Inc., Paxson Decatur License, Inc., ACME Television of Ohio,
LLC, ACME Television Licenses of Ohio, LLC, ACME Television
of Wisconsin, LLC, ACME Television Licenses of Wisconsin,
LLC, ACME Television of Illinois, LLC and ACME Television
Licenses of Illinois, LLC for WDPX(TV), Springfield, Ohio,
WPXG(TV), Suring, WI and WPXU(TV), Decatur, IL.
10.2(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Communications License Company, LLC, Paxson
Communications of Green Bay-14, Inc., and ACME Television of
Wisconsin, LLC for Station WPXG-TV, Suring, Wisconsin.
10.3(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Decatur License, Inc., Paxson Communications of
Decatur-23, Inc., and ACME Television of Illinois, LLC for
Station WPXU-TV, Decatur, Illinois.
10.4(3) Time Brokerage Agreement, dated April 23, 1999, by and among
Paxson Dayton License, Inc., Paxson Communications of
Dayton-26, Inc., and ACME Television of Ohio, LLC for
Station WDPX-TV, Springfield, Ohio.
10.5(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KWBQ-TV, Santa Fe, New Mexico.
[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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10.6(8) Asset Purchase Agreement, dated February 19, 1999, by and
between ACME Television of New Mexico, LLC and ACME
Television Licenses of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station
KASY-TV, Albuquerque, New Mexico.
10.7(7) Purchase Agreement, dated October 30, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.8(7) Option Agreement, dated November 5, 1998, by and between
Roberts Broadcasting of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.9(1) Asset Purchase Agreement, dated August 22, 1997, by and
between ACME Television Licenses of New Mexico, LLC and
Minority Broadcasters of Santa Fe, Inc.
10.10(1) Management Agreement, dated August 22, 1997, by and between
Minority Broadcasters of Santa Fe, Inc. and ACME Television
of New Mexico, LLC.
10.11(1) Membership Contribution Agreement, dated August 22, 1997, by
and among ACME Television Holdings, LLC, Roberts
Broadcasting of Salt Lake City, LLC, Michael V. Roberts and
Steven C. Roberts.
10.12(8) Membership Purchase Agreement, dated July 10, 1998, by and
between Roberts Broadcasting of Salt Lake City, L.L.C.,
Michael V. Roberts and Steven C. Roberts and ACME Television
Holdings, LLC for a majority interest in Roberts
Broadcasting of Salt Lake City, L.L.C.
10.13(8) Asset Exchange Agreement, dated April 20, 1998 by and among
Paxson Salt Lake City License, Inc., Paxson Communications
of Salt Lake City-30, Inc. and Roberts Broadcasting of Salt
Lake City, L.L.C.
10.14(5) Time Brokerage Agreement, dated April 20, 1998, for KUPX-TV,
by and among Paxson Salt Lake City License, Inc., Paxson
Communications of Salt Lake City-30, Inc. and ACME
Television of Utah, LLC.
10.15(1) Management Agreement, dated August 22, 1997, by and between
Roberts Broadcasting of Salt Lake City, LLC and ACME
Television of Utah, LLC.
10.16(4) Asset Purchase Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.17(4) Time Brokerage Agreement, dated March 2, 1998, by and
between ACME Television, LLC and Second Generation of
Florida, Ltd.
10.18* Station Affiliation Agreement, dated March 15, 998, by and
between ACME Television Holdings, LLC and The WB Television
Network Partners, L.P.
10.19(4) Agreement, dated January 30, 1998, by and between ACME
Television Licenses of Tennessee, LLC, Ruth Payne Carman
(dba E&R Communications) and the Carman-Holly Partnership.
10.20(5) Assignment Agreement, dated June 16, 1998, by and between
ACME Television Licenses of Tennessee, LLC, Ruth Payne
Carman (dba E&R Communications), Carman-Harrison, LLC and
Donald E. Holley.
10.21(1) Stock Purchase Agreement, dated July 29, 1997, by and among
ACME Television Holdings, LLC, Koplar Communications, Inc.
and the shareholders named therein.
10.22(1) Escrow Agreement, dated September 8, 1997, by and among ACME
Television Holdings, LLC, ACME Television Licenses of
Missouri, Inc., Koplar Communications, Inc. the shareholders
of Koplar Communications, Inc. and NationsBank, N.A.
10.23(1) Time Brokerage Agreement for KPLR-TV, dated September 8,
1997, by and among ACME Television Licenses of Missouri,
Inc., ACME Television Holdings, LLC, Koplar Communications
Television, LLC and Koplar Communications, Inc.
[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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10.24(1) Station Affiliation Agreement, dated September 24, 1997, by
and between ACME Holdings of St. Louis, LLC and The WB
Television Network Partners, L.P.
10.25(3) Management Agreement between Edward J. Koplar and ACME
Television Licenses of Missouri, Inc.
10.26(1) Escrow Agreement, dated May 28, 1997, by and among ACME
Television Licenses of Tennessee, LLC, ACME Television of
Tennessee, LLC, Crossville TV Limited Partnership, the
Sellers names therein and NationsBank, N.A., as escrow
agent.
10.27(1) Station Affiliation Agreement, dated August 18, 1997, by and
between ACME Holdings of Knoxville, LLC and The WB
Television Network Partners, L.P.
10.28(1) Station Affiliation Agreement, dated June 10, 1997, by and
between ACME Holdings of Oregon, LLC and The WB Television
Network Partners, L.P.
10.29 Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.30 Option Agreement dated April 23, 1999 by and between ACME
Television Holdings, LLC and DP Media, Inc., dated April 23,
1999.
10.31(1) Programming Agreement, dated June 1, 1995, by and among
Koplar Communications, Inc., Roberts Broadcasting Company,
Michael V. Roberts and Steven C. Roberts.
10.32(5) Master Lease Agreement, dated June 30, 1998, by and between
General Electric Capital Corporation and ACME Television,
LLC.
10.33(1) Station Affiliation Commitment Letter dated August 21, 1997,
to ACME Communications, Inc. from The WB Television Network.
10.34* 1999 Stock Incentive Plan.
10.35* Employment Agreement, as amended, by and between ACME
Communications, Inc. and Doug Gealy.
10.36* Employment Agreement, as amended, by and between ACME
Communications, Inc. and Tom Allen.
10.37* Consulting Agreement, as amended, by and between ACME
Communications, Inc. and Jamie Kellner.
10.38(1) First Amended and Restated Credit Agreement, dated as of
December 2, 1997, by and among ACME Television, LLC, the
Lenders named therein and Canadian Imperial Bank of
Commerce, New York Agency, as agent for the Lenders.
10.39(3) Securities and Pledge Agreement, dated December 2, 1997, by
and between ACME Subsidiary Holdings III, LLC and Canadian
Imperial Bank of Commerce, as agent for the benefit of CIBC,
Inc. and other financial institutions.
10.40 Amendment No. 1 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.41 Amendment No. 2 to First Amended and Restated Credit
Agreement, dated June 30, 1998.
10.42 Third Amendment to First Amended and Restated Credit
Agreement, dated March 1, 1999.
10.43 Fourth Amendment to First Amended and Restated Credit
Agreement, dated April 23, 1998.
10.44(3) Form of Guaranty by and among ACME subsidiaries, Canadian
Imperial Bank of Commerce, as agent, and the Lenders under
the First Amended and Restated Credit Agreement.
10.45(3) Form of Security and Pledge Agreement by and among ACME
subsidiaries, Canadian Imperial Bank of Commerce, as agent,
and the Lenders under the First Amended and Restated Credit
Agreement.
[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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10.46* Registration Rights Agreement, dated as of , 1999,
by and among ACME Communications, Inc. and the parties on
the signature pages thereto.
10.47(1) Note Purchase Agreement, dated September 24, 1997, by and
among ACME Intermediate Holdings, LLC, ACME Intermediate
Finance, Inc. and CIBC Wood Gundy Securities Corp., as
Initial Purchaser.
10.48(2) Note Purchase Agreement, dated September 24, 1997, by and
among ACME Television, LLC, ACME Finance Corporation, CIBC
Wood Gundy Securities Corp. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
10.49(1) Securities Pledge Agreement, dated September 30, 1997, by
and between ACME Intermediate Holdings, LLC and ACME
Intermediate Finance, Inc., as Pledgers, and Wilmington
Trust Company, as Trustee.
10.50(3) Limited Liability Company Agreement of ACME Television
Holdings, LLC.
10.51(3) First Amendment to Limited Liability Company Agreement of
ACME Television Holdings, LLC.
10.52* Employment Agreement by and between ACME Communications,
Inc. and Ed Danduran.
10.53 Amended and Restated Investment and Loan Agreement, dated as
of June 17, 1999, by and among ACME Television Holdings, LLC
and Jamie Kellner, Douglas Gealy, Thomas Allen, CEA Capital
Partners USA, L.P. CEA ACME, Inc., Alta Communications VI,
L.P., Alta Subordinated Debt Partners III, L.P., Alta-Comm S
by S, LLC, Alta ACME, Inc., BancBoston Ventures, Inc., CEA
Inc. and Alta Inc.
10.54 Form of Convertible Debenture of ACME Television Holdings,
LLC. Due June 30, 2008.
10.55(8) Agreement of Lease, dated May 16, 1986, by and between CBS,
Inc. and Koplar Communications Inc.
10.56(8) Amendment to Agreement of Lease, dated September 2, 1986, by
and between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.57(1) Amended and Restated Lease Agreement, dated July 1, 1986, by
and between KKSN, Inc. and Channel 32 Incorporated.
10.58(8) Tower Lease Agreement, dated August 22, 1997, by and between
Roberts Broadcasting Company of Utah, Inc. and Roberts
Broadcasting Company of Salt Lake City, LLC.
10.59(3) Amendment to Tower Lease Agreement, dated December 9, 1997,
by and between Roberts Broadcasting Company of Utah, Inc.
and Roberts Broadcasting Company of Salt Lake City LLC.
10.60 Lease Agreement, dated January 1, 1997, by and between Mr.
Tom Winter and VCY/America, Inc.
10.61 Assignment and Assumption of Lease and Estoppel Certificate,
dated October 6, 1997.
10.62 Assignment and Assumption of Lease, dated April 23, 1999.
10.63(7) Tower Lease Agreement, dated December 30, 1998, by and
between Roberts Broadcasting Company of New Mexico, LLC and
ACME Television of New Mexico, LLC.
10.64* Tower License Agreement, dated May 21, 1992, by and between
Caloosa Television Corporation and Southwest Florida
Telecommunications, Inc.
10.65* Station Affiliation Agreement by and between ACME Television
of Utah and The WB Television Network.
10.66* Station Affiliation Agreement by and between ACME Television
of New Mexico and The WB Television Network.
[Download Table]
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
10.67* Station Affiliation Agreement by and between ACME Television
of Wisconsin and The WB Television Network.
10.68* Station Affiliation Agreement by and between ACME Television
of Illinois and The WB Television Network.
10.69* Station Affiliation Agreement by and between ACME Television
of Ohio and The WB Television Network.
10.70* Station Affiliation Agreement by and between ACME Television
of Michigan and Pax Net.
10.71 Bridge Loan Agreement, dated April 23, 1999, by and among
ACME Television Holdings, LLC, Alta Communications VI, L.P.,
Alta Comm S by S, LLC, Alta Subordinated Debt Partners III,
L.P., BancBoston Investments Inc., CEA Capital Partners USA,
L.P., CEA Capital Partners USA CI, L.P., TCW Shared
Opportunity Fund III, L.P., Shared Opportunity Fund IIB, LLC
and TCW Leveraged Income Trust II, L.P.
10.72* Voting Agreement.
21.0 Subsidiaries of Registrant.
23.1* Form of Consent of KPMG LLP regarding ACME Communications,
Inc.
23.2 Consent of KPMG LLP regarding Koplar Communications, Inc.
and Subsidiary.
23.3 Consent of KPMG LLP regarding Channel 32 Incorporated.
23.4* Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page hereto).
27.1 Financial Data Schedule.
-------------------------
* To be filed by amendment.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on November
14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4 No. 333-40281, filed on November 14, 1997.
(3) Incorporated by reference to the Registration Statement for ACME Television,
LLC on Form S-4/A No. 333-40281, filed on January 16, 1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual Report
on Form 10-K for the For the year ended December 31, 1998.
(8) Incorporated by reference to ACME Television Holdings LLC's Quarterly Report
on Form 10-Q for the period ending March 31, 1999.
(9) Incorporated by reference to ACME Intermediate Holdings LLC's Report on Form
8-K filed May 7, 1999.
Dates Referenced Herein and Documents Incorporated by Reference
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