-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RPxtHG5uP6aWkvHebUIIwFaWyTGZfy/wKRHMQuToWgEcQWXHNNMjWvya3TpdpPuc WAysxwaAx6joV9FZVHFkOw== 0000891020-00-000661.txt : 20000331 0000891020-00-000661.hdr.sgml : 20000331 ACCESSION NUMBER: 0000891020-00-000661 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACKERLEY GROUP INC CENTRAL INDEX KEY: 0000319120 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 911043807 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10321 FILM NUMBER: 586338 BUSINESS ADDRESS: STREET 1: 1301 5TH AVE STREET 2: SUITE 4000 CITY: SEATTLE STATE: WA ZIP: 98101- BUSINESS PHONE: 2066242888 MAIL ADDRESS: STREET 1: 1301 FIFTH AVE STE 4000 CITY: SEATTLE STATE: WA ZIP: 98101 FORMER COMPANY: FORMER CONFORMED NAME: ACKERLEY INC DATE OF NAME CHANGE: 19830814 10-K 1 FORM 10-K FOR PERIOD ENDING 12/31/1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 1-10321 THE ACKERLEY GROUP, INC. ------------------------ (Exact name of Registrant as specified in its charter) Delaware 91-1043807 - --------------------------------------------------------------- -------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1301 Fifth Avenue, Suite 4000 Seattle, Washington 98101 - --------------------------------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (206) 624-2888 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered Common Stock New York Stock Exchange, Inc. - ----------------------------------------------------- ---------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: N/A (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 1, 2000 was $197,781,190. The number of shares outstanding of each of the registrant's classes of common stock as of March 1, 2000 was: Title of Class Number of Shares Outstanding -------------- ---------------------------- Common Stock, $.01 Par Value 23,877,107 shares Class B Common Stock, $.01 Par Value 11,088,700 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 1, 2000, are incorporated by reference under Part III of this Report. 2 PART I ITEM 1 - BUSINESS GENERAL INFORMATION The Ackerley Group, Inc. was founded in 1975 as a Washington corporation. In 1978, we were reincorporated under Delaware law. We are a diversified media and entertainment company which engages in four principal businesses: outdoor media, television broadcasting, radio broadcasting, and sports & entertainment. Our outdoor media, television broadcasting, radio broadcasting, and sports & entertainment segments accounted for approximately 36%, 29%, 10%, and 25%, respectively, of our net revenue for the year ended December 31, 1999. - Outdoor Media. We engage in outdoor advertising in Massachusetts and the Pacific Northwest and, until recently, in Florida. We have 6,519 outdoor displays in the markets of Boston-Worcester, Massachusetts; Seattle-Tacoma, Washington; and Portland, Oregon. On January 5, 2000, we sold our outdoor advertising operations in Florida for approximately $300.0 million. We believe that we have leading positions in the primary markets in which we operate, based upon the number of outdoor advertising displays. - Television Broadcasting. We engage in television broadcasting in New York, California, Oregon, Washington, and Alaska. We own twelve television stations and program three additional television stations under time brokerage or local marketing agreements ("LMAs"). Consistent with our strategy of local news leadership, nine of the thirteen network-affiliated television stations we own or program ranked first or second in their designated market areas ("DMAs"), in terms of local news ratings points delivered, according to the November 1999 Nielsen Station Index. - Radio Broadcasting. We own and operate four radio stations in the Seattle-Tacoma, Washington market. We also provide sales and other services for KFNK(FM), another station in the Seattle-Tacoma market, pursuant to a joint sales agreement with the owner of that station. KUBE(FM) is tied for first place as the highest ranked FM station in the market in terms of share of its market service area ("MSA"), according to the Fall 1999 Arbitron Radio Market Report, and KJR(AM) is the only sports talk station in the market. - Sports & Entertainment. Our sports & entertainment business includes ownership of the Seattle SuperSonics, the National Basketball Association's Pacific Division Champions for the three of the last five NBA seasons, and the Seattle Storm, a WNBA expansion team. Our Full House Sports & Entertainment division provides marketing and promotional support for the SuperSonics and the Storm and coordinates related cross-media activities within our company. We also consider investments in other Seattle-area sports and entertainment activities that would utilize our marketing and 1 3 promotional infrastructure, such as our recent arrangement with the management of the Tacoma Dome to act as the exclusive booking agent for events at that site. BUSINESS STRATEGY Our primary strategy is to develop and acquire media assets that enable us to offer advertisers a choice of media outlets for distributing their marketing messages. To this end, we have assembled a diverse portfolio of media assets. We believe our businesses are linked by a common goal of increasing the number of advertising impressions made, regardless of whether the impression is made via radio, television, or outdoor media display. Further, we seek to exploit the operating synergies that we believe exist from our ownership of both distribution (the television broadcasting, radio broadcasting, and outdoor media businesses) and content (the sports & entertainment business) assets. We seek to grow by investing in the expansion of our existing operations through additions and upgrades to our facilities and programming. We also look to grow through opportunistic acquisitions in our existing business lines and by exploring new synergistic business ventures and investments. We target markets where we see an opportunity to improve market share, take advantage of regional efficiencies, and develop our television stations into local news franchises. We believe the following elements of our strategy provide us with competitive advantages: Maintain and Develop Leadership Positions in Markets Served. We seek to be a leader in each of our markets. We believe that we own the most outdoor advertising display faces in each of the primary geographic markets in which we operate, based on the Traffic Audit Bureau's most recent Summary of Audited Markets, issued in July 1999. Nine of the thirteen network-affiliated television stations we own or program ranked first or second in their DMAs, in terms of local news ratings points delivered, according to the November 1999 Nielsen Station Index. Our four radio stations include KUBE(FM), which is tied for first place as the highest ranked FM station in the Seattle-Tacoma market in terms of share of its MSA, according to the Fall 1999 Arbitron Radio Market Report, and KJR(AM), the only sports talk station in the market. We believe this market leadership enables us to provide advertisers a cost-effective means of delivering a quality message to their target audiences. Use Advanced Communications Technology to Create Regional Television Groups. On April 6, 1999, we announced the launch of Digital CentralCasting(TM), a digital broadcast system which allows us to operate multiple television stations using the back-office functions of a single station. The system contemplates that all of our television stations in a geographic area will be linked through a fiber optic-based communications network, and that the stations themselves will switch from analog to digital broadcasting equipment. This permits the stations to share digital programming and other data along the fiber-optic network, as well as allowing a single station within the geographic area to perform back-office functions such as operations, programming and advertising scheduling, and accounting for all of our television stations in the area. To 2 4 implement this strategy, we have organized thirteen of the television stations we own or program into the following regional station groups: New York (WIXT, WOKR, WIVT, WBGH-LP, WUTR, and WETM), Central California (KCOY, KION, and KGET), and North Coast (KCBA, KMTR, KVIQ, and KFTY). While the advantages of owning multiple stations in a market are evident in radio broadcasting, current television ownership rules prohibit the ownership of more than one station in a designated market, with some exceptions. We believe that the confluence of falling prices for fiber-optic-based communications services and the advancement of digital transmission technology has created an opportunity to realize the benefits of multi-station ownership by linking several distinct television markets into one regional group. We believe that we are among the first companies to introduce this technology in the industry. We anticipate that Digital CentralCasting(TM) will enhance our operational efficiency through economies of scale and the sharing of resources and programming among our stations. However, we cannot guarantee that the implementation of Digital CentralCasting(TM) will be achieved in an effective manner and can give no assurance as to the timing or extent of the anticipated benefits. Capitalize Upon Our Ownership of the Seattle SuperSonics and the Seattle Storm. We believe that our ownership of the Seattle SuperSonics and the Seattle Storm enhances the effectiveness of our media operations by (1) providing regionally significant programming, (2) generating listener loyalty for our radio stations, and (3) increasing the number of individuals exposed to the advertising we provide. We seek to extract additional value from our ownership of the Seattle SuperSonics and the Seattle Storm through the sale of team sponsorships, which includes sales of advertising on signs in Seattle's Key Arena and on radio and television broadcasts of SuperSonics and Storm games. We also receive revenue from our interest in activities coordinated by the NBA and WNBA, such as advertising on nationally televised games and other licensing arrangements. As a result of our ownership of different media outlets, our sports & entertainment business can offer advertisers greater choice than a single outlet entity. We believe this helps our advertisers to more effectively reach their target audiences. Utilize the Regional Marketing and Promotional Expertise of Our Sports & Entertainment Segment. Historically, our sports & entertainment segment has provided marketing and promotional support solely for the Seattle SuperSonics. We have begun pursuing additional opportunities to provide marketing and promotional services for other regional events and entertainment, capitalizing upon the expertise developed from our experience with the Seattle SuperSonics. Experienced Management; Decentralized Management Structure. We believe that our efficient management structure and the experience of our management team enable us to respond effectively to competitive challenges across our markets and our business segments. We have granted the management of our operating units the authority and autonomy necessary to run each unit as a business and to respond to changes in each market environment. Experienced local managers enhance our ability to respond to local challenges rapidly and effectively. The average experience of our ten division managers in their respective industries is approximately 18 years. These local managers are supported and guided by an experienced and cohesive executive team. Four of our five executive 3 5 officers have worked together for over eight years. Our five executive officers collectively have an aggregate of 108 years of experience in the various industries in which we are involved. Barry A. Ackerley, one of our founders and our current Chairman and Chief Executive Officer, has been actively involved with this company since our inception in 1975. Early in our history, Mr. Ackerley recognized the synergies that could be achieved through ownership of outdoor advertising, television and radio broadcasting, and sports and entertainment assets. With this vision, Mr. Ackerley led our expansion from outdoor advertising into television and radio broadcasting and sports and entertainment well before the current trend toward consolidation among these industries OUTDOOR MEDIA Our outdoor media business sells advertising space on outdoor displays and often participates in the design of advertisements and the construction of outdoor structures that carry those displays. Until our airport advertising operations were sold on June 30, 1998, we sold advertising space on displays located in airport terminals. OUTDOOR ADVERTISING Industry Overview. During the nineteenth century, companies began to lease out space on wooden boards for advertising messages, or "bills." Today, outdoor advertising extends nationwide, providing advertisers with a relatively low-cost means of reaching large audiences. Outdoor advertising is used by large national advertisers as part of multi-media and other advertising campaigns, as well as by local and regional advertisers seeking to reach local and regional markets. We believe that outdoor advertising is a cost-effective form of advertising, particularly when compared to television, radio, and print, on a "cost-per-rating point" basis (meaning cost per 1,000 impressions). Displays provide advertisers with advertising targeted at a specified percentage of the general population and are generally placed in appropriate well-traveled areas throughout a geographic area. This results in the advertisement's broad exposure within a market. Outdoor advertising companies generally establish and publish "rate cards" periodically, typically once a year, which list monthly rates for bulletins, posters, and junior posters. Rates are based, in part, on surveys made by independent traffic audits that determine a given display's exposure to the public. Actual rates charged to customers are subject to negotiation. Advertising contracts relating to bulletins, posters, and junior posters usually have terms of one year or less. While outdoor advertising has been a stable source of revenue for us over the last five years, the number and diversity of our advertisers have increased. For example, we have seen an increase in outdoor advertising revenues from retail, real estate, entertainment, media, and financial services companies. In addition, we have seen an increase in customers who have not traditionally used outdoor advertising, such as fashion designers, internet service providers and internet-based businesses, and telecommunications companies. 4 6 Operations. We operate primarily in the markets of Seattle-Tacoma, Washington; Portland, Oregon; and Boston-Worcester, Massachusetts. Until we sold our Florida outdoor advertising business in January 2000, we also operated in Miami, Fort Lauderdale, West Palm Beach and Fort Pierce, Florida. Based on the Traffic Audit Bureau's Summary of Audited Markets issued in July 1999, we had more outdoor advertising displays in each of these markets than any other outdoor advertising company. We believe that our presence in large markets, the geographic diversity of our operations, and our emphasis on local advertisers within each of our markets lend stability to our revenue base, reduce our reliance on any particular regional economy or advertiser, and mitigate the effects of fluctuations in national advertising expenditures. However, because of zoning and other regulatory limitations on the development of new outdoor advertising displays, we anticipate that future growth in our outdoor advertising business will result primarily through diversification of our customer base, increased demand brought about by advertisers who have not historically used outdoor media, such as internet-related companies, creative marketing, and increased rates. Our outdoor advertising operations involve the sale of space on advertising display faces. They also include, in many cases, the design of advertisements and the construction of outdoor structures that carry those displays. Our principal outdoor advertising display is the billboard, of which there are three standard sizes: - Bulletins: Bulletins are generally 14 feet high and 48 feet wide. Generally, bulletins are covered with a single sheet of vinyl, called "Superflex," on which an image has been printed by computer. The Superflex is then transported to the site of the billboard and mounted to the face of the display. To attract more attention, panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Bulletins are usually located near major highways for maximum impact. Space is usually sold to advertisers for periods of four to twelve months. - Posters: The most common type of billboard, posters are generally 12 feet high by 25 feet wide. Lithographed or silk-screened paper sheets are typically supplied by the advertiser and arrive prepasted and packaged in airtight bags. They are applied like wallpaper to the face of the display. Posters are usually located on major traffic arteries. Space is usually sold to advertisers for periods of one to twelve months. - Junior posters: Junior posters are generally 6 feet high by 12 feet wide. These displays are prepared and mounted in the same manner as posters. Most junior posters, because of their smaller size, are concentrated on city streets and are targeted to pedestrian traffic. Space on junior posters usually is sold to advertisers for periods of one to twelve months. We have 824 bulletins, 5,263 posters, and 432 junior posters. The following chart itemizes markets we served and their designated market area (DMA) rank: 5 7
DMA JUNIOR MARKET(1) RANK(2) BULLETINS POSTERS POSTERS --------- ------- --------- ------- ------- NORTHWEST(3): Seattle-Tacoma........... 12 230 1,836 328 Portland................. 23 217 1,142 0 BOSTON: Boston-Worcester......... 6(4) 377 2,285 104
- ---------- (1) Does not include our operations in Florida, which were sold in January 2000. See "-Sale of Florida Outdoor Advertising Operations." (2) Source: Television & Cable Factbook, 1999 Edition. DMA rank is a measure of market size in the United States based on population as reported by the Nielsen Rating Service. (3) In the first quarter of 2000, we purchased outdoor advertising assets in Eugene and Salem, Oregon (which for operating purposes we deem to be part of the Portland market) and Bellingham, Washington (which for operating purposes we deem to be part of the Seattle-Tacoma market). See "-Acquisitions." (4) Reflects DMA rank for the Boston market. We own substantially all of our outdoor displays. These displays generally are located on leased property. The typical property lease provides for a term ranging from 5 to 15 years and for a reduction in or termination of rental payments if the display becomes obstructed during the lease term. In certain circumstances leases may be terminated, such as where the property owner develops or sells the property. If a lease is terminated, we generally seek to relocate the display in order to maintain our inventory of advertising displays in the particular geographic region. Display relocation is typically subject to local zoning laws. Sales and Marketing. We sell advertising space directly to advertisers and also sell to advertising agencies and specialized media buying services. These agencies charge us a commission for their services. In recent years, we have focused increasingly on selling directly to local and regional advertisers. Competition. We compete directly with other outdoor advertising companies, and with other types of advertising media companies, including television, radio, newspapers, magazines, transit advertising, yellow page directories, direct mail, local cable systems, and satellite broadcasting systems. Substantial competition exists among all advertising media on a cost-per-rating-point basis and on the ability to effectively reach a particular demographic section of the market. As a general matter, competition is confined to defined geographic markets. Regulation. Outdoor advertising displays are subject to governmental regulation at the federal, state, and local levels. These regulations, in some cases, limit the height, size, location, and operation of outdoor displays and, in some circumstances, regulate the content of the advertising copy displayed on outdoor displays. Certain jurisdictions have recently proposed or enacted regulations restricting or banning outdoor advertising of tobacco or liquor. Likewise, regulations in certain jurisdictions prohibit the construction of new outdoor displays or the replacement, relocation, enlargement, or upgrading of existing structures. 6 8 Our outdoor advertising operations are significantly affected by local zoning regulations. Some jurisdictions impose a limitation on the number of outdoor advertising structures permitted within the city limits. In addition, local zoning ordinances can restrict or prohibit outdoor advertising displays in specific areas. Most of our outdoor advertising structures are located in commercial and industrial zones subject to such regulations. Some states and localities have also enacted restrictions on the content of outdoor advertising signs. Federal and corresponding state outdoor advertising statutes require compensation payment for removal of existing structures by governmental order in some circumstances. Some jurisdictions have adopted ordinances which have sought the removal of existing structures without compensation. Ordinances requiring the removal of a billboard without compensation have been challenged in various state and federal courts on both statutory and constitutional grounds, with differing results. Federal law also imposes additional regulations upon our operations. Under the Federal Highway Beautification Act of 1965, states are required to adopt programs regulating outdoor advertising along federal highways. The Act also provides for the payment of compensation to the owner of a lawfully erected outdoor advertising structure that is removed by operation of the statute. Our policy, when a governmental entity seeks to remove one of our outdoor advertising displays, is to actively resist unless adequate compensation is paid. Although we have been successful in the past in challenging circumstances in which our displays have been subject to removal, we cannot predict whether we will be successful in the future and what effect, if any, such regulations may have on our operations. In addition, we are unable to predict what additional regulations may be imposed on outdoor advertising in the future. Legislation regulating the content of billboard advertisements has been introduced in the U.S. Congress from time to time in the past. Acquisitions. In 1999 and the first quarter of 2000, we acquired the following outdoor advertising companies: - On February 19, 1999, we purchased substantially all of the assets of an outdoor advertising company in the Boston-Worcester, Massachusetts market for approximately $11.0 million. - On January 31, 2000, we purchased substantially all of the assets of an outdoor advertising company in Bellingham, Washington, for approximately $2.9 million. - On January 13, 2000, we entered into agreements to purchase substantially all of the assets of an outdoor advertising company serving portions of Washington and Oregon for approximately $14.5 million plus the assumption of certain liabilities. The Company paid $7.5 million of the purchase price on February 1, 2000 and the remaining balance on March 1, 2000. 7 9 - On February 22, 2000, we entered into an agreement to purchase substantially all of the assets of an outdoor advertising company in New Jersey and New York City for approximately $19.8 million. Sale of Florida Outdoor Advertising Operations. On January 5, 2000, we sold substantially all of the assets of our Miami-Fort Lauderdale and West Palm Beach-Fort Pierce, Florida outdoor billboard operations to Eller Media Company, a subsidiary of Clear Channel Communications, Inc., for approximately $300.0 million in cash, plus the assumption of certain liabilities. We expect to recognize a gain on the transaction of approximately $273.3 million. AIRPORT ADVERTISING On June 30, 1998, we sold substantially all of the assets of our airport advertising operations to Sky Sites, Inc., a subsidiary of Havas, S.A., pursuant to an agreement dated May 19, 1998. The sale price consisted of a base cash price of $40.0 million, paid on the closing date of the transaction, and an additional cash payment of approximately $2.8 million, of which $1.2 million was paid in December 1998 and the remainder was paid in January 1999. Prior to the sale, we engaged in airport advertising for 18 years. TELEVISION BROADCASTING Our television broadcasting operations involve the sale of advertising time to a broad range of national, regional, and local advertisers. We own and/or program fifteen television stations in markets that offer a large and affluent population base that is attractive to many advertisers. Industry Overview. Television stations in the United States are either "very high frequency" or "VHF" stations, transmitting on channels 2 through 13, or "ultra high frequency" or "UHF" stations, transmitting on channels 14 through 69. Broadcast licenses are issued by the Federal Communications Commission ("FCC"). Television station revenue comes primarily from local, regional and national advertising. Revenue also comes, to a lesser extent, from network compensation and from studio rental and commercial production activities. Advertising rates are based upon (1) a program's popularity among the viewers whom an advertiser wishes to attract, (2) the number of advertisers competing for the available time, (3) the size and demographic makeup of the market, and (4) the availability of alternative advertising media in the market area. The size of a television station's audience is measured and reported by independent rating service surveys. Affiliation with a major network (e.g., ABC, NBC, CBS, or FOX) can have a significant impact on a station's revenue, expenses and operations. A typical affiliate receives a significant portion of its daily programming from a network. Networks provide programming, and in some cases cash payments, to the affiliate in exchange for a substantial majority of the advertising time during network programs. The network sells this advertising time and retains the revenues. 8 10 Operations. We currently own twelve television stations and program three stations under time brokerage or local marketing agreements ("LMAs"). The following table sets forth information about our portfolio of television stations and the markets in which they operate.
NO. OF COMMERCIAL DATE PROPOSED DMA TV STATIONS CALL ACQUIRED OR NETWORK NTSC DIGITAL MARKET RANKED IN MARKET LETTERS AFFILIATED AFFILIATION CHANNEL(1) CHANNEL RANK(2) MARKET(3) - ------ ------- ----------- ----------- ---------- -------- ------- ----------- NEW YORK Syracuse, New York (owned)................ WIXT May 1982 ABC 9 17 74 3 VHF 2 UHF(4) Rochester, New York (owned)................ WOKR April 1999 ABC 13 59 77 3 VHF 1 UHF Binghamton, New York (owned)................ WIVT July 1997(5) ABC 34 3 154 1 VHF 2 UHF Binghamton, New York (LMA).................. WBGH-LP February 2000(6) NBC 8 -(7) 154 1 VHF 2 UHF Utica, New York (owned).. WUTR June 1997(8) ABC 20 30 168 1 VHF 2 UHF Elmira, New York (LMA) .. WETM February 2000(9) NBC 18 2 171 3 UHF CENTRAL COAST Santa Barbara-Santa Maria-San Luis Obispo, California (owned)..... KCOY January 1999(10) CBS 12 19 116 3 VHF Monterey-Salinas, California (owned)..... KION April 1996(11) CBS 46 32 119 1 VHF 3 UHF(12) Bakersfield, California (owned)................ KGET October 1983 NBC 17 25 130 4 UHF(13) NORTH COAST Monterey-Salinas, California (LMA)....... KCBA June 1986 (14) FOX 35 13 119 1 VHF 3 UHF(12) Eugene, Oregon (owned)... KMTR December 1998(15) NBC 16 17 121 2 VHF 3 UHF Eureka, California (owned)................ KVIQ July 1998(16) CBS 6 17 191 2 VHF 2 UHF Santa Rosa, California (owned)................ KFTY April 1996 None 50 54 -(17) 6 VHF 12 UHF
9 11
NO. OF COMMERCIAL DATE PROPOSED DMA TV STATIONS CALL ACQUIRED OR NETWORK NTSC DIGITAL MARKET RANKED IN MARKET LETTERS AFFILIATED AFFILIATION CHANNEL(1) CHANNEL RANK(2) MARKET(3) - ------ ------- ----------- ----------- ---------- -------- ------- ----------- PACIFIC NORTHWEST Fairbanks, Alaska (owned).... KTVF August 1999 NBC/UPN 11 26 203 4 VHF Vancouver, British Columbia and portions of Seattle, Washington (owned).................... KVOS June 1985 None 12 35 -(18) -(18)
- -------------- (1) Refers to the current analog channel used by such station. (2) Source: Television & Cable Fact Book, 1999 Edition (3) Source: Television & Cable Fact Book, 1999 Edition. The number of stations listed does not include digital television stations, public broadcasting stations, satellite stations, low-power stations, or translators that rebroadcast signals from distant stations, and also may not include smaller television stations whose rankings fall below reporting thresholds. (4) One additional UHF channel has been allocated in the Syracuse market; however, there has been no construction activity to date with respect to this channels. (5) We acquired WIVT in August 1998. Pending closing of the transaction, we programmed the station under an LMA with the previous owner. The date in this column reflects the date the LMA was entered into. (6) In February 2000, we acquired substantially all of the assets of WBGH-LP, other than the FCC license. Pending FCC approval of the transfer of the FCC license to us, we are programming the station under an LMA with the FCC licensee. The date in this column reflects the date the LMA was entered into. (7) As a low power station, WGBH-LP has not been assigned a proposed digital channel. (8) We acquired WUTR in January 2000. Pending closing of the transaction, we programmed the station under an LMA with the previous owner. The date in this column reflects the date the LMA was entered into. (9) We do not own WETM but program the station under an LMA with the current owner of the station. The date in this column reflects the date the LMA was entered into. See "--Acquisitions and Local Marketing Agreements." (10) In May 1999, we exchanged the assets of KKTV, our former television station in Colorado Springs, Colorado for the assets of KCOY and a cash payment. Pending closing of the transaction, we programmed KCOY under an LMA with the previous owner. The date in this column reflects the date that the LMA was entered into. (11) We acquired KION in January 2000. Pending closing of the transaction, we programmed the station under an LMA with the previous owner. The date in this column reflects the date the LMA was entered into. (12) One additional UHF channel has been allocated in the Salinas-Monterey market; however, there has been no construction activity to date with respect to this channel. (13) Two additional UHF channels have been allocated in the Bakersfield market; however, there has been no construction activity to date with respect to these channels. (14) In January 2000, we sold substantially all the assets of KCBA. We program 15% of the station's weekly broadcast hours and provide sales and other services under an LMA with the purchaser. The date in this column reflects the date we originally acquired the station. (15) We acquired KMTR in March 1999. Pending closing of the transaction, we programmed the station under an LMA with the previous owner. The date in this column reflects the date the LMA was entered into. The acquisition includes the assets of two satellite stations, KMTX (Roseburg, Oregon) and KMTZ (Coos Bay, Oregon), and one low power station, KMOR-LP (Eugene, Oregon). (16) We acquired KVIQ in January 1999. Pending closing of the transaction, we programmed the station under an LMA with the previous owner. The date in this column reflects the date this LMA was entered into. (17) While KFTY is included in the San Francisco-Oakland-San Jose DMA market, which has a DMA rank of 5, the station principally serves the community of Santa Rosa, which is not separately ranked. 10 12 (18) KVOS, located in Bellingham, Washington, serves primarily the Vancouver, British Columbia market (located in size, according to the Nielsen Rating Service as of February 2000, between the markets of Denver, Colorado and Pittsburgh, Pennsylvania, which have DMA rankings of 18 and 19, respectively, and a portion of the Seattle, Washington market (DMA rank 12) and the Whatcom County, Washington market. The station's primary competition consists of five Canadian stations. DMA rankings are from the Television & Cable Factbook, 1999 Edition. Programming. Our network-affiliated television stations operate under standard contracts. These standard contracts are automatically renewed for successive terms unless we or the network exercises cancellation rights. The networks offer our network-affiliated stations a variety of programs. Our network-affiliated stations have a right of first refusal to broadcast network programs before those programs can be offered to any other television station in the same market. Our network-affiliated stations often pre-empt network programming with alternative programming. By emphasizing non-network programming during certain time periods, we increase the amount of commercial time available to us. Such programming includes locally produced news, as well as syndicated and first-run talk programs, children's programming and movies acquired from independent sources. KVOS(TV), which does not have a network affiliation, is located in Bellingham, Washington and serves primarily the market of Vancouver, British Columbia, Canada. Canadian regulations require Canadian cable television operators to delete the signals of U.S.-based stations broadcasting network programs in regularly scheduled time slots and to replace them with the signals of the Canadian-based network affiliates broadcasting at the same time. By broadcasting non-network programming, however, KVOS(TV) is able to increase the amount of time it is on the air in the Vancouver market. Acquisitions and Local Marketing Agreements. We seek to acquire television broadcast stations generally in DMA markets ranking from 50 to 200. We also enter into time brokerage or local marketing agreements ("LMAs") with owners of television stations. Under those agreements, we provide programming and sales services and make monthly payments to station owners in exchange for the right to receive revenues from advertising and, in some cases, network compensation. Over the past year, we have acquired, or entered into LMAs to provide programming services to, the following stations: - On January 5, 1999, we purchased substantially all of the assets of KVIQ(TV), the CBS affiliate licensed to Eureka, California, for approximately $5.5 million, pursuant to an agreement dated July 15, 1998. Pending closing of the transaction, we provided programming and sales services under an LMA with the previous owner. - On March 16, 1999, we purchased substantially all of the assets of KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together with two satellite stations licensed to Roseburg and Coos Bay, Oregon, and a low power station licensed to Eugene. The purchase price was approximately $26.0 million. From December 1, 1998 until closing of the transaction, we provided programming and sales services under an LMA with the previous owner. 11 13 - On April 12, 1999, we purchased substantially all of the assets of WOKR(TV), the ABC affiliate licensed to Rochester, New York, for approximately $128.2 million. In September 1998, we paid $12.5 million of the purchase price into an escrow account, with the balance paid at closing. - On May 1, 1999, we exchanged substantially all of the assets plus certain liabilities of KKTV(TV), the CBS affiliate licensed to Colorado Springs, Colorado, for substantially all of the assets plus certain liabilities of KCOY(TV), the CBS affiliate licensed to Santa Maria, California. In conjunction with the transaction, we received a cash payment of approximately $9.0 million. Pending closing of the transaction, we programmed KCOY(TV) and the former owner of KCOY(TV) programmed KKTV(TV) under LMAs. - On August 2, 1999, we purchased substantially all of the assets of KTVF(TV), the NBC affiliate licensed to Fairbanks, Alaska, for approximately $7.2 million. In addition, we have acquired, or entered into LMAs with respect to, the following stations in 2000: - On January 12, 2000, we sold substantially all of the assets of KCBA(TV), the FOX affiliate licensed to Monterey, California, for approximately $11.0 million, and entered into an LMA with the purchaser to provide programming and sales services. Concurrent with this sale, we purchased substantially all of the assets of KION(TV), the CBS affiliate licensed to Salinas, California, for approximately $7.7 million, subject to certain reductions. From April 24, 1996 until closing of the transaction, we provided programming and sales services under an LMA with the previous owner. - On January 20, 2000, we purchased substantially all of the assets of WUTR(TV), the ABC affiliate licensed to Utica, New York, for approximately $7.9 million. From June 30, 1997 until closing of the transaction, we provided programming and sales services under an LMA with the previous owner. - On February 1, 2000, we entered into an LMA with Smith Television of New York, Inc. ("STNY") to provide programming and sales services to WETM(TV), the NBC affiliate licensed to Elmira, New York. We also purchased a 20% non-voting equity interest in STNY for approximately $17.0 million. Beginning in August 2003, STNY may require us to exchange our interest in STNY, plus $11.0 million in cash, for all of the assets of WETM(TV). Under certain circumstances we may have an option to purchase all or a controlling interest in STNY. - On February 1, 2000, we purchased substantially all of the assets, other than the FCC license, of WBGH-LP, a low-power NBC affiliate licensed to Binghamton, New York for approximately $9.0 million. We entered into an LMA with the FCC licensee of WBGH-LP pending FCC approval of the transaction. Upon closing of the transaction, the FCC license will be transferred to us for no additional consideration. 12 14 Sales and Marketing. We receive revenues from our television broadcasting operations from the sale of advertising time, usually in the form of local, regional, and national spot or schedule advertising, and, to a much lesser extent, network compensation. Spot or schedule advertising consists of short announcements and sponsored programs either on behalf of advertisers in the immediate area served by the station or on behalf of national and regional advertisers. During 1999, local spot or schedule advertising, which is sold by our personnel at each broadcast station, accounted for approximately 48% of our television stations' total revenue. National spot or schedule advertising, which is sold primarily through national sales representative firms on a commission-only basis, accounted for approximately 46% of our television stations' total revenue. In certain cases, we also receive revenue from our network affiliations. The networks pay us an hourly rate that is tied to the number of network programs that our television stations broadcast. Hourly rates are established in our agreements with the networks and are subject to change by the networks. We have the right, however, to terminate a network agreement if the network effects a decrease in hourly rates. Overall, network compensation revenue was not a significant portion of our television stations' total revenue for 1999. Competition. We compete directly with other television stations, and indirectly with other types of advertising media companies, including radio, magazines, newspapers, outdoor advertising, transit advertising, yellow page directories, direct mail marketing, local cable systems, and satellite broadcasting systems. Substantial competition exists among all advertising media on a cost-per-rating-point basis and on the ability to effectively reach a particular demographic section of the market. As a general matter, competition is confined to defined geographic markets. Maintenance of our competitive positions in our broadcast markets generally depends upon the management experience of each station's managers, the station's authorized broadcasting power, the station's assigned frequency, the station's network affiliation, the station's access to non-network programming, the audience's identification with the station and its acceptance of the station's programming, and the strength of the local competition. In addition, our television stations compete for both audience and advertising with cable television and other news and entertainment media serving the same markets. Cable television systems, which operate generally on a subscriber-payment basis, compete by carrying television signals from outside the broadcast market and by distributing programming originated exclusively for cable systems. Historically, cable operators have not competed with local broadcast stations for a share of the local news audience. If they do, however, the increased competition for local news audiences could have an adverse effect on our advertising revenue. We also face competition from high-powered direct broadcast satellite services which transmit programming directly to homes equipped with special receiving antennas or to cable television systems for transmission to their subscribers. In addition, our television stations compete with other forms of home entertainment, such as home videotape and video disc players. 13 15 Moreover, the television industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, and changes in labor conditions and government regulations. We believe that the advertising revenues generated by our television stations are significantly influenced by rankings of their local news programs in their respective markets. Nine of the thirteen network-affiliated television stations we currently own or program rank first or second in their respective geographic markets in local news ratings points delivered, according to the November 1999 Nielsen Station Index. RADIO BROADCASTING Our radio broadcasting operations involve the sale of air time to a broad range of national, regional, and local advertisers. In addition, we earn revenue from the sale of sponsorships to a variety of events, such as concerts. We own and operate four radio stations and provide sales and other services to a fifth radio station in the Seattle-Tacoma area. Industry Overview. Radio stations in the United States operate either on the "amplitude modulation" ("AM") band, comprising 107 different frequencies located between 540 and 1700 kilohertz ("KHz") in the low frequency band of the electromagnetic spectrum, or the "frequency modulation" ("FM") band, comprising approximately 100 different frequencies located between 88 and 108 megahertz ("MHz") in the very high frequency band of the electromagnetic spectrum. FM radio stations have captured a high percentage of the listening audience, in part because of the public's perception that stereo broadcasting, which until recently was only available on FM radio stations, provides enhanced sound quality. Our radio stations derive most of their revenue from local, regional, and national advertising and, to a lesser extent, from network compensation. In 1999, approximately 68% of our radio broadcasting revenue was derived from local advertising generated by the stations' local sales staffs. National sales, on the other hand, are usually generated by national independent sales representatives acting as agents for the stations. The representatives obtain advertising from national advertising agencies and receive commissions based on a percentage of gross advertising revenue generated. The principal costs incurred in the operation of radio stations are salaries, programming, promotion and advertising, sports broadcasting rights fees, rental of premises for studios, costs of transmitting equipment, and music license royalty fees. Operations. We own four radio stations, which consist of KHHO(AM) in Tacoma, Washington and KJR(AM), KJR-FM and KUBE(FM) in Seattle, Washington. We also provide sales and other services to KFNK(FM) in Eatonville, Washington. The following table sets forth information about our portfolio of radio stations. 14 16
NO. OF COMMERCIAL RADIO STATION MSA RADIO FORMAT AND CALL DATE MARKET STATIONS PRIMARY MARKET LETTERS ACQUIRED RANK(1) IN MARKET(1) DEMOGRAPHIC TARGET ------ ------- -------- ------- ------------ ------------------ Seattle-Tacoma, Washington KJR(AM) May 1984 14 11 AM Sports Talk; (2) Men 25-54 (3) KJR-FM October 1987 19 FM Classic Hits; (2) Adults 25-54 KJR(AM) July 1994 Rhythmic Contemporary (4) Hits; Persons 18-34 KHHO(AM) March 1998 Sports Talk; Men 24-54 KFNK(FM) September 1999 Alternative; (5) Men 18-24
- -------------- (1) Source: Fall 1999 Arbitron Radio Market Report. Metro Service Area ("MSA") market rank is based on population as reported upon by The Arbitron Company. (2) Reflects the dates on which we originally acquired the stations. We contributed the stations' assets to New Century Seattle Partners L.P., a Delaware limited partnership ("the Partnership") in 1994. We first acquired a limited partnership interest in the Partnership in 1994 and, in 1998, the Partnership became a wholly-owned subsidiary. Since then, the broadcast licenses have been transferred to one of our other subsidiaries, and the Partnership has been dissolved. (3) KJR (AM) serves as the Seattle SuperSonics' flagship radio station. (4) The date shown in the column reflects the date on which the Partnership acquired the station from Cook Inlet, Inc. (5) The date shown in the column reflects the date on which we entered into an agreement to provide sales and other services. Acquisitions and Dispositions. Over the past year, we have entered into the following transactions: - On July 6, 1999, we sold a radio broadcasting tower for approximately $2.8 million. In connection with the transaction, we recorded a loss from disposition of assets of $1.2 million in the second quarter of 1999. - On September 13, 1999, we entered into a joint sales agreement with the owner of radio station KFNK(FM) in Eatonville, Washington. Under the agreement, we pay the owner a monthly fee for the right to sell advertising on the station. In connection with the transaction, we paid $4.0 million under a put and call agreement whereby we may elect, or be required by the owner, to purchase the station's assets any time after November 2002. The gross purchase price of the station's assets, which is primarily based on the station's ratings at the time of the sale, ranges from $4.5 million to $11.7 million. The gross purchase price would be reduced by our $4.0 million payment under the put and call agreement plus accrued interest. Sales and Marketing. Most of our radio broadcasting revenue comes from the sale of air time to local advertisers. Each station's advertising rates depend upon, among other things, (1) the station's ability to attract audiences in its target demographic group, and (2) the number of 15 17 stations competing in the market area. The size of a radio station's audience is measured by independent rating service surveys. Much like our television broadcasting stations, the radio stations sell local spot or schedule advertising. During 1999, such advertising accounted for approximately 68% of the radio stations' revenue. In contrast, approximately 26% of the radio stations' 1999 revenue was received from national spot or schedule advertising, which is sold primarily through national sales representative firms on a commission-only basis. The remaining revenue consisted of tower rentals and production fees. Competition. We compete directly with other radio stations and indirectly with other types of advertising media companies, including television, newspapers, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, local cable systems, and satellite broadcasting systems. Substantial competition exists among all advertising media on a cost-per-rating-point basis and on the ability to effectively reach a particular demographic section of the market. As a general matter, competition is confined to defined geographic markets. A radio station's ability to maintain its competitive position in a market is dependent upon a number of factors, including (1) the station's rank within the market, (2) transmitter power, (3) assigned frequency, (4) audience characteristics, (5) audience acceptance of the station's local programming, and (6) the number and types of other stations in the market area. Radio stations frequently change their broadcasting formats and radio personalities in order to seize a larger percentage of the market. Thus, our radio stations' ratings are regularly affected by changing formats. TELEVISION AND RADIO BROADCASTING REGULATION General. Our television and radio operations are heavily regulated under the Communications Act of 1934 and other federal laws. The Communications Act, for instance, limits the number of broadcast properties that we may acquire and operate. It also restricts ownership of broadcasting properties by foreign individuals and foreign companies. The Communications Act authorizes the FCC to supervise the administration of federal communications laws, and to adopt additional rules governing broadcasting. Thus, our television and radio broadcasting operations are primarily regulated by the FCC. The FCC, for example, approves all transfers, assignments and renewals of our broadcasting properties. KVOS(TV), which derives much of its revenue from the Vancouver, British Columbia market, is additionally regulated and affected by Canadian law. Unlike U.S. law, for instance, a Canadian firm cannot deduct expenses for advertising on a U.S.-based television station which broadcasts into a Canadian market. In order to compensate for this disparity, KVOS(TV) sells advertising time in Canada at a discounted rate. In addition, Canadian law limits KVOS(TV)'s ability to broadcast certain programming. Ownership. FCC rules limit the number and type of broadcasting properties that we may own in the same geographic market. Thus, in a particular geographic market, we cannot own the 16 18 following combinations: more than one television station (with certain exceptions); a cable system and a television station; or a radio station and a daily newspaper. In addition, there are limitations which vary according to the size of the market, on the number of radio stations that we may own in a market. In addition, the Communications Act and FCC rules prohibit aliens from owning of record or voting more than one-fifth of the capital stock of a corporation holding a radio or television station license or more than one-fourth of the capital stock of a corporation holding the stock of a broadcast licensee. Our Bylaws provide that none of our shares of capital stock may be issued or transferred to any person where such issuance or transfer will result in a violation of the Communications Act or any regulations promulgated thereunder, and that any purported transfer in violation of those restrictions is void. Local Marketing Agreements. Prior to November 16, 1999, FCC rules prohibited the common ownership of two television stations in a single market. Under rules effective November 16, 1999, common ownership of two television stations (commonly known as a duopoly) in one market became permissible in certain limited circumstances. The new rules also permit a television station owner to program up to 15% of the weekly broadcast hours of another station in the same market pursuant to agreements known as time brokerage agreements or local marketing agreements ("LMAs"), provided that the licensee of the other station maintains ultimate control and responsibility for the programming and operations of the station and compliance with applicable FCC rules and policies. Currently there are no television duopolies in any of our markets. Programming and Advertising. The Communications Act requires broadcasters to serve the public interest. Thus, our television and radio stations are required to present some programming that is responsive to community problems, needs, and interests. We must also broadcast informational and educational programming for children, and limit the amount of commercials aired during children's programming. We are also required to maintain records demonstrating our broadcasting of public interest programming. FCC rules impose restrictions on the broadcasting of political advertising, sponsorship identifications, and the advertisement of contests and lotteries. Affirmative Action. FCC rules require us to develop and implement programs designed to promote equal employment opportunities. We must submit annual reports to the FCC documenting our compliance with those rules. Cable Television. In many parts of the country, cable television operators rebroadcast television signals via cable. In connection with cable rebroadcasts of those signals, each television station is granted, pursuant to the Cable Television Consumer Protection and Competition Act of 1992, either "must-carry rights" or "retransmission consent rights." Each television broadcaster must choose either must-carry rights or retransmission consent rights with regard to its local cable operators. If a broadcaster chooses must-carry rights, then the cable operator will probably will be required to carry the local broadcaster's signal. Must-carry rights are not absolute, however, and 17 19 their exercise depends on variables such as the number of activated channels on, and the location and size of, the cable system, and the amount of duplicative programming on the broadcast station which duplicates the programming of another broadcast station with must-carry rights. If a broadcaster chooses retransmission consent rights, the broadcaster is entitled to (1) prohibit a cable operator from carrying its signal, or (2) consent to a cable operator's rebroadcast of the broadcaster's signal, either without compensation or pursuant to a negotiated compensation arrangement. All of the television stations that we own or program have, in the majority of cases, chosen retransmission consent rights, rather than must-carry rights, within their respective markets. Digital Television. The Telecommunications Act requires the FCC to oversee the transition from current analog television broadcasting to Digital Television ("DTV") broadcasting. During the transition period, the FCC will issue one digital broadcast license to each existing television licensee that files a license application. Network affiliates in larger broadcast markets were required to begin DTV broadcasts during 1999. Our stations are required to begin construction of their digital transmission facilities by May 1, 2002. All of the television stations that we own or program have received construction permits from the FCC for their DTV facilities. The stations will then be allowed to broadcast two signals using two channels, one digital and one analog, during the transition period, which will extend until December 31, 2006. At the end of the transition period, broadcasters will be required to choose whether they will continue broadcasting on the digital or the analog channel, and to return the other channel to the FCC. FCC Rule Changes. Communications laws and FCC rules are subject to change. For example, the FCC recently adopted rules that reduce the required distance between existing stations and allow the utilization of directional antennas, terrain shielding, and other engineering techniques. Another recent rule change resulted in the expansion of the AM radio band. Other changes may result in the addition of more AM and FM stations, or increased broadcasting power for existing AM and FM stations, thus increasing competition to our broadcasting operations. Congress and the FCC are currently considering many new laws, regulations, and policies that could affect our broadcasting operations. For instance, Congress and/or the FCC currently are considering proposals to: - impose spectrum use or other fees upon broadcasters; - revise rules governing political broadcasting, which may require stations to provide free advertising time to political candidates; - restrict or prohibit broadcast advertising of alcoholic beverages; - change broadcast technical requirements; and - expand the operating hours of daytime-only stations. 18 20 We cannot predict the likelihood of Congress or the FCC adopting any of these proposals. If any should be adopted, we cannot assess their impact on our broadcasting operations. In addition, we cannot predict the other changes that Congress or the FCC might consider in the future. Low Power FM. The FCC has adopted rules creating a new, low power FM (LPFM) radio service, which may create new competition in the radio industry. The new LPFM service is limited to non-commercial operation. The LPFM service will consist of two classes of LPFM radio stations with maximum power levels of 10 watts and 100 watts. The 10 watt stations would reach an area with a radius of between one and two miles, the 100 watt stations would reach an area with a radius of approximately three and a half miles. These LPFM stations would operate throughout the FM band. There can be no assurance that the development and introduction LPFM service will not have an adverse effect on the radio broadcast industry. Digital Audio Broadcasting. The radio broadcasting industry is subject to competition from new media technologies that are being developed or introduced, including the delivery of audio programming by digital audio broadcasting ("DAB"). The FCC has issued a Notice of Proposed Rulemaking to address alternative approaches to introducing DAB to the American public. DAB may provide a medium for the delivery by satellite or terrestrial means of multiple new audio programming formats to local and national audiences. This new capability may provide an additional source of competition in our markets. Historically, the radio broadcasting industry has grown in terms of total revenues despite the introduction of new technologies for the delivery of entertainment and information, such as television broadcasting, cable television, audio tapes and compact disks. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have an adverse effect on the radio broadcast industry. We are unable to predict the effect such technologies will have on our broadcasting operations, but the capital expenditures necessary to implement such technologies could be substantial. Equal Employment Opportunity Rules. On January 20, 2000, the FCC adopted new Equal Employment Opportunity ("EEO") rules in response to the D.C. Circuit Court of Appeals decision in 1998 in Lutheran Church Missouri Synod v. FCC (Lutheran Church), which held that certain aspects of the FCC's previous broadcast EEO outreach requirements were unconstitutional. The new rules require broadcast licensees to widely disseminate information about job openings to all segments of the community to ensure that all qualified applicants, including minorities and women, have sufficient opportunities to compete for jobs in the broadcast industry. The new rules do not require broadcasters to hire any particular applicant, nor do they place pressure on such decisions. As in the past, broadcast stations with fewer than five full-time employees and cable entities with fewer than six full-time employees will not be required to demonstrate compliance with the EEO program requirements. However, all other broadcasters must place an annual EEO report in their public file detailing their outreach efforts and must file a Statement of Compliance every second, fourth and sixth year of the license term certifying compliance with the EEO rule. In addition, all television stations and radio stations with more than 10 full-time employees must submit their annual EEO reports to the FCC midway through the license term and at renewal. At these times, the FCC will review the station's outreach efforts. The FCC also reinstated the requirement that broadcasters file annual 19 21 employment reports, which was suspended by the FCC following the Lutheran Church decision and retains the requirement that cable entities file annual employment reports. The FCC will use the information in the annual employment reports only to monitor industry employment trends and prepare reports to Congress. Satellite Home Viewer Improvements Act. The Satellite Home Viewer Improvement Act of 1999 ("SHVIA"), signed into law on November 29, 1999, permits satellite companies to provide local broadcast TV signals to all subscribers who reside in a particular DMA. This ability to provide local broadcast channels is commonly referred to as "local into local" service. The SHVIA also permits satellite companies to provide "distant" network broadcast stations to eligible satellite subscribers. A distant network signal is a signal from a market other than the local market. To be eligible to receive a distant network signal, a television viewing household must be an unserved household unable to receive a local network signal, as determined pursuant to criteria established by the FCC. The SHVIA generally seeks to place satellite carriers on an equal footing with local cable television operators when it comes to the availability of broadcast programming, and thus gives consumers more and better choices in selecting a multichannel video program distributor (MVPD), such as cable or satellite service. Local-into-local service is not available in any of our television markets, however, and distant network signals are generally available only to a limited number of unserved television households which cannot receive our broadcast television signal using a conventional rooftop antenna. There can be no assurance that satellite delivered television programming will not have an adverse effect on our broadcasting operations. Low Power Television Stations - Digital Television Maximization. The Community Broadcasters Protection Act was signed into law on November 29, 1999. This law gives many low power television ("LPTV") stations the opportunity to achieve primary status. Presently, LPTV stations are secondary, meaning that they are not protected from full power stations and are subject to being displaced by applications to construct new or to modify existing full power stations. LPTV stations that qualify will now be entitled to receive protection from all other stations in their service area. This class of low power stations will now be known as "Class A". There can be no assurance that the development and introduction a new class of low power stations will not have an adverse effect on our broadcasting operations. However, the legislation also gave full power television stations an opportunity to maximize their digital facilities in advance of the LPTV reclassification. Each full power station had an opportunity to preserve its right to seek an authorization for digital facilities that replicate its analog coverage area, and/or that maximize the digital facilities for the digital television allotment in question, without regard to the existence of low power stations. All of the full power stations that we own or program have advised the FCC of their intent to maximize their facilities. Purchase and Sale Transactions. We are seeking FCC approval to acquire the broadcasting licenses for one television station and will be required to obtain FCC approval to acquire additional broadcasting licenses and authorizations in the future. In connection with the application to acquire a broadcasting license, the FCC considers factors generally similar to those discussed under "Renewal of Broadcasting Licenses" below. In addition, the filing by third parties of petitions to deny, informal objections or comments to a proposed transaction can result in significant delays to, as well as denial of, FCC action on a particular application. 20 22 Renewal of Broadcasting Licenses. Our broadcasting operations' success depends upon our ability to renew our broadcasting licenses, and the ability of the station owners to renew the licenses for the stations we operate under LMAs. Television and radio licenses (including renewals) currently are issued for terms of eight years. In considering whether to renew a license, the FCC considers several factors, including the licensee's compliance with the FCC's children's television rules, the FCC's equal employment opportunity rules, and the FCC's radio frequency rules. The FCC also considers the Communications Act's limitations on license ownership by foreign individuals and foreign companies, and rules limiting common ownership of broadcast, cable and newspaper properties. The FCC also considers the licensee's general character, including the character of persons holding interests in the licensee. In addition, the FCC considers complaints from the public concerning the license holder, and applications from third parties to acquire an existing license. The FCC usually renews a license holder's broadcasting license. Because the FCC may not grant renewal, however, we have no assurance that any of our broadcasting licenses will be renewed, especially if third parties challenge our renewal applications or file competing applications to acquire our licenses. None of our primary broadcasting licenses, and broadcasting licenses owned by the owners of television stations we program under LMAs, are subject to renewal within the next two years. There are no pending challenges or competing applications with respect to any of our broadcasting licenses. SPORTS & ENTERTAINMENT Our sports & entertainment business consists of ownership of our professional sports franchise, the Seattle SuperSonics, and our sports marketing business, Full House Sports & Entertainment ("Full House"). We also have been awarded operating rights to a WNBA expansion team, the Seattle Storm. We are also considering other investments in Seattle-area sports and entertainment activities. THE SEATTLE SUPERSONICS The SuperSonics franchise is one of 29 members of the National Basketball Association, or "NBA." NBA teams play a regular season schedule of 82 games from November through April, in addition to several preseason exhibition games. Due to the NBA lockout, however, the 1998-99 NBA preseason and regular season games scheduled through February 4, 1999, were cancelled. The season resumed on February 5, 1999 and consisted of a shortened regular season in which each team played 50 games (25 at home and 25 on the road) and playoffs in the usual NBA format. Based on their regular season records, 16 teams qualify for post-season play, which culminates in the NBA championship. The SuperSonics have qualified for post-season play in four of the last five years and played for the NBA championship in 1996. Industry Overview. We are a member of the NBA by virtue of our ownership of the SuperSonics franchise. Thus, we share in profits generated by the NBA as a whole, and share joint and several liability for the NBA's debts and other obligations. Revenues shared equally by 21 23 NBA members include profits from television broadcasting agreements, merchandising, the award of new NBA franchises, and related activities. As a member of the NBA, we must abide by the NBA's Constitution and Bylaws, NBA rules, and by the NBA Board of Governors' implementation of those regulations. The Board of Governors consists of representatives appointed by each NBA member. The Board of Governors, in turn, elects a Commissioner. The Commissioner and the Board (1) arbitrate disputes between franchises, (2) assure that the conduct of franchises, players, and officials is in accordance with the NBA Constitution and Bylaws, (3) review and authorize player transactions between franchises and (4) impose sanctions (including fines and suspensions) on members, players, and officials who are found to have breached NBA rules. The sale of any NBA franchise is subject to the approval of a majority of the NBA's franchise owners. The Constitution and Bylaws of the NBA impose limitations on the transfer and ownership of our Common Stock. In particular, so long as we have more than 500 stockholders, NBA approval is required for, among other things, any transfer of any "interest" in The Ackerley Group if (1) the interest proposed to be transferred represents a direct or indirect interest of 5% or more in The Ackerley Group, (2) the transfer would result in any person or entity (or group of persons or entities acting in concert) that has not been approved by the NBA directly or indirectly owning a 5% or greater interest in The Ackerley Group, or (3) the effect of such proposed transfer is or may be to change the ownership or effective control of The Ackerley Group. As used in these restrictions, references to an "interest" in The Ackerley Group include Common Stock and Class B Common Stock and, although the matter is not free from doubt, we believe that the number of outstanding shares of Common Stock and Class B Common Stock should be aggregated for purposes of determining whether a 5% or greater interest has been transferred or acquired. Other similar restrictions would apply if we have less than 500 stockholders. Operations. The NBA granted Seattle an NBA franchise in 1966. The SuperSonics, throughout their history, have played in the Seattle-Tacoma area. In November 1995, the team began using the Key Arena, a 17,100-seat events facility, under a 15-year lease with the City of Seattle. We acquired the SuperSonics in 1983. The SuperSonics franchise, as permitted by the NBA's Constitution and Bylaws, is authorized to operate for an indefinite term of years, so long as we maintain our NBA membership in good standing. Currently, the SuperSonics maintain a full roster of 12 active players. The minimum roster under NBA rules is 11 players. The SuperSonics acquire new players primarily through the college draft, by signing veteran free agents uncommitted to another NBA franchise or by trading players with another franchise. NBA rules limit the aggregate annual salaries payable by each team to its players. In addition, the SuperSonics' operations are subject to a NBA collective bargaining agreement, which is discussed under "Employees" below. Sales and Marketing. All sales and marketing activities for the SuperSonics are managed by Full House. Our revenues from the SuperSonics come from (1) our own activities, such as ticket sales, merchandising, concessions, and multi-media advertising packages (called 22 24 sponsorship packages) that include local television and radio broadcast advertising and display and sign advertising in Key Arena, and (2) our share of NBA revenues, such as network broadcasting rights, merchandising, and the granting of new NBA franchises to new cities. In addition, Full House manages sales and operations of the luxury suites and concessions for all events at Key Arena. A major source of revenue in the sports & entertainment segment is ticket sales for home games. We receive substantially all of the revenue in this segment from SuperSonics ticket sales. Revenue from ticket sales depends highly on the SuperSonics win/loss record. Average paid attendance per game was 14,451 in the 1998-1999 season, down from 15,424 in the prior season due to the NBA lockout. A majority of the SuperSonics games are broadcast on a Seattle-Tacoma area television station, KONG, and a cable station, FOX. All of the SuperSonics' games are broadcast exclusively in the Seattle-Tacoma area over radio stations KJR(AM) and KHHO(AM), which we own. We also license radio stations owned by other broadcasting companies to carry SuperSonics games. We share equally with the other NBA franchises in revenues generated by the NBA as a whole. A large portion of these revenues consists of broadcast licenses granted to networks. Such broadcast rights have increased significantly in recent years and are expected to become a more significant portion of total NBA revenue, primarily due to the growth of cable television. In the spring of 1993, the NBA entered into new contracts with NBC and TBS/TNT providing for the television broadcast of certain league games through the 1997-98 season. These contracts provide for minimum total payments to the NBA over the four-year contract period of $1.1 billion. Recently, the NBA renewed its contracts with NBC and TBS/TNT through the 2001-2002 season. These contracts provided for minimum total payments to the NBA over the four-year contract period of $2.6 billion. However, as a result of the NBA lockout, the NBA may not receive the full $2.6 billion over the life of these contracts. THE SEATTLE STORM The Storm is one of four WNBA expansion teams to commence play during the 2000 WNBA season. The WNBA consists of 16 women's professional basketball teams, each of which is associated with an NBA team. During the 2000 season, each WNBA team will play a 32-game regular season schedule (16 home and 16 away). Eight teams will qualify for the WNBA playoffs. The Storm will commence their pre-season games on May 13, and will play their first regular season game on May 31. Operations. Like the SuperSonics, the Storm will play at the Key Arena. The Storm will maintain an active roster of 11 players. Unlike NBA players, WNBA players contract directly with, and are paid by, the WNBA pursuant to a collective bargaining agreement. Sales and Marketing. All sales and marketing activities for the Storm are managed by Full House. Our revenues from the Storm will come from ticket sales, merchandising, concessions, and sponsorship packages. 23 25 Certain WNBA games are televised nationally on NBC, ESPN, and Lifetime stations. In addition, each WNBA team is required to televise at least six of its games locally. Revenues from the national broadcast contracts are retained by the WNBA and applied to operational costs and player salaries. Accordingly, we will not receive income from the WNBA's national broadcast contracts. COMPETITION We compete directly with other professional and amateur sporting franchises and events, both in the Seattle-Tacoma market area and nationally via sports broadcasting. We also compete indirectly with other types of entertainment, including television, radio, newspapers, live performances, and other events. Because we own the only NBA and WNBA franchises located in the Seattle-Tacoma metropolitan area, we experience no significant local competition involving professional basketball. We compete with professional football and baseball franchises located in the Seattle-Tacoma metropolitan area. EMPLOYEES As of December 31, 1999, we employed 1,626 full-time persons. The following table sets forth a breakdown of employment in each of our operating segments and our corporate offices:
OPERATING SEGMENT/CORPORATE OFFICE PERSONS EMPLOYED ---------------------------------- ---------------- Outdoor Media(1) 370 Television Broadcasting 1,003 Radio Broadcasting 78 Sports & Entertainment 109 Corporate Offices 66
- ---------------- (1) On January 5, 2000, we sold our Florida outdoor advertising operations, which had 116 full-time employees. Approximately 124 of our employees are represented by unions under 15 collective bargaining agreements. Collective bargaining agreements covering approximately 8% of our employees are terminable during 2000. We believe that these collective bargaining agreements will be renegotiated or automatically extended and that any renegotiation will not materially adversely affect our operations. Players in the NBA are covered by the terms of a collective bargaining agreement, which was originally scheduled to expire on June 30, 2001. On March 23, 1998, the Board of Governors of the NBA voted to exercise their option to reopen the NBA's collective bargaining agreement with the National Basketball Players Association. As a result, the collective bargaining agreement expired on June 30, 1998 and the players were locked out. Preseason and regular season games scheduled through February 4, 1999 were cancelled. On January 7, 1999, 24 26 the NBA Board of Governors ratified a new six-year collective bargaining agreement between the NBA and the National Basketball Players Association, and the season resumed on February 5, 2000. RESTRICTIONS ON OUR OPERATIONS In addition to restrictions on our operations imposed by governmental regulations, franchise relationships and other restrictions discussed above, our operations are subject to additional restrictions imposed by our current financing arrangements. Our operations are subject to restrictions imposed by (1) a credit agreement with various lending banks, dated January 22, 1999, as amended (the "1999 Credit Agreement"), and (2) an indenture (the "Indenture"), dated December 14, 1998, respecting our 9% Senior Subordinated Notes due 2009 (the "9% Senior Subordinated Notes"). Some of those provisions restrict our ability to: - apply cash flow in excess of certain levels or proceeds from our sale of capital stock, debt securities or certain asset dispositions; - incur additional indebtedness; - pay dividends on, redeem or repurchase our capital stock, or make investments; - issue or allow any person to own any preferred stock of restricted subsidiaries; - enter into sale and leaseback transactions; - incur or permit to exist certain liens; - sell assets; - in the case of our subsidiaries (other than unrestricted subsidiaries), guarantee indebtedness; - in the case of our subsidiaries (other than unrestricted subsidiaries), create or permit to exist dividend or payment restrictions with respect to The Ackerley Group, Inc.; - engage in transactions with affiliates; - enter into new lines of business; and - consolidate, merge, or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis. 25 27 In addition, we are required to maintain specified financial ratios, including maximum leverage ratios, a minimum interest ratio, and a minimum fixed charge coverage ratio. The 1999 Credit Agreement also provides that it is an event of default thereunder if the Ackerley family (as defined) owns less than 51% of the outstanding voting stock of our company. Similarly, upon a Change of Control (as defined in the Indenture), the 9% Senior Subordinated Note holders may require us to repurchase their notes. The 1999 Credit Agreement also requires, subject to certain exceptions, that we apply 50% of the net cash proceeds (as defined in the 1999 Credit Agreement) received by us from the sale of our capital stock, 100% of the net cash proceeds received by us from the sale of our debt securities, 100% of the net cash proceeds received by us from certain asset dispositions, and, under certain circumstances, up to 50% of our excess cash flow (as defined in the 1999 Credit Agreement) to repay borrowings under the 1999 Credit Agreement. It further provides that the amount of borrowings available under the 1999 Credit Agreement will be permanently reduced by the amount of such repayments. We have pledged substantially all of the stock and material assets of our subsidiaries to secure our obligations under the 1999 Credit Agreement. In addition, nearly all of our subsidiaries are have provided guarantees of obligations under the 1999 Credit Agreement and the Indenture. In the event of a default under the 1999 Credit Agreement, the bank lenders could demand immediate payment of the principal of and interest on all such indebtedness, and could force a sale of all or a portion of our subsidiaries to satisfy our obligations. Likewise, because of cross-default provisions in our debt instruments, a default under the 1999 Credit Agreement or the Indenture could result in acceleration of indebtedness outstanding under other debt instruments. Additional information concerning the 1999 Credit Agreement and the Indenture is set forth in Note 7 to the Consolidated Financial Statements. FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS Financial information concerning each of our business segments is set forth in Note 15 to the Consolidated Financial Statements. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS The following risk factors and other information included in this Annual Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, financial condition, and operating results could be materially adversely affected. LEVERAGE; RESTRICTIONS UNDER DEBT INSTRUMENTS; COVENANT COMPLIANCE Financial Leverage. As of December 31, 1999, we had approximately $414.6 million of outstanding indebtedness. On January 5, 2000, we applied proceeds from the sale of our Florida 26 28 outdoor advertising operations to fully repay outstanding borrowings under our 1999 Credit Agreement of $193.0 million. In addition, we intend to continue to acquire additional outdoor media and television and radio broadcasting businesses, subject to the availability of required financing. We may assume the indebtedness of businesses that we acquire. We may also make acquisitions or capital expenditures that are financed with the proceeds from borrowings. As a result of such acquisitions, our outstanding indebtedness and interest expense will increase, perhaps substantially. Likewise, further acquisitions will likely increase our depreciation and amortization expenses, perhaps substantially. Our degree of leverage could have important consequences to investors, including the following: - our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes, or other purposes may be impaired; - restrictive covenants in debt instruments, as well as the need to apply cash to make debt service payments, may limit payment of dividends on our outstanding Common Stock and Class B Common Stock: - Operating Cash Flow (defined as net revenue less operating expenses before amortization, depreciation, interest, litigation, and stock compensation expenses and net gain on dispositions of assets) available for purposes other than payment of principal and interest on indebtedness may be reduced; - we may be exposed to the risk of increased interest rates since a portion of our borrowings, including borrowings under the 1999 Credit Agreement (as defined below), bear interest at floating rates; - we may be at a competitive disadvantage compared to competitors that are less leveraged than we are; - we may have limited ability to adjust to changing market conditions; - we may have decreased ability to withstand competitive pressures; and - we may have increased vulnerability to a downturn in general economic conditions or our business. Our ability to make scheduled payments on or to refinance our indebtedness will depend on our financial and operating performance, which in turn will be subject to economic conditions and to financial, business, and other factors beyond our control. In order to fund our debt service and other obligations, we may be forced to reduce or delay planned expansion and capital expenditures, sell assets, obtain additional equity capital or debt financing (if available), or restructure our debt. Accordingly, we cannot guarantee that our operating results, Operating 27 29 Cash Flow, and capital resources will be sufficient for future payments of our indebtedness, to make planned capital expenditures, to finance acquisitions, or to pay our other obligations. Restrictions Imposed by Debt Instruments. We are subject to a number of significant operating and financial restrictions and are required to maintain specified financial ratios, which restrict our operations. See "-Restrictions on Our Operations." Our ability to comply with such covenants and financial ratios may be affected by events beyond our control. Covenant Compliance. In the past, we have from time to time obtained amendments or waivers to certain provisions of our debt instruments, including the 1999 Credit Agreement, in order to remain in compliance with the financial covenants thereunder. There can be no assurance that we will not be required to seek additional waivers or amendments under our debt instruments in the future. Any failure to obtain a necessary amendment or waiver could result in a default under the relevant debt instrument. A default by us under our senior debt instruments could result in an acceleration of indebtedness under the senior debt instruments and other loan documents. If the indebtedness under any of these debt instruments were accelerated, there can be no assurance that we would be able to repay such indebtedness. REGULATION OF OUTDOOR ADVERTISING Outdoor advertising displays are subject to governmental regulation at the federal, state, and local levels. These regulations, in some cases, limit the height, size, location, and operation of outdoor displays and, in some circumstances, regulate the content of the advertising copy displayed on outdoor displays. Changes in laws and regulations affecting outdoor advertising at any level of government may have a material adverse effect on our business, financial condition, or results of operations. See "-Outdoor Media-Outdoor Advertising-Regulation." TELEVISION AND RADIO BROADCASTING Government Regulation of Broadcasting Industry. Pursuant to the Communications Act, the domestic broadcasting industry is subject to extensive federal regulation. In addition, our television station, KVOS, which is located in Bellingham, Washington and broadcasts into Vancouver, British Columbia, is regulated and affected by Canadian law. The restrictions and obligations imposed by these laws and regulations, including their amendment, interpretation, or enforcement, could have a material adverse effect on our business, financial condition, or results of operations. See "-Television and Radio Broadcasting Regulation." Renewal of Broadcasting Licenses. Our business will continue to be dependent upon acquiring and maintaining broadcasting licenses issued by the FCC. Such licenses are currently issued for a term of eight years. Historically, we have been able to renew our broadcast licenses on a regular basis. However, we cannot guarantee that pending or future applications to acquire or renew broadcasting licenses will be approved, or will not include conditions or qualifications adversely affecting our operations, any of which could have a material adverse effect on us. Moreover, governmental regulations and policies may change over time and we cannot guarantee that such changes would not have a material adverse impact on our business, financial condition, 28 30 or results of operations. See "--Television and Radio Broadcasting Regulation--Renewal of Broadcasting Licenses." Approval of Purchase and Sale Transactions. We are seeking FCC approval to acquire the broadcasting license for one television station and will be required to obtain FCC approval to acquire additional broadcasting licenses in the future. We cannot guarantee that the FCC will approve our applications for the broadcasting license we are seeking or in the future may seek to acquire. There can be no assurance that the FCC will approve our disposition of broadcasting stations we may seek to sell in the future. Failure to obtain FCC approval to transfer broadcasting licenses in connection with such transactions could adversely affect our business, financial condition, or results of operations. See "--Television and Radio Broadcasting Regulation--Purchase and Sale Transactions." KJR (AM) Transmission Facilities. One of our radio stations, KJR(AM), broadcasts from transmission facilities located on property leased from the Port of Seattle, currently on a month-to-month basis. We are negotiating with the Port of Seattle to continue broadcasting from the present tower location or from an alternative site KJR(AM) can broadcast from the KHHO site and are exploring our legal options in the event that the Port of Seattle attempts to evict us from the current site before we are able to use the new site. See "Item 2--Properties." While management expects to successfully resolve this matter, there can be no assurance that it will do so or that this matter will not have a material adverse effect on our business, financial condition, or results of operations. SPORTS & ENTERTAINMENT Labor Relations in Professional Sports. On March 23, 1998, the Board of Governors of the NBA voted to exercise their option to reopen the NBA's collective bargaining agreement with the National Basketball Players Association, which was originally scheduled to expire on June 30, 2001. As a result, the collective bargaining agreement expired on June 30, 1998 and the players were locked out. Preseason and regular season games scheduled through February 4, 1999 were cancelled, which adversely affected our results of operations for fiscal year 1998 and the first quarter of 1999. On January 20, 1999, the NBA Board of Governors and the National Basketball Players Association entered into a new six-year collective bargaining agreement. The shortened 1998-99 season and other effects of NBA lockout adversely affected our results for 1999 and may adversely affect our future results of operations. There can be no assurance that the NBA or the Seattle SuperSonics will not experience other labor relations difficulties in the future, which could have a material adverse effect on our business, financial condition, or results of operations. Future Revenues From NBA Broadcast Contracts May Be Reduced. We share equally with the other NBA members in revenues generated by the NBA as a whole. Contracts between the NBA and two major television networks (NBC and TBS/TNT) accounted for a total of approximately $12.0 million of our net revenue for fiscal year 1997. In 1998, the NBA renewed its contracts with NBC and TBS/TNT through the 2001-02 season. These contracts provide for total payments to the NBA over the four-year contract period of up to $2.6 billion, plus, under 29 31 certain circumstances, revenue sharing payments. Over the course of the year, fees are paid by NBC in five installments and by TBS/TNT in six installments. However, as a result of the NBA lockout, the NBA may not receive the full $2.6 billion over the life of these contracts. Dependence on Competitive Success. Our financial results and those of our sports & entertainment segment depend, to a large extent, on the performance of the Seattle SuperSonics and its ranking relative to other NBA teams in its division. By qualifying for the NBA playoffs, for example, we can receive significant additional revenue from ticket sales for home playoff games and from selling advertising during broadcasts of playoff games. In that regard, the Seattle SuperSonics qualified for the NBA playoffs in their 1996-97 and 1997-98 seasons, which substantially increased our net revenue and Operating Cash Flow, as well as the net revenue and Operating Cash Flow for our sports & entertainment segment, for fiscal years 1997 and 1998. However, the Seattle SuperSonics did not quality for the NBA playoffs for the 1998-99 season. Our results of operations and those for our sports & entertainment segment were adversely affected for the second quarter of 1999 and for fiscal year 1999 by the fact that the Seattle SuperSonics did not qualify for the NBA playoffs for the 1998-99 season, and may also be adversely affected in future years by poor performance by the Seattle SuperSonics in subsequent seasons, and there can be no assurance that the Seattle SuperSonics will perform well or qualify for the playoffs in the future. League Membership Risks. Because the NBA is a joint venture, the Seattle SuperSonics and other members of the NBA are generally jointly and severally liable for the debts and other liabilities of the NBA. Any failure of other members of the NBA to pay their pro rata share of any such debts and other liabilities could adversely affect our business, financial condition, or results of operations. The success of the NBA and its member teams depends in part on the competitiveness of other NBA teams and their ability to maintain fiscally sound franchises. Certain NBA teams have at limes encountered financial difficulties, and there can be no assurance that the NBA and its members will continue to be able to operate on a fiscally stable and effective basis. In addition, as a member of the NBA we must abide by a number of rules, regulations, and agreements, including the Constitution and Bylaws of the NBA, national television contracts, and collective bargaining agreements, and the NBA Board of Governors' interpretation and implementation of those matters. For example, the NBA Constitution requires that the sale of any NBA franchise, or the transfer of an equity interest of more than 5% in an NBA member, is subject to the approval of the NBA. See "--Restrictions on the Ownership and Transfer of Common Stock." The Board of Governors consists of representatives appointed by each NBA member. The Board of Governors, in turn elects a Commissioner. The Commissioner and the Board of Governors (1) arbitrate disputes between franchises, (2) assure that the conduct of franchises, players, and officials is in accordance with the NBA Constitution and Bylaws, (3) review and authorize player transactions between franchises and (4) impose sanctions (including fines and suspensions) on members, players, and officials who are found to have breached NBA rules. The Commissioner's interpretations are final and binding on the Company, the Seattle SuperSonics, and its personnel. In addition, member clubs of the NBA may not resort to the courts to enforce or maintain rights or claims against other member clubs, or to seek resolution of any dispute or controversy between member clubs. Instead, all such matters will be decided by the Commissioner of the NBA without any right of appeal to the courts or otherwise. Any interpretations of or changes to these rules, regulations, and agreements 30 32 adopted by the NBA will be binding upon us regardless of whether we agree or disagree with them, and it is possible that any such interpretations or changes could adversely affect our business, financial condition, or results of operations. Dependence on Talented Players; Risks Related to Player Salaries. The success of the Seattle SuperSonics will depend upon the team's continued ability to retain and attract talented players. The Seattle SuperSonics compete with other United States and foreign basketball teams for available players. There can be no assurance that the Seattle SuperSonics will be able to retain players upon expiration of their contracts or identify and obtain new players of comparable talent to replace players who retire or are injured, traded, or released. Even if the Seattle SuperSonics are able to retain or obtain players who have had successful college or professional careers, there can be no assurance that their performance for the Seattle SuperSonics in subsequent years will be at the same level as their prior performance. Players' salaries in the NBA have increased significantly in recent years. Significant further increases in players' salaries could occur and could have a material adverse effect on our business, financial condition, or results of operations. NBA player contracts generally provide that a player is entitled to receive his salary even if he is unable to play as a result of injuries sustained from basketball-related activities during the course of his employment. These salaries represent significant financial commitments of the Seattle SuperSonics. Disability insurance for NBA players (which in certain instances provides up to 80% of salary reimbursement after 41 consecutive games are missed) is costly to maintain, and, as required by NBA rules, the Seattle SuperSonics carry such insurance for their six most highly compensated players. In the event an injured player is not insured or insurance does not cover the entire amount of the injured player's salary, we would be obligated to pay all or a portion, as the case may be, of the injured player's salary. In addition, if we acquire a new player to replace the injured player, we would also be required to pay the salary of the replacement player. To the extent that our financial results are dependent on the Seattle SuperSonics' competitive success (as discussed above), the likelihood of achieving such success is substantially reduced by serious injuries to key players. There can be no assurance that key players for the Seattle SuperSonics will not sustain serious injuries during any given season. As a result, injuries to players could have a material adverse effect on our business, financial condition, or results of operations. COMPETITION Our four business segments are in highly competitive industries. Our broadcasting and outdoor media businesses compete for audiences and advertising revenue with other broadcasting stations and outdoor media advertising companies, as well as with other media forms. Such other media forms may include newspapers, magazines, transit advertising, yellow page directories, direct mail, local cable systems, and satellite broadcasting systems. Audience ratings and market shares are subject to many variables. Any change, and any adverse change in a particular market, could have a material adverse effect on our business, financial condition, or results of operations. Changes which could have an adverse effect on us include economic conditions, both general and local; shifts in population and other demographics; the level of competition for advertising dollars; a station's market rank; broadcasting power, assigned frequency, network affiliation, and audience identification; fluctuations in operating costs; technological changes and innovations; changes in labor conditions; and changes in 31 33 governmental regulations and policies and actions of federal regulatory bodies. There can be no assurance that we will be able to maintain or increase our current audience ratings and advertising revenue. In this respect, the entrance of a new television station in the Vancouver, British Columbia market in October 1997 has adversely affected the financial performance of our television station in Bellingham, Washington (KVOS). Certain of our competitors, including a few outdoor advertising companies that are substantially larger than our outdoor advertising operations have significantly greater financial, marketing, sales and other resources than we have. There can be no assurance that we will be able to compete successfully against our competitors in the future. The Seattle SuperSonics and the Seattle Storm compete directly with other professional and amateur sporting franchises and events, both in the Seattle-Tacoma market area and nationally via sports broadcasting. See "--Sports & Entertainment - Competition." DEPENDENCE ON MANAGEMENT Certain of our executive officers and divisional managers, including Barry A. Ackerley, are especially important to our direction and management. The loss of the services of such persons could have a material adverse effect on the Company, and there can be no assurance that we would be able to find replacements for such persons with equivalent business experience. VOTING CONTROL BY PRINCIPAL STOCKHOLDER Each share of Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share. As of March 1, 2000, Barry A. Ackerley, our Chairman of the Board and Chief Executive Officer, beneficially owns approximately 37.2% of the outstanding shares of Common Stock and approximately 98.7% of the outstanding shares of Class B Common Stock, giving him approximately 87.8% of the combined voting power of our voting securities. See "Item 12 - Security Ownership of Certain Beneficial Owners and Management." As a director, the Chairman and Chief Executive Officer, and the majority stockholder of The Ackerley Group, Mr. Ackerley has certain fiduciary duties to minority stockholders under applicable law. However, so long as Mr. Ackerley continues to own or control stock having a majority of the combined voting power of our voting securities, he will have the power to elect all of our directors and effect fundamental corporate transactions, such as mergers, asset sales, and "going private" transactions, without the approval of any other stockholders. Moreover, Mr. Ackerley's voting control would effectively delay or prevent any other person or entity from acquiring or taking control of The Ackerley Group without his approval, whether or not the transaction could provide stockholders with a premium over the then-prevailing market price of their shares or would otherwise be in their best interests. RESTRICTIONS ON THE OWNERSHIP AND TRANSFER OF COMMON STOCK We are a member of the NBA and are subject to its Constitution and Bylaws. See "--Sports & Entertainment--League Membership Risks." These limitations may adversely affect the ability of investors to acquire, sell or otherwise transfer our Common Stock. Any violation of 32 34 the foregoing restrictions could result in the termination of our NBA franchise and other sanctions by the NBA, which could have a material adverse effect on our business, financial condition, or results of operations. In addition, our Bylaws contain certain restrictions on the transfer of our capital stock in order to comply with the prohibitions on foreign ownership of radio and television stations contained in the Communications Act of 1934 and FCC rules. See "--Television and Radio Broadcasting Regulation--Ownership." These restrictions in our Bylaws, as well as certain related provisions in our Certificate of Incorporation, may adversely affect the ability of investors to acquire, hold, or otherwise transfer our Common Stock. SHARES ELIGIBLE FOR FUTURE SALE As of March 1, 2000, 9,104,948 shares of Common Stock and 11,004,056 shares of Class B Common Stock were held by officers and directors who are considered to be our "affiliates" for purposes of Rule 144 under the Securities Act. As noted above, each share of Class B Common Stock is convertible by the holder at any time into one share of Common Stock. Our affiliates may sell these shares in the public market subject to the volume and other limitations (other than the holding Period limitations, which have been satisfied) of Rule 144 under the Securities Act. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock from time to time. Sales of substantial amounts of Common Stock in the public market (including Common Stock issued upon conversion of Class B Common Stock), or the perception that such sales could occur, could have a material adverse effect on prevailing market prices for the Common Stock. YEAR 2000 The Year 2000 or Y2K problem is a result of the inability of computer software programs to recognize the year 2000, as most programs and systems were designed to store calendar years in the 1900s by assuming the "19" and storing only the last two digits of the year. We have not experienced any significant Y2K problems and have not been informed of any material Y2K problems by our customers or vendors. However, although January 1, 2000 is past, it is possible that some problems have gone undetected, or that other dates in the future may further affect computer software and systems, or equipment with embedded chip technology. These problems could disrupt our business and require us to incur significant, unanticipated expenses to remedy them. They could also result in claims and litigation against us, which could subject us to significant costs and could require substantial attention from our management. Similarly, our business could be severely harmed if third parties on which our services depend encounter Year 2000 issues, or if Year 2000 problems cause malfunctions at our facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000." ITEM 2 - PROPERTIES 33 35 Our principal executive offices are located at 1301 Fifth Avenue, Suite 4000, Seattle, Washington 98101. We lease the offices, which consist of approximately 16,800 square feet, pursuant to a lease that expires in 2006. The following table sets forth certain information regarding our facilities as of December 31, 1999:
Approximate Square Approximate Footage Square Location Nature of Facility Owned Footage Leased - -------- ------------------ ----------- -------------- OUTDOOR MEDIA Seattle, Washington (Outdoor Plant 35,889 1,185 Advertising) Boston Massachusetts (Outdoor Plant 31,882 3,825 Advertising) Miami, Florida (Outdoor Advertising)(1) Plant 242,980 --- TELEVISION BROADCASTING Syracuse, New York (WIXT) Station Operations 40,000 --- Rochester (WOKR) Station Operations 45,000 --- Binghamton, New York (WIVT) Station Operations 10,819 --- Utica, New York (WUTR)(2) Station Operations 12,148 --- Santa Barbara - Santa Maria - San Luis Station Operations 13,000 1,150 Obispo, California (KCOY) Salinas-Monterey, California (KCBA, Station Operations 30,000 20,841 KION(2)) Bakersfield, California (KGET) Station Operations 30,450 --- Eugene, Oregon (KMTR) Station Operations 3,000 9,230 Eureka, California (KVIQ) Station Operations 10,162 --- Santa Rosa, California (KFTY) Station Operations 13,500 --- Bellingham, Washington (KVOS) Station Operations 13,130 11,856 Fairbanks, Alaska (KTVF) Station Operations 84 12,967 RADIO BROADCASTING Seattle, Washington (KJR(AM), KJR-FM, Station Operations -- 16,082 KUBE(FM)) Tacoma, Washington (KHHO(AM)) Station Operations -- 4,252 SPORTS & ENTERTAINMENT Seattle, Washington Office & Operating 30,000 27,246 Facilities OTHER Seattle, Washington (Corporate Offices) Offices -- 16,814 National Sales Offices in New York, Los Angeles, Offices -- 9,164 Chicago, and San Francisco
- -------------------- (1) On January 5, 2000, we sold our Florida outdoor advertising operations. (2) As of December 31, 1999, we programmed these stations under LMAs. Accordingly, this table reflects data for the properties which are owned or leased by the station owners for whom we program the stations. In general, we believe that our facilities are adequate for our present business and that additional space is generally available for expansion without significant delay. Additionally, we are replacing and expanding our radio broadcasting and sports & entertainment operating facilities in Seattle and our outdoor advertising operating facilities in Portland. These facilities will be completed in 2000. In 1999, we paid aggregate annual rentals on office space and operating facilities of approximately $3.5 million. KJR(AM) broadcasts from transmission facilities located on property leased from the Port of Seattle, currently on a month-to-month basis. We have filed an application with the FCC to co-locate KJR(AM)'s transmission facilities with KHHO's facilities in Tacoma, Washington. 34 36 On May 5, 1998 the FCC issued a construction permit granting us authority to begin construction of the transmission facilities at the KHHO site. Construction was substantially completed in February 2000, and testing of the facilities is underway. We are negotiating with the Port of Seattle to continue broadcasting from the present tower location or from an alternative site until KJR(AM) can broadcast from the KHHO site and are exploring our legal options in the event that the Port of Seattle attempts to eject us from the current site before we are able to use the new site. Effective October 1, 1995, we entered into a fifteen-year lease with the City of Seattle for the Key Arena, a 17,100-seat events facility. It was first occupied and used by the SuperSonics in November 1995, the beginning of the 1995-1996 season. At December 31, 1999, we owned 285 vehicles and leased 190 vehicles of various types for use in our operations. This included 64 owned vehicles and 15 leased vehicles at our Florida outdoor advertising operations, which we sold on January 5, 2000. We own a variety of broadcast-related equipment, including broadcast towers, transmitters, generators, microwave systems and audio and video equipment used in our broadcasting business. We presently lease, under a private carrier agreements, a Gulfstream jet and Lear jet that are used for executive travel between our facilities. In February 1998, we purchased a Boeing 727 jet aircraft to replace the BAC 1-11 that we previously leased, which we use for travel involving the SuperSonics. We believe that all of our buildings and equipment are adequately insured in accordance with industry practice. ITEM 3 - LEGAL PROCEEDINGS We become involved, from time to time, in various claims and lawsuits incidental to the ordinary course of our operations, including such matters as contract and lease disputes and complaints alleging employment discrimination. In addition, we participate in various governmental and administrative proceedings relating to, among other things, condemnation of outdoor advertising structures without payment of just compensation and matters affecting the operation of broadcasting facilities. Lambert v. Ackerley. Following the U.S. Supreme Court's denial of our petition for review of the decision of the Ninth Circuit Court of Appeals, we paid the awarded damages, accrued interest thereon, and plaintiff's attorney's fees of approximately $7.5 million in the first quarter of 2000. See Note 13 of the Notes to Consolidated Financial Statements. Van Alstyne v. The Ackerley Group, Inc. On June 7, 1996, a former sales manager for television station WIXT, Syracuse, New York filed a complaint in the U.S. District Court for the Northern District of New York against The Ackerley Group, Inc., WIXT and the current and former general managers of WIXT. The complaint seeks unspecified damages and injunctive relief for discrimination on the basis of gender and disability, as well as unlawful retaliation, under both state and federal law. We have filed a motion for summary judgment, which is currently pending. A trial date has not been set. 35 37 RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc., a supplier of outdoor advertising in Massachusetts, filed a complaint in the U.S. District Court for the District of Massachusetts (the "Court") alleging that we have unlawfully monopolized the Boston-area billboard market in violation of the Sherman Antitrust Act, engaged in unlawful restraint of trade in violation of the Sherman Antitrust Act, and committed unfair trade practices in violation of Massachusetts state law. The plaintiff is seeking in excess of $20.0 million in damages. On May 22, 1998, the Court, in a ruling from the bench, dismissed count 2 of plaintiff's complaint, which alleged that the existence of leases between us and landowners restricted the landowners' ability to lease that same space to the plaintiff in violation of the Sherman Antitrust Act. We have filed a motion for summary judgment which is currently pending. A trial date has not been set. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the fourth quarter of 1999. EXECUTIVE OFFICERS OF THE REGISTRANT Our executive officers are:
Name Age Position ---- --- -------- Barry A. Ackerley 65 Chairman and Chief Executive Officer Gail A. Ackerley 61 Co-Chairman Denis M. Curley 52 Co-President, Chief Operating Officer and Chief Financial Officer, Secretary and Treasurer Christopher H. Ackerley 30 Co-President Keith W. Ritzmann 47 Senior Vice President and Chief Technology Officer, Controller and Assistant Secretary
Mr. Barry A. Ackerley, one of our founders, has been the Chief Executive Officer and a director of The Ackerley Group and its predecessor and subsidiary companies since 1975. He currently serves as our Chairman. Ms. Gail A. Ackerley was elected to our Board of Directors in May 1995, and became Co-Chairman in September 1996. She served as one of our Co-Presidents from November 1997 to February 15, 2000. Ms. Ackerley has served as our Chairman of Ackerley Corporate Giving since 1986, supervising our charitable activities, and also serves as Chairman of the Seattle Storm. Mr. Denis M. Curley, who joined us in December 1984, was elected as Chief Operating Officer on February 15, 2000, and as one of our Co-Presidents in November 1997. Previously, he served as Executive Vice President from March 1995 until his election as one of our Co-Presidents. Before then, he served as Senior Vice President from January 1990 through the date 36 38 of his election as Executive Vice President. He has served as our Chief Financial Officer since May 1988. Mr. Curley also presently serves as our Secretary and Treasurer. Mr. Christopher H. Ackerley was named Co-President on February 15, 2000, with principal responsibility for overseeing our marketing, investor relations, information technology, and technology-venture investments. He joined The Ackerley Group in 1995, and was elected Vice President for Marketing and Development in May 1998. He also served as Executive Vice President, Operations and Development from December 1998 until his election as Co-President. Mr. Keith W. Ritzmann was named Senior Vice President and Chief Technology Officer on February 15, 2000. He has served as a Senior Vice President since January 1998, and also served as Chief Information Officer from such date until his election as Chief Technology Officer. He served as a Vice President from January 1990 through the date of his election as Senior Vice President. He also presently serves as our Assistant Secretary and Controller. Barry A. Ackerley and Gail A. Ackerley are husband and wife. Christopher H. Ackerley is their son. There are no other family relationships among any of our executive officers. All officers serve at the pleasure of our Board of Directors. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of March 1, 2000, 34,965,807 shares of our common stock were issued and outstanding, of which 23,877,107 shares were Common Stock and 11,088,700 shares were Class B Common Stock. The Common Stock was held by 545 shareholders of record; the Class B Common Stock was held by 28 shareholders of record. Our Board of Directors declared a cash dividend of $.02 per share in each of 1998 and 1999. Recently, the Board declared a cash dividend of $.02 per share payable on April 14, 2000 to shareholders of record on March 23, 2000. Payment of any future dividends is at the discretion of the Board of Directors and depends on a number of conditions. Among other things, dividend payments depend upon our results of operations and financial condition, capital requirements and general economic conditions. The 1999 Credit Agreement and the Indenture impose certain limits upon our ability to pay dividends and make other distributions. In addition, we are subject to the General Corporation Law of Delaware, which restricts our ability to pay dividends in certain circumstances. COMMON STOCK On December 15, 1997, our Common Stock became listed and began trading on the New York Stock Exchange under the symbol "AK." Our Common Stock previously traded on the American Stock Exchange. 37 39 The table below sets forth the high and low sales prices of our Common Stock for each full quarterly period in the two most recent fiscal years according to the New York Stock Exchange.
1999 High Low 1998 High Low - ---- ---- --- ---- ---- --- First Quarter $19 1/4 $16 1/2 First Quarter $24 3/8 $14 5/8 Second Quarter $20 $16 5/8 Second Quarter $22 1/2 $19 7/16 Third Quarter $19 1/4 $11 1/8 Third Quarter $24 7/8 $19 1/2 Fourth Quarter $18 1/2 $11 3/8 Fourth Quarter $21 1/16 $16 1/2
On March 1, 2000, the high and low sales prices of our Common Stock, according to the New York Stock Exchange, were $13 5/16 and $12 7/16, respectively. CLASS B COMMON STOCK Our Class B Common Stock, which we initially issued in June 1987, is not publicly traded. Persons owning shares of our Class B Common Stock may trade such shares only as permitted by our Certificate of Incorporation, which imposes restrictions on such transfer. Thus, there is no trading market for shares of our Class B Common Stock. ITEM 6 - SELECTED FINANCIAL DATA The table below sets forth selected consolidated financial data regarding our operations. The information in the table has been derived from audited consolidated financial statements. You should read the information in the table in conjunction with the sections titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements (and Notes) included elsewhere in this report.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Consolidated Statement of Operations Data: Revenue $ 315,319 $ 292,907 $ 306,169 $ 279,662 $ 235,820 Agency commissions and discounts (37,131) (36,256) (34,994) (32,364) (28,423) --------- --------- --------- --------- --------- Net revenue 278,188 256,651 271,175 247,298 207,397 Expenses (other income): Operating expenses 227,697 209,030 210,752 186,954 156,343 Restructuring expenses 1,125 -- -- -- -- Depreciation and amortization expense 28,348 16,574 16,103 16,996 13,243 Interest expense 35,632 25,109 26,219 24,461 25,010 Stock compensation expense 559 452 9,344(1) -- -- Net gain on dispositions of assets (28,999)(2) (33,524)(2) -- -- -- Litigation expense (adjustment) -- -- (5,000)(3) -- 14,200(3) --------- --------- --------- --------- --------- Total expenses and other income 264,362 217,641 257,418 228,411 208,796 --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item 13,826 39,010 13,757 18,887 (1,399) Income tax expense (benefit) 5,863 15,487 (19,172)(4) 2,758 1,515 --------- --------- --------- --------- --------- Income (loss) before 7,963 23,523 32,929 16,129 (2,914) extraordinary item Extraordinary item - loss on extinguishment of debt (1,373) (4,346) -- (355) -- --------- --------- --------- --------- --------- Net income (loss) applicable to common shares $ 6,590 $ 19,177 $ 32,929 $ 15,774 $ (2,914) ========= ========= ========= ========= ========= Per common share: Income (loss) before $ .24 $ .75 $ 1.05 $ .52 $ (.09) extraordinary item Extraordinary item (.04) (.14) -- (.01) -- --------- --------- --------- --------- --------- Net income (loss) $ .20 $ .61 $ 1.05 $ .51 $ (.09) ========= ========= ========= ========= =========
38 40
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- Common shares used in per share computation 32,932 31,627 31,345 31,166 31,052 Per common share - assuming dilution: Income (loss) before $ .24 $ .74 $ 1.04 $ .51 $ (.09) extraordinary item Extraordinary item (.04) (.14) -- (.01) -- --------- --------- --------- --------- --------- Net income (loss) $ .20 $ .60 $ 1.04 $ .50 $ (.09) ========= ========= ========= ========= ========= Common shares used in per share computation - assuming dilution 33,110 31,883 31,652 31,760 31,052 Dividends $ .02 $ .02 $ .02 $ .02 $ .015 ========= ========= ========= ========= ========= Consolidated Balance Sheet Data (at end of period): Working capital $ 21,704 $ 15,706 $ 12,019 $ 11,154 $ 15,110 Total assets 528,436 316,126 266,385 224,912 189,882 Total long-term debt 403,761 266,999 213,294 229,350 215,328 Total debt 414,593 270,100 229,424 235,141 220,147 Stockholders' equity (deficiency) 27,289 (25,841) (44,909) (83,839) (99,093)
- ------------- (1) See Note 11 to the Consolidated Financial Statements. (2) See Note 3 to the Consolidated Financial Statements. (3) See Note 13 to the Consolidated Financial Statements. (4) See Note 8 to the Consolidated Financial Statements. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Statements appearing in this section, Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical in nature (including the discussions of the effects of recent acquisitions and dispositions, business transactions, and similar information), are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution our shareholders and potential investors that any forward-looking statements or projections set forth in this section are subject to risks and uncertainties which may cause actual results to differ materially from those projected. After the date of this Annual Report, we will not make any public announcements updating any forward-looking statement contained in this section. Important factors that could cause the results to differ materially from those expressed in this section include: - material adverse changes in general economic conditions, including changes in inflation and interest rates; - changes in laws and regulations affecting the outdoor advertising and television and radio broadcasting businesses, including changes in the FCC's treatment of local marketing agreements and related matters, and the possible inability to obtain FCC consent to proposed or pending acquisitions or dispositions of broadcasting stations; - competitive factors in the outdoor advertising, television broadcasting, radio broadcasting, and sports & entertainment businesses; - material changes to accounting standards; 39 41 - expiration or non-renewal of broadcasting licenses and local marketing agreements; - labor matters, including the aftereffects of the NBA lockout, changes in labor costs, renegotiation of labor contracts, and risk of work stoppages or strikes; - matters relating to our level of indebtedness, including restrictions imposed by financial covenants; - the win-loss record of the SuperSonics, which has a substantial influence on attendance, and whether the team participates in the NBA playoffs; - recessionary influences in the regional markets that we serve. OVERVIEW We reported net income of $6.6 million in 1999, compared to $19.2 million in 1998. Net revenue in 1999 increased by $21.5 million, or 8%, from 1998, and our Operating Cash Flow (as defined below) increased by $1.8 million, or 4%. Refinancing. In January 1999, we replaced our existing $300.0 million credit agreement with a new $325.0 million credit agreement. In February 1999, we issued additional 9% Senior Subordinated Notes due 2009 in the aggregate amount of $25.0 million. In March 1999, we redeemed the $20.0 million outstanding principal of the 10.48% Senior Subordinated Notes due 2000 with borrowings under the revolving credit facility of the new credit agreement. Acquisitions and Dispositions. During 1999, we acquired five television stations and an outdoor advertising company, and we sold one television station and a radio broadcasting tower. During the first quarter of 2000, we sold our Florida outdoor advertising operations and acquired two outdoor advertising companies. In addition, we acquired two television stations for which we previously provided programming and sales services under local marketing agreements. We also entered into local marketing agreements to provide programming and sales services to two additional television stations. Stock Offering. During the third quarter of 1999, we received approximately $46.5 million in net proceeds from the issuance of 3,250,000 shares of common stock pursuant to an underwritten public offering. As with many media companies, our acquisitions and dispositions have resulted in significant non-cash and non-recurring charges to income. For this reason, in addition to net income, our management believes that Operating Cash Flow (defined as net revenue less operating expenses before amortization, depreciation, interest, litigation, and stock compensation expenses and net gain on dispositions of assets) is an appropriate measure of our financial performance. Similarly, we believe that Segment Operating Cash Flow (defined as Operating Cash Flow before corporate overhead) is an appropriate measure of our segments' financial performance. These measures exclude certain expenses that management does not consider to be costs of ongoing operations. We use Operating Cash Flow to pay interest and principal on our long-term debt as well as to finance capital expenditures. Operating Cash Flow and Segment 40 42 Operating Cash Flow, however, are not to be considered as alternatives to net income as an indicator of our operating performance or to cash flows as a measure of our liquidity. RESULTS OF OPERATIONS The following tables set forth certain historical financial and operating data for each of the three years in the period ended December 31, 1999, including net revenue, operating expenses, and Operating Cash Flow information by segment:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1999 1998 1997 ---------------------- ---------------------- ---------------------- AS % OF AS % OF AS % OF NET NET NET AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE --------- --------- -------- --------- --------- --------- (DOLLARS IN THOUSANDS) Net revenue $ 278,188 100.0% $ 256,651 100.0% $ 271,175 100.0% Segment operating expenses 212,475 76.4 194,539 75.8 200,739 74.0 Corporate overhead 16,347 5.9 14,491 5.6 10,013 3.7 --------- --------- --------- Total operating expenses 228,822 82.3 209,030 81.4 210,752 77.7 --------- --------- --------- Operating Cash Flow 49,366 17.7 47,621 18.6 60,423 22.3 Other expenses and (income): Depreciation and amortization expenses 28,348 10.2 16,574 6.5 16,103 5.9 Interest expense 35,632 12.8 25,109 9.8 26,219 9.7 Stock compensation expense 559 0.2 452 0.2 9,344 3.4 Net gain on dispositions of assets (28,999) (10.4) (33,524) (13.1) -- -- Litigation adjustment -- -- -- -- (5,000) (1.8) --------- --------- --------- Total other expenses and (income) 35,540 12.8 8,611 3.4 46,666 17.2 Income before income taxes and extraordinary item 13,826 5.0 39,010 15.2 13,757 5.1 Income tax expense (benefit) 5,863 2.1 15,487 6.0 (19,172) (7.1) --------- --------- --------- Income before extraordinary item 7,963 2.9 23,523 9.2 32,929 12.1 --------- --------- --------- Extraordinary item (1,373) (0.5) (4,346) (1.7) -- -- --------- --------- --------- Net income $ 6,590 2.4 $ 19,177 7.5 $ 32,929 12.1 ========= ========= =========
41 43
YEAR ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 --------- --------- --------- (DOLLARS IN THOUSANDS) NET REVENUE: Outdoor media $ 98,751 $ 108,560 $ 113,162 Television broadcasting 81,669 68,467 63,611 Radio broadcasting 27,163 24,474 20,970 Sports & entertainment 70,605 55,150 73,432 --------- --------- --------- Total net revenue $ 278,188 $ 256,651 $ 271,175 ========= ========= ========= SEGMENT OPERATING EXPENSES: Outdoor media $ 56,877 $ 65,605 $ 72,159 Television broadcasting 69,608 55,996 46,935 Radio broadcasting 15,563 14,819 12,983 Sports & entertainment 70,427 58,119 68,662 --------- --------- --------- Total segment operating expenses $ 212,475 $ 194,539 $ 200,739 ========= ========= ========= OPERATING CASH FLOW: Outdoor media $ 41,874 $ 42,955 $ 41,003 Television broadcasting 12,061 12,471 16,676 Radio broadcasting 11,600 9,655 7,987 Sports & entertainment 178 (2,969) 4,770 --------- --------- --------- Total Segment Operating Cash Flow 65,713 62,112 70,436 Corporate overhead (16,347) (14,491) (10,013) --------- --------- --------- Operating Cash Flow $ 49,366 $ 47,621 $ 60,423 ========= ========= ========= CHANGE IN NET REVENUE FROM PRIOR PERIODS: Outdoor media (9.0)% (4.1)% 13.4% Television broadcasting 19.3 7.6 9.9 Radio broadcasting 11.0 16.7 16.8 Sports & entertainment 28.0 (24.9) 2.5 Change in total net revenue 8.4 (5.4) 9.7 SEGMENT OPERATING EXPENSES AS A % OF NET REVENUE: Outdoor media 57.6% 60.4% 63.8% Television broadcasting 85.2 81.8 73.8 Radio broadcasting 57.3 60.5 61.9 Sports & entertainment 99.7 105.4 93.5 Total segment operating expenses as a % of total net revenue: 76.4 75.8 74.0 OPERATING CASH FLOW AS A % OF NET REVENUE: Outdoor media 42.4% 39.6% 36.2% Television broadcasting 14.8 18.2 26.2 Radio broadcasting 42.7 39.5 38.1 Sports & entertainment 0.3 (5.4) 6.5 Operating Cash Flow as a % of total net revenue 17.7 18.6 22.3
42 44 1999 COMPARED WITH 1998 Net Revenue. Our 1999 net revenue was $278.2 million. This represented an increase of $21.5 million, or 8%, compared to $256.7 million in 1998. Changes in net revenue were as follows: - Outdoor Media. Our 1999 net revenue from our outdoor media segment decreased by $9.8 million, or 9%, from 1998. This decrease was primarily due to the absence of our airport advertising operations, which we sold in June 1998. Excluding our airport advertising operations, our 1999 net revenue from our outdoor media segment increased by $6.4 million, or 7%, from 1998. This increase mainly resulted from an increase in both national and local sales. - Television Broadcasting. Our 1999 net revenue from our television broadcasting segment increased by $13.2 million, or 19%, from 1998. This increase was mainly due to the exchange of station KKTV for station KCOY in January 1999 and the addition of stations KVIQ in July 1998, KMTR in December 1998, WOKR in April 1999, and KTFV in August 1999. Excluding these transactions, our 1999 net revenue from our television broadcasting segment decreased by $3.2 million, or 6%, from 1998. This decrease was primarily due to the lack of political advertising during 1999, partially offset by increased national and local sales. - Radio Broadcasting. Our 1999 net revenue from our radio broadcasting segment increased by $2.7 million, or 11%, from 1998. This increase was primarily due to an increase in both national and local sales. - Sports & Entertainment. Our 1999 net revenue from our sports & entertainment segment increased by $15.4 million, or 28%, from 1998. This increase was primarily due to the commencement of a full basketball season in the fourth quarter 1999 in contrast to the delayed season in 1998 as result of the NBA lockout. Segment Operating Expenses. Our 1999 segment operating expenses (which exclude corporate overhead) were $212.5 million. This represented an increase of $18.0 million, or 9%, compared to $194.5 million in 1998. Changes in segment operating expenses were as follows: - Outdoor Media. Our 1999 operating expenses from our outdoor media segment decreased by $8.7 million, or 13%, from 1998. This decrease was primarily due to the absence of our airport advertising operations, which we sold in June 1998. Excluding our airport advertising operations, our 1999 operating expenses from our outdoor media segment increased by $6.1 million, or 12%, from 1998. This increase was primarily due to higher lease costs, increased employment-related expenses, and increased expenses related to the expansion of our national sales force. - Television Broadcasting. Our 1999 operating expenses from our television broadcasting segment increased by $13.6 million, or 24%, from 1998. This increase was mainly due to the exchange of station KKTV for station KCOY in January 1999 and the addition of 43 45 stations KVIQ in July 1998, KMTR in December 1998, WOKR in April 1999, and KTVF in August 1999. This increase was also due to a restructuring charge of $1.1 million recognized in connection with our ongoing implementation of Digital CentralCasting(TM). This restructuring charge consisted primarily of costs associated with employee staff reductions. See further discussion in Note 14 to the Consolidated Financial Statements. Excluding these transactions, our 1999 operating expenses from our television broadcasting segment increased by $0.8 million, or 2%, from 1998. This increase was primarily due to higher program, promotion, and production expenses relating to the expansion of local news. - Radio Broadcasting. Our 1999 operating expenses from our radio broadcasting segment increased by $0.8 million, or 5%, from 1998. This increase was primarily due to higher expenses relating to increased sales activity. - Sports & Entertainment. Our 1999 operating expenses from our sports & entertainment segment increased by $12.3 million, or 21%, from 1998. This increase was primarily due to the commencement of a full basketball season in the fourth quarter of 1999 in contrast to the delayed season in 1998 as result of the NBA lockout. Corporate Overhead Expenses. Our corporate overhead expenses were $16.3 million in 1999. This represented an increase of $1.8 million, or 12%, from 1998. This increase was primarily a result of increased marketing costs, increased travel costs, and higher utilization of outside services. Operating Cash Flow. Our Operating Cash Flow was $49.4 million in 1999. This represented an increase of $1.8 million, or 4%, compared to $47.6 million in 1998. The increase in Operating Cash Flow from our radio broadcasting and sports & entertainment segments was partially offset by the decrease in Operating Cash Flow from our outdoor media and television broadcasting segments and the increase in corporate overhead expenses. Operating Cash Flow as a percentage of total net revenue decreased to 18% in 1999 compared to 19% in 1998. Depreciation and Amortization Expenses. Our depreciation and amortization expenses were $28.3 million in 1999. This represented an increase of $11.7 million, or 70%, compared to $16.6 million in 1998. This increase primarily resulted from depreciation and amortization expenses relating to our business acquisitions during 1999. Interest Expense. Our interest expense was $35.6 million in 1999. This represented an increase of $10.5 million, or 42%, from 1998. This increase was primarily due to higher average debt balances during 1999 reflecting the financing of our various acquisitions. Stock Compensation Expense. We recognized stock compensation expense of $0.6 million in 1999 compared to $0.5 million in 1998. These expenses primarily related to the amendment of certain stock option agreements. Net Gain on Dispositions of Assets. We recognized a net gain on disposition of assets of $29.0 million. This gain consisted primarily of a $28.6 million gain from the exchange of the 44 46 assets of television station KKTV for the assets of television station KCOY, a $1.6 million gain relating to the sale of our airport advertising operations, and a $1.2 million loss on the sale of a radio broadcasting tower. In 1998, we recognized a $33.5 million gain on disposition of assets primarily relating to the sale of our airport advertising operations in June 1998. Income Tax Expense. We recognized income tax expense of $5.9 million in 1999, compared to $15.5 million in 1998. The effective rate in 1999 was 42% compared to 40% in 1998. Extraordinary Item. In 1999, we replaced our existing credit agreement with a new $325.0 million credit agreement and redeemed our $20.0 million 10.48% Senior Subordinated Notes. These transactions resulted in an aggregate charge of $1.4 million, net of taxes, primarily consisting of the write-off of deferred financing costs and prepayment fees. In 1998, we redeemed our 10.75% Senior Secured Notes with proceeds under the 1998 Credit Agreement. This transaction resulted in a charge of $4.3 million, net of taxes, consisting of the write-off of deferred financing costs and prepayment fees. Net Income. Our net income was $6.6 million in 1999. This represented a decrease of $12.6 million, or 66%, from $19.2 million in 1998. Net income as a percentage of net revenue decreased to 2% in 1999 from 8% in 1998. 1998 COMPARED WITH 1997 Net Revenue. Our 1998 net revenue was $256.7 million. This represented a decrease of $14.5 million, or 5%, from $271.2 million in 1997. Changes in net revenue were as follows: - Outdoor Media. Our 1998 net revenue from our outdoor media segment decreased by $4.6 million, or 4%, from 1997. This decrease was mainly due to the absence of airport advertising operations in the third and fourth quarters of 1998, partially offset by increased national sales. - Television Broadcasting. Our 1998 net revenue from our television broadcasting segment increased by $4.9 million, or 8%, from 1997. This increase resulted primarily from the addition of television station KVIQ in July 1998, the completion of a full 12 months of operations at WUTR and WIVT, higher political advertising, and higher national and local sales. - Radio Broadcasting. Our 1998 net revenue from our radio broadcasting segment increased by $3.5 million, or 17%, from 1997. This increase was primarily due to an increase in both national and local sales. - Sports & Entertainment. Our 1998 net revenue from our sports & entertainment segment decreased by $18.2 million, or 25%, from 1997. This decrease was primarily due to decreased revenue in the fourth quarter as a result of the NBA lockout, partially offset by increased ticket and sponsorship sales during the 1997-98 basketball season. 45 47 Segment Operating Expenses. Our 1998 segment operating expenses (which exclude corporate overhead) were $194.5 million. This represented a decrease of $6.2 million, or 3%, compared to $200.7 in 1997. Changes in segment operating expenses were as follows: - Outdoor Media. Our 1998 operating expenses from our outdoor media segment decreased by $6.6 million, or 9%, from 1997. This decrease was due mainly to the absence of airport advertising operations in the third and fourth quarters of 1998, partially offset by higher expenses related to increased sales activity. - Television Broadcasting. Our 1998 operating expenses from our television broadcasting segment increased by $9.1 million, or 19%, from 1997. This increase was primarily a result of the addition of television station KVIQ in July 1998, the completion of a full 12 months of operations at WUTR and WIVT, and higher program, promotion and production expenses relating to the expansion of local news. - Radio Broadcasting. Our 1998 operating expenses from our radio broadcasting segment increased by $1.8 million, or 14%, from 1997. This increase primarily resulted from higher expenses related to increased sales activity. - Sports & Entertainment. Our 1998 operating expenses from our sports & entertainment segment decreased by $10.6 million, or 15%, from 1997. This decrease was mainly attributable to decreased expenses in the fourth quarter due to the NBA lockout, partially offset by increased basketball operating expenses related to team costs during the 1997-98 basketball season. Corporate Overhead Expenses. Our corporate overhead expenses were $14.5 million in 1998. This represented an increase of $4.5 million, or 45%, from 1997. This increase was mainly due to increased personnel costs, increased travel costs, increased insurance costs, and higher utilization of outside services. Operating Cash Flow. Our Operating Cash Flow decreased from $60.4 million to $47.6 million. The decrease in Operating Cash Flow from our television broadcasting and sports & entertainment segments and the increase in our corporate overhead expenses were partially offset by the increase in our Operating Cash Flow from our outdoor and radio broadcasting segments. Operating Cash Flow as a percentage of net revenue decreased to 19% in 1998 from 22% in 1997. Depreciation and Amortization Expenses. Our depreciation and amortization expenses were $16.6 million in 1998. This represented an increase of $0.5 million, or 3%, from 1997. Interest Expense. Our interest expense was $25.1 million in 1998. This represented a decrease of $1.1 million, or 4%, from 1997. This decrease is primarily due to lower average interest rates and interest income from our interest rate swap agreements in 1998. Stock Compensation Expense. In 1998, we recognized stock compensation expense of $0.5 million, primarily relating to the amendment of certain stock option agreements. In 1997, 46 48 we recognized stock compensation expense of $9.3 million, which was primarily due to the conversion of certain incentive stock options into nonqualified stock options. Net Gain on Disposition of Assets. In 1998, we recognized a gain of $33.5 million relating to the sale of our airport advertising operations. There was no gain on disposition of assets in 1997. Litigation Adjustment. In 1997, we reduced an accrual for litigation expense by $5.0 million. There was no such adjustment in 1998. Income Tax Expense. Our income tax expense was $15.5 million in 1998, which represented an effective rate of 40%. In 1997, we incurred an income tax benefit of $19.2 million, which primarily resulted from the recognition of our deferred tax asset. Extraordinary Item. In 1998, we redeemed our 10.75% Senior Secured Notes with proceeds under the 1998 Credit Agreement. This transaction resulted in a charge of $4.3 million, net of taxes, consisting of prepayment fees and the write-off of deferred financing costs. There were no extraordinary items in 1997. Net Income. Our net income was $19.2 million in 1998. This represented a decrease of $13.7 million, or 42%, from 1997. Net income as a percentage of net revenue decreased to 8% in 1998 from 12% in 1997. LIQUIDITY AND CAPITAL RESOURCES On January 22, 1999, we replaced the $300.0 million 1998 Credit Agreement with the new $325.0 million 1999 Credit Agreement, consisting of a $150.0 million term loan facility (the "Term Loan") and a $175.0 million revolving credit facility (the "Revolver"), which includes up to $10.0 million in standby letters of credit. This transaction resulted in a charge of approximately $0.6 million, net of taxes, consisting of the write-off of deferred financing costs. Under the 1999 Credit Agreement, we can choose to have interest calculated at rates based on either a base rate of LIBOR plus defined margins which vary based on our total leverage ratio. As of December 31, 1999, the weighted average interest rate of borrowings under the 1999 Credit Agreement was approximately 9.00%. As of December 31, 1999, we had borrowed $150.0 million of the Term Loan and $43.0 million of the Revolver. Principal repayments under the Term Loan are due quarterly from March 31, 2000 through December 31, 2005. The Revolver requires scheduled annual commitment reductions, with required principal repayments of outstanding amounts in excess of the commitment levels, quarterly beginning March 31, 2001. On February 24, 1999, we issued additional 9% Senior Subordinated Notes due 2009 in the aggregate principal amount of $25.0 million. The total aggregate amount of 9% Senior Subordinated Notes issued and outstanding is $200.0 million. The 9% Senior Subordinated Notes bear interest at 9%, which is payable semi-annually in January and July. Principal is payable in full in January 2009. 47 49 On March 15, 1999, we redeemed the $20.0 million outstanding principal of our 10.48% Senior Subordinated Notes due 2000 with borrowings under the Revolver. This transaction resulted in a charge of approximately $0.8 million, net of taxes, consisting of prepayment fees and the write-off of deferred financing costs. On August 6, 1999, we issued 3,000,000 shares of common stock at a price of $15.25 per share pursuant to an underwritten public offering. Our net proceeds were approximately $42.9 million, which were used primarily to repay borrowings outstanding under the Revolver. On September 7, 1999, we received approximately $3.6 million in net proceeds from the issuance of 250,000 shares of common stock upon the exercise of the underwriters' overallotment option, which were also used to repay borrowings under the Revolver. Subject to the terms of the 1999 Credit Agreement, we are entitled to make further borrowings under the Revolver. Borrowings under the Revolver have historically been used for general corporate purposes, including acquisitions and capital expenditures. On August 6, 1999, we received proceeds of $2.0 million upon the termination of an interest rate swap agreement with a notional principal amount of $70.0 million. During 1999, we purchased the assets of an outdoor advertising company in the Boston-Worcester, Massachusetts market and television stations KVIQ, KMTR, WOKR, and KTVF. These acquisitions were financed with borrowings under our 1998 and 1999 Credit Agreements. In addition, we exchanged television station KKTV for television station KCOY and $9.0 million in cash. These transactions are more fully described in Note 3 to the Consolidated Financial Statements. We have pledged substantially all of our subsidiaries' outstanding stock and assets as collateral for amounts due under the 1999 Credit Agreement. Thus, if we default under the 1999 Credit Agreement, the lenders may take possession of and sell substantially all of our subsidiaries and their assets. In addition, the 1999 Credit Agreement and the 9% Senior Subordinated Notes restrict, among other things, our ability to borrow, pay dividends, repurchase outstanding shares of our stock, and sell or transfer our assets. They also contain restrictive covenants requiring us to maintain certain financial ratios. Our working capital increased to $21.7 million at December 31, 1999 from $15.7 million at December 31, 1998. This increase was primarily due to increased accounts receivable, increased prepaid expenses, and decreased deferred revenue relating to the commencement of a full basketball season in the fourth quarter of 1999 in contrast to the delayed season in 1998 as a result of the NBA lockout. Capital expenditures were $29.1 million in 1999, compared to $32.7 million in 1998. Capital expenditures in 1999 were primarily for broadcasting equipment, computer equipment, and advertising signs. Our management anticipates that 2000 capital expenditures, consisting primarily of broadcast equipment, buildings and leasehold improvements, and other capital additions, will be between $30.0 million to $35.0 million. This includes the expansion of our 48 50 radio broadcasting and sports & entertainment operating facilities in Seattle and our outdoor advertising operating facilities in Portland. This forward-looking statement is, however, subject to the qualification set forth under "Forward-Looking Statements" above. For the periods presented, we financed our working capital needs primarily from cash provided by operating activities and bank borrowings. Over those periods, our long-term liquidity needs, including for acquisitions and to refinance our indebtedness, have been financed through additions to our long-term debt, principally through bank borrowings and the sale of senior and subordinated debt securities and, to a lesser extent, through issuance of common stock. Capital expenditures for new property and equipment have been financed with both cash provided by operating activities and long-term debt. Cash used in operating activities was $0.2 million in 1999, which represented a decrease from cash provided by operating activities of $14.8 million in 1998. SUBSEQUENT EVENTS During the first quarter of 2000, we entered into the following transactions: Sale of Florida Outdoor Advertising Operations. On January 5, 2000, we sold substantially all of our assets of our outdoor advertising operations serving the Miami-Fort Lauderdale and West Palm Beach-Fort Pierce, Florida markets for approximately $300.0 million in cash, plus the assumption of certain liabilities. We expect to recognize a gain on the transaction of approximately $273.3 million. Concurrent with the transaction, we applied net proceeds from the sale to fully repay outstanding borrowings under the 1999 Credit Agreement, consisting of $43.0 million under the Revolver and $150.0 million under the Term Loan. These transactions are more fully described in Notes 3 and 7 to the Consolidated Financial Statements. Acquisitions and Local Marketing Agreements. In January and February 2000, we acquired two outdoor advertising companies and two television stations. We also entered into local marketing agreements to provide programming and sales services to two additional television stations. These transactions are more fully described in Note 3 to the Consolidated Financial Statements. Dividend Declaration. On February 15, 2000, our Board of Directors declared an annual cash dividend of $.02 per share payable on April 14, 2000 to shareholders of record as of March 23, 2000. Award of WNBA Expansion Team. We have been awarded operating rights to a WNBA expansion team, the Seattle Storm, which is scheduled to play its first game on May 31, 2000. QUARTERLY VARIATIONS Our results of operations may vary from quarter to quarter due in part to the timing of acquisitions or dispositions and to seasonal variations in the operations of the television broadcasting, radio broadcasting, and sports & entertainment segments. In particular, our net revenue and Operating Cash Flow historically have been affected positively during the NBA 49 51 basketball season (the first, second, and fourth quarters) and by increased advertising activity in the second and fourth quarters. TAXES At December 31, 1999, we had a net operating loss carryforward for federal income tax purposes of approximately $17.7 million that expires in the years 2006, 2007, and 2014, and an alternative minimum tax credit carryforward of approximately $2.8 million. INFLATION The effects of inflation on our costs generally have been offset by our ability to correspondingly increase our rate structure. NEW ACCOUNTING STANDARD In June 1999, the Financial Accounting Standards Board issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133. The Statement deferred for one year the effective date of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133 will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. The impact of the Statement is currently being studied, and the effect of the new statement on the financial statements has not been determined. YEAR 2000 The Year 2000 or Y2K problem is a result of the inability of computer software programs to recognize the year 2000, as most programs and systems were designed to store calendar years in the 1900s by assuming the "19" and storing only the last two digits of the year. As we have reported in the past, we have spent considerable effort in preparing for Y2K in the period leading up to January 1, 2000. We have not experienced any significant Y2K problems and have not been informed of any material Y2K problems by our customers or vendors. However, although January 1, 2000 is past, it is possible that some problems have gone undetected, or that other dates in the future may further affect computer software and systems, or equipment with embedded chip technology. We will continue to monitor the Y2K compliance of our own computer systems and equipment with embedded technology, as well as any Y2K related problems that may be reported to us by third parties with whom we do business. As discussed in our Form 10-Q for the fiscal quarter ended September 30, 1999, the estimated costs of remediation associated with the Y2K issue were $750,000. We believe, based on our review of such costs to March 1, 2000, that total remediation costs will not be materially higher than the amount previously estimated. However, as noted above, it is possible that additional costs will be incurred in connection with Y2K problems that may still occur in the future. 50 52 ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our interest income and expense are most sensitive to changes in the general level of interest rates. In this regard, changes in LIBOR and U.S. interest rates affect the interest earned on our cash equivalents as well as interest paid on our debt. To mitigate the impact of fluctuations in interest rates, we generally maintain a portion of our debt as fixed rate in nature either by borrowing on a long-term basis or entering into interest rate swap transactions. The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, which consist of interest rate swaps and debt obligations for the years ended December 31, 1999 and 1998. For debt obligations, the table presents principal cash flows and related weighted average interest rates by maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contracts. INTEREST RATE SENSITIVITY PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY AVERAGE INTEREST (SWAP) RATE - -------------------------------------------------------------------------------- (Dollars in thousands)
There- 1999: 2000 2001 2002 2003 2004 after Total 12/31/99 ----------- -------- ------- ------- ------- -------- -------- -------- Long-term debt, including current portion Fixed rate -- -- -- -- -- $200,000 $200,000 $194,000 Average interest rate -- -- -- -- -- 9.00% Variable rate $ 7,500 $ 19,300 $31,100 $38,600 $48,250 $ 48,250 $193,000 $193,000 Average Interest Rate (a) (a) (a) (a) (a) (a) Interest rate swaps Pay fixed/receive variable -- $130,000 -- -- -- -- $130,000 $ 4,892 Average pay rate -- 4.60% -- -- -- -- Average receive rate -- 6.20% -- -- -- -- There- 1998: 1999 2000 2001 2002 2003 after Total 12/31/98 ----------- -------- ------- ------- ------- -------- -------- -------- Long-term debt, including current portion Fixed rate $ 20,000 -- -- -- -- $175,000 $195,000 $195,875 Average interest rate 10.48% -- -- -- -- 9.00% Variable rate -- $ 7,500 $15,000 $22,500 $ 6,811 -- $ 51,811 $ 51,811 Average Interest Rate -- (a) (a) (a) (a) -- Interest rate swaps Pay fixed/receive variable $ 200,000 -- -- -- -- -- $200,000 $ 2,706 Average pay rate 4.61% -- -- -- -- -- Average receive rate 5.20% -- -- -- -- --
(a) The interest rate is based on a base rate or LIBOR plus defined margins which vary based on our total leverage ratio. 51 53 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information called for by this item is included in Item 14, pages F-1 through F-27. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 52 54 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning our directors and certain executive officers, see the sections entitled "Item 1 - Election of Directors" and "Management Information" in our definitive Proxy Statement dated March 31, 2000, which is incorporated into this section by reference and "Executive Officers of the Registrant" under Part I of this report. ITEM 11 - EXECUTIVE COMPENSATION For information concerning executive compensation, see the sections entitled "Item 1 - Election of Directors" and "Management Information" in our definitive Proxy Statement dated March 31, 2000, which information is incorporated into this section by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 15, 2000, Barry A. Ackerley and Gabelli Funds, Inc. were the only persons, to our knowledge, owning beneficially more than 5% of the outstanding shares of Common Stock and Class B Common Stock. For information concerning these shareholders' holdings as well as the security ownership of management, see the section entitled "Management Information - Share Ownership" in our definitive Proxy Statement dated March 31, 2000, which information is incorporated into this section by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning certain relationships and related transactions, see the Section entitled "Management Information - Certain Relationships and Related Transactions" in our definitive Proxy Statement dated March 31, 2000, which information is incorporated into this section by reference. 53 55 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2) Financial Statements and Schedules. The following documents are being filed as part of this Report: INDEX TO FINANCIAL STATEMENTS
Page Number ------ Report of Ernst & Young, LLP, Independent Auditors.....................................F-1 Consolidated balance sheets as of December 31, 1999 and 1998...........................F-2 Consolidated statements of income for the years ended December 31, 1999, 1998 and 1997.......................................................F-3 Consolidated statements of stockholders' equity (deficiency) for the years ended December 31, 1999, 1998 and 1997.......................................F-4 Consolidated statements of cash flows for the years ended December 31, 1999, 1998 and 1997.......................................................F-5 Notes to consolidated financial statements.............................................F-7
Schedules are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. (3) Exhibits:
Exhibit No. Exhibit - ------- ------- 3.1 Fourth Restated Certificate of Incorporation.(1) 3.2 Amended and Restated Bylaws. 10.1 Credit Agreement dated January 22, 1999, by and among The Ackerley Group, Inc., certain lenders named therein, and First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A., KeyBank National Association, and Bank of Montreal, Chicago Branch, as agents.(2)
54 56
Exhibit No. Exhibit - ------- ------- 10.2 First Amendment to Credit Agreement, dated as of June 11, 1999, among The Ackerley Group, Inc., certain lenders named therein, and First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A. and KeyBank National Association, as agents. 10.3 Second Amendment to Credit Agreement, dated as of September 10, 1999, among The Ackerley Group, Inc., certain lenders named therein, and First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A. and KeyBank National Association, as agents. 10.4 Third Amendment to Credit Agreement, dated as of January 7, 2000, among The Ackerley Group, Inc., certain lenders named therein, and First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A. and KeyBank National Association, as agents. 10.5 Fourth Amendment to Credit Agreement, dated as of February 11, 2000, among The Ackerley Group, Inc., certain lenders named therein, and First Union National Bank, Fleet Bank, N.A., Union Bank of California, N.A. and KeyBank National Association, as agents. 10.6 Security Agreement dated January 22, 1999 between The Ackerley Group, Inc. and First Union National Bank, as administrative agent.(2) 10.7 Pledge Agreement dated January 22, 1999 between The Ackerley Group, Inc. and First Union National Bank, as administrative agent.(2) 10.8 Indenture dated December 14, 1998 between The Ackerley Group, Inc. and The Bank of New York, as Trustee, relating to the 9% Senior Subordinated Notes due 2009.(3) 10.9 First Supplemental Indenture dated as of April 8, 1999 between The Ackerley Group, Inc., the guarantors named therein, and The Bank of New York, as Trustee. 10.10 Employees Stock Option Plan, as amended and restated on May 11, 1999.(4) 10.11 Nonemployee-Director's Equity Compensation Plan.(5) 10.12 Employee Stock Purchase Plan.(6) 10.13 Premises Use and Occupancy Agreement between The City of Seattle and SSI Sports, Inc. dated March 2, 1994.(7) 10.14 Purchase and Sale Agreement between Sky Sites, Inc. and Ackerley Airport Advertising, Inc., dated as of May 19, 1998.(8)
55 57
Exhibit No. Exhibit - ------- ------- 10.15 Purchase and Sale Agreement between Sinclair Communications, Inc. and The Ackerley Group, Inc., dated as of September 25, 1998.(9) 10.16 Asset Purchase Agreement dated as of November 10, 1999 between AK Media, Inc. and Eller Media Company.(10) 10.17 Amendment No. 1 to Asset Purchase Agreement dated as of December 28, 1999 between AK Media, Inc., AK Florida, Inc. and Eller Media Company.(10) 21 Subsidiaries of The Ackerley Group. 23 Consent of Independent Auditors. 27 Financial Data Schedule.
- ----------------- (1) Incorporated by reference to Exhibit 3.0 to The Ackerley Group's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. (2) Incorporated by reference to Exhibits 10.1, 10.2, and 10.3, respectively, to Amendment No. 1 to The Ackerley Group's Registration Statement on Form S-4 (Registration No. 333-71583), filed March 10, 1999. (3) Incorporated by reference to Exhibit 4.1 to The Ackerley Group's Registration Statement on Form S-4 (Registration No. 333-71583), filed February 2, 1999. (4) Incorporated by reference to Exhibit 10 to The Ackerley Group's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (5) Incorporated by reference to Exhibit 99.1 to The Ackerley Group's Registration Statement on Form S-8, filed on May 14, 1996. (6) Incorporated by reference to Exhibit 4.1 to The Ackerley Group's Registration Statement on Form S-8, filed on December 27, 1999. (7) Incorporated by reference to Exhibit 10.22 to The Ackerley Group's 1994 Annual Report of Form 10-K. (8) Incorporated by reference to Exhibit 10 to The Ackerley Group's Current Report on Form 8-K, filed on July 15, 1998. (9) Incorporated by reference to Exhibit 10 to The Ackerley Group's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (10) Incorporated by reference to Exhibits 10.1 and 10.2, respectively, to The Ackerley Group's Current Report on Form 8-K, filed on January 12, 2000. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1999. 56 58 (c) Exhibits required by Item 601 of Regulation S-K are being filed herewith. See Item 14(a)(3) above. (d) Financial statements required by Regulation S-X are being filed herewith. See Item 14(a)(1) and (2) above. 57 59 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, The Ackerley Group has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 29th day of March, 2000. THE ACKERLEY GROUP, INC. By: /s/ BARRY A. ACKERLEY ---------------------------------- Barry A. Ackerley, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of The Ackerley Group and in the capacities and on the dates indicated, on the 29th day of March, 2000. A Majority of the Board of Directors: Principal Executive Officer: /s/ BARRY A. ACKERLEY By: /s/ BARRY A. ACKERLEY - ------------------------------------- ------------------------------------- Barry A. Ackerley, Chairman Barry A. Ackerley, Chairman and Chief Executive Officer /s/ GAIL A. ACKERLEY - ------------------------------------- Gail A. Ackerley, Co-Chairman Principal Financial Officer: /s/ CHRISTOPHER H. ACKERLEY /s/ DENIS M. CURLEY - ------------------------------------- ------------------------------------- Christopher H. Ackerley, Director Denis M. Curley, Co-President, Chief Operating Officer and Chief Financial Officer, Treasurer and Secretary /s/ EDWARD G. ACKERLEY - ------------------------------------- Edward G. Ackerley, Director Principal Accounting Officer: /s/ DEBORAH L. BEVIER /s/ KEITH W. RITZMANN - ------------------------------------- ------------------------------------- Deborah L. Bevier, Director Keith W. Ritzmann, Senior Vice President and Chief Technology Officer, Assistant Secretary and Controller /s/ CHRIS W. BIRKELAND - ------------------------------------- Chris W. Birkeland, Director
58 60 /s/ KIMBERLEY ACKERLEY CLEWORTH - ------------------------------------- Kimberley Ackerley Cleworth, Director /s/ KEITH GRINSTEIN - ------------------------------------- Keith Grinstein, Director /s/ MICHAEL T. LENNON - ------------------------------------- Michael T. Lennon, Director /s/ MICHEL C. THIELEN - ------------------------------------- Michel C. Thielen, Director *By: _________________________________ Attorney-in-Fact 59 61 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders The Ackerley Group, Inc. We have audited the accompanying consolidated balance sheets of The Ackerley Group, Inc., as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity (deficiency), and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Ackerley Group, Inc. at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP --------------------------------- Seattle, Washington February 1, 2000 except for Note 3, as to which the date is February 22, 2000 F-1 62 THE ACKERLEY GROUP, INC. CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
ASSETS December 31, ----------------------- 1999 1998 --------- --------- (In thousands) Current assets: Cash and cash equivalents $ 2,808 $ 4,630 Accounts receivable, net of allowance (1999-$1,865, 1998-$1,435) 61,133 44,680 Current portion of broadcast rights 6,752 7,339 Prepaid expenses 15,777 10,212 Deferred tax asset 13,819 4,497 Other current assets 3,607 3,883 --------- --------- Total current assets 103,896 75,241 Property and equipment, net 142,851 113,108 Goodwill, net 219,478 70,034 Other intangibles, net 22,899 7,780 Other assets 39,312 49,963 --------- --------- Total assets $ 528,436 $ 316,126 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 6,827 $ 8,004 Accrued interest 10,936 694 Accrued wages and commissions 5,475 1,353 Other accrued liabilities 10,902 10,508 Deferred revenue 21,067 27,736 Current portion of broadcasting obligations 8,242 8,139 Litigation accrual 7,911 -- Current portion of long-term debt 10,832 3,101 --------- --------- Total current liabilities 82,192 59,535 Long-term debt, less current portion 403,761 266,999 Litigation accrual -- 8,016 Other long-term liabilities 15,194 7,417 --------- --------- Total liabilities 501,147 341,967 Commitments and contingencies Stockholders' equity (deficiency) Common stock, par value $.01 per share--authorized 50,000,000 shares; issued 1999-25,251,419 and 1998-21,951,380 shares; and outstanding 1999-23,876,473 252 219 and 1998-20,576,434 Class B common stock, par value $.01 per share--authorized 11,406,510 shares; issued and outstanding 1999-11,088,730 and 1998-11,051,230 shares 111 111 Capital in excess of par value 57,478 10,339 Accumulated deficit (20,463) (26,421) Less common stock in treasury, at cost (1,374,946 shares) (10,089) (10,089) --------- --------- Total stockholders' equity (deficiency) 27,289 (25,841) --------- --------- Total liabilities and stockholders' equity (deficiency) $ 528,436 $ 316,126 ========= =========
See accompanying notes F-2 63 THE ACKERLEY GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
Year Ended December 31, ------------------------------------- 1999 1998 1997 --------- --------- --------- (In thousands, except per share amounts) Revenue $ 315,319 $ 292,907 $ 306,169 Less agency commissions and discounts 37,131 36,256 34,994 --------- --------- --------- Net revenue 278,188 256,651 271,175 Expenses (other income): Operating expenses $ 227,697 209,030 210,752 Restructuring expenses 1,125 -- -- Amortization expense 14,167 4,839 4,146 Depreciation expense 14,181 11,735 11,957 Interest expense 35,632 25,109 26,219 Stock compensation expense 559 452 9,344 Net gain on dispositions of assets (28,999) (33,524) -- Litigation adjustment -- -- (5,000) --------- --------- --------- Total expenses and other income 264,362 217,641 257,418 Income before income taxes and extraordinary item 13,826 39,010 13,757 Income tax expense (benefit) 5,863 15,487 (19,172) --------- --------- --------- Income before extraordinary item 7,963 23,523 32,929 Extraordinary item: loss on debt extinguishment, net of taxes 1999-$842 and 1998-$2,491 (1,373) (4,346) -- --------- --------- --------- Net income $ 6,590 $ 19,177 $ 32,929 ========= ========= ========= Earnings per common share: Income per common share, before extraordinary item $ .24 $ .75 $ 1.05 Extraordinary item: loss on debt extinguishment (.04) (.14) -- --------- --------- --------- Net income per common share $ .20 $ .61 $ 1.05 ========= ========= ========= Earnings per common share - assuming dilution: Income per common share, before extraordinary item $ .24 $ .74 $ 1.04 Extraordinary item: loss on debt extinguishment (.04) (.14) -- --------- --------- --------- Net income per common share - assuming dilution $ .20 $ .60 $ 1.04 ========= ========= ========= Weighted average number of shares 32,932 31,627 31,345 Weighted average number of shares - assuming dilution 33,110 31,883 31,652
See accompanying notes F-3 64 THE ACKERLEY GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIENCY) (In thousands, except share information)
Class B Common Common Stock Common Stock Capital in Stock in ------------------- ---------------------- Excess of Accumulated Treasury Shares Amount Shares Amount Par Value Deficit (at cost) Total ---------- ------ ---------- ------- ------- -------- --------- -------- Balance, January 1, 1997 21,186,724 $212 11,353,810 $ 114 $ 3,195 $(77,271) $(10,089) $(83,839) Stock compensation, exercise of stock options and stock conversions 668,674 6 (300,300) (3) 6,621 -- -- 6,624 Cash dividend, $0.02 per share -- -- -- -- (623) (623) Net income -- -- -- -- -- 32,929 -- 32,929 ---------- ---- ---------- ------- ------- -------- -------- -------- Balance, December 31, 1997 21,855,398 218 11,053,510 111 9,816 (44,965) (10,089) (44,909) Stock compensation, exercise of stock options and stock conversions 95,982 1 (2,280) -- 523 -- -- 524 Cash dividend, $0.02 per -- -- -- -- (633) (633) share Net income -- -- -- -- -- 19,177 -- 19,177 ---------- ---- ---------- ------- ------- -------- -------- -------- Balance, December 31, 1998 21,951,380 219 11,051,230 111 10,339 (26,421) (10,089) (25,841) Stock compensation, exercise of stock options and stock conversions 50,039 -- 37,500 -- 693 -- -- 693 Stock issued at $15.25 per share, net of stock issuance costs of $3,084 3,250,000 33 -- -- 46,446 -- -- 46,479 Cash dividend, $0.02 per share -- -- -- -- -- (632) -- (632) Net income -- -- -- -- 6,590 6,590 ---------- ---- ---------- ------- ------- -------- -------- -------- Balance, December 31, 1999 25,251,419 $252 11,088,730 $ 111 $57,478 $(20,463) $(10,089) $ 27,289 ========== ==== ========== ======= ======= ======== ======== ========
See accompanying notes F-4 65 THE ACKERLEY GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Year Ended December 31, ------------------------------------ 1999 1998 1997 --------- --------- -------- (In thousands) Cash flows from operating activities: Reconciliation of net income to net cash provided by (used in) operating activities: Net income $ 6,590 $ 19,177 $ 32,929 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,348 16,574 16,103 Net gain on dispositions of assets (28,999) (33,524) (155) Amortization of broadcast rights 11,094 10,283 8,957 Deferred tax expense (benefit) 5,453 15,130 (19,798) Stock compensation expense 559 452 9,344 Litigation adjustment -- -- (5,000) Loss on debt extinguishment, net of taxes 1,373 (394) -- Amortization of deferred financing costs 1,648 713 1,790 Income from barter transactions (1,785) (1,645) (1,535) Gain on termination of interest rate swap agreement (371) -- -- Change in assets and liabilities: Accounts receivable (13,184) 7,760 (9,169) Prepaid expenses (5,353) 1,958 976 Other current assets and other assets 1,413 (3,545) (3,418) Accounts payable, accrued interest, and accrued wages and commissions 13,154 (7,239) 4,260 Other accrued liabilities and other long-term liabilities (2,560) (3,282) (1,803) Deferred revenues (6,669) 3,879 3,807 Current portion of broadcast obligations (10,878) (11,453) (9,278) --------- --------- -------- Net cash provided by (used in) operating activities (167) 14,844 28,010 Cash flows from investing activities: Proceeds from disposition of assets 13,423 41,237 -- Proceeds from sale of property and equipment 510 294 275 Payments for acquisitions (166,625) (55,759) (2,483) Capital expenditures (29,114) (32,719) (17,593) Payments for investments (5,000) -- -- --------- --------- -------- Net cash used in investing activities (186,806) (46,947) (19,801) Cash flows from financing activities: Borrowings under credit agreements 309,063 461,100 27,000 Repayments under credit agreements (163,704) (419,588) (33,283) Payments under capital lease obligations (903) (765) (817) Note redemption prepayment fees (1,208) -- -- Dividends paid (632) (633) (623) Payments of deferred financing costs (6,083) (7,109) -- Net proceeds from stock issuance 46,613 72 260 Proceeds from termination of interest rate swap agreement 2,005 -- -- --------- --------- -------- Net cash provided by (used in) financing activities 185,151 33,077 (7,463) ========= ========= ========
F-5 66 Net increase (decrease) in cash and cash equivalents (1,822) 974 746 Cash and cash equivalents at beginning of period 4,630 3,656 2,910 --------- --------- -------- Cash and cash equivalents at end of period $ 2,808 $ 4,630 $ 3,656 ========= ========= ========
F-6 67 THE ACKERLEY GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Year Ended December 31, --------------------------------- 1999 1998 1997 ------- ------- ------- (In thousands) Supplemental cash flow information: Interest paid, net of capitalized interest $22,073 $27,697 $23,163 Income taxes paid 670 1,069 836 Noncash transactions: Broadcast rights acquired and broadcast obligations assumed $ 7,531 $ 8,828 $12,201 Property and equipment acquired through barter 969 1,234 1,053 Exchange of television station assets 24,000 -- --
See accompanying notes F-7 68 THE ACKERLEY GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Summary of significant accounting policies (a) Organization - The Ackerley Group, Inc. and its subsidiaries (the "Company") is a diversified media and entertainment company that engages in four principal business segments: (i) outdoor media, (ii) television broadcasting; (iii) radio broadcasting; and (iv) sports & entertainment. The Company currently conducts its outdoor media advertising operations principally in the markets of Seattle-Tacoma, Washington; Portland, Oregon; and Boston-Worcester, Massachusetts. The Company currently owns twelve television stations and provides programming and sales services to three television stations located in New York, California, Oregon, Washington, and Alaska. The Company currently owns two AM and two FM radio stations and provides sales and other services to a third FM radio station in the Seattle-Tacoma market. The sports & entertainment segment includes ownership of the Seattle SuperSonics, a franchise of the National Basketball Association, and the Seattle Storm, a WNBA expansion team. (b) Principles of consolidation - The accompanying financial statements consolidate the accounts of the Company, all of which are wholly-owned. All significant intercompany transactions have been eliminated in consolidation. (c) Revenue recognition - Outdoor display advertising revenue is recognized ratably on a monthly basis over the period in which advertisement displays are posted on the advertising structures or in the display units. Broadcast revenue is recognized in the period in which the advertisements are aired. Payments from clients received in excess of one month's advertising are recorded as deferred revenue. Ticket payments are recorded as deferred revenue when received and recognized as revenue ratably as home games are played. (d) Barter transactions - The Company also accepts nonmonetary compensation, such as goods and services, for its advertising space or time. These barter transactions are recorded at the estimated fair value of the asset or service received. Revenue is recognized when the advertising is provided and assets or expenses are recorded when assets are received or services are used. Goods and services due to the Company in excess of advertising provided are recorded in other current assets. Advertising to be provided in excess of goods and services received are recorded in other accrued liabilities. (e) Property and equipment - Property and equipment are carried at cost. The Company depreciates large groups of assets with homogeneous characteristics and useful lives. Under group depreciation, no gain or loss on disposals is recognized unless the asset group is fully depreciated. For assets accounted for under group depreciation, the Company recognizes gains on disposals primarily from proceeds received from condemnations of fully-depreciated advertising structures. The Company recognizes gains and losses on disposals of individual, non-homogeneous assets. Depreciation of property and equipment, including the cost of assets recorded under capital lease agreements, is provided on the straight-line and accelerated methods over the estimated useful lives of the assets or lease terms. F-8 69 (f) Intangible assets - Intangible assets are carried at cost and amortized principally on the straight-line method over estimated useful lives. Goodwill represents the cost of acquired businesses in excess of amounts assigned to certain tangible and intangible assets at the dates of acquisition. Long-lived assets (including related goodwill and other intangible assets) are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. If such impairment is identified, the impairment loss will be measured by comparing the estimated future undiscounted cash flows to the asset's carrying value. To date, no such impairment has been identified. (g) Broadcast rights and obligations - Television films and syndication rights acquired under license agreements (broadcast rights) and the related obligations incurred are recorded as assets and liabilities for the gross amount of the contract at the time the rights are available for broadcasting. Broadcast rights are amortized on an accelerated basis over the contract period or the estimated number of showings, whichever results in the greater aggregate monthly amortization. Broadcast rights are carried at the lower of unamortized cost or net realizable value. The estimated cost of broadcast rights to be amortized during the next year has been classified as a current asset. Broadcast obligations are stated at contractual amounts and balances due within one year are reported as current obligations. (h) Stock based compensation - The Company generally grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company has elected to account for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations, and recognizes compensation expense for incentive stock option grants using the intrinsic method. (i) Earnings per share - Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if options and rights to purchase common stock were exercised. The dilutive effects of the weighted-average number of shares representing options and rights included in the calculation of diluted earnings per share were 177,587 shares, 256,079 shares, and 306,982 shares in 1999, 1998, and 1997, respectively. There were no differences between net income amounts used to calculate basic and diluted earnings per share for any of the periods presented. (j) Cash equivalents - The Company considers investments in highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. (k) Concentration of credit risk and financial instruments - The Company sells advertising to local and national companies throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. The Company invests its excess cash in short-term investments with major banks. The carrying value of financial instruments, which include cash, receivables, payables, and long-term debt, approximates fair value at December 31, 1999. F-9 70 The Company uses interest rate swap agreements to modify the interest rate characteristics of its long-term debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements generally involve the exchange of floating for fixed-rate payment obligations over the life of the agreement without an exchange of underlying principal amount. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense related to the debt. The related net amount payable to or receivable from counterparties is included in accrued interest. The fair values of the swap agreements and changes in their fair value as a result of changes in market interest rates are not recognized in the financial statements. Gains and losses on termination of interest rate swap agreements are deferred and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. (l) Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (m) Reclassifications - Certain prior years' amounts have been reclassified to conform to the 1999 presentation. 2. New accounting standard In June 1999, the Financial Accounting Standards Board issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133. The statement deferred for one year the effective date of Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement No. 133 will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. The impact of the statement is currently being studied, and the effect of the new statement on the financial statements has not been determined. 3. Acquisitions and dispositions Partnership Redemption. The Company's wholly-owned subsidiary, KJR Radio, Inc., was a limited partner in New Century Seattle Partners, L.P. (the "Partnership") which owned and operated radio stations in the Seattle-Tacoma area. On February 17, 1998, the Partnership redeemed the limited partnership interests and satisfied certain other obligations of the former limited partners for $18.0 million. Effective April 30, 1998, the Partnership redeemed all the interests of Century Management, Inc., its general partner, for approximately $17.8 million. Upon closing, KJR Radio, Inc. became the Partnership's sole general partner and licensee of the radio stations held by the Partnership and at that same time, AK Media Group, Inc., the Company's principal operating subsidiary, became the Partnership's nominal and sole limited partner. Effective December 31, 1998, the Partnership was dissolved and KJR Radio, Inc. was merged into AK Media Group. Inc. Sale of Airport Advertising Operations. On June 30, 1998, the Company sold substantially all of the assets of its airport advertising operations to Sky Sites, Inc., a subsidiary F-10 71 of Havas, S.A., pursuant to an agreement dated May 19, 1998. The sale price consisted of a base cash price of $40.0 million, paid on the closing date of the transaction, and an additional cash payment of approximately $2.8 million, of which $1.2 million was paid in December 1998 and the remainder was paid in January 1999. The pre-tax gain recognized from this transaction was approximately $33.5 million in 1998 and approximately $1.6 million in 1999. Acquisition of WIVT(TV). On August 31, 1998, the Company exercised its option to purchase the assets of WIVT(TV), the ABC affiliate licensed to Binghamton, New York, for $9.0 million. The Company recorded net assets with estimated fair values aggregating $1.2 million and goodwill of $7.8 million. The Company previously provided programming and sales services under a local marketing agreement with the previous owner. Acquisition of Outdoor Advertising Company in Miami, Florida. On September 4, 1998, the Company purchased substantially all of the assets of an outdoor advertising company in Miami, Florida for approximately $2.4 million. Acquisition of KVIQ(TV). On January 5, 1999, the Company purchased substantially all of the assets of KVIQ(TV), the CBS affiliate licensed to Eureka, California, for approximately $5.5 million, pursuant to an agreement dated July 15, 1998. Pending closing of the transaction, the Company provided programming and sales services under a local marketing agreement with the previous owner. The Company recorded net assets with estimated fair values aggregating $0.5 million and goodwill of $5.0 million in connection with the transaction. Acquisition of Outdoor Advertising Company in Boston-Worcester, Massachusetts. On February 19, 1999, the Company purchased substantially all of the assets of an outdoor advertising company in the Boston-Worcester, Massachusetts market for approximately $11.0 million. The Company recorded net assets with estimated fair values aggregating $0.6 million and goodwill of $10.4 million in connection with the transaction. Acquisition of KMTR(TV). On March 16, 1999, the Company purchased substantially all of the assets of KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together with two satellite stations licensed to Roseburg and Coos Bay, Oregon, and a low power station licensed to Eugene. The purchase price was approximately $26.0 million. From December 1, 1998 until closing of the transaction, the Company provided programming and sales services under a local marketing agreement with the previous owner. The Company recorded net assets with estimated fair values aggregating $3.0 million and goodwill of $23.0 million in connection with the transaction. Acquisition of WOKR(TV). On April 12, 1999, the Company purchased substantially all of the assets of WOKR(TV), the ABC affiliate licensed to Rochester, New York, for approximately $128.2 million. In September 1998, the Company paid $12.5 million of the purchase price into an escrow account, with the balance paid at closing. The Company recorded net assets with estimated fair values aggregating $10.3 million and goodwill of $117.9 million in connection with the transaction. The following table summarizes, on an unaudited pro forma basis, the consolidated results of operations of the Company for the year ended December 31, 1999 and 1998, giving pro F-11 72 forma effect to the acquisition of WOKR(TV) as if the acquisition had been made at the beginning of the periods presented. These pro forma consolidated statements do not necessarily reflect the results of operations which would have occurred had such an acquisition taken place on the date indicated.
For the Year Ended December 31, ------------------------------- 1999 1998 --------- --------- (In thousands, except per share amounts) Net revenue $ 282,086 $ 274,941 Operating expenses (231,374) (224,052) Income before extraordinary item 8,078 25,441 Net income 6,705 21,095 Net income per common share .20 .67 Net income per common share, assuming dilution .20 .66
Exchange of KKTV(TV) for KCOY(TV). On May 1, 1999, the Company exchanged substantially all of the assets plus certain liabilities of KKTV(TV), the CBS affiliate licensed to Colorado Springs, Colorado, for substantially all of the assets plus certain liabilities of KCOY(TV), the CBS affiliate licensed to Santa Maria, California. In conjunction with the transaction, the Company received a cash payment of approximately $9.0 million. In connection with the transaction, the Company recorded net assets with estimated fair values aggregating $7.2 million, intangible assets of $16.8 million, and a gain of $28.6 million in the second quarter of 1999. Pending closing of the transaction, the Company programmed KCOY(TV) and the previous owner of KCOY(TV) programmed KKTV(TV) under local marketing agreements. Sale of Radio Broadcasting Tower. On July 6, 1999, the Company sold a radio broadcasting tower for approximately $2.8 million. In connection with the transaction, the Company recorded a loss from disposition of assets of $1.2 million, which represented the write-down of the property and equipment's carrying cost to fair value, in the second quarter of 1999. Acquisition of KTVF(TV). On August 2, 1999, the Company purchased substantially all of the assets of KTVF(TV), the NBC affiliate licensed to Fairbanks, Alaska, for approximately $7.2 million. The Company recorded net assets with estimated fair values aggregating $1.8 million and goodwill of $5.4 million in connection with the transaction. Investment in KFNK(FM). On September 13, 1999, the Company entered into a joint sales agreement with the owner of radio station KFNK(FM) in Eatonville, Washington. Under the agreement, the Company pays the owner a monthly fee for the right to sell advertising on the station. In connection with the transaction, the Company paid $4.0 million under a put and call agreement whereby the Company may elect, or be required by the owner, to purchase the station's assets any time after November 2002. The gross purchase price of the station's assets, which is primarily based on the station's ratings at the time of the sale, ranges from $4.5 million to $11.7 million. The gross purchase price would be reduced by the Company's $4.0 million payment under the put and call agreement plus accrued interest. Sale of Florida Outdoor Advertising Operations. On January 5, 2000, the Company sold substantially all of the assets of its outdoor advertising operations serving the Miami-Fort F-12 73 Lauderdale and West Palm Beach-Fort Pierce, Florida markets to Eller Media Company, a subsidiary of Clear Channel Communications, Inc. for approximately $300.0 million in cash, plus the assumption of certain liabilities. Sale of KCBA(TV) and Acquisition of KION (TV). On January 12, 2000, the Company sold substantially all of the assets of KCBA(TV), the FOX affiliate licensed to Monterey, California, for approximately $11.0 million and entered into a local marketing agreement with the purchaser to provide programming and sales services. Concurrent with this sale, the Company purchased substantially all the assets of KION(TV), the CBS affiliate licensed to Salinas, California, for approximately $7.7 million, subject to certain reductions. From April 24, 1996 until closing of the transaction, the Company provided programming and sales services under a local marketing agreement with the previous owner. Acquisition of WUTR(TV). On January 20, 2000, the Company purchased substantially all of the assets of WUTR(TV), the ABC affiliate licensed to Utica, New York, for approximately $7.9 million. From June 30, 1997 until closing of the transaction, the Company provided programming and sales services under a local marketing agreement with the previous owner. Acquisition of Outdoor Advertising Company in Bellingham, Washington. On January 31, 2000, the Company purchased substantially all of the assets of an outdoor advertising company in Bellingham, Washington for approximately $2.9 million. Acquisition of Outdoor Advertising Company in Washington and Oregon. On January 13, 2000, the Company entered into agreements to purchase substantially all of the assets of an outdoor advertising company serving portions of Washington and Oregon for approximately $14.5 million plus the assumption of certain liabilities. The Company paid $7.5 million of the purchase price on February 1, 2000 and the remaining balance on March 1, 2000. Investment in WETM(TV). On February 1, 2000, the Company entered into a local marketing agreement with Smith Television of New York, Inc. ("STNY") to provide programming and sales services to WETM(TV), the NBC affiliate licensed to Elmira, New York. The Company also purchased a 20% non-voting equity interest in the STNY for approximately $17.0 million. Beginning in August 2003, STNY may require the Company to exchange the interest in STNY, plus $11.0 million in cash, for all the assets of WETM(TV). Under certain circumstances, the Company may have an option to purchase all or a controlling interest in STNY. Acquisition of WBGH-LP. On February 1, 2000, the Company purchased substantially all of the assets, other than the FCC license, of WBGH-LP, a low-power NBC affiliate licensed to Binghamton, New York, for approximately $9.0 million. The Company entered into a local marketing agreement with the FCC licensee of WBGH-LP pending FCC approval of the transaction. Upon closing of the transaction, the FCC license will be transferred to the Company for no additional consideration. Acquisition of Outdoor Advertising Company in New Jersey and New York City. On February 22, 2000, the Company entered into an agreement to purchase substantially all of the F-13 74 assets of an outdoor advertising company in New Jersey and New York City for approximately $19.8 million. 4. Accounts receivable and allowance for doubtful accounts As of December 31, 1999 and 1998, accounts receivable includes employee receivables of $0.7 million and $2.4 million, respectively. The activity in the allowance for doubtful accounts is summarized as follows:
1999 1998 ------- ------- (In thousands) Balance at beginning of year $ 1,435 $ 1,498 Additions charged to operating expense 1,611 1,023 Write-offs of receivables, net of recoveries (1,181) (1,086) ------- ------- Balance at end of year $ 1,865 $ 1,435 ======= =======
5. Property and equipment At December 31, 1999 and 1998, property and equipment consisted of the following:
Estimated 1999 1998 Useful Life --------- --------- ----------- (In thousands) Land $ 9,735 $ 7,719 Advertising structures 79,171 75,023 6-20 years Broadcast equipment 57,841 57,891 6-20 years Building and improvements 50,310 40,387 3-40 years Office furniture and equipment 32,341 26,909 5-10 years Transportation and other equipment 31,870 29,573 5-6 years Equipment under capital leases 8,008 8,008 10 years Construction in progress 11,680 7,766 --------- --------- 280,956 253,276 Less accumulated depreciation 138,105 140,168 --------- --------- $ 142,851 $ 113,108 ========= =========
6. Intangibles At December 31, 1999 and 1998, intangibles consisted of the following:
Estimated 1999 1998 Useful Life --------- --------- ----------- (In thousands) Goodwill $ 245,033 $ 84,032 15-40 years Favorable leases and contracts 17,422 17,462 20 years Broadcasting agreements 4,000 4,000 15 years Other 22,877 6,196 5-30 years ------------ ------------ 289,332 111,690 Less accumulated amortization 46,955 33,876 ------------ ------------ $ 242,377 $ 77,814 ============ ============
F-14 75 The increase in intangibles in 1999 is primarily due to the recording of goodwill and other intangibles related to the acquisitions of an outdoor advertising company and television stations KVIQ, KMTR, WOKR, KCOY, and KTVF, as discussed in Note 3. Goodwill related to these acquisitions is being amortized over an estimated useful life of fifteen years. 7. Debt On January 28, 1998, the Company replaced the 1996 Credit Agreement with a $265.0 million credit agreement (the "1998 Credit Agreement") and in October 1998 used borrowings to redeem its $120.0 million 10.75% Senior Secured Notes. This resulted in a charge of approximately $4.3 million, net of applicable taxes of $2.5 million, consisting of prepayment fees and the write-off of deferred financing costs. On December 14, 1998, the Company issued 9% Senior Subordinated Notes due 2009 (the "9% Senior Subordinated Notes") in the aggregate principal amount of $175.0 million. These notes were issued under an indenture which allows for an aggregate principal amount of up to $250.0 million. These notes bear interest at 9% which is payable semi-annually in January and July. Principal is payable in full in January 2009. On January 22, 1999, the Company replaced the 1998 Credit Agreement with a new $325.0 million credit agreement (the "1999 Credit Agreement"), consisting of a $150.0 million term loan facility (the "Term Loan") and a $175.0 million revolving credit facility (the "Revolver"), which includes up to $10.0 million in standby letters of credit. The transaction resulted in a charge of approximately $0.6 million, net of applicable taxes of $0.4 million, consisting of the write-off of deferred financing costs. Principal repayments under the Term Loan are due quarterly from March 31, 2000 through December 31, 2005. The Revolver requires scheduled annual commitment reductions, with required principal repayments of outstanding amounts in excess of the commitment levels, quarterly beginning March 31, 2001 through December 31, 2005. The Company can choose to have interest calculated at rates based on either a base rate or LIBOR plus defined margins which vary based on the Company's total leverage ratio. The commitment fees under the Revolver are payable quarterly at a rate based on the Company's total leverage ratio. At December 31, 1999, the weighted average interest rate of borrowings under the 1999 Credit Agreement was approximately 9.0%. On February 24, 1999, the Company issued additional 9% Senior Subordinated Notes in the aggregate amount of $25.0 million. In connection with the transaction, the Company recorded a premium of $1.1 million, which is being amortized over the remaining term of the 9% Senior Subordinated Notes. The total aggregate amount of 9% Senior Subordinated Notes issued F-15 76 and outstanding is $200.0 million. At December 31, 1999, the trading price of the 9% Senior Subordinated Note was 97.00%. On March 15, 1999, the Company redeemed its $20.0 million outstanding principal of the 10.48% Senior Subordinated Notes due 2000 with borrowings under the Revolver. This transaction resulted in a charge of approximately $0.8 million, net of applicable taxes of $0.5 million, consisting of prepayment fees and the write-off of deferred financing costs. On August 6, 1999, the Company received proceeds of $2.0 million upon the termination of an interest rate swap agreement with a notional principal amount of $70.0 million. In connection with the transaction, the gain on the termination of the interest rate swap agreement has been deferred and is being amortized as an adjustment to interest expense over the remaining term of the interest rate swap agreement's original contract life. On January 5, 2000, the Company applied proceeds from the sale of its Florida outdoor advertising operations (as discussed in Note 3) to fully repay outstanding borrowings under the 1999 Credit Agreement, consisting of $43.0 million under the Revolver and $150.0 million under the Term Loan. In connection with the transaction, the Company amended the 1999 Credit Agreement to waive, on a one-time basis, the mandatory requirement to apply 100% of net proceeds from asset dispositions to permanently repay borrowings under the Revolver and to provide for a new commitment amount under the Revolver of approximately $147.9 million. Additionally, the Company amended the 1999 Credit Agreement to provide for a delayed-draw term loan facility of approximately $126.8 million (the "2000 Term Loan"). The Company may borrow, through no more than two separate borrowings, the maximum amount available under the 2000 Term Loan. At December 31, 1999 and 1998, outstanding balances under letter of credit agreements totaled $1.1 million and $3.8 million, respectively. Other debt consists primarily of notes payable related to the acquisition of an aircraft for the Seattle SuperSonics and obligations under deferred compensation agreements. At December 31, 1999 and 1998, long-term debt consisted of the following:
1999 1998 -------- -------- (In thousands) Credit agreements $193,000 $ 51,811 Senior subordinated notes 201,027 195,000 Capital lease obligation (net of imputed interest of $648 in 1999 and $987 in 1998) 4,782 5,686 Other debt 15,784 17,603 -------- -------- 414,593 270,100 Less amounts classified as current 10,832 3,101 -------- -------- $403,761 $266,999 ======== ========
Approximately $0.8 million of interest was capitalized in 1998. There was no capitalized interest in 1999. F-16 77 Future aggregate annual payments of long-term debt for the years ending December 31 are as follows:
Credit Agreement Capital Lease Other and Notes Obligation Debt Total --------- ------------- -------- --------- (In thousands) 2000 $ 7,575 $ 963 $ 2,294 $ 10,832 2001 19,380 1,027 2,640 23,047 2002 31,188 1,094 2,775 35,057 2003 38,695 1,698 3,013 43,406 2004 48,353 --- 1,429 49,782 Later years 248,836 --- 3,633 252,469 --------- -------- -------- --------- Total $ 394,027 $ 4,782 $ 15,784 $ 414,593 ========= ======== ======== =========
Substantially all of the outstanding stock and material assets of the Company's subsidiaries are pledged as collateral under the 1999 Credit Agreement. In addition, the 1999 Credit Agreement and the indenture under the 9% Senior Subordinated Notes restrict, among other things, the Company's borrowings, dividend payments, stock repurchases, sales or transfers of assets and contain certain other restrictive covenants which require the Company to maintain certain debt coverage and other financial ratios. On January 7, 2000, the Company obtained a waiver through June 2001 to certain provisions under the 1999 Credit Agreement. At December 31, 1999, the Company had outstanding interest rate contacts with financial institutions which involve the exchange of fixed for floating rate of LIBOR on a notional principal amount of $130.0 million. The Company's risk in this transaction is the cost of replacing, at current market rates, the contracts in the event of default by the counterparties. At December 31, 1999, the fair value of the contracts, as quoted by the counterparties, were $4.9 million. Management believes the risk of incurring a loss as a result of non-performance by the counterparties is remote as the contracts are with major financial institutions. 8. Income taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1999 and 1998 significant components of the Company's deferred tax assets and liabilities are as follows: F-17 78
1999 1998 ------- ------- (In thousands) Deferred tax assets: Net operating loss carryforwards $ 6,329 $ 5,497 Litigation accrual 3,006 3,046 Tax credit carryforwards 2,750 2,346 Capital lease obligation 1,817 2,160 Deferred compensation agreements 855 828 Other 3,723 3,095 ------- ------- Total deferred tax assets 18,480 16,972 Deferred tax liabilities: Tax over book depreciation 8,328 7,562 Basis difference in intangible assets 5,707 348 ------- ------- Total deferred tax liabilities 14,035 7,910 ------- ------- Net deferred tax assets $ 4,445 $ 9,062 ======= =======
Significant components of the income tax expense (benefit) are as follows:
1999 1998 1997 ------- -------- -------- (In thousands) Current: Federal $ 410 $ 387 $ 263 State -- (30) 363 ------- -------- -------- 410 357 626 Deferred: Federal 5,070 14,094 (18,235) State 383 1,036 (1,563) ------- -------- -------- 5,453 15,130 (19,798) ------- -------- -------- Income tax expense (benefit) $ 5,863 $ 15,487 $(19,172) ======= ======== ========
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense (benefit) is as follows:
1999 1998 1997 ------ ------- -------- (In thousands) Tax at U.S. statutory rate $4,839 $13,654 $ 4,815 Non-deductible expenses 659 831 929 State taxes and other 365 1,002 363 Net operating loss carryforwards -- -- (5,744) Change in valuation account -- -- (19,535) ------ ------- -------- Income tax expense (benefit) $5,863 $15,487 $(19,172) ====== ======= ========
In 1997, the Company's valuation allowance decreased by $27.2 million, primarily through utilization of net operating loss carryforwards and the elimination of the remaining balance due to improved recent and anticipated future operating results. F-18 79 At December 31, 1999, the Company has net operating loss carryforwards for federal income tax purposes of approximately $17.7 million that expire in the years 2006, 2007, and 2014 and alternative minimum tax credit carryforwards of approximately $2.8 million. 9. Employee benefit plan The Company has a voluntary defined contribution 401(k) savings and retirement plan for the benefit of its nonunion employees, who may contribute from 1% to 15% of their compensation up to a limit imposed by the Internal Revenue Code. The Company matches participating employee contributions up to 4% of their compensation and may also make an additional voluntary contribution to the plan. The Company's contributions totaled $1.3 million in 1999, $1.4 million in 1998, and $1.1 million in 1997. 10. Stockholders' equity During the third quarter of 1999, the Company issued 3,250,000 shares of common stock at $15.25 per share pursuant to an underwritten public offering. In conjunction with the transaction, the Company received net proceeds of approximately $46.5 million. The Class B common stock has the same rights as common stock, except that the Class B common stock has ten times the voting rights of common stock and is restricted as to its transfer. Each outstanding share of Class B common stock may be converted into one share of common stock at any time at the option of the stockholder. The Company had various stock purchase agreements to sell shares of its common stock and Class B common stock to key employees and officers at fair market value. These agreements expired in 1999. The agreements provided for distribution of one share of Class B common stock at no extra cost to the holder for each share of common stock at the time the shares were purchased. In 1998, 15,000 shares of common stock and 15,000 shares of Class B common stock were purchased under these agreements. In 1999, the remaining 37,500 shares of common stock and 37,500 shares of Class B common stock were purchased under these agreements. The Company's Nonemployee-Directors' Equity Compensation Plan (the "Directors' Plan") was approved by the Board of Directors in 1995 and the stockholders of the Company in 1996. The Directors Plan's purpose is to allow nonemployee directors to elect to receive directors' fees in the form of common stock instead of cash. There are 100,000 shares of common stock authorized under the Directors' Plan. At December 31, 1999, the Company had an aggregate of 12,157,607 shares of common stock reserved for future issuance, consisting of 11,088,730 shares reserved for conversion of Class B common stock, 980,250 shares reserved under the Fourth Amended and Restated Employees Stock Option Plan, and 88,627 shares reserved under the Directors' Plan. 11. Stock Option Plan The Company's Employees Stock Option Plan (the "Plan") was approved by the Board of Directors and the stockholders of the Company in 1983. In 1994, the Plan was amended to extend the term of the Plan and to increase the amount of common stock reserved for issuance to F-19 80 1,000,000 shares. On May 11, 1999, the Company amended the Plan to increase the amount of common stock reserved for issuance to 1,500,000 shares. As of December 31, 1999, there were 520,250 shares of common stock available for future grants under the Plan. Under the Plan, the exercise price of the options equals the market price of the Company's stock on the date of grant and the options' maximum life is 10 years. The options vest at the end of five years of continuous employment. In 1999 and 1998, the Company recognized stock compensation expense of $0.5 million and $0.4 million, respectively, primarily due to the amendment of certain stock option agreements. In 1997, the Company amended certain employees' stock option agreements, converting 338,000 incentive stock options to nonqualified stock options. In conjunction with this transaction, the Company declared bonuses to the option holders to pass on the Company's projected tax savings, representing deductions attributable to the exercise of these nonqualified options, to the option holders. Accordingly, the Company recognized total compensation expense of $8.3 million, consisting of stock compensation expense of $5.4 million and bonus expense of $2.9 million. The Company also granted 70,000 nonqualified options at below-market exercise prices and recorded compensation expense of $1.0 million. A summary of the Company's stock option activity and related information for the years ended December 31 is as follows:
1999 1998 1997 ------------------- ------------------- ------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------- -------- ------- -------- ------- -------- Options outstanding at beginning of year 260,000 $ 5.69 320,600 $ 4.75 658,000 $ 2.96 Granted 210,000 19.50 -- -- 70,000 0.69 Exercised (10,000) 7.63 (60,600) 0.69 (367,400) 0.69 Canceled -- -- -- -- (40,000) 5.53 ------- ------- ------- Options outstanding at end of year 460,000 $ 11.95 260,000 $ 5.69 320,600 $ 4.75 Exercisable at end of year -- -- 10,000 $ 7.63 60,600 $ 0.69 Weighted average fair value of options granted during year $ 12.05 -- $ 14.00
F-20 81 Exercise prices for options outstanding at December 31, 1999 ranged from $3.44 to $19.50. A summary of options outstanding as of December 31, 1999 is as follows:
Weighted-Average Range of Options Remaining Weighted-Average Exercise Price Outstanding Contractual Life Exercise Price Exercisable -------------- ----------- ---------------- ---------------- ----------- $0.00 - $ 3.44 120,000 5.1 $3.44 -- $3.45 - $ 7.63 130,000 6.0 7.63 -- $7.64 - $19.50 210,000 9.5 19.50 -- ------- $0.00 - $19.50 460,000 7.3 years $11.95
As required by Financial Accounting Standards Board Statement No. 123, the pro forma information regarding net income and earnings per share has been calculated as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999 and 1997, respectively (there were no grants in 1998): Dividend yield of 0%; expected volatility of 52% and 55%; risk-free interest rate of 5.7% and 6.0%; and a weighted-average expected life of the options of 7.5 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting period. The Company's pro forma net income and earnings per common share follows:
1999 1998 1997 ------- -------- -------- (In thousands, except per share amounts) Pro forma net income $ 6,103 $ 18,971 $ 32,742 Pro forma net income per common share $ 0.19 $ 0.60 $ 1.04 Pro forma net income per common share - assuming dilution $ 0.18 $ 0.60 $ 1.03
The pro forma amounts above may not be representative of the pro forma effect on reported net income in future years because options vest over several years and additional options may be granted each year. 12. Commitments and contingencies The Company becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of its operations, including such matters as contract and lease disputes and complaints alleging employment discrimination. In addition, the Company participates in various governmental and administrative proceedings relating to, among other things, condemnation of outdoor advertising structures without payment of just compensation and matters affecting the operation of broadcasting facilities. The Company believes that the F-21 82 outcome of any such pending claims or proceedings individually or in the aggregate, will not have a material adverse effect upon its business or financial condition, except for the matters discussed in Note 13. The Company has employment contracts with certain employees, including basketball coaches and players of the Seattle SuperSonics, extending beyond December 31, 1999. Most of these contracts require that payments continue to be made if the individual should be unable to perform because of death or disability. Future minimum obligations under these contracts for the years ending December 31 are as follows:
(In thousands) 2000 $ 38,388 2001 37,122 2002 26,320 2003 24,941 2004 16,899 Later years 24,581 ---------- $ 168,251 ==========
The Seattle SuperSonics maintains disability and life insurance policies on most of its key players. The level of insurance coverage maintained is based on the determination of the insurance proceeds which would be required to meet its guaranteed obligations in the event of permanent or total disability of its key players. The Company is required to make future minimum payments for equipment and facilities under non-cancelable operating lease agreements and broadcast agreements which expire in more than one year for the years ending December 31 as follows:
Equipment/Facilities Broadcast Obligations -------------------- --------------------- (In thousands) 2000 $ 7,568 $ 8,973 2001 7,177 4,852 2002 6,264 2,076 2003 5,806 151 2004 5,547 --- Later years 24,642 --- -------- -------- $ 57,004 $ 16,052 ======== ========
Rent expense for operating leases aggregated $5.8 million in 1999, $5.2 million in 1998, and $5.2 million in 1997. Broadcasting film and programming expense aggregated $11.2 million in 1999, $10.4 million in 1998, and $8.4 million in 1997. The Company incurred transportation costs under an operating lease agreement of $1.3 million in 1998 and $2.0 million in 1997, to a company controlled by the Company's major stockholder. There were no such amounts in 1999. Principal amounts outstanding on loans to the Company's major stockholder was approximately $2.0 million at December 31, 1998. There F-22 83 were no outstanding amounts on loans to the Company's major stockholder at December 31, 1999. 13. Litigation accrual The Company and two of its executive officers were defendants in a wrongful termination suit brought by former employees. On February 29, 1996, a jury issued a verdict awarding the plaintiffs compensatory and punitive damages of approximately $13.0 million. At December 31, 1995, the Company initially recorded an accrual of $14.2 million, including estimated additional legal costs, related to the verdict. Following post-trial motions, the punitive damages award was reduced, and in 1997, the Company reduced the accrual related to this litigation by $5.0 million. On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit ruled in the Company's favor, holding that the plaintiffs did not have a valid claim under the Federal Fair Labor Standards Act and striking the award of damages, including all punitive damages. The Court of Appeals remanded the case for further consideration of whether the plaintiffs have a valid claim under the Washington State Fair Labor Standards Act. On March 9, 1999, the Court of Appeals issued an order referring the case to an 11-judge panel for a new hearing, which was held on April 23, 1999. On June 10, 1999, the Court of Appeals reinstated the District Court verdict in favor of the plaintiffs. The Company petitioned for review of this decision by the U.S. Supreme Court, which was denied without comment by the Court on January 18, 2000. Accordingly, the Company paid awarded damages, accrued interest thereon, and plaintiff attorney's fees, of approximately $7.5 million in the first quarter of 2000. 14. Television Broadcasting Group Restructuring On April 6, 1999, the Company announced the launch of Digital CentralCasting(TM), a digital broadcasting system which allows the Company to consolidate back-office functions such as operations, programming, advertising scheduling, and accounting for all of the television stations within a regional group at one station. To implement this strategy, the Company has organized eleven of the television stations it owns and/or programs into the following three regional station groups: New York (WIXT, WOKR, WIVT, WBGH-LP, WUTR, and WETM), Central California (KCOY, KION, and KGET), and North Coast (KCBA, KMTR, KVIQ, and KFTY). The Company expects to complete the implementation of Digital CentralCasting(TM) for all of its television station groups by the second quarter of 2000. The Company recorded a $1.1 million restructuring charge in the second quarter of 1999 relating to the implementation of Digital CentralCasting(TM). This restructuring charge consisted primarily of costs associated with employee staff reductions. As of December 31, 1999, termination benefits of approximately $0.3 million, representing approximately 30 employees, had been paid and charged to the restructuring accrual. Approximately 100 total employees are currently estimated to be terminated in connection with the restructuring. 15. Industry segment information F-23 84 The Company organizes its segments based on the products and services from which revenues are generated. The Company evaluates segment performance and allocates resources based on Segment Operating Cash Flow. The Company defines Operating Cash Flow as net revenue less operating expenses before amortization, depreciation, interest, litigation, and stock compensation expenses and net gain on dispositions of assets. Segment Operating Cash Flow is defined as Operating Cash Flow before corporate overhead. Selected financial information for these segments for the years ended December 31, 1999, 1998 and 1997 is presented as follows:
Outdoor Television Radio Sports & Media Broadcasting Broadcasting Entertainment Consolidated --------- ------------ ------------ ------------- ------------ (In thousands) 1999: ----- Net revenue $ 98,751 $ 81,669 $ 27,163 $ 70,605 $ 278,188 Segment operating expenses (56,877) (69,608) (15,563) (70,427) (212,475) --------- --------- --------- --------- --------- Segment Operating Cash Flow $ 41,874 $ 12,061 $ 11,600 $ 178 65,713 ========= ========= ========= ========= Corporate overhead (16,347) --------- Operating Cash Flow 49,366 Other (expenses) income: Depreciation and amortization (28,348) Interest expense (35,632) Stock compensation expense (559) Net gain on dispositions of assets 28,999 --------- Income before income taxes and extraordinary item $ 13,826 ========= Segment assets $ 92,911 $ 273,072 $ 59,873 $ 45,470 $ 471,326 ========= ========= ========= ========= Corporate assets 57,110 --------- Total assets $ 528,436 ========= Capital expenditures $ 7,346 $ 7,765 $ 3,780 $ 5,289 $ 24,180 ========= ========= ========= ========= Corporate capital expenditures 4,934 --------- Total capital expenditures $ 29,114 =========
Outdoor Television Radio Sports & Media Broadcasting Broadcasting Entertainment Consolidated --------- ------------ ------------ ------------- ------------ 1998: Net revenue $ 108,560 $ 68,467 $ 24,474 $ 55,150 $ 256,651 Segment operating expenses (65,605) (55,996) (14,819) (58,119) (194,539) --------- --------- --------- --------- --------- Segment Operating Cash Flow $ 42,955 $ 12,471 $ 9,655 $ (2,969) 62,112 ========= ========= ========= ========= Corporate overhead (14,491) --------- Operating Cash Flow 47,621 Other (expenses) income: Depreciation and amortization (16,574) Interest expense (25,109) Stock compensation expense (452) Net gain on dispositions of assets 33,524 --------- Income before income taxes and extraordinary item $ 39,010 =========
F-24 85
Outdoor Television Radio Sports & Media Broadcasting Broadcasting Entertainment Consolidated --------- ------------ ------------ ------------- ------------ Segment assets $ 75,113 $ 87,308 $ 59,650 $ 31,546 $ 253,617 ========= ========= ========= ========= Corporate assets 62,509 --------- Total assets $ 316,126 ========= Capital expenditures $ 6,986 $ 4,415 $ 1,389 $ 238 $ 13,028 ========= ========= ========= ========= Corporate capital expenditures 19,691 --------- Total capital expenditures $ 32,719 =========
F-25 86
Outdoor Television Radio Sports & Media Broadcasting Broadcasting Entertainment Consolidated --------- ------------ ------------ ------------- ------------ 1997: ----- Net revenue $ 113,162 $ 63,611 $ 20,970 $ 73,432 $ 271,175 Segment operating expenses (72,159) (46,935) (12,983) (68,662) (200,739) --------- --------- --------- --------- --------- Segment Operating Cash Flow $ 41,003 $ 16,676 $ 7,987 $ 4,770 70,436 ========= ========= ========= ========= Corporate overhead (10,013) --------- Operating Cash Flow 60,423 Other (expenses) income: Depreciation and amortization (16,103) Interest expense (26,219) Stock compensation expense (9,344) Litigation adjustment 5,000 --------- Income before income taxes $ 13,757 ========= Segment assets $ 79,208 $ 75,955 $ 29,568 $ 45,261 $ 229,992 ========= ========= ========= ========= Corporate assets 36,393 --------- Total assets $ 266,385 ========= Capital expenditures $ 6,523 $ 7,211 $ 873 $ 1,706 $ 16,313 ========= ========= ========= ========= Corporate capital expenditures 1,280 --------- Total capital expenditures $ 17,593 =========
16. Summary of quarterly financial data (unaudited) The Company's results of operations may vary from quarter to quarter due in part to the timing of acquisitions and to seasonal variations in the operations of the broadcasting segment. In particular, the Company's net revenue and Operating Cash Flow historically have been affected positively during the NBA basketball season (the first, second, and fourth quarters) and by increased advertising activity in the second and fourth quarters. For the fourth quarter of 1998, net revenue and Operating Cash Flow were adversely affected by the NBA lockout. The following table sets forth a summary of the quarterly results of operations for the years ended December 31, 1999 and 1998:
First Second Third Fourth Quarter Quarter Quarter Quarter -------- ------- -------- -------- (In thousands, except per share amounts) 1999 ---- Net revenue $ 67,696 $71,400 $ 56,069 $ 83,023 Operating Cash Flow 7,532 13,540 11,466 16,828 Income before extraordinary item (2,548) 15,572(1) (3,742) (1,319) Extraordinary loss (1,373)(2) -- -- -- Net income (3,921) 15,572 (3,742) (1,319) Net income per share (.12) .49 (.11) (.04) Net income per share - assuming dilution (.12) .49 (.11) (.04)
F-26 87
First Second Third Fourth Quarter Quarter Quarter Quarter -------- ------- -------- -------- 1998 ---- Net revenue $ 81,046 $75,837 $ 48,087 $ 51,681 Operating Cash Flow 11,658 13,940 10,903 11,120 Income before extraordinary item 809 22,398(1) 229 87 Extraordinary loss -- -- -- (4,346)(2) Net income 809 22,398 229 (4,259) Net income per share .03 .71 .01 (.14) Net income per share - assuming dilution .03 .70 .01 (.14)
(1) Includes net gain on dispositions of assets, as discussed in Note 3. (2) Represents loss on debt extinguishment, as discussed in Note 7. F-27 EX-3.2 2 AMENDED AND RESTATED BYLAWS. 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF THE ACKERLEY GROUP, INC. (A CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE) SECTION 1. SHAREHOLDERS AND SHAREHOLDERS' MEETINGS 1.1. Annual Meeting. The annual meeting of the shareholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year in the City of Seattle, Washington, or at some other place, either within or without the State of Delaware, as designated by the Board of Directors. The meeting shall be held at 8:00 p.m. on May 1 of each year, provided such day is not a legal holiday and if a legal holiday then on the next business day, or on such other day or at such other time as designated by the Board of Directors. 1.2. Special Meetings. Special meetings of the shareholders for any purpose or purposes may be called at any time by the Board of Directors to be held at such time and place as the Board of Directors may prescribe. Business transacted at any special meeting of shareholders shall be limited to the purposes specified in the Notice. Upon the request of the Chairman of the Board, the President, the Board of Directors or of any shareholder or shareholders holding in the aggregate one-third (1/3) of the voting power of all shareholders, it shall be the duty of the Secretary to call a special meeting of the shareholders to be held at the registered office of the corporation at such time as the Secretary may fix, not less than ten (10) nor more than sixty (60) days after the receipt of said request, and if said Secretary shall neglect or refuse to issue such call, those making the request may do so. 1.3. Notice of Meetings. Written notice of the place, day and hour of the annual shareholders' meeting and written notice of the day, place, hour and purpose or purposes of special shareholders' meetings shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Except where expressly prohibited by law or the Certificate of Incorporation, notice of the day, place, hour and purpose or purposes of any shareholders' meeting may be waived in writing by any shareholder at any time, either before or after the meeting, and attendance at the meeting in person or by proxy shall constitute a waiver of such notice of the meeting unless prior to or 1 2 upon commencement of such meeting such person in attendance asserts that proper notice was not given. 1.4. List of Shareholders. At least ten (10) days before any shareholders' meeting, the Secretary of the Corporation shall compile a complete list of the shareholders entitled to vote at any meeting or adjournment thereof, arranged in alphabetical order, with the address of each shareholder and the number of shares owned by each shareholder. Such list shall be open for examination by any shareholder during usual business hours at a place within the city where the voting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, for a period of at least ten days prior to any such meeting. Such list shall also be produced and kept open for examination at the time and place and during the course of any such meeting. 1.5. Quorum. The holders of a simple majority of the shares entitled to vote at a meeting, present in person or by proxy, shall constitute a quorum of shareholders for the transaction of business and the act of a simple majority of the shares present in person or by proxy at a meeting at which there is a quorum, shall be the act of the Corporation, except as otherwise provided herein, by law or by the Certificate of Incorporation. 1.6. Adjourned Meetings. Whether for failure to obtain a quorum or otherwise, an adjournment or adjournments of any shareholders' meeting may be taken to such time and place as the majority of those present may determine without any other notice than announcement at such meeting being given. Any meeting at which directors are to be elected shall be adjourned only from day to day until such directors are elected. 1.7. Proxies. The holder of any proxy for a shareholder shall present evidence of his appointment by an instrument in writing signed by the shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after three (3) years from the date of its execution, unless the proxy provided for a longer period, which in no case shall exceed the maximum period permitted by law. Revocation of a shareholder's proxy shall not be effective until written notice thereof has actually been received by the Secretary of the Corporation. 1.8. Shareholders' Action Without A Meeting. Any action required or permitted to be taken at any annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing to such action. 1.9. Restrictions on Issuance and Transfer. No shares may be issued or transferred to any person where such issuance or transfer will result in a violation of the Communications Act of 1934 or any regulations promulgated thereunder as the same shall be in effect at the time of any such issuance or transfer. Any person subscribing to the capital stock of the Corporation and any person wishing to have capital stock of the Corporation transferred to such person shall 2 3 provide the Corporation or its transfer agent with such information as they may reasonably require to enforce the provisions of this Section 1.9 prior to such issuance or transfer. Any purported transfer in violation of this Section 1.9 shall be void. SECTION 2. BOARD OF DIRECTORS 2.1. Number and Qualification. The business affairs and property of the Corporation shall be managed by a Board of Directors. The number of directors which shall constitute the whole Board shall be not less than one nor more than fifteen. The first Board shall consist of three directors. Thereafter, the number of directors shall be two or such other number, within the limits above specified, as may be established from time to time by resolution of the Board of Directors. Directors need not be shareholders. No person shall be elected or serve as a director of the Corporation whose election or service as a director would cause the Corporation to be in violation of the Communications Act of 1934 or any regulations promulgated thereunder. If, while serving as a director of the Corporation, any person becomes ineligible to so serve by operation of the preceding sentence, then, notwithstanding any provision in these Bylaws to the contrary, such person immediately shall be removed as a director and thereafter may be replaced as provided in these Bylaws; provided, however, that no action by the Board of Directors at which such director voted or was necessary to make up a quorum shall be void by reason of the provisions of this sentence. 2.2. Election--Term of Office. The directors shall be elected by the shareholders at each annual shareholders' meeting, to hold office until the next annual shareholders' meeting and until their respective successors are elected and qualified unless removed in accordance with the laws of Delaware. In the event of failure to elect directors at any annual shareholders' meeting, or in the event of failure to hold any annual shareholders' meeting as provided by these Bylaws, directors may be elected at a special meeting of the shareholders called for that purpose. 2.3. Removal By Shareholders. At any annual or special meeting of the shareholders called for that purpose, the shareholders may, by vote of the holders of a majority of the shares then entitled to vote at an election of directors, with or without notice to any of the directors, and with or without cause, remove any director or directors and elect a successor or successors. 2.4. Vacancies. Except as otherwise provided by law, vacancies in the Board of Directors, whether caused by resignation, death, retirement, disqualification, removal or otherwise, may be filled by a simple majority of the remaining directors attending any meeting of the Board of Directors, even though less than a quorum is present, or by a sole remaining director. A director thus elected to fill any vacancy shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified. 2.5. Quorum and Voting. At any meeting of the Board of Directors, the presence in person of a simple majority of the directors shall constitute a quorum for the transaction of business. If a quorum is present, the act of a simple majority of the directors present at such meeting shall be the act of the Board of Directors and of the Corporation except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these Bylaws. 3 4 The directors present at a duly convened meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. Abstention from voting on a motion by a director present at a meeting at which there is a quorum shall be counted as a vote against the motion. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 2.6. Annual Meeting. The first meeting of each newly elected Board of Directors shall be known as the annual meeting thereof, and shall be held immediately after the annual shareholders' meeting or any special shareholders' meeting at which a Board of Directors is elected. Said meeting shall be held at the same place as such shareholders' meeting unless some other place shall be specified by resolution of the shareholders. 2.7. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place, day and hour as shall from time to time be fixed by resolution of the Board. 2.8. Special Meetings. Special meetings of the Board of Directors may be held at any place at any time whenever called by the Chairman of the Board, the President, the Secretary, or any two or more directors. 2.9. Notice of Meetings. No notice of the annual meeting of the Board of Directors shall be required. Notice of the time and place of all meetings of the Board of Directors other than the annual meeting, shall be given by the Secretary, or by the person calling the meeting, by mail, radio, telegram or by personal communication over the telephone or otherwise, at least three (3) days prior to the day upon which the meeting is to be held. However, no notice of any regular meeting need be given, if the time and place thereof shall have been fixed by resolution of the Board of Directors. Notice of any meeting of the Board of Directors may be waived in writing by any director at any time, either before or after such meeting, and attendance at such meeting in person shall constitute a waiver of notice of the time, day, place and purpose of such meeting except where a director attends for the express purpose of objecting to the transaction of any business because the meeting was not lawfully convened. 2.10. Committees of the Board. The Board of Directors, by resolutions adopted by a simple majority of the entire Board of Directors, may designate from among its members an Executive Committee and one or more other committees. Each such committee may exercise the authority of the Board of Directors to the extent provided in such resolution and any subsequent resolutions pertaining thereto and adopted in like manner, but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the shareholders a dissolution of the Corporation or a revocation of a dissolution, or amending these Bylaws; a committee, if expressly authorized by a resolution of the Board of Directors, may declare a dividend and authorize the issuance of stock. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such 4 5 absent or disqualified member. The committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Such committees shall keep regular minutes of their proceedings and report to the Board of Directors when requested to do so. 2.11. Directors' Action Without A Meeting. The Board of Directors or a committee thereof may take any action which it could properly take at a meeting without such a meeting if a consent in writing setting forth the action so to be taken shall be signed before such action by all the directors, or all of the members of the committee, as the case may be. Such consent shall have the same effect as a unanimous vote. 2.12. Telephone Meetings. Members of the Board of Directors or any committee appointed by the Board of Directors may participate in a meeting of such board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at a meeting. 2.13. Compensation. Directors as such shall receive no compensation for their services except such fees for attending meetings as may be authorized by a majority of the entire Board of Directors from time to time; provided, that this does not preclude any director from serving the Corporation in any other capacity and receiving compensation therefor, nor does it preclude the Board of Directors from authorizing the reimbursement of expenses incurred by directors in attending meetings of the Board of Directors or of any committee created by the Board of Directors. SECTION 3. OFFICERS 3.1. Officers Enumerated - Election. The officers of the corporation shall be a Chairman of the Board, one or more Presidents, one or more Vice Presidents, a Secretary, and a Treasurer (together with an Assistant Secretary and Assistant Treasurer, if such are desired by the Board of Directors), all of whom shall be elected by the Board of Directors, to hold office at the pleasure of the Board of Directors. 3.2. Qualifications. None of the officers of the corporation need be a director. Any two or more corporate offices may be held by the same person. No person shall be elected or serve as an officer of the Corporation whose election or service as an officer would cause the Corporation to be in violation of the Communications Act of 1934 or any regulations promulgated thereunder. If, while serving as an officer of the Corporation, any person becomes ineligible to so serve by operation of the preceding sentence, then, notwithstanding any provision in these Bylaws to the contrary, such person shall immediately be removed as an officer and thereafter may be replaced as provided in these Bylaws. 3.3. The Chairman of the Board. The Chairman of the Board shall be the chief executive officer and shall be responsible for carrying out the plans and directions of the Board of Directors. The Chairman of the Board shall preside at all meetings of the Board of Directors 5 6 and of the shareholders, shall report to and consult with the Board of Directors and shall have such other powers and duties as the Board of Directors may from time to time prescribe. 3.4. The Office of the President. 3.4.1 Duties. The President, or the Co-Presidents, shall be the Chief Operating Officer of the corporation, unless (1) two or more Co-Presidents have been elected and one or more of the Co-Presidents is specially designated as Chief Operating Officer pursuant to Section 3.4.2, or (2) such position is otherwise delegated to another executive officer as may be determined by resolution of the Board of Directors. The President, or the Co-Presidents, shall, subject to the authority granted to the Chairman of the Board, have general and active supervision over the day-to-day operations of the corporation. In the absence of the Chairman of the Board, the President, or the Co-Presidents, shall preside at all meetings of the shareholders and at meetings of the Board of Directors. The President, or the Co-Presidents, shall perform such other duties as may be prescribed to him or her by the Board of Directors or by the Chairman of the Board. Should the office of the Chairman of the Board be vacated, the President, or the Co-Presidents, shall then perform the duties of the Chairman of the Board until otherwise directed by the Board of Directors. 3.4.2 Co-Presidents. In the event that the office of the President is held by two or more persons, the Board of Directors or the Chairman of the Board shall determine those areas over which each Co-President shall have primary responsibility, including but not limited to the designation of one or more Co-Presidents as the Corporation's Chief Operating Officer. Any matters upon which the Co-Presidents are unable to agree shall be referred to the Chairman of the Board for resolution, if the Chairman of the Board is not also a Co-President, and otherwise to the Board of Directors. If one Co-President is absent or disabled, the remaining Co-Presidents shall exercise all of the duties of the absent or disabled Co-President, until otherwise directed by the Board of Directors or Chairman of the Board. 3.5. The Vice Presidents. The Vice Presidents shall act as President in the absence or disability of the President and shall perform such other duties as the directors may from time to time designate. 3.6. The Secretary. The Secretary, personally or with the assistance of others, shall keep records of the proceedings of the directors and shareholders, attest all certificates of stock, deeds, bonds, contracts and other obligations or instruments in the name of the corporation; keep the corporate seal, if any, and affix the same to certificates of stock and other proper documents; keep a record of the issuance of certificates of stock and the transfers of the same; and perform such other duties as the Board of Directors may from time to time designate. 3.7. The Treasurer. The Treasurer shall have the care and custody, and be responsible for, all funds and securities of the corporation, and shall cause to be kept regular books of account. He shall cause to be deposited all funds and other valuable effects in the name of the corporation in such depositories as may be designated by the Board of Directors. In general, he 6 7 shall perform all of the duties incident to the office of Treasurer, and such other duties as from time to time may be assigned to him by the Board of Directors. 3.8. Vacancies. Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting. 3.9. Other Officers and Agents. The Board of Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their office for such terms, and shall exercise such powers and perform such duties, as shall be determined from time to time by the Board of Directors. 3.10. Compensation. The compensation of all officers of the corporation shall be fixed by the Board of Directors. SECTION 4. SHARES AND CERTIFICATES OF SHARES 4.1. Share Certificates. Share certificates shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the Secretary, Treasurer or an Assistant Secretary and sealed with the corporate seal. Facsimiles of the signatures and seal may be used, as permitted by law. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each shareholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preference and/or rights. 4.2. Consideration for Shares. Shares of this Corporation may be issued for such consideration expressed in dollars (not less than par, if the shares have par value) as shall be fixed from time to time by the Board of Directors. The consideration for the issuance of shares may be paid in whole or in part in money, in other property, tangible or intangible, or in labor or services actually performed for the Corporation, as permitted by the laws of the State of Delaware. The reasonable charges and expenses of organization or reorganization and the reasonable expenses of and compensation for the sale or underwriting of its shares may be paid 7 8 or allowed by the Corporation out of the consideration received by it in payment for its shares without rendering the shares not fully paid or assessable. 4.3. Transfers. Subject to the restrictions set forth in Section 1.9 of these Bylaws, shares may be transferred by delivery of the certificate, accompanied either by an assignment in writing on the back of the certificate, or by a written power of attorney to sell, assign and transfer the same, signed by the record holder of the certificate. Except as otherwise specifically provided in these Bylaws, no shares of stock shall be transferred on the books of the Corporation until the outstanding certificate therefor has been surrendered to the Corporation. 4.4. Loss or Destruction of Certificates. In the event of the loss or destruction of any certificate, no new certificate shall be issued in lieu thereof except upon satisfactory proof to the Chairman of the Board, the President of such loss or destruction, and upon the giving of security, by bond, indemnity or otherwise, satisfactory to the President against loss to the Corporation. 4.5. Closing Stock Transfer Books and Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for the payment of any distribution, the allotment of rights, the conversion or exchange of any securities by their terms or any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 5. BOOKS, RECORDS AND REPORTS 5.1. Records of Corporate Meetings and Share Registers. The Corporation shall keep complete records of all proceedings of the Board of Directors and shareholders and shall keep at its registered office or principal place of business or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders, the number and class of shares held by each and the dates they acquired same. 5.2. Copies of Resolutions. Any person dealing with the Corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the Chairman of the Board, the President, Vice President, Secretary or Assistant Secretary. 8 9 5.3. Books of Account. The Corporation shall keep appropriate and complete books of account. SECTION 6. FISCAL YEAR The fiscal year of the Corporation shall be the calendar year. SECTION 7. DIVIDENDS 7.1. Declaration of Dividends. Dividends upon the capital stock of the Corporation subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. 7.2. Creation of Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 8. MISCELLANEOUS PROCEDURAL PROVISIONS The rules contained in the most recent edition of Robert's Rules of Order, Revised, shall govern all meetings of shareholders and directors where those rules are not inconsistent with the Certificate of Incorporation, these Bylaws or special rules of order of the Corporation. SECTION 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS 9.1. The Corporation shall, to the full extent permitted by law, including, without limitation, Section 145 of the Delaware General Corporation Law, indemnify all directors, officers, employees, agents and other persons whom it may indemnify pursuant thereto against any liability, and the expenses incurred in defense of such liability, that may be asserted against or incurred by such person arising out of such person's status with or service to or at the request of the Corporation. The Corporation shall pay the expenses of any director or officer in defense of such liability in advance of the final disposition of the matter upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation. Nothing contained herein shall be deemed to require or make mandatory the purchase and maintenance of insurance as may be permitted under Section 145(g) of the Delaware General Corporation Law. 9 10 9.2. Payment of Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this section. 9.3. Non-Exclusive. The indemnification provided by this Section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 9.4. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this section. 9.5. Amendments to Indemnification. The Board of Directors is specifically authorized, without any action on the part of the shareholders, to alter or amend this section, and other provisions of these bylaws, to such an extent and in such manner as the law of Delaware, or other applicable law, relating to indemnification of the directors, officers, employees and agents therein referred to may, at any time and from time to time, authorize or permit. SECTION 10. AMENDMENTS These bylaws may be altered, amended or repealed or new bylaws may be adopted at any regular meeting of the shareholders or of the Board of Directors or at any special meeting of the shareholders or of the Board of Directors if notice of such alteration or repeal be contained in the notice of such special meeting. 10 EX-10.2 3 FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.2 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT, effective as of June 11, 1999 (this "Amendment" or this "First Amendment"), is by and between The Ackerley Group, Inc., a Delaware corporation (the "Borrower"), certain financial institutions party to the Credit Agreement (as hereinafter defined) (collectively, the "Lenders"), FIRST UNION NATIONAL BANK, a national banking association, as administrative agent for the Lenders (the "Administrative Agent"), FLEET BANK, N.A. as documentation agent ("Documentation Agent") and UNION BANK OF CALIFORNIA, N.A., KEYBANK NATIONAL ASSOCIATION, and BANK OF MONTREAL, CHICAGO BRANCH as co-agents ("Co-Agents"). This Amendment amends that certain Credit Agreement dated as of January 22, 1999, between the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents (as amended hereby and as further amended, modified, restated or supplemented from time to time, the "Credit Agreement") and the other Credit Documents referred to therein. All capitalized terms not otherwise defined in this Amendment shall have the meanings assigned to them in the Credit Agreement. RECITALS A. Pursuant to the Credit Agreement, the Lenders have agreed, among other things, to provide to the Borrower term and revolving credit facilities in an aggregate principal amount of $325,000,000. B. The Borrower intends to issue additional shares of its common stock pursuant to an amended registration statement on Form S-1 or S-3 (originally filed on April 9, 1998) (the "1999 Equity Issuance"). C. The Credit Agreement requires that 50% of the Net Cash Proceeds received in connection with any Equity Issuance be used to prepay the Loans, which prepayments are to be applied, (i) first, to the Term Loans, (ii) second, to the extent of any excess remaining after such application, to reduce the outstanding principal amount of Revolving Loans (with a corresponding reduction to the Revolving Credit Commitments), and (iii) third, to the extent of any excess remaining after such application, to pay any outstanding Reimbursement Obligations (and thereafter to cash-collaterize any Letter of Credit Exposure) (collectively, the "Prepayment Application Requirements"). D. The Borrower has requested certain amendments relating to the financial covenants contained in the Credit Agreement and that certain of the Prepayment Application Requirements be waived in connection with the 1999 Equity Issuance. 2 E. The Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents are willing to agree to so amend the Credit Agreement and to grant such waiver on the terms and conditions set forth herein. STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained herein and in the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents hereby agree as follows: ARTICLE I. AMENDMENTS TO CREDIT AGREEMENT AND CREDIT DOCUMENTS 1.1 The Credit Agreement is hereby amended as follows: (a) NEW DEFINED TERMS. The following definitions are hereby added, in the appropriate alphabetical order, to SECTION 1.1 of the Credit Agreement: "1999 Special Charges" shall mean the one-time charges to earnings of the Borrower ($1,600,000 of which may be taken for each of the fourth quarter of 1998 and the first quarter of 1999, and $4,000,000 of which may be taken for the second quarter of 1999), in an amount not to exceed $7,200,000 in the aggregate, comprised of: (a) a restructuring charge in respect of the implementation of its Digital CentralCasting broadcasting system; (b) a charge as the result of a decrease in the Borrower's NBC/TNT revenue attributable to the 1998-99 National Basketball Association ("NBA") lockout (the "Lockout"); and (c) a charge as the result of a decrease in the Borrower's share of NBA licensing fees attributable to the Lockout. "First Amendment" shall mean the First Amendment to Credit Agreement, effective as of June 11, 1999, between the Borrower, the Administrative Agent, the Documentation Agent, the Co-Agents and the Lenders. (b) REVISED DEFINITIONS. The following definitions set forth in SECTION 1.1 to the Credit Agreement are hereby amended as follows: (i) The definition of "Consolidated EBITDA" shall be deleted in its entirety and shall be replaced with the following: "Consolidated EBITDA" shall mean, with respect to the Borrower and for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or non-recurring gains or losses), (B) Consolidated Interest Expense and 2 3 (C) Consolidated Non-Cash Charges, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP. For purposes of this Agreement, calculations of Consolidated EBITDA for any period shall (a) exclude net income from Investments in which the Borrower or a Subsidiary holds a minority interest and (b) be adjusted with respect to entities or assets that are acquired or disposed of during such period as permitted under Sections 6.9, 6.10, 8.1 or 8.4 as if such transaction had occurred as of the first day of such period (based on a certificate in form and substance reasonably satisfactory to the Administrative Agent and signed by a Financial Officer of the Borrower setting forth in reasonable detail the portion of Consolidated EBITDA during such period attributable to the entity or assets acquired or disposed of and stating that the assumptions of the Borrower in respect thereof are reasonable). Notwithstanding the foregoing, the calculation of Consolidated EBITDA shall exclude (A) the operations and results thereof (whether positive or negative) of FHS for the period from the Closing Date through the earlier to occur of the following dates: (a) the end of the fiscal quarter immediately preceding any fiscal quarter for which FHS EBITDA is greater than zero; and (b) December 31, 1999 (the earlier of such dates, the "FHS Covenant Calculation Date"); provided that from and after the FHS Covenant Calculation Date, FHS EBITDA shall be included in the calculation of Consolidated EBITDA only as follows: (i) for the fiscal quarter following the fiscal quarter in which the FHS Covenant Calculation Date occurs, Consolidated EBITDA shall include FHS EBITDA only for such quarter; (ii) for the next succeeding fiscal quarter, Consolidated EBIDTA shall include FHS EBITDA only for that quarter and the preceding fiscal quarter; (iii) for the next succeeding fiscal quarter, Consolidated EBITDA shall include FHS EBITDA only for that quarter and the preceding two fiscal quarters; and (iv) thereafter, FHS EBITDA shall be treated in a manner consistent with determining Consolidated EBITDA of the Borrower and its other Subsidiaries; and (B) without duplication, the 1999 Special Charges. (ii) The definition of "Consolidated Fixed Charges" shall be deleted in its entirety and shall be replaced with the following: "Consolidated Fixed Charges" shall mean, for any period, the aggregate (without duplication) of the following, all determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP for such period: (a) Consolidated Interest Expense for such period, (b) aggregate cash expense for federal, state, local and other income taxes for such period, (c) Capital Expenditures for such period, (d) the aggregate (without duplication) of all scheduled payments of principal on Consolidated Funded Debt required to have been made by the Borrower and its Subsidiaries during such period (whether or not such payments are actually made), including without limitation the aggregate principal amount of the Term Loans due during 3 4 such period under SECTION 2.6(a) (as such amounts may have been previously adjusted in accordance with the terms of this Agreement as a result of prior prepayments on the Term Loans, including adjustments made pursuant to SECTION 2.6(h) or SECTION 2.7(b)) and (e) the amount of any payments made under any LMA Agreements attributable to principal being paid by the other parties to such LMA Agreements pursuant to their respective senior credit facilities. Notwithstanding the foregoing, Consolidated Fixed Charges shall not include (i) amounts of any Capital Expenditures in respect of the Borrowers 1998 acquisition of its Seattle Supersonics corporate jet or (ii) any amounts attributable to the Borrower's $12,500,000 payment in connection with the satisfaction in full of its 10.48% Subordinated Notes due 2000. (iii) The definition of "Credit Documents" is deemed to include the First Amendment. (c) SENIOR LEVERAGE RATIO. Section 7.1(b) of the Credit Agreement is deleted in its entirety and is replaced with the following: (c) Senior Leverage Ratio. The Borrower will not permit the Senior Leverage Ratio as of the last day of any fiscal quarter during the periods set forth below to be greater than the ratio set forth below opposite such period:
Date Maximum Senior Leverage Ratio ---- ----------------------------- Closing through September 29, 1999 4.50 to 1.00 September 30, 1999 through December 30, 1999 4.25 to 1.00 Thereafter 4.00 : 1.00
1.2. AMENDMENTS TO LOAN DOCUMENTS. As of the date hereof all references to the Credit Agreement in any of the Credit Documents shall refer to the Credit Agreement as amended prior to the date hereof and as amended by this Amendment, and all references to any of the Credit Documents in any of the other Credit Documents shall refer to such Credit Documents as amended prior to the date hereof and as amended hereby or in connection herewith. ARTICLE II. WAIVER The Administrative Agent, the Documentation Agent and the Lenders hereby waive, on a one-time basis only, the Prepayment Application Requirements (as defined in the Recitals), such that the required prepayment of Loans with 50% of Net Cash Proceeds of such issuance shall be applied only to the Revolving Loans (and not to the Term Loans), with no permanent reduction in the Revolving Credit Commitments; provided, however, that such waiver shall become void and 4 5 of no force or effect as of the close of business on December 31, 1999 if the 1999 Equity Issuance shall not have been consummated as of such time. This waiver is limited to the express terms hereof and to the 1999 Equity Issuance and shall not be deemed to apply to any other prepayment of Loans by the Borrower. ARTICLE III. REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants that: 3.1 COMPLIANCE WITH CREDIT AGREEMENT. After giving effect to this Amendment, the Borrower is in compliance with all terms and provisions set forth in the Credit Agreement to be observed or performed by it. 3.2 REPRESENTATIONS IN CREDIT AGREEMENT. The representations and warranties of the Borrower set forth in the Credit Agreement are true and correct as of the date hereof, except to the extent such representations and warranties relate solely to or are specifically expressed as of a particular date or period. 3.3 NO EVENT OF DEFAULT. After giving effect to this Amendment and the transactions contemplated hereby, no Event of Default or Default exists under the Credit Agreement. 3.4 CONTINUING SECURITY INTERESTS. All Loans and advances by the Lenders to the Borrower under the Credit Agreement, as amended hereby, and the Notes will continue to be secured by the Administrative Agent's security interest in all of the Collateral granted under the Credit Agreement or other Credit Documents, and nothing herein will affect the validity, perfection or enforceability of such security interests. 3.5 CONSENTS. The execution and delivery of this Amendment and the Borrower's performance hereunder does not require the consent of approval of any Person (other than the Lenders pursuant to the Credit Agreement). ARTICLE IV. CONDITIONS PRECEDENT The effectiveness of the foregoing amendments, consents and waivers are subject to the fulfillment of the following condition precedent: 4.1 AMENDMENT. The Borrower and the Required Lenders shall have executed and delivered to the Administrative Agent this Amendment (in a sufficient number of execution originals for each Lender). 5 6 ARTICLE V. GENERAL 5.1. FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended hereby, shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the Credit Agreement, "hereinafter," "hereto," "hereof," and words of similar import shall, unless the context otherwise requires, mean the Credit Agreement after amendment by this Amendment. 5.2. APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the internal laws and judicial decisions of the State of North Carolina. 5.3. COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. 5.4. EXPENSES. Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, all reasonable attorneys' fees. 5.5. FURTHER ASSURANCES. Each Borrower shall execute and deliver to Administrative Agent such documents, certificates and opinions as the Administrative Agent may reasonably request to effect the amendment contemplated by this Amendment and to continue the existence, perfection and first priority of the Administrative Agent's security interests in the Collateral. 5.6. HEADINGS. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of this Amendment. (signatures begin on next page) 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers all as of the date first above written. THE ACKERLEY GROUP, INC. By: [Signature illegible] ------------------------------------- Title: Senior Vice President & CIO ---------------------------------- (signatures continued) 8 FIRST UNION NATIONAL BANK, as Administrative Agent and as Lender By: /s/ [Signature Illegible] ------------------------------------- Title: V.P. ---------------------------------- (signatures continued) 9 FLEET BANK, N.A. By: /s/ GARRET KOMJATHY ------------------------------------- Garret Komjathy Title: Vice President ---------------------------------- (signatures continued) 10 BANK OF MONTREAL, CHICAGO BRANCH By: /s/ OLA ANDERSSEN ------------------------------------- Ola Anderssen Title: Director ---------------------------------- (signatures continued) 11 KEYBANK NATIONAL ASSOCIATION By: /s/ MARY K. YOUNG ------------------------------------- Mary K. Young Title: Assistant Vice President ---------------------------------- (signatures continued) 12 UNION BANK OF CALIFORNIA, N.A. By: /s/ JENNY DONAO ------------------------------------- Jenny Donao Title: Assistant Vice President ---------------------------------- (signatures continued) 13 U.S. BANK NATIONAL ASSOCIATION By: /s/ MATTHEW S. THORESON ------------------------------------- Matthew S. Thoreson Title: Vice President ---------------------------------- (signatures continued) 14 BANK OF AMERICA, NT & SA By: /s/ GEORGE V. HAUSLER ------------------------------------- George V. Hausler Title: Vice President ---------------------------------- (signatures continued) 15 THE BANK OF NOVA SCOTIA By: /s/ IAN A. HODGART ------------------------------------- Ian A. Hodgart Title: Authorized Signatory ---------------------------------- (signatures continued) 16 DRESDNER BANK AG, NEW YORK & GRAND CAYMAN BRANCHES By: /s/ JANE A. MAJESKI ------------------------------------- Jane A. Majeski Title: First Vice President ---------------------------------- By: /s/ WILLIAM E. LAMBERT ------------------------------------- William E. Lambert Title: Vice President ---------------------------------- (signatures continued) 17 THE CIT GROUP/EQUIPMENT FINANCING, INC. By: /s/ J.E. PALMER ------------------------------------- J.E. Palmer Title: Assistant Vice President ---------------------------------- (signatures continued) 18 BANQUE NATIONALE DE PARIS By: /s/ SERGE DESRAYAUD ------------------------------------- Serge Desrayaud Title: Vice President ---------------------------------- By: /s/ STEPHANIE ROGERS ------------------------------------- Stephanie Rogers Title: Vice President ---------------------------------- (signatures continued) 19 CITY NATIONAL BANK By: /s/ DAVID C. BURDGE ------------------------------------- David C. Burdge Title: Senior Vice President ---------------------------------- (signatures continued) 20 FIRST HAWAIIAN BANK By: /s/ TRAVIS RUETENIK ------------------------------------- Travis Ruetenik Title: Corporate Banking Officer ---------------------------------- (signatures continued) 21 THE FUJY BANK, LIMITED, LOS ANGELES AGENCY By: /s/ MASAHITO FUKUDA ------------------------------------- Masahito Fukuda Title: Senior Vice President ---------------------------------- (signatures continued) 22 STATE STREET BANK AND TRUST COMPANY By: /s/ DIANE I. ROONEY ------------------------------------- Diane I. Rooney Title: Vice President ---------------------------------- (signatures continued) 23 COMPAGNIE FINANCIERE DE CIC ET DE I'UNION EUROPEENNE By: /s/ MARCUS EDWARD ------------------------------------- Marcus Edward Title: Vice President ---------------------------------- By: /s/ BRIAN O'LEARY ------------------------------------- Brian O'Leary Title: Vice President ---------------------------------- (signatures continued) 24 MICHIGAN NATIONAL BANK By: /s/ JEFFREY W. BILLIG ------------------------------------- Jeffrey W. Billig Title: Relationship Manager ---------------------------------- (signatures continued) 25 WASHINGTON MUTUAL BANK (dba WESTERN BANK) By: /s/ [Signature illegible] ------------------------------------- Title: Vice President ---------------------------------- (signatures continued) 26 NATEXIS BANQUE By: /s/ EVAN S. KRAUS ------------------------------------- Evan S. Kraus Title: Assistant Vice President ---------------------------------- By: /s/ CYNTHIA E. SACHS ------------------------------------- Cynthia E. Sachs Title: VP, Group Manager ---------------------------------- (signatures continued) 27 ACKNOWLEDGEMENT OF GUARANTY Each of the undersigned, as a guarantor of the Obligations of The Ackerley Group, Inc. (the "Company") under the Credit Agreement, dated as of January 22, 1999, among the Company, certain financial institutions party thereto, First Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A., in its capacity as documentation agent, and Union Bank of California, N.A., KeyBank National association and Bank of Montreal, Chicago Branch, as co-agents (the "Credit Agreement"), hereby consents to the foregoing First Amendment to Credit Agreement, and further waives any defense to its guaranty liability occasioned by such amendment (including without limitation the extension of the maturity of the Loans as contemplated thereby). The foregoing consent and waiver of the undersigned is made as of the date of the First Amendment. ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF MASSACHUSETTS, INC. By: /s/ [Signature Illegible] By: /s/ [Signature Illegible] ------------------------------ ------------------------------ Title: Assistant Secretary Title: Assistant Secretary --------------------------- ----------------------- AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC. By: /s/ [Signature Illegible] By: /s/ [Signature Illegible] ------------------------------ ------------------------------ Title: Assistant Secretary Title: Assistant Secretary --------------------------- ----------------------- KVOS TV, LTD. TC AVIATION, INC. By: /s/ [Signature Illegible] By: /s/ [Signature Illegible] ------------------------------ ------------------------------ Title: Assistant Secretary Title: Assistant Secretary --------------------------- ----------------------- EX-10.3 4 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.3 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT, effective as of September 10, 1999 (this "Amendment" or this "Second Amendment"), is by and between The Ackerley Group, Inc., a Delaware corporation (the "Borrower"), certain financial institutions party to the Credit Agreement (as hereinafter defined) (collectively the "Lenders"), FIRST UNION NATIONAL BANK, a national banking association, as administrative agent for the Lenders (the "Administrative Agent"), FLEET BANK, N.A. as documentation agent ("Documentation Agent") and UNION BANK OF CALIFORNIA, N.A., KEYBANK NATIONAL ASSOCIATION, and BANK OF MONTREAL, CHICAGO BANK as co-agents ("Co-Agents"). This Amendment amends that certain Credit Agreement dated as of January 22, 1999, between the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents (as previously amended, as amended hereby and as further amended, modified, restated or supplemented from time to time, the "Credit Agreement") and the other Credit Documents referred to therein. All capitalized terms not otherwise defined in this Amendment shall have the meanings assigned to them in the Credit Agreement. RECITALS A. Pursuant to the Credit Agreement, the Lenders have agreed, among other things, to provide to the Borrower term and revolving credit facilities in an aggregate principal amount of $325,000,000. B. The Borrower has requested that Section 8.5 of the Credit Agreement be amended to enable the Borrower to make additional miscellaneous investments of an amount up to $5,000,000 in the aggregate. C. The Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents are willing to agree to so amend the Credit Agreement on the terms and conditions set forth herein. STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained herein and in the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents hereby agree as follows: 2 ARTICLE I. AMENDMENTS TO CREDIT AGREEMENTS AND CREDIT DOCUMENTS 1.1. The Credit Agreement is hereby amended as follows: (a) NEW DEFINED TERMS. The following definitions are hereby added, in the appropriate alphabetical order, to SECTION 1.1 of the Credit Agreement: "Second Amendment" shall mean the Second Amendment to Credit Agreement, effective as of September 10, 1999, between the Borrower, the Administrative Agent, the Documentation Agent, the Co-Agents and the Lenders. (b) REVISED DEFINITIONS. The following definitions set forth in SECTION 1.1 to the Credit Agreement are hereby amended as follows: (i) The definition of "Credit Documents" is deemed to include the Second Amendment. (c) INVESTMENTS. Section 8.5(a) of the Credit Agreement is hereby amended by the deletion of the word "and" at the end of clause (vii) thereof, the replacement of the period (".") at the end of clause (viii) thereof with "; and" and the addition of the following as new clause (ix) thereof: (ix) Other Investments not to exceed $5,000,000 in the aggregate at any time. 1.2 AMENDMENTS TO LOAN DOCUMENTS. As of the date hereof all references to the Credit Agreement in any of the Credit Documents shall refer to the Credit Agreement as amended prior to the date hereof and as amended by this Amendment, and all references to any of the Credit Documents in any of the other Credit Documents shall refer to such Credit Documents as amended prior to the date hereof and as amended hereby or in connection herewith. ARTICLE II. REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants that: 2.1 COMPLIANCE WITH CREDIT AGREEMENT. After giving effect to this Amendment, the Borrower is in compliance with all terms and provisions set forth in the Credit Agreement to be observed or performed by it. 2.2 REPRESENTATIONS IN CREDIT AGREEMENT. The representations and warranties of the Borrower set forth in the Credit Agreement are true and correct as of the date hereof, except 2 3 to the extent such representations and warranties relate solely to or are specifically expressed as of a particular date or period. 2.3 NO EVENT OF DEFAULT. After giving effect to this Amendment and the transactions contemplated hereby, no Event of Default exists under the Credit Agreement. 2.4 CONTINUING SECURITY INTERESTS. All Loans and advances by the Lenders to the Borrower under the Credit Agreement, as amended hereby, and the Notes will continue to be secured by the Administrative Agent's security interest in all of the Collateral granted under the Credit Agreement or other Credit Documents, and nothing herein will affect the validity, perfection or enforceability of such security interests. 2.5 CONSENTS. The execution and delivery of this Amendment and the Borrower's performance hereunder does not require the consent or approval of any Person (other than the Lenders pursuant to the Credit Agreement). ARTICLE III. CONDITIONS PRECEDENT The effectiveness of the foregoing amendments, consents and waivers are subject to the fulfillment of the condition precedent that the Borrower and the Required Lenders shall have executed and delivered to the Administrative Agent this Amendment (in a sufficient number of execution originals for each Lender). ARTICLE IV. GENERAL 4.1 FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended hereby, shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the Credit Agreement, "hereinafter," "hereof," and words of similar import shall, unless the context otherwise requires, mean the Credit Agreement after amendment by this Amendment. 4.2 APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the internal laws and judicial decisions of the State of North Carolina. 4.3 COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. 3 4 4.4 EXPENSES. Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, all reasonable attorneys' fees. 4.5 FURTHER ASSURANCES. Each Borrower shall execute and deliver to Administrative Agent such documents, certificates and opinions as the Administrative Agent may reasonably request to effect the amendment contemplated by this Amendment and to continue the existence, perfection and first priority of the Administrative Agent's security interests in the Collateral. 4.6 HEADINGS. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of this Amendment. (signatures begin on next page) 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers all as of the date first above written. THE ACKERLEY GROUP, INC. By: /s/ KEITH RITZMANN --------------------------------------- Title: Keith Ritzmann -- Senior VP & CIO (signatures continued) 5 6 FIRST UNION NATIONAL BANK, as Administrative Agent and as Lender By: [SIGNATURE ILLEGIBLE] --------------------------------- Title: Director ------------------------------ (signatures continued) 6 7 FLEET BANK, N.A. By: /s/ Garret Komjathy ------------------------- Garret Komjathy Title: Vice President --------------------- (signatures continued) 7 8 BANK OF MONTREAL, CHICAGO BRANCH By: /s/ OLA ANDERSSEN --------------------------------- Ola Anderssen Title: Director ------------------------------ (signatures continued) 8 9 KEYBANK NATIONAL ASSOCIATION By: /s/ MARY K. YOUNG --------------------------------- Mary K. Young Title: Assistant Vice President ------------------------------ (signatures continued) 9 10 UNION BANK OF CALIFORNIA, N.A. By: /s/ SETH YAKATAN --------------------------------- Seth Yakatan Title: Assistant Vice President ------------------------------ (signatures continued) 10 11 U.S. BANK NATIONAL ASSOCIATION By: /s/ [Signature Illegible] --------------------------------- Title: Vice President ------------------------------ (signatures continued) 11 12 BANK OF AMERICA, NT & SA By: /s/ GEORGE V. HAUSLER --------------------------------- George V. Hausler Title: Vice President ------------------------------ (signatures continued) 12 13 THE BANK OF NOVA SCOTIA By: /s/ IAN A. HODGART --------------------------------- Ian A. Hodgart Title: Authorized Signatory ------------------------------ (signatures continued) 13 14 DRESDNER BANK AG, NEW YORK & GRAND CAYMAN BRANCHES By: /s/ LAURA G. FAZIO ------------------------------------ Laura G. Fazio Title: First Vice President ------------------------------------ By: /s/ CONSTANCE LOOSEMORE ------------------------------------ Constance Loosemore Title: Assistant Vice President ------------------------------------ (signatures continued) 14 15 THE CIT GROUP/EQUIPMENT FINANCING, INC. By: /s/ DANIEL E. A. NICHOLS ------------------------------------ Daniel E. A. Nichols Title: Assistant Vice President ------------------------------------ (signatures continued) 15 16 BANQUE NATIONALE DE PARIS By: /s/ SERGE DESRAYAUD --------------------------------- Serge Desrayaud Title: VP / Team Leader ------------------------------ By: /s/ GREGG W. BONARDI --------------------------------- Gregg W. Bonardi Title: Vice President ------------------------------ (signatures continued) 16 17 CITY NATIONAL BANK By: --------------------------------- Title: ------------------------------ (signatures continued) 17 18 FIRST HAWAIIAN BANK By: /s/ TRAVIS RUETENIK --------------------------------- Travis Ruetenik Title: Assistant Vice President ------------------------------ (signatures continued) 18 19 THE FUJI BANK, LIMITED By: /s/ MASAHITO FUKUDA --------------------------------- Masahito Fukuda Title: Senior Vice President ------------------------------ (signatures continued) 19 20 STATE STREET BANK AND TRUST COMPANY By: /s/ DIANE I. ROONEY --------------------------------- Diane I. Rooney Title: Vice President ------------------------------ (signatures continued) 20 21 COMPAGNIE FINANCIERE DE CIC ET DE I'UNION EUROPEENNE By: /s/ MARCUS EDWARD --------------------------------- Marcus Edward Title: Vice President ------------------------------ By: /s/ BRIAN O'LEARY --------------------------------- Brian O'Leary Title: Vice President ------------------------------ (signatures continued) 21 22 MICHIGAN NATIONAL BANK By: /s/ JEFFREY W. BILLIG ----------------------------------- Jeffrey W. Billig Title: Commercial Relationship Manager -------------------------------- (signatures continued) 22 23 WASHINGTON MUTUAL BANK (DBA WESTERN BANK) By: /s/ DAVID M. PURCELL ---------------------------------- David M. Purcell Title: Vice President ------------------------------- (signatures continued) 23 24 NATEXIS BANQUE BFCE By: /s/ EVAN S. KRAUS ---------------------------------- Evan S. Kraus Title: Assistant Vice President ------------------------------- By: /s/ CYNTHIA E. SACHS ---------------------------------- Cynthia E. Sachs Title: VP, Group Manager ------------------------------- 24 25 Acknowledgement of Guaranty Each of the undersigned, as a guarantor of the Obligations of The Ackerley Group, Inc. (the "Company") under the Credit Agreement, dated as January 22, 1999, among the Company, certain financial institutions party thereto, First Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A., in its capacity as documentation agent, and Union Bank of California, N.A., KeyBank National Association and Bank of Montreal, Chicago Branch, as co-agents (the "Credit Agreement"), hereby consents to the foregoing Second Amendment to Credit Agreement, and further waives any defense to its guaranty liability occasioned by such amendment (including without limitation the extension of the maturity of the Loans as contemplated thereby). The foregoing consent and waiver of the undersigned is made as of the date of the First Amendment. ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF MASSACHUSETTS, INC. By: /s/ KEITH RITZMANN By: /s/ KEITH RITZMANN -------------------------------------- -------------------------------------- Title: Keith Ritzmann - Asst. Secretary Title: Keith Ritzmann - Asst. Secretary ----------------------------------- ----------------------------------- AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC. By: /s/ KEITH RITZMANN By: /s/ KEITH RITZMANN -------------------------------------- -------------------------------------- Title: Keith Ritzmann - Asst. Secretary Title: Keith Ritzmann - Asst. Secretary ----------------------------------- ----------------------------------- KVOS TV, LTD TC AVIATION, INC. By: /s/ KEITH RITZMANN By: /s/ KEITH RITZMANN -------------------------------------- -------------------------------------- Title: Keith Ritzmann - Asst. Secretary Title: Keith Ritzmann - Asst. Secretary ----------------------------------- -----------------------------------
EX-10.4 5 THIRD AMENDMENT TO CREDIT AGREEMENT 1 Exhibit 10.4 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of January 7, 2000 (this "Amendment" or this "Third Amendment"), is by and between THE ACKERLEY GROUP, INC., a Delaware corporation (the "Borrower"), certain financial institutions party to the Credit Agreement (as hereinafter defined), FIRST UNION NATIONAL BANK, a national banking association, as administrative agent for the Lenders (the "Administrative Agent"), FLEET BANK, N.A. as documentation agent ("Documentation Agent") and UNION BANK OF CALIFORNIA, N.A., KEYBANK NATIONAL ASSOCIATION, and BANK OF MONTREAL, CHICAGO BRANCH as co-agents ("Co-Agents"). This Amendment amends that certain Credit Agreement dated as of January 22, 1999, between the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents (as previously amended, as amended hereby and as further amended, modified, restated or supplemented from time to time, the "Credit Agreement") and the other Credit Documents referred to therein. All capitalized terms not otherwise defined in this Amendment shall have the meanings assigned to them in the Credit Agreement. RECITALS A. Pursuant to the Credit Agreement, the Lenders have agreed, among other things, to provide to the Borrower term and revolving credit facilities in an aggregate principal amount of $325,000,000. B. The Borrower intends to sell its South Florida outdoor advertising business for cash consideration of approximately $300,000,000 (the "South Florida Outdoor Sale"). C. The Credit Agreement requires that, with certain exceptions, one hundred percent (100%) of the Net Cash Proceeds of any Asset Disposition be used to prepay the Loans, which prepayments are to be applied (i) first, to the Term Loans, (ii) second, to the extent of any excess remaining after such application, to reduce the outstanding principal amount of Revolving Loans (with a corresponding reduction to the Revolving Credit Commitments) (the "Commitment Reduction Requirement"), and (iii) third, to the extent of any excess remaining after such application, to pay any outstanding Reimbursement Obligations (and thereafter to cash-collaterize any Letter of Credit Exposure). D. The Borrower (i) wishes to repay in full the Term Loans and amend the Credit Agreement to provide for a delayed-draw term loan facility in the principal amount of $150,000,000 to replace the Term Loan facility currently in effect under the Credit Agreement, (ii) wishes to repay in full the Revolving Loans and in connection therewith has requested that the Commitment Reduction Requirement be waived in connection with such prepayment and (iii) has requested 2 certain amendments relating to the prepayment, investment, and financial covenants contained in the Credit Agreement. E. The Required Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents are willing to agree to so amend the Credit Agreement and grant such waiver on the terms and conditions set forth herein (such amendments and waiver to take effect upon (and only upon) the repayment in full of all outstanding Loans in connection with the South Florida Outdoor Sale). STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained herein and in the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents hereby agree as follows: ARTICLE I. AMENDMENTS TO CREDIT AGREEMENT AND CREDIT DOCUMENTS 1.01. The Credit Agreement is hereby amended as follows: (a) NEW DEFINED TERMS. The following definitions are hereby added, in the appropriate alphabetical order, to SECTION 1.1 of the Credit Agreement: "South Florida Outdoor Sale" shall have the meaning given such term in the Recitals to the Third Amendment. "Term Loan Borrowing Date" shall mean any Business Day during the Term Loan Borrowing Period on which date the Borrower effects a Borrowing of Term Loans; provided, however, that there shall not be in excess of two (2) Term Loan Borrowing Dates during the Term Loan Borrowing Period. "Term Loan Borrowing Period" shall mean the period commencing on the Third Amendment Closing Date and ending on (but including) March 31, 2001. "Third Amendment" shall mean the Third Amendment to Credit Agreement, dated as of January 7, 2000, between the Borrower, the Administrative Agent, the Documentation Agent, the Co-Agents and the Required Lenders. "Third Amendment Closing Date" shall mean the date of the Third Amendment. "Unutilized Term Loan Commitment" shall mean, with respect to any Lender with a Term Loan Commitment at any time, such Lender's Term Loan Commitment at such time less the 2 3 aggregate principal amount of all Term Loans made by such Lender that are outstanding at such time. (b) REVISED DEFINITIONS. (i) The following definitions set forth in SECTION 1.1 are deleted in their entirety and are replaced with the following: "Term Loans" shall have the meaning given to such term in SECTION 2.1(a). "Term Notes" shall mean the promissory notes of the Borrower in substantially the form of Exhibit A to the Third Amendment, together with any amendments, modifications, and supplements thereto, substitutions therefor and restatements thereof. "Term Loan Commitment" shall mean, with respect to any Lender with a Term Loan Commitment at any time, the amount set forth opposite such Lender's name on Schedule 1 to the Third Amendment under the caption "Term Loan Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, the amount set forth for such Lender at such time in the Register maintained by the Administrative Agent pursuant to SECTION 11.7(b) as such Lender's "Term Loan Commitment," as such amount may be reduced at or prior to such time pursuant to the terms hereof. (ii) In the definition of "Applicable Margin Percentage," such Applicable Margin Percentage is amended to equal (a) 0.500% at all such times as the aggregate amount of Loans outstanding is greater than or equal to fifty percent (50%) of the aggregate Commitments of all Lenders, and (b) 0.625% at all other times. (iii) For purposes of calculating "Consolidated EBITDA," "Consolidated Funded Debt," "Consolidated Senior Funded Debt," "Consolidated Interest Expense" and cash Taxes for the period ending December 31, 1999 and each period thereafter, any consummation of the South Florida Outdoor Sale and the ensuing repayment of Loans with the proceeds thereof shall be deemed to have been consummated during the first fiscal quarter of the year ended December 31, 1999, provided that such sale is actually consummated on or before January 31, 2000. (iv) The following defined terms contained in Section 1.1 are hereby deleted in their entirety (and any and all references to such terms in the Credit Agreement are deemed to be references to such terms' counterparts in respect of the Term Loans as contemplated by the Third Amendment): "Tranche A Term Loans," "Tranche A Term Loan Commitment," "Tranche A Term Notes," "Tranche B Term Loans," "Tranche B Term Loan Commitment," "Tranche B Term Loan Commitment Expiration Date" and "Tranche B Term Notes." (v) The definition of "Credit Documents" is deemed to include the Third Amendment. 3 4 (c) ARTICLE II AMENDMENTS. Sections 2.1(a), 2.2(a), 2.2(b), 2.2(c), 2.4(a), 2.4(b), 2.5(a), 2.6(f), 2.9(h) and 2.14 of ARTICLE II are hereby deleted in their entirety and are replaced with the following corresponding sections of ARTICLE II (it being expressly understood that all other provisions set forth in Article II (including without limitation Section 2.6(a)) remain in full force and effect and shall govern the Term Loans contemplated by the Third Amendment): 2.1 COMMITMENTS. (a) Each Lender with a Term Loan Commitment severally agrees, subject to and on the terms and conditions of this Agreement, to make a loan (each, a "Term Loan," and collectively, the "Term Loans") to the Borrower on each Term Loan Borrowing Date in a principal amount not to exceed its Term Loan Commitment. No Term Loans shall be made at any time after March 31, 2001. To the extent repaid, Term Loans may not be reborrowed. No Borrowing of Term Loans shall be made hereunder if, immediately after giving effect thereto, the sum of Term Loans outstanding at such time exceeds the aggregate of the Term Loan Commitments at such time. 2.2 BORROWINGS. (a) The Term Loans and the Revolving Loans (each a "Class" of Loan) shall, at the option of the Borrower and subject to the terms and conditions of this Agreement, be either Base Rate Loans or LIBOR Loans (each, a "Type" of Loan), provided that (i) all Loans comprising the same Borrowing shall, unless otherwise specifically provided herein, be of the same Type, (ii) the Loans (whether Revolving or Term Loans) made on the Closing Date or the Third Amendment Closing Date shall be made initially as Base Rate Loans and (iii) LIBOR Loans may be made, or Base Rate Loans may be converted into LIBOR Loans, on the date which is three (3) Business Days following the Closing Date or Third Amendment Closing Date, as applicable (so long as proper notice is given pursuant to SECTION 2.2(b) or SECTION 2.11(b)). (b) In order to make a Borrowing of Term Loans or Revolving Loans (other than Borrowings involving continuations or conversions of outstanding Loans, which shall be made pursuant to SECTION 2.11), the Borrower will give the Administrative Agent written notice not later than 12:00 noon, Charlotte time, three (3) Business Days prior to each Borrowing to be comprised of LIBOR Loans and on the date of each Borrowing to be comprised of Base Rate Loans; provided, however, that requests for the Borrowing of Revolving Loans to be made on the Closing Date may, at the discretion of the Administrative Agent, be given later than the times specified hereinabove. Each such notice (each "Notice of Borrowing") shall be irrevocable, shall be given substantially in the form of EXHIBIT B-1 and shall specify (1) the aggregate principal amount, Class and initial Type of the Loans to be made pursuant to such Borrowing, (2) in the case of a Borrowing of LIBOR Loans, the initial Interest Period to be applicable thereto, and (3) the requested date of such Borrowing (the "Borrowing Date"), which shall be a Business Day. Upon its receipt of a Notice of Borrowing, the Administrative Agent will promptly notify each Lender of the proposed Borrowing. Notwithstanding anything to the contrary contained herein; 4 5 (i) the aggregate principal amount of all Borrowings of Term Loans shall be in an amount not in excess of the aggregate Term Loan Commitments; (ii) the aggregate principal amount of each Borrowing comprised of Base Rate Loans shall not be less than $1,000,000 or, if greater, an integral multiple of $500,000 in excess thereof (or, in the case of a Borrowing of Revolving Loans, if less, in the amount of the aggregate Unutilized Revolving Credit Commitments), and the aggregate principal amount of each Borrowing comprised of LIBOR Loans shall not be less than $5,000,000 or, if greater, an integral multiple of $1,000,000 in excess thereof; (iii) if the Borrower shall have failed to designate the Type of Loans comprising a Borrowing, the Borrower shall be deemed to have requested a Borrowing comprised of Base Rate Loans; (iv) if the Borrower shall have failed to select the duration of the Interest Period to be applicable to any Borrowing of LIBOR Loans, then the Borrower shall be deemed to have selected an Interest Period with a duration of one month; and (v) the Borrower may effect not more than two (2) separate Borrowings in respect of the Term Loans contemplated hereby. (c) Not later than 1:00 p.m., Charlotte time, on the requested Borrowing Date (which shall be a Term Loan Borrowing Date, in the case of the Term Loans), each Lender will make available to the Administrative Agent at its office referred to in SECTION 11.5 (or at such other locations as the Administrative Agent may designate) an amount, in Dollars and in immediately available funds, equal to the amount of the Loan or Loans to be made by such Lender. To the extent the Lenders have made such amounts available to the Administrative Agent as provided hereinabove, the Administrative Agent will make the aggregate of such amounts available to the Borrower in accordance with SECTION 2.3(a) and in like funds as received by the Administrative Agent. 2.4 NOTES. (a) The Loans made by each Lender shall be evidenced (i) in the case of Term Loans, by a Term Note appropriately completed in substantially the form of EXHIBIT A to the Third Amendment, and (ii) in the case of Revolving Loans, by a Revolving Note appropriately completed in substantially the form of EXHIBIT A-3 to the Credit Agreement. In the event the Borrower effects a second Borrowing of Term Loans, the Term Loans will be evidenced by amended and restated Term Notes that will supercede the Term Notes executed and delivered by the Borrower in connection with the first Borrowing of Term Loans. 5 6 (b) Each Term Note shall (i) be executed by the Borrower, (ii) be payable to the order of such Lender, (iii) be dated as of the applicable Term Loan Borrowing Date (or in the case of a Term Note issued on connection with an Assignment and Acceptance, dated the effective date of the applicable Assignment and Acceptance), (iv) be in a stated principal amount equal to such Lender's pro rata share (based on the ratio determined by dividing such Lender's Term Loan Commitment to the aggregate amount of all Lenders' Term Loan Commitments) of the amount of such Borrowing being made on such Term Loan Borrowing Date (or (A) in the case of a Term Note issued in connection with an Assignment and Acceptance, in an amount equal to the unpaid principal amount of such Lenders' Term Loan; and (B) in the case of a second Borrowing of Term Loans, in an amount equal to such Lender's pro rata share (as determined above) of all outstanding Term Loans (after giving effect to such second Borrowing of Term Loans), (v) bear interest in accordance with the provisions of SECTION 2.8, as the same may be applicable from time to time to the Term Loan made by such Lender, and (vi) be entitled to all of the benefits of this Agreement and the other Credit Documents and subject to the provisions hereof and thereof. 2.5 TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Term Loan Commitments shall be automatically and permanently terminated on the earlier to occur of (i) March 31, 2001 and (ii) any earlier date upon which the Lenders having Term Loan Commitments shall have advanced the proceeds of the Term Loans in an aggregate amount equal to the sum of all of such Lenders' Term Loan Commitments, unless the Term Loans have been made in full on or prior to such date. The Revolving Credit Commitments shall be automatically and permanently terminated on the Revolving Credit Termination Date. 2.6 MANDATORY PAYMENTS AND PREPAYMENTS. (f) Not later than 180 days after its receipt thereof (and in any event promptly upon its determination not to acquire additional assets or properties or otherwise to reinvest in its businesses), the Borrower will prepay the outstanding principal amount of the Loans in an amount equal to 100% of the Net Cash Proceeds from any Asset Disposition (except that with respect to Asset Dispositions, the Borrower may elect, up to an aggregate cumulative amount of Net Cash Proceeds of $35,000,000 while this Agreement remains in effect (so long as, except for any Asset Swaps, no more than ten percent (10%) of gross sales proceeds in respect thereof consists of non-cash payments and fees and expenses incurred in connection therewith), to apply such proceeds to amounts of Revolving Loans without a corresponding reduction to the Revolving Credit Commitments) and will deliver to the Administrative Agent, concurrently with such prepayment, a certificate signed by a Financial Officer of the Borrower in form and substance satisfactory to the Administrative Agent and setting forth the calculation of such Net Cash Proceeds. Notwithstanding the foregoing, nothing in this subsection shall be deemed to permit any Asset Disposition not expressly permitted under SECTION 8.4. 6 7 2.9 FEES. (h) To the Administrative Agent, for the account of each Lender with a Term Loan Commitment, a commitment fee for each calendar quarter (or portion thereof) for the period from the Third Amendment Closing Date to the expiration of the Term Loan Borrowing Period (such expiration date, the "Term Loan Commitment Fee Expiration Date"), at a per annum rate equal to the Applicable Margin Percentage in effect for such fee from time to time during such quarter, on such Lender's ratable share (based on the proportion that its Term Loan Commitment bears to the aggregate Term Loan Commitments) of the average daily aggregate Unutilized Term Loan Commitments, payable in arrears (i) on the last Business Day of each calendar quarter, beginning with the first such day to occur after the Third Amendment Closing Date, and (ii) on the Term Loan Commitment Fee Expiration Date. 2.14 USE OF PROCEEDS. The proceeds of the Loans shall be used to finance Capital Expenditures, working capital and general corporate purposes and in accordance with the terms and provisions of this Agreement (including to finance Permitted Acquisitions in accordance with the terms and provisions of this Agreement, including without limitation the provisions set forth in SECTION 6.9). (d) CONDITIONS PRECEDENT. Section 4.2 is hereby deleted in its entirety and is replaced with the following: 4.2 Conditions of Term Loans. The obligation of each Lender having a Term Loan Commitment (including any lender that was not a Lender prior to the execution and delivery of a Lender Addition and Acknowledgment Agreement) to make Term Loans on a Term Loan Borrowing Date is subject to the satisfaction of the following additional conditions precedent: (a) The Administrative Agent shall have received the following, each dated as of the applicable Term Loan Borrowing Date and, in sufficient copies for each Lender: (i) A Term Note for each Lender having a Term Loan Commitment, in accordance with SECTION 2.4(b); and (ii) the favorable opinions of (A) Graham & Dunn, PC, or such other law firm reasonably acceptable to the Administrative Agent, as special counsel to the Borrower, as to the matters set forth in EXHIBIT B-2 to the Third Amendment, and (B) Rubin, Winston, Diercks, Harris & Cooke, L.L.P., or such other law firm reasonably acceptable to the Administrative Agent, as FCC counsel to the Borrower, EXHIBIT B-3 to the Third Amendment, in each case addressed to the Administrative Agent and the Lenders and addressing such other matters as the Administrative Agent or any Lender may reasonably request. 7 8 (b) The Administrative Agent shall have received a certificate of the secretary or an assistant secretary of the Borrower and each Subsidiary of the Borrower, in form and substance satisfactory to the Administrative Agent, certifying that subsequent to the delivery of the certificate with respect to such entity required by SECTION 4.1(c), there has been no amendment to the articles or certificate of incorporation or bylaws of such entity. (c) The Administrative Agent shall have received a certificate as of a recent date of the good standing of the Borrower and each Subsidiary under the laws of its jurisdiction of organization, from the Secretary of State (or comparable Governmental Authority) of such jurisdiction. (d) The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions (including, without limitation, the filing of duly completed and executed UCC-1 financing statements, if applicable) as necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed, or arrangements satisfactory to the Administrative Agent for completion thereof shall have been made. (e) Each of the conditions set forth in SECTION 4.4 shall have been satisfied. (e) LEVERAGE RATIOS. Sections 7.1(a) and 7.1(b) are deleted in their entirety and are replaced with the following: 7.1. LEVERAGE RATIOS. (a) LEVERAGE RATIO. The Borrower will not permit the Leverage Ratio as of the last day of any fiscal quarter during the periods set forth below to be greater than the ratio set forth below opposite such period:
Date Maximum Leverage Ratio December 31, 1999 through 6.25 : 1.00 September 30, 2000 December 31, 2000 through 6.00 : 1.00 March 31, 2001 Thereafter 5.50 : 1.00
(b) SENIOR LEVERAGE RATIO. The Borrower will not permit the Senior Leverage Ratio as of the last day of any fiscal quarter during the periods set forth below to be greater than the ratio set forth below opposite such period: 8 9
Date Maximum Senior Leverage Ratio ---- ----------------------------- September 30, 1999 through December 30, 1999 4.25 : 1.00 Thereafter 3.75 : 1.00
(f) CAPITAL EXPENDITURES. The following is hereby added as new Section 7.5 of the Credit Agreement: 7.5 CAPITAL EXPENDITURES. The Borrower and its Subsidiaries shall not make Capital Expenditures in the aggregate in excess of $40,000,000 during the period beginning January 1, 2000 through the fiscal quarter ending June 30, 2001. (g) INVESTMENTS. Section 8.5(a) of the Credit Agreement is hereby amended by the deletion of clause (ix) thereof and the replacement of such clause with the following: (ix) Other Investments not to exceed $10,000,000 in the aggregate at any time. 1.02. AMENDMENTS TO LOAN DOCUMENTS. As of the date hereof all references to the Credit Agreement in any of the Credit Documents shall refer to the Credit Agreement as amended prior to the date hereof and as amended by this Amendment, and all references to any of the Credit Documents in any of the other Credit Documents shall refer to such Credit Documents as amended prior to the date hereof and as amended hereby or in connection herewith. ARTICLE II. WAIVER AND CONSENT A. The Administrative Agent, the Documentation Agent and the Lenders hereby waive, on a one-time basis only in connection with the repayment in full of Revolving Loans in connection with the South Florida Outdoor Sale, the Commitment Reduction Requirement (as defined in the Recitals to this Third Amendment) providing for a mandatory permanent reduction in the Revolving Credit Commitments upon the repayment of Revolving Loans with proceeds of Asset Dispositions; provided, however, that such waiver shall become void and of no force or effect as of the close of business on January 31, 2000 if the South Florida Outdoor Sale shall not have been consummated and the Revolving Loans shall not have been repaid in full as of such time. This waiver is limited to the express terms hereof and to the South Florida Outdoor Sale and shall not be deemed to apply to any other prepayment of Loans by the Borrower. B. The Administrative Agent, the Documentation Agent and the Lenders hereby waive, for each fiscal quarter ending December 31, 1999 through June 30, 2001 only, the requirement under the Credit Agreement that the Borrower comply with Section 7.3 9 10 of the Credit Agreement. This waiver is limited to the express terms hereof and shall not be deemed to apply to any other covenant of the Borrower or to the application of Section 7.3 of the Credit Agreement for any fiscal quarter ending after June 30, 2001. C. Effective as of January 5, 2000, the Lenders consent to the South Florida Outdoor Sale and waive any restriction under Section 8.4 with respect to such sale. D. The Lenders hereby (i) consent to the Borrower's sale of its Station KCBA-TV in Salinas, California in connection with the Asset Swap through which the Borrower acquires Station KION-TV in Monterey, California and (ii) waive any restriction under Section 8.4 with respect to such sale. ARTICLE III. REPRESENTATIONS AND WARRANTIES The Borrower hereby represents and warrants that: 3.01 COMPLIANCE WITH CREDIT AGREEMENT. After giving effect to this Amendment, the Borrower is in compliance with all terms and provisions set forth in the Credit Agreement to be observed or performed by it. 3.02 REPRESENTATIONS IN CREDIT AGREEMENT. The representations and warranties of the Borrower set forth in the Credit Agreement are true and correct as of the date hereof, except to the extent such representations and warranties relate solely to or are specifically expressed as of a particular date or period. 3.03 NO EVENT OF DEFAULT. After giving effect to this Amendment and the transactions contemplated hereby, no Event of Default or Default exists under the Credit Agreement. 3.04 CONTINUING SECURITY INTERESTS. All Loans and advances by the Lenders to the Borrower under the Credit Agreement, as amended hereby, and the Notes will continue to be secured by the Administrative Agent's security interest in all of the Collateral granted under the Credit Agreement or other Credit Documents, and nothing herein will affect the validity, perfection or enforceability of such security interests. 3.05 CONSENTS. The execution and delivery of this Amendment and the Borrower's performance hereunder does not require the consent or approval of any Person (other than the Lenders pursuant to the Credit Agreement). 10 11 ARTICLE IV. CONDITIONS PRECEDENT The effectiveness of the foregoing amendments, consents and waivers are subject to the fulfillment of the following conditions precedent: (a) the Administrative Agent shall have received this Amendment (duly executed and delivered by each Lender party to the Credit Agreement and by the Borrower and, with respect to their respective consents hereto, each Subsidiary party to the Subsidiary Guaranty), in a sufficient number of execution originals for each Lender; (b) the Administrative Agent shall have received (i) satisfactory evidence of the consummation of the South Florida Outdoor Sale and (ii) repayment in full of all outstanding Loans under the Credit Agreement; and (c) the Administrative Agent shall have received the favorable opinion of Graham & Dunn, special counsel to the Borrower, as to the matters set forth in EXHIBIT B-1 hereto. (d) the Administrative Agent shall have received payment of the fees required to be paid pursuant to the fee letter executed by the Borrower in connection herewith. ARTICLE V. GENERAL 5.01. FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended hereby, shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the Credit Agreement, "hereinafter," "hereto," "hereof," and words of similar import shall, unless the context otherwise requires, mean the Credit Agreement after amendment by this Amendment. 5.02 APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the internal laws and judicial decisions of the State of North Carolina. 5.03 COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. 5.04 EXPENSES. Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, all reasonable attorneys' fees. 11 12 5.05 FURTHER ASSURANCES. Each Borrower shall execute and deliver to Administrative Agent such documents, certificates and opinions as the Administrative Agent may reasonably request to effect the amendment contemplated by this Amendment and to continue the existence, perfection and first priority of the Administrative Agent's security interests in the Collateral. 5.06 HEADINGS. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of this Amendment. 12 13 5.07 LIENS. The Borrower acknowledges and confirms that notwithstanding the repayment in full of all outstanding Loans as contemplated hereby, the Liens granted to the Administrative Agent and the Lenders pursuant to the Credit Documents remain in full force and effect to secure any future advances by the Lenders pursuant to the Credit Agreement (as amended hereby) from and after the date hereof. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers all as of the date first above written. THE ACKERLEY GROUP, INC. By: /s/ ------------------------------- Title: Senior Vice President & CIO --------------------------- (signatures continued) 14 FIRST UNION NATIONAL BANK, as Administrative Agent and as Lender By: /s/ -------------------------- Title: Director -------------------------- (signatures continued) 13 15 FLEET BANK, N.A. By: /s/ Garret Komjathy ------------------------ GARRET KOMJATHY Title: VICE PRESIDENT ------------------------ (signatures continued) 14 16 BANK OF MONTREAL, CHICAGO BRANCH By: /s/ Ola Anderssen -------------------------- OLA ANDERSSEN Title: DIRECTOR -------------------------- (signatures continued) 15 17 KEYBANK NATIONAL ASSOCIATION By: /s/ Richard J. Ameny, Jr. ---------------------------- RICHARD J. AMENY, JR. Title: ASSISTANT VICE PRESIDENT ---------------------------- (signatures continued) 16 18 U.S. BANK NATIONAL ASSOCIATION By: /s/ Matthew S. Thoreson -------------------------- MATTHEW S. THORESON Title: VICE PRESIDENT -------------------------- (signatures continued) 18 19 BANK OF AMERICA, N.A. By: /s/ George V. Hausler ----------------------- George V. Hausler Title: Vice President ----------------------- (signatures continued) 19 20 THE BANK OF NOVA SCOTIA By: /s/ Ian A. Hodgart ---------------------- IAN A. HODGART Title: AUTHORIZED SIGNATORY ---------------------- (signatures continued) 20 21 DRESDNER BANK AG, NEW YORK & GRAND CAYMAN BRANCHES By: /s/ Jane A. Majeski --------------------------- JANE A. MAJESKI Title: FIRST VICE PRESIDENT ------------------------ By: /s/ Constance Loosemore --------------------------- Constance Loosemore Title: Assistant Vice President ------------------------ (signatures continued) 21 22 THE CIT GROUP/EQUIPMENT FINANCING, INC. By: /s/ J.E. Palmer --------------------------- J.E. PALMER Title: ASSISTANT VICE PRESIDENT ------------------------ (signatures continued) 22 23 BANQUE NATIONALE DE PARIS By: /s/ --------------------------- Title: Head Portfolio Manager ------------------------ By: /s/ Gregg W. Bonardi --------------------------- GREGG W. BONARDI Title: Vice President ------------------------ (signatures continued) 23 24 FIRST HAWAIIAN BANK By: /s/ Travis Ruetenik --------------------------- TRAVIS RUETENIK Title: ASST. VICE PRESIDENT ------------------------ (signatures continued) 25 25 CITIZENS BANK OF MASSACHUSETTS By: /s/ Ralph H. Hinckley, Jr. --------------------------- Ralph H. Hinckley, Jr. Title: Loan Officer ------------------------ (signatures continued) 27 26 COMPAGNIE FINANCIERE DE CIC ET DE I'UNION EUROPEENNE By: /s/ Marcus Edward ------------------------- Marcus Edward Title: Vice President ------------------------- By: /s/ Brian O'Leary ------------------------- Brian O'Leary Title: Vice President ------------------------- (signatures continued) 28 27 MICHIGAN NATIONAL BANK By: /s/ Jeffrey W. Billig ------------------------ JEFFREY W. BILLIG Title: Vice President ------------------------ (signatures continued) 29 28 WASHINGTON MUTUAL BANK (dba WESTERN BANK) By: /s/ David M. Purcell ----------------------- David M. Purcell Title: Vice President ----------------------- (signatures continued) 30 29 NATEXIS BANQUE By: /s/ Evan S. Kraus ------------------------------ EVAN S. KRAUS Title: ASSISTANT VICE PRESIDENT ------------------------------ By: /s/ Cynthia E. Sachs ------------------------------ CYNTHIA E. SACHS Title: VP, GROUP MANAGER ------------------------------ 31 30 ACKNOWLEDGEMENT OF GUARANTY Each of the undersigned, as a guarantor of the Obligations of The Ackerley Group, Inc. (the "Company") under the Credit Agreement, dated as of January 22, 1999, among the Company, certain financial institutions party thereto, First Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A., in its capacity as documentation agent, and Union Bank of California, N.A., KeyBank National association and Bank of Montreal, Chicago Branch, as co-agents (the "Credit Agreement"), hereby consents to the foregoing Third Amendment to Credit Agreement, and further waives any defense to its guaranty liability occasioned by such amendment (including without limitation the extension of the maturity of the Loans as contemplated thereby). The foregoing consent and waiver of the undersigned is made as of the date of the Third Amendment. ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF MASSACHUSETTS, INC. By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann ------------------------------ ------------------------- Title: Assistant Secretary Title: Assistant Secretary --------------------------- ---------------------- AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC. By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann ------------------------------ ------------------------- Title: Assistant Secretary Title: Assistant Secretary --------------------------- ---------------------- KVOS TV, LTD. TC AVIATION, INC. By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann ------------------------------ ------------------------- Title: Assistant Secretary Title: Assistant Secretary --------------------------- ---------------------- 31 Schedule 1 The Ackerley Group, Inc. Credit Agreement Dated January 22, 1999 Schedule of Lender Commitments After Giving Effect to Third Amendment Dated as of January 7, 2000
Revolver Term Loan Total Lender Commitment Commitment Percentage Commitment - ----------------------------------------------------------------------------------------------------------- First Union National Bank $17,500,000.00 $15,000,000.00 11.8543195266% $32,500,000.00 Bank of America $10,500,000.00 $9,000,000.00 7.1005917160% $19,500,000.00 Bank of Montreal $13,125,000.00 $11,250,000.00 8.8757396450% $24,375,000.00 Bank of Nova Scotia $7,807,692.40 $6,692,307.70 5.2799271795% $14,500,000.10 Banque Nationale Paris $7,000,000.00 $6,000,000.00 4.7337278107% $13,000,000.00 CIT Group $4,307,692.31 $3,692,307.69 2.9130632663% $8,000,000.00 Citizens Bank of Mass. $7,000,000.00 $6,000,000.00 4.7337278107% $13,000,000.00 Compagnie Financiere (CIC) $7,000,000.00 $6,000,000.00 4.7337278107% $13,000,000.00 Dresdner Bank $10,500,000.00 $9,000,000.00 7.1005917160% $19,500,000.00 FUNB (Carolinas portfolio) $2,692,307.69 $2,307,692.31 1.8206645444% $5,000,000.00 First Hawaiian Bank $5,384,615.38 $4,615,384.62 3.6413290888% $10,000,000.00 Fleet Bank $14,875,000.00 $12,750,000.00 10.0591715976% $27,625,000.00 Key Bank $13,125,000.00 $11,250,000.00 8.8757396450% $24,375,000.00 Michigan National Bank $4,375,000.00 $3,750,000.00 2.9585798817% $8,125,000.00 NATEXIS Banque $5,384,615.30 $4,615,384.60 3.6413290730% $9,999,999.90 US Bank $11,375,000.00 $9,750,000.00 7.6923076923% $21,125,000.00 Western Bank $5,923,076.92 $5,076,923.08 4.0054619961% $11,000,000.00 --------------------------------------------------------------------------- Total $147,875,000.00 $126,750,000.00 100.0000000000% $274,625,000.00
32 EXHIBIT A Borrower's Taxpayer Identification No. 91-1043807 FORM OF TERM NOTE $______________ ___________________, 200_ Charlotte, North Carolina FOR VALUE RECEIVED, THE ACKERLEY GROUP, INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of _____________________________________(the "Lender"), at the offices of FIRST UNION NATIONAL BANK (the "Agent") located at One First Union Center, 301 South College Street, Charlotte, North Carolina (or at such other place or places as the Agent may designate), at the times and in the manner provided in the Credit Agreement, dated as of January 22, 1999 (as amended, modified or supplemented from time to time, the "Credit Agreement"), among the Borrower, the Lenders from time to time parties thereto, FLEET BANK, N.A., as Documentation Agent and FIRST UNION NATIONAL BANK, as Administrative Agent, the principal sum of __________________________DOLLARS ($___________), under the terms and conditions of this promissory note (this "Term Note") and the Credit Agreement. The defined terms in the Credit Agreement are used herein with the same meaning. The Borrower also unconditionally promises to pay interest on the aggregate unpaid principal amount of this Term Note at the rates applicable thereto from time to time as provided in the Credit Agreement. This Term Note is one of a series of Term Notes referred to in the Credit Agreement and is issued to evidence the Term Loans made by the Lender pursuant to the Credit Agreement. All of the terms, conditions and covenants of the Credit Agreement are expressly made a part of this Term Note by reference in the same manner and with the same effect as if set forth herein at length, and any holder of this Term Note is entitled to the benefits of and remedies provided in the Credit Agreement and other Credit Documents. Reference is made to the Credit Agreement for provisions relating to the interest rate, maturity, payment, prepayment and acceleration of this Term Note. In the event of an acceleration of the maturity of this Term Note, this Term Note shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Term Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. This Term Note shall be governed by and construed in accordance with the internal laws and judicial decisions of the State of North Carolina. The Borrower hereby submits to the nonexclusive 33 jurisdiction and venue of the federal and state courts located in Mecklenburg County, North Carolina, although the Lender shall not be limited to bringing an action in such courts. IN WITNESS WHEREOF, the Borrower has caused this Term Note to be executed under seal by its duly authorized corporate officer as of the day and year first above written. THE ACKERLEY GROUP, INC. By:____________________________ Title:_________________________ 2 34 Exhibit B-1 Terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement, except that for purposes hereof, and the term "State" shall mean the state whose laws are covered by the opinion. The opinion should be addressed to the Administrative Agent and the Lenders under the Credit Agreement and should permit reliance thereon by the assignees and participants of the Lenders. The preamble to the following opinions should include a recitation of the documents reviewed and other customary preliminary provisions. 1. Each of the Borrower and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. 2. Each of the Borrower and its Subsidiaries has the full corporate power and authority to execute, deliver and perform the Third Amendment to the Credit Agreement (or, in the case of the Subsidiaries, the consent thereto) (collectively, the "Amendment Documents"), to own and hold its property and to engage in its business as presently conducted. 3. Each of the Borrower and its Subsidiaries has taken all necessary corporate action to execute, deliver and perform, and has validly executed and delivered, the Amendment Documents to which it is a party. Each Amendment Document to which the Borrower or any Subsidiary is a party constitutes the legal, valid and binding obligation of the Borrower or such Subsidiary, as the case may be, enforceable against it in accordance with its terms. 4. The execution, delivery and performance by each of the Borrower and its Subsidiaries of the Amendment Documents to which it is a party, and compliance by it with the terms thereof, do not and will not (i) violate any provision of its articles or certificate of incorporation or bylaws, (ii) contravene any provisions of any applicable law, rule or regulation of the United States of America or the State or, to the best of our knowledge, any judgment, order, writ, injunction or decree to which it is subject, (iii) conflict with, result in a breach of or constitute (with notice, lapse of time or both) a default under any indenture, agreement or other instrument to which it is a party, by which it or any of its properties is bound or to which it is subject, or (iv) except for the Liens created in favor of the Agent pursuant to the Security Documents, result in or require the creation or imposition of any Lien upon any of its property or assets. 5. No consent, approval, authorization, exemption or other action by, notice to, or registration or filing with, any Governmental Authority of the United States of America or the State is required in connection with the due execution, delivery and performance by each of the Borrower or its Subsidiaries of the Amendment Documents to which it is a party, the legality, validity or enforceability thereof or the consummation of the transactions contemplated thereby. 6. There are no actions, investigations, suits or proceedings pending or, to the best of our knowledge, threatened, at law, in equity or in arbitration, before any court, other Governmental Authority or other Person, (i) against or affecting the Borrower or its Subsidiaries 35 or any of their respective properties that would, if adversely determined, be reasonably likely to have a Material Adverse Effect, or (ii) with respect to any of the Credit Documents. 7. Such other matters reasonably requested by the Administrative Agent as a result of its due diligence or negotiation of the Credit Documents. 2 36 Exhibit B-2 Terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement, except that for purposes hereof, and the term "State" shall mean the state whose laws are covered by the opinion. The opinion should be addressed to the Administrative Agent and the Lenders under the Credit Agreement and should permit reliance thereon by the assignees and participants of the Lenders. The preamble to the following opinions should include a recitation of the documents reviewed and other customary preliminary provisions. 1. Each of the Borrower and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. 2. Each of the Borrower and its Subsidiaries has the full corporate power and authority to execute, deliver and perform the Credit Documents to which it is a party, to own and hold its property and to engage in its business as presently conducted. 3. Each of the Borrower and its Subsidiaries has taken all necessary corporate action to execute, deliver and perform, and has validly executed and delivered, each Credit Document to which it is a party (including without limitation the Term Notes [and any amendments or restatements thereof and any new Security Documents being executed in connection therewith]). Each Credit Document to which the Borrower or any Subsidiary is a party (including without limitation the Term Notes [and any amendments or restatements thereof and any new Security Documents being executed in connection therewith] constitutes the legal, valid and binding obligation of the Borrower or such Subsidiary, as the case may be, enforceable against it in accordance with its terms. 4. The execution, delivery and performance by each of the Borrower and its Subsidiaries of the Credit Documents to which it is a party (including without limitation the Term Notes [and any amendments or restatements thereof and any new Security Documents being executed in connection therewith]), and compliance by it with the terms thereof, do not and will not (i) violate any provision of its articles or certificate of incorporation or bylaws, (ii) contravene any provisions of any applicable law, rule or regulation of the United States of America or the State or, to the best of our knowledge, any judgment, order, writ, injunction or decree to which it is subject, (iii) conflict with, result in a breach of or constitute (with notice, lapse of time or both) a default under any indenture, agreement or other instrument to which it is a party, by which it or any of its properties is bound or to which it is subject, or (iv) except for the Liens created in favor of the Agent pursuant to the Security Documents, result in or require the creation or imposition of any Lien upon any of its property or assets. 5. No consent, approval, authorization, exemption or other action by, notice to, or registration or filing with, any Governmental Authority of the United States of America or the State is required in connection with the due execution, delivery and performance by each of the Borrower or its Subsidiaries of the Credit Documents to which it is a party, the legality, validity or enforceability thereof or the consummation of the transactions contemplated thereby. 37 6. There are no actions, investigations, suits or proceedings pending or, to the best of our knowledge, threatened, at law, in equity or in arbitration, before any court, other Governmental Authority or other Person, (i) against or affecting the Borrower or its Subsidiaries or any of their respective properties that would, if adversely determined, be reasonably likely to have a Material Adverse Effect, or (ii) with respect to any of the Credit Documents. 7. Such other matters reasonably requested by the Administrative Agent as a result of its due diligence or negotiation of the Credit Documents. 2 38 Exhibit B-3 Terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. The opinion should be addressed to the Administrative Agent and the Lenders under the Credit Agreement and should permit reliance thereon by the assignees and participants of the Lenders. The preamble to the following opinions should include a recitation of the documents reviewed and other customary preliminary provisions. 1. The consummation by the Borrower of the transactions contemplated by the Credit Agreement do not and will not cause a violation of or default under any of the licenses, permits, consents, approvals and other authorizations issued by the Federal Communications Commission (the "FCC") for the operation of the broadcast stations of the Borrower or its Subsidiaries (the "FCC Licenses"), and all authorizations, approvals and consents of the FCC under the Communications Act (the "Act") required in connection with such transactions have been obtained, are in full force and effect, and have not been reversed, stayed, enjoined, set aside, annulled or suspended. 2. Exhibit A hereto contains a true, correct and complete list of each FCC License granted or issued to the Borrower or any of its Subsidiaries, indicating, for each such license the corresponding broadcast station (collectively, the "Broadcast Stations"), the call sign, service, name of the authorized holder and the expiration date. The FCC Licenses constitute all of the licenses, permits, consents and other authorizations required by the FCC for the operation by the Borrower and its Subsidiaries of their respective Broadcast Stations as currently operated and as proposed to be operated from and after the Closing Date. 3. Each FCC License is valid and in full force and effect, and no such license is subject to any material adverse condition. Each FCC License has been granted or issued by an action of the FCC as to which all applicable periods for administrative and judicial appeal, review and reconsideration have expired without such appeal, review or reconsideration having been taken or instituted by any party or by the FCC on its own motion. Counsel has no reason to believe that any FCC Licenses will not, subject to the filing of license renewal applications and payment of any applicable filing fees, be renewed for a full term in the ordinary course. 4. There are (1) no judgments, decrees or orders issued or, to counsel's knowledge, threatened by the FCC with respect to the Borrower or any of its Subsidiaries, (2) no material complaints, petitions, applications, investigations or other proceedings pending, or to counsel's knowledge, threatened, before the FCC, including without limitation any notice of violation, notice of apparent liability or order to show cause, and (3) to counsel's knowledge, no events that have occurred that could result in (i) the termination, revocation or adverse modification of any FCC License, (ii) the imposition of any material financial penalty by the FCC upon the Borrower or any Subsidiary or (iii) a material adverse effect upon, or cause material disruption to, the business, operations or future prospects of any of the Broadcast Stations or the performance by the Borrower and its Subsidiaries under the Credit Documents. 5. The Borrower and its Subsidiaries, to counsel's knowledge, have filed with the FCC all material reports, documents, instruments, information and applications required to be 39 filed and have undertaken all other actions required to be taken pursuant to the Act and the rules promulgated thereunder or upon request of the FCC. 6. The execution, delivery and performance by the Borrower and its Subsidiaries under the Credit Documents (a) do not and will not violate or conflict with any provision of the Act, or with any rule, regulation or published policy of the FCC; (b) do not and will not result in the forfeiture or the suspension, termination prior to its expiration date, revocation, material impairment, adverse modification or non-renewal of any FCC License; and (c) do not and will not require any consent, authorization or approval of, or notice to or filing with, the FCC. 7. Neither the Administrative Agent nor any Lender under the Credit Documents will, solely by reason of the execution, delivery and performance of any of the Credit Documents, be subject to the regulation or control of the FCC. 2 EX-10.5 6 FOURTH AMENDMENT TO CREDIT AGREEMENT 1 Exhibit 10.5 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of February 11, 2000 (this "Amendment" or this "Fourth Amendment"), is by and between THE ACKERLEY GROUP, INC., a Delaware corporation (the "Borrower"), certain financial institutions party to the Credit Agreement (as hereinafter defined), FIRST UNION NATIONAL BANK, a national banking association, as administrative agent for the Lenders (the "Administrative Agent"), FLEET BANK, N.A. as documentation agent ("Documentation Agent") and KEYBANK NATIONAL ASSOCIATION, and BANK OF MONTREAL, CHICAGO BRANCH as co-agents ("Co-Agents"). This Amendment amends that certain Credit Agreement dated as of January 22, 1999, between the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents (as previously amended, as amended hereby and as further amended, modified, restated or supplemented from time to time, the "Credit Agreement"). All capitalized terms not otherwise defined in this Amendment shall have the meanings assigned to them in the Credit Agreement. RECITALS A. The Borrower intends to purchase Station WETM-TV in Elmira, New York (the "Station") by entering into a transaction with Smith Television of New York, Inc. ("Seller") in which the Borrower will (i) purchase a 20% equity interest in Seller and (ii) enter into an LMA with respect to the Station (which LMA would terminate, among other reasons, upon any foreclosure thereon by the Banks following any Event of Default under the Credit Agreement). The foregoing transaction is defined herein as the "Elmira Station Transaction". The parties to the Elmira Station Transaction intend that the Borrower or one of its subsidiaries will ultimately own or control the Station through the exercise of a put by Seller or an option by the Borrower pursuant to the documents governing such transaction. The Borrower has requested that the Credit Agreement be amended to make clear that the Elmira Station Transaction and any similarly structured transaction in the future be treated as an Acquisition. B. The Required Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents are willing to agree to so amend the Credit Agreement on the terms and conditions set forth herein. 2 STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained herein and in the Credit Agreement, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, each of the Borrower, the Lenders, the Administrative Agent, the Documentation Agent and the Co-Agents hereby agree as follows: ARTICLE I. AMENDMENTS TO CREDIT AGREEMENT 1.1 New Defined Term. The following is hereby added in appropriate alphabetical order to Section 1.1 of the Credit Agreement: "Fourth Amendment" shall mean the Fourth Amendment to Credit Agreement, dated as of February 11, 2000, between the Borrower, the Administrative Agent, the Documentation Agent, the Co-Agents and the Required Lenders. 1.2 Elmira Acquisition: (a) The definition of "Acquisition" is hereby amended by adding the following as the third sentence thereof: "For purposes of this Agreement, the Elmira Station Transaction (as defined in the Fourth Amendment) and any similarly structured transaction in which the Borrower (or a Subsidiary), on terms and conditions satisfactory to the Administrative Agent, purchases for value any shares of Capital Stock in any Person, together with an option to acquire additional Capital Stock sufficient to give the Borrower (or such Subsidiary) a majority interest in such Person, shall be considered to be an Acquisition." (b) The Elmira Transaction is deemed to be a Permitted Acquisition. ARTICLE II. REPRESENTATIONS AND WARRANTIES The Borrower hereby certifies and warrants to the Administrative Agent and the Lenders that (a) after giving effect to the amendments effected hereby, each of the representations and warranties contained in ARTICLE V of the Credit Agreement and in the other Credit Documents are true and correct on the date hereof with the same effect as though made on the date hereof, both immediately before and after giving effect to this Amendment (except to the extent any such representation or warranty is expressly stated to have been made as of a specific date, in which case such representation or warranty shall be true and correct as of such specified date), and (b) after giving effect to the amendments effected hereby, no Default or Event of Default shall have occurred and be continuing on the date hereof. 2 3 ARTICLE III. GENERAL 3.1 FULL FORCE AND EFFECT. The Credit Agreement, as expressly amended hereby, shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the Credit Agreement, "hereinafter," "hereto," "hereof," and words of similar import shall, unless the context otherwise requires, mean the Credit Agreement after amendment by this Amendment. 3.2 APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the internal laws and judicial decisions of the State of North Carolina. 3.3 COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument. 3.4 EXPENSES. The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, all reasonable attorneys' fees. 3.5 FURTHER ASSURANCES. The Borrower shall execute and deliver to Administrative Agent such documents, certificates and opinions as the Administrative Agent may reasonably request to effect the amendment contemplated by this Amendment and to continue the existence, perfection and first priority of the Administrative Agent's security interests in the Collateral. 3.6 HEADINGS. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of this Amendment. [This space intentionally left blank] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers all as of the date first above written. THE ACKERLEY GROUP, INC. By: /s/ Keith Ritzmann --------------------------------------------- Title: Keith Ritzmann - Senior Vice President/CIO ------------------------------------------ (signatures continued) 4 5 FIRST UNION NATIONAL BANK as Administrative Agent and as Lender By: /s/ --------------------------------- Title: SVP --------------------------------- (signatures continued) 5 6 FLEET BANK, N.A. By: /s/ Garret Komjathy ----------------------------------- GARRET KOMJATHY Title: VICE PRESIDENT ----------------------------------- (signatures continued) 6 7 BANK OF MONTREAL, CHICAGO BRANCH By: /s/ Ola Anderssen -------------------------------- OLA ANDERSSEN Title: DIRECTOR -------------------------------- (signatures continued) 7 8 KEYBANK NATIONAL ASSOCIATION By: /s/ Richard J. Ameny, Jr. -------------------------------- RICHARD J. AMENY, JR. Title: ASSISTANT VICE PRESIDENT -------------------------------- (signatures continued) 8 9 U.S. BANK NATIONAL ASSOCIATION By: /s/ Matthew S. Thoreson -------------------------------- Matthew S. Thoreson Title: Vice President -------------------------------- (signatures continued) 9 10 BANK OF AMERICA, N.A. By: /s/ George V. Hausler -------------------------------- George V. Hausler Title: Vice President -------------------------------- (signatures continued) 10 11 THE BANK OF NOVA SCOTIA By: /s/ Ian A. Hodgart ------------------------------------ IAN A. HODGART Title: AUTHORIZED SIGNATORY --------------------------------- (signatures continued) 11 12 THE CIT GROUP/EQUIPMENT FINANCING, INC. By: /s/ Daniel E. A. Nichols ------------------------------------ DANIEL E. A. NICHOLS Title: ASSISTANT VICE PRESIDENT --------------------------------- (signatures continued) 13 13 FIRST HAWAIIAN BANK By: /s/ Travis Ruetenik ------------------------------------ TRAVIS RUETENIK Title: ASST. VICE PRESIDENT --------------------------------- (signatures continued) 15 14 CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Marcus Edward ------------------------------------ Marcus Edward Title: Vice President --------------------------------- By: /s/ Sean Mounier ------------------------------------ Sean Mounier Title: First Vice President --------------------------------- (signatures continued) 17 15 MICHIGAN NATIONAL BANK By: /s/ Jeffrey W. Billig ---------------------------------- Jeffrey W. Billig Title: Vice President ------------------------------- (signatures continued) 18 16 WASHINGTON MUTUAL BANK (dba WESTERN BANK) By: /s/ David M. Purcell ---------------------------------- David M. Purcell Title: Vice President ------------------------------- (signatures continued) 19 17 NATEXIS BANQUE POPULAIRES (formerly known as Natexis Banque) By: /s/ EVAN S. KRAUS ---------------------------------- EVAN S. KRAUS Title: ASSISTANT VICE PRESIDENT ------------------------------- By: /S/ WILLIAM C. MAIER ---------------------------------- WILLIAM C. MAIER Title: SENIOR VICE PRESIDENT ------------------------------- 20 18 ACKNOWLEDGEMENT OF GUARANTY Each of the undersigned, as a guarantor of the Obligations of The Ackerley Group, Inc. (the "Company") under the Credit Agreement, dated as of January 22, 1999, among the Company, certain financial institutions party thereto, First Union National Bank, in its capacity as administrative agent, Fleet Bank, N.A., in its capacity as documentation agent, and KeyBank National association and Bank of Montreal, Chicago Branch, as co-agents (the "Credit Agreement"), hereby consents to the foregoing Fourth Amendment to Credit Agreement, and further waives any defense to its guaranty liability occasioned by such amendment (including without limitation the extension of the maturity of the Loans as contemplated thereby). The foregoing consent and waiver of the undersigned is made as of the date of the Fourth Amendment. ACKERLEY AIRPORT ADVERTISING, INC. ACKERLEY COMMUNICATIONS OF MASSACHUSETTS, INC. By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann ------------------------- ----------------------- Title: Keith Ritzmann -- Title: Keith Ritzmann -- Assistant Secretary Assistant Secretary AK MEDIA GROUP, INC. CENTRAL NEW YORK NEWS, INC. By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann ------------------------- ----------------------- Title: Keith Ritzmann -- Title: Keith Ritzmann -- Assistant Secretary Assistant Secretary KVOS TV, LTD. TC AVIATION, INC. By: /s/ Keith Ritzmann By: /s/ Keith Ritzmann ------------------------- ----------------------- Title: Keith Ritzmann -- Title: Keith Ritzmann -- Assistant Secretary Assistant Secretary 21 EX-10.9 7 FIRST SUPPLEMENTAL INDENTURE DATED AS OF 4/8/1999 1 EXHIBIT 10.9 ================================================================================ FIRST SUPPLEMENTAL INDENTURE DATED AS OF APRIL 8, 1999 AMONG THE ACKERLEY GROUP, INC., AS ISSUER THE GUARANTORS NAMED HEREIN AND THE BANK OF NEW YORK, AS TRUSTEE $250,000,000 9% SENIOR SUBORDINATED NOTES DUE JANUARY 15, 2009 ================================================================================ 2 FIRST SUPPLEMENTAL INDENTURE, dated as of April 8, 1999, by and between The Ackerley Group, Inc., a Delaware corporation (the "COMPANY"), Ackerley Airport Advertising, Inc., a Washington corporation, Ackerley Communications of Massachusetts, Inc., a Washington corporation, AK Media Group, Inc., a Washington corporation, Central NY News, Inc., a Washington corporation, T.C. Aviation, Inc., an Oregon corporation, and KVOS TV Ltd., a British Columbia, Canada corporation (collectively, the "GUARANTORS"), and The Bank of New York, a New York banking corporation, as trustee (the "TRUSTEE"). RECITALS The Company and the Trustee are parties to a certain Indenture dated as of December 14, 1998 (the "INDENTURE") relating to up to $250,000,000 aggregate principal amount of the Company's 9% Senior Subordinated Notes due 2009 (the "SECURITIES"); and Under the terms of the Indenture, the Guarantors, the Company and the Trustee are required under certain circumstances to execute and deliver a supplemental indenture pursuant to which each Guarantor becomes a guarantor of the Securities and which evidences such Guarantor's guarantee of the Securities, such guarantee to be a senior subordinated unsecured obligation of such Guarantor; and The Company, the Guarantors, and the Trustee now desire to enter into this First Supplemental Indenture, which adds to the Indenture a new article, entitled "Article 12. Guarantees of the Securities," and pursuant to which each Guarantor will become a guarantor of the Securities in accordance with the terms of the Indenture and the terms hereof. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. NOW, THEREFORE, for and in consideration of the promises and covenants contained in the Indenture and other good and valuable consideration, it is covenanted and agreed, for the benefit of each other and for the equal and proportionate benefit of the Holders of the Securities issued under the Indenture, as follows: ARTICLE 12. GUARANTEES OF THE SECURITIES SECTION 12.01. GUARANTEES. Subject to the provisions of this Article 12, each Guarantor hereby jointly and severally unconditionally guarantees to each Holder of a Security authenticated and made available for delivery by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Securities or the obligations of the Company or any other Guarantors to the Holders or the Trustee 3 hereunder, that: (a) the principal of and interest on the Securities will be duly and punctually paid in full when due, whether at maturity, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on the Securities and all other Obligations on the Securities will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other Obligations on the Securities, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at final stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, for whatever reason, each Guarantor will be obligated to pay the same immediately. An Event of Default under this Indenture or the Securities shall constitute an event of default under the Guarantees, and shall entitle the Holders of Securities to accelerate the obligations of the Guarantors hereunder in the same manner and to the same extent as the obligations of the Company on the Securities. Each of the Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularly or enforceability of the Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, an action to enforce the same, whether or not a Guarantee is affixed to any particular Security, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Guarantors hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Guarantee will not be discharged except by complete performance of the obligations contained in the Securities, this Indenture and the Guarantee. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Holder, the Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between it, on the one hand, and the Holders of Securities and the Trustee, on the other hand, (a) subject to this Article 12, the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 6.02 for the purposes of the Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations as provided in Section 6.02, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the Guarantees. The Guarantees shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be 2 4 effective or be reinstated, as the case may be, if at any time payment and performance of the Securities are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Securities, whether as a "voidable preference," "fraudulent transfer" or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. No stockholder, officer, director, employer or incorporator, past, present or future, of any Guarantor, as such, shall have any personal liability under the Guarantees by reason of his, her or its status as such stockholder, officer, director, employer or incorporator. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantees. Each Guarantor, and by its acceptance hereof each Holder, hereby confirms that it is the intention of all such parties that in no event shall any Guarantor's obligations under its Guarantee be subject to avoidance under any applicable fraudulent conveyance or similar law of any relevant jurisdiction. Therefore, in the event that the Guarantees would, but for this sentence, be subject to avoidance, then the liability of the Guarantors under the Guarantees shall be reduced to the extent necessary such that such Guarantees shall not be subject to avoidance under the applicable fraudulent conveyance or similar law. Subject to the preceding limitation on liability, the Guarantee of each Guarantor constitutes a guarantee of payment in full when due and not merely guarantee of collectibility. SECTION 12.02. EXECUTION AND DELIVERY OF THE GUARANTEES. To further evidence the Guarantees set forth in Section 12.01, each Guarantor hereby agrees that a notation of such Guarantees, substantially in the form included in Exhibit F hereto, shall be endorsed on each Security authenticated and made available for delivery by the Trustee. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Security. Each of the Guarantors hereby agrees that its Guarantee set forth in Section 12.01 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Security no longer holds that office at the time the Trustee authenticates such Security or at any time thereafter, such Guarantor's Guarantee of such Security shall be valid nevertheless. 3 5 The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of the Guarantor. SECTION 12.03. ADDITIONAL GUARANTORS. Any Person may become a Guarantor by executing and delivering to the Trustee (a) a supplemental indenture, in form and substance satisfactory to the Trustee, which subjects such Person to the provisions of this Indenture as a Guarantor, and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning fraudulent conveyance laws, creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). SECTION 12.04. LIMITATION OF GUARANTORS' LIABILITY. The obligations of each Guarantor are limited to the maximum amount as will after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any guarantees under the Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 12.06, result in the obligations of such Guarantor under the Guarantees not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under the Guarantees shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. SECTION 12.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. (a) Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor, as an entirety or substantially as an entirety, to the Company or another Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor shall no longer have any force or effect. (b) Nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of a Guarantor with or into a Person (provided such Person is a corporation, partnership or trust) other than the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to any such Person (whether or not an Affiliate of the Guarantor). Upon the sale or disposition of a Guarantor (or all or substantially all of its assets) to a Person which is not a Subsidiary of the Company, which is otherwise in compliance with this Indenture (including Section 4.16), such Guarantor shall be deemed 4 6 released from all its obligations under this Indenture and its Guarantee and such Guarantee shall terminate; provided that any such termination shall occur only to the extent that all obligations of such Guarantor under the Credit Agreement, and all its guarantees of, and under all of its pledges of assets or other security interests which secure, Indebtedness of the Company shall also terminate upon such release, sale or transfer. (c) The Trustee shall, at the Company's expense, deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 12.05. Any Guarantor not so released remains liable for the full amount of principal and interest on the Securities as provided in this Article 12. SECTION 12.06. CONTRIBUTION. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter alia, that in the event any payment or distribution is made by any Guarantor (a "FUNDING GUARANTOR") under the Guarantees, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company obligations with respect to the Securities or any other Guarantor's obligations with respect to the Guarantees; provided that such Funding Guarantor's contribution right with respect to any such Guarantor shall be subordinated in right of payment to such Guarantor's Guarantor Senior Debt on the same basis as its Guarantee is subordinated to Guarantor Senior Debt pursuant to this Article 12. SECTION 12.07. WAIVER OF SUBROGATION. Each Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Guarantees and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration or indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation , the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall, subject to the provisions of this Article 12, forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct or indirect benefits from the financing arrangements contemplated by this Indenture and that 5 7 the waiver set forth in this Section 12.07 is knowingly made in contemplation of such benefits. SECTION 12.08. GUARANTEE OBLIGATIONS SUBORDINATED TO GUARANTOR SENIOR DEBT. Each Guarantor covenants and agrees, and the Trustee and each Holder of the Securities, by its acceptance thereof, likewise covenants and agrees, that all Guarantees shall be issued subject to the provisions of this Article 12; and the Trustee and each Person holding any Guarantee, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Securities pursuant to the Guarantees (except for the payment of fees and expenses of the Trustee under Section 7.07) made by or on behalf of such Guarantor shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents (or such payment shall be duly provided for to the satisfaction of the holders of the Guarantor Senior Debt of any Guarantor) of all existing and future Obligations on the Guarantor Senior Debt of such Guarantor; that the subordination is for the benefit of, and shall be enforceable directly by the holders of Guarantor Senior Debt of any Guarantor and that each holder of Guarantor Senior Debt of any Guarantor whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Guarantor Senior Debt of any Guarantor in reliance upon the covenants and provisions contained in this Indenture and the Guarantees. This Section 12.08 and the following Sections 12.09 through 12.22 of this Article 12 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Guarantor Senior Debt of any Guarantor and, to the extent set forth in this Section 12.09, holders of Designated Guarantor Senior Debt; and such provisions are made for the benefit of the holders of Guarantor Senior Debt of each Guarantor and, to the extent set forth in Section 12.09, holders of Designated Guarantor Senior Debt; and such holders (to such extent) are made obligees hereunder and they or each of them may enforce such provisions. 6 8 SECTION 12.09. NO PAYMENT ON GUARANTEES IN CERTAIN CIRCUMSTANCES. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on or any other amounts owing with respect to any Guarantor Senior Debt, no payment of any kind or character (except for guarantees of Permitted Securities on the same basis as the Guarantees) shall be made by any Guarantor or any other Person on behalf of such Guarantor with respect to any Obligations on the Securities or under the Guarantees or to acquire any of the Securities for cash or property or otherwise. In addition, if any other event of default occurs and is continuing (or if such an event of default would occur upon any payment with respect to the Securities or would arise upon the passage of time as a result of such payment) with respect to an Designated Guarantor Senior Debt (as such event of default is defined in the instrument creating or evidencing such Designated Guarantor Senior Debt) and such event of default permits the holders of such Designated Guarantor Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Guarantor Senior Debt gives a Default Notice to the Company, the Guarantors and the Trustee, then, unless and until all events of default have been cured or waived or have ceased to exist or the Company, the Guarantors and the Trustee receive notice from the Representative for the respective issue of Designated Guarantor Senior Debt terminating the Blockage Period, neither the Guarantors nor any other Person on behalf of the Guarantors shall make any payment of any kind or character (except for guarantees of Permitted Securities on the same basis as the Guarantees) with respect to any Obligations of a Guarantor on the Securities or under the Guarantees or to acquire any of the Securities for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Securities was due and only one such Blockage Period may be commenced within any 360 consecutive days. For all purposes of this Section 12.09(a), no event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Guarantor Senior Debt initiating such Blockage Period shall be, or be made, the basis for the commencement of a second Blockage Period by the Representative of such Designated Guarantor Senior Debt, whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that in either case, would give rise to an event of default pursuant to any provision under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder of a Guarantee when such payment is prohibited by Section 12.09(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Debt held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be 7 9 entitled to rely on information regarding amounts then due and owing on the Guarantor Senior Debt, if any, received from the holders of Guarantor Senior Debt (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company or the Guarantors and only amounts included in the information provided to the Trustee shall be paid to the holders of Guarantor Senior Debt. Nothing contained in this Article 12 shall limit the right of the Trustee or the Holders of Securities to any action to accelerate the maturity of the Securities pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Guarantor Senior Debt thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment with respect to Obligations on the Guarantees. SECTION 12.10. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. (a) Upon any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshalling of assets of any Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to any Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon ail Guarantor Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of the Guarantor Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations of a Guarantor on the Guarantees, or for the acquisition of any of the Securities for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment, or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to which the Holders of the Guarantees or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Guarantors or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders of the Guarantees or by the Trustee under this Indenture if received by them, directly to the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Guarantor Senior Debt. (b) To the extent any payment of Guarantor Senior Debt (whether by or on behalf of a Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to a receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under 8 10 any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of a Guarantor of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by Section 12.10(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amount of Guarantor Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Guarantor Senior Debt. (d) The consolidation of any Guarantor with, or the merger of any Guarantor with or into, another corporation or the liquidation or dissolution of any Guarantor following the conveyance or transfer of all or substantially all of its assets to another corporation upon the terms and conditions provided in Section 12.05 as if the Guarantor were the Company and as long as permitted under the terms of the Guarantor Senior Debt shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section 12.10 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume such Guarantor's obligations hereunder in accordance with Section 12.05 as if the Guarantor were the Company. SECTION 12.11. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION. Nothing contained in this Article 12 or elsewhere in this Indenture shall prevent (i) a Guarantor, except under the conditions described in Sections 12.08 and 12.09, from making payments at any time for the purpose of making payments of principal of and interest on the Securities, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Sections 12.08 and 12.09, the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal on, and interest on, the Securities to the Holders entitled thereto unless, at least one Business Day prior to the date upon which such payment would otherwise become due and Payable, the Trustee shall have actually received the written notice provided for in Section 12.09(a) or in Section 12.16. The Guarantor shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of any Guarantor. 9 11 SECTION 12.12. SUBROGATION. Subject to the payment in full in cash or Cash Equivalents of all Guarantor Senior Debt, the Holders of the Guarantees shall be subrogated to the rights of the holders of Guarantor Senior Debt to receive payments or distributions of cash, property or securities of a Guarantor applicable to the Guarantor Senior Debt until the Securities shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Guarantor Senior Debt by or on behalf of any Guarantor or by or on behalf of the holders of the Guarantees by virtue of this Article 12 which otherwise would have been made to such holders shall, as between such Guarantor and the holders of the Guarantees, be deemed to be a payment by such Guarantor to or on account of the Guarantor Senior Debt. SECTION 12.13. GUARANTEE PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The subordination provisions of this Article 12 are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Guarantor Senior Debt of each Guarantor and, to the extent set forth in Section 12.09, holders of Designated Guarantor Senior Debt on the other hand. Nothing contained in this Article 12 or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among each Guarantor, its creditors other than holders of its Guarantor Senior Debt and the Holders of the Securities, the obligation of such Guarantor, which is absolute and unconditional, to make payments to the Holders in respect of its obligations under its Guarantee as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against such Guarantor of the Holders of the Securities and creditors of such Guarantor other than the holders of the Guarantor Senior Debt of such Guarantor; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under the subordination provisions of this Article 12 of the holders of Guarantor Senior Debt of the Guarantors hereunder and, to the extent set forth in Section 12.09, holders of Designated Guarantor Senior Debt on the other hand (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Guarantor referred to in Section 12.10, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 12.09, to prevent any parent prohibited by such Section or enforce their rights pursuant to Section 12.09(c). The failure by any Guarantor to make a payment in respect of its obligations under this Guarantee by reason of any provision of this Article 12 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. 10 12 SECTION 12.14. TRUSTEE TO EFFECTUATE SUBORDINATION OF OBLIGATIONS UNDER THE GUARANTEE. Each Holder of a Security by its acceptance of such Security authorizes and expressly directs the Trustee to take on behalf of such Holder of Securities such action as may be necessary or appropriate to effectuate as between the holders of Guarantor Senior Debt and Holders of Guarantees, the subordination provided in this Article 12, and appoints the Trustee its attorney-in-fact to act for it and on its behalf for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of any guarantor (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of such Guarantor, the filing of a claim for the unpaid balance of its Guarantees and accrued interest in the form required in those proceedings. SECTION 12.15. NO WAIVER OF GUARANTEE SUBORDINATION PROVISIONS. No right of any present or future holder of any Guarantor Senior Debt of any Guarantor to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any Guarantor or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company or any Guarantor with the terms of this Indenture, regardless of any knowledge thereof any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Guarantor Senior Debt of any Guarantor may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Securities and without impairing or releasing the subordination provided in this Article 12 or the obligations hereunder of the Holders of the Guarantees to the holders of such Guarantor Senior Debt, do any one or more of the following:(1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Guarantor Senior Debt or any Senior Debt as to which such Guarantor Senior Debt relates, or otherwise amend or supplement in any manner such Guarantor Senior Debt or any Senior Debt to which such Guarantor Senior Debt relates; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Guarantor Senior Debt or any Senior Debt as to which such Guarantor Senior Debt relates; (3) release any person liable in any manner for the collection or payment of such Guarantor Senior Debt or any Senior Debt as to which such Guarantor Senior Debt relates; and (4) exercise or refrain from exercising any rights against such Guarantor and any other Person. SECTION 12.16. GUARANTORS TO GIVE NOTICE TO TRUSTEE. The Company and each Guarantor shall give prompt written notice to the Trustee of any fact known to such Guarantor the making of any payment to or by the Trustee in 11 13 respect of the Securities pursuant to the provisions of this Article 12. Notwithstanding the subordination provisions of this Article 12 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Guarantor Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, such Guarantor or from a holder of Guarantor Senior Debt or a Representative therefor, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Guarantor Senior Debt of any Guarantor to participate in any payment or distribution pursuant to this Article 12, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Guarantor Senior Debt of each Guarantor held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 12, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 12.17. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT REGARDING DISSOLUTION, ETC., OF GUARANTORS. Upon an payment or distribution of assets of a Guarantor referred to in this Article 12, the Trustee, subject to the provisions of Article 7 hereof, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such bankruptcy, liquidation, reorganization, dissolution or winding-up proceeding are pending or, upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Guarantees, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Debt of such Guarantor and other Indebtedness of such Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other acts pertinent thereto or to this Article 12. SECTION 12.18. RIGHTS OF TRUSTEE AS A HOLDER OF GUARANTOR SENIOR DEBT; PRESERVATION OF TRUSTEE'S RIGHT. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 12 with respect to any Guarantor Senior Debt of any Guarantor which may at any time be held by the Trustee, to the same extent as any other holder of such Guarantor Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. 12 14 SECTION 12.19. NO SUSPENSION OF REMEDIES. Nothing contained in this Article 12 shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Article 6 or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article 12 of the holders, from time to time, of Guarantor Senior Debt of the Guarantors. SECTION 12.20. TRUSTEE'S RELATION TO GUARANTOR SENIOR DEBT. The Trustee and any agent of the Guarantor or the Trustee shall be entitled to all the rights set forth in this Article 12 with respect to any Guarantor Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of the Guarantor Senior Debt and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder and shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other person cash, property or securities to which any holders of Guarantor Senior Debt shall be entitled by virtue of this Article 12 or otherwise. With respect to the holders of Guarantor Senior Debt, the Trustee undertakes to perform or to observe only such of its duties, covenants, responsibilities and obligations as are specifically set forth in this Article 12, and no implied covenants or obligations with respect to the holders of Guarantor Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary or other duty to the holders of Guarantor Senior Debt. Whenever a distribution is to be made or a notice given to holders or owners of Guarantor Senior Debt, the distribution may be made and the notice may be given to their Representative, if any. SECTION 12.21. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE GUARANTORS OR HOLDERS OF GUARANTOR SENIOR DEBT. No right of any present or future holders of any Guarantor Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Guarantors or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Guarantors with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Guarantor Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Securities and without impairing or releasing the subordination provided in this 13 15 Article 12 or the obligations hereunder of the Holders of the Securities to the holders of the Guarantor Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Guarantor Senior Debt, or otherwise amend or supplement in any manner Guarantor Senior Debt, or any instrument evidencing the same or any agreement under which Guarantor Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Guarantor Senior Debt; and (iv) exercise or refrain from exercising any rights against the Guarantors and any other Person. SECTION 12.22. THIS ARTICLE 12 NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment on account of principal of or interest on the Securities by reason of any provision of this Article 12 will not be construed as preventing the occurrence of an Event of Default. IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed by its duly authorized officers as of the date first above written. THE COMPANY THE ACKERLEY GROUP, INC. By: ---------------------------------------- Keith W. Ritzmann Senior Vice President and Chief Information Officer, Assistant Secretary and Controller THE GUARANTORS ACKERLEY AIRPORT ADVERTISING, INC. By: ---------------------------------------- Keith W. Ritzmann Assistant Secretary (signatures continued) 14 16 ACKERLEY COMMUNICATIONS OF MASSACHUSETTS, INC. By: ---------------------------------------- Keith W. Ritzmann Assistant Secretary AK MEDIA GROUP, INC. By: ---------------------------------------- Keith W. Ritzmann Assistant Secretary CENTRAL NEW YORK NEWS, INC. By: ---------------------------------------- Keith W. Ritzmann Assistant Secretary KVOS TV, LTD. By: ---------------------------------------- Keith W. Ritzmann Assistant Secretary T.C. AVIATION, INC. By: ---------------------------------------- Keith W. Ritzmann Assistant Secretary (signatures continued) 15 17 THE TRUSTEE THE BANK OF NEW YORK By: ---------------------------------------- Title: -------------------------------------- 16 EX-21 8 SUBSIDIARIES OF THE ACKERLEY GROUP, INC. 1
EXHIBIT 21 SUBSIDIARIES OF THE ACKERLEY GROUP, INC. Direct Subsidiaries of The Ackerley Group, Inc. Jurisdiction of Incorporation Ackerley Airport Advertising, Inc. Washington Ackerley Communications of Massachusetts, Inc. Washington AK Media Group, Inc. Washington Central NY News, Inc. Washington SSI, Inc. Washington TC Aviation, Inc. Oregon Direct Subsidiaries of AK Media Group, Inc. Jurisdiction of Incorporation Ackerley Ventures, Inc. Washington AK Florida Outdoor, Inc. Washington KVOS TV Ltd. British Columbia
EX-23 9 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-93655) pertaining to the Employee Stock Purchase Plan; Fourth Amended and Restated Employees Stock Option Plan of The Ackerley Group, Inc. of our report dated February 1, 2000 (except for Note 3, as to which the date is February 22, 2000) with respect to the consolidated financial statements of The Ackerley Group, Inc. included in the Annual Report on Form 10-K for the year ended December 31, 1999. /s/ ERNST & YOUNG, LLP Seattle, Washington March 23, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1999 DEC-31-1999 2,808 0 61,133 1,865 0 103,896 142,851 14,181 528,436 82,192 0 0 0 363 26,926 528,436 0 278,188 0 227,697 36,665 1,611 35,632 13,826 5,863 7,963 0 (1,373) 0 6,590 0.20 0.20
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