UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K/A
x
|
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the fiscal year ended December 31, 2007
OR
o
|
|
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: 000-51418
Equity
Media Holdings Corporation
(Exact
name of registrant as specified in its charter)
Delaware
|
|
20-2763411
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
One
Shackleford Drive, Suite 400
Little
Rock, Arkansas 72211
(Address
of principal executive offices, including zip code)
(501) 219-2400
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Units
consisting of one share of Common Stock, par value $.0001 per share, and two
Warrants
Common
Stock, par value $.0001 per share
Warrants
to purchase Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
o
No
x
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes
o
No
x
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 period 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
o
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Yes
o
No
x
Indicate by check mark whether the registrant is a large accelerated filer,
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
o
Accelerated Filer
x
Non-Accelerated Filer
o
Indicate by check mark whether the registrant is a shell company (as defined
in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
The
number of shares outstanding of the Registrant’s common stock as of March 29,
2008 was 40,278,382 shares.
At
June 30, 2007, the last business day of the registrant’s most recently
completed second fiscal quarter, there were 40,162,909 shares of the
registrant’s common stock outstanding, and the aggregate market value of such
shares held by non-affiliates of the registrant (based upon the closing price
of
such shares as reported on the NASDAQ Capital Markets) was approximately
$125.9 million. Shares of the registrant’s common stock held by the
registrant’s executive officers and directors have been excluded because such
persons may be deemed to be affiliates of the registrant. This determination
of
affiliate status is not necessarily a conclusive determination for other
purposes.
Documents
Incorporated By Reference
None.
EQUITY
MEDIA HOLDINGS CORPORATION
INDEX
TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE
SECURITIES AND EXCHANGE COMMISSION
YEAR
ENDED DECEMBER 31, 2007
ITEMS
IN FORM 10-K
|
|
Page
|
PART
I.
|
|
|
|
|
|
Item
1.
|
BUSINESS
|
4
|
|
|
|
Item
1A.
|
RISK
FACTORS
|
24
|
|
|
|
Item
1B.
|
UNRESOLVED
STAFF COMMENTS
|
33
|
|
|
|
Item
2.
|
PROPERTIES
|
34
|
|
|
|
Item
3.
|
LEGAL
PROCEEDINGS
|
34
|
|
|
|
Item
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
35
|
|
|
|
PART
II.
|
|
|
|
|
|
Item
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
36
|
|
|
|
Item
6.
|
SELECTED
FINANCIAL DATA
|
39
|
|
|
|
Item
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
40
|
|
|
|
Item
7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
61
|
|
|
|
Item
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
61
|
|
|
|
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
97
|
|
|
|
Item
9A.
|
CONTROLS
AND PROCEDURES
|
97
|
|
|
|
Item
9B.
|
OTHER
INFORMATION
|
98
|
|
|
|
PART
III.
|
|
|
|
|
|
Item
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
99
|
|
|
|
Item
11.
|
EXECUTIVE
COMPENSATION
|
104
|
|
|
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
113
|
|
|
|
Item
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
114
|
|
|
|
Item
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
116
|
|
|
|
PART
IV.
|
|
|
Item
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
117
|
Ex-31.1
Section 302 Certification of CEO
|
|
Ex-32.1
Section 302 Certification of CFO
|
|
Ex-32.1
Section 906 Certification of CEO
|
|
Ex-32.2
Section 906 Certification of CFO
|
|
PART
I
ITEM
1. BUSINESS
Overview
In
this
report, Equity Media Holdings Corporation and its subsidiaries are referred
to
as EMHC, we , or the “Company”. For all periods prior to the effective date of
the merger with Coconut Palm Acquisition Corporation (“Coconut Palm” or “CPAC”)
as described herein, references to the Company include the operations of Equity
Broadcasting Corporation and its related businesses (“EBC”).
The
Company was incorporated in Delaware on April 29, 2005 as Coconut Palm
Acquisition Corp. On March 30, 2007, the Company merged with Equity
Broadcasting Corporation, with Coconut Palm remaining as the legal surviving
corporation; however, the financial statements and continued operations are
those of EBC as the accounting acquirer. Immediately following the merger,
the
Company changed its name to Equity Media Holdings Corporation. EBC started
its
business operations in 1998 when it owned 100% of five radio stations and
twenty-four low power television stations and 50% of one low power television
station. Since then, it has sold the five radio stations and fifteen of the
low
power television stations along with numerous other properties it has bought
and/or sold.
The
Company, headquartered in Little Rock, Arkansas currently owns and operates
television stations across the United States and the Retro Television Network
(“RTN”). Since its inception and up to December 31, 2007, the Company has built
and aggregated a total of 120 full and low power permits, licenses and
applications that it owns or has contracts to acquire. The Company’s current FCC
license asset portfolio includes 23 full power stations, 38 Class A
stations and 59 low power stations, including two metropolitan New York City
low
power stations that the Company is currently under contract to purchase. The
Company’s stations service English and Spanish-language audiences in 41 markets
that represent more than 32% of the U.S. population.
While
the
Company originally targeted small to medium-sized markets for development,
it
has been able to leverage its original properties into stations in larger
metropolitan markets, including Denver, Detroit, Salt Lake City, Minneapolis
and
Oklahoma City. The Company’s stations are affiliated with broadcast networks as
follows: 19 of the stations are affiliated with Univision, 12 are affiliated
with the Company’s Retro Television Network (“RTN”), five are affiliated with
MyNetworkTV, four are affiliated with FOX, three are affiliated with TeleFutura,
and one is affiliated with ABC.
With
19
affiliates, the Company is the second-largest affiliate group of the top-ranked
Univision and TeleFutura networks 13 of which operate amongst the nation’s
top-65 Hispanic television markets. The Company believes that it has a superior
growth opportunity in these Hispanic properties because of the projected
continued Hispanic population growth in those markets combined with 15-year
affiliation agreements with either Univision or TeleFutura,
respectively.
RTN
was
developed to fulfill a need in the broadcasting industry that is occurring
now
and will continue to occur as broadcast stations switch over to digital
programming pursuant to a Federal Communications Commission mandate with a
February, 2009 deadline. Digital Television (“DTV”), will allow broadcasters to
offer television content with movie-quality picture and CD-quality sound. DTV
is
a much more efficient technology, allowing broadcasters to provide a “high
definition” (“HDTV”), program and multiple “standard definition” DTV programs
simultaneously. Providing several programs streams on one broadcast channel
is
called “multicasting.” The challenge facing many broadcasters is how to
effectively program and monetize the value created by DTV.
RTN
is
the first network designed for the digital arena. RTN takes some of the most
popular and entertaining programs from the 60s, 70s, 80s, and 90s, all ratings
proven and digitally re-mastered, and provides them to their RTN affiliates.
RTN
affiliates enjoy a scalable, cost efficient content solution for their digital
channels. A major differentiator between RTN and other potential digital
solutions is RTN’s ability to deliver local news, sports, and weather updates to
the local RTN affiliate, in addition to the quality RTN programming. This
enables the local affiliate to sell local advertising spots to generate
revenue.
The
ability to deliver localized programs to the RTN affiliate is accomplished
through utilization of the Company’s proprietary digital satellite technology
system known as “C.A.S.H.” The Central Automated Satellite Hub (“CASH”), system
provides the means of delivering a fully automated, 24 hour a day custom feed
for each local affiliate. The Company has the capability to launch localized
network feeds in all 210 U.S. TV markets and internationally as
well.
The
Company has historically focused on aggregating stations and developing delivery
systems. Over the past eight years, the Company financed itself largely by
acquiring television construction permits and stations at attractive valuations.
After acquiring the stations, the Company would construct and/or upgrade the
facilities and, on a selective market basis, sell the station at an increased
valuation to fund operations and acquisitions and to service debt.
Following
the March, 2007 merger, the Company’s business focus shifted from primarily
aggregating stations to increasing RTN affiliate penetration and maximizing
revenue and profit for each station. The Company intends to achieve revenue
growth and profitability through various entity and station-level initiatives
in
select markets. These initiatives, which the Company has recently begun to
implement, include:
•
|
continued
growth of the RTN affiliate base in key U.S. television
markets;
|
|
|
•
|
focusing
on growing national business;
|
|
|
•
|
addition
of experienced managers in select local markets;
|
|
|
•
|
upgrading
/ increasing sales staffs in select local markets;
|
|
|
•
|
establishing
market appropriate rate cards;
|
|
|
•
|
upgrading
local news (where available) and expanding local programming in
select
markets;
|
|
|
•
|
upgrading
syndicated programming;
|
|
|
•
|
enhancing
cable and satellite
distribution
|
Generally,
it takes a few years for the Company’s newly acquired or built stations to
generate operating cash flow. In addition, it requires time to gain viewer
awareness of new station programming and to attract advertisers. Accordingly,
the Company has incurred, and expects to continue to incur, with newly acquired
or built stations, losses at a station in the first few years after it acquires
or builds the station. Occasionally unforeseen expenses and delays increase
the
estimated initial start-up expenses. This requires the Company’s established
stations to generate revenues and cash flow sufficient to meet its business
plan
including the significant expenses related to newly acquired or built
stations.
The
Company is also one of the largest holders of broadcast spectrum in the US.
Each
of these stations is 6 MHz and is located in the 480-680 MHz band. Our spectrum
adjoins the 700 MHz band and offers similar propagation characteristics. The
Company anticipates that it will supplement its revenues by monetizing its
significant spectrum portfolio through joint-ventures, leasing or sub-licensing
to telecoms and new media companies.
Over
the
past 8 years, use of wireless minutes has increased over 18 fold, number of
customers has increased over 400%, and wireless data revenues have increased
from under $100 million to over $4 billion according to an Aloha Partners White
Paper submitted to Congress on April 19, 2005.
To
date
the company has focused on using digital spectrum by launching a new broadcast
channel specifically designed for digital carriage through multicasting –
Retro Television Network. Other potential uses for spectrum include WiMax data
transmission, Video-on-demand, and mobile broadcasting for wireless carriers
& consumer electronic device makers.
Currently,
we estimate that the EMHC station digital footprint when fully built out would
cover approximately 112, 500,000 people with 6 MHz of digital
spectrum.
The
Company also launched a new corporate and investor relations website
(www.EMDAholdings.com) in August 2007. The website features new and expanded
content about the Company’s operating businesses, senior management, news and
public filings. All key information on the website is available in an
up-to-date, interactive format.
Company
History
EBC
was
originally formed through a stock and unit exchange of various entities and
assets for common stock. In June 2001, EBC issued approximately $30 million
of Series A Convertible Preferred Stock to various preferred shareholders,
including a $25.0 million equity investment by Univision. Following its
investment in EBC, Univision has historically in effect utilized the Company
as
a development vehicle for its network to enter into various new, strategic
markets seeking to increase its footprint across the United States and to pursue
its aggressive growth strategy. After the March 2007 merger with Coconut Palm,
Univision continues to own approximately 5% of the Company on a fully-converted
basis, with ownership consisting of common stock and preferred stock. In
connection with the merger, Univision extended its affiliation agreements with
the Company for a term totaling 15 years beginning March 2007 in all
markets in which the Company operates with Univision and TeleFutura. The Company
now has affiliation agreements for 44 of its stations, 19 of which have 15-year
affiliation agreements with the top-ranked Univision primary network or the
TeleFutura network.
Over
the
years, the Company has focused on high-growth underserved Hispanic markets
as
the U.S. Hispanic population is growing three times faster than that of
non-Hispanic population, according to the U.S. Census Bureau estimates. The
Top 10 Hispanic markets have grown at 21%, while the Company’s Hispanic markets
have grown at more than double that rate, 43%, according to Nielsen 2001-2006
Universe Estimates. The Company has continued to opportunistically acquire
FCC
licenses, construction permits, and stations in key markets, and identified
these underserved markets by assessing the Top 100 Hispanic markets in the
United States and identifying opportunities, either through FCC licenses or
station sales, to enter into these markets. The Company focuses on driving
sales
in both the Spanish-language markets as well as our English language stations
in
early stages of development. Through the use and applications of the FCC
historic television licensing process and its industry alliances, the Company
has been able to develop its FCC asset portfolio to a total of 120 full and
low
power permits, licenses and applications that it owns or has contracts to
acquire. During this time, the Company has operated or had signed agreements
to
acquire one of the largest portfolios of both television stations and digital
spectrum in the United States, according to BIA Financial Network, Inc.
Presently, the Company has 23 full power stations and construction permits,
38
Class A stations and 59 low power stations, which serve primarily as
translator stations. Translator stations are low power stations that rebroadcast
the primary station’s signal to expand the coverage and fill in holes. While the
Company originally targeted small to medium-sized markets for development,
the
Company has been able to leverage its original properties into stations in
larger metropolitan markets such as Denver, Colorado; Salt Lake City, Utah;
Kansas City, Missouri; Detroit, Michigan; Minneapolis, Minnesota; and Oklahoma
City, Oklahoma. For Hispanic and English broadcasting, the Company’s potential
targets include: (1) large markets (designated market area
(DMA) ranking #1-50) — independents; (2) middle markets (DMA
ranking #51-100) — networks; (3) small markets (DMA
ranking #100+) — major networks, and (4) small station groups (
source: Nielsen Media Research ).
The
Company believes it is uniquely positioned within the high growth areas of
specialty or niche programming, with access to broadcast spectrum in several
large markets. The Company developed and applied for a U.S. patent for the
C.A.S.H. system, as described below. The design of the system allows for the
addition of modules giving the system the ability to grow as system demand
requires. In addition, the conversion to Mpeg-4 compression from the current
Mpeg-2 compression will allow the Company to put almost twice as many signals
in
our current satellite bandwidth at approximately the same monthly cost. The
Company also believes that it is well positioned with respect to data
convergence, and that its significant spectrum assets provide an opportunity
as
a digital content delivery vehicle within its footprint.
The
Company is the second largest affiliate of Univision, the leading
Spanish-language television broadcaster in the U.S. that reaches
approximately 99% of all U.S. “Hispanic Households” (defined as those with
a head of household who is of Hispanic descent or origin, regardless of the
language spoken in the household). Univision is a key source of programming
for
the Company’s television broadcasting business and continues to be a key
strategic partner. Univision’s primary network, which is the most watched
television network (English or Spanish-language) among Hispanic Households,
provides the Univision affiliates with 24 hours per day of Spanish-language
programming with a prime time schedule of substantially all first run
programming (i.e., no re-runs) throughout the year.
Of
the
stations in the Company’s portfolio, 44 have strategic affiliation agreements in
place to provide programming and generate revenue. A significant number of
these
affiliates are in early stages of development with growth potential. The nature
of the television business is such that most costs excluding selling commissions
are fixed. After start up many stations reach the breakeven point, a majority
of
the new revenue goes to the bottom line and the incremental profit margins
are
high. This creates a high growth potential on each new dollar of revenue. In
addition, TV stations cannot mature and reach their full profit potential until
they acquire good content and develop an audience and obtain advertisers.
Historically a large number of the Company stations were selling paid
programming and not acquiring quality content. The Company has started acquiring
diversified content for the station group.
In
the
past several years, the Company’s management has been focused on acquisitions,
developing stations and getting FCC approvals for licenses to operate in markets
across the United States. During this period, the Company, in order to avoid
excess dilution or high debt exposure, often would sell assets it had developed
rather than borrow money for growth. Thus, the Company financed itself largely
by acquiring television construction permits and acquiring stations at
attractive valuations. Normally the company would sell an asset, if it could
take a portion of the monies generated (usually less than
1
/ 2 )
and find one or two not yet developed assets that it could acquire to replace
the asset being disposed of. After acquiring the stations, the Company would
construct and/or upgrade the facilities. The Company would, on a selective
market basis, acquire attractive programming, build up a local sales presence
and sell the station at an increased valuation to fund operations, internal
growth, acquisitions and to service debt. The Company has completed four
material station sale transactions in the last three years of which three
resulted in gains. As a result of the limited availability of funding, the
Company has continued this selective station development and sale process and
to
date has not focused on implementing comprehensive programming, sales, marketing
and advertising programs at each station to fully maximize the revenue or
profitability potential for its properties. The Company does expect to evaluate
and re-align its portfolio, selling under performing assets and using the
proceeds for debt reduction,
growth
of
RTN
and to expand the potential of existing core stations.
Industry
Overview and Trends
|
Television
Broadcast Industry
|
Although
television technology was developed in the late 1800s, the first television
broadcast in the United States came approximately 50 years later when Very
High Frequency (VHF) channels (channels 2-13) were introduced in the early
1940s. Ultrahigh Frequency (UHF) channels (channels 14-83) were unveiled
11 years later following a four year freeze on station licensing, which
allowed engineers to work out the intricacies of adding these additional
channels. It was almost a decade after the introduction of UHF channels when
the
first commercially-based Spanish television station began broadcasting in the
United States.
The
majority of over-the -air television stations in the U.S. are affiliated
with major networks, such as NBC, CBS, ABC, Fox and Univision. Each of these
networks contributes programming to affiliate stations in exchange for the
use
of advertising sales time within those programs. The networks typically retain
the revenues generated from these advertising placements, which helps to offset
the cost of providing the programming. Historically, affiliated broadcasters
generate revenues through the remaining advertising time not taken by the major
networks, through the advertising of non-network programming (either in-house
or
independent) and through network compensation agreements. However, the industry
trends have begun to shift away from the concept of network compensation. For
example, FOX is asking stations to essentially share in the cost of producing
high-profile programming, including major sporting events such as NFL games.
It
is expected that ABC, CBS and NBC will implement such initiatives in the future.
This trend increases the pressure on local stations to recoup related
expenses.
In
contrast to the major networks, smaller networks such as MyNetworkTV ( launched
by FOX) and the CW (formed through the merger of WB and UPN) typically possess
a
smaller catalog of programming, and affiliated stations utilize more syndicated
and, or local programming as they typically only supply two hours of programming
during prime time hours. The syndicated and, or local programming normally
allows the station to retain the rights to a significantly higher portion of
advertising spots. This is attractive to broadcasters because it allows for
more
advertising spots, as well as decreases the network fees that are often
associated with the larger networks, especially given the recent trend of
networks having stations share in the cost of producing programs.
The
Spanish Language Market Opportunity in the United States
Management
believes that the Company benefits from the continued growth of the Hispanic
market in the United States. Spanish-language media is expected to continue
expanding due to growth in the Hispanic population and the increasing spending
power of the Hispanic demographic. The discussion below references statistics
primarily from the following sources: (1) U.S. Census Bureau;
(2) the Advertising Age Hispanic Fact Pack; (3) Nielsen Media
Research; (4) U.S. Bureau of Labor Statistics, and (5) Hispanic
Business Inc., the U.S. Hispanic Media Market.
|
Hispanic
Population Growth
|
According
to the U.S. Census Bureau and Nielsen Media Research, the Hispanic
population in the U.S. has increased from 22 million in 1990 to
35 million in 2000 and 41 million in 2004. This number in 2004
represented 14% of the total U.S. population. The growth rate of the
Hispanic population is over three times the growth rate of the total
U.S. population and five times the growth rate of the non-Hispanic
population. According to the Advertising Age Hispanic Fact Pack, the total
Hispanic community is expected to grow to 60 million by 2020 and represent
18% of the total U.S. population. Certain Hispanic markets have grown at
rates ranging from 20% up to more than double that rate, at over 40%. ( Source:
Nielsen 2001, 2006 Universe Estimates ).
Spanish-language
Advertising
U.S. Hispanic
advertising spending was approximately $3.2 billion in 2005. Hispanic ad
dollars were up 12.1% in 2005, compared with a 6.6% growth in overall
U.S. advertising spending. ( Source: Hispanic Business Inc., the
U.S. Hispanic media market ). Over 86% of total Hispanic media spending was
in the form of TV and radio advertising. Total Hispanic advertising spending
is
projected to grow at 10.3% compound annual growth from 2004 through 2009 versus
a 6.2% growth for all U.S. media. (Source: Hispanic Fact Pack
).
According
to Nielsen Media Research, while Hispanics represent 14% of the total
U.S. population, Spanish-language advertising spending only accounted for
3.4% of total U.S. advertising spending in 2005. Increasing the focus on
the Hispanic market will narrow this advertising spending gap. Based on the
company’s experience, although approximately half of all Hispanics predominantly
speak Spanish, Hispanics who predominately speak English and non-Hispanics
who
speak Spanish also watch Spanish language programming. In addition, there are
currently several networks that target the predominantly English-speaking
Hispanics, such as SiTV and MTV3, which not only reach bilingual Hispanics
but
also attract non-Hispanics, thus further increasing the potential advertising
base. Therefore, the Spanish-language media market can still gain a significant
market share, on a fair basis, of a currently $264 billion U.S. media
spending market.
Business Strategy — Historical
The Company has historically operated through five primary revenue channels
(described below): (i) paid programming and infomercials on its English
language stations; (ii) spot sales on its Spanish-language stations
(Univision and TeleFutura); (iii) spot sales on traditional network
affiliate stations (FOX, ABC, UPN and WB); (iv) acquiring and divesting
television properties (and using the proceeds, in part, for new station
build-outs and/or acquisitions); and (v) the Company’s Media Services
division. Products of the Media Services division, which the Company makes
available to other broadcasters, include the C.A.S.H. Services (Central
Automated Satellite Hub) system and ENS (Equity News Service). The C.A.S.H.
Services system is a proprietary, state-of -the-art, server-based centralized
programming system that uses digital satellite technology to allow the Company
to feed all programming to station transmitters and cable systems from the
Company’s master control facility in Little Rock, Arkansas. ENS is a news
production facility that provides centralized news operations. Due to scarce
resources and the limited window of opportunity to develop Univision markets,
the Company had focused its efforts on acquiring high-growth, underserved
Hispanic markets rather than fully developing each market before moving to
the
next market. A majority of the Company’s network stations have been acquired or
built within the last five years and will, therefore, require a few years for
these stations to generate operating cash.
Historically, the company has liquidated properties in smaller, highly
competitive marketplaces where strong growth prospects were limited or markets
where the company could replace the asset sold at a lower cost basis and expand
its national coverage, such as the Portland sale where the company was able
to
acquire stations in Waco, TX; Nashville, TN; Jacksonville, FL; Grand Rapids,
MI
and Lexington, KY, three of which have Univision affiliates. Under its current
operating plan, the Company is evaluating planned dispositions of various core
and non-core station assets.
English-language Television
As
of
December 31, 2007, the Company’s English-language station group had the
following network affiliations: ABC (1 station), FOX (4 stations), MyNetwork
TV
(5 primary affiliations and 4 secondary affiliations), and Retro Television
Network (“RTN”) (12 stations). MyNetworkTV is a FOX network launched in 2006. It
recently announced that it had acquired the rights to WWE Smackdown and will
begin airing in September 2008.
Many
start-up stations that do not have a strong local sales team allocate a
substantial portion of their air time to paid programming and infomercials.
This
provides a stable cash flow for the time periods involved, but the revenue
is
normally substantially less than the amount that could be generated by spot
sales during quality, syndicated programming. In addition, paid programming
alienates most viewers and produces significantly reduced ratings, making spot
sales harder to generate. In 2007, paid programming accounted for 14% of the
Company’s total television revenue.
For
the
next several years, stations carrying the new networks should allow for higher
growth rates than the traditional television model. As a result of these
stations being in the process of developing their audience, they have an
abundance of available inventory and are currently selling spots at low rates.
As the station’s ratings mature, the inventory should sell out and spot rates
should increase as demand exceeds supply. In contrast, most mature stations
have
very little available inventory and are dependent on inflationary spot rate
increases for growth.
Retro
Television Network
RTN
is
the first completely-customizable, national television network to provide a
24/7
digital feed of hit shows to each of its affiliates. RTN takes some of the
most
popular and entertaining programs from the 60s, 70s, 80s and 90s –
ratings-proven programming that has been digitally re-mastered, and mixes them
with localized sports, weather and news, depending on each individual station’s
needs. As the nation quickly approaches the mandated February 2009 deadline
for
switching to 100 percent digital programming, RTN is the first network designed
for the digital arena. In effect, RTN is creating a new digital market and
profit opportunity for local broadcasters.
The
goal
of RTN is to deliver affordable, recognizable programming to local affiliates
through a one-of-a-kind, turnkey system developed specifically by RTN for the
customized operation of multiple digital channels following the switch from
analog to digital television. RTN executives believe that RTN meets the criteria
for success in the digital era for the following reasons:
Broadcasters’
growing desire to monetize their digital subchannels – Local broadcasters
are beginning to understand the revenue potential that the extra bandwidth
provides and are searching for quality programming that is
affordable.
RTN’s
quality programming is completely-customizable – RTN has established
long-term programming agreements with some of the largest distributors and
will
work with its affiliates to develop the perfect lineup.
RTN’s
unique, turnkey method of delivery - The real value of RTN lies in its unique
design, which allows each affiliate to remain in complete control while RTN
runs
the local and national master control from its central hub.
Congress
has set a February 18, 2009 deadline for television stations to switch entirely
from analog to digital broadcasts. At this time, television as we now know
it
will be replaced by a more efficient system that offers movie-quality picture
and CD-quality sound, along with a variety of other enhancements.
Digital
Television (DTV) is a more flexible technology than the current analog broadcast
technology. Rather than being limited to providing one analog programming
channel, a broadcaster will be able to provide a super-sharp "high definition"
(HDTV) broadcast and multiple "standard definition" DTV broadcasts
simultaneously. Providing several program streams on one broadcast channel
is
called "multicasting." The number of programs a station can send on one assigned
digital channel depends on the level of picture detail, also known as
"resolution," desired in each programming stream.
The
digital conversion creates new opportunities for local station’s to generate
revenue because they can now air multiple broadcast streams. RTN is specifically
designed to give local broadcasters a way to successfully monetize this excess
digital capacity.
RTN’s
custom feed gives local affiliates highly sought after flexibility in the
digital age. RTN brings recognizable, ratings-proven, digitally-remastered,
high-quality programming through our long-term programming arrangements with
broadcast giants such as CBS, Sony and NBC Universal. The custom feed delivered
by RTN allows each affiliate the opportunity to tailor the programming to meet
the needs of its market and fill a programming gap that historically has been
unfilled.
In
addition to completely-customizable programming, RTN also offers market-specific
news and weather breaks hosted by network-provided talent. Other RTN services
include:
Ability
of affiliate to deliver all spots to the RTN master control via FTP, for use
in
the C.A.S.H. system
Use
of
RTN’s digital master control
Switching
of the feed for live sporting events
Production
of station promotions, IDs and other station identification
graphics
RTN
knows
that these services are important because they allow the affiliates to maintain
the ‘local’ aspect without having to sacrifice the primary channel’s manpower.
RTN
is
distributed by Equity Media’s C.A.S.H. (Central Automated Satellite Hub) system,
a state-of-the-art digital satellite uplink system that feeds
programming to affiliates from its Little Rock, Ark., headquarters. This system
allows for substantial cost savings through consolidation of operations.
Additional benefits of the C.A.S.H. system include:
Centralcasting
Merging/Consolidating
Master Control
Automated
Increased
Cable Penetration
Digital
Quality Picture
Lower
Capital Expenditures and Operating Costs
Unlimited
Capacity and Capability
Delivery
of Other Services
The
C.A.S.H. system allows affiliates to receive the RTN feed without having to
establish a separate personnel base to run the daily operations. The C.A.S.H.
system basically replaces the need for Master Control operations, engineers
or a
traffic department. Since the local affiliate retains the local advertising
revenue, a sales staff dedicated to selling the local advertising inventory
is
the only personnel required.
Spanish-Language
Television
Upon
completion of the March, 2007 merger, nineteen of the Company’s stations were
granted 15-year affiliation agreements with the top-ranked Univision’s primary
network or its TeleFutura network. Of these 19 Hispanic stations, 13 are in
the
nation’s top 65 U.S. Hispanic markets, none of which fall within the
nation’s top 10 Hispanic markets. The largest Hispanic market in which the
Company has an affiliation agreement is Ft. Myers/Naples, Florida,
currently ranked number 36 in the nation’s top Hispanic markets. The
Company’s television stations include the second largest affiliate group of the
Univision networks. Univision is the leading Spanish-language network in the
United States, reaching 99% of all U.S. Hispanic households. Univision’s
primary network is the most watched television network (English- or
Spanish-language) among U.S. Hispanic households. Univision’s primary
network and its TeleFutura Network represent approximately 34% of the total
prime time viewing among Hispanics, regardless of language. The Company has
24-hour access to Univision programming, which includes all first-run
programming every day during prime time. No other major network offers first-run
programming during prime time year round.
Univision
Network Programming
Univision
directs its programming primarily toward a young, family-oriented audience.
Every Monday through Friday, programming begins with several talk/variety shows,
followed by drama miniseries and several novelas. The late afternoon begins
with
an entertainment show and continues with a newsmagazine, as well as local news
produced by the Company’s own stations and the network newscast. Prime time is
filled with first run novelas, variety shows, talk shows, comedies, reality
shows and specials. Another session of late news follows with a late night
comedy show to conclude the daily programming. Weekend daytime programming
begins with children’s programming and is generally followed by sports, reality
shows, teen lifestyle shows and movies.
Approximately eight to ten hours of programming per weekday, including a large
portion of weekday prime time, are currently programmed with novelas supplied
primarily by Grupo Televisa, and to a lesser extent, Venevision. Though largely
equated to the daytime soap operas of the major English networks, novelas have
significant differences. Originally made as serialized books, novelas typically
run four to eight months and target much wider audiences than the typical
English soap operas.
TeleFutura
Network Programming
TeleFutura is Univision’s other 24-hour general-interest Spanish-language
broadcast network. TeleFutura programming includes sports (including boxing,
soccer and a nightly wrap-up at 11 p.m.), movies (including a mix of
English-language movies translated into Spanish) and novelas not run on
Univision’s primary network, as well as reruns of popular novelas broadcast on
Univision’s primary network.
TeleFutura’s programming schedule is strategically counter-programmed to the
Univision programming, such as when TeleFutura will be airing a movie or soccer
game.
Network
Affiliation Agreements
Several
of the Company’s stations have affiliation agreements granting them exclusive
rights to broadcast Univision and TeleFutura programming in certain geographic
areas. These agreements allow the stations to sell up to six minutes per hour
of
advertising on the Univision network and four and a half minutes on TeleFutura’s
network, subject to occasional allocation adjustments by Univision.
As
part
of the March, 2007 merger, the affiliation agreements with Univision were
extended for a term totaling 15 years through 2022, with provisions for
several two-year renewals at Univision’s option and the Company’s
consent.
The
Company offers local news in several markets. The Company believes that its
local news products brand its stations in their local television markets. The
Company shapes its local news to relate to and inform its target audiences.
Substantial investments have been made in people and equipment in order to
provide local communities with quality newscasts. The Company strives to be
the
most important community voice in each of its local markets. In several of
these
markets, the Company believes that its local news is the most significant source
of Spanish-language daily news for the Hispanic community. Many of the Company’s
stations produce local weekly community affairs shows that cover important
issues and topics for Hispanics. In addition, the Company also produces local
news and weather updates throughout the broadcast day.
Television
Station Portfolio
The
table
below lists information concerning each of the Company’s television
stations/construction permits and its respective market, as of March 12,
2008.
DMA
|
|
DMA
|
|
CITY
of
|
|
CALL
|
|
|
|
|
#
|
|
NAME
|
|
LICENSE
|
|
SIGN
|
|
CH.
#
|
|
|
131
|
|
Amarillo
|
|
Borger,
TX
|
|
KEYU-DT
|
|
31
|
|
UNI
|
|
|
|
|
Amarillo,
TX
|
|
KEYU-LP
|
|
41
|
|
UNI
|
|
|
|
|
Amarillo,
TX
|
|
K59HG
|
|
59
|
|
UNI
|
131
|
|
Amarillo
|
|
Amarillo,
TX
|
|
KEAT-LP
|
|
22
|
|
Retro
Jams
|
131
|
|
Amarillo
|
|
Amarillo,
TX
|
|
KAMT-LP
|
|
50
|
|
TLF
|
|
|
|
|
Amarillo,
TX
|
|
K38IP
|
|
38
|
|
TLF
|
9
|
|
Atlanta
|
|
Atlanta,
GA
|
|
WYGA-CA
|
|
55
|
|
Retro
Jams
|
49
|
|
Buffalo
|
|
Springville,
NY
|
|
WNGS
|
|
67/7
|
|
RTN
|
90
|
|
Burlington
/ Plattsburgh
|
|
Burlington,
VT
|
|
WGMU-CA
|
|
39
|
|
MNT
|
|
|
|
|
Rutland,
VT
|
|
W61CE
|
|
61
|
|
MNT
|
|
|
|
|
Burlington,
VT
|
|
WBVT-CA
|
|
30
|
|
MNT
|
|
|
|
|
St.
Albans, VT
|
|
W52CD
|
|
52
|
|
MNT
|
|
|
|
|
Monkton,
VT
|
|
W19BR
|
|
19
|
|
MNT
|
|
|
|
|
Ellenburg,
NY
|
|
W49BI
|
|
49
|
|
MNT
|
|
|
|
|
Claremont,
NY
|
|
W17CI
|
|
17
|
|
MNT
|
192
|
|
Butte
/ Bozeman
|
|
Butte,
MT
|
|
KBTZ
|
|
24
|
|
FOX
& MNT
|
|
|
|
|
Bozeman,
MT
|
|
KBTZ-LP
|
|
32
|
|
FOX
|
|
|
|
|
Bozeman,
MT
|
|
K15HI
|
|
15
|
|
FOX
|
89
|
|
Cedar
Rapids / Waterloo
|
|
Waterloo,
IA
|
|
KWWF
|
|
22
|
|
RTN
|
195
|
|
Cheyenne
/ Scottsbluff
|
|
Cheyenne,
WY
|
|
KKTU-LP
|
|
40
|
|
ABC
|
195
|
|
Cheyenne
/ Scottsbluff
|
|
Scottsbluff,
NE
|
|
KTUW
|
|
16/17
|
|
RTN
|
18
|
|
Denver
/ Cheyenne
|
|
Cheyenne,
WY
|
|
KDEV
|
|
33/11
|
|
RTN
|
|
|
|
|
Aurora,
CO
|
|
KDEV-CA
|
|
39
|
|
RTN
|
|
|
|
|
Rawlins,
WY
|
|
K21CV
|
|
21
|
|
RTN
|
|
|
|
|
Laramie,
WY
|
|
K61DX
|
|
61
|
|
RTN
|
11
|
|
Detroit
|
|
Detroit,
MI
|
|
WUDT-CA
|
|
23
|
|
UNI
|
172
|
|
Dothan
|
|
Dothan,
AL
|
|
WDTH-LP
|
|
59
|
|
Paid
|
|
|
|
|
Dothan,
AL
|
|
W23DJ
|
|
23
|
|
Paid
|
120
|
|
Eugene
|
|
Roseburg,
OR
|
|
KTVC
|
|
36/18
|
|
RTN
|
|
|
|
|
Eugene,
OR
|
|
KAMK-LP
|
|
53
|
|
RTN
|
64
|
|
Ft.
Myers / Naples
|
|
Ft.
Myers, FL
|
|
WTLE-LP
|
|
18
|
|
TLF
|
|
|
|
|
Naples,
FL
|
|
WUVF-CA
|
|
2
|
|
UNI
|
|
|
|
|
Ft.
Myers, FL
|
|
WLZE-LP
|
|
51
|
|
UNI
|
64
|
|
Ft.
Myers / Naples
|
|
Ft.
Myers, FL
|
|
WEVU-CA
|
|
4
|
|
UNI
|
64
|
|
Fort
Myers/Naples
|
|
Naples,
FL
|
|
WBSP-CA
|
|
7
|
|
Retro
Jams
|
102
|
|
Ft.
Smith - Fayetteville
|
|
Ft.
Smith, AR
|
|
KPBI-CA
|
|
46
|
|
MNT
|
|
|
|
|
Bentonville,
AR
|
|
KHMF-CA
|
|
14
|
|
MNT
|
|
|
|
|
Siloam
Springs, AR
|
|
KKAF-CA
|
|
33
|
|
MNT
|
|
|
|
|
Paris,
AR
|
|
KRAH-CA
|
|
60
|
|
MNT
|
|
|
|
|
Poteau,
OK
|
|
KSJF-CA
|
|
50
|
|
MNT
|
|
|
|
|
Fayetteville,
AR
|
|
KEGW-LP
|
|
64
|
|
MNT
|
|
|
|
|
Winslow,
AR
|
|
KWNL-CA
|
|
31
|
|
MNT
|
|
|
|
|
Fort
Smith, AR
|
|
K66FM
|
|
66
|
|
MNT
|
|
|
|
|
Fort
Smith, OK
|
|
K48FL
|
|
48
|
|
MNT
|
|
|
|
|
Fort
Smith, AR
|
|
K33HE
|
|
33
|
|
MNT
|
102
|
|
Ft.
Smith - Fayetteville
|
|
Fort
Smith, AR
|
|
K32GH
|
|
32
|
|
Retro
Jams
|
|
|
|
|
Hindsville,
AR
|
|
KRBF-CA
|
|
59
|
|
Retro
Jams
|
102
|
|
Ft.
Smith - Fayetteville
|
|
Ft.
Smith, AR
|
|
KFDF-CA
|
|
44
|
|
UNI
|
|
|
|
|
Fayetteville,
AR
|
|
KFFS-CA
|
|
36
|
|
UNI
|
|
|
|
|
Ft.
Smith, AR
|
|
KUFS-LP
|
|
54
|
|
UNI
|
102
|
|
Ft.
Smith - Fayetteville
|
|
Eureka
Springs, AR
|
|
KPBI-TV
|
|
34
|
|
RTN
|
|
|
|
|
Ft.
Smith, AR
|
|
KWFT-LP
|
|
34
|
|
RTN
|
|
|
|
|
Ft.
Smith, AR
|
|
K58FB
|
|
58
|
|
RTN
|
102
|
|
Ft.
Smith - Fayetteville
|
|
Springdale,
AR
|
|
KJBW-CA
|
|
4
|
|
UNI
|
|
|
|
|
Fort
Smith, AR
|
|
KXUN-LP
|
|
43
|
|
UNI
|
162
|
|
Gainesville
|
|
Williston,
FL
|
|
W56EJ
|
|
56
|
|
Retro
Jams
|
162
|
|
Gainesville
|
|
Williston,
FL
|
|
W63DB
|
|
63
|
|
Paid
|
39
|
|
Grand
Rapids
|
|
Grand
Rapids, MI
|
|
WUHQ-LP
|
|
29
|
|
Paid
|
190
|
|
Great
Falls
|
|
Great
Falls, MT
|
|
KLMN
|
|
26
|
|
FOX
& MNT
|
87
|
|
Jackson
|
|
Jackson,
MS
|
|
WJXF-LP
|
|
49
|
|
Paid
|
87
|
|
Jackson
|
|
Jackson,
MS
|
|
WJMF-LP
|
|
53
|
|
UNI
|
50
|
|
Jacksonville
|
|
Maxville,
FL
|
|
WUJF-LP
|
|
33
|
|
UNI
|
31
|
|
Kansas
City
|
|
Kansas
City, MO
|
|
KUKC-LP
|
|
48
|
|
UNI
|
43
|
|
Las
Vegas
|
|
Goldfield,
NV
|
|
KEGS
|
|
7/50
|
|
RTN
|
|
|
|
|
Reno,
NV
|
|
KELM-LP
|
|
43
|
|
RTN
|
43
|
|
Las
Vegas
|
|
Las
Vegas, NV
|
|
KEGS-CA
|
|
30
|
|
RTN
|
43
|
|
Las
Vegas
|
|
Ely,
NV
|
|
KBNY
|
|
6
|
|
Tolled
|
|
|
|
|
Las
Vegas, NV
|
|
KNBX-CA
|
|
31
|
|
SuTV
|
63
|
|
Lexington
|
|
Lexington,
KY
|
|
WBLU-LP
|
|
62
|
|
MNT
& RTN
|
57
|
|
Little
Rock
|
|
Camden
|
|
KKYK
|
|
49
|
|
RTN
|
|
|
|
|
Little
Rock, AR
|
|
KKYK-CA
|
|
20
|
|
RTN
|
|
|
|
|
Hot
Springs, AR
|
|
KTVV-CA
|
|
63
|
|
RTN
|
|
|
|
|
Little
Rock, AR
|
|
KHTE-LP
|
|
44
|
|
RTN
|
57
|
|
Little
Rock
|
|
Little
Rock, AR
|
|
KHUG-CA
|
|
14
|
|
Retro
Jams
|
57
|
|
Little
Rock
|
|
Little
Rock, AR
|
|
KLRA-CA
|
|
58
|
|
UNI
|
57
|
|
Little
Rock
|
|
Little
Rock, AR
|
|
KWBF
|
|
42/44
|
|
MNT
|
|
|
|
|
Sheridan,
AR
|
|
KWBF-LP
|
|
47
|
|
MNT
|
|
|
|
|
Pine
Bluff, AR
|
|
KWBK-LP
|
|
45
|
|
MNT
|
|
|
|
|
Batesville,
AR
|
|
K38IY
|
|
38
|
|
MNT
|
2
|
|
Los
Angeles
|
|
Ventura,
CA
|
|
KIMG-LP
|
|
23/17
|
|
Paid
|
178
|
|
Marquette
|
|
Marquette,
MI
|
|
WMQF
|
|
19
|
|
FOX
& MNT
|
15
|
|
Minneapolis
/ St. Paul
|
|
Minneapolis,
MN
|
|
WUMN-CA
|
|
13
|
|
UNI
|
15
|
|
Minneapolis
/ St. Paul
|
|
Minneapolis,
MN
|
|
WTMS-CA
|
|
7
|
|
Daystar/TLF
|
168
|
|
Missoula
|
|
Missoula,
MT
|
|
KMMF
|
|
17
|
|
FOX
& MNT
|
|
|
|
|
Kalispell,
MT
|
|
KMMF-LP
|
|
34
|
|
FOX
& MNT
|
|
|
|
|
Kalispell,
MT
|
|
KEXI-LP
|
|
35
|
|
FOX
& MNT
|
135
|
|
Monroe
/ El Dorado
|
|
El
Dorado, AR
|
|
K32HT
|
|
32
|
|
Paid
|
|
|
|
|
El
Dorado, AR
|
|
K47JG
|
|
47
|
|
Paid
|
|
|
|
|
Delhi,
LA
|
|
K33IF
|
|
33
|
|
Paid
|
30
|
|
Nashville
|
|
Nashville,
TN
|
|
WNTU-LP
|
|
26
|
|
UNI
|
1
|
|
New
York
|
|
New
York
|
|
WMBQ-CA
|
|
46
|
|
APA
|
|
|
|
|
Brooklyn
|
|
WBQM-LP
|
|
3
|
|
APA
|
45
|
|
Oklahoma
City
|
|
Woodward,
OK
|
|
KUOK
|
|
35
|
|
UNI
|
|
|
|
|
Oklahoma
City, OK
|
|
KCHM-CA
|
|
36/59
|
|
UNI
|
|
|
|
|
Sulphur,
OK
|
|
KOKT-LP
|
|
20
|
|
UNI
|
45
|
|
Oklahoma
City
|
|
Norman,
OK
|
|
KUOK-CA
|
|
11
|
|
Retro
Jams
|
45
|
|
Oklahoma
City
|
|
Oklahoma
City, OK
|
|
KWDW-LP
|
|
48
|
|
UNI
|
156
|
|
Panama
City
|
|
Marianna,
FL
|
|
WBIF
|
|
51
|
|
RTN
|
110
|
|
Reno
|
|
Reno,
NV
|
|
KRRI-LP
|
|
25
|
|
Retro
Jams
|
35
|
|
Salt
Lake City
|
|
Logan,
UT
|
|
KUTF
|
|
12
|
|
TLF
|
|
|
|
|
Salt
Lake City, UT
|
|
K45GX
|
|
45
|
|
TLF
|
35
|
|
Salt
Lake City
|
|
Vernal,
UT
|
|
KBCJ
|
|
6/27
|
|
CP
|
|
|
|
|
Price,
UT
|
|
KCBU-DT
|
|
3/11
|
|
RTN
|
|
|
|
|
Salt
Lake City, UT
|
|
KUBX-LP
|
|
58/27
|
|
RTN
|
|
|
|
|
Vernal,
UT
|
|
K060F
|
|
6
|
|
RTN
|
14
|
|
Seattle
|
|
Seattle,
WA
|
|
KUSE-LP
|
|
58/30
|
|
Retro
Jams
|
77
|
|
Spokane
|
|
Pullman,
WA
|
|
KQUP
|
|
24
|
|
RTN
|
|
|
|
|
Couer
d'Alene, ID
|
|
KQUP-LP
|
|
47
|
|
RTN
|
76
|
|
Springfield
|
|
Harrison,
AR
|
|
KWBM
|
|
31
|
|
MNT
|
|
|
|
|
Springfield,
MO
|
|
KBBL-CA
|
|
56
|
|
MNT
|
|
|
|
|
Aurora,
MO
|
|
KNJE-LP
|
|
58/40
|
|
MNT
|
79
|
|
Syracuse
|
|
Ithaca,
NY
|
|
WNYI
|
|
52/20
|
|
UNI
|
62
|
|
Tulsa
|
|
Tulsa,
OK
|
|
KUTU-CA
|
|
25
|
|
UNI
|
95
|
|
Waco
/ Temple / Bryan
|
|
Bryan,
TX
|
|
KUTW-LP
|
|
34
|
|
UNI
|
|
|
|
|
Waco,
TX
|
|
KWKO-LP
|
|
38
|
|
UNI
|
38
|
|
West
Palm Beach
|
|
Port
St. Lucie, FL
|
|
WSLF-LP
|
|
35
|
|
Retro
Jams
|
38
|
|
West
Palm Beach
|
|
Ft.
Pierce, FL
|
|
WFPI-LP
|
|
8
|
|
SHOP
|
146
|
|
Wichita
Falls / Lawton
|
|
Wichita
Falls, TX
|
|
KTWW-LP
|
|
68/14
|
|
Retro
Jams
|
146
|
|
Wichita
Falls / Lawton
|
|
Wichita
Falls, TX
|
|
KUWF-LP
|
|
36
|
|
TLF
|
146
|
|
Wichita
Falls / Lawton
|
|
Lawton,
OK
|
|
K64GJ
|
|
64/23
|
|
UNI
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
TOTAL
|
|
|
|
|
|
|
|
|
Designated
Market Areas are designated by Nielson Media Research.
UNI
|
Univision
|
|
|
TLF
|
Telefutura
|
|
|
SHOP
|
Shopping
channel, such as Home Shopping Network or The Jewelry Channel
|
|
|
RTN
|
Retro
Television Network
|
|
|
MNT
|
MyNetworkTV
|
|
|
CP
|
Construction
Permit
|
|
|
APA
|
Asset
Purchase Agreement
|
|
|
DayStar
|
DayStar
Television Network
|
The
following table sets forth RTN affiliates that are either on air or have signed
contracts to go on air. The list below is effective as of March 5,
2008.
DMA
Ranking
|
|
Station
|
|
DMA
|
6
|
|
KRON-DT
|
|
San
Francisco
|
8
|
|
WSB-DT
|
|
Atlanta
|
9
|
|
WJLA-DT
|
|
Washington
D.C.
|
11
|
|
WXYZ-DT
|
|
Detroit
|
12
|
|
KAZT-DT
|
|
Phoenix
|
14
|
|
KIRO-DT
|
|
Seattle-Tacoma
|
18
|
|
KDEV-LP
|
|
Denver
|
19
|
|
WRDQ-DT
|
|
Orlando
|
21
|
|
WPXS-TV
|
|
St.
Louis
|
22
|
|
WPXI-DT3
|
|
Pittsburgh
|
25
|
|
WMYT-DT
|
|
Charlotte
|
28
|
|
WRAZ-DT2
|
|
Raleigh-Durham
|
35
|
|
KUSG
|
|
Salt
Lake City
|
40
|
|
WVTM-DT
|
|
Birmingham
|
41
|
|
WHTM-DT
|
|
Harrisburg-Lncstr-Leb
|
43
|
|
KEGS
|
|
Las
Vegas
|
50
|
|
WNGS
|
|
Buffalo
|
52
|
|
WJAR-DT
|
|
Providence-New
Bedford
|
56
|
|
WTEN-DT
|
|
Albany
|
57
|
|
KKYK
|
|
Little
Rock
|
61
|
|
WKRG-DT
|
|
Mobile-Pensacola
|
64
|
|
WBLU
|
|
Lexington
|
67
|
|
WSET-DT
|
|
Roanoke-Lynchburg
|
69
|
|
KGPT-LP
|
|
Wichita-Hutchinson
|
70
|
|
WBAY-DT2
|
|
Green
Bay
|
72
|
|
WNWO-DT
|
|
Toledo
|
77
|
|
KQUP
|
|
Spokane
|
82
|
|
KSHV-DT
|
|
Shreveport
|
84
|
|
WRSP/WBUI-DT
|
|
Champaign-Sprngfld-Decatur
|
85
|
|
WKOW
|
|
Madison
|
87
|
|
KWWL
|
|
Cedar
Rapids-Waterloo
|
88
|
|
KRGV-DT
|
|
Harlingen-Wslco-Brnsvl-McA
|
89
|
|
WSJV
|
|
South
Bend-Elkhart
|
90
|
|
WJTV-DT
|
|
Jackson
|
91
|
|
WKPT-DT3
|
|
Tri-Cities
|
92
|
|
WGMU
|
|
Burlington
|
93
|
|
KXRM-DT
|
|
Colorado
Springs
|
94
|
|
KZUP
|
|
Baton
Rouge
|
97
|
|
WSAV-DT
|
|
Savannah
|
98
|
|
KFOX-DT
|
|
El
Paso
|
101
|
|
WEHT-DT
|
|
Evansville
|
102
|
|
KFDF
|
|
FtSmith-Fayetteville
|
103
|
|
WBTW-DT
|
|
Myrtle
Beach-Florence
|
110
|
|
KRXI-DT
|
|
Reno
|
111
|
|
KYTX
|
|
Tyler-Longview
|
114
|
|
KWSD
|
|
Sioux
Falls
|
115
|
|
WJBF-DT
|
|
Augusta
|
116
|
|
WPBN-DT
|
|
Traverse
City
|
118
|
|
WSFA
|
|
Montgomery-Selma
|
120
|
|
KTVC
|
|
Eugene
|
122
|
|
KEYT-DT
|
|
Santa
Barbara
|
123
|
|
KDCG
|
|
Lafayette
|
127
|
|
WXOW/WQOW
|
|
La
Crosse-Eau Claire
|
128
|
|
WRBL-DT
|
|
Columbus,
GA
|
132
|
|
WREX
|
|
Rockford
|
134
|
|
WAOW/WYOW
|
|
Wausau-Rhinelander
|
143
|
|
KTIV
|
|
Sioux
City
|
147
|
|
WRDE
|
|
Salisbury
|
153
|
|
KXLT
|
|
Rochester-Mason
City-Austin
|
154
|
|
WBIF
|
|
Panama
City
|
155
|
|
WVVA
|
|
Bluefield-Beckley-Oak
Hill
|
175
|
|
KOTA-DT
|
|
Rapid
City
|
180
|
|
KWCE
|
|
Alexandria
|
196
|
|
KTUW
|
|
Cheyenne
|
The Company targets local, regional and national advertisers to increase sales.
The Company competes in each of these opportunities for advertising revenues
primarily with other television stations, both affiliated and independent.
Other
competitors include newspapers, radio stations, magazines and regional digital
content providers.
The Company takes an opportunistic approach to choosing content and affiliations
on a market-by-market basis, based upon demographics and pre-existing
affiliations in each market. In general, the Company evaluates several network
affiliation opportunities in any given market or pursues independent
opportunities including local content.
In determining how to allot content, the Company will explore available
programming alternatives with networks, brokers and various content providers.
The Company utilizes industry barter arrangements to obtain syndicated content
in exchange for an advertising spot split for the given program. The Company
will then allocate programming into four separate dayparts: morning, afternoon,
primetime and late night. Each daypart is evaluated with respect to market
demand, demographic breakdown and programming cost. Content allotment can then
be modified as necessary based on market conditions and viewership. The
Company’s operating approach also provides for maintaining a low cost base at
its stations by leveraging station automation with the C.A.S.H. services system.
Local advertising sales are achieved primarily through the use of local sales
departments, as well as partnerships and joint sales agreements with existing
television and radio station operations in certain markets. The Company receives
local advertising revenue through the sale of 30 second and 60 second
commercials, 30 minute and 60 minute paid programming and time brokerage
agreements for longer time periods. The contract terms for ad sales contracts
are generally weekly, monthly, or an annual agreement. the Company has extensive
experience in the lengthy process of ensuring that the must-carry rights the
FCC
has awarded to full-power stations are actually secured from the cable systems.,
Local advertising accounted for approximately 34% of the Company’s total
broadcast revenue in 2007 and 39% in 2006. Target markets include those local
markets where the Company elects to partner with another broadcast company
as
its local sales partner for its station through a Joint Sales Agreement (JSA).
Where the Company believes that this structure will generate more revenues
to
the company and save the expense and time required in hiring staff and opening
a
local sales office, the Company will work with a JSA partner under this
arrangement.
The Company’s national advertising revenue represents commercial broadcasting
time sold for Univision and TeleFutura to a national advertiser by Univision,
acting as the Company’s national representative firm. Univision is typically
paid a 15% commission on the net revenue from the sales booked. The Univision
representative works closely with each station’s national sales manager to
target the largest national Spanish-language advertisers. This relationship
has
secured some of the largest national advertisers, including Ford Motor Company,
General Motors, Dodge, Toyota, Verizon, AT&T, U.S. Cellular, Subway,
Taco Bell, Pizza Hut, Wendy’s and McDonald’s. National advertising accounted for
approximately 28% and 27% of the Company’s total broadcast revenue in 2007 and
2006, respectively. The Company currently utilizes Millennium Media Sales as
its
national sales rep firm to sell 30 and 60 second spot sales for its Northwest
Arkansas and Cheyenne, Wyoming stations and plans on engaging a national sales
rep firm for several of its other non-Univision stations as well. The company
uses Blair as it sales rep firm in Marquette, Michigan.
On
February 11, 2008 Retro Programming Services, Inc. signed an exclusive sales
representation agreement with Petry Media Corp. Inc to sell national advertising
inventory to buyers throughout North America. This is a multi-year agreement
with an initial commission rate equal to 15% of Net Billings. The Company also
has strong relationships with paid programming brokers and buyers that generate
substantial revenue for 30-minute and 60 minute paid programs.
Local
and
National Broadcast Revenue Categories
The Company’s broadcast revenues are generated by sales of air time on its
stations. We use several types of sales contracts including spot sales, paid
programming, and time brokerage agreements.
|
Spot Sales. Spot Sales are advertising purchases for 30-second or
60-second commercials. Under this arrangement, an advertising schedule
and
rate are agreed to between the advertiser and the station to run
its
commercials during certain shows or dayparts for a defined period
of time.
An example would be a car dealer advertising 3 times per day between
7-8 AM, 5-6 PM, and 10-11 PM, Monday — Friday for 13 weeks
at a negotiated rate per spot. The Company bills customers on a monthly
basis for the commercials that aired at the time outlined in the
sales
contract and the payment is due upon receipt. When a station has
unsold 30
or 60 second time slots available, it can run PI (Per Inquiry) which
pays
the station a commission for sales made airing their
commercials.
|
|
|
|
Paid Programming. Paid programming arrangements involve selling a
30-minute or 60-minute time slot for an infomercial (such as exercise
equipment, diet supplements, etc.) or to a local church, sports or
hunting
show, or other type of program produced by a third party. The sales
contract outlines when the program will run, how long it will run
and how
much the advertiser will pay each time it runs. An example is where
a
local church purchases an hour on Sunday mornings to air its weekly
church
service. The station might sell the air time for $1,000 for the hour.
The
contract could provide that the church will deliver the tape for
the
station to air by Friday at noon to air on Sunday. The church will
pay
weekly for the previous week when the tape is delivered for the following
week. The station provides an invoice warranting that the Church
programming ran properly per the contract.
|
|
|
|
Time Brokerage. Time Brokerage agreements are used when the station
sells
a block of time longer than one hour to a shopping network or other
programming provider. Usually this is done with overnight programming
from
12:00 AM - 6:00 AM, seven days per week. The station sells
the time per an hourly rate and bills the client monthly showing
that the
programming aired properly.
|
In each of the broadcast revenue categories described above, the Company pays
commissions whether the sales are made by local station sales representatives
or
national reps that the Company contracts with. Commissions vary with national
commission rates generally being between 5 to 15 percent and local
commission rates generally between 10 to 20 percent. Commissions are
usually paid on collection of the sale.
Advertisers seeking to capture a national audience typically purchase time
from
television networks directly, or select separate networks on an ad hoc
basis.
National advertisers that target a regional or local audience deal directly
with
local stations through national advertising placement firms. Local businesses
typically purchase advertising time directly from the station’s local sales
staff or local sales agents.
Television
Marketing/Audience Research
The
Company primarily derives its revenues from selling advertising time. The
relative advertising rates charged by competing stations within a market
depend
on several factors including:
|
•
|
each
station’s ratings (households or people viewing its programming as a
percentage of total households or people in the viewing
area);
|
|
•
|
each
station’s audience share (households or people viewing its specific
programs as a percentage of households or people watching television
at
that specific time);
|
|
•
|
the
time of day the advertising will
run;
|
|
•
|
the
first-run, re-run or syndication status of the show to air the
advertisement;
|
|
•
|
the
demographic trends of a program’s viewers (primarily age and
gender); and
|
|
•
|
Competitive
conditions in each station’s market, including the availability of other
advertising media.
|
The Nielsen Station Index (“NSI”) measures local station viewing of all
households and individuals in a specific market. This is the primary rating
service for English-language stations and generally under-represents
Spanish-language television.
The Nielsen Hispanic Station Index (“NHSI”) measures U.S. Hispanic
household and individual viewing information at the local market level. NHSI
also weighs the varying levels of language usage by Hispanics in each market
in
order to reflect more accurately the Hispanic household population in the
specific market. This methodology only measures the audience viewing of
U.S. Hispanic households, defined as households where the head of the
household is of Hispanic descent or origin.
Large markets already have an established and defined broadcast presence.
While
the Company believes that many of its target markets are emerging and
underserved, the Company faces competition for viewers and revenues from
established network affiliates and independent stations in each market. The
Company believes that its ability to attract audience share and advertising
revenues will determine its overall success.
Media
Services
The Company generates incremental revenue by providing media services for
Equity
News Services and outsourcing C.A.S.H. services
Central
Automated Satellite Hub (“C.A.S.H.”)
The Company’s C.A.S.H. services system is a state of the art/proprietary
technology (patent pending) facility based in Little Rock, Arkansas that
provides management services to broadcast television stations. Currently,
the
C.A.S.H. system manages approximately 71 television stations, the majority
of
which are owned by the Company. The C.A.S.H.
system has enabled the following key components of the Company’s Media Services
infrastructure to date:
|
Standardized Approach to Station Development. The Company has developed
a
standardized approach to station development and plans to utilize
that
model to achieve its RTN growth
strategy.
|
|
Development
of the C.A.S.H. services system has contributed to the Company’s efforts
to consolidate programming, traffic, accounting and billing. As
new
stations are acquired or RTN affiliates added, they are converted
into the
C.A.S.H. services system, which allows these stations to be centrally
managed from the Company’s Little Rock, Arkansas facility. The C.A.S.H.
Services system greatly reduces capital requirements and ongoing
staffing
expenses at the station site. In the Company’s experience, this
standardized approach to building out stations typically allows
projects
to be completed within budget and on time. This approach requires
detailed
planning in order to review station configuration, maximize cable
subscriber penetration and ensure a “hands-free” operating environment to
maximize broadcast cash flow.
|
|
|
|
Low Cost Operations. The Company acquired a majority of its stations
either through the FCC application process or by purchasing a construction
permit. In either event, the Company utilized its in house engineering
to
design and construct these television stations resulting in substantial
cost savings relating to the station’s development phase. Because the
Company uses its U.S. patent pending Central Automated Satellite Hub
(“C.A.S.H.”) system to run the master control operations, the Company
often saves between $1.0 million and $2.0 million in capital
expenditures related to building each local master control facility.
The
C.A.S.H. system creates a virtual duopoly minimizing the ongoing
operational costs. The C.A.S.H. system also creates a point to
multi-point
delivery system providing full distribution to all cable head ends
in the
station’s designated market area. This centralized satellite delivery
allows the station to operate a smaller primary transmitter system
resulting in lower capital costs as well as lower monthly operating
and
maintenance costs. The centralization of master control, traffic,
news,
weather, and accounting further reduce a station’s monthly operating
costs. With a large number of start-up stations and by continuing
to
develop its own stations and utilizing its U.S. patent pending
centralcasting model, the Company has created an operating model
that can
reduce the start-up losses and allow stations to break even at
a lower
revenue threshold.
|
Equity
News Services (“ENS”)
ENS is a centralized news service that allows the Company to provide localized
news content to stations throughout its national footprint from a centralized
location. Using the Centralcast news concept, the Company can afford to provide
newscasts at many startup stations that did not previously broadcast news
content. ENS news management personnel in Little Rock, Arkansas communicate
with
local reporters at each station to determine news coverage each day. At ENS’s
central facility, news scripts are entered into a computerized newsroom
operations system, which consolidates data for all newscasts. This allows
producers to share video and stories among ENS stations, greatly expanding
the
“pool” of stories on any given day. Finished stories are fed back to Little Rock
via the internet and/or the Company’s VSAT satellite system. All anchor talent
is based in Little Rock and shared among multiple stations. For example,
on the
Company’s Univision stations, the same anchor person, meteorologist and sports
anchor appear on all stations, while the news content is localized for each
market. The finished product is a well-integrated, attractively priced newscast
that is offered to smaller stations, which would otherwise not be able to
justify the expense of required facilities and local staff. This news product
localizes the station, allowing it to differentiate itself from its competitors
and to increase its market penetration and ratings. Centralization of news
services reduces per station cost and gives the Company a significant advantage
over its competitors.
The Company continues to benefit from its long-term strategic partnership
with
Univision, and it plans to continue to develop its inventory of highest quality
brand programming and content. The Company anticipates pursuing additional
strategic partnerships with additional content partners for both Spanish
and
English language content, and continuing to develop its ability to provide
programming for the markets in which it operates.
Spectrum
Holdings
The
Company has accumulated one of the largest portfolios of broadcast spectrum
in
the U.S. in anticipation of the potential switch to digital television
broadcasts. Congress has set a February 18, 2009 deadline for television
stations to switch entirely from analog to digital broadcasts. The Company’s
spectrum provides an opportunity to offer digital broadcast services, favorably
positioning the Company with respect to data convergence since only a portion
of
the Company’s spectrum will be needed to broadcast its current television
stations. The Company may seek to monetize the Company’s significant unused
spectrum through joint-ventures, leasing or sub-licensing to telecommunications
service providers or new media companies seeking digital delivery of
services.
The Company believes that the value of this spectrum is significant for a
number
of reasons. First, in August 2006, the FCC conducted the Advanced Wireless
Services (AWS) auction in which other spectrum which can be used in similar
ways was sold to telecommunications, satellite and cable service providers.
In
the auction, various companies in the wireless industry paid approximately
$14 billion for 90MHz of AWS Spectrum.
In another comparable spectrum development, specifically in the 700 MHz
frequency, on February 1, 2005, Aloha Partners LP announced that it
purchased Cavalier Group LLC and DataCom Wireless LLC, respectively the second
and third largest owners of 700 MHz spectrum in the US. In October, 2007
AT&T announced that it acquired Aloha Partners and its digital spectrum for
approximately $2.5 billion in cash. The Company’s
digital spectrum is predominantly in the 480-680 MHz Bands, which is the
adjoining spectrum to the 700 MHz Band and offers similar applications and
features. The Company spectrum is at a lower frequency which travels 3-4
times
further than the AWS spectrum discussed above, has better building penetration
and has the ability to use internet protocol, according to
www.dailywireless.org.
The FCC determined that all broadcasters could operate their DTV systems
in
Channels 2-51. That leaves the Upper 700 MHz Band (60 megahertz of spectrum
corresponding to channels 60-69), and the Lower 700 MHz Band (48 megahertz
of spectrum corresponding to channels 52-59), available for broadband wireless
users. The Company’s digital spectrum exists predominantly in the
480-680 MHz Bands, which is the adjoining spectrum to the 700 MHz Band
and offers similar applications and features.
Reliable service requires licensed bands, and 700 MHZ and the adjoining spectrum
are considered the highest quality. The lower frequency travels 3-4 times
further than 1.9 GHz cellular, penetrates buildings, resists multipath with
orthogonal frequency-division multiplexing, and can use internet protocol.
Other
infrastructure costs are only one-tenth as expensive since fewer “cells” are
required.
Regulation
Communications Act of 1934
Television broadcasting is a regulated industry and is subject to the
jurisdiction of the FCC under the Communications Act of 1934 (the
“Communications Act”). The Communications Act prohibits the operation of
television broadcasting stations except under a license issued by the FCC.
Licenses may be granted for up to eight years under current law, and they
must
be renewed as they expire to allow for continued operations. The Communications
Act also prohibits the assignment of a broadcast license or the transfer
of
control of a broadcast licensee without the prior approval of the FCC.
Additionally, a party must obtain a construction permit from the FCC in order
to
build a new television station and subsequently obtain a license to commence
operations. The Communications Act empowers the FCC, among other things to
issue, revoke and modify broadcast licenses; decide whether to approve a
change
of ownership or control of station licenses; regulate the equipment used
by
stations; and adopt and implement regulations to carry out the provisions
of the
Communications Act.
In determining whether to grant, renew, or permit the
assignment or transfer of control of a broadcast license, the FCC considers
a
number of factors pertaining to the licensee, including:
|
•
|
compliance
with various rules limiting common ownership of media
properties;
|
|
•
|
the
character of the licensee (i.e., the likelihood that the licensee
will
comply with applicable law and regulations) and those persons
holding
attributable interests (i.e., the level of ownership or other
involvement
in station operations resulting in the FCC attributing ownership
of that
station or other media outlet to such person or entity in determining
compliance with FCC ownership
limitations; and
|
|
•
|
Compliance
with the Communications Act’s limitations on alien
ownership.
|
Additionally, for a renewal of a broadcast
license, the FCC will consider whether a station has served the public interest,
convenience, and necessity, whether there have been any serious violations
by
the licensee of the Communications Act or FCC rules and policies, and whether
there have been no other violations of the Communications Act and FCC rules
and
policies which, taken together, would constitute a pattern of abuse. Any
other
party with standing may petition the FCC to deny a broadcaster’s application for
renewal. However, only if the FCC issues an order denying renewal will the
FCC
accept and consider applications from other parties for a construction permit
for a new station to operate on that channel. The FCC may not consider any
new
applicant for the channel in making determinations concerning the grant or
denial of the licensee’s renewal application. Although renewal of licenses is
granted in the majority of cases even when petitions to deny have been filed,
we
cannot be sure our station licenses will be renewed for a full term or without
modification.
With respect to obtaining the FCC’s consent prior
to assigning a broadcast license or transferring control of a broadcast
licensee, if the application involves a substantial change in ownership or
control, the filer must comply with the public notice requirements. During
the
public notice period of not less than 30 days, petitions to deny the
application may be filed by interested parties, including certain members
of the
public. If the FCC grants the application, interested parties then have a
minimum 30 day period during which they may seek reconsideration or review
of that grant by the FCC or, as the case may be, a court of competent
jurisdiction. The full FCC commission has an additional 10 days to set
aside on its own motion any action taken by the FCC’s staff.
Failure to observe FCC or other governmental
rules and policies can result in the imposition of various sanctions, including
monetary forfeitures, the grant of short, or less than maximum license renewal
terms or for particularly egregious violations, the denial of a license renewal
application, the revocation of a license or denial of FCC consent to acquire
additional broadcast properties — any of which could negatively impact both
our existing business and future acquisitions. Additionally, our inability
to
conclusively anticipate the timing and approval of license grants, renewals,
transfers and assignments may result in uncertainty and negatively impact
our
business because of delays and additional expenses.
The
Communications Act prohibits the issuance of broadcast licenses to, or the
holding of a broadcast license by, foreign citizens or any corporation of
which
more than 20% of the capital stock is owned of record or voted by non-U.S.
citizens or their representatives or by a foreign government or a representative
thereof, or by any corporation organized under the laws of a foreign country.
The Communications Act also authorizes the FCC to prohibit the issuance of
a
broadcast license to, or the holding of a broadcast license by, any corporation
controlled by any other corporation of which more than 25% of the capital
stock
is owned of record or voted by aliens. The FCC has interpreted these
restrictions to apply to other forms of business organizations, including
partnerships and limited liability companies. As a result of these provisions,
the FCC licenses granted to our subsidiaries could be revoked if more than
25%
of our stock were directly or indirectly owned or voted by aliens. These
restrictions limit our ability to attract foreign investment in us and may
impact our ability to successfully sell our business if we were to ever
determine that such actions are in the best interests of our company and
stockholders.
In June 2003, the FCC amended its multiple
ownership rules, including, among other things, its local television ownership
limitations, its prohibition on common ownership of newspapers and broadcast
stations in the same market, as well as its local radio ownership limitations.
Under the amended rules, a single entity would be permitted to own up to
two
television stations in a market with at least five television stations if
one of
the stations is not among the top-4 ranked stations and could own three
television stations in a market with at least 18 television stations as long
as
two of the stations are not among the top-4 ranked stations. The amended
rules
also establish new cross media limits to govern the combined ownership of
television stations, radio stations and daily newspapers. Specifically, in
markets with 4-8 television stations, a single entity can own (1) a
combination of one daily newspaper, one television station, and half the
ownership limit of radio stations, (2) a combination of one daily newspaper
and the full complement of allowed radio stations, or (3) a combination of
two television stations (if otherwise permissible) and the full complement
of
radio stations but no daily newspaper. The effectiveness of these new rules
was
stayed pending appeal. In June 2004, a federal court of appeals issued a
decision which upheld portions of the FCC decision adopting the rules, but
concluded that the order failed to adequately support numerous aspects of
those
rules, including the specific numeric ownership limits adopted by the FCC.
The
court remanded the matter to the FCC for revision or further justification
of
the rules, retaining jurisdiction over the matter. The court has partially
maintained its stay of the effectiveness of those rules, particularly as
they
relate to television. The rules are now largely in effect as they relate
to
radio. The United States Supreme Court has declined to review the matter
at this
time, and the FCC must review the matter and issue a revised order. We cannot
predict whether, how or when the new rules will be modified, ultimately
implemented as modified, or repealed in their entirety.
The
FCC’s
current rules generally prohibit the issuance of a license to any party,
or
parties under common control, for a television station if that station’s Grade B
contour overlaps with the Grade B contour of another television station in
the
same designated market area (“DMA”) in which that party or those parties already
have an attributable television interest. FCC rules provide an exception
to that
general prohibition and allow ownership of two television stations with
overlapping Grade B contours under any one of the following
circumstances:
•
there
will be eight independent full-power television stations in the DMA after
the
acquisition or merger and one of the two television stations owned by the
same
party is not among the top four-ranked stations in the DMA based on audience
share;
•
the
station to be acquired is a "failing" station under FCC rules and
policies;
•
the
station to be acquired is a "failed" station under FCC rules and policies;
or
•
the
acquisition will result in the construction of a previously un-built
station.
The new multiple ownership rules could limit our ability to acquire additional
television stations in existing markets that we serve. Legislation went into
effect in January 2004 that permits a single entity to own television stations
serving up to 39% of U.S. television households. Large broadcast groups may
take advantage of this law to expand further their ownership interests on
a
national basis.
Regulation
of the Content of Programming
Stations must pay regulatory and application fees
and follow various FCC rules that regulate, among other things:
|
•
|
political
advertising;
|
|
|
|
•
|
children’s
programming;
|
|
|
|
•
|
the
broadcast of obscene or indecent programming;
|
|
|
|
•
|
sponsorship
identification; and
|
|
|
|
•
|
technical
operations.
|
The FCC requires licensees to present programming that is responsive to
community problems, needs and interests. In addition, FCC rules require
television stations to serve the educational and informational needs of children
16 years old and younger through the stations’ own programming as well as
through other means. FCC rules also limit the amount of commercial matter
that a
television station may broadcast during programming directed primarily at
children 12 years old and younger. The FCC requires television broadcasters
to maintain certain records and/or file periodic reports with the FCC to
document their compliance with the foregoing obligations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including monetary forfeitures, the grant of short, less than
the
maximum, renewal terms, or for particularly egregious violations, the denial
of
a license renewal application or the revocation of a license.
Cable
Television Consumer Protection and Competition Act of 1992
Pursuant to the “must carry” provisions of the
Cable Television Consumer Protection and Competition Act of 1992, television
broadcast stations may elect to require that a cable operator carry its signal
if the cable operator is located in the same market as the broadcast station.
However, in such cases the broadcast station cannot demand compensation from
the
cable operator. Such mandatory carriage is commonly referred to as “must-carry.”
The future of “must carry” rights is uncertain, especially as they relate to the
carriage of digital television. Under the current FCC rules, must-carry rights
extend to digital television signals only in limited circumstances. While
proposed legislation to broaden such rights has been proposed, we cannot
predict
whether such legislation will be adopted or the details of any legislation
that
may be adopted. Our full-power television stations often rely on “must-carry”
rights to obtain cable carriage on specific cable systems. New laws or
regulations that eliminate or limit the scope of these cable carriage rights
could significantly reduce our ability to obtain cable carriage, which would
reduce our ability to distribute our programming and consequently our ability
to
generate revenues from advertising.
In addition, a number of entities have commenced
operation, or announced plans to commence operation of internet protocol
video
systems, using digital subscriber line (“DSL”), fiber optic to the home (“FTTH”)
and other distribution technologies. The issue of whether those services
are
subject to the existing cable television regulations, including must-carry
obligations, has not been resolved. There are proposals in Congress and at
the
FCC to resolve this issue. We cannot predict whether must-carry rights will
cover such Internet Protocol Television (“IPTV”) systems. In the event IPTV
systems gain a significant share of the video distribution marketplace, and
new
laws and regulations fail to provide adequate must-carry rights, our ability
to
distribute our programming to the maximum number of potential viewers will
be
significantly reduced and consequently our revenue potential will be
significantly reduced.
Regulation
of Local Marketing Agreements
The Company, from time to time, entered into
local marketing agreements, generally in connection with pending station
acquisitions which allow us to provide programming and other services to
a
station that we have agreed to acquire before we receive all applicable FCC
and
other governmental approvals. FCC rules generally permit local marketing
agreements if the station licensee retains ultimate responsibility for and
control of the applicable station, including finances, personnel, programming
and compliance with the FCC’s rules and policies. We cannot be sure that we will
be able to air all of our scheduled programming on a station with which we
may
have a local marketing agreement or that we would receive the revenue from
the
sale of advertising for such programming.
The Company, from time to time, entered into
joint sales agreements, or JSAs, which allow us to sell advertising time
on
another station. JSAs are arrangements whereby a television station in a
given
market may sell a certain amount of advertising time on another television
station in that same market.
FCC
Regulation of the Commencement of Digital Operations
FCC regulations required all commercial
television stations in the United States to commence digital operations on
a
schedule determined by the FCC and Congress, in addition to continuing their
analog operations. Digital transmissions were initially permitted to be
low-power, but full-power transmission was required by July 1, 2005 for
stations affiliated with the four largest networks (ABC, CBS, NBC and Fox)
in
the top one hundred markets and is required by July 1, 2006 for all other
stations.
As of December 31, 2007 , the Company had already
constructed full power digital television facilities for six of our stations
in
the Cheyenne, Wyoming; Amarillo, Texas; Salt Lake City, Utah; Eugene, Oregon;
Scottsbluff, Nebraska; and Little Rock, Arkansas markets. The Company has
made
significant capital expenditures in order to comply with the FCC’s digital
television requirements. The Company will be required to convert an additional
15 stations into full power digital television stations by
February 17, 2009. The Company expects to spend approximately $1,300,000 on
this process. All analog full-power television stations, except for extremely
limited circumstances, must cease analog operations and commence digital-only
operations, by February 17, 2009. At this point, the FCC has not set a
transition date for LPTV and Class A stations to convert to digital-only
operations, although once a date is set, we expect to make significant capital
expenditures to accomplish such a goal.
Another major issue surrounding the implementation of digital television
is the
scope of a local cable television system’s obligation to carry the signals of
local broadcast television stations. On February 10, 2005, the FCC decided
that a cable television system is only obligated under the Communications
Act to
carry a television station’s “primary video” signal and, accordingly, that a
cable television system does not have to carry the television station’s digital
signal as well as its analog signal (but must carry the digital signal if
the
station does not have an analog signal). The new digital technology will
enable
a television station to broadcast four or more video streams of programming
to
the public, but the FCC said that the cable television system only has an
obligation to carry one of those signals (the “primary video” signal) and not
all of them, thus rejecting the broadcasters’ request for the FCC to impose a
“multicasting” obligation on cable television systems. In addition, the FCC has
not yet promulgated rules regarding the obligation of direct broadcast satellite
providers to carry the digital signal of a local broadcast station. The FCC
decisions could limit the reach of our television stations’ digital programming
and, to that extent, could have an adverse impact on the revenue we derive
from
station operations.
The
Satellite Home Viewer Extension and Reauthorization Act
The Satellite Home Viewer Extension and
Reauthorization Act allows direct broadcast satellite television companies
to
continue to transmit local broadcast television signals to subscribers in
local
markets provided that they offer to carry all local stations in that market.
However, satellite providers have limited satellite capacity to deliver local
station signals in local markets. Satellite providers may choose not to carry
local stations in any of our markets. In those markets in which the satellite
providers do not carry local station signals, subscribers to those satellite
services are unable to view local stations without making further arrangements,
such as installing antennas and switches. A principal component of the new
regulation requires satellite carriers to carry the analog signals of all
local
television stations in a market if they carry one. The Company has taken
advantage of that regulation to elect carriage of our stations on satellite
systems in markets in which local-into-local carriage is provided, however,
this
has been a time consuming process to provide the local television broadcast
signal to certain of these markets. Furthermore, when direct broadcast satellite
companies do carry local television stations in a market, they are permitted
to
charge subscribers extra for such service. Some subscribers may choose not
to
pay extra to receive local television stations. In the event subscribers
to
satellite services do not receive the stations that we own and operate or
provide services to, we could lose audience share which would adversely affect
our revenue.
Employees
As
of
December 31, 2007, the Company had a total of 312 employees, comprised of
306 full-time and 6 part-time or temporary employees. As of December 31,
2007, none of our employees were covered by collective bargaining agreements.
We
believe that our employee relations are satisfactory, and we have not
experienced any work stoppages at any of our facilities.
ITEM
1A. RISK FACTORS –
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 occur, our business, financial
condition and future results could be harmed
Risk
Factors That May Affect Future Results
This
Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject
to
known and unknown risks, uncertainties and assumptions about us that may
cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or
achievements expressed or implied by such forward-looking statements. In
some
cases, you can identify forward-looking statements by terminology such as
“may,”
“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “continue,” or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described here in as “Risk Factors” and
elsewhere and in our other Securities and Exchange Commission filings. Given
such risks and uncertainties, investors are cautioned not to place undue
reliance on such forward-looking statements. Forward-looking statements do
not
guarantee future performance and should not be considered statements of fact.
These forward-looking statement speak only as of the date of this report
and,
unless required by law, we undertake no obligation to publicly update or
revise
any forward-looking statements to reflect new information or future events
or
otherwise.
The
Company has a history of losses and there can be no assurance that the Company
will become or remain profitable or that losses will not continue to
occur.
The
Company has a history of losses. The Company had a loss from operations of
$33.4 million for the year ended December 31, 2007 as compared to a
net loss of $14.9 million for the year ended December 31, 2006. There
can be no assurance that the Company will become or remain profitable or
that
losses will not continue to occur.
The
Company must obtain additional sources of capital in the near term to fund
its
operations.
The
Company’s existing capital resources are not sufficient to fund operations. If
the Company is unable to obtain adequate additional sources of capital in
the
near term it will need to cease all or a portion of its operations, seek
protection under U.S. bankruptcy laws and regulations, engage in a restructuring
or undertake a combination of these and other actions. Additional sources
of
capital, if obtained, would likely come from sales by the Company of debt
and/or
equity and/or the sale of material assets of the Company. The Company is
currently negotiating potential transactions that would supply it with capital
necessary to meet its current requirements. However, these negotiations may
not
result in successful consummation of any transaction. If the Company is able
to
successfully consummate a transaction, such transaction may result in
substantial dilution to the Company’s existing security holdings and/or the
incurrence of substantial indebtedness on relatively expensive terms. The
terms
of any such transaction would also likely involve covenants that serve to
substantially restrict the operations of the Company and its management and
could result in a change of control of the Company.
The
Company is currently in default under its existing credit facilities and
has
negotiated with the lenders thereunder to agree to forbear on exercising
any
remedies available to them while the Company seeks alternative sources of
funding.
On
March
20, 2008, the Company entered into an amendment to its Third Amended and
Restated Credit Agreement (“Credit Agreement”) with Silver Point Finance, LLC
and Wells Fargo Foothill, Inc. Under the terms of the Amendment, the lender
group has agreed to forbear from exercising certain of their rights and remedies
with respect to designated defaults under the Credit Agreement through the
earlier of (a) April 18, 2008 and (b) the date of occurrence of certain events
or by which certain events have failed to occur, including the Company’s failure
to enter into agreements with respect to the sale of certain of its assets
and
the Company’s failure to secure approvals for, and meet other criteria with
respect to, financing alternatives necessary to meet the Company’s immediate
capital requirements. If the Company is unable to meet all criteria under
the
forbearance agreement, the lender group will have all remedies available
to them
under the Credit Agreement, including demanding immediate payment of the
obligation.
We
incur and may continue to incur losses on newly acquired or built stations
without an immediate return on our investment.
Generally,
it takes a few years for our newly acquired or built stations to generate
operating cash flow. A majority of the Company’s network stations have been
acquired or built within the last five years. During the initial period after
acquisition or construction of a station, we incur significant expenses related
to:
|
•
|
acquiring
syndicated programming;
|
|
•
|
improving
technical facilities;
|
|
•
|
increasing
and improving cable distribution;
|
|
•
|
hiring
new personnel; and
|
|
•
|
marketing
our television stations to
viewers.
|
In
addition, it requires time to gain viewer awareness of new station programming
and to attract advertisers. Accordingly, we have incurred, and expect to
continue to incur, with newly acquired or built stations, losses at a station
in
the first few years after we acquire or build the station without an immediate
return on our investment. Occasionally unforeseen expenses and delays increase
the estimated initial start-up expenses. This requires our established stations
to generate revenues and cash flow sufficient to meet our business plan
including the significant expenses related to our newly acquired or built
stations.
The
loss of the services of our senior management team or a significant number
of
our employees may negatively affect our business.
Our
success is largely dependent on the continued services of our senior management
team, which includes Henry Luken, III, Chairman, President and Chief
Executive Officer, Larry Morton, Chairman, President and Chief Executive Officer
of Retro Programming Services, Inc., Thomas M. Arnost, President and Chief
Executive Officer of the Broadcast Station Group, Patrick Doran, Chief Financial
Officer, Mario Ferrari, Chief Strategic Officer, Gregory Fess, Senior Vice
President and Chief Operating Officer, Mark Dvornik, Executive Vice President
of
Retro Television Network, James Hearnsberger, Vice President —
Finance & Administration,
Lori
Withrow, Secretary
and Glenn Charlesworth, Vice President and Chief
Accounting Officer. The loss of the services of our senior management team
could
harm our business if we are not able to find an appropriate replacement on
a
timely basis. Our success will also be dependent in part on our ability to
attract and retain quality general managers and other management personnel
for
our stations. Further, the loss of a significant number of employees or our
inability to hire a sufficient number of qualified employees could have a
material adverse effect on our business.
We
depend on our network affiliation relationship with Univision for maintaining
our existing Spanish- business.
Many
of
our television stations are affiliates of Univision and Telefutura (collectively
for this discussion, “Univision”). These affiliated television stations
accounted for 41% and 28% of the Company’s revenues and net loss from television
operations, respectively, for the fiscal year ended December 31, 2007 and
36% and 39% of the Company’s revenues and net loss from television operations,
respectively, for the fiscal year ended December 31, 2006. Accordingly, our
operating performance largely depends on our stations’ continued relationship
with Univision and on Univision’s continued success as a broadcast network. We
cannot be sure that the ratings of Univision programming will continue to
improve or that Univision will continue to provide programming, marketing and
other support to its affiliates on the same basis as currently provided.
Finally, by aligning ourselves closely with Univision, we may forego other
opportunities that could provide diversity of network affiliation and avoid
dependence on any one network.
We
expect the competition for and the prices of syndicated programming will
continue to increase and we may not be able to acquire desired syndicated
programming on acceptable terms or at all.
On
our
English language stations, one of our most significant operating costs is
syndicated programming. We may be exposed in the future to increase syndicated
programming costs that may adversely affect our operating results. In addition,
syndicated programs that meet our criteria may not be available in the future
or
may not be available at prices that are acceptable to us. We believe that the
prices of the most sought after syndicated programming will continue to
increase.
Syndicated
programming rights are often acquired several years in advance and may require
multi-year commitments, making it difficult to accurately predict how a program
will perform. In some instances, programs must be replaced before their costs
have been fully amortized, resulting in write-offs that increase station
operating costs.
Competition
for popular programming licensed from third parties is intense, and we may
be
outbid by our competitors for the rights to new popular syndicated rerun
programming or in connection with the renewal of popular rerun syndicated
programming we currently license. In addition, renewal costs could substantially
exceed the existing contract costs. If we are unable to acquire certain popular
programming, our ratings could decrease which could adversely affect our
revenue.
Our
planned expansion of Retro Television Network may not materialize as we
anticipate.
Although
to date we have been very successful in signing up new RTN affiliates, we may
not be able to continue signing up affiliates in key demographic markets.
Failure to continue signing up key affiliate partners in top DMA markets will
impact our ability to generate advertising revenue. An inability to sell
sufficient advertising spots will impact our ability to generate profits. We
also rely on our ability to license programming for our RTN affiliate stations
at a reasonable cost to program the stations. An adverse change in our
programming agreements could impact our profitability.
Increasing
competition in the broadcast television industry and its programming
alternatives may adversely affect us.
The
broadcast television industry is highly competitive, and our success depends
in
large part on our ability to compete successfully with other network affiliated
and independent broadcast television stations and
other
media for viewers and advertising revenues. The ability of broadcast television
stations to generate advertising revenues depends to a significant degree upon
audience ratings. Through the 1970s, network television broadcasting generally
enjoyed dominance in viewership and television advertising revenues, because
network-affiliated television stations competed principally with each other
in
local markets. Beginning in the 1980s, however, this dominance began to
decline.
Programming
alternatives, such as independent broadcast stations, cable television and
other
multi-channel competitors, pay-per-view and home videos have fragmented
television viewing audiences and subjected television broadcast stations to
new
types of competition. Since the mid-1980s, cable television and formerly
independent stations now affiliated with new networks have captured increasing
market share and overall viewership from general broadcast network television.
Cable-originated programming in particular has emerged as a significant
competitor for broadcast television programming. We also face increasing
competition from home satellite delivery, direct broadcast satellite television
systems and video delivery systems utilizing telephone lines. Many of our
competitors have longer operating histories and greater resources than us.
As a
result of this competition, our revenues could be adversely
affected.
New
technologies may have a material adverse effect on our results of
operations.
Advances
in technology may increase competition for viewers and advertising revenue
which
may have a material adverse effect on our results of operations. For example,
advances in video compression technology could lower entry barriers for new
video channels and encourage the development of increasingly specialized “niche”
programming. This may increase the number of competitors targeting the same
demographic group as us. Future competition in the television industry may
include the provision of interactive video and data services capable of
providing two-way interaction with commercial video programming, together with
information and data services, that may be delivered by commercial television
stations, cable television, direct broadcast satellite television and other
video delivery systems.
The
loss of major advertisers, a reduction in their advertising expenditures, a
decrease in advertising rates or a change in economic conditions may materially
harm our business.
We
derive
substantially all of our revenues from advertisers in diverse industries at
the
local, regional and national levels. The loss of any major advertiser, a
reduction in their advertising expenditures, a general decrease in advertising
rates, or adverse developments or changes in the local, regional or national
economy could materially harm our business by reducing our revenue.
Our
revenues are affected by seasonal trends causing additional cash flow concerns
during the slower seasons.
The
revenues and cash flows of our television stations are subject to various
seasonal factors that influence the television broadcasting industry as a whole.
Like other broadcasters, we experience higher revenues and cash flows during
the
second and fourth quarters of the year when television viewing and advertising
is higher compared to the first and third quarters. The slower seasons result
in
lower revenue which causes additional cash flow concerns during these
quarters.
Failure
to observe governmental rules and regulations governing the granting, renewal,
transfer and assignment of licenses and our inability to conclusively anticipate
timing and approval actions could negatively impact our
business.
Television
broadcasting is a regulated industry and is subject to the jurisdiction of
the
FCC under the Communications Act. The Communications Act prohibits the operation
of television broadcasting stations except under a license issued by the FCC.
Licenses may be as long as eight years under current law. The Communications
Act
also prohibits the assignment of a broadcast license or the transfer of control
of a broadcast licensee without the prior approval of the FCC. Additionally,
a
party must obtain a construction permit from the FCC in order to build a new
television station and subsequently obtain a license to commence operations.
The
Communications Act empowers the FCC, among other things to issue, revoke and
modify broadcast licenses; decide whether to approve a change of ownership
or
control of station licenses; regulate the equipment used by stations; and adopt
and implement regulations to carry out the provisions of the Communications
Act.
In
determining whether to grant, renew, or permit the assignment or transfer of
control of a broadcast license, the FCC considers a number of factors pertaining
to the licensee, including:
|
•
|
compliance
with various rules limiting common ownership of media
properties;
|
|
•
|
the
character of the licensee (i.e., the likelihood that the licensee
will
comply with applicable law and regulations) and those persons holding
attributable interests (i.e., the level of ownership or other involvement
in station operations resulting in the FCC attributing ownership
of that
station or other media outlet to such person or entity in determining
compliance with FCC ownership
limitations; and
|
|
•
|
compliance
with the Communications Act’s limitations on alien
ownership.
|
Additionally,
for a renewal of a broadcast license, the FCC will consider whether a station
has served the public interest, convenience, and necessity, whether there have
been any serious violations by the licensee of the Communications Act or FCC
rules and policies, and whether there have been no other violations of the
Communications Act and FCC rules and policies which, taken together, would
constitute a pattern of abuse. Any other party with standing may petition the
FCC to deny a broadcaster’s application for renewal. However, only if the FCC
issues an order denying renewal will the FCC accept and consider applications
from other parties for a construction permit for a new station to operate on
that channel. The FCC may not consider any new applicant for the channel in
making determinations concerning the grant or denial of the licensee’s renewal
application. Although renewal of licenses is granted in the majority of cases
even when petitions to deny have been filed, we cannot be sure our station
licenses will be renewed for a full term or without modification.
With
respect to obtaining the FCC’s consent prior to assigning a broadcast license or
transferring control of a broadcast licensee, if the application involves a
substantial change in ownership or control, the filer must comply with the
public notice requirements. During the public notice period of not less than
30 days, petitions to deny the application may be filed by interested
parties, including certain members of the public. If the FCC grants the
application, interested parties then have a minimum 30 day period during
which they may seek reconsideration or review of that grant by the FCC or,
as
the case may be, a court of competent jurisdiction. The full FCC commission
has
an additional 10 days to set aside on its own motion any action taken by
the FCC’s staff.
Due
to
the factors set forth above, it is possible that the FCC could not approve
some
or all of the licenses held by the Company in connection with the change in
control from the proposed merger with Coconut Palm. The FCC’s denial of the
change in control for some or all of the licenses or a delay in the FCC’s review
of the change in control requests may negatively impact the merger and possibly
prevent the merger from being consummated between the parties.
In
addition, assuming the merger were to occur, the combined company’s failure to
observe FCC or other governmental rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant
of
short, or less than maximum license renewal terms or for particularly egregious
violations, the denial of a license renewal application, the revocation of
a
license or denial of FCC consent to acquire additional broadcast
properties — any of which could negatively impact both our existing
business and future acquisitions. Additionally, our inability to conclusively
anticipate the timing and approval of license grants, renewals, transfers and
assignments may result in uncertainty and negatively impact our business because
of delays and additional expenses.
Changes
in FCC regulations regarding media ownership limits have increased the
uncertainty surrounding the competitive position of our stations in the markets
we serve and may adversely affect our ability to buy new television stations
or
sell existing television stations.
In
June
2003, the FCC amended its multiple ownership rules, including, among other
things, its local television ownership limitations, its prohibition on common
ownership of newspapers and broadcast stations in the same market, as well
as
its local radio ownership limitations. Under the amended rules, a single entity
would be permitted to own up to two television stations in a market with at
least five television stations if one of the stations is not among the top-4
ranked stations and could own three television stations in a market with at
least 18 television stations as long as two of the stations are not among the
top-4 ranked stations. The amended rules also establish new cross media limits
to govern the combined ownership of television stations, radio stations and
daily newspapers. Specifically, in markets with 4-8 television stations, a
single entity can own (1) a combination of one daily newspaper, one
television station, and half the ownership limit of radio stations, (2) a
combination of one daily newspaper and the full complement of allowed radio
stations, or (3) a combination of two television stations (if otherwise
permissible) and the full complement of radio stations but no daily newspaper.
The effectiveness of these new rules was stayed pending appeal. In June 2004,
a
federal court of appeals issued a decision which upheld portions of the FCC
decision adopting the rules, but concluded that the order failed to adequately
support numerous aspects of those rules, including the specific numeric
ownership limits adopted by the FCC. The court remanded the matter to the FCC
for revision or further justification of the rules, retaining jurisdiction
over
the matter. The court has partially maintained its stay of the effectiveness
of
those rules, particularly as they relate to television. The rules are now
largely in effect as they relate to radio. The Supreme Court has declined to
review the matter at this time, and the FCC must review the matter and issue
a
revised order. We cannot predict whether, how or when the new rules will be
modified, ultimately implemented as modified, or repealed in their
entirety.
The
new
multiple ownership rules could limit our ability to acquire additional
television stations in existing markets that we serve. Legislation went into
effect in January 2004 that permits a single entity to own television stations
serving up to 39% of U.S. television households, an increase over the
previous 35% cap. Large broadcast groups may take advantage of this law to
expand further their ownership interests on a national basis.
The
restrictions on foreign ownership may limit foreign investment in us or our
ability to successfully sell our business.
The
Communications Act limits the extent of non-U.S. ownership of companies
that own U.S. broadcast stations. Under this restriction, a
U.S. broadcast company such as ours may have no more than 25%
non-U.S. ownership (by vote and by equity). These restrictions limit our
ability to attract foreign investment in us and may impact our ability to
successfully sell our business if we were to ever determine that such actions
are in the best interests of our company and stockholders.
Failure
to observe rules and policies regarding the content of programming may adversely
affect our business.
Stations
must pay regulatory and application fees and follow various FCC rules that
regulate, among other things:
|
•
|
children’s
programming;
|
|
•
|
the
broadcast of obscene or indecent
programming;
|
|
•
|
sponsorship
identification; and
|
The
FCC
requires licensees to present programming that is responsive to community
problems, needs and interests. In addition, FCC rules require television
stations to serve the educational and informational needs of children
16 years old and younger through the stations’ own programming as well as
through other means. FCC rules also limit the amount of commercial matter that
a
television station may broadcast during programming directed primarily at
children 12 years old and younger. The FCC requires television broadcasters
to maintain certain records and/or file periodic reports with the FCC to
document their compliance with the foregoing obligations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including monetary forfeitures, the grant of short, less than the
maximum, renewal terms, or for particularly egregious violations, the denial
of
a license renewal application or the revocation of a license.
Because
our television stations rely on “must carry” rights to obtain cable carriage,
new laws or regulations that eliminate or limit the scope of these rights or
failures could significantly reduce our ability to obtain cable carriage and
therefore reduce our revenues.
Pursuant
to the “must carry” provisions of the Cable Television Consumer Protection and
Competition Act of 1992, television broadcast stations may elect to require
that
a cable operator carry its signal if the cable operator is located in the same
market as the broadcast station. However, in such cases the broadcast station
cannot demand compensation from the cable operator. Such mandatory carriage
is
commonly referred to as “must-carry.” The future of “must carry” rights is
uncertain, especially as they relate to the carriage of digital television.
Under the current FCC rules, must-carry rights extend to digital television
signals only in limited circumstances. While proposed legislation to broaden
such rights has been proposed, we cannot predict whether such legislation will
be adopted or the details of any legislation that may be adopted. Our full-power
television stations often rely on “must-carry” rights to obtain cable carriage
on specific cable systems. New laws or regulations that eliminate or limit
the
scope of these cable carriage rights could significantly reduce our ability
to
obtain cable carriage, which would reduce our ability to distribute our
programming and consequently our ability to generate revenues from
advertising.
In
addition, a number of entities have commenced operation, or announced plans
to
commence operation of internet protocol video systems, using digital subscriber
line (“DSL”), fiber optic to the home (“FTTH”) and other distribution
technologies. The issue of whether those services are subject to the existing
cable television regulations, including must-carry obligations, has not been
resolved. There are proposals in Congress and at the FCC to resolve this issue.
We cannot predict whether must-carry rights will cover such Internet Protocol
Television (“IPTV”) systems. In the event IPTV systems gain a significant share
of the video distribution marketplace, and new laws and regulations fail to
provide adequate must-carry rights, our ability to distribute our programming
to
the maximum number of potential viewers will be significantly reduced and
consequently our revenue potential will be significantly reduced.
Our
use of local marketing agreements and joint sales agreements may result in
uncertainty regarding scheduled programming and/or revenue from the sale of
advertising.
We
have,
from time to time, entered into local marketing agreements, generally in
connection with pending station acquisitions which allow us to provide
programming and other services to a station that we have agreed to acquire
before we receive all applicable FCC and other governmental approvals. FCC
rules
generally permit local marketing agreements if the station licensee retains
ultimate responsibility for and control of the applicable station, including
finances, personnel, programming and compliance with the FCC’s rules and
policies. We cannot be sure that we will be able to air all of our scheduled
programming on a station with which we may have a local marketing agreement
or
that we would receive the revenue from the sale of advertising for such
programming.
We
have,
from time to time, entered into joint sales agreements, which allow us to sell
advertising time on another station. The FCC’s New Rules make joint sales
agreements for radio stations an attributable ownership interest if the selling
station is located in the same market and sells more than 15% of the other
station’s weekly advertising time. The FCC recently initiated a new rulemaking
proceeding that could result in rules which make joint sales agreements for
television an attributable ownership interest to the same extent that radio
joint sales agreements are an attributable ownership interest. The FCC
proceeding could result in the adoption of rules which would limit our
opportunities to enter into joint sales agreements with other television
stations in a market where we already own one or more television stations,
and
that could adversely affect our revenue from advertising.
The
industry-wide mandatory conversion to digital television has required us, and
will continue to require us, to make significant capital expenditures without
assurance that we will remain competitive with other developing
technologies.
FCC
regulations required all commercial television stations in the United States
to
commence digital operations on a schedule determined by the FCC and Congress,
in
addition to continuing their analog operations. Digital transmissions were
initially permitted to be low-power, but full-power transmission was required
by
July 1, 2005 for stations affiliated with the four largest networks (ABC,
CBS, NBC and Fox) in the top one hundred markets and is required by July 1,
2006 for all other stations.
We
have
already constructed full power digital television facilities for six of our
stations in the Cheyenne, Wyoming, Amarillo, Texas, Salt Lake City, Utah,
Eugene, Oregon, Montgomery, Alabama and Little Rock, Arkansas markets. We have
made significant capital expenditures in order to comply with the FCC’s digital
television requirements. We will be required to convert an additional fifteen
stations into full power digital television stations by February 17, 2009.
We expect to spend approximately $1,300,000 on this process.
Another
major issue surrounding the implementation of digital television is the scope
of
a local cable television system’s obligation to carry the signals of local
broadcast television stations. On February 10, 2005, the FCC decided that a
cable television system is only obligated under the Communications Act to carry
a television station’s “primary video” signal and, accordingly, that a cable
television system does not have to carry the television station’s digital signal
as well as its analog signal (but must carry the digital signal if the station
does not have an analog signal). The new digital technology will enable a
television station to broadcast four or more video streams of programming to
the
public, but the FCC said that the cable television system only has an obligation
to carry one of those signals (the “primary video” signal) and not all of them,
thus rejecting the broadcasters’ request for the FCC to impose a “multicasting”
obligation on cable television systems. In addition, the FCC has not yet
promulgated rules regarding the obligation of direct broadcast satellite
providers to carry the digital signal of a local broadcast station. The FCC
decisions could limit the reach of our television stations’ digital programming
and, to that extent, could have an adverse impact on the revenue we derive
from
station operations.
If
direct broadcast satellite companies do not carry the stations that we own
and
operate or provide services to, we could lose audience share and
revenue.
The
Satellite Home Viewer Extension and Reauthorization Act allows direct broadcast
satellite television companies to continue to transmit local broadcast
television signals to subscribers in local markets provided that they offer
to
carry all local stations in that market. However, satellite providers have
limited satellite capacity to deliver local station signals in local markets.
Satellite providers may choose not to carry local stations in any of our
markets. In those markets in which the satellite providers do not carry local
station signals, subscribers to those satellite services are unable to view
local stations without making further arrangements, such as installing antennas
and switches. A principal component of the new regulation requires satellite
carriers to carry the analog signals of all local television stations in a
market if they carry one. We have taken advantage of that regulation to elect
carriage of our stations on satellite systems in markets in which
local-into-local carriage is provided, however, this has been a time consuming
process to provide the local television broadcast signal to certain of these
markets. Furthermore, when direct broadcast satellite companies do carry local
television stations in a market, they are permitted to charge subscribers extra
for such service. Some subscribers may choose not to pay extra to receive local
television stations. In the event subscribers to satellite services do not
receive the stations that we own and operate or provide services to, we could
lose audience share which would adversely affect our revenue.
Unlike
the statutory regulations governing cable carriage of qualified full power
television stations, the direct broadcast satellite television companies (i.e.,
DirecTV and Dish Network) have a choice as to whether or not to provide local
television channels in a given television market However, once they decide
to
carry one local signal, they must carry
all
the
qualified television stations (i.e., local-into-local service) in that market.
We have filed carriage elections against the satellite companies for all of
our
qualified television stations in which local-into-local delivery is being
provided. We have been delayed in certain instances in being carried, however,
as we have to provide a good quality signal to a designated local receive
facility in a given market, which is often in a building or site controlled
by a
third party. Therefore additional negotiations are needed to deliver our signal
to this facility in a manner accepted and approved by the FCC, including but
not
limited to delivery via microwave, satellite or fiber.
Our
substantial indebtedness may negatively impact our ability to implement our
business plan.
As
indicated below, the Company has a significant amount of indebtedness relative
to our equity.
|
|
As of December 31, 2007
|
|
|
|
(In
thousands)
|
|
Total
Current Assets
|
|
$
|
25,287,371
|
|
Total
Current Liabilities
|
|
$
|
83,988,265
|
|
Total
Long-term Liabilities
|
|
$
|
13,673,536
|
|
Our
substantial indebtedness may negatively impact our ability to implement our
business plan. For example, it could:
|
•
|
limit
our ability to fund future working capital and capital
expenditures;
|
|
•
|
limit
our flexibility in planning for, or reacting to, changes in our business
and the industry in which we
operate;
|
|
•
|
subject
us to interest rate risk in connection with any potential future
refinancing of our debt;
|
|
•
|
limit
our ability to borrow additional
funds;
|
|
•
|
increase
our vulnerability to adverse general economic and industry
conditions; and
|
|
•
|
require
us to restructure or refinance our debt, sell debt or equity securities,
or sell assets, possibly on unfavorable terms in order to meet payment
obligations.
|
In
addition, our existing credit facility contains various financial and
operational covenants, both affirmative and negative. The financial covenants
include limitations on capital expenditures, restricted payments, minimum
revenues and EBITDA and minimum availability. The affirmative covenants include
provisions relative to preservation of assets, compliance with laws, maintaining
insurance, payment of taxes, notice of proceedings, defaults or adverse changes,
timely and accurate financial reporting, inspection rights, maintenance of
a
GAAP accounting system, renewal of licenses and compliance with environmental
laws. The negative covenants include provisions and limitations concerning
indebtedness, liens, disposition of assets, fundamental changes, and conditions
to acquisitions, sale and leaseback of assets, investments, change in business,
accounts receivable, transactions with affiliates, amendment of certain
agreements, ERISA, margin stock, negative pledges and Local Marketing
Agreements.
Violation
of any covenant language could adversely affect our ability to draw down or
incur additional indebtedness when we otherwise believe it is advisable to
do
so. Additionally, any violation of covenant language, if not waived, could
result in acceleration of the indebtedness.
Failure
of the Company’s internal control over financial reporting could harm our
business and financial results.
The
Company is obligated to establish and maintain adequate internal control over
financial reporting. Internal control over financial reporting is a process
to
provide reasonable assurance regarding the reliability of financial reporting
in
accordance with GAAP. Internal control over financial reporting includes
maintaining records that in reasonable detail accurately and fairly reflect
the
Company’s transactions and dispositions of assets, providing reasonable
assurance that transactions are recorded as necessary for preparation of the
financial statements in accordance with GAAP, providing reasonable assurance
that receipts and expenditures of the Company are made only in accordance with
management authorization, and providing reasonable assurance that unauthorized
acquisition, use or disposition of the Company assets that could have a material
effect on the financial statements would be prevented or detected on a timely
basis. The Company’s growth of the RTN and entry into new markets and
acquisitions of new stations, if any, will place significant additional pressure
on our system of internal control over financial reporting. Any failure to
maintain an effective system of internal control over financial reporting could
limit our ability to report financial results accurately and timely or to detect
and prevent fraud, which in turn would harm our business and financial
results.
An
existing lawsuit against the Company and the members of the Company’s board of
directors could distract the Company from their operational
responsibilities.
The
Company and each member of the Company board of directors have been named in
a
lawsuit filed by a shareholder of pre-merger EBC in the circuit court of Pulaski
County, Arkansas on June 14, 2006. The lawsuit was filed as a class action,
meaning that the plaintiff, Mr. Max Bobbitt, seeks to represent all
shareholders in the class, provided the class is certified by the court.
Mr. Bobbitt owns 115,000 shares of Class A common stock, and thus
represents less than 5% of any class of the Company equity. As a result of
the
merger between EBC and the Company, pursuant to which EBC merged into the
Company, the Company, which was renamed Equity Media Holdings Corporation,
is a
party to the lawsuit. The lawsuit contains both a class action component and
derivative claims. The class action claims allege various deficiencies in EBC’s
proxy used to inform its shareholders of the special meeting to consider the
merger. The Company views the lawsuit as baseless and will continue to
vigorously defend the matter. During the course of this litigation it is
possible that members of the Company’s senior management and members of the
board of directors may have to devote significant time and effort to the
resolution of such litigation adversely impacting their ability to properly
attend to the operations of the combined company. It is also possible that
any
judgment or settlement may adversely affect the financial position of the
combined company.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
Our
corporate headquarters are located in Little Rock, Arkansas. We own a building
with approximately 27,474 square feet of space housing our corporate
headquarters, studio facilities and the C.A.S.H. technology equipment.
Additionally, RTN occupies approximately 7,500 square feet, in the same
building.
Generally,
the types of properties required to support some of our television stations
consists of offices, studios and tower sites. Transmitter and tower sites
are located to provide maximum signal coverage of our stations’ markets.
We own substantially all of the equipment used in our television and network
business. We believe that all of our properties, both owned and leased, are
generally in good operating condition, subject to normal wear and tear and
are
suitable and adequate for our current business operations. We believe that
no one property represents a material amount of the total properties owned
or
leased. See
Item
1
.
Business,
for a
listing of our station locations.
ITEM
3. LEGAL PROCEEDINGS
Litigation
In
connection with the merger between Equity Broadcasting Corporation ("EBC")
and
the Company, EBC and each member of EBC’s board of directors was named in a
lawsuit filed by an EBC shareholder in the circuit court of Pulaski County,
Arkansas on June 14, 2006. As a result of the merger between EBC and the
Company, pursuant to which EBC merged into the Company, the Company, which
was
renamed Equity Media Holdings Corporation, is a party to the lawsuit. The
lawsuit contains both a class action component and derivative claims. The class
action claims allege various deficiencies in EBC’s proxy used to inform its
shareholders of the special meeting to consider the merger. These allegations
include: (i) the failure to provide sufficient information regarding the
fair value of EBC’s assets and the resulting fair value of EBC’s Class A
common stock; (ii) that the interests of holders of EBC’s Class A
common stock are improperly diluted as a result of the merger to the benefit
of
the holders of EBC’s Class B common stock; (iii) failure to
sufficiently describe the further dilution that would occur post-merger upon
exercise of the Company’s outstanding warrants; (iv) failure to provide
pro-forma financial information; (v) failure to disclose alleged related
party transactions; (vi) failure to provide access to audited consolidated
financial statements during previous years; (vii) failure to provide
shareholders with adequate time to review a fairness opinion obtained by EBC’s
board of directors in connection with the merger; and (viii) alleged sale
of EBC below appraised market value of its assets. The derivative components
of
the lawsuit allege instances of improper self-dealing, including through a
management agreement between EBC and Arkansas Media.
In
addition to requesting unspecified compensatory damages, the plaintiff also
requested injunctive relief to enjoin EBC’s annual shareholder meeting and the
vote on the merger. An injunction hearing was not held before EBC’s annual
meeting regarding the merger so the meeting and shareholder vote proceeded
as
planned and EBC’s shareholders approved the merger. On August 9, 2006,
EBC’s motion to dismiss the lawsuit was denied. On February 21, 2007, the
plaintiff filed a “Motion to Enforce Settlement Agreement” with the court
alleging the parties reached an oral agreement to settle the lawsuit. The
plaintiff subsequently filed a motion to withdraw the motion to settle and
filed
a “Third Amended Complaint” on April 10, 2007. This motion added two
additional plaintiffs and expanded on the issues recited in the previous
complaints. On July 31, 2007, the plaintiff filed a “Fourth Amended
Complaint”. This pleading added three new plaintiffs and three new defendants to
the proceedings. The three additional defendants bear a fiduciary relationship
to three previously named defendants. On July 31, 2007, the plaintiffs filed
a
“Motion for Class Certification.” Although the motion has been fully briefed by
the parties, the plaintiffs have not yet sought a hearing date on the class
certification issue. Currently, the parties continue to engage in discovery.
No
court date has been set for this case.
Management
believes that this lawsuit has no merit and asserts that the Company has
negotiated in good faith to attempt to settle the lawsuit. Regardless of the
outcome management does not expect this proceeding to have a material impact
of
its financial condition or results of operations in 2008 or any future period.
Although
the Company is a party to certain other pending legal proceedings in the normal
course of business, management believes the ultimate outcome of these matters
will not be material to the financial condition and future operations of the
Company. The Company maintains liability insurance against risks arising out
of
the normal course of its business.
EBC
Dissenting Shareholders
In
connection with the Merger Transaction (see Note 4 – Merger Transaction)
shareholders of EBC representing 66,500 shares of EBC Class A common stock
elected to convert their shares to cash in accordance with Arkansas law. The
Company recorded a liability in the amount of $368,410 to convert the shares
plus $9,970 of accrued interest based on a conversion rate of $5.54 per share
plus interest accruing from the date of the Merger Transaction at the rate
of
9.78% per annum. On July 10, 2007, the dissenting shareholders were
paid $378,380 in cash for the value of their shares including all interest
accrued to date. Pursuant to Arkansas Code, the dissenting shareholders
exercised their right to contest the Company’s valuation and have demanded
payment of an additional $17.78 per share plus accrued interest at
9.78% per annum. In accordance with Arkansas Code, the Company has
petitioned the court for a determination of the fair value of the shares and
believes its valuation will prevail.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market
Information
Our
units, common stock and warrants are traded on the
NASDAQ
Capital Markets under the symbols EMDAU, EMDA, and EMDAW respectively. The
following table sets forth the high and low closing bid quotations for the
calendar quarter for the fiscal year ended December 31, 2007 and 2006.
Prior to the March 2007 Merger with Equity Broadcasting Corporation, the
Company’s units, common stock, and warrants quoted on the OTC Bulletin Board.
The over-the-counter market quotations for periods ended March 30, 2007 reported
below reflect inter-dealer prices, without markup, markdown or commissions
and
may not represent actual transactions.
For year ended
|
|
Units
|
|
Common Stock
|
|
Warrants
|
|
December 31, 2006
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
Quarter
|
|
$
|
7.50
|
|
$
|
6.18
|
|
$
|
5.77
|
|
$
|
5.20
|
|
$
|
0.90
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter
|
|
$
|
8.00
|
|
$
|
6.45
|
|
$
|
5.81
|
|
$
|
5.31
|
|
$
|
1.22
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
$
|
6.26
|
|
$
|
6.05
|
|
$
|
5.44
|
|
$
|
5.34
|
|
$
|
0.47
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
6.42
|
|
$
|
5.90
|
|
$
|
5.55
|
|
$
|
5.37
|
|
$
|
0.47
|
|
$
|
0.28
|
|
For year ended
|
|
Units
|
|
Common Stock
|
|
Warrants
|
|
December 31, 2007
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
Quarter
|
|
$
|
6.91
|
|
$
|
6.15
|
|
$
|
5.71
|
|
$
|
5.05
|
|
$
|
0.71
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter
|
|
$
|
6.48
|
|
$
|
5.25
|
|
$
|
5.20
|
|
$
|
4.10
|
|
$
|
0.70
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
$
|
5.50
|
|
$
|
4.80
|
|
$
|
4.34
|
|
$
|
2.84
|
|
$
|
0.66
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
2.97
|
|
$
|
2.50
|
|
$
|
3.25
|
|
$
|
1.95
|
|
$
|
0.46
|
|
$
|
0.10
|
|
Holders
As
of
March 17, 2008, there was one holder of record of Equity Media Holding
Corporation’s units, 480 holders of record of Equity Media Holding Corporation’s
common stock and nine holders of record of Equity Media Holding Corporation’s
warrants. These numbers do not include beneficial owners holding shares through
nominee names.
Dividends
We
have
not paid a dividend on any class of common stock and anticipate that we will
retain future earnings, if any, to fund the development and growth of our
business. Consequently, we do not anticipate paying cash dividends on our common
stock in the foreseeable future.
Initial
Public Offering
On
September 14, 2005, the Company consummated its initial public offering of
10,000,000 Units, with each unit consisting of one share of our common stock
and
two warrants, each to purchase one share of our common stock at an exercise
price of $5.00 per share. On September 19, 2005, we closed on an additional
1,500,000 units that were subject to the underwriters’ over-allotment option.
The units were sold at an offering price of $6.00 per unit, generating total
gross proceeds of $69,000,000. Morgan Joseph & Co. Inc. and
EarlyBirdCapital, Inc. acted as lead underwriters. The securities sold in the
offering were registered under the Securities Act of 1933 on a registration
statement on Form S-1 (No. 333-125105). The Securities and Exchange
Commission declared the registration statement effective on September 8,
2005.
We
paid a
total of $4,830,000 in underwriting discounts and commissions, and approximately
$561,956 has been paid for costs and expenses related to the offering.
After
deducting the underwriting discounts and commissions and the offering expenses,
the total net proceeds to us from the offering were approximately $63,608,044
of
which $62,620,000 was deposited into a trust fund (or $5.45 per share sold
in
the offering) and the remaining proceeds were available to be used to provide
for business, legal and accounting due diligence on prospective business
combinations and continuing general and administrative expenses.
Merger
Transaction and Recapitalization
In
connection with the Merger Transaction (see Note 4 to the audited financial
statements — Merger Transaction), on March 29, 2007, the stockholders of
the Company approved a proposal to amend and restate the Company’s Certificate
of Incorporation. Upon approval, the Company (i) increased the number of
authorized shares of common stock from 50,000,000 shares to 100,000,000 shares,
(ii) increased the number of authorized shares of preferred stock from
1,000,000 to 25,000,000, (iii) changed the Company’s name from “Coconut
Palm Acquisition Corp.” to “Equity Media Holdings Corporation”, and
(iv) authorized the issuance of approximately 2,050,519 shares of the
Company Series A Convertible Non-Voting Preferred Stock, pursuant to the
Certificate of Designation. Additional shares of Series A Convertible Non-Voting
Preferred Stock were authorized for accrued and unpaid dividends through the
date of the completion of the merger, increasing the number of authorized shares
of Series A Convertible Non-Voting Preferred Stock from 1,736,746 to
2,050,519.
As
a
result of the Merger Transaction, the Company acquired 1,908,911 shares from
stockholders who opted to convert their stock to cash and issued 26,665,830
shares to the shareholders of EBC in exchange for their shares and other
consideration.
Use
of
trust funds
On
March
30, 2007, upon consummation of the Merger with EBC, the funds held in trust
were
distributed as follows:
Repurchase
of EBC Series A preferred stock
|
|
$
|
25,000,000
|
|
Pay
down Senior Credit Facility Revolver
|
|
|
17,450,000
|
|
Payment
to CPAC shareholders electing not to convert their
shares
|
|
|
10,899,882
|
|
Settlement
of Arkansas Media Management Agreement
|
|
|
3,200,000
|
|
Purchase
of three low power television stations from Arkansas Media
|
|
|
1,300,000
|
|
Payment
to EBC dissenting shareholders
|
|
|
378,380
|
|
Payment
of note payable and accrued interest to Actron, Inc.
|
|
|
533,000
|
|
Available
for working capital, capital expenditures and general corporate
needs.
|
|
|
3,858,738
|
|
|
|
$
|
62,620,000
|
|
Private
placement
On
June 21, 2007, the Company entered into a Unit Purchase Agreement with
certain insiders and institutional investors (each a “Buyer” and collectively,
the “Buyers”) in connection with a $9,000,000 private placement (the “Private
Placement”) of an aggregate of 1,406,250 units (the “Units”), each Unit
consisting of one share of the Company’s common stock, $0.0001 par value per
share, and two warrants, each warrant exercisable for one share of the Company’s
common stock at an exercise price of $5.00 per share (the “Warrants”). The
purchase price of each Unit was $6.40. The Private Placement closed on
June 21, 2007 (the “Private Placement Closing Date”).
Shares
Issued to Retire Debt
On
August 21, 2007, the Company exercised its option, under the terms of a
$500,000 note payable, to retire the note with the issuance of 115,473 shares
of
common stock in lieu of a cash payment. This note was previously issued in
connection with the purchase of certain television stations.
Securities
Authorized for issuance under equity compensation plans as of December 31,
2007:
Plan
Category
|
|
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights.
(1)
|
|
Weighted-average exercise price
of outstanding options, warrants
and rights
|
|
Number of securities remaining
available for future issuance
under equity compensation plans
|
|
Equity
compensation plans approved by security holders
|
|
|
6,965,208
|
|
$
|
4.53
|
|
|
5,309,645
|
|
Equity
compensation plans not approved by security holders
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Total
|
|
|
6,965,208
|
|
$
|
4.53
|
|
|
5,309,645
|
|
(1)
Includes
shares of Common Stock to be issued upon exercise of stock options granted
under
the Company’s 2007 Stock Incentive Plan.
Comparative
Stock Performance Graph
The
following graph compares the total return of our Common Stock based on closing
prices for the period from October 25, 2005, the date our Common Stock was
first traded on NASDAQ, through December 31, 2007 with the total return of
(i) the NASDAQ Composite Index, (ii) the NASDAQ Capital Markets Composite
(from 9/26/06) and (iii) a peer index consisting of the following publicly
traded pure play television companies: ACME Communications, Inc., Gray
Television, Inc., Hearst Argyle Television, Inc., LIN TV Corp., Nexstar
Broadcasting Group, Inc., Sinclair Broadcast Group, Inc. and Young Broadcasting
Inc. (the “Television Index”). The graph assumes the investment of $100 in our
Common Stock and in each of the indices on October 25, 2005. The
performance shown is not necessarily indicative of future
performance.
|
|
10/25/05
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
Equity
Media Holdings Corporation (EMDA)
|
|
$
|
100.00
|
|
$
|
98.29
|
|
$
|
104.55
|
|
$
|
61.48
|
|
NASDAQ
Composite Index
|
|
$
|
100.00
|
|
$
|
104.01
|
|
$
|
113.91
|
|
$
|
125.09
|
|
Television
Index (TV Index)
|
|
$
|
100.00
|
|
$
|
95.58
|
|
$
|
102.38
|
|
$
|
96.65
|
|
NASDAQ
Capital Markets Index
|
|
|
|
|
|
-
|
|
|
91.47
|
|
|
85.66
|
|
ITEM
6. SELECTED FINANCIAL DATA
|
|
Fiscal
Years Ended Dec. 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
($
in thousands, except earnings per share)
|
|
|
|
|
|
Consolidated
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
$
|
28,264
|
|
$
|
30,395
|
|
$
|
27,471
|
|
$
|
22,402
|
|
$
|
19,617
|
|
Operating
expenses
|
|
|
(62,106
|
)
|
|
(45,279
|
)
|
|
(43,327
|
)
|
|
(37,021
|
)
|
|
(29,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
from operations
|
|
|
(33,842
|
)
|
|
(14,884
|
)
|
|
(15,856
|
)
|
|
(14,619
|
)
|
|
(9,938
|
)
|
Interest
expense, net
|
|
|
(7,908
|
)
|
|
(7,377
|
)
|
|
(5,085
|
)
|
|
(3,189
|
)
|
|
(1,622
|
)
|
Gain
(loss) on sale of assets
|
|
|
414
|
|
|
18,775
|
|
|
7,676
|
|
|
11,282
|
|
|
3,075
|
|
Other
income (expense)
|
|
|
593
|
|
|
259
|
|
|
548
|
|
|
464
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax
|
|
|
(40,742
|
)
|
|
(3,228
|
)
|
|
(12,717
|
)
|
|
(6,062
|
)
|
|
(8,028
|
)
|
Income
tax (benefit) expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
|
12,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(53,434
|
)
|
$
|
(3,228
|
)
|
|
(12,717
|
)
|
|
(6,062
|
)
|
|
(8,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.47
|
)
|
$
|
(0.13
|
)
|
|
(0.50
|
)
|
|
(0.24
|
)
|
|
(0..34
|
)
|
Diluted
|
|
$
|
(1.47
|
)
|
$
|
(0.13
|
)
|
|
(0.50
|
)
|
|
(0.24
|
)
|
|
(0..34
|
)
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,313
|
|
|
25,371
|
|
|
25,467
|
|
|
24,849
|
|
|
23,912
|
|
Diluted
|
|
|
36,313
|
|
|
25,371
|
|
|
25,467
|
|
|
24,849
|
|
|
23,912
|
|
Selected
Balance Sheets Data (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
123,254
|
|
$
|
114,412
|
|
$
|
120,159
|
|
$
|
118,585
|
|
$
|
91,482
|
|
Long-term
obligations
|
|
|
13,674
|
|
|
58,978
|
|
|
62,626
|
|
|
44,556
|
|
|
26,919
|
|
Total
liabilities
|
|
|
97,661
|
|
|
73,185
|
|
|
75,663
|
|
|
57,356
|
|
|
38,607
|
|
See
Notes
to Financial Statements
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of financial condition and results of
operations should be read together with “Selected Financial Data,” and our
financial statements and accompanying notes appearing elsewhere in this Annual
Report on Form 10-K.
Risk
Factors That May Affect Future Results
This
Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject
to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may,”
“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “continue,” or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in this Annual Report on 10-K
under “Risk Factors” and elsewhere and in our other Securities and Exchange
Commission filings. Given such risks and uncertainties, investors are cautioned
not to place undue reliance on such forward-looking statements. Forward-looking
statements do not guarantee future performance and should not be considered
statements of fact. These forward-looking statement speak only as of the date
of
this report and, unless required by law, we undertake no obligation to publicly
update or revise any forward-looking statements to reflect new information
or
future events or otherwise.
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our consolidated
financial statements and related notes contained in Item 8 of this report
Form 10-K. The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”) includes the following
sections:
•
|
Company
Overview
|
|
|
•
|
Results
of Operations
|
|
|
•
|
Liquidity
and Capital Resources
|
|
|
•
|
Income
Taxes
|
|
|
•
|
Debt
Instruments and Related Covenants
|
|
|
•
|
Inflation
|
|
|
•
|
Off-Balance
Sheet Arrangements
|
|
|
•
|
Contractual
Obligations
|
|
|
•
|
Related
Party Transactions
|
|
|
•
|
Critical
Accounting Policies
|
|
|
•
|
New
Accounting Pronouncements
|
You
should note that this MD&A discussion contains forward-looking statements
that involve risks and uncertainties. Please see the section entitled
“Risk
Factors”
at
the
beginning of Item 1A on pages 25 through 35 for important information to
consider when evaluating such statements. You should read this MD&A in
conjunction with the Company’s financial statements and related notes included
in Item 8.
Company
Overview
Equity
Media Holdings Corporation (the “Company”) was incorporated in Delaware on
April 29, 2005 as Coconut Palm Acquisition Corp. (“Coconut Palm”) to serve
as a vehicle for the acquisition of an operating business through a merger,
capital stock exchange, asset acquisition and/or other similar transaction.
On
March 30, 2007, Coconut Palm merged with Equity Broadcasting Corporation
(“EBC”), with Coconut Palm remaining as the legal surviving corporation;
however, the financial statements and continued operations are those of EBC
as
the accounting acquirer (See Note 4 — Merger Transaction). Immediately following
the merger, Coconut Palm changed its name to Equity Media Holdings
Corporation.
As
of
December 31, 2007, the Company has built and aggregated a total of 120 full
and
low power permits, licenses and applications that it owns or has contracts
to
acquire. The Company’s FCC license asset portfolio includes 23 full power
stations, 38 Class A stations and 59 low power stations, including two
metropolitan New York City low power stations that the Company is currently
under contract to purchase. The Company’s English and Spanish-language stations
are in 41 markets that represent more than 32% of the U.S.
population.
While
the
Company originally targeted small to medium-sized markets for development,
it
has been able to leverage its original properties into stations in larger
metropolitan markets, including Denver, Detroit, Salt Lake City, Minneapolis
and
Oklahoma City. The Company’s stations are affiliated with broadcast networks as
follows: 20 of the stations are affiliated with LAT TV, 16 are affiliated with
Univision, 12 are affiliated with the Company’s Retro Television Network
(“RTN”)
,
five
are affiliated with MyNetworkTV, four are affiliated with FOX, three are
affiliated with TeleFutura, two are affiliated with MTV Tr3́s and one is
affiliated with ABC.
The
Company is the second-largest affiliate group of the top-ranked Univision and
TeleFutura networks with 19 affiliates, 13 of which are in the nation’s top-65
Hispanic television markets. The Company believes that it has a superior growth
opportunity in these Hispanic properties because each station has a 15-year
affiliation agreement with either Univision or TeleFutura,
respectively.
RTN
was
developed to fulfill a need in the broadcasting industry that is occurring
now
and will continue to occur as broadcast stations switch over to digital
programming pursuant to a Federal Communications Commission mandate with a
February, 2009 deadline.
Digital
Television (“DTV”), will allow broadcasters to offer television content with
movie-quality picture and CD-quality sound. DTV is a much more efficient
technology, allowing broadcasters to provide a “high definition” (“HDTV”),
program and multiple “standard definition” DTV programs simultaneously.
Providing several programs streams on one broadcast channel is called
“multicasting.” The challenge facing many broadcasters is how to effectively
program and monetize the value created by DTV.
RTN
is
the first network designed for the digital arena. RTN takes some of the most
popular and entertaining programs from the 60s, 70s, 80s, and 90s, all ratings
proven and digitally re-mastered, and provides them to their RTN affiliates.
RTN
affiliates enjoy a scalable, cost efficient content solution for their digital
channels. A major differentiator between RTN and other potential digital
solutions is RTN’s ability to deliver local news, sports, and weather updates to
the local RTN affiliate, in addition to the quality RTN programming. This
enables the local affiliate to sell local advertising spots to generate
revenue.
The
ability to deliver localized programs to the RTN affiliate is accomplished
through utilization of the Company’s proprietary digital satellite technology
system known as “C.A.S.H.” The Central Automated Satellite Hub (“CASH”), system
provides the means of delivering a fully automated, 24 hour a day custom feed
for each local affiliate. The Company has the capability to launch localized
network feeds in all 210 U.S. TV markets and internationally as
well.
The
Company has historically focused on aggregating stations and developing delivery
systems. Over the past eight years, the Company financed itself largely by
acquiring television construction permits and stations at attractive valuations.
After acquiring the stations, the Company would construct and/or upgrade the
facilities and, on a selective market basis, sell the station at an increased
valuation to fund operations and acquisitions and to service debt.
Following
the March 2007 merger, the Company’s business focus shifted from primarily
aggregating stations to increasing RTN affiliate penetration and maximizing
revenue and profit for each station. The Company intends to achieve revenue
growth and profitability through various entity and station-level initiatives.
These initiatives, which the Company has recently begun to implement, include:
|
·
|
continued
growth of the RTN affiliate base in key U.S. television markets;
|
|
·
|
focusing
on growing national business;
|
|
·
|
addition
of experienced managers in select local
markets;
|
|
·
|
upgrading
/ increasing sales staffs in select local
markets;
|
|
·
|
establishing
market appropriate rate cards;
|
|
·
|
upgrading
local news (where available) and expanding local programming in select
markets;
|
|
·
|
upgrading
syndicated programming; and
|
|
·
|
enhancing
cable and satellite distribution
|
Generally,
it takes a few years for the Company’s newly acquired or built stations to
generate operating cash flow. In addition, it requires time to gain viewer
awareness of new station programming and to attract advertisers. Accordingly,
the Company has incurred, and expects to continue to incur, with newly acquired
or built stations, losses at a station in the first few years after it acquires
or builds the station. Occasionally unforeseen expenses and delays increase
the
estimated initial start-up expenses. This requires the Company’s established
stations to generate revenues and cash flow sufficient to meet its business
plan
including the significant expenses related to our newly acquired or built
stations.
The
Company is one of the largest holders of broadcast spectrum in the United
States. Each Equity Media Station is 6MHz and is located in the 480-680 MHz
band. Our spectrum adjoins the 700 MHz band and offers similar propagation
characteristics. Equity Media anticipates that it will supplement its revenues
by monetizing its significant spectrum portfolio through joint-ventures, leasing
or sub-licensing to telecoms and new media companies.
The
Company also launched a new
corporate and investor relations website (
www.EMDAholdings.com
)
in
August 2007. The website features new and expanded content about the Company’s
operating businesses, senior management, news and public filings. All key
information on the website is available in an up-to-date, interactive
format.
Acquisition
and Expansion Activity
On
August
17, 2007, the Company announced that it had
entered
into a definitive asset purchase agreement to acquire two low power television
stations in the metropolitan New York City market (WMBQ-CA, Channel 46 and
WBQM-LP, Channel 3) from Renard Communications.
During
the year ended December 31, 2007, the Company’s classic television network, RTN,
announced fifteen new affiliates. Several of these new affiliations are in
the
nation’s top-50 television markets, including Pittsburgh and Raleigh/Durham In
addition, the Company announced that the RTN affiliates in Savannah, GA and
Myrtle Beach / Florence, SC had renewed their affiliation agreements for another
year.
RESULTS
OF OPERATIONS — YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED
DECEMBER 31, 2006
The
following table sets forth the principal types of broadcast revenue earned
by
the Company and its stations for the periods indicated and the change from
one
period to the next both in dollars and percent:
|
|
For the Years ended December 31,
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
|
(in thousands, except percentages)
|
|
Broadcast
Revenues
|
|
|
|
Local
|
|
$
|
9,615
|
|
$
|
11,930
|
|
$
|
(2,315
|
)
|
|
(19.40
|
)%
|
National
|
|
|
8,046
|
|
|
8,145
|
|
|
(99
|
)
|
|
(1.22
|
)
|
Other
|
|
|
1,071
|
|
|
1,830
|
|
|
(759
|
)
|
|
(4.15
|
)
|
Trade
& Barter Revenue
|
|
|
9,532
|
|
|
8,490
|
|
|
1,042
|
|
|
12.27
|
|
Total
Broadcast Revenue
|
|
$
|
28,264
|
|
$
|
30,395
|
|
$
|
(2,131
|
)
|
|
(7.01
|
)%
|
As
noted
in the Overview, the operating revenue of the Company’s stations is derived
primarily from advertising revenue. The above table segregates revenue received
from local sources compared to national sources, together with gross trade
and
barter revenues, which is non-cash. Other broadcast revenue is a combination
of
production, uplink services, news services, and other non-spot broadcast
revenue.
For
the
year ended December 31, 2007 as compared to 2006, total Broadcast Revenue
decreased $2.131 million, or 7%, to $28.264 million. The primary
reason for this decrease is due to the sale by the Company of KPOU-TV, Portland,
OR, a Univision affiliate, on November 1, 2006 which accounts for $2.008
million of the variance. Total Broadcast Revenue, excluding the decrease due
to
KPOU, decreased $0.1 million, or 0.4%. Total local and national revenue
from the Company’s Spanish-language stations, excluding KPOU, increased
$1.001 million, or 11% during the year. This increase was offset by a
decrease of $1.679 million in local and national revenue from the Company’s
English-language stations. The decrease in other revenue is attributed to lower
JSA income of $266,000, due to the disposition of KPOU, lower uplink shared
services revenue of $253,000, and lower time brokerage income of $371,000;
offset by higher network compensation revenue of $174,000. Also, during the
year
ended December 31, 2007 trade and barter revenue increased $1.04 million,
or 12.3%, as compared to the same period in 2006. This increase is due primarily
to the continued growth in Company’s investment in syndicated programming as it
continues its commitment to reduce the amount of shopping and long-form
commercials and move to more traditional programming.
The
following table sets forth the Company’s operating results for the year ended
December 31, 2007, as compared to the year ended December 31, 2006:
|
|
For the Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Change
|
|
%
Change
|
|
|
|
(in thousands, except percentages, net income per share and weighted average shares)
|
|
Broadcast
Revenue
|
|
$
|
28,264
|
|
$
|
30,395
|
|
$
|
(2,131
|
)
|
|
(7.01
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program,
production & promotion
|
|
|
15,028
|
|
|
13,413
|
|
|
1,615
|
|
|
12.04
|
|
Selling,
general & administrative
|
|
|
32,419
|
|
|
26,192
|
|
|
6,337
|
|
|
24.19
|
|
Management
Settlement Agreement
|
|
|
8,000
|
|
|
--
|
|
|
8,000
|
|
|
|
|
Impairment
charge on assets held for sale
|
|
|
-
|
|
|
200
|
|
|
(200
|
)
|
|
(100.00
|
)
|
Amortization
and Depreciation expense
|
|
|
4,160
|
|
|
3,283
|
|
|
877
|
|
|
26.71
|
|
Rent
|
|
|
2,499
|
|
|
2,191
|
|
|
308
|
|
|
14.06
|
|
Operating
loss
|
|
|
(33,842
|
)
|
|
(14,884
|
)
|
|
(19,068
|
)
|
|
128.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(7,908
|
)
|
|
(7,377
|
)
|
|
(531
|
)
|
|
7.20
|
|
Gain
on sale of assets
|
|
|
414
|
|
|
18,775
|
|
|
(18,361
|
)
|
|
(97.79
|
)
|
Other
income, net
|
|
|
593
|
|
|
259
|
|
|
334
|
|
|
128.96
|
|
|
|
|
(6,901
|
)
|
|
11,656
|
|
|
(18,557
|
)
|
|
(159.20
|
)
|
Loss
before income taxes
|
|
|
(40,742
|
)
|
|
(3,228
|
)
|
|
(37,625
|
)
|
|
1,165.58
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(40,742
|
)
|
$
|
(3,228
|
)
|
$
|
(37,625
|
)
|
|
1,165.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net (loss) per common share
|
|
|
(1.12
|
)
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
Weighted
average basic shares used in earnings per share
calculation
|
|
|
36,312,638
|
|
|
25,371,332
|
|
|
|
|
|
|
|
Program,
production and promotion expenses
Program,
production and promotion expense was $15.0 million in the year ended December
31, 2007, as compared to $13.4 million in 2006, an increase of $1.6
million, or 12.0%. The variance was primarily due to an increase in Syndicated
Programming expense of $1.04 million and an increase of $0.5 million in
Barter/Film Expense.
Selling,
general and administrative
Selling,
general and administrative expense was $32.5 million in the year ended
December 31, 2007, as compared to $26.2 million in 2006, an increase of
$6.3 million, or 24.2%. Contributing to this increase were increases in
labor and benefits costs of $3.2 million, professional fees of $1.7 million,
and
share based compensation of $2.0 million., partially offset with a reduction
in
LMA and JSA expense of $1.2 million and bad debt expense of $0.4 million.
Management
Settlement Agreement
The
Company paid $8.0 million in the year ended December 31, 2007 in connection
with a Management Settlement Agreement as a result of the March 2007 Merger
transaction., as compared to $0.0 million in 2006, an increase of $8.0
million.
Depreciation
and Amortization
Depreciation
and amortization was $4.1 million in the year ended December 31, 2007, as
compared to $3.3 million in 2006, an increase of $0.8 million or 26.7%.
This increase is primarily attributed to the continuing investment in broadcast
equipment.
Rent
Rent
expense was $2.5 million in the year ended December 31, 2007, as compared
to $2.2 million in 2006, an increase of $0.3 million, or 14.0%. An
increase in tower rent expense was the primary factor.
Interest
Expense, net
Interest
expense was $7.9 million in the year ended December 31, 2007, as compared
to $7.4 million in 2006, an increase of $0.5 million, or 7.2%. This
increase is primarily attributable to higher average interest rates in 2007.
The
combined average interest rates on the Company’s senior credit facility were
13.3% and 12.2% for the years ended December 31, 2007 and 2006, respectively.
Gain
on sale of assets
The
gain
on sale of assets was $0.4 million in the year ended December 31, 2007, as
compared to a gain of $18.8 million in the year ended December 31, 2006, a
decrease of $18.4 million. The Company sold land and a broadcast tower in 2007;
the net gain on sale in 2006 included gains from the sale of several low power
television stations located both in Idaho and in Central Arkansas, net of a
loss
arising from the sale of a station in Alabama.
Other
income, net
Other
income, net was approximately $0.6 for the year ended December 31, 2007 as
compared to approximately $0.3 for the year ended December 31, 2006, an increase
of $0.3. The Company increase is attributed to a reduction in losses from joint
ventures of approximately $0.5 million, net of a reduction in rental income
of
approximately $0.2.
RESULTS
OF OPERATIONS — YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED
DECEMBER 31, 2005
The
following table sets forth the principal types of broadcast revenue earned
by
the Company and its stations for the periods indicated and the change from
one
period to the next both in dollars and percent:
|
|
For the Years ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Change
|
|
|
|
|
|
(in
thousands, except percentages)
|
|
Broadcast
Revenues
|
|
|
|
Local
|
|
$
|
11,930
|
|
$
|
9,971
|
|
$
|
1,959
|
|
|
19.6
|
%
|
National
|
|
|
8,145
|
|
|
7,661
|
|
|
484
|
|
|
6.3
|
|
Other
|
|
|
1,830
|
|
|
2,459
|
|
|
(629
|
)
|
|
(25.6
|
)
|
Trade
& Barter Revenue
|
|
|
8,490
|
|
|
7,380
|
|
|
1,110
|
|
|
15.1
|
|
Total
Broadcast Revenue
|
|
$
|
30,395
|
|
$
|
27,471
|
|
$
|
2,924
|
|
|
10.6
|
%
|
As
noted
in the Overview, the operating revenue of the Company’s stations is derived
primarily from advertising revenue. The above table segregates revenue received
from local sources compared to national sources, together with gross trade
and
barter revenues, which is non-cash. Other broadcast revenue is a combination
of
production, uplink services, news services, and other non-spot broadcast
revenue. The growth in gross broadcast revenues is due to a number of factors,
the predominant ones being:
|
•
|
the
continuing maturity of all the Company
stations,
|
|
•
|
the
overall growth in the Hispanic sector of the broadcast
market, and
|
|
•
|
the
addition of eight Univision and Telefutura stations in late 2004
and early
2005.
|
Of
the
increase in both Local and National broadcast revenues noted in the table above,
over $2.2 million of the increase was from the eight Univision and
Telefutura stations added in late 2004 and early 2005. In addition, both the
Portland and Salt Lake City Univision stations contributed to the increase
with
sales increases in excess of 30% for the Portland station and in excess of
40%
for the Salt Lake City station.
Contributing
to the decline in other broadcast revenues was:
|
•
|
a
drop in News services revenue of approximately $206,000 due to
the
Company’s decision to focus its news and weather services production to
its own stations and no longer serve third
parties,
|
|
•
|
a
reduction in Time Brokerage revenues of approximately $485,000
which is a
reflection of moving programming away from shopping based programming
to
syndicated programming,
|
|
•
|
an
increase in JSA income of $315,000, $280,000 of which is income
from the
JSA agreement with Fisher Broadcasting regarding KPOU in Portland
that
became effective July 1, 2006, and terminated upon the sale of
that station to Fisher on September 30, 2006,
and
|
|
•
|
a
drop in Uplink Shared Services revenue, which is revenue from the
Company’s C.A.S.H Services, Inc. subsidiary, of approximately $213,000.
This decline is from the loss of a client during this comparative
period
due to business reversals affecting that
client.
|
The
increase in Trade and Barter Revenue was due primarily to the significant
increase in the amount of syndicated programming being aired by the non-Hispanic
stations. The Company acquires syndicated programming either through a cash
payment arrangement or a barter arrangement. The programming acquired via barter
is valued and amortized as the shows air. The amortized amounts are reflected
correspondingly as both barter revenue and barter expense, or trade revenue
and
trade expense. The Company’s commitment to move away from airing shopping and
long-form commercials and into more traditional television programming is,
in
this instance, reflected in this increase. In addition, Trade Revenue includes
the fair market value of spots that air in exchange for goods and services
(aside from programming) received from various vendors in the various local
markets. As the Company’s stations mature and develop larger local client bases,
the opportunities for trade grows. The above increase is, in part, a reflection
of this development as well.
The
following table sets forth the Company’s operating results for the year ended
December 31, 2006, as compared to the year ended December 31, 2005:
|
|
For the Years ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Change
|
|
%
Change
|
|
|
|
(in thousands, except percentages, net income per share and weighted average shares)
|
|
Broadcast
Revenue
|
|
$
|
30,395
|
|
$
|
27,471
|
|
$
|
2,924
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program,
production & promotion
|
|
|
13,413
|
|
|
11,540
|
|
|
1,873
|
|
|
16.2
|
|
Selling,
general & administrative
|
|
|
26,192
|
|
|
24,509
|
|
|
1,683
|
|
|
6.9
|
|
Impairment
charge on assets held for sale
|
|
|
200
|
|
|
1,689
|
|
|
(1,489
|
)
|
|
(88.2
|
)
|
Amortization
and depreciation expense
|
|
|
3,283
|
|
|
3,652
|
|
|
369
|
|
|
(10.1
|
)
|
Rent
|
|
|
2,191
|
|
|
1,937
|
|
|
254
|
|
|
13.1
|
|
Operating
(loss)
|
|
|
(14,884
|
)
|
|
(15,856
|
)
|
|
972
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(7,377
|
)
|
|
(5,085
|
)
|
|
(2,292
|
)
|
|
45.1
|
|
Gain
on sale of assets
|
|
|
18,775
|
|
|
7,676
|
|
|
11,098
|
|
|
144.6
|
|
Other
income, net
|
|
|
259
|
|
|
548
|
|
|
(289
|
)
|
|
(52.7
|
)
|
|
|
|
11,656
|
|
|
3,139
|
|
|
8,517
|
|
|
271.4
|
|
(Loss)
income before income taxes
|
|
|
(3,228
|
)
|
|
(12,717
|
)
|
|
9,489
|
|
|
(74.6
|
)
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
(loss)
|
|
$
|
(3,228
|
)
|
$
|
(12,717
|
)
|
$
|
9,489
|
|
|
(74.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net (loss) per common share
|
|
$
|
(0.13
|
)
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
Weighted
average basic shares used in earnings per share
calculation
|
|
|
25,371,332
|
|
|
25,467,844
|
|
|
|
|
|
|
|
The
changes in operating results for the year ended December 31, 2006 as compared
to
the year ended December 31, 2005 were impacted by the fact that the Company
acquired, built-out, or significantly changed the programming and/or affiliation
in stations located in over twenty markets between June 2004 and December 2006.
The development and maturity of these stations directly affected all material
aspects of the Company’s operating results, more specifically noted below. These
stations included Univision affiliations in Detroit, Ft. Myers,
Minneapolis, Kansas City, Tulsa, Syracuse, Waco and Wichita Falls.
Program,
production and promotion expenses
Program,
production and promotion expense was $13.4 million in the year ended
December 31, 2006, as compared to $11.5 million in the year ended December
31, 2005, an increase of $1.9 million, or 16.2%. Contributing to this
increase were the following material items:
|
•
|
a
$0.3 million increase in Syndicated Film expense. The more
significant factors contributing to the increase are the growth
in the
number of the Company stations broadcasting as RTN affiliates and
management’s commitment to acquiring quality
programming.
|
|
•
|
a
$0.2 million increase in Satellite Time expense, which reflects the
additional costs under the contract with the satellite owner. Amendments
to the existing contracts were entered into in both the first and
second
quarter of 2005 to increase the bandwidth, both C-band and Ku-band,
available to the Company. Both the actual and anticipated growth
in the
number of the Company owned stations contributed to the need to
amend the
contracts and increase the costs.
|
|
•
|
a
$0.3 million increase in Advertising and Sales Promotion costs, the
primary component being an increase in advertising on cable and
in sales
promotion efforts.
|
|
•
|
a
$1.3 million increase in Trade and Barter expense, which indicates a
growth in syndicated barter programming airings and an increase
in the
trading for goods and services in the various local markets served
by the
Company stations. The local station managers negotiate trade arrangements
in their local markets for goods and services they believe are
beneficial
to their stations, all subject to the Company corporate approval.
The
growth in syndicated barter programming airings is an indication
of the
growth in RTN programming and the movement away from long-form
paid
programming to syndicated programming, typically thirty minutes
in
length.
|
Selling,
general and administrative
Selling,
general and administrative expense was $26.2 million in the year ended
December 31, 2006, as compared to $24.5 million in the year ended December
31, 2005, an increase of $1.7 million, or 6.9%. Contributing to this increase
were the following material items:
|
•
|
a
$0.3 million increase in Commission expense. Since Commission expense
is a direct result of broadcast revenue and broadcast revenue was
up $2.9
million during this time period, there was a corresponding increase
in
Commission expense.
|
|
•
|
a
$1.2 million decrease in local marketing agreement, or LMA, and JSA
expense. The decrease is due to a decrease in the JSA expense to
station
KPOU, which was the Company Univision affiliate broadcasting in
the
Portland, Oregon market and operated under the terms of a JSA with
Belo
Corporation thru June 30, 2006. Effective July 1, 2006, the JSA
agreement with Belo ended and a new JSA agreement with Fisher Broadcasting
went into effect. Differences in the two agreements impacted the
accounting treatment for the related JSA costs. Fisher subsequently
acquired KPOU on September 30, 2006, as discussed elsewhere in this
filing. In addition, the apportionment of costs relative to the
JSA
agreement with Univision for KUTH, the Univision affiliate in Salt
Lake
City, changed in calendar 2006 as compared to 2005. Costs previously
identified as JSA Expense in 2005 are now classified based on their
content and nature. The total costs vary month to month but the
costs
incurred in 2006 do not vary materially in nature or amount from
the costs
incurred in 2005.
|
|
•
|
a
$0.9 million increase in labor costs. The primary reason for the
increase in labor costs is due, simply, to the growth of the Company.
Besides the direct labor costs to staff the sales offices of the
new
locations, as noted elsewhere, there was also an increase in overhead
labor costs, including growth in master control, production, traffic,
accounting and the other supporting departments. Also, standard
cost of
living raises contributed to the
increase.
|
Depreciation
and Amortization
Depreciation
and amortization was $3.3 million in the year ended December 31, 2006, as
compared to $3.7 million in the year ended December 31, 2005. Of those
expense amounts, amortization expense was $126,000 for the year ended December
31, 2006 compared to $105,000 for the year ended December 31, 2005, an increase
of $21,000.
Rent
expense was $2.2 million in the year ended December 31, 2006, as compared
to $1.9 million in the year ended December 31, 2005, an increase of
$0.3 million, or 16%. The increase was due primarily to the expansion by
the Company into new markets, the costs related to new office and broadcast
tower space and contractual annual increases in existing lease agreements.
Interest
expense, net of interest income, was $7.4 million in the year ended
December 31, 2006, as compared to $5.1 million in the year ended December
31, 2005, an increase of $2.3 million, or 45%. This increase was due
primarily to:
|
•
|
A
steady and continuing rise in interest rates over the respective
periods; and
|
|
•
|
A
steady increase in notes payable during 2006, except for significant
reductions in September of $6 million and in November of $9.5 million,
both from proceeds from the sale of KPOU, the Portland station.
The
additions to debt were used primarily for station acquisitions,
to
increase the investment in broadcast equipment and for general
operating
purposes.
|
The
gain
on sale of assets was $18.8 million in the year ended December 31, 2006, as
compared to $7.7 million in the year ended December 31, 2005, an increase
of $11.1 million, or 145%. The gain on sale in the year ended December 31,
2006, included the sale of low power television stations in Boise and Pocatello,
ID, for a gross sales price of $1.0 million and a net gain of
$0.5 million, the sale of WBMM, a station in Montgomery, AL, for a sales
price of $1.9 million and a net loss of $0.3 million, the sale of
KPOU, a station in Portland, OR, for a sales price of $19.3 million and a net
gain of $18.4 million, and the sale of other miscellaneous assets for no net
gain. The gain on sale in the year ended December 31, 2005, included the sale
of
WPXS, an independent affiliate serving the St. Louis, MO market, for a net
gain of $8.4 million. the Company received $5.0 million in cash from
the buyer, and three Class-A low power licenses located in Atlanta, GA, Seattle,
WA and Minneapolis, MN, respectively, with a combined appraised value of
$14.7 million.
Losses
from Joint Ventures
In
December 2004, the Company sold a majority interest in the Arkansas Twisters,
an
AFL2 football team, to a local investor. Prior to that date the financial
activity of the Twisters was consolidated into the Company’s financial
statements. Subsequent to that date the Company recorded its minority share
of
any income or loss reported by the Twisters as income or loss from joint
ventures. Also, the Company owned approximately a one third interest in Spinner
Network Systems, LLC, a specialized media delivery company. During the years
ended December 31, 2006 and December 31, 2005, the Company recognized losses
from the Twisters of ($393,000) and ($240,000), respectively. Also, during
the
same periods, the Company recognized losses from Spinner of ($204,000) and
($317,000), respectively. Other losses from joint ventures during these time
periods were immaterial.
The
net
loss was $3.2 million for the year ended December 31, 2006, as compared to
a net loss of $12.7 million for the year ended December 31, 2005, a
decrease of $9.5 million, or 75%. This decrease was due to the items
discussed above, primarily:
|
•
|
a
decrease in Operating Loss of
$1.0 million;
|
|
•
|
an
increase in Interest expense, net of
$2.3 million; and
|
|
•
|
an
increase in Gain on sale of assets of $11.1 million, all as compared
to the year ended December 31,
2005.
|
Liquidity
and Capital Resources
Current
Financial Condition
As
of and
for the year ended December 31, 2007 compared to the year ended December 31,
2006:
|
|
For the years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
thousands)
|
|
Net
cash used by operating activities
|
|
$
|
(30,807
|
)
|
$
|
(17,293
|
)
|
Net
cash provided (used) by investing activities
|
|
|
(11,440
|
)
|
|
18,258
|
|
Net
cash provided (used) by financing activities
|
|
|
41,251
|
|
|
(1,588
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
(996
|
)
|
$
|
(623
|
)
|
|
|
As of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents
|
|
$
|
634
|
|
$
|
1,630
|
|
Long
term debt including current portion and lines of credit
|
|
|
77,411
|
|
|
57,962
|
|
Available
credit under senior credit agreement
|
|
|
─0─
|
|
|
5,440
|
|
The
Company’s existing capital resources are not sufficient to fund its operations.
If the Company is unable to obtain adequate additional sources of capital in
the
near term it will need to cease all or a portion of its operations, seek
protection under U.S. bankruptcy laws and regulations, engage in a restructuring
or undertake a combination of these and other actions. Additional sources of
capital, if obtained, would likely come from sales by the Company of debt and/or
equity and/or the sale of material assets of the Company. The Company is
currently negotiating potential transactions that would supply it with capital
necessary to meet its current requirements. However, these negotiations may
not
result in successful consummation of any transaction. If the Company is able
to
successfully consummate a transaction, such transaction may result in
substantial dilution to the Company’s existing security holdings and/or the
incurrence of substantial indebtedness on relatively expensive terms. The terms
of any such transaction would also likely involve covenants that serve to
substantially restrict the operations of the Company and its management and
could result in a change of control of the Company.
On
March
20, 2008, the Company entered into an amendment to its Third Amended and
Restated Credit Agreement (“Credit Agreement”) with Silver Point Finance, LLC
and Wells Fargo Foothill, Inc. Under the terms of the Amendment, the lender
group has agreed to forbear from exercising certain of their rights and remedies
with respect to designated defaults under the Credit Agreement through the
earlier of (a) April 18, 2008 and (b) the date of occurrence of certain events
or by which certain events have failed to occur, including the Company’s failure
to enter into agreements with respect to the sale of certain of its assets
and
the Company’s failure to secure approvals for, and meet other criteria with
respect to, financing alternatives necessary to meet the Company’s immediate
capital requirements. If the Company is unable to meet all criteria under the
forbearance agreement, the lender group will have all remedies available to
them
under the Credit Agreement, including making the loan immediately due and
payable.
The
principal ongoing uses of cash that affect the Company’s liquidity position
include the following: the acquisition of and payments under syndicated
programming contracts, capital and operational expenditures and interest
payments on the Company’s debt. It should be noted that no principal is due on
the existing senior credit facility (as refinanced in February 2008 – see
below) until February 2011, except for mandatory principal payments from
proceeds generated from the sale of any collateral assets through that period.
The
Company currently has a working capital deficit of approximately
$58.7
million and has experienced losses from operations since inception.
During the year ended December 31, 2007, the Company had a net loss of
approximately $40.8 million and experienced cash outflows from operations during
the same period of approximately $30.8 million. In the past, the Company has
relied on equity and debt financing and the sale of assets to provide the
necessary liquidity for the business to operate and will need to have access
to
substantial funds over the next twelve months in order to fund its operations.
As of December 31, 2007, the Company had approximately $0.6 million of
unrestricted cash on hand, and as more fully discussed in “Notes to Consolidated
Financial Statements” - Note 13, the Company had access to a working capital
line of credit provided to it from certain banking institutions (the “Credit
Facility”). However, as of December 31, 2007, approximately $7.9 million,
available per the terms of the Credit Facility, was not available due to certain
restrictions based on the value of the loan collateral.
Prior
to
the amendment and restatement of the credit facility in February 2008, as well
as with certain other notes outstanding, the Company was subject to certain
financial covenants, including among others, that the Company meet minimum
revenue and EBITDA levels. At December 31, 2007, the Company was in not
compliance with these covenants. However, after the amendment and restatement
of
the credit facility, the Company’s previous events of default were waived and
eliminated.
On
February 13, 2008, the Company and its lenders entered into the Third Amended
and Restated Credit Agreement to refinance the credit facility. The amended
$53.0 million credit facility, comprised of an $8.0 million revolving credit
line and term loans of $45.0 million, matures on February 13, 2011, was used
to
refinance the existing indebtedness senior credit facility. Outstanding
principal balance under the credit facility bears interest at LIBOR or the
alternate base rate, plus the applicable margin. The applicable margin is 9.5%
for the LIBOR loans and 8.5% on the alternate base rate loan. The minimum LIBOR
is 4.5%. The alternate base rate is
(i)
the
greatest of (A) the Prime Rate, (B) the Federal Funds Rate in effect on such
day
plus fifty (50) basis points (0.50%), and (C) seven and one-half percent (7.50%)
per annum. We are required to pay an unused line fee of .5% on the unused
portion of the credit facility. The credit facility is secured by the majority
of the assets of the company. We are subject to new financial and operating
covenants and restrictions based on trailing monthly and twelve month
information. We have borrowed $50,512,500 under the new facility as of March
11,
2008
.
Due to
certain restrictions based on the value of the loan collateral, the Company
does
not have access to the remaining $2,487,500 at this time.
Even
with
the refinanced Credit Facility, the additional funds provided by the Amended
Credit Facility are not sufficient to meet all of the anticipated liquidity
needs to continue operations of the Company for the next twelve months.
Accordingly, the Company will have to raise additional capital or increase
its
debt immediately to continue operations. If the Company is unable to obtain
additional funds when they are required or if the funds cannot be obtained
on
favorable terms, management may be required to liquidate available assets,
restructure the Company or in the extreme event, cease operations. The financial
statements do not include any adjustments that might result from the outcome
of
these uncertainties.
For
the year ended December 31, 2007 as compared to the year ended December 31,
2006:
Operating
Activities
Net
cash
used in operating activities for the year ended December 31, 2007 and 2006
was
$30.8 million and $17.3 million, respectively. The increase in net cash
used by operating activities of $13.5 million was due primarily to an increase
in the net loss of $34.0 million net of increases in Management Agreement
Settlement expense of $4.8 million, and Share Based Compensation expense of
$2.0 million, both non-cash operating expenses.
Investing
Activities
Net
cash
used by investing activities was $11.4 million in the year ended December
31, 2007, an increase in the use of cash of $29.7 million compared to the
year ended December 31, 2006, when $18.3 million was provided by investing
activities. The increase in use was largely due to the acquisition of three
low
power television stations located in Oklahoma and Arkansas, including KLRA,
the
Univision affiliate in Little Rock, Arkansas for $1.3 million an increase in
the
investment of property and equipment, primarily in Little Rock for the expansion
of our master control facilities in the amount of $3.9 million, the setup of
a
restricted cash fund for acquisition of broadcast assets of $4.2 million and
a
decrease in the proceeds from the sale of broadcast stations from $22.2 million
in 2006 as compared to $0 in 2007.
Financing
Activities
Net
cash
provided by financing activities was $41.3 million in the year ended
December 31, 2007, compared to uses of $1.6 million in the year ended
December 31, 2006, an increase of $42.9 million. During the year ended
December 31, 2007, the Company completed its merger with the Company. As part
of
the Merger Transaction, the Company contributed pre-merger assets and
liabilities to the surviving accounting entity, including operating cash of
$22.8 million and $10.9 million of funds held in trust for the retirement
of the stock held by the Company shareholders who elected not to participate
in
the merger. The funds held in trust were paid out by the trustee subsequent
to
the merger and before September 30, 2007, to the dissenting shareholders for
their shares of the Company. Also, as part of the merger transaction, the
Company re-purchased its outstanding preferred stock for $25 million, including
the issuance of a note payable of $15 million. In June 2007, the Company
completed a sale of Common Stock shares through a private placement which
resulted in net proceeds of $9.0 million. The Company’s net decrease in debt was
$4.7 million for the year ended December 31, 2007 as compared to a net
increase of $1.6 million during the year ended December 31, 2006.
For
the year ended December 31, 2006 as compared to the year ended December 31,
2005:
As
of and for the year ended December 31, 2006 compared to the year ended December
31, 2005:
|
|
For the years ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
Net
cash used by operating activities
|
|
$
|
(17,293
|
)
|
$
|
(15,657
|
)
|
Net
cash provided (used) by investing activities
|
|
|
18,258
|
|
|
3,061
|
|
Net
cash provided by financing activities
|
|
|
(1,588
|
)
|
|
13,630
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
(623
|
)
|
$
|
1,035
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
Cash
and cash equivalents
|
|
$
|
1,630
|
|
$
|
2,254
|
|
Long
term debt including current portion and lines of credit
|
|
|
57,962
|
|
|
59,550
|
|
Available
credit under senior credit agreement
|
|
|
5,440
|
|
|
1,643
|
|
Net
cash
used in operating activities for the years ending December 31, 2006 and 2005
was
$17.3 million and $15.7 million, respectively. The increase in net
cash used by operating activities of $1.6 million was due primarily to the
following factors:
|
•
|
Gross
broadcast revenues were up $2.9 million, as discussed
above.
|
|
•
|
Amounts
totaling $1.1 million of cash was received as Deposits Held for Sale
and reflecting deposits on options to purchase various the Company
television stations.
|
|
•
|
A
net increase of $10.6 million in gains from the sale of intangibles
between periods. the Company sold WPXS, in St. Louis, in June 2005
and recorded a gain of $8.4 million. the Company received
$4.9 million in cash and three low power television stations with
fair values totaling $14.7 million as consideration. In
May 2006, the Company sold stations in Boise and Pocatello Idaho and
recorded gains totaling $0.5 million. The sales price was
$1.0 million in cash which was received at closing. In
July 2006, the Company sold its station in Montgomery, Alabama, WBMM,
for $1.9 million in cash and recorded a loss on the sale of
$0.3 million. In September, the Company sold its station in Portland,
OR for $19.3 million in cash and recorded a gain on the sale of
$18.4
million. The cash from the sale was received in increments during
2006,
predominately in latter part of the year. Other sales of various
assets
occurred but did not generate material gains or losses, or receipts
of
cash.
|
|
•
|
Operating
expenses were up $2.0 million as further discussed above in Results
of Operations.
|
|
•
|
Trade
accounts receivable, net at December 31, 2006 was approximately
$3.9 million as compared to $3.2 million at December 31, 2005,
or an increase of $0.7 million. No specific event or set of
circumstances outside normal business operations and conditions
affected
these changes.
|
|
•
|
Trade
accounts payable and accrued expenses increased $0.2 million in the
year ended December 31, 2006 vs. a decrease of $0.9 million in the
year ended December 31, 2005. Trade accounts payable and accrued
expenses
totaled $3.4 million at December 31, 2006 as compared to a balance of
$3.2 million at December 31, 2005, a decrease of $0.7 million.
No specific event or set of circumstances outside normal business
operations and conditions affected these changes or
balances.
|
|
•
|
The
amortization of program broadcast rights was $6.2 million and
$5.1 million in the years ended December 31, 2006 and 2005,
respectively. However, of those amounts $4.8 million and
$4.0 million, respectively, represented amortization of rights
acquired via barter transactions and involved no cash
activity.
|
Net
cash
provided by investing activities was $18.3 million in the year ended
December 31, 2006, an increase of $15.2 million from the prior year ended
December 31, 2005, when $3.1 million was provided by investing activities.
The following changes in investing activities were noted:
|
•
|
Capital
expenditures increased $0.3 million from $2.4 million in the
year ended December 31, 2005, to $2.7 million in the year ended
December 31, 2006. The capital expenditures in both years are indications
of the continuing growth of the Company and do not include any
single
material event or set of
circumstances.
|
|
•
|
Proceeds
from the sale of broadcast stations, or related capital assets,
was
$6.3 million in the year ended December 31, 2005 as compared to
$22.9 million in the year ended December 31, 2006. As noted above the
Company received, in 2005, $4.9 million in cash from the sale of WPXS
and $0.4 million from the sale of certain real estate in Casper, WY.
Also as noted above, the Company received, in 2006, $1.0 million from
the sale of stations in Boise and Pocatello, ID, $1.9 million from
the sale WBMM, the Montgomery station, and $19.1 million from the
sale of
its station in Portland, OR. In addition, the Company sold its
station in
Casper, WY, KTWO, but had previously received the majority of the
sales
price, or $1.0 million, which had been accounted for as a liability
until closing occurred.
|
|
•
|
In
the year ended December 31, 2005, the Company acquired a station,
WGMU,
located in Burlington, for approximately $0.7 million cash and a low
power television license located in Amarillo, Texas for approximately
$0.2 million. In the year ended December 31, 2006, the Company
purchased eight low power television stations located in Grand
Rapids, MI,
Waco, TX, Nashville, TN, Jacksonville and southwest, FL and Lexington,
KY
for $3.1 million cash and promissory notes totaling $0.8
million.
|
Net
cash
used by financing activities was $1.6 million in the year ended December
31, 2006, compared to net cash provided of $13.6 million in the year ended
December 31, 2005. Proceeds from the Senior Credit Facility Revolver totaled
$40.8 million and $19.6 million, in the years ended December 31, 2006
and 2005, respectively. Additionally, payments of $41.2 million and
$5.1 million were made towards the Senior Credit Facility Revolver in the
same years, respectively. The funds used to pay down the revolver originated
from the $19.1 million sales proceeds received on the KPOU transaction, the
$1.0 million received from the sale of the Idaho stations, the
$1.9 million received from the sale of the Montgomery station and the
$6.0 million from the C Piece of the facility, all discussed above,
and, in 2005, the $5.0 million down payment on WPXS, also discussed above.
During the year ended December 31 2006, the Company amended the Senior
Credit Facility and added the C Piece for $6.0 million. See “Debt
Instruments and Related Covenants” below for further details on the Senior
Credit Facility. The net proceeds in both years were primarily to finance the
Company’s acquisition of television stations, increase the investment in
broadcast equipment, and for general operating purposes, as further discussed
above.
Income
Taxes
EMHC
and
its subsidiaries file a consolidated federal income tax return and such state
and local tax returns as are required. Based on the estimated net operating
loss
available for carryforward at December 31, 2007, of approximately $
124.1
million the Company does not expect to pay any significant amount of
income taxes in the next several years.
Debt
Instruments and Related Covenants
The
Company’s Credit Facility is collateralized by substantially all of the assets,
including real estate, of the Company and its subsidiaries. The Credit Facility
contains certain restrictive provisions which include, but are not limited
to,
requiring the Company to achieve certain revenue and earnings goals, limiting
the amount of annual capital investments, incur additional indebtedness, make
certain acquisitions and investments, sell assets or make other restricted
payments, including dividends (all are as defined in the loan agreement and
subsequent amendments.) As of December 31, 2007, the Company was not in
compliance with all covenants as required by the credit facility before its
amendment and restatement on February 13, 2008. In connection with and as part
of the amendment and restatement of the credit facility, the lenders waived
and
eliminated the covenant requirements as of December 31, 2007. The Company is
subject to amended covenants as per the new credit agreement.
On
March
20, 2008, the Company entered into an amendment to its Third Amended and
Restated Credit Agreement (“Credit Agreement”) with Silver Point Finance, LLC
and Wells Fargo Foothill, Inc. Under the terms of the Amendment, the lender
group has agreed to forbear from exercising certain of their rights and remedies
with respect to designated defaults under the Credit Agreement through the
earlier of (a) April 18, 2008 and (b) the date of occurrence of certain events
or by which certain events have failed to occur, including the Company’s failure
to enter into agreements with respect to the sale of certain of its assets
and
the Company’s failure to secure approvals for, and meet other criteria with
respect to, financing alternatives necessary to meet the Company’s immediate
capital requirements. If the Company is unable to meet all criteria under
the
forbearance agreement, the lender group will have all remedies available
to them
under the Credit Agreement, including making the loan immediately due and
payable.
As
of
December 31, 2007, the applicable margins for base rate advances and LIBOR
advances under the revolver component of the Credit Facility were 6% and 7%,
respectively. The amount outstanding under the Credit Facility as of December
31, 2007 was $50.4 million and is allocated as follows: term loan facility
of
$20.0 million, term loan D of $12.4 million and a revolving loan of
$18.0 million. At December 31, 2007, $7.9 million was available to borrow
under the revolver component of the Credit Facility. However, due to certain
restrictions based on the value of the loan collateral, the Company did not
currently have access to the $7.9 million.(as further described in Note 2 –
Liquidity and Capital Resources).
.
Inflation
Management
does not believe that inflation has had a material impact on operations to
date,
nor is inflation expected to have a material effect on operations in the near
future. However, there can be no assurances that a high rate of inflation in
the
future would not have an adverse impact on our operating results and increase
borrowing costs.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements.
Contractual
Obligations as of December 31, 200
7
|
|
Payments due by period
|
|
|
|
|
|
Less than
1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than
5 years
|
|
|
|
Total
|
|
(2008)
|
|
(2009 -
2010)
|
|
(2011 -
2012)
|
|
(after
2012)
|
|
Long-term
debt obligations (1)
|
|
$
|
77,410,558
|
|
|
17,954,944
|
|
|
57,782,302
|
|
|
1,673,312
|
|
|
-
|
|
Capital
lease obligations (2)
|
|
|
186,036
|
|
|
44,541
|
|
|
74,258
|
|
|
67,237
|
|
|
-
|
|
Operating
lease obligations (3)
|
|
|
9,654,636
|
|
|
1,690,657
|
|
|
2,531,753
|
|
|
1,516,350
|
|
|
3,915,876
|
|
Program
rights (4)
|
|
|
3,235,382
|
|
|
2,094,737
|
|
|
974,499
|
|
|
154,218
|
|
|
11,928
|
|
|
|
$
|
90,486,612
|
|
|
21,784,879
|
|
|
61,362,812
|
|
|
3,411,117
|
|
|
3,927,804
|
|
(1)
|
“Long-term
debt obligations” represent the current and all future payments of
obligations under long-term borrowings referenced in FASB Statement
of
Financial Accounting Standards No. 47
Disclosure
of Long-Term Obligations
,
as may be modified or supplemented. This obligation consists primarily
of
obligations under the Company’s senior credit facility. These amounts are
recorded as liabilities as of the current balance sheet
date.
|
|
|
(2)
|
“Capital
lease obligations” represent payment obligations under non-cancelable
lease agreements classified as capital leases and disclosed pursuant
to
FASB Statement of Financial Accounting Standards No. 13
Accounting
for Leases
,
as may be modified or supplemented. These amounts are recorded as
liabilities as of the current balance sheet date.
|
|
|
(3)
|
“Operating
lease obligations” represent payment obligations under non-cancelable
lease agreements classified as operating leases and disclosed pursuant
to
FASB Statement of Financial Accounting Standards No. 13
Accounting
for Leases
,
as may be modified or supplemented. These amounts are not recorded
as
liabilities as of the current balance sheet date.
|
|
|
(4)
|
“Program
rights” represent obligations for syndicated television
programming.
|
The
above
table does not include cash requirements for the payment of any dividends that
our board of directors may decide to declare in the future on our Coconut Palm
Series A preferred stock. See Note 10 to the 2005 consolidated
financial statements.
Related
Party Transactions
Until
the Merger Transaction, Arkansas Media owned 75% of EBC’s Class B common
shares outstanding. The owners of Arkansas Media held management and board
of
director positions within EBC. Arkansas Media had provided management services
to EBC under the terms of a management agreement. An aspect of the merger of
EBC
with the Company was a settlement between Arkansas Media and the Company whereby
the management agreement with Arkansas Media was terminated effective
March 30, 2007, the date of the merger. As consideration for terminating
the agreement, EBC paid Arkansas Media $3.2 million, issued 640,000 shares
of
the EBC’s pre-merger Class A common stock, purchased three low power
television stations for $1.3 million, purchased an office building and land
for $0.3 million and retired a note payable to a company affiliated with
Arkansas Media for $0.5 million. The three owners of Arkansas Media also
entered into either employment or consulting agreements with the Company for
periods of one to three years, effective the date of the Merger Transaction.
Univision
Communications, Inc. is a shareholder in the Company. Univision also acts as
the
national sales agent for the Company’s Spanish-language television stations. The
Company pays Univision a 15% commission on those sales. The Company also
operates its Salt Lake City Univision television station, KUTH through a local
marketing agreement with Univision. Concurrent with the merger, EBC retired
its
preferred stock and paid Univision $19,588,670 for its preferred stock holdings.
In addition, the Company issued 2,050,519 shares of new preferred stock to
pay
the dividends that had accrued on the EBC preferred stock since its issuance
in
June 2001. Those dividends totaled $10.5 million. The Company also
issued a $15.0 million promissory note to Univision as further compensation
for its preferred stock.
Univision
also acts as the national sales agent for the Company’s Spanish-language
television stations. The Company pays Univision a 15% commission on those sales.
The Company also operates its Salt Lake City Univision television station,
KUTH
through a local marketing agreement (LMA) with Univision. The Company incurred
expenses related to commissions in the amounts of $676,255, $449,848, and
$154,577 for the years ended December 31, 2007, 2006 and 2005, respectively
for
sales made on behalf of the Company by Univision. Additionally, the Company
accrued expenses related to operating fees of $323,338, $338,516 and $349,462
for the years ended December 31, 2007, 2006 and 2005, respectively under the
LMA
with Univision.
In
connection with the approval of the above described transaction, the Company’s
stockholders ratified the Management Services Agreement between Royal Palm
Capital Management, LLLP and the Company. The agreement generally provides
that
Royal Palm will provide general management and advisory services for an initial
term of three years, subject to renewal thereafter on an annual basis by
approval of a majority of the independent directors serving on the Company’s
board of directors. The services to be provided include, but are not limited
to,
establishing certain office, accounting and administrative procedures, helping
the Company obtain financing, advising the Company in securities matters and
future acquisitions or dispositions, assisting the Company in formulating risk
management policies, coordinating public relations and investor relations
efforts, and providing such other services as may be reasonably requested by
the
Company and agreed to by Royal Palm. Royal Palm shall receive an annual
management fee of $1,500,000, in addition to the reimbursement of budgeted
out-of-pocket expenses incurred in the performance of Royal Palm’s management
services. The management services agreement may be terminated upon the material
failure of either party to comply with its stated duties and obligations,
subject to a 30-day cure period.
Certain
officers and directors of Royal Palm also serve as officers and directors of
the
Company. For this reason, Royal Palm is generally prohibited from engaging
in
activities competitive with the business of the Company post-closing, unless
such restriction is waived by the board of directors of the Company.
Other
related party activities were immaterial to the Company’s financial position and
results of operations.
.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires the appropriate application of certain
accounting policies, many of which require the Company to make estimates and
assumptions about future events and their impact on amounts reported in the
Company’s consolidated financial statements and related notes. Since future
events and their impact cannot be determined with certainty, the actual results
may differ from the Company’s estimates. Such differences may be material to the
consolidated financial statements.
The
Company believes its application of accounting policies, and the estimates
inherently required therein, are reasonable. These accounting policies and
estimates are periodically reevaluated, and adjustments are made when facts
and
circumstances dictate a change. Historically, the Company has found its
application of accounting policies to be appropriate, and actual results have
not differed materially from those determined using necessary
estimates.
The
Company’s accounting policies are more fully described in Note 2 “Summary
of Significant Accounting Policies” in the “Notes to the Consolidated Financial
Statements,” included elsewhere in this filing. the Company has identified the
following critical accounting policies:
Program
Rights and Contract Costs
Program
rights represent costs incurred for the right to broadcast certain features
and
syndicated television programs. Program rights are stated at the lower of
unamortized cost or estimated realizable value. The cost of such program rights
and the corresponding liability are recorded when the initial
program
becomes
available to broadcast under the contract. Generally, program rights are
amortized over the life of the contract on a per broadcast usage basis. The
portion of the cost estimated to be amortized within one year and after one
year, is reflected in the consolidated balance sheets as current and non-current
assets, respectively. The gross payments under these contracts that are due
within one year and after one year are similarly classified as current and
non-current liabilities.
Certain
program contracts provide that the Company may exchange advertising airtime
in
lieu of cash payments for the rights to broadcast certain television programs.
The average estimated fair value of the advertising time available in each
contract program is recorded as both a program right, an asset, and,
correspondingly, as deferred barter revenue, a liability. The current and
non-current portion of each are determined as noted above. As the programs
are
aired and advertising time used, both program rights and unearned revenue are
amortized, correspondingly, based on a per usage basis of the available
commercial time, to both program expense and broadcast revenue.
Valuation
of Intangible Assets, Goodwill and Long-lived
Assets
The
Company accounts for its business acquisitions under the purchase method of
accounting. The total cost of acquisitions is allocated to the underlying net
assets, based on their respective estimated fair values. The excess of the
purchased price over the estimated fair values of the tangible and identifiable
intangible net assets is recorded as goodwill. Determining the fair values
of
assets acquired and liabilities assumed requires managements judgments and
often
involves the use of significant estimates and assumptions, including assumptions
with respect to future cash inflows and outflows, discount rates , asset lives,
and market multiples, among other variables.
The
Company classifies intangible assets as either finite-lived or indefinite-lived.
Indefinite-lived intangibles consist of FCC broadcasting licenses and goodwill
which are not subject to amortization, but are tested for impairment at least
annually.
At
least
annually, the Company performs an impairment test for indefinite-lived
intangibles and goodwill using various valuation methods to determine the
asset’s fair value. Certain assumptions are used in determining the fair value,
including assumptions about the Company’s businesses, market conditions, station
operating performance and legal factors. Additionally, the fair values can
be
significantly impacted by other factors including market multiples and long-term
interest rates that exist at the time the impairment analysis is
performed.
The
Company reviews its long-lived assets and certain identifiable intangibles
for
impairment whenever events or changes in circumstances indicated that the
carrying amount of any asset may not be recoverable. Recoverability of assets
to
be held and used is measured by a comparison of the carrying amount of an asset
to fair value, which is determined using quoted market prices or estimates
based
on the best information available using valuation techniques acceptable in
the
industry. Management uses third-party, independent appraisals of all stations
and operations which are updated on a regular basis upon which it bases its
estimate of fair value.
The
Company’s primary source of revenue is the sale of television time to
advertisers. Revenue is recorded when the advertisements are broadcast. Deferred
revenue consists of monies received for advertisements not yet broadcast. The
revenues realized from barter arrangements are recorded as the programs are
aired and at the estimated fair value of the advertising airtime given in
exchange for the program rights.
The
revenue recorded by the Company’s wholly owned subsidiary, RTN, is primarily
from the sale of television time to advertisers. RTN contracts with other
television broadcasters across the United States to deliver programming content
in a digital format to be broadcast on the broadcaster’s digital platform in the
local markets in which the broadcasters are located. The agreements between
RTN
and the broadcasters provide RTN access to a certain portion of the commercial
time within the programming for the sale to advertisers by RTN. Specifically,
the local affiliate sells advertising time to local advertisers while RTN is
able to sell to national and, in some instances, to regional advertisers. The
revenue is recognized when the advertisements are broadcast.
Additional
broadcast revenue includes uplink services to other media companies under
contractual arrangements in which revenues are recognized as services are
provided pursuant to the respective agreement. The revenue recorded from these
uplink services, as provided to other media companies through the Company’s
wholly owned subsidiary, C.A.S.H. Services, Inc. (“C.A.S.H.”), typically
consists of one or more of the following component aspects provided by C.A.S.H.
including, but not limited to, access to the Company’s available satellite
bandwidth, master control services, access to the Company’s traffic software and
services provided by the Company’s traffic personnel. All of these component
aspects of the agreement, however, are delivered simultaneously to provide
the
service of up-linking the client’s television signal. The revenue, as defined in
each agreement, is recognized as the collective service is provided, which
is
when the uplink service occurs, which is typically non-stop, twenty-four hours
a
day as long as the agreement is in force. Once the service is provided, the
Company has no further post-delivery obligation. Each individual agreement
is
negotiated regarding the components of the uplink service to be provided based
upon the cost of those components and the needs of the client. Until September
2005, the Company provided broadcast based services to various third parties,
consisting of the production and delivery, via satellite, of local news shows.
Broadcast revenue from those services was recognized as the shows were aired,
or
as uplink services were provided. No such news production services were provided
to third parties in 2007 and 2006, due to the fact that the Company fully
utilized its news production and delivery capacity for internal purposes and,
as
such, no revenue was recorded in 2007 and 2006.
In
establishing deferred income tax assets and liabilities, the Company makes
judgments and interpretations based on enacted tax laws and published tax
guidance applicable to its operations. the Company records deferred tax assets
and liabilities and evaluates the need for valuation allowances to reduce
deferred tax assets to realizable amounts. Changes in the Company’s valuation of
the deferred tax assets or changes in the income tax provision may affect its
annual effective income tax rate. As of December 31, 2007, and 2006 valuation
allowances have been provided for the entire amount of our available federal
and
state net operating loss carryovers.
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), which
establishes accounting for stock-based awards exchanged for employee services,
using the modified prospective application transition method. As of
January 1, 2006, the Company was a non-public entity, and it used the
exemptions provided by SFAS No. 123(R) and continued to account for
the options issued prior to adoption of SFAS No. 123(R) using the
previous methodology applying Accounting Principles Board (“APB”) No. 25
and related interpretations, as permitted under SFAS No. 123. For awards
issued or modified after January 1, 2006, the Company uses the fair value
method as required under SFAS No. 123(R) and described below.
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes valuation model that uses the following assumptions: expected
volatility, expected life of the options, expected dividend yield and the risk
free interest rate. The Company amortizes the fair value of all awards on a
straight-line basis over the requisite service periods. Because Black-Scholes
valuation models incorporate ranges of assumptions for inputs, those ranges
are
disclosed. Until such time as the Company’s common stock and related equity
instruments have traded for a sufficient time period, the Company will determine
the expected volatility of its common stock based on the weighted average of
the
historical volatility of the daily closing prices of a composite group of public
companies with operations similar to the Company’s as a television broadcaster.
The Company uses historical data to estimate option exercise and employee
termination within the valuation model; separate groups of employees that have
similar historical exercise behavior are considered separately for valuation
purposes. The expected life of the options granted represents the period of
time
that they are expected to be outstanding. The risk-free interest rate is based
on the U.S. Treasury yield curve in effect at the time of grant for issues
with
and equivalent remaining term equal to the expected life of the award. The
Company uses an expected dividend yield of zero in the valuation model,
consistent with the Company’s recent experience.
The
exchange of options and change of terms upon consummation of the Merger
Transaction was treated for purposes of SFAS 123(R) as a modification of the
terms and conditions of the option awards which requires that the Company
measure the incremental compensation cost by comparing the fair value of the
modified award with the fair value of the award immediately before the
modification. Based on a calculation of both the fair value of the original
EBC
options immediately before the merger and the fair value of the modified options
immediately after the merger, it was determined that no incremental value was
added due to the modification. Accordingly, there was no additional compensation
expense charged to operations as result of the modification.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued Statement No. 160, “
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No. 51
(“FASB No. 160”)
.”
The
objective of FASB No. 160 is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides
in
its consolidated financial statements by establishing accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This Statement applies to all entities that
prepare consolidated financial statements, except not-for-profit organizations.
FASB No. 160 amends ARB 51 to establish accounting and reporting standards
for the non-controlling interest in a subsidiary and for the deconsolidation
of
a subsidiary. It also amends certain of ARB 51’s consolidation procedures for
consistency with the requirements of FASB No. 141 (R). This Statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 Earlier adoption is prohibited. The
effective date of this Statement is the same as that of the related Statement
141(R). This Statement shall be applied prospectively as of the beginning of
the
fiscal year in which this Statement is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods presented.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007)
“
Business
Combinations
”
(“FASB
No. 141(R)”). FASB No. 141(R) retains the fundamental requirements of
the original pronouncement requiring that the purchase method be used for all
business combinations. FASB No. 141(R) defines the acquirer as the entity
that obtains control of one or more businesses in the business combination,
establishes the acquisition date as the date that the acquirer achieves control
and requires the acquirer to recognize the assets acquired, liabilities assumed
and any non-controlling interest at their fair values as of the acquisition
date. FASB No. 141(R) also requires that acquisition-related costs be
recognized separately from the acquisition. FASB No. 141(R) is effective
for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The impact of adopting SFAS No. 141(R) will be dependent on the future
business combinations that the Company may pursue after its effective date,
if
any.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at
fair
value. SFAS No. 159 will be effective for the Company on January 1,
2008. We do not expect that the adoption of SFAS No. 159 will have a material
impact on our financial position or results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plan” (“SFAS No. 158”), which requires
employers to fully recognize the obligations associated with single-employer
defined benefit pension, retiree healthcare and other postretirement plans
in
their financial statements. It requires employers to recognize an asset or
liability for a plan’s over funded or under funded status, measure a plan’s
assets and obligations that determine its funded status as of the end of the
employer’s fiscal year and recognize in comprehensive income changes in the fund
status of the defined benefit postretirement plan in the year in which changes
occur. The requirement to recognize the funded status of a benefit plan and
the
disclosure requirement are effective for fiscal years ending after December
31,
2006. We have adopted the requirements of SFAS No. 158, which has had no impact
on our financial position or results of operations.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157,
“
Fair
Value Measurements” (“SFAS No. 157”), which applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. SFAS
No.
157 establishes a fair value hierarchy that prioritizes the information used
to
develop the assumption that market participants would use when pricing an asset
or liability. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. Earlier adoption is encouraged provided that the entity has not
yet issued financial statements, including interim financial statements, for
any
period of that fiscal year. The effective date of this statement is the date
than an entity adopts the requirements of this statement. Management does not
expect this pronouncement to have a material impact on the Company’s financial
position or results of operations.
In
June
2006, the FASB issued Financial Interpretation (“FIN”) No. 48, “Accounting
for Uncertainty in Income Taxes—An Interpretation of FASB Statement
No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain
tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognizing, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of this pronouncement did not have a
material impact on the consolidated financial statements of the Company.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
General
The
Company is exposed to market risk from changes in domestic and international
interest rates (i.e. prime and LIBOR). This market risk represents the risk
of
loss that may impact the financial position, results of operations and/or cash
flows of the Company due to adverse changes in interest rates. This exposure
is
directly related to our normal funding activities. The Company does not use
financial instruments for trading and, as of December 31, 2007 was not a party
to any interest-rate derivative agreements.
Interest
Rates
At
December 31, 2007, approximately 75% of the Company’s total outstanding debt
(credit agreement, lines of credit, asset purchase loans, real estate mortgage,
etc.) bears interest at variable rates. The fair value of the Company’s fixed
rate debt is estimated based on current rates offered to the Company for debt
of
similar terms and maturities and is not estimated to vary materially from its
carrying value.
Based
on
amounts outstanding at December 31, 2007, if the interest rate on the Company’s
variable debt were to increase by 1.0%, its annual interest expense would be
higher by approximately $0.6 million.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EQUITY
MEDIA HOLDINGS CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
634,314
|
|
$
|
1,630,973
|
|
Restricted
cash
|
|
|
4,162,567
|
|
|
|
|
Certificate
of deposit
|
|
|
112,107
|
|
|
107,611
|
|
Trade
accounts receivable, net of allowance for uncollectible accounts;
$1,485,926 in 2007 and $ 1,542,114 in 2006
|
|
|
3,
514,635
|
|
|
3,893,887
|
|
Program
broadcast rights
|
|
|
6,921,465
|
|
|
5,104,685
|
|
Assets
held for sale
|
|
|
9,520,849
|
|
|
12,352,613
|
|
Other
current assets
|
|
|
321,434
|
|
|
811,231
|
|
Prepaid
expenses - related party
|
|
|
100,000
|
|
|
-
|
|
Total
current assets
|
|
|
25,287,371
|
|
|
23,901,000
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
|
|
|
|
|
Land
and improvements
|
|
|
2,017,698
|
|
|
2,200,330
|
|
Buildings
|
|
|
3,956,229
|
|
|
2,348,475
|
|
Broadcast
equipment
|
|
|
29,174,079
|
|
|
23,354,491
|
|
Transportation
equipment
|
|
|
283,151
|
|
|
232,776
|
|
Furniture
and fixtures
|
|
|
4,422,527
|
|
|
3,337,654
|
|
Construction
in progress
|
|
|
163,716
|
|
|
203,816
|
|
|
|
|
40,017,400
|
|
|
31,677,542
|
|
Accumulated
depreciation
|
|
|
(16,350,882
|
)
|
|
(12,161,846
|
)
|
Net
property and equipment
|
|
|
23,666,518
|
|
|
19,515,696
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
|
|
|
|
|
Indefinite-lived
|
|
|
|
|
|
|
|
Broadcast
licenses
|
|
|
66,498,347
|
|
|
63,064,692
|
|
Goodwill
|
|
|
1,940,282
|
|
|
1,940,282
|
|
Total
indefinite-lived
|
|
|
68,438,629
|
|
|
65,004,974
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Broadcasting
construction permits
|
|
|
885,665
|
|
|
926,000
|
|
Program
broadcast rights
|
|
|
4,001,625
|
|
|
4,120,753
|
|
Investment
in joint ventures
|
|
|
435,860
|
|
|
681,605
|
|
Deposits
and other assets
|
|
|
98,705
|
|
|
262,630
|
|
Broadcasting
station acquisition rights pursuant to assignment
agreements
|
|
|
440,000
|
|
|
40,000
|
|
Total
other assets
|
|
|
5,861,855
|
|
|
6,030,988
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
123,254,373
|
|
$
|
114,412,658
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
EQUITY
MEDIA HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
3,644,474
|
|
$
|
1,980,509
|
|
Due
to affiliates and related parties
|
|
|
2,509,480
|
|
|
1,338,557
|
|
Lines
of credit
|
|
|
994,495
|
|
|
-
|
|
Accrued
expenses and other liabilities
|
|
|
1,777,240
|
|
|
1,455,526
|
|
Deposits
held for sales of broadcast licenses
|
|
|
1,024,601
|
|
|
219,024
|
|
Deferred
revenue
|
|
|
271,728
|
|
|
212,299
|
|
Current
portion of program broadcast obligations
|
|
|
2,094,741
|
|
|
1,126,580
|
|
Current
portion of deferred barter revenue
|
|
|
4,393,637
|
|
|
3,903,770
|
|
Note
payable to Univision
|
|
|
15,000,000
|
|
|
-
|
|
Current
portion of notes payable
|
|
|
52,233,322
|
|
|
3,934,615
|
|
Current
portion of capital lease obligations
|
|
|
44,546
|
|
|
35,267
|
|
Total
current liabilities
|
|
|
83,988,265
|
|
|
14,206,147
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
Notes
payable, net of current portion
|
|
|
8,996,705
|
|
|
53,966,446
|
|
Capital
lease obligations, net of current portion
|
|
|
141,491
|
|
|
25,736
|
|
Program
broadcast obligations, net of current portion
|
|
|
1,140,641
|
|
|
1,020,937
|
|
Deferred
barter revenue, net of current portion
|
|
|
2,618,143
|
|
|
2,889,424
|
|
Due
to affiliates and related parties
|
|
|
6,262
|
|
|
51,499
|
|
Security
and other deposits
|
|
|
213,500
|
|
|
1,024,601
|
|
Other
liabilities
|
|
|
556,795
|
|
|
-
|
|
Total
non-current liabilities
|
|
|
13,673,536
|
|
|
58,978,643
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Mandatorily
redeemable preferred stock
|
|
|
10,519,162
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
Common
stock
|
|
|
4,028
|
|
|
2,537
|
|
Additional
paid-in capital
|
|
|
136,217,425
|
|
|
98,915,163
|
|
Accumulated
Deficit
|
|
|
(121,146,692
|
)
|
|
(57,649,832
|
)
|
|
|
|
15,074,761
|
|
|
41,267,868
|
|
Treasury
stock, at cost
|
|
|
(1,352
|
)
|
|
-
|
|
Total
stockholders' equity
|
|
|
15,073,409
|
|
|
41,267,868
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
123,254,373
|
|
$
|
114,452,658
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Broadcast
Revenue
|
|
$
|
28,264,177
|
|
$
|
30,394,732
|
|
$
|
27,470,923
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
Program,
production & promotion
|
|
|
15,028,100
|
|
|
13,413,200
|
|
|
11,539,563
|
|
Selling,
general & administrative
|
|
|
29,791,043
|
|
|
23,710,623
|
|
|
22,433,191
|
|
Selling,
general & administrative - related party
|
|
|
1,079,905
|
|
|
884,364
|
|
|
600,039
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
agreement settlement
|
|
|
8,000,000
|
|
|
-
|
|
|
-
|
|
Impairment
charge on assets held for sale
|
|
|
-
|
|
|
200,000
|
|
|
1,688,721
|
|
Amortization
|
|
|
37,135
|
|
|
126,250
|
|
|
105,283
|
|
Depreciation
|
|
|
4,122,938
|
|
|
3,156,590
|
|
|
3,547,140
|
|
Management
fees - related party
|
|
|
1,547,581
|
|
|
1,596,682
|
|
|
1,475,282
|
|
Rent
|
|
|
2,499,058
|
|
|
2,191,217
|
|
|
1,937,468
|
|
Total
operating expenses
|
|
|
62,105,761
|
|
|
45,278,927
|
|
|
43,326,687
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(33,841,584
|
)
|
|
(14,884,194
|
)
|
|
(15,855,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
189,884
|
|
|
214,483
|
|
|
147,947
|
|
Interest
expense
|
|
|
(7,310,423
|
)
|
|
(7,591,769
|
)
|
|
(5,232,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense - related party
|
|
|
(787,500
|
)
|
|
-
|
|
|
-
|
|
Gain
(loss) on sale of assets
|
|
|
414,378
|
|
|
18,774,772
|
|
|
7,676,468
|
|
Other
income, net
|
|
|
866,592
|
|
|
1,073,495
|
|
|
1,109,907
|
|
Losses
from affiliates and joint ventures
|
|
|
(273,657
|
)
|
|
(814,897
|
)
|
|
(563,169
|
)
|
Total
other income (expense)
|
|
|
(6,900,726
|
)
|
|
11,656,085
|
|
|
3,138,346
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(40,742,310
|
)
|
|
(3,228,109
|
)
|
|
(12,717,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(40,742,310
|
)
|
|
(3,228,109
|
)
|
|
(12,717,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
|
(12,691,737
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(53,434,048
|
)
|
|
(3,228,109
|
)
|
$
|
(12,717,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
36,312,638
|
|
|
25,371,332
|
|
|
25,467,844
|
|
Net
loss available to common shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
(1.47
|
)
|
|
(0.13
|
)
|
|
(0.50
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements
EQUITY
MEDIA HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
|
|
Common Stock
|
|
Paid-in Capital
|
|
Accumulated
|
|
Treasury Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
in Excess of Par
|
|
Deficit
|
|
Shares
|
|
Amount
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004, as restated
|
|
|
25,371,332
|
|
$
|
2,537
|
|
$
|
98,915,163
|
|
$
|
(41,704,305
|
)
|
|
-
|
|
$
|
-
|
|
$
|
57,213,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12,717,418
|
)
|
|
-
|
|
|
-
|
|
|
(12,717,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
25,371,332
|
|
|
2,537
|
|
|
98,915,163
|
|
|
(54,421,723
|
)
|
|
-
|
|
|
-
|
|
|
44,495,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,228,109
|
)
|
|
-
|
|
|
-
|
|
|
(3,228,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
25,371,332
|
|
|
2,537
|
|
|
98,915,163
|
|
|
(57,649,832
|
)
|
|
-
|
|
|
-
|
|
|
41,267,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
of preferred stock
|
|
|
|
|
|
|
|
|
(29,937,188
|
)
|
|
(10,062,812
|
)
|
|
|
|
|
|
|
|
(40,000,000
|
)
|
Shares
issued per consulting agreement
|
|
|
43,860
|
|
|
4
|
|
|
(4
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common
stock issued as payment of preferred dividends
|
|
|
314,966
|
|
|
32
|
|
|
1,615,749
|
|
|
(1,615,781
|
)
|
|
|
|
|
|
|
|
-
|
|
Preferred
shares issued as payment of preferred dividends
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(10,519,162
|
)
|
|
|
|
|
|
|
|
(10,519,162
|
)
|
Acquisition
of net assets of Coconut Palm Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
|
12,091,089
|
|
|
1,209
|
|
|
50,638,304
|
|
|
|
|
|
|
|
|
|
|
|
50,639,513
|
|
Charge
to additional paid-in capital for prepaid merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
|
|
|
|
|
|
|
|
|
(953,223
|
)
|
|
|
|
|
|
|
|
|
|
|
(953,223
|
)
|
Common
stock portion of settlement to terminate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arkansas
Media Management Agreement
|
|
|
935,672
|
|
|
94
|
|
|
4,799,906
|
|
|
|
|
|
|
|
|
|
|
|
4,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of fractional shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(260
|
)
|
|
(1,352
|
)
|
|
(1,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation costs
|
|
|
|
|
|
|
|
|
2,007,280
|
|
|
|
|
|
|
|
|
|
|
|
2,007,280
|
|
Common
shares issued in connection with private
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
placement
|
|
|
1,406,250
|
|
|
140
|
|
|
8,999,860
|
|
|
|
|
|
|
|
|
|
|
|
9,000,000
|
|
Retirement
of Equity Broadcasting Corporation dissenting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
|
|
|
|
|
|
(368,410
|
)
|
|
|
|
|
|
|
|
|
|
|
(368,410
|
)
|
Common
stock issued as payment of note payable
|
|
|
115,473
|
|
|
12
|
|
|
499,988
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of preferred dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(556,794
|
)
|
|
|
|
|
|
|
|
(556,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(40,742,310
|
)
|
|
|
|
|
|
|
|
(40,742,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
40,278,642
|
|
|
4,028
|
|
|
136,217,425
|
|
|
(121,146,692
|
)
|
|
(260
|
)
|
|
(1,352
|
)
|
|
15,073,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006, 2005
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(40,742,310
|
)
|
$
|
(3,228,109
|
)
|
$
|
(12,717,418
|
)
|
Adjustment
to reconcile net income to net cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for bad debts
|
|
|
1,273,736
|
|
|
1,721,500
|
|
|
419,457
|
|
Depreciation
|
|
|
4,122,938
|
|
|
3,156,590
|
|
|
3,547,140
|
|
Amortization
of Intangibles
|
|
|
37,135
|
|
|
126,250
|
|
|
105,283
|
|
Amortization
of program broadcast rights
|
|
|
7,769,321
|
|
|
6,206,367
|
|
|
5,145,937
|
|
Amortization
of discounts on interest-free debt
|
|
|
29,723
|
|
|
-
|
|
|
-
|
|
Equity
in (gains) losses of subsidiaries and joint ventures
|
|
|
273,657
|
|
|
814,897
|
|
|
563,169
|
|
(Gain)
loss on sale of equipment
|
|
|
(453,753
|
)
|
|
44,218
|
|
|
533,643
|
|
(Gain)
loss on sale of intangibles
|
|
|
39,375
|
|
|
(18,818,990
|
)
|
|
(8,210,113
|
)
|
Impairment
of Intangibles
|
|
|
-
|
|
|
200,000
|
|
|
1,688,721
|
|
Management
agreement settlement fees
|
|
|
4,800,000
|
|
|
-
|
|
|
-
|
|
Share
based compensation
|
|
|
2,007,280
|
|
|
-
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in trade accounts receivable
|
|
|
(894,485
|
)
|
|
(1,620,866
|
)
|
|
(34,077
|
)
|
(Increase)
decrease in deposits and other assets
|
|
|
(476,769
|
)
|
|
299,967
|
|
|
(530,119
|
)
|
Increase
(decrease) in accounts payable and accrued expenses
|
|
|
(486,132
|
)
|
|
228,454
|
|
|
(533,958
|
)
|
Decrease
in program broadcast rights
|
|
|
(9,466,967
|
)
|
|
(5,489,577
|
)
|
|
(9,283,015
|
)
|
Increase
(decrease in program broadcast obligations
|
|
|
1,087,863
|
|
|
(1,095,924
|
)
|
|
1,650,008
|
|
Increase
in deferred barter revenue
|
|
|
218,584
|
|
|
169,192
|
|
|
2,001,635
|
|
Decrease
in security Deposits
|
|
|
(5,523
|
)
|
|
(7,200
|
)
|
|
-
|
|
Increase
in deferred income
|
|
|
59,429
|
|
|
-
|
|
|
-
|
|
Decrease
in other liabilities
|
|
|
-
|
|
|
-
|
|
|
(3,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(30,806,898
|
)
|
|
(17,293,231
|
)
|
|
(15,656,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(7,382,192
|
)
|
|
(2,730,264
|
)
|
|
(2,389,175
|
)
|
Proceeds
from sale of property and equipment
|
|
|
621,462
|
|
|
595,991
|
|
|
350,956
|
|
Proceeds
from collection on notes receivable
|
|
|
-
|
|
|
633,973
|
|
|
10,434
|
|
Proceeds
from sale of intangibles
|
|
|
-
|
|
|
123,332
|
|
|
30,000
|
|
Proceeds
from sale of broadcast stations
|
|
|
-
|
|
|
22,231,291
|
|
|
5,965,517
|
|
Acquisition
of broadcast assets
|
|
|
(1,625,000
|
)
|
|
(3,781,027
|
)
|
|
(1,046,386
|
)
|
Restriction
of cash for acquisitions
|
|
|
(4,162,567
|
)
|
|
-
|
|
|
-
|
|
Proceeds
from options to sell broadcast assets
|
|
|
-
|
|
|
1,128,666
|
|
|
-
|
|
(Purchase)
maturities of certificate of deposit
|
|
|
(4,496
|
)
|
|
(3,600
|
)
|
|
46,737
|
|
Purchase
of other intangible assets
|
|
|
-
|
|
|
(4,565
|
)
|
|
(55,612
|
)
|
Net
repayments from (advances to) affiliates
|
|
|
1,112,519
|
|
|
63,864
|
|
|
148,671
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by investing activities
|
|
|
(11,440,274
|
)
|
|
18,257,661
|
|
|
3,061,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
24,934,146
|
|
|
42,910,775
|
|
|
21,682,531
|
|
Payments
of notes payable
|
|
|
(20,183,227
|
)
|
|
(44,468,272
|
)
|
|
(7,960,584
|
)
|
Payments
of capital lease obligations
|
|
|
(37,497
|
)
|
|
(30,196
|
)
|
|
(91,729
|
)
|
Recapitalization
through merger
|
|
|
52,906,853
|
|
|
-
|
|
|
-
|
|
Purchase
of common stock
|
|
|
(1,352
|
)
|
|
-
|
|
|
-
|
|
Purchase
of preferred stock
|
|
|
(25,000,000
|
)
|
|
-
|
|
|
-
|
|
Issuance
of common stock
|
|
|
9,000,000
|
|
|
-
|
|
|
-
|
|
Settlement
with dissenting shareholders
|
|
|
(368,410
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by financing activities
|
|
|
41,250,513
|
|
|
(1,587,693
|
)
|
|
13,630,218
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(996,659
|
)
|
|
(623,263
|
)
|
|
1,034,556
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,630,973
|
|
|
2,254,236
|
|
|
1,219,680
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
634,314
|
|
$
|
1,630,973
|
|
$
|
2,254,236
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
6,827,338
|
|
$
|
7,185,324
|
|
$
|
5,194,140
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
Issuance
of note payable to redeem preferred stock
|
|
$
|
15,000,000
|
|
$
|
-
|
|
$
|
-
|
|
Settlement
with dissenting shareholders
|
|
|
10,899,882
|
|
|
-
|
|
|
-
|
|
Issuance
of mandatorily redeemable preferred stock to pay preferred dividends
|
|
|
10,519,162
|
|
|
-
|
|
|
-
|
|
Assumption
of net liabilities of Coconut Palm Acquisition Corporation
|
|
|
(2,267,340
|
)
|
|
-
|
|
|
-
|
|
Issuance
of common stock to pay preferred dividends
|
|
|
1,615,781
|
|
|
-
|
|
|
-
|
|
Charge
to stockholders' equity for prepaid merger costs
|
|
|
953,223
|
|
|
-
|
|
|
-
|
|
Issuance
of common stock to retire debt
|
|
|
500,000
|
|
|
-
|
|
|
-
|
|
Acquisition
of real property through assumption of debt
|
|
|
205,347
|
|
|
-
|
|
|
-
|
|
Accretion
of preferred dividends
|
|
|
556,795
|
|
|
-
|
|
|
-
|
|
Issuance
of common stock as consideration for the purchase of stations
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
Receipt
of stock in asset exchange
|
|
|
|
|
|
|
|
|
4,041,023
|
|
Exchange
of full power television license in St. Louis, MO for three class
A low
power television licenses located in Atlanta, Seattle and
Minneapolis
|
|
|
-
|
|
|
|
|
|
14,747,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
EQUITY
MEDIA HOLDINGS CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 — ORGANIZATION AND BUSINESS OPERATIONS
Equity
Media Holdings Corporation (the “Company”) was incorporated in Delaware on
April 29, 2005 as Coconut Palm Acquisition Corp. (“Coconut Palm”) to serve
as a vehicle for the acquisition of an operating business through a merger,
capital stock exchange, asset acquisition and/or other similar transaction.
On
March 30, 2007, Coconut Palm merged with Equity Broadcasting Corporation
(“EBC”), with Coconut Palm remaining as the legal surviving corporation;
however, the financial statements and continued operations are those of EBC
as
the accounting acquirer (See Note 4 — Merger Transaction). Immediately following
the merger, Coconut Palm changed its name to Equity Media Holdings Corporation.
The
Company, headquartered in Little Rock, Arkansas, owns and operates television
stations across the United States. As of December 31, 2007, the Company owned
23
full power/network television stations, 38 Class A television stations and
57 low power television stations. The Company also owns and operates Retro
Television Network (“RTN”). RTN provides programming, primarily ratings proven
programs from the 60’s, 70’s, 80’s and 90’s, to its affiliates in a fully
digital format on an individual market basis that allows the affiliates to
also
broadcast local news, weather and sporting events to their local audiences,
This
allows the affiliates to sell local advertising spots to generate revenue.
As of
December 31, 2007, RTN had 15 third-party affiliates under contract. The Company
also owns and operates its proprietary uplink services company known as C.A.S.H.
Services. The Central Automated Satellite Hub (“CASH”), system provides the
means to delivering a fully automated, 24 hour a day custom satellite feed
for
not only each RTN affiliate, but all of its owned and operated television
stations. CASH also has non-affiliated customers that pay for uplink and related
delivery services.
The
accompanying consolidated financial statements also include the results of
operations of a radio station operated by the Company pursuant to a local
marketing agreement (“LMA”).
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
–
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the consolidated financial statements and the reported amounts
of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.
Principles
of Consolidation –
The
consolidated financial statements of Equity Media Holdings Corp. include the
accounts and balances of the Company and its subsidiaries in which a controlling
interest is maintained. Controlling interest is determined by majority ownership
and the absence of substantive third party participating rights. The Company
applies the guidelines set forth in Financial Accounting Standards Board
(“FSAB”) Interpretation 46R “Consolidation of Variable Interest Entities, an
Interpretation of ARB No 51” (“FIN 46R”) in assessing its interests in variable
interest entities to decided whether to consolidate that entity. Investments
over which the Company has a significant interest or ownership of more than
20%
but less than 50%, without a controlling interest, are accounted for under
the
equity method. Investments of 20% or less over which the Company has no
significant influence are accounted under the cost method. All inter-company
transactions and balances of consolidated entities have been
eliminated.
Cash
equivalents
–
The Company considers all cash, money market balances and highly liquid
instruments with an original maturity date of three months or less to be cash
equivalents.
Revenue
recognition
–
The
Company’s primary source of revenue is the sale of television time to
advertisers. Revenue is recorded when the advertisements are broadcast. Deferred
revenue consists of monies received for advertisements not yet broadcast. The
revenues realized from barter arrangements are recorded as the programs are
aired and at the estimated fair value of the advertising airtime given in
exchange for the program rights.
The
revenue recorded by the Company’s wholly owned subsidiary, RTN, is primarily
from the sale of television time to advertisers. RTN contracts with other
television broadcasters across the United States to deliver programming content
in a digital format to be broadcast on the broadcaster’s digital platform in the
local markets in which the broadcasters are located. The agreements between
RTN
and the broadcasters provide RTN access to a certain portion of the commercial
time within the programming for the sale to advertisers by RTN. Specifically,
the local affiliate sells advertising time to local advertisers while RTN is
able to sell to national and, in some instances, to regional advertisers. The
revenue is recognized when the advertisements are broadcast.
Additional
broadcast revenue includes uplink services to other media companies under
contractual arrangements in which revenues are recognized as services are
provided pursuant to the respective agreement. The revenue recorded from these
uplink services, as provided to other media companies through the Company’s
wholly owned subsidiary, C.A.S.H. Services, Inc. (“C.A.S.H.”), typically
consists of one or more of the following component aspects provided by C.A.S.H.
including, but not limited to, access to the Company’s available satellite
bandwidth, master control services, access to the Company’s traffic software and
services provided by the Company’s traffic personnel. All of these component
aspects of the agreement, however, are delivered simultaneously to provide
the
service of up-linking the client’s television signal. The revenue, as defined in
each agreement, is recognized as the collective service is provided, which
is
when the uplink service occurs, which is typically non-stop, twenty-four hours
a
day as long as the agreement is in force. Once the service is provided, the
Company has no further post-delivery obligation. Each individual agreement
is
negotiated regarding the components of the uplink service to be provided based
upon the cost of those components and the needs of the client. Until September
2005, the Company provided broadcast based services to various third parties,
consisting of the production and delivery, via satellite, of local news shows.
Broadcast revenue from those services was recognized as the shows were aired,
or
as uplink services were provided. No such news production services were provided
to third parties in 2007 and 2006, due to the fact that the Company fully
utilized its news production and delivery capacity for internal purposes and,
as
such, no revenue was recorded in 2007 and 2006.
Accounts
receivable
–
Accounts receivable are recorded at the amounts billed to customers and do
not
bear interest. The Company reviews customer accounts on a periodic basis and
records a reserve for specific amounts that management feels may not be
collected. Management deems accounts receivable to be past due based on
contractual terms. Amounts are written off at the point when collection attempts
have been exhausted. Management uses significant judgment in estimating
uncollectible amounts. In estimating uncollectible amounts, management considers
factors such as current overall economic conditions, industry-specific economic
conditions, historical customer performance and anticipated customer
performance. While management believes the Company’s processes effectively
address its exposure to doubtful accounts, changes in the economy, industry
or
specific customer conditions may require adjustment to any allowance recorded
by
the Company.
Program
broadcast rights and obligations
–
Program
rights represent costs incurred for the right to broadcast certain features
and
syndicated television programs. Program rights are stated at the lower of
unamortized cost or estimated realizable value. The cost of such program rights
and the corresponding liability are recorded when the initial program becomes
available to broadcast under the contract. Generally, program rights are
amortized over the life of the contract on a per broadcast usage basis. Any
reduction in unamortized costs to fair value is included in amortization of
program rights in the accompanying consolidated statement of operations. Such
reductions were negligible for all periods presented. The portion of the cost
estimated to be amortized within one year and after one year, is reflected
in
the consolidated balance sheets as current and noncurrent assets, respectively.
The gross payments under these contracts that are due within one year and after
one year are similarly classified as current and noncurrent liabilities.
Certain
program contracts provide that the Company may exchange advertising airtime
in
lieu of cash payments for the rights to broadcast certain television programs.
The average estimated fair value of the advertising time available in each
contract program is recorded as both a program right, an asset, and,
correspondingly, as deferred barter revenue, a liability. The current and
noncurrent portion of each are determined as noted above. As the programs are
aired and advertising time used, both program rights and unearned revenue are
amortized, correspondingly, based on a per usage basis of the available
commercial time, to both program expense and broadcast revenue.
Barter
and trade transactions:
Revenue
and expenses associated with barter agreements in which broadcast time is
exchanged for programming rights are recorded at the estimated average rate
of
the airtime exchanged. Trade transactions, which represent the exchange of
advertising time for goods or services, are recorded at the estimated fair
value
of the products or services received. Barter and trade revenue is recognized
when advertisements are broadcast. Merchandise or services received from airtime
trade sales are charged to expense or capitalized and expensed when used. Barter
revenues and expenses for the year ended December 31 were approximately $5.3
million in 2007, $4.8 million in 2006, and $4.0 million in 2005,
respectively. Trade revenues and expenses for the year ended December 31 were
approximately $3.1 million in 2007, $3.9 million in 2006, and $3.4 million
in 2005, respectively.
Property
and equipment
–
Purchases of property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of assets, are capitalized at cost. Property and
equipment includes assets recorded under capital lease obligations. Capital
lease amortization expense is included in depreciation expense on the
accompanying consolidated statements of operations. Management reviews on a
continuing basis, the financial statements carrying value of property plant
and
equipment for impairment. If events or changes in circumstances were to indicate
that an asset carrying value may not be recoverable a write-down of the asset
would be recorded through a charge to operations.
Depreciation
is provided using the straight-line method over the following estimated useful
lives:
Building
and improvements
|
|
|
7
- 39 years
|
|
Broadcast
equipment
|
|
|
5
– 10 years
|
|
Transportation
equipment
|
|
|
5
years
|
|
Furniture
and Fixtures
|
|
|
5
- 10 years
|
|
Intangible
assets and goodwill
–
The
Company classifies intangible assets as either finite-lived or indefinite-lived.
Indefinite-lived intangibles consist of Federal Communications Commission
(“FCC”) broadcasting licenses and goodwill which are not subject to
amortization, but are tested for impairment at least annually.
At
least
annually, the Company performs an impairment test for indefinite-lived
intangibles and goodwill using various valuation methods to determine the
assets’ fair values. Certain assumptions are used in determining the fair value,
including assumptions about the Company’s businesses. Additionally, the fair
values are significantly impacted by macro-economic factors including market
multiples and long-term interest rates that exist at the time the impairment
analysis is performed.
Purchase
price accounting
–
The
Company determines the fair value of assets acquired in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business
Combinations,” with fair values assigned to equipment and fixed assets based on
independent third party appraisals when material, to identifiable intangibles
such as broadcasting licenses or permits, and finally to goodwill. Generally,
acquisitions involve insignificant amounts of equipment and other fixed assets
due to the nature of the Company’s ability to provide many broadcast
capabilities on a centralized basis.
Broadcasting
construction permits
–
Broadcasting construction permits represent permits granted by the FCC, that
the
Company owns or to which the Company has rights. The individual stations
associated with these permits are in various stages of development at December
31, 2007 and 2006. The Company reclassifies these permits to broadcasting
licenses once they are granted an operating license by the FCC.
Security
and other deposits
–
Security and other deposits include purchase options that have been received
from potential buyers of television broadcasting licenses and any related
operating assets for which the events required for transferring the broadcasting
licenses have not yet been met. These events may include approval from either
the FCC or other parties that hold an interest in the broadcasting
licenses.
Assets
held for sale
–
Assets
held for sale represent fixed assets and intangible assets, including FCC
licenses and goodwill of television stations, which have been acquired and
that
management intends to divest during the next 12 months at amounts equal to
or
exceeding the asset carrying values at December 31, 2007 and 2006.
Local
marketing agreements
–
The
Company occasionally enters into local marketing agreements (“LMAs”) with
stations located in markets in which the Company already owns and operates
a
station and in connection with acquisitions pending regulatory approval of
FCC
license transfer. Under the terms of these agreements, the Company makes
specified periodic payments to the owner-operator in exchange for the right
to
program and sell advertising on a specified portion of the station’s inventory
of broadcast time. Conversely, the Company will sometimes enter into LMAs for
stations it owns and has a desire to sell or otherwise dispose of. The terms
of
these agreements are similar in that, the Company receives specified periodic
payments in exchange for the right by another party to program and sell
advertising on the specified station’s inventory of broadcast time. The
Company’s consolidated financial statements at December 31, 2007, 2006 and 2005
reflect the operating results and certain assets and liabilities associated
with
both of these types of agreements.
Advertising
expenses
–
Advertising expenses are charged to operations in the period incurred.
Advertising expenses for the years ended December 31, 2007, 2006 and 2005,
including advertising expenses associated with barter transactions, were
approximately $307,000, $391,000, and $352,000, respectively.
Impairment
of long-lived assets
–
The
Company reviews its long-lived assets and certain identifiable intangibles
for
impairment whenever events or changes in circumstances indicated that the
carrying amount of any asset may not be recoverable. Recoverability of assets
to
be held and used is measured by a comparison of the carrying amount of an asset
to fair value, which is determined using quoted market prices or estimates
based
on the best information available using valuation techniques. Management has
obtained an appraisal of all stations and operations which it updates on a
regular basis upon which it bases its estimate of fair value. Based on
management’s assessment of the impairment indicators during the years ended
December 31, 2007 and 2006, certain asset groups were determined to be impaired
at December 31, 2006. The impairment resulted from the deterioration in value
of
certain broadcast equipment which is classified as assets held for sale as
of
December 31, 2007. This impairment of $200,000 was charged as an operating
expense in 2006.
Impairment
of goodwill and intangible assets
–
The
Company periodically reviews, but not less than annually, the carrying value
of
intangible assets not subject to amortization, including goodwill, to determine
whether impairment may exist. SFAS No. 142, “Goodwill and Other Intangible
Assets,” requires that goodwill and certain intangible assets be assessed
annually for impairment using fair value measurement techniques. Specifically,
goodwill impairment is determined using a two-step process. The first step
of
the goodwill impairment test is used to identify potential impairment by
comparing the fair value of a reporting unit with its carrying amount, including
goodwill. The estimates of fair value of a reporting unit, generally the
Company’s operating segments, are determined using various valuation techniques.
If the fair value of the reporting unit exceeds its carrying amount, goodwill
of
the reporting unit is considered not impaired and the second step of the
impairment test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill impairment test is
performed to measure the amount of impairment loss, if any. The second step
of
the goodwill impairment test compares the implied fair value of the reporting
units’ goodwill with the carrying amount of that goodwill. If the carrying
amount of that reporting units goodwill exceeds the implied fair value of that
goodwill, an impairment charge is recognized in an amount equal to that excess.
The implied fair value of goodwill is determined in the same manner as the
amount of goodwill recognized in a business combination. That is, the fair
value
of the reporting unit had been acquired in a business combination and the fair
value of the reporting unit was the purchase price paid to acquire the reporting
unit. Based on this analysis, management determined that no impairment existed
at December 31, 2007 or 2006. However, based on management’s analysis at
December 31, 2005, there was one asset group in which indefinite-lived
intangible assets were determined to be impaired. This impairment resulted
from
the Company entering into a purchase agreement to sell WBMM in Montgomery for
an
amount less than the carrying value of the associated assets. The impairment
charge of $1,688,721 was determined to be associated with the indefinite-lived
intangible asset and charged as an operating expense in 2005. See further
discussion at Note 11.a.
Income
taxes
–
The
asset and liability method is used in accounting for income taxes. Under the
asset and liability method, deferred tax assets and liabilities are determined
based on differences between the financial statement carrying amount of existing
assets and liabilities and their respective tax bases, and are measured using
the enacted tax rates and laws that will be in effect when the differences
are
expected to be recovered or settled. The Company’s income tax provision consists
of taxes currently payable, if any, and the change during the year of deferred
tax assets and liabilities.
Fair
value of financial instruments
–
The
book values of cash, trade accounts receivable, accounts payable and other
financial instruments approximate their fair values principally because of
the
short-term maturities of these instruments. The fair value of the Company’s
long-term debt and notes receivable are estimated based on current rates offered
to the Company for instruments of similar terms and maturities with similar
risk
profiles.
Stock-based
compensation
–
Effective January 1, 2006, the Company adopted SFAS No. 123 revised
2004 “Share Based Payments” (“SFAS 123R”). SFAS 123R establishes accounting for
stock-based awards exchanged for employee services, using the prospective
application transition method. As of January 1, 2006, the Company was a
non-public entity, and it used the exemptions provided by SFAS
No. 123(R) and continued to account for the options issued prior to
adoption of SFAS 123R using the previous methodology applying Accounting
Principles Board (“APB”) No. 25 and related interpretations, as permitted
under SFAS No. 123. For awards issued or modified after January 1,
2006, the Company uses the fair value method as required under SFAS
123R and described below.
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes valuation model that uses the following assumptions: expected
volatility, expected life of the options, expected dividend yield and the risk
free interest rate. The Company amortizes the fair value of all awards on a
straight-line basis over the requisite service periods. Because Black-Scholes
valuation models incorporate ranges of assumptions for inputs, those ranges
are
disclosed. Until such time as the Company’s common stock and related equity
instruments have traded for a sufficient time period, the Company will determine
the expected volatility of its common stock based on the weighted average of
the
historical volatility of the daily closing prices of a composite group of public
companies with operations similar to the Company’s as a television broadcaster.
The Company uses the “simplified method”, as described in Staff Accounting
Bulletin No. 107, to determine the expected term, or life, of the options
outstanding. The expected life of the options granted represents the period
of
time that they are expected to be outstanding. The risk-free interest rate
is
based on the U.S. Treasury yield curve in effect at the time of grant for issues
with and equivalent remaining term equal to the expected life of the award.
The
Company uses an expected dividend yield of zero in the valuation model,
consistent with the Company’s recent experience.
The
exchange of options and change of terms upon consummation of the Merger
Transaction was treated for purposes of SFAS 123(R) as a modification of the
terms and conditions of the option awards which requires that the Company
measure the incremental compensation cost by comparing the fair value of the
modified award with the fair value of the award immediately before the
modification. Based on a calculation of both the fair value of the original
EBC
options immediately before the merger and the fair value of the modified options
immediately after the merger, it was determined that no incremental value was
added due to the modification. Accordingly, there was no additional compensation
expense charged to operations as a result of the modification.
Net
earnings per share:
Basic
loss per share is based upon net loss available to common shareholders divided
by the weighted average number of common stock shares outstanding during the
year. Number of shares for periods before March 30, 2007, the Date of the Merger
with Coconut Palm, were converted using the corresponding conversion rate as
per
the merger agreement based on the outstanding number of shares outstanding
during the period. See Note – 4 Merger Transactions.
New
Accounting Pronouncements:
In
December 2007, the FASB issued Statement No. 160, “
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No. 51
(“FASB No. 160”)
.”
The
objective of FASB No. 160 is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides
in
its consolidated financial statements by establishing accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This Statement applies to all entities that
prepare consolidated financial statements, except not-for-profit organizations.
FASB No. 160 amends ARB 51 to establish accounting and reporting standards
for the non-controlling interest in a subsidiary and for the deconsolidation
of
a subsidiary. It also amends certain of ARB 51’s consolidation procedures for
consistency with the requirements of FASB No. 141 (R). This Statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited.
The effective date of this Statement is the same as that of the related
Statement 141(R). This Statement shall be applied prospectively as of the
beginning of the fiscal year in which this Statement is initially applied,
except for the presentation and disclosure requirements. The presentation and
disclosure requirements shall be applied retrospectively for all periods
presented.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007)
“
Business
Combinations
”
(“FASB
No. 141(R)”). FASB No. 141(R) retains the fundamental requirements of
the original pronouncement requiring that the purchase method be used for all
business combinations. FASB No. 141(R) defines the acquirer as the entity
that obtains control of one or more businesses in the business combination,
establishes the acquisition date as the date that the acquirer achieves control
and requires the acquirer to recognize the assets acquired, liabilities assumed
and any non-controlling interest at their fair values as of the acquisition
date. FASB No. 141(R) also requires that acquisition-related costs be
recognized separately from the acquisition. FASB No. 141(R) is effective
for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The impact of adopting SFAS No. 141(R) will be dependent on the future
business combinations that the Company may pursue after its effective date,
if
any.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at
fair
value. SFAS No. 159 will be effective for the Company on January 1,
2008. We do not expect that the adoption of SFAS No. 159 will have a material
impact on our financial position or results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plan” (“SFAS No. 158”), which requires
employers to fully recognize the obligations associated with single-employer
defined benefit pension, retiree healthcare and other postretirement plans
in
their financial statements. It requires employers to recognize an asset or
liability for a plan’s over funded or under funded status, measure a plan’s
assets and obligations that determine its funded status as of the end of the
employer’s fiscal year and recognize in comprehensive income changes in the fund
status of the defined benefit postretirement plan in the year in which changes
occur. The requirement to recognize the funded status of a benefit plan and
the
disclosure requirement are effective for fiscal years ending after December
31,
2006. We have adopted the requirements of SFAS No. 158, which has had no impact
on our financial position or results of operations.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157,
“
Fair
Value Measurements” (“SFAS No. 157”), which applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. SFAS
No.
157 establishes a fair value hierarchy that prioritizes the information used
to
develop the assumption that market participants would use when pricing an asset
or liability. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. Earlier adoption is encouraged provided that the entity has not
yet issued financial statements, including interim financial statements, for
any
period of that fiscal year. The effective date of this statement is the date
than an entity adopts the requirements of this statement. Management does not
expect this pronouncement to have a material impact on the Company’s financial
position or results of operations.
In
June
2006, the FASB issued Financial Interpretation (“FIN”) No. 48, “Accounting
for Uncertainty in Income Taxes—An Interpretation of FASB Statement
No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain
tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognizing, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The adoption of this pronouncement did not have a
material impact on the consolidated financial statements of the Company.
Reclassifications
–
Certain
amounts in the 2006 and 2005 consolidated financial statements have been
reclassified to conform to the 2007 presentation.
NOTE
3 — LIQUIDITY AND CAPITAL RESOURCES
The
Company currently has a working capital deficit of approximately $58.7 million
and has experienced losses from operations since inception. During the year
ended December 31, 2007, the Company had a net loss of approximately $40.8
million and experienced cash outflows from operations during the same period
of
approximately $30.8 million. In the past, the Company has relied on equity
and
debt financing and the sale of assets to provide the necessary liquidity for
the
business to operate and will need to have access to substantial funds over
the
next twelve months in order to fund its operations. As of December 31, 2007,
the
Company has approximately $0.6 million of unrestricted cash on hand, and as
more
fully discussed in Note 13, the Company has access to a working capital line
of
credit provided to it from certain banking institutions (the “Credit Facility”).
However, as of December 31, 2007, an additional $7.9 million, available per
the
terms of the Credit Facility, was not available due to certain restrictions
based on the value of the loan collateral.
In
February 2008, we refinanced our previous credit facility with our existing
lender group. The amended $53.0 million credit facility, comprised of an $8.0
million revolving credit line and term loans of $45.0 million, matures on
February 13, 2011, was used to refinance the existing indebtedness senior credit
facility. Outstanding principal balance under the credit facility bears interest
at LIBOR or the alternate base rate, plus the applicable margin. The applicable
margin is 9.5% for the LIBOR loans and 8.5% on the alternate base rate loan.
The
minimum LIBOR is 4.5%. The alternate base rate is
(i)
the
greatest of (A) the Prime Rate, (B) the Federal Funds Rate in effect on such
day
plus fifty (50) basis points (0.50%), and (C) seven and one-half percent (7.50%)
per annum. We are required to pay an unused line fee of .5% on the unused
portion of the credit facility. The credit facility is secured by the majority
of the assets of the company. We are subject to new financial and operating
covenants and restrictions based on trailing monthly and twelve month
information. We have borrowed $50,512,500 under the new facility as of March
11,
2008
.
Due to
certain restrictions based on the value of the loan collateral, the Company
does
not have access to the remaining $2,487,500 at this time.
On
March
20, 2008, the Company entered into an amendment (“Amendment”) to its Third
Amended and Restated Credit Agreement (“Credit Agreement”) with Silver Point
Finance, LLC and Wells Fargo Foothill, Inc. Under the terms of the Amendment,
the lender group has agreed to forbear from exercising certain of their rights
and remedies with respect to designated defaults under the Credit Agreement
through the earlier of (a) April 18, 2008 and (b) the date of occurrence of
certain events or by which certain events have failed to occur, including the
Company’s failure to enter into agreements with respect to the sale of certain
of its assets and the Company’s failure to secure approvals for, and meet other
criteria with respect to, financing alternatives necessary to meet the Company’s
immediate capital requirements. Pursuant to the Amendment the Lenders may
exercise any and all remedies available under the Credit Agreement, including
making the loan immediately due and payable.
Even
with
the refinanced Credit Facility, the additional funds provided by the Amended
Credit Facility are not sufficient to meet all of the anticipated liquidity
needs to continue operations of the Company for the next twelve months.
Accordingly, the Company will have to raise additional capital or increase
its
debt immediately to continue operations. If the Company is unable to obtain
additional funds when they are required or if the funds cannot be obtained
on
favorable terms, management may be required to liquidate available assets,
restructure the company or in the extreme event, cease operations. The financial
statements do not include any adjustments that might result from the outcome
of
these uncertainties.
NOTE
4 — MERGER TRANSACTION
On
March 30, 2007 (the “Merger Closing”), the Company consummated a merger
with EBC in which EBC merged with and into the Company, with the Company
remaining as the legal surviving corporation (the “Merger Transaction”),
pursuant to the Agreement and Plan of Merger dated April 7, 2006, as
amended on May 5, 2006 and on September 14, 2006, among the Company,
EBC and certain shareholders of EBC (the “Merger Agreement”). Upon the Merger
Closing, the Company changed its name to “Equity Media Holdings Corporation.” In
connection with the Merger Transaction, the holders of EBC Class A common
stock were issued an aggregate of 20,037,016 shares of the Company’s common
stock, and the holders of EBC Class B common stock were issued an aggregate
of 6,313,848 shares of common stock. The holders of EBC Series A preferred
stock were paid $25,000,000 in cash and issued a promissory note in the amount
of $15,000,000 in exchange for their shares and were issued an aggregate of
2,050,519 shares of the Company’s Series A Convertible Non-Voting Preferred
Stock reflecting accrued and unpaid dividends through the date of Merger Closing
and 314,966 shares of the Company’s common stock.
In
connection with the Merger Transaction, on March 29, 2007, the Company’s
stockholders (i) adopted the Equity Media Holdings Corporation 2007 Stock
Incentive Plan under which the Company reserved up to 12,274,853 shares of
common stock for issuance under the 2007 Stock Incentive Plan, (ii) adopted
the Company’s Amended and Restated Certificate of Incorporation to
(a) increase the number of authorized shares of common stock from
50,000,000 shares to 100,000,000 shares, (b) increase the number of
authorized shares of preferred stock from 1,000,000 shares to 25,000,000 shares,
(c) change the Company’s name from “Coconut Palm Acquisition Corp.” to
“Equity Media Holdings Corporation,” and (d) authorize the issuance of
approximately 2,050,519 shares of Series A Convertible Non-Voting Preferred
Stock under a Certificate of Designation, (iii) adopted the Company’s
Amended and Restated Certificate of Incorporation to continue to provide for
a
staggered board with three classes of directors, and (iv) ratified the
Management Services Agreement between Royal Palm Capital Management, LLLP and
the Company. Additional shares of Series A Convertible Non-Voting Preferred
Stock were authorized for accrued and unpaid dividends through the date of
the
completion of the merger, increasing the number of authorized shares of
Series A Convertible Non-Voting Preferred Stock from 1,736,746 to
2,050,519.
Additionally,
the Company issued 3,187,134 options to purchase its common stock, where each
outstanding option to purchase EBC Class A common stock was converted into
the right to receive options to purchase 1.461988 shares of the Company’s common
stock. The fair value of the options at the date of the merger was
$4.7 million based on a Black-Scholes valuation on March 30, 2007, the
date of the Merger (see Note 18 — Stock Option Plans).
Because
the former owners of EBC ended up with control of the Company, the Merger
Transaction has been accounted for as a recapitalization for accounting and
financial reporting purposes. Under this method of accounting, the Company
was
treated as the “acquired” company for financial reporting purposes. In
accordance with guidance applicable to these circumstances, the Merger
Transaction is considered to be a capital transaction in substance. Accordingly,
for accounting purposes, the Merger Transaction was treated as the equivalent
of
EBC issuing stock for the net monetary assets of the Company, accompanied by
a
recapitalization. The net monetary assets of the Company were recorded at their
fair value, essentially equivalent to historical costs, with no goodwill or
other intangible assets recorded. The accumulated deficit of EBC has been
carried forward after the Merger Closing. Operations prior to the Merger Closing
for all periods presented are those of EBC. The costs of the transaction
incurred by EBC were charged directly to additional paid in capital and those
incurred by the Company were expensed prior to consummation of the transaction.
On
March
30, 2007, upon consummation of the Merger with EBC, the funds held in trust
were
distributed as follows:
Repurchase
of EBC Series A preferred stock
|
|
$
|
25,000,000
|
|
Pay
down Senior Credit Facility Revolver
|
|
|
17,450,000
|
|
Payment
to CPAC shareholders electing not to convert their shares
|
|
|
10,899,882
|
|
Settlement
of Arkansas Media Management Agreement
|
|
|
3,200,000
|
|
Purchase
of three low power television stations from Arkansas Media
|
|
|
1,300,000
|
|
Payment
to EBC dissenting shareholders
|
|
|
378,380
|
|
Payment
of note payable and accrued interest to Actron, Inc.
|
|
|
533,000
|
|
Available
for working capital, capital expenditures and general corporate
needs.
|
|
|
3,858,738
|
|
|
|
$
|
62,620,000
|
|
In
connection with and prior to the execution of the Merger Transaction,
stockholders representing approximately 1,908,911 shares of the Company’s common
stock elected to convert their shares to cash in accordance with the terms
of
the Company’s governing documents. As result of such conversion, the Company
left in deposit with its transfer agent $10,899,882 in cash to satisfy the
demands of these shareholders. Following the merger, the transfer agent
completed the distribution of such cash in connection with the conversion.
In
connection with the Merger Transaction, shareholders of EBC representing 66,500
shares of EBC Class A common stock elected to convert their shares to cash
in accordance with Arkansas law. The Company recorded a liability in the amount
of $368,410 to convert the shares plus $9,970 of accrued interest based on
a
conversion rate of $5.54 per share plus interest accruing from the date of
the
Merger Transaction at the rate of 9.78% per annum. On July 10, 2007,
the dissenting shareholders were paid $378,380 in cash for the value of their
shares including all interest accrued to date. Pursuant to Arkansas Code, the
dissenting shareholders have contested the Company’s valuation of their shares
as of the merger date. As per Arkansas Code, the Company has petitioned the
Court for a determination of the fair value of the shares and believes that
its
valuation will prevail (see Note 20 – Commitment and
Contingencies).
NOTE
5 — ARKANSAS MEDIA SETTLEMENT TRANSACTION
Immediately
prior to the closing of the Merger Transaction (see Note 4 — Merger
Transaction), EBC entered into a settlement agreement, dated April 7, 2006,
by and among EBC, Arkansas Media, a related party (see Note 21 — Related Party
Transactions), Larry Morton, Gregory Fess and Max Hooper (the “Arkansas Media
Settlement Agreement”) which provided for the resolution of the following
matters between the parties:
|
|
|
The
cancellation of a management agreement, dated June 1, 1998, between
Arkansas Media and EBC in exchange for the following: (i) payment to
Arkansas Media of (a) $3,200,000 in cash, and (b) 640,000 newly
issued shares of EBC’s Class A common stock (valued at $4,800,000);
and (ii) payment of all accrued management fees and commissions
through the closing date of the Merger Transaction. EBC is also required
to reimburse Arkansas Media, Morton, Fess and Hooper for all expenses
incurred in negotiating and consummating the settlement agreement.
In
connection with the cancellation of the management agreement, the
Company
recorded a charge of $8,000,000 to operations in March,
2007.
|
|
|
|
The
purchase by EBC from Arkansas Media of one low-power broadcast station
in
Oklahoma City, Oklahoma and two low-power broadcast stations in Little
Rock, Arkansas, for a combined purchase price of $1,300,000;
|
|
|
|
EBC’s
payment to Actron, Inc. (a controlling interest in which is owned
by Larry
Morton and Gregory Fess) of $533,000 in settlement of EBC’s obligations
under a Promissory Note to Actron, Inc. dated January 1, 2003,
including accrued interest through March 30, 2007. This obligation
relates to EBC’s purchase of Central Arkansas Payroll Company in 2003;
|
|
|
|
EBC’s
purchase of an office building in Fort Smith, Arkansas from Arkansas
Media, which prior to the settlement, the Company leased from Arkansas
Media for use as its local sales office. The purchase price was
approximately $268,000; and
|
|
|
|
The
agreement of Max Hooper and Gregory Fess to resign as directors of
Kaleidoscope Foundation, a nonprofit corporation, and a related agreement
that Larry Morton may remain as a director of Kaleidoscope Foundation
provided his duties do not conflict with those owed to the Company;
|
NOTE
6 — ASSETS HELD FOR SALE
Assets
held for sale represent fixed assets and intangible assets, including FCC
licenses, of television stations, which have been acquired and that management
intends to divest within the next 12 months at amounts equal or exceeding the
asset carrying values at the respective balance sheet dates.
In
connection with the merger the Company and Univision Television Group, preferred
stock holders, entered into a one year $15.0 million promissory note secured
by
two television stations located in Utah. In lieu of a cash repayment, the
Company filed an application with the FCC on July 26, 2007 to transfer the
television stations to Univision Television Group, Inc. in satisfaction of
the
principal amount of the note. The television station assets include broadcast
licenses with book values of $7,884,631 and broadcasting equipment with book
values of $481,363, a total of $8,365,994, as of December 31, 2007. Accordingly,
these assets are classified as held for sale as of December 31, 2007. These
assets were included in assets held for sale as of December 31, 2006 since
as part of the Merger Transaction these assets were to be transferred to
Univision Television Group, Inc, as payment for their Series A preferred shares.
The latter described transfer was exchanged for the $15 million promissory
note
at the Merger Closing.
In
October, 2007, the Company signed a non-binding letter of intent for the sale
of
certain television stations which include broadcast licenses with book values
of
$1,052,548 and broadcasting equipment with book values of $102,307, a total
of
$1,154,855. The Company has these assets classified as additional assets held
for sale as of December 31, 2007.
Assets
held for sale at December 31, 2006, included certain television station assets
with net book values of $3,933,793 held for sale under an asset purchase
agreement which was terminated in October, 2007. Accordingly, the Company
reclassified these assets as held for use and recorded a charge to current
operations in the amount of $263,517 for depreciation that would have been
recognized during the period they were classified as held for sale.
NOTE
7 — ASSET PURCHASE AGREEMENT
The
Company entered into an asset purchase agreement (“Agreement”) with Renard
Communications Corp. (“Seller”) for the purchase of certain licenses,
construction permits and other instruments of authorization (collectively
“Licenses,” described below) issued by the Federal Communications Commission
(“FCC”) and certain other assets (together with the Licenses, “Assets”). The
Agreement became effective on August 15, 2007 upon approval by the Equity
Media’s board of directors and the lender.
The
Assets include Licenses for Class A television station WMBQ-CA, Channel 46,
Manhattan, New York with a corresponding digital authorization for Channel
10
(WMBQ-LD) and WBQM-LP, Channel 3, Brooklyn, New York (collectively, the
“Stations”), and related items as specified in the Agreement.
The
Company will pay an aggregate of $8,000,000 for the Assets, which constitute
all
the assets used in connection with operating the Stations. In connection with
the transaction, the Company deposited $400,000 (“Deposit”), which will be held
in escrow pending closing. At the closing, the Company will pay $6,000,000
in
immediately available funds, which amount will include the Deposit, and will
deliver a secured promissory note (“Note”) for the remaining $2,000,000. The
Note will have a three-year term and will accrue interest at 6% per year,
requiring monthly interest payments only until the expiration of the term,
at
which time the principal amount will become due and payable. The Seller will
have a security interest, documented by a Security Agreement executed
simultaneously with the closing, in the Brooklyn station only. The payment
will
be increased or decreased such that Seller is entitled to all revenue and is
liable for all expenses allocable to the period prior to the closing and the
Company is entitled to all revenue and is liable for all expenses allocable
to
the period following the closing. Seller will assign and the Company will assume
certain listed contracts.
The
closing of the Agreement is subject to conditions, including FCC consent to
the
assignment of the Licenses. Seller and the Company agree to promptly prepare
an
application for assignment of the Licenses and to fully prosecute the
application, but neither party is required to engage in a trial-type hearing.
Each party will bear its own costs, and the filing fees shall be split evenly.
The closing will occur between five business days after the FCC grants consent
and ten business days after the grant becomes a final order.
The
Agreement may be terminated by either party if the closing has not occurred
by
June 1, 2008; the conditions of the other party have not been met as of the
closing date; or the other party is in breach.
NOTE
8 — CASH RESTRICTED FOR ACQUISITION OF BROADCAST ASSETS
The
Company had set aside $4.2 million in cash which was restricted for the
acquisition of broadcast assets. These funds were intended for payment of the
assets being acquired pursuant to the Asset Purchase Agreement described in
Note
7 — Asset Purchase Agreement. With lender approval, the Company has used these
funds for other purposes subsequent to year end.
NOTE
9 —
ACQUISITIONS
AND DISPOSITIONS
The
Company’s significant transactions for the year ended December 31, 2007 were as
follow:
On
March
15, 2007, the Company sold a broadcast tower and associated real property in
central Arkansas for $625,000 cash.
The
Company’s significant transactions for the year ended December 31, 2006 were as
follows:
On
May 5,
2006, the Company sold a low power television station in central Arkansas for
$125,000 cash.
On
May
15, 2006, the Company finalized the sale of two low power television stations
located in Boise and Pocatello, Idaho, respectively, for $1,000,000 cash. The
APA had been executed on December 7, 2005, but the transaction had not closed
prior to December 31, 2005, pending FCC approval.
On
May
31, 2006, the Company finalized the sale of a full power television station
in
Casper, Wyoming with the receipt of $250,000 in cash from the buyer. The APA
had
been executed on August 14, 2004, and as of December 31, 2005, the Company
had
received $950,000 cash from the buyer toward the purchase price.
On
July
3, 2006, the Company exchanged a low power television construction permit in
Sherman, Texas for a low power television license located in Ft. Pierce,
Florida. No cash or other consideration was included and no assets other than
the permit and the license were involved.
On
July
26, 2006, the Company finalized the sale of a full power television station
in
Montgomery, Alabama for $2,000,000 in cash. The APA had been executed on
November 23, 2005, but the transaction had not closed prior to December 31,
2005, pending FCC approval.
On
August
14, 2006, the Company finalized the sale of an interest in a full power
television construction permit in Hawaii with the receipt of $122,000. The
APA
had been executed on November 4, 2004, and as of December 31, 2005, the Company
had received $278,000 in cash from the buyer toward the purchase
price.
On
October 4, 2006, the Company sold certain real property associated with a full
power television station in southwest Missouri for $615,000 in
cash.
On
November 1, 2006, the Company finalized the sale of one full power television
station and one low power television station for $19,300,000 cash. The APA
had
been executed December 7, 2005, but the transaction had not closed prior to
December 31, 2005, pending FCC approval.
On
November 7, 2006, the Company purchased a low power television station in Grand
Rapids, Michigan for $350,000 cash.
On
November 7, 2006, the Company purchased a low power television station permit
in
Sommerville, Texas for $370,000 cash.
On
November 13, 2006, the Company purchased a low power television station in
Nashville, Tennessee for $525,000 cash.
On
November 17, 2006, the Company purchased a low power television station in
Waco,
Texas for $390,000 cash.
On
November 30, 2006, the Company purchased two low power television stations
located in southwest Florida for $1,000,000. The Company paid $700,000 cash
and
executed a $300,000 promissory note bearing interest at an annual rate of 6%
and
due in 2007.
On
December 15, 2006, the Company purchased a low power television station in
Jacksonville, Florida for $800,000 cash.
On
December 31, 2006, the Company purchased a low power television station in
Lexington, Kentucky for $500,000. A $500,000 non-interest bearing promissory
note was executed as payment. The note is due and payable in June
2007.
The
Company’s significant transactions for the year ended December 31, 2005 were as
follows:
On
January 3, 2005, the Company acquired one Class A and two low power television
stations located in Southwest Florida for $900,000. Of the purchase price,
$800,000 was paid in 2004. The balance was paid in 2005. The Asset Purchase
Agreement had been entered into on July 8, 2004, subject to FCC approval.
On
April
2, 2005, the Company agreed to be bound by an Investment and Membership Interest
Purchase Agreement (the “Agreement”) entered into between Spinner Network
Systems, LLC (“SNS”) and Spinner Investment Partners, LLC (“SIP”). Subsequent to
the Agreement the Company and other members of SNS entered into an Amended
and
Restated Operating Agreement of SNS, whereby the Company converted its ownership
of SNS into Class B Units representing a 20% ownership of the capital of SNS.
In
addition, the Company holds approximately an additional 13% interest through
its
membership in SIP’s Class A Units. Through the Agreement SIP has subscribed for
up to $1,550,000 of class A Units representing up to a 65% ownership of SNS.
Through private offerings SIP has raised $1,370,000 towards that
goal.
On
May
25, 2005, the Company acquired a group of low power television licenses and
construction permits located in Vermont and the surrounding area for $825,000.
The Company paid $800,000 in cash toward the purchase price. In addition, the
Company issued 2,500 shares of Class A common stock to the seller. The shares
were issued out of shares held in treasury. The asset purchase agreement had
been entered into on February 5, 2003, subject to FCC approval.
On
May
13, 2005, the Company sold a low power television station located in south
central California for $30,000.
On
June
24, 2005, the Company sold a full power television station and a low power
television station both located in the St. Louis, Missouri area for $10,000,000
in cash. The Company received $5,000,000 in 2004 and the balance in 2005. In
addition to the cash, the Company received from the buyer three Class A low
power television stations located in Atlanta, Seattle and Minneapolis.
On
August
1, 2005, the Company purchased a low power television station in Amarillo Texas
for $201,000 cash.
On
September 1, 2005, the Company entered into a binding letter agreement to
exchange certain assets located in Davenport Iowa and other consideration for
100,000 shares of Equity Broadcasting Corporation Class A common stock. The
assets included both tangible and intangible assets, such as equipment,
furniture, vehicles, the Independent News Network, Inc. (“INN”) name and
trademark and various contracts. Coincidental with the agreement the Company
moved the production of its Spanish language newscasts from the facilities
in
Davenport to the corporate headquarters in Little Rock, Arkansas. Various on-air
and production personnel relocated from Davenport to Little Rock. As a result
of
this transaction, approximately $2,700,000 in goodwill was disposed of in the
non-cash exchange while $200,000 was retained on the Company’s
books.
On
November 23, 2005, the Company entered into an APA to sell a full power
television station in Montgomery, Alabama, for $2,000,000 cash. The buyer paid
$200,000 of the cash price at the date the agreement was entered into. The
funds
were paid to an independent escrow agent and are to be released to the Company
at closing. As of December 31, 2005, this transaction had not closed pending
FCC
approval.
On
December 7, 2005, the Company entered into an APA to sell one full power and
three low power television stations for $20,300,000 cash. The buyer paid
$1,000,000 of the cash price at the date the agreement was entered into. The
funds were paid to an independent escrow agent and are to be released at closing
according to the agreement. As of December 31, 2005, this transaction had not
closed pending FCC approval.
NOTE
10 —
OTHER
INCOME (EXPENSE)
At
December 31, 2007, 2006 and 2005, other income (expense) consists of the
following:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
$
|
796,990
|
|
$
|
506,907
|
|
$
|
521,488
|
|
Rental
Income
|
|
|
69,602
|
|
|
291,588
|
|
|
288,419
|
|
Litigation
Settlement
|
|
|
-
|
|
|
275,000
|
|
|
1,000,000
|
|
Other
expense
|
|
|
-
|
|
|
-
|
|
|
(700.000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
866,592
|
|
$
|
1,073,495
|
|
$
|
1,109,907
|
|
The
nature of the other income (expense) categories is as follows:
a.
Litigation
settlement
–
The
Company was awarded this amount in an arbitration settlement in their litigation
with the PAX Network. These amounts represent the final settlement
payments.
b.
Rental
income
–
The
Company receives rental income, primarily from space leased-out in the corporate
office building from a non-affiliate tenant. This tenant vacated in January
2007. The Company now uses this space for corporate purposes.
NOTE
11 —
INTANGIBLE
ASSETS AND GOODWILL
Goodwill
and intangible assets deemed to have indefinite lives are not amortized but
are
subject to annual impairment tests in accordance with SFAS No. 142, “Goodwill
and Other Intangible Assets.” Other intangible assets continue to be amortized
over their useful lives.
a.
Indefinite-lived
intangibles – Under the guidance in SFAS No. 142, the Company’s broadcasting
licenses are considered indefinite-lived intangibles. These assets are not
subject to amortization, but will be tested for impairment at least annually.
In
accordance with SFAS No. 142, the Company tests these indefinite-lived
intangible assets for impairment annually by comparing their fair value to
their
carrying value. The Company used a fair market value appraisal to value
broadcasting licenses, as well as a review of recent broadcasting license
transactions from independent third parties. Based on this analysis, management
determined that no impairment existed at December 31, 2007 or 2006. However,
based on management’s analysis at December 31, 2005, there was one asset group
which was determined to be impaired. This impairment resulted from the Company
entering into a purchase agreement to sell WBMM in Montgomery for an amount
less
than the carrying value of the associated assets. This impairment of $1,688,721
was recorded as a reduction in broadcasting licenses on the accompanying
December 31, 2005 consolidated balance sheet and charged as an operating expense
in 2005. The asset group was disposed of in 2006 (See Note 9 – Acquisitions And
Dispositions).
b.
Goodwill
– SFAS No. 142 requires the Company to test goodwill for impairment using a
two-step process. The first step is a screen for potential impairment, while
the
second step measures the amount, if any, of the impairment. The Company
completed the first step of the impairment test during the year with no
impairment noted.
Goodwill
activity for the years ended December 31, 2007 and 2006 was as
follows:
Balance
December 31, 2006
|
|
Increases
|
|
Decreases
|
|
Balance
December 31, 2007
|
|
|
|
|
|
|
|
|
|
$ 1,940,282
|
|
|
-
|
|
|
-
|
|
$
|
1,940,282
|
|
Balance
December 31, 2005
|
|
Increases
|
|
Decreases
|
|
Balance
December 31, 2006
|
|
|
|
|
|
|
|
|
|
$ 1,935,717
|
|
|
4,565
|
|
|
-
|
|
$
|
1,940,282
|
|
The
increased activity in 2006 relates primarily to the Company’s purchase of the
minority interests previously held by certain shareholders of a subsidiary
of
the Company, H & H Properties.
NOTE
12 — INVESTMENT IN JOINT VENTURES
At
December 31, 2007 and December 31, 2006, Investment in Joint Ventures
consists of the following:
|
|
December
31, 2007
|
|
December 31,
2006
|
|
|
|
Ownership
Percentage
|
|
Balance
|
|
Ownership
Percentage
|
|
Balance
|
|
Little
Rock TV 14, LLC
|
|
|
50.0
|
%
|
$
|
28,406
|
|
|
50.0
|
%
|
$
|
23,282
|
|
Spinner
Network Systems, LLC
|
|
|
|
|
|
407,454
|
|
|
33.0
|
%
|
|
658,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
435,860
|
|
|
|
|
$
|
681,605
|
|
**
|
–
A
reorganization of Spinner Network Systems, LLC resulted in the reduction
of the Company’s ownership percentage in Spinner from 33% at
December 31, 2006 to 4% at December 31, 2007. Because the Company
owns less than a 20% interest and exerts no influence over management
or
the operations of Spinner, the Company has changed from the equity
method
to the cost method to account for its investment in Spinner Network
Systems, LLC. Under the cost method of accounting for investments,
the
Company will no longer record its proportionate share of Spinner
income or
loss, but will instead periodically evaluate the fair value of its
investment in Spinner and adjust the carrying amount accordingly.
During
the year December 31, 2007, the Company adjusted the carrying value
of its
investment in Spinner by $198,368 to reflect the fair value of its
investment. This loss in value is included in losses from affiliates
and
joint ventures in the consolidated statement of
operations.
|
NOTE
13 — NOTES PAYABLE
Long-Term
Debt
Long-term
debt as of December 31, 2007 and 2006 consisted of the
following:
|
|
2007
|
|
2006
|
|
|
|
(In
thousands)
|
|
Senior
Credit Facility
|
|
$
|
50,317
|
|
$
|
46,265
|
|
Merger
Related Party - Univision
|
|
|
15,000
|
|
|
-
|
|
Installment
Notes and other debt
|
|
|
10,913
|
|
|
11,636
|
|
Line
of Credit
|
|
|
994
|
|
|
-
|
|
Capital
Lease Obligations
|
|
|
186
|
|
|
61
|
|
|
|
|
|
|
|
|
|
Total
Debt
|
|
$
|
77,410
|
|
$
|
57,962
|
|
Less:
Current maturities
|
|
|
(68,272
|
|
|
(3,970
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
9,138
|
|
$
|
53,992
|
|
Senior
Credit Facility
The
Company is party to a Senior Credit Facility with financial institutions and
other lenders, which provides for secured revolving and term loan facilities
in
varying amounts at variable interest rates, maturing in June 2010. As of
December 31, 2007, the Company has borrowings under the Credit Facility in
the
aggregate amount of $50.32 million and interest rates ranging from 12.5% to
15.8%. Also, as of December 31, 2007, the revolver component of the Credit
Facility was fully drawn. However, an additional $7.9 million is available
per
the terms of the Credit Facility but was unavailable to borrow at December
31,
2007, due to certain collateral restrictions. The credit facility is secured
by
the majority of the assets of the Company. As noted below, the entire facility
was refinanced in February 2008.
On
February 13, 2008, the Company and its lenders entered into the Third Amended
and Restated Credit Agreement in which the Company refinanced its previous
credit facility. The amended $53.0 million credit facility, comprised of an
$8.0
million revolving credit line and term loans of $45.0 million, matures on
February 13, 2011, was used to refinance the existing indebtedness senior credit
facility. Outstanding principal balance under the credit facility bears interest
at LIBOR or the alternate base rate, plus the applicable margin. The applicable
margin is 9.5% for the LIBOR loans and 8.5% on the alternate base rate loan.
The
minimum LIBOR is 4.5%. The alternate base rate is
(i)
the
greatest of (A) the Prime Rate, (B) the Federal Funds Rate in effect on such
day
plus fifty (50) basis points (0.50%), and (C) seven and one-half percent (7.50%)
per annum. We are required to pay an unused line fee of .5% on the unused
portion of the credit facility. The credit facility is secured by the majority
of the assets of the company. We are subject to new financial and operating
covenants and restrictions based on trailing monthly and twelve month
information. We have borrowed $50,512,500 under the new facility as of March
11,
2008
.
Due to
certain restrictions based on the value of the loan collateral, the Company
does
not have access to the remaining $2,487,500 at this time.
On
March
20, 2008, the Company entered into an amendment to its third amended and
restated credit agreement (“Credit Agreement”) with Silver Point Finance, LLC
and Wells Fargo Foothill, Inc. Under the terms of the Amendment, the lender
group has agreed to forbear from exercising certain of their rights and remedies
with respect to designated defaults under the Credit Agreement through the
earlier of (a) April 18, 2008 and (b) the date of occurrence of certain events
or by which certain events have failed to occur, including the Company’s failure
to enter into agreements with respect to the sale of certain of its assets
and
the Company’s failure to secure approvals for, and meet other criteria with
respect to, financing alternatives necessary to meet the Company’s immediate
capital requirements. Pursuant to the Amendment the Lenders may exercise any
and
all remedies available under the Credit Agreement, including making the loan
immediately due and payable.
Merger
Related - Univision
Pursuant
to the Merger Transaction, the Company issued a promissory note to Univision
Television Group, Inc. as partial consideration for the exchange of their shares
of EBC Series A preferred stock (see Note 4 — Merger Transaction). This
promissory note in the amount of $15.0 million is payable in one year and bears
interest of 7.0%. The promissory note is secured by two television stations,
originally sought to be transferred under an asset purchase agreement entered
into for the same purpose.
Installment
notes and other
We
have
installment and other indebtedness due to financial institutions and various
other lenders with a combined outstanding balance of $10.9 million as of
December 31, 2007. The various indebtedness has terms which expire through
2012
with a weighted average interest rate of 8.86% in 2007 and 8.09% in
2006.
Short
Term Borrowings
The
Company’s total amounts outstanding under short term borrowings were $15,994,495
and $0 at December 31, 2007 and 2006 respectively. Weighted average rates
on all
short term borrowings were 7.08% in 2007 and 7.5% in 2006.
Line
of Credit
At
December 31, 2007, the Company had a $1.0 million line of credit with an
Arkansas bank, with interest payable monthly at 8.25%, originally due in January
2008 and extended until April 2008 and secured by various broadcast assets
and
Company guarantees. The outstanding balance at December 31, 2007 and 2006 was
$994,495 and $0, respectively.
Capital
Lease Obligations
We
have
capitalized the future minimum lease payments of equipment under leases that
qualify as capital leases. We had capital lease obligations of approximately
$0.2 million as of December 31, 2007. The capital leases have terms
which expire at various dates through 2012.
Aggregate
Maturities of Total Debt
Approximate
aggregate annual maturities of total debt (including capital lease obligations)
are as follows (in thousands):
2008
|
|
$
|
68,272
|
|
2009
|
|
|
392
|
|
2010
|
|
|
7,073
|
|
2011
|
|
|
1,639
|
|
2012
|
|
|
34
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total
|
|
$
|
77,410
|
|
Debt
Covenants and Restrictions
The
Company's debt obligations contain certain financial and other covenants and
restrictions on the Company. None of these covenants or restrictions includes
any triggers explicitly tied to the Company's credit ratings or stock price.
Prior
to
the amendment and restatement of the credit facility in February 2008, the
Company was subject to certain financial covenants, including among others,
that
the Company meet minimum revenue and EBITDA levels. At December 31, 2007, the
Company was not in compliance with these covenants. However, after the amendment
and restatement of the credit facility, the Company’s previous events of default
were waived and eliminated. Furthermore, pursuant to the March 20, 2008
Amendment to the Credit Agreement, the lender group has agreed to forbear from
exercising certain of their rights and remedies with respect to designated
defaults under the Credit Agreement through the earlier of (a) April 18, 2008
and (b) the date of occurrence of certain events or by which certain events
have
failed to occur, including the Company’s failure to enter into agreements with
respect to the sale of certain of its assets and the Company’s failure to secure
approvals for, and meet other criteria with respect to, financing alternatives
necessary to meet the Company’s immediate capital requirements. Pursuant to the
Amendment the Lenders may exercise any and all remedies available under the
Credit Agreement, including making the loan immediately due and
payable.
Interest
Rate Risk Management
The
Company is not involved in any derivative financial instruments. However, we
may
consider certain interest rate risk strategies in the future such as interest
rate swap arrangements or debt-for-debt exchanges.
Interest
Expense
Interest
expense for the years ended December 31, 2007, 2006 and 2005 consisted of
the following (in thousands):
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Interest
on borrowings:
|
|
|
|
|
|
|
|
Senior
Credit Facility
|
|
$
|
6,489
|
|
$
|
6,756
|
|
$
|
4,326
|
|
Related
Party - Univision
|
|
|
788
|
|
|
-
|
|
|
-
|
|
Installment
notes and other debt
|
|
|
703
|
|
|
718
|
|
|
778
|
|
Mortgage
Debt
|
|
|
113
|
|
|
114
|
|
|
125
|
|
Capital
lease obligations
|
|
|
5
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest expense
|
|
$
|
8,098
|
|
$
|
7,592
|
|
$
|
5,233
|
|
NOTE
14 — STOCKHOLDERS’ EQUITY
Private
Placement
On
June 21, 2007, the Company entered into a Unit Purchase Agreement with
certain insiders and institutional investors (each a “Buyer” and collectively,
the “Buyers”) in connection with a $9,000,000 private placement (the “Private
Placement”) of an aggregate of 1,406,250 units (the “Units”), each Unit
consisting of one share of the Company’s common stock, $0.0001 par value per
share, and two warrants, each warrant exercisable for one share of the Company’s
common stock at an exercise price of $5.00 per share (the “Warrants”). The
purchase price of each Unit was $6.40. The Private Placement closed on
June 21, 2007 (the “Private Placement Closing Date”).
Each
Warrant issued at the closing of the Private Placement may be exercised any
time
on or after the Private Placement Closing date and on or prior to the close
of
business on September 7, 2009 (the “Termination Date”). The number of
shares issuable upon exercise of each Warrant and the exercise price thereof
is
subject to adjustment from time to time in the event of stock dividends, stock
subdivisions, stock splits and stock combinations. The Warrants can be redeemed
at the Company’s option at a redemption price equal to $0.01 per Warrant
provided that the last sales price of the Company’s common stock has been at
least $8.50 per share on each of twenty trading days within any 30 trading
day
period ending on the third business day prior to the date on which the Company
gives notice of redemption.
The
Units
and Warrants were offered and sold only to institutional and accredited
investors in reliance on Section 4(2) of the Securities Act of 1933, as
amended. The Units and Warrants sold in the Private Placement have not been
registered under the Securities Act or state securities laws and may not be
offered or sold in the United States absent registration with the Securities
and
Exchange Commission or an applicable exemption from the registration
requirements. The Company agreed that if at any time during the two year period
commencing the Private Placement Closing Date it proposes to file a registration
statement with the Securities and Exchange Commission with respect to an
offering of equity securities or securities exercisable or convertible into
equity securities, the Company will give piggyback registration rights to the
Buyers on such number of registrable shares as the Buyer may request.
The
net
proceeds from the Private Placement, following the payment of offering-related
expenses, will be used by the Company to fund acquisitions and for general
corporate purposes.
Shares
Issued to Retire Debt
On
August 21, 2007, the Company exercised its option, under the terms of a
$500,000 note payable, to retire the note with the issuance of 115,473 shares
of
common stock in lieu of a cash payment. This note was previously issued in
connection with the purchase of certain television stations.
Merger
Transaction and Recapitalization
In
connection with the Merger Transaction (see Note 4 — Merger Transaction), on
March 29, 2007, the stockholders of the Company approved a proposal to
amend and restate the Company’s Certificate of Incorporation. Upon approval, the
Company (i) increased the number of authorized shares of common stock from
50,000,000 shares to 100,000,000 shares, (ii) increased the number of
authorized shares of preferred stock from 1,000,000 to 25,000,000,
(iii) changed the Company’s name from “Coconut Palm Acquisition Corp.” to
“Equity Media Holdings Corporation”, and (iv) authorized the issuance of
approximately 2,050,519 shares of the Company Series A Convertible
Non-Voting Preferred Stock, pursuant to the Certificate of Designation.
Additional shares of Series A Convertible Non-Voting Preferred Stock were
authorized for accrued and unpaid dividends through the date of the completion
of the merger, increasing the number of authorized shares of Series A
Convertible Non-Voting Preferred Stock from 1,736,746 to 2,050,519.
As
a
result of the Merger Transaction, the Company acquired 1,908,911 shares from
stockholders who opted to convert their stock to cash and issued 26,665,830
shares to the shareholders of EBC in exchange for their shares and other
consideration.
Initial
Public Offering
On
September 14, 2005, the Company sold 10,000,000 units (“Units”) in an
initial public offering (the “Offering”), and, on September 19, 2005, sold
an additional 1,500,000 Units pursuant to the underwriters’ over-allotment
option. Each Unit consists of one share of the Company’s common stock and two
warrants (“Warrants”). Each Warrant entitles the holder to purchase from the
Company one share of common stock at an exercise price of $5.00 commencing
after
the completion of the Merger Transaction. The Warrants will expire on
September 7, 2009. The Warrants may be redeemed, at the Company’s option,
with the prior consent of Morgan Joseph and Co. Inc. and EarlyBirdCapital,
Inc.,
the representatives of the underwriters in the Offering (the “Representatives”)
in whole and not part, at a price of $.01 per Warrant upon 30 days notice
after the Warrants become exercisable, only in the event that the last sale
price of the common stock is at least $8.50 per share for any 20 trading days
within a 30 trading day period ending on the third day prior to the date on
which notice of redemption is given.
In
connection with the Offering, the Company also issued for $100 an option to
the
Representatives to purchase up to a total of 1,000,000 units at a price of
$7.50
per unit. The units issuable upon the exercise of this underwriters’ unit
purchase option are identical to those offered in the prospectus of the
Offering, except that the exercise price of the warrants included in the
underwriters’ unit purchase option is $6.00. This option is exercisable
commencing upon the closing of the Merger Transaction, expires five years from
the date of the Offering, and may be exercised on a cashless basis, at the
holder’s option. The underwriters’ unit purchase option provides for demand and
“piggy back” registration rights.
The
underwriters’ unit purchase option and the Warrants (including the warrants
underlying the underwriters’ unit purchase option) will be exercisable only if
at the time of exercise a current registration statement covering the underlying
securities is effective or, in the opinion of counsel, not required, and if
the
securities are qualified for sale or exempt from qualification under the
applicable state securities laws of the exercising holder. The Company has
agreed to use its best efforts to maintain an effective registration statement
during the exercise period of the unit purchase option and the Warrants;
however, it may be unable to do so. Holders of the unit purchase option and
the
Warrants are not entitled to receive a net cash settlement or other settlement
in lieu of physical settlement if the common stock underlying the Warrants,
or
securities underlying the unit purchase option, as applicable, are not covered
by an effective registration statement and a current prospectus. Accordingly,
the unit purchase option and the Warrants may expire unexercised and worthless
if a current registration statement covering the common stock is not effective
and the prospectus covering the common stock is not current. Consequently,
a
purchaser of a unit may pay the full unit price solely for the shares of common
stock of the unit.
NOTE
15 — MANDATORILY REDEEMABLE SERIES A CONVERTIBLE NON-VOTING PREFERRED STOCK
In
connection with the Merger Transaction, the Company issued 2,050,519 shares
of
the Company’s Series A Convertible Non-Voting Preferred Stock (the
“Series A Preferred”) to a certain holder of EBC Series A preferred
stock, in exchange for accrued and unpaid dividends up to the Merger Closing
date. The Series A Preferred ranks senior to all outstanding shares of the
Company’s common stock. The Series A Preferred accrues compounded dividends
at the rate of 7% per annum of the original issue price whether or not the
Company declares a dividend payable. In addition, if the Company declares a
dividend on its common stock at any time, the holders of Series A Preferred
automatically participate on an “as if” converted to common stock basis with the
common shareholders.
The
Series A Preferred contain liquidation provisions that rank senior to any
and all claims of the common stockholders, such that upon the involuntary
liquidation, dissolution, or winding up of the Company, the holders of
Series A Preferred would be entitled to receive a liquidation amount equal
to the amount of the original issue price plus accrued dividends. A change
of
control of the Company is also deemed to be an event equivalent to a
liquidation, dissolution or winding up event under the terms of the Certificate
of Designation for the Series A Preferred.
The
holders of Series A Preferred may convert their shares at any time into
shares of the common stock of the Company on a one-for-one basis. The conversion
rate is subject to adjustment such that if the Company were to issue any share
of common stock, except for (a) issuances pursuant to the exercise of any
preferred stock, (b) issuances subject to a compensation plan for
employees, directors, consultants or others approved by the board of directors
or majority holders of the common stock of the Company, (c) stock issued
pursuant to a declared dividend, stock split or recapitalization, (d) stock
issued to sellers of companies acquired pursuant to board approval,
(e) stock issued to banking institutions as compensation for financing
received and (f) stock issued from the treasury of the Company, or any
instrument convertible or exercisable into common stock of the Company at a
rate
which if added to the consideration per share of common stock received for
any
such purchase right is less than the current rate, the conversion rate
automatically adjusts to that lower rate. At any time after five years after
issuance, the Company may elect to redeem shares of Series A Preferred in
cash. In addition, after five years after issuance and upon a majority of the
holders of Series A Preferred voting to redeem their shares, the holders of
Series A Preferred may require the Company to redeem their Series A
Preferred for cash. The redemption price is equal to the original price of
the
Series A Preferred plus all accrued Dividends as of the date of redemption.
In
connection with the Private Placement, the Board of Directors determined that
the fair value of the common stock component of the June 2007 Unit Offering
(see
note 15 – Stockholders’ Equity) was greater than the issue prices of the Series
A Convertible Non- Voting Preferred Stock of $5.13 per share. Additionally,
the
fair value of the warrants component combined with the exercise price was
determined to be greater than the original issue price of $5.13 for the Series
A
preferred. Accordingly, the conversion price of the Series A Non-Voting
Preferred Stock was not reset in accordance with the provisions of EITF 98-5
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios” and EITF 00-27 “Application of EITF
98-5 to Certain Convertible Instruments”.
In
connection with the issuance of common stock to retire debt, the Board of
Directors determined that the fair value of the stock issued had no effect
on
the Series A Convertible Non-voting Preferred Stock because it falls under
the
exception for stock issued to sellers of companies acquired pursuant to board
approval. Accordingly, the conversion price of the Series A Non-Voting Preferred
Stock was not reset in accordance with the provisions of EITF 98-5 “Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios” and EITF 00-27 “Application of EITF 98-5 to
Certain Convertible Instruments”.
The
Company evaluated the embedded conversion feature in the Series A Preferred
and determined it did not meet the criteria for bifurcation under SFAS
No. 133 “Accounting for Derivative Instruments and Hedging Activities”
during the three and nine months ended September 30, 2007. In addition, the
Company accounts for the Series A Preferred in accordance with SEC
Accounting Series Release 268 — Presentation in Financial Statements of
Redeemable Preferred Stocks” and EITF D-98: “Classification and Measurement of
Redeemable Securities,” and thus has classified the Series A Preferred
outside of stockholders’ equity.
The
Company believes that it is not probable that the holders of the Series A
Preferred would currently elect to convert their shares to common stock because
the current trading price of the Company’s common stock is lower than the
conversion price. Therefore and under the guidance of EITF D-98, the carrying
value of the Series A Preferred Stock as of December 31, 2007 is its original
issue amount and does not include any accreted dividends or any other
adjustment.
For
the
year ended December 31, 2007, the Company accreted dividends in the amount
of $556,795. As of December 31, 2007 dividends payable to the Series A Preferred
shareholders are $556,795 and included in other non current liabilities.
Univision
Registration Rights
Pursuant
to the Merger Agreement, the Company has granted to Univision certain “piggy
back” registration rights at any time during the two year period following the
Merger Closing. The Company shall provide Univision with written notice thereof
at least fifteen days prior to the filing, and Univision shall provide written
notice of the number of its registrable shares to be included in the
registration statement within fifteen days of its receipt of the Company’s
notice.
NOTE
16 — SHARES HELD IN ESCROW
At
the
closing of the Merger Transaction, the Company deposited 2,100,003 shares of
its
Common Stock with a trust company (the “Escrow”), with each shareholder of EBC
funding that portion thereof equal to such shareholder’s ownership of EBC Common
Stock relative to the other shareholders contributing to the Escrow. The Escrow
has been established for the benefit of the Company solely to satisfy any
indemnification obligation of EBC arising pursuant to the Merger Agreement.
The
term of the Escrow is twelve (12) months from the date of closing of the
Merger Transaction. On March 28, 2008, the Company filed a Notice of
Indemnification Claim with the Escrow Agent.
NOTE
17 — STOCK BASED COMPENSATION PLANS
On
March 29, 2007, the shareholders of the Company approved the adoption of
the 2007 Stock Incentive Plan (the “Incentive Plan”), which governs stock-based
awards up to an aggregate of 12,274,853 shares of the Company’s common stock,
including (i) 3,274,853 shares converted from existing EBC options assumed
in the Merger Transaction (only 3,187,138 as of the date of the Merger
Transaction), (ii) 2,000,000 and 250,000 shares underlying options issuable
to Larry Morton and Gregory Fess, respectively, under employment agreements
entered in connection with the Merger Transaction, and (iii) 6,750,000
shares reserved for future grants. The purpose of the 2007 Stock Incentive
Plan
is to enable the Company to attract, retain, reward and motivate officers,
directors, employees and consultants of the Company, its subsidiaries or
affiliates by providing them with an opportunity to acquire or increase a
propriety interest in the Company. The 2007 Stock Incentive Plan became
effective upon the closing of the Merger Transaction and is administered by
the
Compensation Committee of the Board of Directors.
Prior
to
the Closing of the Merger, EBC had two stock option plans: the 2001 Equity
Participation Plan (which was established on April 16, 2001) and the 2001
Non-Qualified Stock Option Plan (which was established on November 15,
2001). As of March 30, 2007, the date of the Merger, 2,180,000 options were
outstanding under these plans. In connection with the Merger Transaction, these
options were converted to 3,187,134 options to purchase shares of the Company
under the 2007 Stock Incentive Plan as described herein. The 2007 Stock
Incentive Plan superseded these plans.
As
of
December 31, 2007, all stock options awarded under the Incentive Plan were
granted with exercise prices equal to the market price of the underlying stock
as of the date of grant. Under the Incentive Plan options are exercisable after
the period or periods specified in the applicable option agreement, but no
option can be exercised after 10 years after the date of the grant, and all
awards in 2007 expire no later than seven years after the date of the grant.
The
following weighted-average assumptions were used in the Black-Scholes
option-pricing model to value options granted during the years ended December
31, 2007, 2006 and 2005:
|
|
2007
|
|
2006
|
|
2005
|
|
Expected
life of options (in years)
|
|
|
4.39
|
|
|
N/A
|
|
|
10.00
|
|
Expected
volatility
|
|
|
34.4
|
%
|
|
N/A
|
|
|
32.2
|
%
|
Expected
risk free interest rate
|
|
|
4.54
|
%
|
|
N/A
|
|
|
4.30
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
N/A
|
|
|
0.0
|
%
|
A
summary
of option activity under the Incentive Plan is as follows:
|
|
Options
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Weighted
Average
Remaining
Term
|
|
Outstanding
at January 1, 2007
|
|
|
3,187,138
|
|
$
|
4.82
|
|
|
|
|
|
|
|
Granted
|
|
|
3,800,000
|
|
|
4.30
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(21,930
|
)
|
|
5.09
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
N/A
|
|
|
|
|
|
|
|
Expired
|
|
|
0
|
|
|
N/A
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
6,965,208
|
|
$
|
4.53
|
|
$
|
0
|
|
|
5.47
|
|
Exercisable
at December 31, 2007
|
|
|
3,907,898
|
|
$
|
4.72
|
|
$
|
0
|
|
|
4.77
|
|
Stock-based
compensation expense for the year ended December 31, 2007 was $2.0 million
as
compared to $0 in 2006 and 2005. The total deferred tax benefit related
thereto was $0 for the year ended December 31, 2007 compared to $0 during the
same period in 2006 and 2005. As of December 31, 2007, there was $3.8 million
of
total unrecognized compensation cost related to unvested share-based
compensation awards granted under the Incentive Plan, which does not include
the
effect of future grants of equity compensation, if any. Of the total $3.8
million, we expect to recognize approximately 37.1% in 2008 and the balance
in
2009 through 2012. The weighted average period over which the $3.8 million
is to
be recognized is 2.90 years. The weighted-average grant date fair value was
$1.5268 for options granted during 2007.
Under
SFAS No. 123(R), options are valued at their date of grant and then expensed
over their vesting period. The values of the Company’s options were calculated
at the date of grant using the Black-Scholes option-pricing model. The total
intrinsic value of options exercised during the years ended December 31, 2007,
2006 and 2005, respectively, was $0 each year. The total fair value of options
vested during the years ended December 31, 2007, 2006 and 2005 was $1.1 million,
$0 and $0, respectively. The total number of options vesting during the years
ending December 31, 2007, 2006 and 2005 was 750,000, 0 and 0, respectively.
NOTE
18 — INCOME TAXES
The
Company records deferred income taxes under applicable tax laws using rates
for
the years in which the taxes are expected to be paid. Deferred income taxes
reflect the tax consequences on future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts. A
valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets may not be realized. The Company did not
record an income tax provision for all periods presented due to its expected
benefits from net operating losses being completely offset by valuation
allowances.
The
Company records deferred income taxes using enacted tax laws and rates for
the
years in which the taxes are expected to be paid. Deferred income taxes reflect
the tax consequences on future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts. A valuation
allowance is provided when it is more likely than not that some portion of
the
deferred tax assets may not be realized.
Income
taxes are reflected in the consolidated statements of operations as
follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Deferred
Tax Provision (benefit)
|
|
$
|
(12,808,779
|
)
|
$
|
(1,222,868
|
)
|
|
(4,220,289
|
)
|
Change
in Valuation Allowance
|
|
|
12,808,779
|
|
|
1,222,868
|
|
|
4,220,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
-
|
|
$
|
-
|
|
A
reconciliation between income taxes computed at the federal statutory rate
and
the Company’s income tax rates is as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Federal
income taxes at statutory rate
|
|
$
|
(13,418,424
|
)
|
$
|
(1,097,557
|
)
|
$
|
(4,323,922
|
)
|
Sate
income taxes net of federal tax benefit
|
|
|
-
|
|
|
(138,486
|
)
|
|
(545,577
|
)
|
Change
in valuation allowance
|
|
|
12,808,779
|
|
|
1,222,868
|
|
|
4,220,289
|
|
Other
|
|
|
609,645
|
|
|
13,175
|
|
|
649,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
Components
of the net deferred income tax asset (liability) at December 31, 2007 and 2006
relate to the following:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
47,545,803
|
|
$
|
30,114,236
|
|
Allowance
for uncollectible accounts
|
|
|
568,961
|
|
|
590,475
|
|
Other
|
|
|
4,364
|
|
|
1,556
|
|
|
|
|
48,119,128
|
|
|
30,706,267
|
|
Less
valuation allowance
|
|
|
(37,366,846
|
)
|
|
(24,558,067
|
)
|
|
|
|
10,752,282
|
|
|
6,148,200
|
|
Deferred
income tax liabilities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(10,752,282
|
)
|
|
(6,148,200
|
)
|
|
|
|
|
|
|
|
|
Net
deferred income taxes
|
|
$
|
-
|
|
$
|
-
|
|
At
December 31, 2007, the Company has net operating loss carryforwards for federal
income tax purposes, which are estimated to be approximately $124.1
million and
which
expire from tax years 2018 to 2026. The actual amount of net operating losses
will be determined at the time the Company’s tax returns are filed. The Company
made no payments for income taxes for the years ended December 31, 2007, 2006
and 2005.
The
Company adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes,” effective January 1, 2007. FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold
a
tax position is required to meet before being recognized in the consolidated
financial statements. FIN 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company had no significant unrecognized
tax benefits at the date of adoption or at December 31, 2007. Accordingly,
the
Company does not have any interest or penalties related to uncertain tax
positions. However, if interest or penalties were to be incurred related
to
uncertain tax positions, such amounts would be recognized in income tax expense.
Tax periods for all years after 2003 remain open to examination by the federal
and state taxing jurisdictions to which it is subject.
NOTE
19 — COMMITMENT AND CONTINGENCIES
Stock
options to underwriters
In
connection with the initial public offering (“Offering”), the Company sold to
the Representatives an option, for $100, to purchase up to a total of 1,000,000
units at $7.50 per Unit. The Company accounted for the fair value of the option,
inclusive of the receipt of the $100 cash payment, as an expense of the Offering
resulting in an increase and a charge directly to stockholders’ equity. The
option has been valued at the date of issuance at $780,000 based upon a
Black-Scholes valuation model, using an expected life of five years, volatility
of 15.90% and a risk-free interest rate of 3.980%. The volatility calculation
is
based on the 180-day volatility of the Russell 2000 Index. An expected life
of
five years was taken into account for purposes of assigning a fair value to
the
option. The option may be exercised for cash, or on a “cashless” basis, at the
holder’s option, such that the holder may receive a net amount of shares equal
to the appreciated value of the option. The Units issuable upon exercise of
this
option are identical to the Units in the Offering, except that the Warrants
included in the option have an exercise price of $6.00. Although the purchase
option and its underlying securities have been registered under the Offering,
the option grants to holders demand and “piggy back” registration rights for
periods of five and seven years, respectively, from the date of the Offering
with respect to the registration under the Securities Act of the securities
directly and indirectly issuable upon exercise of the option. The Company will
bear all fees and expenses relating to the registration of the securities,
other
than underwriting commissions which will be paid for by the holders themselves.
The exercise price and number of units issuable upon exercise of the option
may
be adjusted in certain circumstances including in the event of a stock dividend,
or recapitalization, reorganization, merger or consolidation. However, the
option will not be adjusted for issuances of common stock at a price below
its
exercise price.
Employment
Agreements
Effective
on the date of the Merger Transaction, the Company entered into employment
agreements with Larry Morton and Gregory Fess. The term of the employment under
the respective agreements for each individual is three years and provides for:
a
base salary of $520,000 and $315,000, respectively, to be reviewed annually,
a
bonus compensation amount to be determined at the discretion of the Compensation
Committee of the Company’s Board of Directors and stock options including
initial grants of 2,000,000 and 250,000 options, respectively. The options,
approved and granted by the Compensation Committee on May 9, 2007, have an
exercise price equal to the fair market value of the stock in accordance with
the 2007 Stock Incentive Plan ($4.30) and vest in four equal installments
commencing March 30, 2007 the date of the signing of the employment
agreements, and on each anniversary thereafter. The options are exercisable
for
a minimum of 5 years.
Litigation
In
connection with the merger between Equity Broadcasting Corporation ("EBC")
and
the Company, EBC and each member of EBC’s board of directors was named in a
lawsuit filed by an EBC shareholder in the circuit court of Pulaski County,
Arkansas on June 14, 2006. As a result of the merger between EBC and the
Company, pursuant to which EBC merged into the Company, the Company, which
was
renamed Equity Media Holdings Corporation, is a party to the lawsuit. The
lawsuit contains both a class action component and derivative claims. The class
action claims allege various deficiencies in EBC’s proxy used to inform its
shareholders of the special meeting to consider the merger. These allegations
include: (i) the failure to provide sufficient information regarding the
fair value of EBC’s assets and the resulting fair value of EBC’s Class A
common stock; (ii) that the interests of holders of EBC’s Class A
common stock are improperly diluted as a result of the merger to the benefit
of
the holders of EBC’s Class B common stock; (iii) failure to
sufficiently describe the further dilution that would occur post-merger upon
exercise of the Company’s outstanding warrants; (iv) failure to provide
pro-forma financial information; (v) failure to disclose alleged related
party transactions; (vi) failure to provide access to audited consolidated
financial statements during previous years; (vii) failure to provide
shareholders with adequate time to review a fairness opinion obtained by EBC’s
board of directors in connection with the merger; and (viii) alleged sale
of EBC below appraised market value of its assets. The derivative components
of
the lawsuit allege instances of improper self-dealing, including through a
management agreement between EBC and Arkansas Media.
In
addition to requesting unspecified compensatory damages, the plaintiff also
requested injunctive relief to enjoin EBC’s annual shareholder meeting and the
vote on the merger. An injunction hearing was not held before EBC’s annual
meeting regarding the merger so the meeting and shareholder vote proceeded
as
planned and EBC’s shareholders approved the merger. On August 9, 2006,
EBC’s motion to dismiss the lawsuit was denied. On February 21, 2007, the
plaintiff filed a “Motion to Enforce Settlement Agreement” with the court
alleging the parties reached an oral agreement to settle the lawsuit. The
plaintiff subsequently filed a motion to withdraw the motion to settle and
filed
a “Third Amended Complaint” on April 10, 2007. This motion added two
additional plaintiffs and expanded on the issues recited in the previous
complaints. On July 31, 2007, the plaintiff filed a “Fourth Amended
Complaint”. This pleading added three new plaintiffs and three new defendants to
the proceedings. The three additional defendants bear a fiduciary relationship
to three previously named defendants. On July 31, 2007, the plaintiffs filed
a
“Motion for Class Certification.” Although the motion has been fully briefed by
the parties, the plaintiffs have not yet sought a hearing date on the class
certification issue. Currently, the parties continue to engage in discovery.
No
court date has been set for this case.
Management
believes that this lawsuit has no merit and asserts that the Company has
negotiated in good faith to attempt to settle the lawsuit. Regardless of the
outcome management does not expect this proceeding to have a material impact
of
its financial condition or results of operations in 2007 or any future period.
Although
the Company is a party to certain other pending legal proceedings in the normal
course of business, management believes the ultimate outcome of these matters
will not be material to the financial condition and future operations of the
Company. The Company maintains liability insurance against risks arising out
of
the normal course of its business.
EBC
Dissenting Shareholders
In
connection with the Merger Transaction (see Note 4 – Merger Transaction)
shareholders of EBC representing 66,500 shares of EBC Class A common stock
elected to convert their shares to cash in accordance with Arkansas law. The
Company recorded a liability in the amount of $368,410 to convert the shares
plus $9,970 of accrued interest based on a conversion rate of $5.54 per share
plus interest accruing from the date of the Merger Transaction at the rate
of
9.78% per annum. On July 10, 2007, the dissenting shareholders were
paid $378,380 in cash for the value of their shares including all interest
accrued to date. Pursuant to Arkansas Code, the dissenting shareholders
exercised their right to contest the Company’s valuation and have demanded
payment of an additional $17.78 per share plus accrued interest at
9.78% per annum. In accordance with Arkansas Code, the Company has
petitioned the court for a determination of the fair value of the shares and
believes its valuation will prevail.
Obligations
The
Company is obligated under non-cancelable operating leases for office and
station space, tower sites, and broadcast and office equipment. The Company
is
obligated under contracts for the rights to broadcast certain features and
syndicated television programs.
At
December 31, 2007, future minimum rental commitments under non-cancelable
operating leases with initial or remaining terms in excess of one year are
as
follows:
2008
|
|
$
|
1,690,657
|
|
2009
|
|
|
1,387,167
|
|
2010
|
|
|
1,144,586
|
|
2011
|
|
|
833,265
|
|
2012
|
|
|
683,085
|
|
Thereafter
|
|
|
3,915,876
|
|
|
|
$
|
9,654,636
|
|
Total
rent expense under operating leases for the years ended December 31, 2007,
2006
and 2005 was approximately $2,499,000, $2,191,000, and $1,938,000, respectively.
As
of
December 31, 2007, certain equipment was leased under capital equipment
facilities. Future minimum lease payments under capital leases as of December
31, 2007 are as follows:
2008
|
|
$
|
44,546
|
|
2009
|
|
|
41,675
|
|
2010
|
|
|
32,578
|
|
2011
|
|
|
32,781
|
|
2012
|
|
|
34,456
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
186,036
|
|
Equipment
leased under capital equipment facilities had a cost of $375,795 and accumulated
depreciation of $186,273 as of December 31, 2007.
Program
Broadcast Rights Payable
The
Company entered into agreements for program broadcast rights of approximately
$3,927,570 and $2,181,000, which became available in 2007 and 2006,
respectively. Program rights that have been contracted for (excluding barter
agreements), but were not currently available for airing aggregated
approximately $1,682,875 and $1,003,000 and at December 31, 2007 and 2006,
respectively.
Future
maturities of the Company’s program rights payables are as follows:
2008
|
|
$
|
2,094,737
|
|
2009
|
|
|
613,400
|
|
2010
|
|
|
361,099
|
|
2011
|
|
|
141,218
|
|
2012
|
|
|
13,000
|
|
Thereafter
|
|
|
11,928
|
|
|
|
$
|
3,235,382
|
|
NOTE
20 — RELATED PARTY TRANSACTIONS
Amounts
due (to) from affiliates and related parties at December 31, 2007 and
December 31, 2006 consist of the following:
|
|
December 31,
2007
|
|
December 31,
2006
|
|
Univision
Communications, Inc.
|
|
$
|
(2,295,837
|
)
|
$
|
(726,003
|
)
|
Arkansas
Media, LLC and affiliates
|
|
|
19,581
|
|
|
(86,462
|
)
|
Royal
Palm Capital Management, LLP
|
|
|
(225,000
|
)
|
|
—
|
|
Little
Rock TV 14, LLC
|
|
|
(78,626
|
)
|
|
(67,622
|
)
|
Actron,
Inc.
|
|
|
-
|
|
|
(526,092
|
)
|
Retro
Television Corporation, Inc
|
|
|
(8,224
|
)
|
|
-
|
|
Other
|
|
|
72,364
|
|
|
16,123
|
|
|
|
|
|
|
|
|
|
Due
(to) from affiliates and related parties
|
|
|
(2,515,742
|
)
|
|
(1,390,056
|
)
|
Less
current portion
|
|
|
(2,509,480
|
)
|
|
(1,338,557
|
)
|
|
|
|
|
|
|
|
|
Non
– current portion
|
|
$
|
(6,262
|
)
|
$
|
(51,499
|
)
|
Arkansas
Media, LLC owned 75% of EBC’s Class B common shares outstanding at
December 31, 2006 and up to the date of the closing of the Merger
Transaction (see Note 4 — Merger Transaction). The owners of Arkansas Media, LLC
held management and board of director positions within EBC. In addition to
the
transactions noted below, Arkansas Media, LLC had, at times, acted as a broker
on behalf of the Company and others that hold rights to broadcast construction
permits which they wish to sell. Arkansas Media, LLC also owned three television
stations which were operated by the Company on a fee basis under a LMA’s until
March 29, 2007 (see Note 5 — Arkansas Media Settlement Transaction).
The
Company incurred expenses related to management fees and commissions in the
amount of $1,547,581, $1,596,682 and $1,475,282 for the years ended December
31,
2007, 2006 and 2005, respectively, for services rendered to the Company by
Arkansas Media, LLC and its affiliates. Additionally, the Company accrued
expenses related to operating fees of $24,000, $96,000 and $96,000 for the
years
ended December 31, 2007, 2006 and 2005, respectively, under LMA’s with Arkansas
Media, LLC Subsequent to the Arkansas Media Settlement, the Company determined
that an additional $37,416 in fees and commissions were due to Arkansas Media,
LLC for services performed during the three month period ended March 31,
2007. These fees were paid in full on April 16, 2007.
The
amount due Arkansas Media as of December 31, 2006 was paid in full as part
of the Arkansas Media Settlement (see Note 5 — Arkansas Media Settlement
Transaction). Actron, Inc. was due the above amount in connection with the
Company’s purchase of Central Arkansas Payroll Company, currently a wholly-owned
subsidiary of the Company. Larry Morton, Greg Fess and Max Hooper own
approximately 85% of Actron, Inc. The amount due Actron, Inc. as of
December 31, 2006 was paid in connection with the Arkansas Media Settlement
(see Note 5 — Arkansas Media Settlement Transaction).
Other
than the amount due Actron, Inc., these related party balances were unsecured,
non-interest bearing and did not contain stated repayment terms.
Management
Services Agreement
Upon
the
closing of the Merger Transaction, the Company entered into a management
services agreement with Royal Palm Capital Management, LLP (“Royal Palm”). The
agreement generally provides that Royal Palm will provide general management
and
advisory services for an initial term of three years, subject to renewal
thereafter on an annual basis by approval of a majority of the independent
directors serving on the Company’s Board of Directors. The services to be
provided include, but are not limited to, establishing certain office,
accounting and administrative procedures, helping the Company obtain financing,
advising the Company in securities matters and future acquisitions or
dispositions, assisting the Company in formulating risk management policies,
coordinating public relations and investor relations efforts, and providing
such
other services as may be reasonably requested by the Company and agreed to
by
Royal Palm. Royal Palm shall receive an annual management fee of $1,500,000,
in
addition to the reimbursement of budgeted out-of -pocket costs and expenses
incurred in the performance of Royal Palm’s management services. The management
services agreement may be terminated upon the material failure of either party
to comply with its stated duties and obligations, subject to a 30-day cure
period.
Royal
Palm has agreed to defer receipt of its
management fee so long as the obligation to the lenders under the credit
agreement remains outstanding.
Certain
officers and directors of Royal Palm also serve as officers and directors of
the
Company. For this reason, Royal Palm is generally prohibited from engaging
in
activities competitive with the business of the Company post-closing, unless
such restriction is waived by the Board of Directors of the Company.
Management
fees of $1,125,000 and general and administrative expenses of $40,545 were
incurred by the Company for the year ended December 31, 2007 for services
rendered by Royal Palm Partners, LLC. As of December 31, 2007, the Company
has
recorded prepaid expenses of $100,000 representing amounts advanced to Royal
Palm pursuant to the management services agreement.
Univision
Affiliation Agreement
Univision
owns 100% of the Company’s outstanding Series A Convertible Non-Voting
Preferred Stock. Immediately following the closing of the Merger Transaction,
Univision Network Limited Partnership and Telefutura revised and executed new
Affiliation Agreements for all existing television broadcast stations
attributable to the Company that are Univision and Telefutura affiliates. These
new agreements contain substantially the same terms and conditions as the
previous affiliation agreements, but were renewed for 15 year terms
beginning at the closing of the Merger Transaction.
Univision
also acts as the national sales agent for the Company’s Spanish-language
television stations. The Company pays Univision a 15% commission on those sales.
The Company also operates its Salt Lake City Univision television station,
KUTH
through a local marketing agreement (LMA) with Univision. The Company incurred
expenses related to commissions in the amounts of $676,255, $312,180, and
$150,083 for the years ended December 31, 2007, 2006 and 2005, respectively
for
sales made on behalf of the Company by Univision. Additionally, the Company
accrued expenses related to operating fees of $323,338, $319,924 and $332,981
for the years ended December 31, 2007, 2006 and 2005, respectively under the
LMA
with Univision.
RTN
Intellectual Property Agreement
Prior
to
the Merger Transaction, the Company entered into an intellectual property
agreement with Retro Television Network, Inc., a company controlled by Larry
Morton, a director, former President and CEO of the Company and current
Chairman, President and CEO of Retro Programming Services, Inc, a wholly owned
subsidiary of the Company. Under the terms of the agreement, Retro Television
Network, Inc. assigned 100% of the creative and intellectual rights for the
Retro Television Network (“RTN”) to the Company in exchange for a ten
(10) percent royalty fee to be paid solely from the revenues of non-Company
owned stations that utilize the RTN concept and/or affiliate with RTN. The
agreement also provides that in the event the Company was to sell its assigned
rights in RTN to an unrelated third party, Retro Television Network, Inc.,
at
its option, may convert the royalty fee to a twenty (20) percent interest
of the sales proceeds. As of December 31, 2007, royalty fees in the amount
of
$8,224 have been accrued, and no royalty fees were paid to Retro Television
Network, Inc. for the years ended December 31, 2007, 2006 or 2005, respectively.
NOTE
21 — CONCENTRATION OF CREDIT RISK
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of accounts receivable and cash. Management generally
does not require collateral to support accounts receivable. However, accounts
receivable are comprised of a diversified customer base that results in a
reduction in the concentrations of credit risk. In addition, the Company employs
credit-monitoring policies that, in management’s opinion, effectively reduce any
potential credit risk to an acceptable level. Credit losses have been within
management’s expectations based on the Company’s credit monitoring polices and
ongoing relationships with its customers.
Cash
accounts at financial institutions are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 2007 and 2006 and at various times
throughout these years, the Company maintained balances in excess of that
federally insured limit. The accounts at the brokerage firm contain cash and
cash equivalents, and balances are insured up to $500,000, with a limit of
$100,000 for cash, with the Securities Investor Protection Corporation (“SIPC”).
At December 31, 2007 and 2006 and at various times throughout these years,
the
Company maintained balances in excess of that insured limit.
NOTE
22 — EMPLOYEE BENEFIT PLAN
The
Company sponsors a defined contribution plan covering substantially all of
the
Company’s employees. The plan is qualified under Section 401(k) of the Internal
Revenue Code. Under the provisions of the plan, eligible participating employees
may elect to contribute up to the maximum amount of tax deferred contribution
allowed by the Internal Revenue Code (15% of wages or $13,000, whichever is
less). The Company matches a portion of such contributions up to a maximum
percentage of the employees’ compensation (50% of employee contributions, not to
exceed $1,000 per employee annually). The Company’s contributions to the plan
for the years ended December 31, 2007, 2006 and 2005 were $35,241, $31,353,
and
$34,727, respectively.
NOTE
23 — SUBSEQUENT EVENTS
Refinancing
of Credit Facility
On
February 13, 2008, Equity Media Holdings Corporation (“Company”) entered into a
new credit facility with Silver Point Finance, LLC and Wells Fargo Foothill,
Inc. This agreement refinances the existing credit facility with the same
parties and provides Equity Media with the release of certain reserves. In
order
to comply with certain provisions of the new agreement, the Company agreed
to
pursue the sale of certain assets. Prior to the amendment and restatement of
the
credit facility in February 2008, the Company was subject to certain financial
covenants, including among others, that the Company meet minimum revenue and
EBITDA levels. At December 31, 2007, the Company was not in compliance with
these covenants. However, after the amendment and restatement of the credit
facility, the Company’s previous events of default were waived and eliminated. (
See Note 13 – Notes Payable.)
On
March
20, 2008, the Company entered into an amendment (“Amendment”) to its Third
Amended and Restated Credit Agreement (“Credit Agreement”) with Silver Point
Finance, LLC and Wells Fargo Foothill, Inc. Under the terms of the Amendment,
the lender group has agreed to forbear from exercising certain of their rights
and remedies with respect to designated defaults under the Credit Agreement
through the earlier of (a) April 18, 2008 and (b) the date of occurrence of
certain events or by which certain events have failed to occur, including the
Company’s failure to enter into agreements with respect to the sale of certain
of its assets and the Company’s failure to secure approvals for, and meet other
criteria with respect to, financing alternatives necessary to meet the Company’s
immediate capital requirements. Pursuant to the Amendment the Lenders may
exercise any and all remedies available under the Credit Agreement, including
making the loan immediately due and payable.
Changes
in Management
On
January 10, 2008, the Board of Directors appointed Patrick G. Doran as Chief
Financial Officer.
On
February 11, 2008, the Board of Directors of Equity Media Holdings Corp.
(“EMHC”) appointed Henry G. Luken III, the existing Chairman, to the positions
of President and CEO of EMHC. The Board of Directors also appointed Larry
E. Morton, the President and CEO prior to Mr. Luken, to the positions of
Chairman, President and CEO of Retro Programming Services, Inc., a wholly owned
subsidiary of EMHC, and dedicate his efforts to the continued growth of the
Retro Television Network (“RTN”).
New
RTN affiliates and contracts
The
following table shows stations that have been launched as RTN affiliates since
December 31, 2007.
DMA Ranking
|
|
Station
|
|
DMA
|
|
Launched
|
70
|
|
WBAY-DT2
|
|
Green
Bay
|
|
1/2/08
|
56
|
|
WTEN-DT
|
|
Albany
|
|
1/7/08
|
8
|
|
WSB-DT
|
|
Atlanta
|
|
1/28/08
|
14
|
|
KIRO-DT
|
|
Seattle-Tacoma
|
|
1/28/08
|
67
|
|
WSET-DT
|
|
Roanoke-Lynchburg
|
|
2/21/08
|
114
|
|
KWSD
|
|
Sioux
Falls
|
|
2/28/08
|
19
|
|
WRDQ-DT
|
|
Orlando
|
|
3/3/08
|
118
|
|
WSFA
|
|
Montgomery-Selma
|
|
3/3/08
|
35
|
|
KUSG
|
|
Salt
Lake City
|
|
3/17/08
|
Since
December 31, 2007, RTN has signed affiliation contracts with the following
stations in the following markets:
Station
|
|
DMA
|
WJLA-TV
|
|
Washington
DC
|
WHTM-TV
|
|
Harrisburg-Lancaster,
PA
|
WSET-TV
|
|
Roanoke-Lynchburg,
VA
|
KAUN
|
|
Sioux
Falls, SD
|
KUSG
|
|
Salt
Lake City, UT
|
NOTE
24 - SEGMENT DATA
The
Company operates its business in three primary reporting segments; the
Television Group, Retro Television Network (RTN), and Uplink Services.
Operations of the Television Group consist of the sale of air time for
advertising, the production and broadcasting of news, and the broadcasting
of
entertainment and other programming through the Company’s television stations.
Operations of RTN consist primarily of the combination of popular entertainment
programs of past decades with local sports, weather and news to provide a
customized digital feed to its affiliate television stations. Uplink Services
operations include the provision of programming, traffic, accounting and billing
services to Company-owned television stations and third party broadcasters
through the Company’s centralized facility in Little Rock, Arkansas. The Company
does not allocate corporate overhead or the eliminations of intercompany
transactions to the primary reporting segments.
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
(in
thousands)
|
|
Broadcast
Revenue
|
|
|
|
|
|
|
|
Television
|
|
$
|
27,876
|
|
$
|
29,896
|
|
$
|
27,063
|
|
Retro
Television Network
|
|
|
460
|
|
|
109
|
|
|
-
|
|
Uplink
Services
|
|
|
586
|
|
|
836
|
|
|
1,050
|
|
Corporate
and eliminations
|
|
|
(659
|
)
|
|
(446
|
)
|
|
(641
|
)
|
|
|
$
|
28,264
|
|
$
|
30,395
|
|
$
|
27,471
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
2,270
|
|
$
|
1,854
|
|
$
|
2,351
|
|
Retro
Television Network
|
|
|
16
|
|
|
-
|
|
|
-
|
|
Uplink
Services
|
|
|
1,301
|
|
|
965
|
|
|
876
|
|
Corporate
and eliminations
|
|
|
573
|
|
|
464
|
|
|
426
|
|
|
|
$
|
4,160
|
|
$
|
3,283
|
|
$
|
3,652
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
(9,098
|
)
|
$
|
(6,499
|
)
|
$
|
(6,813
|
)
|
Retro
Television Network
|
|
|
(1,673
|
)
|
|
(188
|
)
|
|
-
|
|
Uplink
Services
|
|
|
(1,412
|
)
|
|
(592
|
)
|
|
(1,008
|
)
|
Corporate
and eliminations
|
|
|
(21,659
|
)
|
|
(7,406
|
)
|
|
(6,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
(33,842
|
)
|
$
|
(14,684
|
)
|
$
|
(14,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
charge
|
|
|
-
|
|
|
200
|
|
|
1,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
(33,842
|
)
|
|
(14,884
|
)
|
|
(15,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
1,772
|
|
|
1,647
|
|
|
1,518
|
|
Retro
Television Network
|
|
|
506
|
|
|
-
|
|
|
-
|
|
Uplink
Services
|
|
|
3,663
|
|
|
825
|
|
|
795
|
|
Corporate
and eliminations
|
|
|
1,441
|
|
|
258
|
|
|
76
|
|
Consolidated
|
|
$
|
7,382
|
|
$
|
2,730
|
|
$
|
2,389
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
|
90,589
|
|
|
89,233
|
|
|
94,803
|
|
Retro
Television Network
|
|
|
3,014
|
|
|
438
|
|
|
-
|
|
Uplink
Services
|
|
|
10,184
|
|
|
7,211
|
|
|
6,521
|
|
Corporate
and eliminations
|
|
|
9,946
|
|
|
5,178
|
|
|
10,325
|
|
Assets held for sale (Television)
|
|
|
9,521
|
|
|
12,353
|
|
|
8,509
|
|
Consolidated
|
|
$
|
123,254
|
|
$
|
114,413
|
|
$
|
120,159
|
|
NOTE
25 —
QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
The
following is a summary of the quarterly results of operations for the years
ended December 31, 2007 and 2006 (in thousands, except per share
data):
Year
ended December 31, 2007:
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total
|
|
|
|
$
|
6,774
|
|
$
|
7,015
|
|
$
|
7,508
|
|
$
|
6,967
|
|
$
|
28,264
|
|
Net
income (loss)
|
|
|
(14,013
|
)
|
|
(9,442
|
)
|
|
(7,656
|
)
|
|
(9,631
|
)
|
|
(40,742
|
)
|
Net
loss available to common shareholders
|
|
|
(26,148
|
)
|
|
(9,627
|
)
|
|
(7,841
|
)
|
|
(9,818
|
)
|
|
(53,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) available to common shareholders per share, basic
and
diluted
|
|
$
|
(1.02
|
)
|
$
|
(0.25
|
)
|
$
|
(0.19
|
)
|
$
|
(0.23
|
)
|
$
|
(1.46
|
)
|
Year
ended December 31, 2006:
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Total
|
|
Net
revenue
|
|
$
|
7,274
|
|
$
|
8,654
|
|
$
|
7,148
|
|
$
|
7,319
|
|
$
|
30,395
|
|
Net
income (loss)
|
|
|
(4,559
|
)
|
|
(4,440
|
)
|
|
(5,205
|
)
|
|
20,318
|
|
|
(3,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, basic and diluted
|
|
$
|
(0.18
|
)
|
$
|
(0.18
|
)
|
$
|
(0.21
|
)
|
$
|
0.80
|
|
$
|
(0.13
|
)
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
The
Company’s management, under the supervision and with the participation of the
Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures, as defined in Exchange Act Rule 13a-15(e), as of December 31,
2007. Based on the evaluation and the material weaknesses noted below,
management concluded that the disclosure controls and procedures were not
effective as of December 31, 2007.
MANAGEMENT'S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and
15d-15(f). The Company’s internal control system is a process designed by, or
under the supervision of, the Company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by
the
Company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles (U.S. GAAP).
The
Company's internal control over financial reporting includes policies
and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP, and
that receipts and expenditures are being made only in accordance with the
authorization of its management and directors; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets that could have a material effect on its
consolidated financial statements.
Because
of its inherent limitations, internal control over financial
reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements
will
not be prevented or detected on a timely basis.
Management
conducted an assessment of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2007 based on the framework
published by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), referred to as the Internal Control - Integrated Framework.
The objective of this assessment is to determine whether the Company's internal
control over financial reporting was effective as of December 31, 2007. As
a
result of management’s work, management has concluded that there was an
ineffective control environment over the Company’s financial
reporting.
Management
has identified the following specific material weakness in the Company's
internal control over financial reporting as of December 31, 2007:
|
(i)
|
We
did not maintain effective internal controls over the preparation,
review,
and approval surrounding certain account reconciliations, journal
entries
and accruals; including and related to analysis and evidence of management
review.
|
Planned
remediation for 2008 includes:
The
Company recently hired a new Chief Financial Officer, established a Chief
Accounting Officer position and added a financial analyst to the accounting
and
finance department. With these additions, the Company is in the process of
establishing more robust reconciliation and review procedures.
Despite
our assessment that our system of internal control over financial reporting
was
ineffective and the above disclosed material weakness, we believe that our
consolidated financial statements contained in this Form 10-K filed with the
SEC
fairly present our financial position, results of operations and cash flows
for
all years covered thereby in all material respects. We also received an
unqualified audit report from our independent registered public accounting
firm
on those consolidated financial statements.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s last fiscal quarter that have materially affected,
or are reasonably likely to affect the Company’s internal control over financial
reporting.
ATTESTATION
REPORT OF THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
See
Item
8 of this Annual Report on Form 10-K for the attestation report of Moore
Stephens Frost PLC., the Company’s independent registered public accounting
firm, which is incorporated herein by reference.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
and Executive Officers
The
following tables sets forth the names, ages and offices of the present executive
officers and directors of the Company. The periods during which such persons
have served in such capacities are indicated in the description of business
experience of such person below.
Directors
Name
and Age
|
|
|
|
Principal
Occupation and Business Experience
|
Henry
G. Luken III,
|
|
48
|
|
Chairman
of the Board of Directors since March 30, 2007. Mr. Luken has served
as
Chairman of Covista Communications, a publicly-held global exchange
telephone company since 1999 and has extensive business and
telecommunications experience. Prior to purchasing a major interest
in
Covista in 1999, Mr. Luken founded long distance telephone service
re-sellers Telco Communications and Long Distance Wholesale Club
in 1993.
Telco was a pioneer in dial-around long distance service with Dial
and
Save, Inc., which grew into a successful telecommunications company
and
was sold to Excel Communications in 1997 for $1.2 billion. Mr. Luken
also
owns interests in several TV and radio stations.
|
Larry
E. Morton
|
|
60
|
|
Director
since March 30, 2007 and served as President and CEO until February
11,
2008. Mr. Morton is one of the founders of Equity Broadcasting Corporation
(“EBC”), the predecessor to Equity Media Holders Corporation (“EMHC”). Mr.
Morton was a member of EBC’s Board of Directors from its inception in
1998. Prior to forming EBC, Mr. Morton was the President/Manager
of Las
Vegas Media, LLC and Kaleidoscope Affiliates, LLC, media companies
that
were the predecessor entities to EBC, from 1994 to 1998. Mr.
Morton was very involved in the creation of EMHC’s C.A.S.H.
System, which gives the company a programming distribution method
that
allows for greater cable carriage and lower capital and operating
costs at
each station, and in the development of RTN, EMHC’s new programming
concept that is designed to help broadcasters maximize the value
of their
digital broadcast spectrum.
|
Robert
B. Becker
|
|
59
|
|
Director
since March 30, 2007. Mr. Becker was a member of EBC’s Board of Directors
since June 30, 2000. Since its formation in September 1986, Mr. Becker
has
been the President of Robert B. Becker, Inc., a private consulting
company
specializing in business combinations, new business initiatives and
contractual negotiations in the broadcasting, entertainment, media
and
communications segments. Mr. Becker recently served as the Chief
Financial
Officer, Treasurer, Secretary and a member of the Board of Directors
of
Juniper Partners Acquisition Corp., a publicly traded blank check
company
that has filed a Form S-4 to purchase Firestone Communications, Inc.
Firestone is a privately owned diversified media and communications
company. From 1989 to 1991, he served as Chief Financial Officer
and
Treasurer of Memry Corporation, a publicly traded company that develops
and markets new products. From 1980 until entering the consulting
business, Mr. Becker served as Vice President and Controller of HBO,
and
Director of Programming Finance of HBO from 1978 to 1980. Prior to
this,
he held various positions in the financial department of Time,
Inc.
|
Robert
Farenhem
|
|
37
|
|
Director
since March 30, 2007. Mr. Farenhem is a partner and co-founder of
Royal
Palm Capital Partners, a private investment firm. Mr. Farenhem serves
as
President of Devcon International Corp. and sits on the boards of
Equity
Media Holdings Corporation and American Residential Services. Mr.
Farenhem
was the Executive Vice President of Strategic Planning and Corporate
Development for publicly-held Bancshares of Florida and Chief Financial
Officer for Bank of Florida from February 2002 to April 2003. Previously,
Mr. Farenhem was an investment banker with Banc of America Securities
from
October 1998 to February 2002, advising on mergers and acquisitions,
public and private equity, leveraged buyouts, and other
financings.
|
Michael
Flynn
|
|
59
|
|
Director
since March 30, 2007. Mr. Flynn has served on the board of Airspan
Networks, Inc., since 2003, a provider of broadband wireless equipment
and
is on the boards of iLinc, a provider of web collaboration and audio
conferencing services as well as privately held GENBAND and Calix,
both
manufacturers of next generation broadband access and Voice over
IP
telecom equipment. He was a Director of WebEx from 2004 to 2007,
when it
was acquired by Cisco. Prior to his retirement in March 2004, Mr.
Flynn
served as Assistant to the Chief Executive Officer of Alltel Corporation.
From April 19978 to May 2003, Mr. Flynn served as Group President
of
Communications of Alltel. From June 1994 to April 1997, Mr. Flynn
served
as President of the Telephone Group of
Alltel.
|
Manuel
Kadre
|
|
42
|
|
Director
since March 30, 2007. Mr. Kadre is the Vice President and General
Counsel
of the de la Cruz Companies (Eagle Brands, Inc., Coca-Cola Puerto
Rico
Bottlers, Caribbean Bottlers Trinidad & Tobago, CCPRB (Jamaica) Ltd.
And Coca-Cola St. Maarten) since 1995. In 2006 Mr. Kadre assumed
the role
of President of CC1 Caribbean Importers LLC, the companies’ import company
for the Caribbean. Mr. Kadre also serves in an executive role with
AutoNation, Inc. a publicly traded Fortune 500 company since 1997.
Mr.
Kadre was a member of the law firm of Murai, Wald, Biondo & Moreno
from 1991 to 1994 and served as Judicial Law Clerk to the Honorable
Federico Moreno, United States District Judge, Southern District
of
Florida from 1990 to 1991.
|
John E. Oxendine
|
|
65
|
|
Director
since March 30, 2007. Mr. Oxendine has been a lender and investor
in the
broadcast industry for over twenty years; primarily investing in
minority
owned or controlled companies. Mr. Oxendine is currently Chairman,
President and CEO of Broadcast Capital, Inc., a Virginia corporation
(“Broadcap”), and President and CEO of Blackstar Management, LLC, a
Florida limited liability company which provides consulting services
to
the communications industry. Mr. Oxendine served as Broadcap’s President
from 1981-1995 and has served as Board Chairman from 1999 to present,
reassuming the positions of President and CEO in January 2004. Mr.
Oxendine also served from 1981-1995 as President, and as Board Chairman
from 1999 to Present, of Broadcast Capital Fund, Inc. (“BCFI”),
incorporated in 1987, which had as its principal business the acquisition,
ownership and operation of commercial television stations. Prior
to
joining Broadcap in 1981, Mr. Oxendine served as Acting Chief of
the
Financial Assistance Division-FSLIC of the Federal Home Loan Bank
Board,
and from 1974 to 1979; he was an Assistant Manager at the First National
Bank of Chicago, with overseas assignments in London and Mexico.
From 1972
to 1974, Mr. Oxendine held positions with Korn Ferry Associates in
Los
Angeles, and from 1971 to 1972 with Fry Consultants in San Francisco.
|
Michael
Pierce
|
|
56
|
|
Director
since March 30, 2007. Mr. Pierce is the owner of Papa John’s Pizza
franchises operating in Arkansas, Missouri and Oklahoma since 1991
and the
owner of RLB Propertys LLC, a Real Estate investing and development
company which he founded in 1990. Mr. Pierce has also served on Papa
John’s Pizza Board of Directors from 1993 (initial IPO) until 2003 and
served on various committees including Chairman of Audit Committee
and is
presently Vice Chairman of Franchise Advisory Council. Mr. Pierce
currently serves on the Board of Baptist Health
Hospital.
|
Our
board
of directors is divided into three classes with only one class of directors
being elected in each year and each class serving a three-year
term.
Committees
of the Board of Directors
The
Board
of Directors has the following three standing Committees: The Nominating and
Corporate Governance Committee; the Audit Committee and the Compensation
Committee.
Nominating
Committee
The
Nominating Committee consists of Messrs. Michael T. Flynn and Manny Kadre.
The
Nominating Committee did not meet during 2007. The members of the committee
are
“independent” as defined in the marketplace rules which govern NASDAQ Stock
Market. The purpose of the Nominating Committee is to identify individuals
qualified to serve on EMHC’s Board of Directors, recommend persons to be
nominated by the Board of Directors for election as directors at the annual
meeting of stockholders, recommend nominees for any committee of the Board
of
Directors, develop and recommend to the Board of Directors a set of corporate
governance principles applicable to EMHC and to oversee the evaluation of the
Board of Directors and its committees. The Nominating Committee operates under
a
written charter adopted by the Board of Directors in April 2007.
Audit
Committee Financial Expert
The
Audit
Committee consists of Messrs. Robert B. Becker (Chairman), John E. Oxendine
and
Mike W. Pierce. The Audit Committee met five times during 2007. The purpose
of
the Audit Committee is to oversee the quality and integrity of EMHC’s
accounting, internal auditing and financial reporting practices, to perform
such
other duties as may be required by the Board of Directors, and to oversee EMHC’s
relationship with its independent registered public accounting firm. The members
of the Audit Committee are “independent” as that term is defined in the National
Association of Securities Dealers Listing Standards. The Board of Directors
has
determined that Mr. Becker is an “audit committee financial expert” in
accordance with the applicable rules and regulations of the SEC. The Audit
Committee operates under a written charter adopted by the Board of Directors
in
April 2007.
Compensation
Committee
The
Compensation Committee consists of Messrs. John E. Oxendine (Chairman), Robert
B. Becker and Michael T. Flynn. The Compensation Committee met three times
in
2007.
The
Compensation Committee makes all decisions about the compensation of the Chief
Executive Officer and also has the authority to review and approve the
compensation for the Company’s other executive officers. The primary objectives
of the Compensation Committee in determining total compensation (both salary
and
incentives) of the Company’s executive officers, including the Chief Executive
Officer, are (i) to enable the Company to attract and retain highly qualified
executives by providing total compensation opportunities with a combination
of
elements which are at or above competitive opportunities, (ii) to tie executive
compensation to the Company’s general performance and specific attainment of
long-term incentive for future performance that aligns stockholder interests
and
executive rewards.
The
purpose of the Compensation Committee is to establish compensation policies
for
Directors and executive officers of EMHC, approve employment agreements with
executive officers of EMHC, administer EMHC’s stock option plans and approve
grants under the plans and make recommendations regarding any other incentive
compensation or equity-based plans. The Compensation Committee operates under
a
written charter adopted by the Board of Directors in April 2007.
Additional
Information concerning the Board of Directors
Compensation
of Directors
2007
DIRECTOR COMPENSATION TABLE
The
following table sets forth information concerning compensation to each of our
directors (excluding the Named Executive Officer who is also a director
disclosed in the Summary Compensation Table) during the fiscal year ended
December 31, 2007:
Name
|
|
Fees Earned
Or
Paid in Cash
($)
|
|
Stock Awards
($)
|
|
Option Awards
($)
(1)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
(2)
|
|
Total
($)
|
|
Henry
G. Luken III,
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Larry
Morton
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Robert
B. Becker
|
|
|
25,750
|
|
|
-
|
|
|
3,612
|
|
|
-
|
|
|
-
|
|
|
1,027
|
|
|
30,389
|
|
Robert
Farenhem
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Michael
Flynn
|
|
|
20,500
|
|
|
-
|
|
|
3,612
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24,112
|
|
Manuel
Kadre
|
|
|
15,000
|
|
|
-
|
|
|
3,612
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,612
|
|
John
Oxendine
|
|
|
24,500
|
|
|
-
|
|
|
3,612
|
|
|
-
|
|
|
-
|
|
|
181
|
|
|
28,293
|
|
Michael
W. Pierce
|
|
|
19,000
|
|
|
-
|
|
|
3,612
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,612
|
|
(1)
|
Represents
the amount recognized as compensation expense in the Company’s financial
statements in accordance with SFAS No. 123(R) with respect to all
stock options awarded to our directors. See the notes to the Company’s
consolidated financial statements found elsewhere in this 2007 Form
10-K
for discussion of the assumptions made in the valuation of these
awards.
The amount recognized for financial statement reporting purposes
is
recognized ratably over the vesting term of the awards. The aggregate
option awards outstanding for each person in the table set forth
above as
of December 31, 2007 are as follows, excluding Directors who are also
Named Executive Officers and whose option awards are listed elsewhere
in
this Form 10-K.:
|
Name
|
|
Vested
|
|
Unvested
|
|
Henry
G. Luken III,
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Robert
B. Becker
|
|
|
23,930
|
|
|
18,000
|
|
Robert
Farenhem
|
|
|
0
|
|
|
0
|
|
Michael
Flynn
|
|
|
2,000
|
|
|
18,000
|
|
Manuel
Kadre
|
|
|
2,000
|
|
|
18,000
|
|
John
Oxendine
|
|
|
2,000
|
|
|
18,000
|
|
Michael
W. Pierce
|
|
|
2,000
|
|
|
18,000
|
|
Stock
options vest equally monthly until the award is fully vested on the fifth
anniversary of the grant date and expire seven years from the date of
grant.
(2)
|
Represents
reimbursed travel expenses incurred to attend board of directors
meetings.
|
Executive
Officers
Name
|
|
Age
|
|
Position
within the Company(1)
|
|
|
|
|
|
Henry
G. Luken III
|
|
48
|
|
Chairman
of the Board, President & Chief Executive Officer
|
Larry
E. Morton
|
|
60
|
|
Chairman,
CEO & President of Retro Programming Services Inc.
|
Thomas
M. Arnost
|
|
61
|
|
President
& CEO – Broadcasting Station Group
|
Patrick
Doran
|
|
51
|
|
Chief
Financial Officer
|
Mark
Dvornik
|
|
45
|
|
Executive
Vice President – Retro Television Network
|
Mario
B. Ferrari
|
|
30
|
|
Chief
Strategic Officer
|
Gregory
Fess
|
|
51
|
|
Senior
Vice President & COO
|
Glenn
Charlesworth
|
|
56
|
|
Vice
President & Chief Accounting Officer
|
James
Hearnsberger
|
|
56
|
|
Vice
President – Finance &
Administration
|
(1)
|
|
Executive
officers based on positions held as of March 28,
2008
|
Henry
G Luken, III
,
Chairman of the Board since the March 2007 merger and President and Chief
Executive Officer and since February 11, 2008. Mr. Luken has served as chairman
of Covista Communications, a publicly-held global exchange telephone company,
since 1999 and has extensive business and telecommunications experience. Prior
to purchasing a major interest in Covista in 1999, Mr. Luken founded long
distance telephone service re-sellers Telco Communications and Long Distance
Wholesale Club in 1993. Telco was a pioneer in dial-around long distance service
with Dial and Save, Inc, which grew into a successful telecommunication company
and was sold to Excel Communications in 1997 for $1.2 billion. Most
recently Mr. Luken moved Covista’s headquarters from Little Falls, New
Jersey to Chattanooga, Tennessee. Mr. Luken also owns interests in several
TV and radio stations.
Larry
E. Morton
,
Chairman, President and CEO of Retro Programming Services, Inc. served as
President and CEO until February 11, 2008 and is one of the founders of EBC
and
has been a member of EBC’s board of directors since EBC’s inception in 1998.
Prior to forming EBC, Mr. Morton was the President/ Manager of Las Vegas
Media, LLC and Kaleidoscope Affiliates, LLC, media companies that were the
predecessor entities to EBC, from 1994 to 1998. Mr. Morton was very
involved in the creation of EMHC's C.A.S.H.
™
System,
which gives the company a programming distribution method that allows for
greater cable carriage and lower capital and operating costs at each station,
and in the development of RTN, EBC’s new programming concept that is
designed to help broadcasters maximize the value of their digital broadcast
spectrum. Mr. Morton is a graduate of the United States Air Force Academy,
where he received a B.S. in Economics. He also graduated from the University
of
Arkansas where he received a B.S. in Accounting and a Masters in Business
Administration.
Thomas
M Arnost,
President/ CEO of EBC Station Group, served as the former Co-President of
Univision Communications, Inc. (NYSE: UVN) Station Group, where he joined the
company in 1994 following the 1992 acquisition of Univision by A. Jerrold
Perenchio for $550 million. Mr. Arnost served as Co-President of
Univision Television Group, which owns and operates 62 television stations
in
major U.S. Hispanic markets and Puerto Rico, from 1997 to 2005, and prior
to that as Executive Vice President of Univision Television Group from 1994
to
1996. He also served as Station Manager for KMEX-TV in Los Angeles, Univision’s
flagship station, in 1994. In 2002, Mr. Arnost helped oversee the very
successful launch of the Telefutura Station Group, which has since,
significantly contributed to Univision’s overall revenue growth. During
Mr. Arnost’s tenure, total station group revenue grew from under
$120 million in 1993 to over $650 million in 2005. Previously, from
1985 to 1993, Mr. Arnost served as General Sales Manager for Tribune
Broadcasting Station Group, KTLA-TV in Los Angeles. Positions prior to 1985
included: 1984, Local Sales Manager Golden West Broadcasting, KTLA-TV,
1980-1984, National Sales Manager Golden West Broadcasting, KTLA-TV, and
Mr. Arnost started his broadcast career at Petry Media Television, where he
served as Account Executive from 1973 to 1979. Mr. Arnost graduated
from the University of Arizona with a B.A. degree in Business Administration
and
a major in finance.
Patrick
Doran,
Chief
Financial Officer, joined the Company on January 10, 2008 after serving as
consultant for two months. Prior to joining the Company, Mr. Doran was retained
on a consulting basis by Orbit Brands Corporation, a publicly held holding
company for various diversified subsidiaries, from 2006 to 2007 to act as
interim chief financial officer in connection with its restructuring. From
2003
to 2005, he served as President and chief operating officer of Malibu Beach
Beverage Group, a specialty beverage manufacturer. From 1997 to 2006 he served
in various executive capacities, including President and chief operating
officer, of CTN Media Group, an owner of media and online properties targeted
at
young adults. In this capacity he oversaw the acquisition of CTN’s assets by MTV
in 2002 and CTN’s subsequent wind down following the sale of such assets. Mr.
Doran also has worked in various executive and managerial capacities in
auditing, syndication, licensing and distribution with many leading media and
entertainment companies, including Turner Pictures Worldwide, TBS-Syndication
and Licensing Group, MGM/UA and Columbia Pictures.
Mario
B. Ferrari
Chief
Strategic Officer, has been a director and vice president of Coconut Palm
Acquisition Corp. since April 2005. Mr. Ferrari is a co-founder of RPCP, a
private equity investment and management firm, where he has been a partner
since
July 2002. RPCP focuses on making investments in industries poised for
consolidation and growth and partners with world class management teams in
respective industries. Mr. Ferrari has also served as a director of
publicly-held Devcon International Corporation, a provider of electronic
security services, since July 2004 and as vice chairman of publicly-held Sunair
Services Corporation, a provider of pest control and lawn care services, since
February 2005. From June 2000 to June 2002, he was an investment banker with
Morgan Stanley & Co. Previously, Mr. Ferrari co-founded PowerUSA,
LLC, a retail renewable energy services company, in October 1997 and was a
managing member
until
September 1999. Mr. Ferrari graduated from Georgetown University, where he
received his B.S., magna cum laude, in Finance and International
Business.
Gregory
Fess,
Senior
Vice President and COO, is one of the founders of EBC and was a member of EBC’s
board of directors since its inception in 1998. Previously, Mr. Fess was a
member of the management committee for Las Vegas Media, LC and Kaleidoscope
Affiliates from 1995 to 1998. He has had extensive experience in the
acquisition, development and operations of EBC stations, including the launching
of EBC’s Univision and Telefutura stations. Under his leadership, revenue at
these stations has experienced significant growth over the past few years.
Mr. Fess is a graduate of the University of Arkansas, where he received a
B.A. in Marketing and a Masters in Business Administration. Mr. Fess
currently serves on the Arkansas Broadcasters Association Board.
Mark
Dvornik
Executive Vice President of Retro Television Network, served as Executive Vice
President and General Sales Manager for Paramount Television Group from
September 2001 to January 2007. Previously, from 1999 to 2001, Mr. Dvornik
served as Senior Vice President, General Sales Manager in Los Angeles with
Paramount. During this time, Paramount assumed control of Worldvision and Rysher
first-run and off-net sales, taking the Paramount library to over 55,000 hours
of television. Mr. Dvornik previously served as Vice President,
Southwestern Regional Manager from 1995 to 1998, Vice President, Southwestern
Regional Manager from 1992 to 1995, Southwestern Division Manager from 1990
to
1992, Central Division Manager from 1988 to 1990 and Account Executive from
1986
to 1988. Mr. Dvornik joined Paramount in 1985 as a sales trainee based in
Los Angeles. Mr. Dvornik earned a Bachelor of Arts degree in English and
Film from the University of Florida.
Glenn
Charlesworth,
Vice
President and Chief Accounting Officer has been with EBC since 2001 serving
as
Controller and Interim Chief Financial Officer until January 10, 2008. He
oversees the accounting department and is responsible for financial reporting
duties. Mr. Charlesworth has over 25 years experience in public
accounting and has previously worked for Cytomedix, Inc, a publicly-traded
biotechnology company, as CFO and Vice President of Finance.
Mr. Charlesworth is a graduate of the University of Arkansas, where he
received a B.S. in Business Administration. Mr. Charlesworth is a member of
the American Institute of CPAs.
James
Hearnsberger,
Vice
President — Administration and Finance, has been vice president of
administration with EBC since its 1998 inception. During this time he has been
active in all areas of the development of the company including property
acquisition, disposition and management, finance, insurance and project
development. Mr. Hearnsberger is a graduate of Hendrix College, where he
received a B.S. in Economics. Mr. Hearnsberger is also a graduate of the
University of Arkansas, where he received his Masters in Business
Administration.
Compliance
with Section 16(a) of the Exchange Act
Section 16(a)
of the Securities Exchange Act requires our directors, executive officers and
persons who are the beneficial owners of more than ten percent of our common
stock (collectively, the “Reporting Persons”) to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and to furnish
us with copies of these reports.
Based
solely on copies of such forms received or written representations from certain
Reporting Persons, we believe that, during the fiscal year ended
December 31, 2007, all filing requirements applicable to the Reporting
Persons were complied with.
Code
of Ethics
In
December 2005, the Board of Directors adopted a Code of Ethics that applies
to our directors, officers and employees. A copy of our code of ethics has
been
attached as an exhibit to its Annual Report on Form 10-K for the year ended
December 31, 2005. Requests for copies of our Code of Ethics should be sent
in writing to Equity Media Holdings Corporation, #1 Shackleford Drive, Suite
400, Little Rock, Arkansas 72211, Attention: Corporate Secretary.
ITEM
11. EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Introduction
In
this
Compensation Discussion and Analysis, we provide a detailed discussion and
analysis of our compensation program and policies and the critical factors
that
are considered in making compensation decisions.
Throughout
Item 11 of this Form 10-K , the individuals who served as the Company’s Chief
Executive Officer and Chief Financial Officer during fiscal 2007, along with
the
other five most highly-compensated executive officers, are collectively referred
to as the “Named Executive Officers” (or “NEOs”).
Overview
and Role of Compensation Committee
The
Compensation Committee of the Board of Directors (the “Compensation Committee”)
establishes compensation policies for the directors and executive officers
of
Company, including the Named Executive Officers. The Compensation Committee
approves the employment agreements with the executive officers of Company,
administers Company’s stock option plans, approves grants under such plans and
makes recommendations regarding other incentive compensation or equity-based
plans provided to the Named Executive Officers and other executive
officers.
Compensation
Philosophy and Objectives
Our
objective is to compensate Company’s NEOs in the manner best designed to create
long-term value for its stockholders. The primary objectives of our executive
compensation program are to attract talented NEOs to manage and lead the
Company, reward them for operating and financial performance and to encourage
them to strive to achieve excellent operating and financial results for the
Company and its stockholders over the longer term. To achieve these
objectives, we maintain a compensation structure consisting of an appropriate
blend designed to allow us to appropriately reward performance while
simultaneously encouraging both retention and longer term operating
success. These elements consist of salary, annual cash bonus, equity
incentive compensation and other benefits. Many of these elements
simultaneously meet both our near-term and long-term compensation
goals.
Elements
of Compensation
The
principal elements of the Company’s executive compensation consist of the
following:
|
·
|
Severance
Benefits and Change in Control
Provisions
|
Base
Salary
The
annual base salary of many of the Company’s Named Executive Officers is
established in an employment agreement executed with each individual (see
“Employment Agreements” in this document). The base salary is established based
on the scope of the executive’s responsibilities. The remaining NEO is employed
at-will. Annual salary increases for the Named Executive Officers are generally
consistent, on a percentage basis, with those received by non-executive
employees.
Annual
Cash Bonuses
Under
the
terms of their employment agreements, certain NEOs are eligible to earn targeted
annual cash bonuses. These are outlined later. The Company does not utilize
defined formulas for bonuses paid to its executive officers, including its
NEOs.
The payment of cash bonuses are as outlined in employment
agreements.
Stock
Options
The
Company believes that the granting of stock options is the most appropriate
form
of long-term compensation since it provides incentive to promote the long-term
success of the Company in line with stockholders’ interest. The Company’s stock
option plans are intended to motivate and reward the executive officers and
to
retain their continued services while providing long-term incentive
opportunities including the participation in the long-term appreciation of
our
common stock value.
The
number of stock options awarded to any executive officer during a given year
is
determined by the Compensation Committee.
During
2007, the Compensation Committee awarded stock options to the NEOs upon the
closing of the Merger between the Company and Equity Broadcasting Corporation
and throughout the year based on the recommendation of the Chief Executive
Officer and pursuant to employment agreements.
The
Company currently maintains one equity compensation plan, the 2007 Stock
Incentive Plan, (the “Equity Plan”), which provide for the granting of stock
options and other stock-based awards. Awards made under the Company’s Equity
Plan have consisted exclusively of the granting of incentive stock options
and
non-qualified stock options. With certain limited exceptions, stock option
awards vest 20% per year over a five-year period, dependent on continued
employment. The exercise price of stock options may not be less than the closing
market price of the Company’s Class A Common Stock on the date of grant.
Stock option awards must be exercised within seven years of the date of grant
of
the option, subject to earlier expiration upon termination of the individual’s
employment. The provisions of the Equity Plan limit the number of options that
may be granted to any one individual in a calendar year.
Perquisites
and Other Compensation
All
other
compensation for the Named Executive Officers includes healthcare insurance
premiums and group life insurance paid by the Company and 401(k) plan matching
contributions.
Health
Benefits
All
full-time employees, including our Named Executive Officers, may participate
in
our health benefit program, including medical, dental and vision care coverage,
short-term disability insurance and life insurance.
Severance
Benefits and Change in Control Provisions
All
but
one of our Named Executive Officers have entered into employment agreements
with
us. The various employment agreements, among other things, provide for severance
compensation to be paid to the executives if they are terminated upon change
of
control of the Company, or for reasons other than cause or if they resign for
good reason, as defined in the agreement.
Determination
of 2007 Compensation
The
Compensation Committee reviewed compensation levels for the Named Executive
Officers for 2007 and considered various factors, including the executive’s job
performance. For the executive officers other than the Chief Executive Officer,
the Compensation Committee considers the recommendations of the Chief Executive
Officer. The Compensation Committee approved the primary components of
compensation for each Named Executive Officer, including their annual cash
bonus
and grant of stock options.
Employment
Agreements
The
Company currently has an employment agreement in place with all but one of
its
Named Executive Officers. The following is summarized information related to
the
base salary, annual cash bonus and severance compensation and termination
provisions contained in the employment agreement of each Named Executive
Officer.
Larry
E. Morton
Mr.
Morton was employed in 2007 as President and Chief Executive Officer under
an
employment agreement with us. The term of the agreement expires on March 30,
2010. Mr. Morton will serve as Vice Chairman of the Board of Directors for
the
two years following the expiration of his employment agreement. Under the
agreement, effective as of March 30, 2007, Mr. Morton’s base salary was
$520,000. In addition to his base salary, Mr. Morton was granted 2,000,000
stock options per his employment agreement which vest 25% upon the date of
the
agreement and 25% on each anniversary thereafter for a period of three years.
Mr. Morton is entitled to maximum participation of Company’s Management
Incentive Compensation Plan. In the event of termination upon change of control
or for reasons other than cause, or if Mr. Morton resigns for good cause,
as defined in the agreement, Mr. Morton is eligible to receive his base
salary for the greater of a period of twelve months or the time remaining under
his employment agreement and Mr. Morton is eligible to receive continued
coverage under the Company’s healthcare insurance plan in accordance with the
continuation requirements of Consolidated Omnibus Budget Reconciliation Act
of
1985 (“COBRA”) for the term of the agreement with premiums paid by Company. In
the event of death or disability, Mr. Morton is entitled to all benefits and
compensation under the term of the agreement. In the event of death all payments
shall be made to Mr. Morton's spouse or children.
Gregory
W. Fess
Mr.
Fess
is employed Vice President under an employment agreement with us. The term
of
the agreement expires on March 30, 2010. Under the agreement, effective as
of
March 30, 2007, Mr. Fess’ base salary was $315,000. In addition to his base
salary, Mr. Fess was granted 250,000 stock options per his employment
agreement which vest 25% upon the date of the agreement and 25% on each
anniversary thereafter for a period of three years. Mr. Fess is entitled
to
maximum participation of Company’s Management Incentive Compensation Plan, with
a minimum amount of not less than $500,000. In the event of termination upon
change of control or for reasons other than cause, or if Mr. Fess resigns
for good cause, as defined in the agreement, Mr. Fess is eligible to
receive his base salary for the greater of a period of twelve months or the
time
remaining under his employment agreement and Mr. Fess is eligible to receive
continued coverage under the Company’s healthcare insurance plan in accordance
with the continuation requirements of Consolidated Omnibus Budget Reconciliation
Act of 1985 (“COBRA”) for the term of the agreement with premiums paid by
Company. In the event of death or disability, Mr. Fess is entitled to all
benefits and compensation under the term of the agreement. In the event of
death
all payments shall be made to Mr. Fess’s spouse or children.
Tom
Arnost
Effective
May 9, 2007, Mr. Arnost became the President of the broadcast station group
under an employment agreement with us. The term of the agreement expires
on May
9, 2010. Under the agreement, Mr. Arnost’s base salary is $350,000. In
addition to his base salary, Mr. Arnost is eligible in year 2007 to earn up
to 50% of his base salary if certain goals are met. In year 2008, Mr. Arnost
is
eligible to earn up to 51% and 100% of his base salary if certain goals are
met.
For years 2009 and 2010, Mr. Arnost is eligible to earn between 51% and 100%
of
his base salary in bonuses upon the attainment of Company of positive net
income
during the applicable fiscal year. Any bonuses applicable for year 2007 and
2010
are to be pro-rated based upon the number of days Mr. Arnost was employed
by
Company during the fiscal year. Mr. Arnost was granted 750,000 stock
options per his employment agreement which vest 25% upon the date of the
agreement and 25% on each anniversary thereafter for a period of three years.
In
the event of termination upon change of control or for reasons other than
cause,
or if Mr. Arnost resigns for good reason, as defined in the agreement,
Mr. Arnost is eligible to receive his base salary for the greater of a
period of twelve months or the time remaining under his employment agreement
and
Mr. Arnost is eligible to receive continued coverage under the Company’s
healthcare insurance plan in accordance with the continuation requirements
of
COBRA for one year with premiums paid by Company. In the event of termination
due to Mr. Arnost’s death or disability, Company shall pay all benefits and
compensation up until the date of termination.
Mr.
Mark Dvornik
Effective
May 9, 2007, Mr. Dvornik became the Executive Vice President of the Retro
Television Network under an employment agreement with us. The term of the
agreement expires on May 9, 2009. Under the agreement, Mr. Dvornik’s base
salary is $325,000. In addition to his base salary, Mr. Dvornik may earn a
bonus in the amount of $225,000 if certain goals are met and upon approval
by
the Compensation Committee. Mr. Dvornik was granted 250,000 stock options
per his employment agreement which vest 25% upon the date of the agreement
and
25% on each anniversary thereafter for a period of three years. In the event
of
termination upon change of control or for reasons other than cause, or if
Mr. Dvornik resigns for good reason, as defined in the agreement,
Mr. Dvornik is eligible to receive his base salary for the greater of a
period of twelve months or the time remaining under his employment agreement
and
Mr. Dvornik is eligible to receive continued coverage under the Company’s
healthcare insurance plan in accordance with the continuation requirements
of
COBRA for one year with premiums paid by Company. In the event of termination
due to Mr. Dvornik’s death or disability, Company shall pay all benefits and
compensation up until the date of termination.
James
Hearnsberger
Mr.
Hearnsberger has an employment agreement that carried over from the predecessor
company of Equity Broadcasting Corporation. The term of the agreement is one
year. The agreement automatically renews unless Company gives Mr. Hearnsberger
180 days notice. Under the agreement, Mr. Hearnsberger’s base salary is the
greater of his salary as of the date of the agreement or any subsequent
salaries. Upon termination due to death, Mr. Hearnsberger’s estate would receive
all payments, compensation and benefits earned up to the date of death and
salary for a period of six months after the date of death. Upon termination
due
to disability, Mr. Hearnsberger would receive all payments, compensation and
benefits earned up to the date of termination and salary for a period of six
months after the date of termination. In the event of termination by Mr.
Hearnsberger for Good Reason, Company shall pay Mr. Hearnsberger all payments,
compensation and benefits for a period of six months or through the then
remaining term of the agreement, whichever is greater. Company may terminate
Mr.
Hearnsberger’s agreement at anytime upon ninety days notice, provided that
Company shall pay Mr. Hearnsberger all payments, compensation and benefits
for a
period of six months or through the then remaining term of the agreement,
whichever is greater.
Lori
Withrow
Mrs.
Withrow has an employment agreement that carried over from the predecessor
company of Equity Broadcasting Corporation. The term of the agreement is one
year. The agreement automatically renews unless Company gives Mrs. Withrow
180
days notice. Under the agreement, Mrs. Withrow’s base salary is the greater of
her salary as of the date of the agreement or any subsequent salaries. Upon
termination due to death, Mrs. Withrow’s estate would receive all payments,
compensation and benefits earned up to the date of death and salary for a period
of six months after the date of death. Upon termination due to disability,
Mrs.
Withrow would receive all payments, compensation and benefits earned up to
the
date of termination and salary for a period of six months after the date of
termination. In the event of termination by Mrs. Withrow for Good Reason,
Company shall pay Mrs. Withrow all payments, compensation and benefits for
a
period of six months or through the then remaining term of the agreement,
whichever is greater. Company may terminate Mrs. Withrow’s agreement at anytime
upon ninety days notice, provided that Company shall pay Mrs. Withrow all
payments, compensation and benefits for a period of six months or through the
then remaining term of the agreement, whichever is greater.
Executive
Compensation Tables
Summary
Compensation Table
The
following table sets forth information that summarizes compensation for the
fiscal year ended December 31, 2007 for our Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($) (1)
|
|
($)
|
|
($)
|
|
($) (2)
|
|
($)
|
|
Larry
Morton President,
Chief
Executive Officer and Director
|
|
|
2007
|
|
$
|
390,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,212,861
|
|
$
|
-
|
|
$
|
-
|
|
$
|
30,396
|
|
$
|
1,633,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn
Charlesworth Chief
Financial
Officer
|
|
|
2007
|
|
|
149,654
|
|
|
47,616
|
|
|
-
|
|
|
22,838
|
|
|
-
|
|
|
-
|
|
|
8,918
|
|
|
229,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory
Fess Chief
Operating
Officer and Senior Vice President
|
|
|
2007
|
|
|
236,250
|
|
|
-
|
|
|
-
|
|
|
151,608
|
|
|
-
|
|
|
-
|
|
|
19,286
|
|
|
407,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Hearnsberger,
Vice
President -
Administration
and Finance
|
|
|
2007
|
|
|
156,000
|
|
|
10,000
|
|
|
-
|
|
|
22,838
|
|
|
-
|
|
|
-
|
|
|
9,918
|
|
|
198,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lori
Withrow Corporate Secretary
|
|
|
2007
|
|
|
132,869
|
|
|
9,800
|
|
|
-
|
|
|
22,838
|
|
|
-
|
|
|
-
|
|
|
10,926
|
|
|
176,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Arnost President and
Chief
Executive Officer - Equity Broadcasting Corporation
|
|
|
2007
|
|
|
226,154
|
|
|
-
|
|
|
-
|
|
|
454,823
|
|
|
-
|
|
|
-
|
|
|
4,410
|
|
|
685,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Dvornik Executive
Vice
President of Retro Television Network
|
|
|
2007
|
|
|
243,750
|
|
|
-
|
|
|
-
|
|
|
67,153
|
|
|
-
|
|
|
-
|
|
|
4,250
|
|
|
315,153
|
|
(1)
|
The
Company granted stock options to the NEOs in May 2007 pursuant to
its 2007
Stock Incentive Plan. The amounts in this column represent the amount
recognized as compensation expense in the Company’s financial statements
in accordance with SFAS No. 123(R) with respect to all stock options
awarded to our Named Executive Officers. See the notes to the Company’s
consolidated financial statements in this Form 10-K for a discussion
of
the assumptions made in the valuation of these awards. The amount
recognized for financial statement reporting purposes with respect
to all
stock options awarded to our Named Executive Officers is recognized
ratably over the vesting term of the awards. The details of the stock
option grants are set forth in the section “Compensation Discussion and
Analysis”.
|
(2)
|
Amounts
in this column consist of the dollar values of perquisites consisting
of
automobile allowances, premiums for life, health and disability insurance
and amounts contributed by the Company on behalf of the NEOs to our
401(K)
Savings Plan, and other amounts as identified in the Perquisites
table
below.
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
Perquisites
|
|
|
|
|
|
Contributions
|
|
|
|
Change
|
|
|
|
|
|
|
|
and Other
|
|
|
|
|
|
to Retirement
|
|
Severance
|
|
in Control
|
|
|
|
|
|
|
|
Personal
|
|
Tax
|
|
Insurance
|
|
and
|
|
Payments /
|
|
Payments /
|
|
|
|
|
|
|
|
Benefits
|
|
Reimbursements
|
|
Premiums
|
|
401(k) Plans
|
|
Accruals
|
|
Accruals
|
|
Total
|
|
Name
|
|
Year
|
|
($) (a)
|
|
($)
|
|
($) (b)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Larry
Morton
|
|
|
2007
|
|
$
|
-
|
|
$
|
-
|
|
$
|
29,396
|
|
$
|
1,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
30,396
|
|
Glenn
Charlesworth
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
8,918
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,918
|
|
Gregory
Fess
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
18,286
|
|
|
1,000
|
|
|
-
|
|
|
-
|
|
|
19,286
|
|
James
Hearnsberger
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
8,918
|
|
|
1,000
|
|
|
-
|
|
|
-
|
|
|
9,918
|
|
Lori
Withrow
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
9,926
|
|
|
1,000
|
|
|
-
|
|
|
-
|
|
|
10,926
|
|
Tom
Arnost
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
4,410
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,410
|
|
Mark
Dvornik
|
|
|
2007
|
|
|
-
|
|
|
-
|
|
|
4,250
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,250
|
|
(a)
|
Consists
of automobile allowance paid by the Company and the value of the
personal
use of automobiles
|
(b)
|
Represents
health care insurance premiums, disability insurance premiums, life
insurance premiums all paid by the Company, and group life insurance
coverage paid by the Company
|
Grants
of Plan-Based Awards
The
following table sets forth information concerning grants of plan-based awards
made to each of the Named Executive Officers listed in the Summary Compensation
Table during the fiscal year ended December 31, 2007:
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
|
|
Estimated Future Payouts
Under Equity Incentive Plan
Awards
|
|
All
Other
Stock
Awards:
Number
of
Shares
of Stock
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
|
|
Exercise or
Base Price of
Option
|
|
Grant Date
Fair Value of
Stock and
Option
|
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
or Units
|
|
Options
|
|
Awards
|
|
Awards
|
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#) (1)
|
|
($ / Sh)
|
|
($) (2)
|
|
Larry
Morton
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
2,000,000
|
|
$
|
4.30
|
|
$
|
2,951,000
|
|
Glenn
Charlesworth
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
100,000
|
|
|
4.30
|
|
|
177,040
|
|
Gregory
Fess
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
250,000
|
|
|
4.30
|
|
|
368,875
|
|
James
Hearnsberger
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
100,000
|
|
|
4.30
|
|
|
177,040
|
|
Lori
Withrow
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
100,000
|
|
|
4.30
|
|
|
177,040
|
|
Tom
Arnost
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
750,000
|
|
|
4.30
|
|
|
1,106,625
|
|
Mark
Dvornik
|
|
05/09/07
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
250,000
|
|
|
4.30
|
|
|
414,525
|
|
|
(1)
|
The
Company awarded options pursuant to the 2007 Stock Incentive Plan.
The
dollar amount recognized in 2007 for financial statement reporting
purposes (calculated in accordance with SFAS 123(R) ) of the options
granted to each NEO pursuant to the plan for the fiscal year ended
December 31, 2007 is set forth in the Summary Compensation Table
under the
columns titled “Option Awards”.
|
|
(2)
|
The
grant date fair value of option granted n May 2007 is calculated
in
accordance with SFAS 123(R). The exercise price of options is determined
by the 2007 Stock Incentive Plan pursuant to which the options were
granted. Under that plan, the exercise price is the closing price
on the
trading day of the option grant.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information as of December 31, 2007 concerning
outstanding equity awards held by the Named Executive Officers listed in the
Summary Compensation Table.
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Grant
Date (1)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(2)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(2)
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Unexercisable
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
or Units
or Other
Rights
That
Have Not
Vested
($)
|
|
Larry
Morton
|
|
|
11/15/01
|
|
|
730,994
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/16/03
|
|
|
365,497
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/09/07
|
|
|
500,000
|
|
|
1,500,000
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Glenn
Charlesworth
|
|
|
06/27/01
|
|
|
19,488
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
11/15/01
|
|
|
126,711
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/09/07
|
|
|
-
|
|
|
100,000
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gregory
Fess
|
|
|
11/15/01
|
|
|
219,298
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/16/03
|
|
|
182,749
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/09/07
|
|
|
62,500
|
|
|
187,500
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
James
Hearnsberger
|
|
|
06/27/01
|
|
|
19,488
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
11/15/01
|
|
|
163,261
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/16/03
|
|
|
116,959
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/09/07
|
|
|
-
|
|
|
100,000
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Lori
Withrow
|
|
|
06/27/01
|
|
|
19,488
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
11/15/01
|
|
|
163,261
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/16/03
|
|
|
116,959
|
|
|
-
|
|
|
-
|
|
|
5.09
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
05/09/07
|
|
|
-
|
|
|
100,000
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Tom
Arnost
|
|
|
05/09/07
|
|
|
187,500
|
|
|
562,500
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Mark
Dvornik
|
|
|
05/09/07
|
|
|
-
|
|
|
250,000
|
|
|
-
|
|
|
4.30
|
|
|
05/09/14
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1)
|
All
dates prior to the merger date of March 30, 2007, reflect the dates
of the
grants under the EBC plans in effect prior to the merger. All options
outstanding as of the date of the merger were converted to options
to
purchase shares pursuant to the 2007 Stock Incentive Plan as of the
date
of the merger. All dates subsequent to the date of the merger reflect
grants made by the Company pursuant to the
Plan.
|
|
(2)
|
All
option grants to our NEOs that were converted to the 2007 Stock Incentive
Plan from EBC plans were 100% vested as of the date of the conversion,
March 30, 2007. The following outlines the vesting schedule for each
option grant to each NEO made in May
2007:
|
|
a.
|
Larry
Morton – 25% vested on the date of grant and each anniversary
date
|
|
b.
|
Glenn
Charlesworth – Equally on first five anniversaries of the grant
date
|
|
c.
|
Gregory
Fess – 25% vested on the date of grant and each anniversary
date
|
|
d.
|
James
Hearnsberger – Equally on first five anniversaries of the grant
date
|
|
e.
|
Lori
Withrow – Equally on first five anniversaries of the grant
date
|
|
f.
|
Tom
Arnost – 25% vested on the date of the grant and each anniversary
date
|
|
g.
|
Mark
Dvornik – Equally on firsts four anniversaries of the grant date
|
Options
Exercised and Stock Vested
The
following table sets forth information concerning option exercises and stock
vested for each of the Named Executive Officers listed in the Summary
Compensation Table during the fiscal year ended December 31, 2007:
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of Shares Acquired on
Exercise
(#)
|
|
Value Realized on
Exercise
($)
|
|
Number of Shares Acquired on
Vesting
(#)
|
|
Value Realized on
Vesting
($)
|
|
Larry
Morton
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Glenn
Charlesworth
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gregory
Fess
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
James
Hearnsberger
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Lori
Withrow
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Tom
Arnost
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Mark
Dvornik
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Post-Employment
Compensation
Pension
Benefits
SEC
Regulations require disclosure of information in the Annual Report, in tabular
format, of any plans that provide for retirement payments or benefits other
than
defined contribution plans. We do not have any plan for our executives or
employees that provides for payments or other benefits at, following, or in
connection with, retirement. As a result, we have omitted presentation of this
table.
Non-Qualified
Deferred Compensation
SEC
regulations require disclosure of information in this annual report, in tabular
format, of any defined contribution or other plans that provide for deferral
of
compensation on a basis that is not tax-qualified. We do not have any plan
that
provides for such deferral of compensation in connection with retirement. As
a
result, we have omitted presentation of this table.
Potential
Payments upon Termination or Change in Control
Several
of the Named Executive Officers have entered into an employment agreement with
the Company (see “Employment Agreements” in this document). Included in each
employment agreement are provisions regarding termination of employment,
including a change in control of the Company. The circumstances that would
result in the payment of severance compensation and other benefits under the
employment agreements are different for each Named Executive
Officer.
As
defined in the various employment agreements, there are three different
circumstances that would result in the payment of severance compensation as
follows: (1) change in control of the Company; (2) termination by the
Company for reasons other than cause; and (3) resignation by the Named
Executive Officer with good reason or cause.
In
the
event of termination for any of the above reasons, as defined in the employment
agreements, each Named Executive Officer is eligible to receive the
following:
Larry
E. Morton
In
the
event of termination upon change of control or for reasons other than cause,
or
if Mr. Morton resigns for good cause, as defined in the agreement,
Mr. Morton is eligible to receive his base salary for the greater of a
period of twelve months or the time remaining under his employment agreement
and
Mr. Morton is eligible to receive continued coverage under the Company’s
healthcare insurance plan in accordance with the continuation requirements
of
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for the term of
the agreement with premiums paid by Company. In the event of death or
disability, Mr. Morton is entitled to all benefits and compensation under the
term of the agreement. In the event of death all payments shall be made to
Mr.
Morton's spouse or children.
Gregory
W. Fess
In
the
event of termination upon change of control or for reasons other than cause,
or
if Mr. Fess resigns for good cause, as defined in the agreement,
Mr. Fess is eligible to receive his base salary for the greater of a period
of twelve months or the time remaining under his employment agreement and Mr.
Fess is eligible to receive continued coverage under the Company’s healthcare
insurance plan in accordance with the continuation requirements of Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for the term of the
agreement with premiums paid by Company.
Thomas
Arnost
In
the
event of termination upon change of control or for reasons other than cause,
or
if Mr. Arnost resigns for good reason, as defined in the agreement,
Mr. Arnost is eligible to receive his base salary for the greater of a
period of twelve months or the time remaining under his employment agreement
and
Mr. Arnost is eligible to receive continued coverage under the Company’s
healthcare insurance plan in accordance with the continuation requirements
of
COBRA for one year with premiums paid by Company. In the event of termination
due to death or disability, the company shall pay all benefits and compensation
up until the date of termination.
Mark
Dvornik
In
the
event of termination upon change of control or for reasons other than cause,
or
if Mr. Dvornik resigns for good reason, as defined in the agreement,
Mr. Dvornik is eligible to receive his base salary for the greater of a
period of twelve months or the time remaining under his employment agreement
and
Mr. Dvornik is eligible to receive continued coverage under the Company’s
healthcare insurance plan in accordance with the continuation requirements
of
COBRA for one year with premiums paid by Company. In the event of termination
due to death or disability, the company shall pay all benefits and compensation
up until the date of termination.
James
Hearnsberger
In
the
event of termination by Mr. Hearnsberger for Good Reason, Company shall pay
Mr.
Hearnsberger all payments, compensation and benefits for a period of six months
or through the then remaining term of the agreement, whichever is greater.
Company may terminate Mr. Hearnsberger’s agreement at anytime upon ninety days
notice, provided that Company shall pay Mr. Hearnsberger all payments,
compensation and benefits for a period of six months or through the then
remaining term of the agreement, whichever is greater.
Lori
Withrow
In
the
event of termination by Mrs. Withrow for Good Reason, Company shall pay Mrs.
Withrow all payments, compensation and benefits for a period of six months
or
through the then remaining term of the agreement, whichever is greater. Company
may terminate Mrs. Withrow’s agreement at anytime upon ninety days notice,
provided that Company shall pay Mrs. Withrow all payments, compensation and
benefits for a period of six months or through the then remaining term of the
agreement, whichever is greater.
The
following table sets forth potential payments to our Named Executive Officers
under their employment agreements, for various circumstances involving the
termination of employment of our Named Executive Officers or change in control
of the Company, assuming a December 31, 2007 termination
date.
Name
|
|
Executive Benefits
and Payments Upon
Termination
|
|
Death
($)
|
|
Disability
($)
|
|
Change in
Control
($)
|
|
Involuntary
for Cause
Termination
($)
|
|
Involuntary
Not for
Cause
Termination
($)
|
|
Voluntary
Termination
With Good
Reason
($)
|
|
Voluntary
Termination
Without
Good
Reason
($)
|
|
Larry
Morton
|
|
|
Severance Payments
|
|
$
|
1,170,000
|
|
$
|
|
|
$
|
1,170,000
|
|
|
-
|
|
|
1,170,000
|
|
|
1,170,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
Benefits
Continuation
|
|
|
17,762
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn Charlesworth
|
|
|
Severance
Payments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
Benefits
Continuation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory
Fess
|
|
|
Severance
Payments
|
|
|
|
|
|
|
|
|
708,750
|
|
|
-
|
|
|
708,750
|
|
|
708,750
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
Continuation
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Hearnsberger
|
|
|
Severance
Payments
|
|
|
78,000
|
|
|
78,000
|
|
|
-
|
|
|
-
|
|
|
156,000
|
|
|
156,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
Benefits
Continuation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,027
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lori
Withrow
|
|
|
Severance
Payments
|
|
|
70,000
|
|
|
70,000
|
|
|
-
|
|
|
-
|
|
|
140,000
|
|
|
140,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
Benefits
Continuation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Arnost
|
|
|
Severance
Payments
|
|
|
-
|
|
|
-
|
|
|
816,667
|
|
|
-
|
|
|
816,667
|
|
|
816,667
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
Benefits
Continuation
|
|
|
-
|
|
|
-
|
|
|
25,473
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Dvornik
|
|
|
Severance
Payments
|
|
|
-
|
|
|
-
|
|
|
433,333
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Benefits
Continuation
|
|
|
-
|
|
|
-
|
|
|
14,932
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of March 28, 2008 by:
•
|
|
each
person known by us to be the beneficial owner of more than 5% of
our
outstanding shares of common stock;
|
|
|
|
•
|
|
each
of our officers and directors; and
|
|
|
|
•
|
|
all
our officers and directors as a
group.
|
Unless
otherwise indicated, we believe that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them. The table below assumes that there are
40.3 million shares of common stock issued and outstanding.
|
|
Amount and
|
|
Approximate Percentage
|
|
|
|
Nature of
|
|
Of
|
|
|
|
Beneficial
|
|
Outstanding Common
|
|
Name and Address of Beneficial Owner
(1)
|
|
Ownership
|
|
Stock
|
|
|
|
|
|
|
|
Directors
and Officer:
|
|
|
|
|
|
Henry
G. Luken III
|
|
|
7,068,552
|
(2)
|
|
17.35
|
%
|
Larry
E. Morton
|
|
|
2,510,364
|
(3)
|
|
6.23
|
%
|
Gregory
Fess
|
|
|
1,504,082
|
(4)
|
|
3.73
|
%
|
Robert
B. Becker
|
|
|
19,978
|
(11)
|
|
0.05
|
%
|
Manuel
Kadre
|
|
|
350,000
|
(10)
|
|
0.86
|
%
|
Thomas
Arnost
|
|
|
-
|
(12)
|
|
|
|
James
Hearnsberger
|
|
|
-
|
(12)
|
|
|
|
Glenn
Charlesworth
|
|
|
-
|
(12)
|
|
|
|
Patrick
G. Doran
|
|
|
-
|
(12)
|
|
|
|
Michael
Flynn
|
|
|
-
|
(12)
|
|
|
|
John
E. Oxendine
|
|
|
-
|
(12)
|
|
|
|
Michael
Pierce
|
|
|
-
|
(12)
|
|
|
|
All
directors and executive officers as a group (5
individuals)
|
|
|
11,452,976
|
(5)
|
|
27.87
|
%
|
|
|
|
|
|
|
|
|
Beneficial
Owners of More Than 5%:
|
|
|
|
|
|
|
|
RPCP
Investments LLLP,
|
|
|
2,500,000
|
(6)(7)
|
|
6.21
|
%
|
Richard
C. Rochon,
|
|
|
3,115,797
|
(7)
|
|
7.70
|
%
|
Paulson
& Co. Inc.,
|
|
|
9,352,382
|
(8)
|
|
21.12
|
%
|
John
Paulson,
|
|
|
9,352,382
|
(8)
|
|
21.12
|
%
|
Prentice
Capital Management, LP
|
|
|
5,451,400
|
(9)
|
|
12.41
|
%
|
Michael
Zimmerman
|
|
|
5,451,400
|
(9)
|
|
12.41
|
%
|
(1)
|
|
Unless
otherwise indicated, the business address of each of the owners is
One
Shackleford Drive, Suite 400, Little Rock, Arkansas
72211
|
(2)
|
|
These
shares include 472,500 warrants to purchase common stock. Mr. Luken’s
address is 641 Battery Place, Chattanooga, Tennessee 37403.
|
(3)
|
|
Shares
are indirectly owned by Mr.Morton who serves as trustee for Sandra
Morton
Life Trust. Mr. Morton also owns 3,096,491 options to purchase common
stock.
|
(4)
|
|
Shares
are indirectly owned by Mr. Fess who serves as trustee for Judith
A. Fess
Life Trust.
|
(5)
|
|
Directors
include: Mr. Luken, Mr. Morton and Mr. Becker. Executive officers:
Mr.
Luken, Mr. Morton and Mr. Fess.
|
(6)
|
|
RPCP
Investments, LLLP may distribute its shares as a dividend or liquidation
distribution to Mr. Richard Rochon, Stephen J. Ruzika, Jack I. Ruff,
Mario
B. Ferrari, and Robert Farenhem, RPCP Investments’ five limited partners.
To the extent such shares are not distributed to its limited partners,
they will be retained by RPCP Investments. Except for Mr. Rochon,
as set
forth in footnote 7 below, beneficial ownership of Equity Media common
stock held by RPCP Investments is not attributed to its limited partners,
Messrs. Ruzika, Ruff, Ferrari and Farenhem. Of the limited partners
of
RPCP Investments, Mr. Farenhem is a director and Mr. Ferrari is an
executive officers of the Company. RPCP Investments address is 595
South
Federal Highway, Suite 500, Boca Raton, Florida
33432
|
(7)
|
|
These
shares are held by RPCP Investments, LLLP (2,500,000) and CPAC I,
LLLP.(452,797), RPCP Investments, Inc. is the general partner of
both of
these entities. Mr. Rochon is president and director and owns a 54%
interest in RPCP Investments, Inc. As such, Mr. Rochon exercises
voting
and dispositive power over these shares. Mr. Rochon disclaims any
beneficial ownership to the extent such beneficial ownership exceeds
such
pecuniary interest therein. These shares include 163,000 warrants
to
purchase common stock held by CPACW, LLLP, of which Mr. Rochon is
also
beneficial owner. Mr. Rochon Address is 595 South Federal Highway,
Suite
500, Boca Raton, Florida 33432
|
(8)
|
|
Paulson
& Co. Inc. (“Paulson”) is an investment advisor registered under the
Investment Advisors Act of 1940. Paulson is the investment manager
of
Paulson Advantage Ltd., Paulson Advantage Plus Ltd. And to Separately
Managed Accounts. Paulson is also the controlling person of Paulson
Advisers LLC, the managing general partner of each of Paulson Advantage
L.P. and Paulson Advantage Plus L.P. John Paulson is the controlling
person of Paulson. Each of Paulson and John Paulson may be deemed
to
indirectly beneficially own the securities directly owned by Advantage
L.P., Advantage Plus L.P , Advantage Ltd., Advantage Plus Ltd. And
the
other accounts separately managed by Paulson. These shares include
4,000,000 warrants to purchase common stock beneficially owned by
Paulson.
Paulson’s address is 590 Madison Avenue, New York, NY
10022
|
(9)
|
|
Prentice
Capital Management, LP (the “Investment Manager”) serves as investment
manager to a number of investment funds (including Prentice Capital
Partners, LP, Prentice Capital Partners QP, LP and Prentice Capital
Offshore, Ltd.) and manages investments for certain entities in managed
accounts with respect to which it has voting and dispositive authority
over the Common Stock reported in this Form 3. Michael Zimmerman
(“Mr.
Zimmerman”) is responsible for the supervision and conduct of all
investment activities of the Investment Manager, including, without
limitation, for all investment decisions with respect to the assets
of
such investment funds and managed accounts. These shares include
3,634,000
warrants to purchase common stock beneficially owned by the Investment
Manager and Mr. Zimmerman. The address for Investment Manager and
Mr.
Zimmerman is 623 fifth Ave. 32
nd
Floor, New York , NY, 10022.
|
(10)
|
|
The
shares include 350,000 warrants to purchase common stock. Mr. Kadre
holds
20,000 options to purchase common stock.
|
(11)
|
|
Mr.
Becker holds 56,550 options to purchase common stock.
|
(12)
|
|
These
individuals all hold options to purchase common stock as follows:
Mr.
Arnost 750,000, Mr.Hearnsberger 399,708, Mr. Charlesworth 246,199,
Mr.
Doran 200,000, Mr. Flynn, Mr. Oxendine and Mr. Pierce 20,000
each.
|
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of March 28, 2008 by our management:
|
|
Amount and
|
|
Approximate Percentage
|
|
|
|
Nature of
|
|
Of
|
|
|
|
Beneficial
|
|
Outstanding Common
|
|
Name and Address of Beneficial Owner
(1)
|
|
Ownership
|
|
Stock
|
|
|
|
|
|
|
|
Henry
G. Luken III (2)
|
|
|
7,068,552
|
|
|
17.35
|
%
|
Larry
E. Morton(3)
|
|
|
2,510,364
|
|
|
6.23
|
%
|
Gregory
Fess(4)
|
|
|
1,504,082
|
|
|
3.73
|
%
|
Robert
B. Becker
|
|
|
19,978
|
|
|
0.05
|
%
|
(1)
|
|
Unless
otherwise indicated, the business address of each of the owners is
One
Shackleford Drive, Suite 400, Little Rock, Arkansas
72211
|
(2)
|
|
Mr.
Luken’s address is 641 Battery Place, Chattanooga, Tennessee 37403.
|
(3)
|
|
Shares
are indirectly owned by Mr.Morton who serves as trustee for Sandra
Morton
Life Trust
|
(4)
|
|
Shares
are indirectly owned by Mr. Fess who serves as trustee for Judith
A. Fess
Life Trust.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Management
Services Agreement
Upon
the
closing of the Merger Transaction, the Company entered into a management
services agreement with Royal Palm Capital Management, LLP (“Royal Palm”). The
agreement generally provides that Royal Palm will provide general management
and
advisory services for an initial term of three years, subject to renewal
thereafter on an annual basis by approval of a majority of the independent
directors serving on the Company’s Board of Directors. The services to be
provided include, but are not limited to, establishing certain office,
accounting and administrative procedures, helping the Company obtain financing,
advising the Company in securities matters and future acquisitions or
dispositions, assisting the Company in formulating risk management policies,
coordinating public relations and investor relations efforts, and providing
such
other services as may be reasonably requested by the Company and agreed to
by
Royal Palm. Royal Palm shall receive an annual management fee of $1,500,000,
in
addition to the reimbursement of budgeted out-of -pocket costs and expenses
incurred in the performance of Royal Palm’s management services. The management
services agreement may be terminated upon the material failure of either party
to comply with its stated duties and obligations, subject to a 30-day cure
period.
Royal
Palm has agreed to defer receipt of its
management fee so long as the obligation to lenders under the credit agreement
remains outstanding.
Certain
officers and directors of Royal Palm also serve as officers and directors of
the
Company.
Univision
Affiliation Agreement
Univision
owns 100% of the Company’s outstanding Series A Convertible Non-Voting
Preferred Stock. Immediately following the closing of the Merger Transaction,
Univision Network Limited Partnership and Telefutura revised and executed new
Affiliation Agreements for all existing television broadcast stations
attributable to the Company that are Univision and Telefutura affiliates. These
new agreements contain substantially the same terms and conditions as the
previous affiliation agreements, but were renewed for 15 year terms
beginning at the closing of the Merger Transaction.
Univision
also acts as the national sales agent for the Company’s Spanish-language
television stations. The Company pays Univision a 15% commission on those sales.
The Company also operates its Salt Lake City Univision television station,
KUTH
through a local marketing agreement (LMA) with Univision. The Company incurred
expenses related to commissions in the amounts of $676,255, $312,180, and
$150,083 for the years ended December 31, 2007, 2006 and 2005, respectively
for
sales made on behalf of the Company by Univision. Additionally, the Company
accrued expenses related to operating fees of $323,338, $319,924 and $332,981
for the years ended December 31, 2007, 2006 and 2005, respectively under the
LMA
with Univision.
Univision
Registration Rights
Pursuant
to the Merger Agreement, the Company has granted to Univision certain “piggy
back” registration rights at any time during the two year period following the
Merger transaction. The Company shall provide Univision with written notice
thereof at least fifteen days prior to the filing, and Univision shall provide
written notice of the number of its registrable shares to be included in the
registration statement within fifteen days of its receipt of the Company’s
notice.
RTN
Intellectual Property Agreement
Prior
to
the Merger Transaction, the Company entered into an intellectual property
agreement with Retro Television Network, Inc., a company controlled by Larry
Morton, a director, former President and CEO of the Company and current
Chairman, President and CEO of Retro Programming Services, Inc, a wholly owned
subsidiary of the Company. Under the terms of the agreement, Retro Television
Network, Inc. assigned 100% of the creative and intellectual rights for the
Retro Television Network (“RTN”) to the Company in exchange for a ten
(10) percent royalty fee to be paid solely from the revenues of non-Company
owned stations that utilize the RTN concept and/or affiliate with RTN. The
agreement also provides that in the event the Company was to sell its assigned
rights in RTN to an unrelated third party, Retro Television Network, Inc.,
at
its option, may convert the royalty fee to a twenty (20) percent interest
of the sales proceeds.
As
of
December 31, 2007, royalty fees in the amount of $8,224 have been accrued,
and
no royalty fees were paid to Retro Television Network, Inc. for the years ended
December 31, 2007, 2006 or 2005, respectively.
Family
Relationship Between Corporate Officers.
Lori
Withrow, the Corporate Secretary, is the daughter of Larry Morton, a director,
former President and CEO of the Company and current Chairman, President and
CEO
of Retro Programming Services, Inc, a wholly owned subsidiary of the Company
Arkansas
Media
Until
the
Merger Transaction, Arkansas Media owned 75% of EBC’s Class B common shares
outstanding. The owners of Arkansas Media held management and board of director
positions within EBC. Arkansas Media had provided management services to EBC
under the terms of a management agreement. An aspect of the merger of EBC with
the Company was a settlement between Arkansas Media and the Company whereby
the
management agreement with Arkansas Media was terminated effective March 30,
2007, the date of the merger. As consideration for terminating the agreement,
EBC paid Arkansas Media $3.2 million, issued 640,000 shares of the EBC’s
pre-merger Class A common stock
valued
at $4,800,000
,
purchased three low power television stations for $1.3 million, purchased
an office building and land for $0.3 million and retired a note payable to
a
company affiliated with Arkansas Media for $0.5 million.
The
three
owners of Arkansas Media, Mr. Larry Morton, Mr. Gregory Fess and Mr. Max Hooper
also entered into either employment or consulting agreements with the Company
for periods of one to three years, effective the date of the Merger Transaction.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following is a summary of fees paid to our principal accountant for services
provided.
Audit
Fees
,
Audit-Related Fees
&
Other
Fees
The
firm
of Moore Stephens Frost, PLC acts as our principal accountant. The aggregate
fees, including expenses, billed for professional services incurred by the
Company and rendered by Moore Stephens Frost, PLC in fiscal years 2007 and
2006
for the various services were:
|
|
Fiscal Year Ended
|
|
Type of Fees
|
|
December 31, 2007
|
|
December 31, 2006
|
|
Audit
Fees (1)
|
|
$
|
216,975
|
|
$
|
153,175
|
|
Tax
Fees (2)
|
|
|
35,919
|
|
|
35,056
|
|
All
Other Fees (3)
|
|
|
19,864
|
|
|
24,672
|
|
Total
|
|
$
|
272,758
|
|
$
|
212,902
|
|
|
(1)
|
“Audit
Fees” are fees billed by Moore Stephens Frost, PLC for professional
services for the audit of our consolidated financial statements included
in this Form 10-K and review of our financial statements included
in our
Quarterly Reports on Form 10-Q, or for services normally provided
by
auditors in connection with statutory and regulatory filings or
engagements.
|
|
(2)
|
“Tax
Fees” are fees billed by Moore Stephens Frost, PLC for tax compliance,
tax
advice and tax planning
|
|
(3)
|
“All
Other Fees” are fees billed by Moore Stephens Frost, PLC for any
professional service not included in the first two
categories.
|
Board
Approval
The
Audit
Committee has established policies and procedures for the approval and
pre-approval of audit and tax services.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
|
|
Documents
filed as part of this report:
|
|
|
|
|
(1)
|
|
Financial
Statements
|
|
|
|
|
See
“Item 8. Financial Statements and Supplementary Data” for Financial
Statements included with this Annual Report on Form 10-K.
|
(2)
|
|
Financial
Statement Schedules
|
None.
Exhibit
No.
|
|
Description
|
|
|
|
|
2.1
|
|
|
Agreement
and Plan of Merger, dated April 7, 2006, by and among the Registrant,
Equity Broadcasting Corporation and certain shareholders of
Equity
Broadcasting Corporation (incorporated by reference to Form 8-K filed
on April 13, 2006)
|
|
|
|
|
|
|
2.2
|
|
|
First
Amendment to Agreement and Plan of Merger, dated May 5, 2006, between
the Registrant and Equity Broadcasting Corporation and Major
EBC
Shareholders (see Exhibit 10.16)
|
|
|
|
|
|
|
2.3
|
|
|
Form
of Second Amendment to Agreement and Plan of Merger, dated
as of
September 14, 2006, between the Registrant, Equity Broadcasting
Corporation and Major EBC Shareholders (incorporated by reference
to
Form 8-K filed on September 20, 2006)
|
|
|
|
|
|
|
3.1
|
|
|
Certificate
of Incorporation (incorporated by reference to the exhibits
of the same
number filed with the Registrant’s Registration Statement on Form S-1
or amendments thereto (File No. 333-125105))
|
|
|
|
|
|
|
3.2
|
|
|
Bylaws
(incorporated by reference to the exhibits of the same number
filed with
the Registrant’s Registration Statement on Form S-1 or amendments
thereto (File No. 333-125105))
|
|
|
|
|
|
|
3.3
|
|
|
Amended
and Restated Certificate of Incorporation dated March 30, 2007.
Incorporated by reference from the Registrant’s Current Report on Form 8-K
filed on April 5, 2007.
|
|
|
|
|
|
|
3.4
|
|
|
Certificate
of Designation for the Series A Convertible Non-Voting Preferred
Stock dated March 30, 2007. Incorporated by reference from the
Registrant’s Current Report on Form 8-K filed on April 5,
2007.
|
|
|
|
|
|
|
3.5
|
|
|
Amended
and Restated Bylaws of Equity Media Holdings Corporation. Incorporated
by
reference from the Registrant’s Current Report on Form 8-K filed on
April 5, 2007.
|
|
|
|
|
|
|
4.1
|
|
|
Specimen
Unit Certificate.
Incorporated
by reference to the exhibits of the same number filed with
the
Registrant’s Registration Statement on Form S-1 or amendments thereto
(File No. 333-125105).
|
|
|
|
|
|
|
4.2
|
|
|
Specimen
Common Stock Certificate.
Incorporated
by reference to the exhibits of the same number filed with
the
Registrant’s Registration Statement on Form S-1 or amendments thereto
(File No. 333-125105).
|
|
|
|
|
|
|
4.3
|
|
|
Specimen
Warrant Certificates.
Incorporated
by reference to the exhibits of the same number filed with
the
Registrant’s Registration Statement on Form S-1 or amendments thereto
(File No. 333-125105).
|
|
|
|
|
|
|
4.4
|
|
|
Form
of Unit Purchase Option granted to Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc., David Nussbaum and Steven Levine.
Incorporated
by reference to the exhibits of the same number filed with
the
Registrant’s Registration Statement on Form S-1 or amendments thereto
(File No. 333-125105).
|
|
4.5
|
|
|
Form
of Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant.
Incorporated
by reference to the exhibits of the same number filed with
the
Registrant’s Registration Statement on Form S-1 or amendments thereto
(File No. 333-125105).
|
|
|
|
|
|
|
4.6
|
|
|
Warrant
Clarification Agreement, dated August 17, 2006, between Continental
Stock Transfer & Trust Company and the Registrant. Incorporated by
reference from the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006 and filed on August 18,
2006.
|
|
|
|
|
|
|
4.7
|
|
|
Amended
and Restated Warrant Clarification Agreement, dated January 17, 2007,
between Continental Stock Transfer & Trust Company and the Registrant
Incorporated by reference from the Registrant’s Current Report on Form 8-K
filed on January 23, 2007.
|
|
|
|
|
|
|
4.8
|
|
|
Unit
Purchase Option Clarification Agreement, dated January 17, 2007,
among the Registrant, Morgan Joseph & Co. Inc., EarlyBirdCapital,
Inc., David Nussbaum and Steven Levine. Incorporated by reference
from the
Registrant’s Current Report on Form 8-K filed on January 23,
2007.
|
|
|
|
|
|
|
10.1
|
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc. and RPCP Investments, LLLP (incorporated
by
reference to the exhibits of the same number filed with the
Registrant’s
Registration Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.2
|
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc. and Richard C. Rochon (incorporated
by reference to
the exhibits of the same number filed with the Registrant’s Registration
Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.3
|
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc. and Stephen J. Ruzika (incorporated
by reference to
the exhibits of the same number filed with the Registrant’s Registration
Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.4
|
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc. and Jack I. Ruff (incorporated by reference
to the
exhibits of the same number filed with the Registrant’s Registration
Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.5
|
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc. and Mario B. Ferrari (incorporated by
reference to
the exhibits of the same number filed with the Registrant’s Registration
Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.6
|
|
|
Letter
Agreement among the Registrant, Morgan Joseph & Co. Inc.,
EarlyBirdCapital, Inc. and Robert C. Farenhem (incorporated
by reference
to the exhibits of the same number filed with the Registrant’s
Registration Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.7
|
|
|
Form
of Investment Management Trust Agreement between Continental
Stock
Transfer & Trust Company and the Registrant (incorporated by reference
to the exhibits of the same number filed with the Registrant’s
Registration Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.8
|
|
|
Form
of Stock Escrow Agreement between the Registrant, Continental
Stock
Transfer & Trust Company and Existing Stockholder (incorporated by
reference to the exhibits of the same number filed with the
Registrant’s
Registration Statement on Form S-1 or amendments thereto (File No.
333-125105))
|
|
|
|
|
|
|
10.9
|
|
|
Promissory
Note, dated as of May 10, 2005, issued to Royal Palm Capital
Management, LLLP (incorporated by reference to the exhibits
of the same
number filed with the Registrant’s Registration Statement on Form S-1
or amendments thereto (File No. 333-125105))
|
|
|
|
|
|
|
10.10
|
|
|
Form
of Registration Rights Agreement among the Registrant and the
Investors
(incorporated by reference to the exhibits of the same number
filed with
the Registrant’s Registration Statement on Form S-1 or amendments
thereto (File No. 333-125105))
|
|
10.11
|
|
|
Warrant
Purchase Agreement dated May 18, 2005 among Morgan Joseph & Co.
Inc. and each of Richard C. Rochon, Stephen J. Ruzika, Jack
I. Ruff, Mario
B.
|
|
|
|
|
|
|
|
|
|
Ferrari
and Robert C. Farenhem (incorporated by reference to the exhibits
of the
same number filed with the Registrant’s Registration Statement on
Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.12
|
|
|
Form
of Letter Agreement between Royal Palm Capital Management,
LLLP and
Registrant regarding administrative support (incorporated by
reference to
the exhibits of the same number filed with the Registrant’s Registration
Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.13
|
|
|
Letter
agreement dated August 2, 2005, from each of RPCP Investments, LLLP,
Richard C. Rochon, Stephen J. Ruzika, Jack I. Ruff, Mario B.
Ferrari and
Robert C. Farenhem to the Registrant (incorporated by reference
to the
exhibits of the same number filed with the Registrant’s Registration
Statement on Form S-1 or amendments thereto (File
No. 333-125105))
|
|
|
|
|
|
|
10.15
|
|
|
Form
of Voting Agreement and Proxy by and between the Registrant
and certain
shareholders of Equity Broadcasting Corporation (incorporated
by reference
to Current Report on Form 8-K dated April 7, 2006 and filed on
April 13, 2006)
|
|
|
|
|
|
|
10.16
|
|
|
First
Amendment to Agreement and Plan of Merger, dated May 5, 2006, between
the Registrant, Equity Broadcasting Corporation and Major EBC
Shareholders
(incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006 and filed on August 18,
2006)
|
|
|
|
|
|
|
10.17
|
|
|
Engagement
Letter, dated March 3, 2006, between Morgan Joseph & Co. Inc. and
the Registrant (incorporated by reference to Quarterly Report
on
Form 10-Q for the quarter ended June 30, 2006 and filed on
August 18, 2006)
|
|
|
|
|
|
|
10.18
|
|
|
Agreement
to File Schedules, dated November 29, 2006 by the Registrant
(incorporated by reference to Amendment No. 1 to Form S-4 filed
on December 1, 2006)
|
|
|
|
|
|
|
10.19
|
|
|
Form
of Management Services Agreement by and between the Registrant
and Royal
Palm Capital Management, LLLP (attached hereto as Annex G to
Form S-4
filed on March 15, 2007 incorporated by
reference).
|
|
|
|
|
|
|
10.20
|
|
|
Asset
Purchase Agreement, dated as of April 7, 2006, by and among Logan 12,
Inc., Prime Broadcasting, Inc. and Equity Broadcasing Corporation
(incorporated by reference to Amendment No. 5 to Form S-4 filed
on March 16, 2007)
|
|
|
|
|
|
|
10.21
|
|
|
Second
Amended and Restated Credit Agreement, dated as of June 29,
2004, by and
among Equity Broadcasting Corporation, its Subsidiaries, and
such other
Equity Broadcasting Corporation affiliates, as borrowers, and
SPCP Group,
LLC, SPCP Group III LLC, Wells Fargo Foothill, Inc., and other
lenders
from time to time parties hereto, Silver Point Finance, LLC,
as
administrative agent, and Wells Fargo Foothill, Inc, as collateral
agent
(incorporated by reference to Amendment No. 5 to Form S-4 filed
on March 16, 2007)
|
|
|
|
|
|
|
10.22
|
|
|
First
Amendment to Second Amended and Restated Credit Agreement,
dated
June 29, 2004 (incorporated by reference to Amendment No. 5 to
Form S-4 filed on March 16, 2007)
|
|
|
|
|
|
|
10.23
|
|
|
Second
Amendment to Second Amended and Restated Credit Agreement,
dated
July 25, 2005 (incorporated by reference to Amendment No. 5 to
Form S-4 filed on March 16, 2007)
|
|
|
|
|
|
|
10.24
|
|
|
Third
Amendment to Second Amended and Restated Credit Agreement,
dated
December 23, 2005 (incorporated by reference to Amendment No. 5
to Form S-4 filed on March 16,
2007)
|
|
10.25
|
|
|
Fourth
Amendment to Second Amended and Restated Credit Agreement,
dated
March 31, 2006 (incorporated by reference to Amendment No. 5 to
Form S-4 filed on March 16, 2007)
|
|
|
|
|
|
|
10.26
|
|
|
Fifth
Amendment to Second Amended and Restated Credit Agreement,
dated December,
2006 (incorporated by reference to Amendment No. 5 to Form S-4
filed on March 16, 2007)
|
|
|
|
|
|
|
10.27
|
|
|
Employment
Agreement, dated March 30, 2007, by and between the Company and Larry
E. Morton. Incorporated by reference from the Registrant’s Current Report
on Form 8-K filed on April 5, 2007.
|
|
|
|
|
|
|
10.28
|
|
|
Employment
Agreement, dated March 30, 2007, by and between the Company and
Gregory Fess. Incorporated by reference from the Registrant’s Current
Report on Form 8-K filed on April 5, 2007.
|
|
|
|
|
|
|
10.29
|
|
|
Consultant
Agreement, dated March 30, 2007, by and between the Company and
Hooper Holdings, Inc. Incorporated by reference from the Registrant’s
Current Report on Form 8-K filed on April 5, 2007.
|
|
|
|
|
|
|
10.30
|
|
|
Unit
Purchase Agreement dated June 21, 2007 by and among the Company,
and the
investors listed on the Schedule of Buyers attached thereto.
Incorporated
by reference from the Registrant’s Current Report on Form 8-K filed on
June 27, 2007.
|
|
|
|
|
|
|
10.31
|
|
|
Asset
Purchase Agreement, by and between EBC Buffalo, Inc. and Renard
Communications Corp., dated August 6, 2007, effective August 15,
2007. Incorporated by reference from the Registrant’s Current Report on
Form 8-K filed on August 21, 2007.
|
|
|
|
|
|
|
10.32
|
|
|
Consent
to Asset Purchase Agreement by Wells Fargo Foothill, Inc.,
as Collateral
Agent and a Lender, and by the Lenders listed on the signature
page
thereto, dated August 15, 2007. Incorporated by reference from
the
Registrant’s Current Report on Form 8-K filed on August 21,
2007.
|
|
|
|
|
|
|
10.33
|
|
|
Third
Amended and Restated Credit Agreement dated February 13, 2008
and related
schedules.
|
|
|
|
|
|
|
10.34
|
|
|
Letter
Agreement to the Third Amended and Restated Credit Agreement
dated
February 13, 2008
|
|
|
|
|
|
|
10.35
|
|
|
First
Amendment to Third Amended and Restated Credit Agreement and
Forbearance
Agreement dated March 19, 2008 and related schedules.
|
|
|
|
|
|
|
10.36
|
|
|
Letter
Agreement to First Amendment to Third Amended and Restated
Credit
Agreement dated March 19, 2008
|
|
|
|
|
|
|
21
|
|
|
List
of Subsidiaries of Equity Broadcasting Corporation.
Incorporated by reference to Amendment No. 4 to Form S-4 filed
on March 15, 2007.
|
|
|
|
|
|
|
31.1
|
|
|
Certification
by Henry G. Luken III, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
31.2
|
|
|
Certification
by Patrick Doran, Chief Financial Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32.1
|
|
|
Certification
by Henry G. Luken III, Chief Executive Officer, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
32.2
|
|
|
Certification
by Patrick Doran, Chief Financial Officer, pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
EQUITY
MEDIA HOLDINGS CORP.
|
|
|
|
|
|
|
|
By:
|
|
/s/
HENRY G. LUKEN, III
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer and Chairman of
|
|
|
|
|
the
Board of Directors
|
|
|
|
|
|
|
|
Date
|
|
March 31,
2008
|
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 registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Henry G. Luken III
|
|
Chief
Executive Officer and
|
|
March 31,
2008
|
Henry
G. Luken III
|
|
Chairman of
the Board of Directors (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Patrick Doran
|
|
Chief
Financial Officer (Principal
|
|
March 31,
2008
|
Patrick
Doran
|
|
Financial
Officer)
|
|
|
|
|
|
|
|
/s/
Glenn Charlesworth
|
|
Vice
President and Chief
|
|
March 31,
2008
|
Glenn
Charlesworth
|
|
Accounting
Officer
|
|
|
|
|
|
|
|
/s/Larry
Morton
|
|
Director
|
|
March
31, 2008
|
Larry
Morton
|
|
|
|
|
|
|
|
|
|
/s/
Robert B. Becker
|
|
Director
|
|
March 31,
2008
|
Robert
B. Becker
|
|
|
|
|
|
|
|
|
|
/s/
Robert Farenhem
|
|
Director
|
|
March 31,
2008
|
Robert
Farenhem
|
|
|
|
|
|
|
|
|
|
/s/
Michael Flynn
|
|
Director
|
|
March 31,
2008
|
Michael
Flynn
|
|
|
|
|
|
|
|
|
|
/s/
Manuel Kadre
|
|
Director
|
|
March 31,
2008
|
Manuel
Kadre
|
|
|
|
|
|
|
|
|
|
/s/
John Oxendine
|
|
Director
|
|
March 31,
2008
|
John
Oxendine
|
|
|
|
|
|
|
|
|
|
/s/
Michael W. Pierce
|
|
Director
|
|
March 31,
2008
|
Michael
W. Pierce
|
|
|
|
|
Exhibit Index
31.1
|
|
Certification
by
Henry G. Luken III
,
Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification
by
Patrick
Doran
,
Chief Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification
by
Henry
G. Luken III
,
Chief Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification
by
Patrick
Doran
,
Chief Financial Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
Equity Media Holdings Corp (MM) (NASDAQ:EMDA)
Historical Stock Chart
From May 2024 to Jun 2024
Equity Media Holdings Corp (MM) (NASDAQ:EMDA)
Historical Stock Chart
From Jun 2023 to Jun 2024