UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
for the Fiscal Year Ended ________
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Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
for the Transition Period from March 1, 2019 to December 31, 2019.
Commission File Number 001-39029
MEDIACO HOLDING INC.
(Exact name of registrant as specified in its charter)
INDIANA
(State of incorporation or organization)
84-2427771
(I.R.S. Employer Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE
SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
(317) 266-0100
(Registrant’s Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Class A common stock, $0.01 par value |
MDIA |
Nasdaq Capital Market |
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all documents and 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
☒ |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, as of August 31, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, was $0.
The number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of March 9, 2020, was:
1,683,263 Class A Common Shares, $.01 par value
5,413,197 Class B Common Shares, $.01 par value
____Class C Common Shares, $.01 par value
DOCUMENTS INCORPORATED BY REFERENCE
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Documents |
Form 10-K Reference |
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Proxy Statement for 2020 Annual Meeting of Shareholders expected to be filed within 120 days |
Part III |
MEDIACO HOLDING INC. AND SUBSIDIARIES
FORM 10-K
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Unless the context requires otherwise, all references in this report to “MediaCo,” “the Company,” “we,” “our,” “us,” and similar terms refer to MediaCo Holding Inc. and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This report includes or incorporates 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. You can identify these forward-looking statements by our use of words such as “intend,” “plan,” “may,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions, whether in the negative or affirmative. Such forward-looking statements, which speak only as of the date hereof, are based on managements’ estimates, assumptions and beliefs regarding our future plans, intentions and expectations. We cannot guarantee that we will achieve these plans, intentions or expectations. All statements regarding our expected financial position, business, results of operations and financing plans are forward-looking statements.
Actual results or events could differ materially from the plans, intentions or expectations disclosed in the forward-looking statements we make. We have included important facts in various cautionary statements in this report that we believe could cause our actual results to differ materially from forward-looking statements that we make. These include, but are not limited to, the factors described in Part I, Item 1A, “Risk Factors.”
The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We undertake no obligation to update or revise any forward-looking statements because of new information, future events or otherwise.
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GENERAL
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019 by Emmis Communications Corporation (“Emmis”) to facilitate the sale of a controlling interest in Emmis’ radio stations WQHT-FM and WBLS-FM (the “Stations”) to SG Broadcasting LLC (“SG Broadcasting”), an affiliate of Standard General L.P. (“Standard General”) pursuant to an agreement entered into on June 28, 2019. The sale (the “Transaction”) closed on November 25, 2019. On November 26, 2019, the registration of the Company’s Class A common stock was declared effective, and the Company became subject to the periodic filing requirements of public registrants. As of December 31, 2019, all of the Company’s Class A common stock was held by Emmis and all the Company’s Class B common stock was held by SG Broadcasting. On January 17, 2020, Emmis distributed the Class A common stock pro rata to Emmis’ shareholders, making MediaCo a publicly traded company listed on the Nasdaq Capital Market.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo after giving effect to the contribution of the Stations by Emmis, as well as to the Stations while they were wholly owned by Emmis. Prior to November 25, 2019, MediaCo had not conducted any business as a separate company and had no assets or liabilities. The operations of the Stations contributed to us by Emmis on November 25, 2019, are presented as if they were our operations for all historical periods described and at the carrying value of such assets and liabilities reflected in Emmis’ books and records.
On December 9, 2019, the Company’s Board of Directors approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC (“Fairway Outdoor”) from Fairway Outdoor Advertising Group, LLC (the “Fairway Acquisition”). Closing of the Fairway Acquisition occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.
Our assets primarily consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,300 advertising structures in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.
On October 25, 2019, in order to more closely align our operations and internal controls with standard market practice, our Board of Directors approved the change in our fiscal year end from the last day in February to December 31.
BUSINESS STRATEGY
We are committed to improving the operating results of our core assets while simultaneously seeking future growth opportunities in new businesses. Our strategy is focused on the following operating principles:
Develop unique and compelling content and strong local brands
Our established local media brands have achieved and sustained a leading position in their respective market segments over many years. Knowledge of the New York market and consistently producing unique and compelling content that meets the needs of our target audiences are critical to our success. As such, we make substantial investments in areas such as market research, data analysis and creative talent to ensure that our content remains relevant, has a meaningful impact on the communities we serve and reinforces the core brand image of each respective property.
Extend the reach and relevance of our local brands through digital platforms
In recent years, we have placed substantial emphasis on enhancing the distribution of our radio content through digital and mobile platforms. We believe these digital platforms offer excellent opportunities to further enhance the relationships we have with our audiences by allowing them to consume and share our content in new ways and providing us with new distribution channels for one-to-one communication with them.
Deliver results to advertisers
Competition for advertising revenue is intense and becoming more so. To remain competitive, we focus on sustaining and growing our radio audiences, optimizing our pricing strategy and developing innovative marketing programs for our clients that allow them to interact with our audiences in more direct and measurable ways. These programs often include elements such as on-air endorsements, events, contests, special promotions, Internet advertising, email marketing, interactive mobile advertising and online video. Our ability to deploy multi-touchpoint marketing programs allows us to deliver a stronger return-on-investment for our clients while simultaneously generating ancillary revenue streams for our media properties.
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Extend sales efforts into new market segments
Given the competitive pressures in many of our “traditional” advertising categories, we have been expanding our network of advertiser relationships into not-for-profits, political advertising, corporate philanthropy, environmental initiatives and government agencies. These efforts in our radio segment primarily focus on the health care and education sectors. We believe our capabilities can address these clients’ under-served needs.
Enhance the efficiency of our operations
We believe it is essential that we operate our businesses as efficiently as possible. We regularly review our business operations and reduce costs or realign resources as necessary. We have also invested in common technology platforms across our radio stations to help further standardize our business processes.
Pursue acquisition and investment opportunities
We may pursue acquisitions or other investment opportunities in a variety of media-related businesses as well as a variety of other industries and market sectors. We believe that consummating such acquisitions and investments can be a valuable tool in our efforts to grow our business.
RADIO STATIONS
In the following table, “Market Rank by Revenue” is the ranking of the market revenue size of the principal radio market served by our stations among all radio markets in the United States. Market revenue rankings are from BIA/Kelsey’s Media Access Pro database as of February 18, 2020. “Ranking in Primary Demographic Target” is the ranking of the station within its designated primary demographic target among all radio stations in its market based on the January 2020 Nielsen Audio, Inc. (“Nielsen”) Portable People Meter results. “Station Audience Share” represents a percentage generally computed by dividing the average number of persons in the primary demographic listening to a particular station during specified time periods by the average number of such persons in the primary demographic for all stations in the market area as determined by Nielsen.
RADIO ADVERTISING SALES
Our stations derive their advertising revenue from local and regional advertising in the marketplaces in which they operate, as well as from the sale of national advertising. Local and most regional sales are made by a station’s sales staff. National sales are made by firms specializing in such sales, which are compensated on a commission-only basis. We believe that the volume of national advertising revenue tends to adjust to shifts in a station’s audience share position more rapidly than does the volume of local and regional advertising revenue. During the ten-month period ended December 31, 2019, approximately 16% of our total radio advertising revenues were derived from national sales, and 84% were derived from local sales.
NON-TRADITIONAL REVENUES
Our stations are involved with numerous events in the market in which we operate that support the local community, entertain our audiences, and better connect our listeners with our stations and our advertisers. In most cases, a third party produces the event, which we help promote, and we sell certain sponsorship opportunities to our advertisers. In these situations, we do not bear financial risk on the success of the event. In limited cases, such as our two signature events, Hot 97's Summer Jam and WBLS' Circle of Sisters, we produce the event, including securing the performing artists and venue, and are primarily responsible for the financial risk and reward, including ticket and sponsorship sales associated with the event.
OUTDOOR ADVERTISING
We lease most of our advertising space on two types of billboard advertising displays: bulletins and posters. As of December 31, 2019, we owned and operated approximately 3,346 billboard advertising displays in 4 states. Our outdoor advertising businesses generally derive approximately 70% of billboard advertising net revenues from bulletin rentals and 14% from poster rentals.
Bulletins are large, advertising structures (the most common size is fourteen feet high by forty-eight feet wide, or 672 square feet) consisting of panels on which advertising copy is displayed. We wrap advertising copy printed with computer-generated graphics on a single sheet of vinyl around the structure. To attract more attention, some of the panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Because of their greater impact and higher cost, bulletins are usually located on major highways and target vehicular traffic. At December 31, 2019, we operated approximately 1,204 bulletin structures with a total of 2,783 faces.
We generally lease individually-selected bulletin space to advertisers for the duration of the contract (customarily 12 months). We also lease bulletins as part of a rotary plan under which we rotate the advertising copy from one bulletin location to another within a particular market at stated intervals (usually every sixty to ninety days) to achieve greater reach within that market.
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Posters are smaller advertising structures (the most common size is eleven feet high by twenty-three feet wide, or 250 square feet; we also operate junior posters, which are five feet high by eleven feet wide, or 55 square feet). Poster panels utilize a single flexible sheet of polyethylene material that inserts onto the face of the panel. Posters are concentrated on major traffic arteries and target vehicular traffic, and junior posters are concentrated on city streets and target hard-to-reach pedestrian traffic and nearby residents. At December 31, 2019, we operated approximately 380 poster displays with a total of 772 faces.
We generally lease poster space for 4 to 52 weeks; determined by the advertiser’s campaign needs. Posters are sold in packages of Target Rating Point (“TRP”) levels, which determine the percentage of a target audience an advertiser needs to reach. A package may include a combination of poster locations in order to meet reach and frequency campaign goals.
In addition to the traditional static displays, we also rent digital billboards. Digital billboards are large electronic light emitting diode (“LED”) displays (the most common sizes are fourteen feet high by forty-eight feet wide, or 672 square feet; ten and a half feet high by thirty six feet wide, or 378 square feet; and ten feet high by twenty-one feet wide, or 210 square feet) that are generally located on major traffic arteries and city streets. Digital billboards are capable of generating over one billion colors and vary in brightness based on ambient conditions. They display completely digital advertising copy from various advertisers in a slide show fashion, rotating each advertisement approximately every 6 to 8 seconds. At December 31, 2019, our inventory included 22 digital display billboards with a total of over 28 faces. These digital billboards generate approximately 10% of billboard advertising net revenue. We own the physical structures on which the advertising copy is displayed. We build the structures on locations we either own or lease.
In the majority of our markets, our local production staffs perform the full range of activities required to create and install billboard advertising displays. Production work includes creating the advertising copy design and layout, coordinating its printing and installing the designs on the displays. Our design staff uses state-of-the-art technology to prepare creative, eye-catching displays for our tenants. We can also help with the strategic placement of advertisements throughout an advertiser’s market by using software that allows us to analyze the target audience and its demographics. Our artists also assist in developing marketing presentations, demonstrations and strategies to attract new tenant advertisers. Production revenue accounts for approximately 6% of the outdoor advertising business.
NEW TECHNOLOGIES
We believe that the growth of new technologies not only presents challenges, but also opportunities for broadcasters. The primary challenge is increased competition for the time and attention of our listeners. The primary opportunity is to further enhance the relationships we already have with our listeners by expanding products and services offered by our radio stations and to increase distribution to in-home devices like smart speakers, as well as portable devices like smartphones.
COMMUNITY INVOLVEMENT
We believe that to be successful, we must be integrally involved in the communities we serve. We see ourselves as community partners. To that end, our radio stations and outdoor businesses participate in many community programs, fundraisers and activities that benefit a wide variety of causes. Charitable organizations that have been the beneficiaries of our support include, among others, the Harlem Chamber of Commerce, the Sarcoidosis Foundation, New York Cares, American AIDS Foundation and the Queens Police Service Area Community Counsel.
The National Association of Broadcasters Education Foundation recognized WQHT-FM in New York for its outreach after Hurricane Sandy, both for the news coverage it provided and the relief efforts it organized in the weeks after the storm. In 2017, WBLS-FM won a national Crystal Award from the National Association of Broadcasters.
INDUSTRY INVOLVEMENT
We have an active leadership role in a wide range of industry organizations. Our senior executives have served in various capacities with industry associations, including as directors of the National Association of Broadcasters, the Radio Advertising Bureau, the Nielsen Audio Advisory Council, and the Media Financial Management Association. Our chief executive officer has been honored with the National Association of Broadcasters' "National Radio Award," was named Radio Ink's "Radio Executive of the Year," and was named the 2017 recipient of the Broadcasters Foundation of America's "Lowry Mays Excellence in Broadcasting Award." In 2018, our chief financial officer was awarded Media Financial Management's "Rainmaker Award" recognizing his efforts and contributions in helping Media Financial Management's growth initiatives. Our other management and on-air personalities have won numerous industry awards.
COMPETITION
Radio broadcasting stations compete with the other broadcasting stations in their respective market areas, as well as with other advertising media such as newspapers, cable, magazines, outdoor advertising, transit advertising, the Internet, satellite radio, direct marketing and mobile and wireless device marketing. Competition within the broadcasting industry occurs primarily in individual market areas, so that a station in one market (e.g., New York) does not generally compete with stations in other markets (e.g., Los Angeles). Our stations face competition from other stations with substantial financial resources, including stations targeting the same demographic groups. In addition to management experience, factors that are material to competitive position include the station's rank in its market in terms of the number of listeners, authorized power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of other stations in the market area. We attempt to improve our competitive position with programming and promotional campaigns aimed at the demographic groups targeted by our stations. We also seek to improve our position through sales efforts designed to attract advertisers that have done little or no radio advertising by emphasizing the effectiveness of radio advertising in increasing the advertisers' revenues. The policies and rules of the FCC permit certain joint
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ownership and joint operation of local stations. Our radio stations take advantage of these joint arrangements when appropriate in an effort to lower operating costs and to offer advertisers more attractive rates and services. Although we believe that each of our stations can compete effectively in its market, there can be no assurance that either of our stations will be able to maintain or increase its current audience ratings or advertising revenue market share.
Although the broadcasting industry is highly competitive, barriers to entry exist. The operation of a broadcasting station in the United States requires a license from the FCC. Also, the number of stations that can operate in a given market is limited by the availability of the frequencies that the FCC will license in that market, as well as by the FCC's multiple ownership rules regulating the number of stations that may be owned or controlled by a single entity, and cross ownership rules which limit the types of media properties in any given market that can be owned by the same person or company.
Although the outdoor advertising industry has encountered a wave of consolidation, the industry remains fragmented. The industry is comprised of several large outdoor advertising and media companies with operations in multiple markets, as well as smaller, local companies like us that operate a limited number of structures in one or a few local markets.
In selecting the form of media through which to advertise, advertisers evaluate their ability to target audiences having a specific demographic profile, lifestyle, brand or media consumption or purchasing behavior or audiences located in, or traveling through, a particular geography. Advertisers also compare the relative costs of available media, evaluating the number of impressions (potential viewings), exposure (the opportunity for advertising to be seen) and circulation (traffic volume in a market), as well as potential effectiveness, quality of related services (such as advertising copy design and layout) and customer service. In competing with other media, we believe that both radio and outdoor advertising are relatively more cost-efficient than other media, allowing advertisers to reach broader audiences and target specific geographic areas or demographic groups within markets.
We believe that our strong emphasis on sales and customer service and our position as a major provider of advertising services in each of our primary markets enables us to compete effectively with the other outdoor advertising companies, as well as with other media, within those markets.
EMPLOYEES
WQHT-FM and WBLS-FM lease their employees from Emmis’ wholly owned subsidiary, Emmis Operating Company (“EOC”) under an employee leasing arrangement (the “Employee Leasing Agreement”). As of December 31, 2019, approximately 61 full-time employees and approximately 88 part-time employees are employed by EOC under the Employee Leasing Agreement to provide services for the Company, four of whom act as the Company's executive officers. Our outdoor advertising business employed 52 full-time employees as of December 31, 2019.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Listed below is certain information about the executive officers of MediaCo or its affiliates who are not directors or nominees to be directors.
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NAME |
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POSITION |
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AGE AT DECEMBER 31, 2019 |
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YEAR FIRST ELECTED OFFICER |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and Treasurer |
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46 |
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2019 |
Mr. Hornaday was appointed our Executive Vice President, Chief Financial Officer and Treasurer in June 2019. Mr. Hornaday also serves as Executive Vice President, Chief Financial Officer and Treasurer of Emmis, a position he has held since August 2015. Previously, Mr. Hornaday served as Senior Vice President—Finance and Treasurer of Emmis from December 2008 to July 2015. Mr. Hornaday joined Emmis in 1999. Mr. Hornaday also serves as a director of Choices, Inc. (a non-profit organization that provides cross system coordination services for youth and their families).
AVAILABLE INFORMATION
Our website address is www.mediacoholding.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are filed with the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
FEDERAL REGULATION OF BROADCASTING
Radio broadcasting in the United States is subject to the jurisdiction of the FCC under the Communications Act of 1934 (the “Communications Act”), as amended in part by the Telecommunications Act of 1996 (the “1996 Act”). Radio broadcasting is prohibited except in accordance with a license issued by the FCC upon a finding that the public interest, convenience and necessity would be served by the grant of such license. The FCC has the power to revoke licenses for, among other things, false statements made in applications or willful or repeated violations of the Communications Act or of FCC rules. In general, the Communications Act provides that the FCC shall allocate broadcast licenses for radio stations in such a manner as will provide a fair, efficient and equitable distribution of service throughout the United States. The FCC determines the operating frequency, location and power of stations; regulates the equipment used by stations; and regulates numerous other areas of radio broadcasting pursuant to rules, regulations and policies adopted under authority of the Communications Act. The
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Communications Act, among other things, prohibits the assignment of a broadcast license or the transfer of control of an entity holding such a license without the prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of media that compete with broadcast stations.
The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act as well as FCC rules, public notices and rulings for further information concerning the nature and extent of federal regulation of radio stations. Legislation has been introduced from time to time which would amend the Communications Act in various respects, and the FCC from time to time considers new regulations or amendments to its existing regulations. We cannot predict whether any such legislation will be enacted or whether new or amended FCC regulations will be adopted or what their effect would be on the Company.
LICENSE RENEWAL. Radio stations operate pursuant to broadcast licenses that are ordinarily granted by the FCC for maximum terms of eight years and are subject to renewal upon approval by the FCC. The following table sets forth our FCC license expiration dates in addition to the call letters, license classification, antenna elevation above average terrain, power and frequency of all owned stations as of December 31, 2019:
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Radio Market |
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Stations |
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City of License |
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Frequency |
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Expiration Date of License |
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FCC Class |
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Height Above Average Terrain (in feet) |
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Power (in Kilowatts) |
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New York, NY |
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WQHT-FM |
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New York, NY |
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97.1 |
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June 2022 |
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B |
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1,339 |
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6.7 |
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WBLS-FM |
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New York, NY |
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107.5 |
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June 2022 |
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B |
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1,362 |
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4.2 |
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Under the Communications Act, at the time an application is filed for renewal of a station license, parties in interest, as well as members of the public, may apprise the FCC of the service the station has provided during the preceding license term and urge the denial of the application. If such a petition to deny presents information from which the FCC concludes (or if the FCC concludes on its own motion) that there is a “substantial and material” question as to whether grant of the renewal application would be in the public interest under applicable rules and policy, the FCC may conduct a hearing on specified issues to determine whether the renewal application should be granted. The Communications Act provides for the grant of a renewal application upon a finding by the FCC that the licensee:
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has served the public interest, convenience and necessity; |
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has committed no serious violations of the Communications Act or the FCC rules; and |
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has committed no other violations of the Communications Act or the FCC rules which would constitute a pattern of abuse. |
If the FCC cannot make such a finding, it may deny the renewal application, and only then may the FCC consider competing applications for the same frequency. In a vast majority of cases, the FCC renews a broadcast license even when petitions to deny have been filed against the renewal application.
REVIEW OF OWNERSHIP RESTRICTIONS. The FCC is required by statute to review all of its broadcast ownership rules on a quadrennial basis (i.e., every four years) and to repeal or modify any of its rules that are no longer “necessary in the public interest.”
Despite several such reviews and appellate remands, the FCC’s rules limiting the number of radio stations that may be commonly owned in a local market have remained largely intact since their initial adoption following the 1996 Act. The FCC’s previous ownership reviews have been subject to litigation. The most recent court decisions were issued by the United States Court of Appeals for the Third Circuit in September and November 2019 and concerned the FCC’s 2014 review. These decisions may be the subject of further litigation. The FCC initiated its 2018 quadrennial review in December 2018 and that proceeding remains pending. We cannot predict whether the appeal or forthcoming review proceeding will result in modifications of the ownership rules or the impact (if any) that such modifications would have on our business.
The discussion below reviews the pertinent ownership rules currently in effect.
Local Radio Ownership:
The local radio ownership rule limits the number of commercial radio stations that may be owned by one entity in a given radio market based on the number of radio stations in that market:
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if the market has 45 or more radio stations, one entity may own up to eight stations, not more than five of which may be in the same service (AM or FM); |
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if the market has between 30 and 44 radio stations, one entity may own up to seven stations, not more than four of which may be in the same service; |
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if the market has between 15 and 29 radio stations, one entity may own up to six stations, not more than four of which may be in the same service; and |
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if the market has 14 or fewer radio stations, one entity may own up to five stations, not more than three of which may be in the same service, however one entity may not own more than 50% of the stations in the market. |
The New York radio market has more than 45 radio stations.
For purposes of applying these numerical limits, the FCC has also adopted rules with respect to (i) so-called local marketing agreements, or “LMAs,” by which the licensee of one radio station provides programming for another licensee’s radio station in the same market and sells all of the advertising within that programming and (ii) so-called joint sale agreements, or “JSAs,” by which the licensee of one station sells the advertising time on another station in the market. Under these rules, an entity that owns one or more radio stations in a market and programs more than 15% of the broadcast time, or sells more than 15% of the advertising time, on another radio station in the same market pursuant to an LMA or JSA is generally required to count the station toward its media ownership limits even though it does not own the station. As a result, in
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a market where we own one or more radio stations, we generally cannot provide programming to another station under an LMA, or sell advertising on another station pursuant to a JSA, if we could not acquire that station under the local radio ownership rule. The FCC has, to date, declined to make other types of agreements such as “shared services agreements” (or “SSAs”) and/or “local news service” agreements, attributable, but has adopted a disclosure requirement for SSAs between commercial television stations.
In the 2018 quadrennial review order, the FCC is requesting comment on all aspects of the local radio ownership rule, including whether the rule in its current form remains necessary in the public interest.
Cross-Media Ownership:
The newspaper/broadcast cross-ownership rule prohibits an individual or entity from having an attributable interest in either a radio or television station and a daily newspaper located in the same market, subject to certain exceptions and with waivers available in particular cases.
The radio/television cross-ownership rule limits common ownership of television stations and same market radio stations. In general, an individual or entity may hold attributable interests in one television station and up to seven same-market radio stations (or two television stations and up to six same-market radio stations), depending on the number of independently owned radio, television and other specified media “voices” in the market.
ATTRIBUTION OF OWNERSHIP INTERESTS. In applying its ownership rules, the FCC has developed specific criteria that it uses to determine whether a certain ownership interest or other relationship with an FCC licensee is significant enough to be “attributable” or “cognizable” under its rules. Specifically, among other relationships, certain stockholders, officers and directors of a broadcasting company are deemed to have an attributable interest in the licenses held by that company, such that there would be a violation of the FCC’s rules where the broadcasting company and such a stockholder, officer or director together hold attributable interests in more than the permitted number of stations or a prohibited combination of outlets in the same market. The FCC’s regulations generally deem the following relationships and interests to be attributable for purposes of its ownership restrictions:
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all officer and director positions in a licensee or its direct/indirect parent(s); |
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voting stock interests of at least 5% (or 20%, if the holder is a passive institutional investor, i.e. , a mutual fund, insurance company or bank); |
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any equity interest in a limited partnership or limited liability company where the limited partner or member has not been “insulated” from the media-related activities of the LP or LLC pursuant to specific FCC criteria; |
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equity and/or debt interests which, in the aggregate, exceed 33% of the total asset value of a station or other media entity (the “equity/debt plus policy”), if the interest holder supplies more than 15% of the station’s total weekly programming (usually pursuant to a time brokerage, local marketing or network affiliation agreement) or is a same-market media entity (i.e., broadcast company or newspaper). In December 2007, the FCC increased these limits under certain circumstances where the equity and/or debt interests are in a small business meeting certain requirements. Although the Third Circuit vacated the FCC’s selected definition of small businesses eligible to take advantage of these increased limits in 2011, the FCC reinstated that definition in its August 2016 order. |
To assess whether a voting stock interest in a direct or indirect parent corporation of a broadcast licensee is attributable, the FCC uses a “multiplier” analysis in which non-controlling voting stock interests are deemed proportionally reduced at each non-controlling link in a multi-corporation ownership chain.
Ownership-rule conflicts arising as a result of aggregating the media interests of the Company and its attributable shareholders, officers or directors could require divestitures by either the Company or the affected shareholders, officers or directors. Any such conflicts could result in the Company being unable to obtain FCC consents necessary for future acquisitions. Conversely, the Company’s media interests could operate to restrict other media investments by shareholders having or acquiring an interest in the Company.
ALIEN OWNERSHIP. Under the Communications Act, no FCC license may be held by a corporation if more than one-fifth of its capital stock is owned or voted by aliens or their representatives, a foreign government or representative thereof, or an entity organized under the laws of a foreign country (collectively, “Non-U.S. Persons”). Furthermore, the Communications Act provides that no FCC license may be granted to an entity directly or indirectly controlled by another entity of which more than one-fourth of its capital stock is owned or voted by Non-U.S. Persons if the FCC finds that the public interest will be served by the denial of such license. The FCC has adopted rules to simplify and streamline the process for requesting authority to exceed the 25% indirect foreign ownership limit in broadcast licensees and has revised the methodology that publicly traded broadcasters must use to assess their compliance with the foreign ownership restrictions. The foregoing restrictions on alien ownership apply in modified form to other types of business organizations, including partnerships and limited liability companies. In addition, an LMA with a foreign owned company is not prohibited as long as the non-foreign holder of the FCC license continues to control and operate the station. Our Amended and Restated Articles of Incorporation and Amended and Restated Code of By-Laws authorize the Board of Directors to prohibit such restricted alien ownership, voting or transfer of capital stock as would cause the Company to violate the Communications Act or FCC regulations.
ASSIGNMENTS AND TRANSFERS OF CONTROL. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors, including compliance with the various rules limiting common ownership of media properties, the “character” of the assignee or transferee and those persons holding attributable interests therein and compliance with the Communications Act’s limitations on alien ownership as well as other statutory and regulatory requirements. When evaluating an assignment or transfer of control application, the FCC is prohibited from considering whether the public interest might be served by an assignment of the broadcast license or transfer of control of the licensee to a party other than the assignee or transferee specified in the application.
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PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to serve the “public interest.” Beginning in the late 1970s, the FCC gradually relaxed or eliminated many of the more formalized procedures it had developed to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. However, licensees are still required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness.
Federal law prohibits the broadcast of obscene material at any time and the broadcast of indecent material during specified time periods; these prohibitions are subject to enforcement by the FCC and carry fines of up to more than $400,000 per violation, with a cap exceeding $3.75 million for a continuing violation. The FCC’s indecency rules have also been the subject of litigation, and are the subject of a pending proceeding regarding how the agency might revise its indecency enforcement policies.
Federal law also imposes sponsorship identification (or “payola”) requirements, which mandate the disclosure of information concerning programming that is paid for by third parties. The company may receive letters of inquiry or other notifications concerning alleged violations of the sponsorship identification rules at certain of its stations. We cannot predict the outcome of any sponsorship identification complaint proceeding or investigation or the extent or nature of future FCC enforcement actions.
Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, equal employment opportunities, contest and lottery advertisements, and technical operations, including limits on radio frequency radiation.
Failure to observe FCC rules and policies can result in the imposition of various sanctions, including monetary fines, the grant of “short-term” (less than the maximum term) license renewals or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license.
ADDITIONAL DEVELOPMENTS AND PROPOSED CHANGES. The FCC has adopted rules implementing a low power FM (“LPFM”) service, and approximately 800 such stations are in operation. In November 2007, the FCC adopted rules that, among other things, enhance LPFM’s interference protection from subsequently-authorized full-service stations. Congress then passed legislation eliminating certain minimum distance separation requirements between full-power and LPFM stations, thereby reducing the interference protection afforded to FM stations. As required by the legislation, the FCC in January 2012 submitted a report to Congress indicating that the results of a statutorily mandated economic study indicated that, on the whole, LPFM stations do not currently have, and in the future are unlikely to have, a demonstrable economic impact on full-service commercial FM radio stations. The FCC has since modified its rules to permit the processing of additional LPFM applications and to implement the legislative requirements regarding interference protection, and has accepted applications seeking authority to construct or make major changes to LPFM facilities. Although to date there have been very few, if any, instances of LPFM stations interfering with full-power radio stations, we cannot predict whether any LPFM stations will actually interfere with the coverage of our radio stations in the future.
The FCC also previously authorized the launch and operation of a satellite digital audio radio service (“SDARS”) system. The country’s single SDARS operator, Sirius XM, provides nationwide programming service as well as channels that provide local traffic and weather information for major cities.
In addition, the FCC permits terrestrial digital audio broadcasting (“DAB,” also known as high definition radio or “HD Radio®”) by FM stations, and has pending a proceeding to permit digital operations by AM stations.
In order to broadcast musical compositions or to stream them over the Internet, we must pay royalties to copyright owners of musical compositions (typically, songwriters and publishers). These copyright owners often rely on organizations known as performing rights organizations, which negotiate licenses with copyright users for the public performance of their compositions, collect royalties, and distribute them to copyright owners. The three major performing rights organizations, from which the Company has licenses and to which we pay royalties, are the American Society of Composers, Authors, and Publishers (“ASCAP”), Broadcast Music, Inc. (“BMI”), and SESAC, Inc. These rates are set periodically, are often negotiated by organizations acting on behalf of broadcasters, and may increase in the future. It also is possible that songwriters or publishers may disassociate with these performing rights organizations, or that additional such organizations could emerge in the future. In 2013 a new performing rights organization, named Global Music Rights (“GMR”), was formed. GMR has obtained the rights to certain high-value copyrights and is seeking to negotiate individual licensing agreements with radio stations for songs within its repertoire. GMR and the Radio Music License Committee, Inc. (“RMLC”), which negotiates music licensing fees with performance rights organizations on behalf of many radio stations, have initiated antitrust litigation against one another, which remains pending. In addition, there has been litigation concerning whether the consent decrees between the Department of Justice (“DOJ”) and major performance rights organizations require so-called “full-work” licenses (which would allow a license-holder to play all of the works in a performance rights organization’s repertoire). The DOJ is also reviewing consent decrees governing ASCAP and BMI to determine whether those consent decrees should be modified. If a significant number of musical composition copyright owners withdraw from the established performing rights organizations, if new performing rights organizations form to license compositions that are not already licensed, or if the consent decrees between the DOJ and ASCAP/BMI are materially modified or eliminated, our royalty rates or negotiation costs could increase. Our royalty rates or negotiation costs could also change as a result of GMR/RMLC litigation or the resolution of the full-work licensing issue.
In order to stream music over the Internet, MediaCo must also obtain licenses and pay royalties to the owners of copyrights in sound recordings (typically, artists and record companies). These royalties are in addition to royalties for Internet streaming that must also be paid to performance rights organizations. The Copyright Royalty Board (“CRB”) recently completed its proceeding to set rates for the 2016-2020 license period. The CRB set a rate during this period for performances by non-subscription noninteractive services of 0.17 cent per listener per song, and a rate for noninteractive subscription services of 0.22 cent per listener per song, both of which are subject to changes that mirror
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changes in the Consumer Price Index. The CRB’s 2016-2020 rates represent a decrease from the 2015 CRB rates applicable to broadcasters and other webcasters. A proceeding to establish the rates for 2021-2025 began in 2019.
In addition, lawsuits have been filed under various state laws challenging the right of digital audio transmission services and broadcasters to publicly perform or reproduce sound recordings fixed prior to February 15, 1972 (“pre-1972 sound recordings”) without a license. Federal legislation signed into law in October 2018 applies a statutory licensing regime to pre-1972 sound recordings similar to that which governs post-1972 sound recordings. Among other things, the new law extends remedies for copyright infringement to owners of pre-1972 sound recordings when recordings are used without authorization. The public performance right that the new law creates for pre-1972 sound recordings streamed online may increase our licensing costs.
Legislation also has previously been introduced in Congress that would require the payment of performance royalties to artists, musicians, or record companies whose music is played on terrestrial radio stations, ending a long-standing copyright law exception. If enacted, such legislation could have an adverse impact on the cost of music programming.
Congress and the FCC also have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of additional matters that could, directly or indirectly, affect the operation, ownership and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations and/or affect our ability to acquire additional broadcast stations or finance such acquisitions. Such matters include, but are not limited to:
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proposals to impose spectrum use or other fees on FCC licensees; |
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proposals to repeal or modify some or all of the FCC’s multiple ownership rules and/or policies; |
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proposals to impose requirements intended to promote broadcasters’ service to their local communities; |
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proposals to change rules relating to political broadcasting; |
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technical and frequency allocation matters; |
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AM stereo broadcasting; |
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proposals to modify service and technical rules for digital radio, including possible additional public interest requirements for terrestrial digital audio broadcasters; |
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proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages; |
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proposals to tighten safety guidelines relating to radio frequency radiation exposure; |
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proposals permitting FM stations to accept formerly impermissible interference; |
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proposals to reinstate holding periods for licenses; |
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changes to broadcast technical requirements related to the implementation of SDARS; |
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proposals to modify broadcasters’ public interest obligations; |
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proposals to limit the tax deductibility of advertising expenses by advertisers; and |
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proposals to regulate violence and hate speech in broadcasts. |
We cannot predict whether any proposed changes will be adopted, what other matters might be considered in the future, or what impact, if any, the implementation of any of these proposals or changes might have on our business.
The foregoing is only a brief summary of certain provisions of the Communications Act and of specific FCC regulations. Reference should be made to the Communications Act as well as FCC regulations, public notices and rulings for further information concerning the nature and extent of federal regulation of broadcast stations.
REGULATION OF OUTDOOR ADVERTISING
Outdoor advertising is subject to government regulation at the federal, state and local levels. Regulations generally restrict the size, spacing, lighting and other aspects of advertising structures and pose a significant barrier to entry and expansion in many markets. Federal law, principally the Highway Beautification Act of 1965, 28 U.S.C. § 131, regulates outdoor advertising on Federal-aid Primary, Interstate and National Highway Systems roads, and it directs states to provide “effective control” of outdoor advertising along these roads, and to implement a compliance program and state standards regarding size, spacing, and lighting. The states in which we operate have implemented billboard control statutes and regulations. Additionally, municipal and county governments also have implemented sign controls as part of their zoning laws and building codes, and some local governments prohibit construction of new billboards or allow new construction only to replace existing structures. These state, local, and municipal laws and standards may be modified over time, and may have an adverse effect on our business. We closely evaluate laws and regulations that we believe unlawfully restrict our constitutional or other legal rights and may adversely impact our outdoor advertising business to determine whether to bring legal challenges.
We may be required to remove billboards in some circumstances, and may not always be able to obtain compensation for the removal. As some examples, state governments have purchased and removed billboards for beautification, and may do so again in the future. Additionally, state and municipal governments have laid claim to property under the power of eminent domain and forced the removal of billboards. State governments have also required removal of billboards that have been damaged, and can require removal of signs deemed to be illegal at the owner’s expense and without compensation from the state. Local governments also have attempted to force removal of legal but currently nonconforming billboards under a concept called amortization by which a governmental body asserts that a billboard operator has earned sufficient compensation by continued operation over time, which has been upheld in some instances.
We have also deployed and will continue to deploy digital billboards that display static digital advertising copy from various advertisers that change every 6 to 8 seconds. These may be restricted by existing regulations, and existing regulations that currently do not apply to them by their terms could be revised or new regulations could be enacted to impose greater restrictions. These regulations may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety. On December 30, 2013, the U.S. Department of
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Transportation and the Federal Highway Administration released the results of a study concluding that the presence of digital billboards did not appear to be related to a decrease in looking toward the road ahead, though it cautioned that it did not present definitive answers to the research questions investigated. The results of this or other studies may result in regulations at any government level that impose greater restrictions on digital billboards.
The risk factors listed below, in addition to those set forth elsewhere in this report, could affect the business, financial condition and future results of the Company. Additional risks and uncertainties that are not currently known to the Company or that are not currently believed by the Company to be material may also harm the Company’s business, financial condition and results of operations.
Risks Related to our Business
Our results of operations could be negatively impacted by weak economic conditions and instability in financial markets.
We believe that advertising is a discretionary business expense. Spending on advertising tends to decline disproportionately during an economic recession or downturn as compared to other types of business spending. Consequently, a downturn in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of operations. A recession or downturn in the economy of any individual geographic market in which we operate, such as a continued decline of the U.S economy in response to the on-going novel coronavirus disease 2019 (COVID-19) outbreak, could have a significant adverse effect on us.
Even in the absence of a general recession or downturn in the economy, an individual business sector (such as the automotive industry) that tends to spend more on advertising than other sectors might be forced to reduce its advertising expenditures if that sector experiences a downturn. If that sector’s spending represents a significant portion of our advertising revenues, any reduction in its advertising expenditures may affect our revenue.
Radio revenues in the market in which we operate have been challenged and may remain so.
Radio revenues in the New York market in which we operate have lagged the growth of the general United States economy. New York market revenues, as measured by the accounting firm Miller Kaplan Arase LLP ("Miller Kaplan"), during the year ended February 2019 and ten-month period ended December 31, 2019, were down 2.0% and up 2.6%, respectively. During these same period, the U.S. Bureau of Economic Analysis reports that U.S. real gross domestic product growth was 4.6% and 3.0%, respectively. Our results of operations could be negatively impacted if radio revenue performance in the markets in which our radio stations operate continues to lag general United States economic growth.
We may lose audience share and advertising revenue to competing radio stations or other types of media.
The radio broadcasting industry is highly competitive. Our radio stations compete for audiences and advertising revenue with other radio stations and station groups, as well as with other media. Shifts in population, demographics, audience tastes, consumer use of technology and forms of media and other factors beyond our control could cause us to lose market share. Any adverse change in our radio stations’ market, or adverse change in the relative market positions of our stations, could have a material adverse effect on our revenue or ratings, could require increased promotion or other expenses in that market, and could adversely affect our revenue. Other radio broadcasting companies may enter the market in which we operate or markets in which we may operate in the future. These companies may be larger and have more financial resources than we have. Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenue in the face of such competition.
MediaCo expects to continue to routinely conduct market research to review the competitive position of our stations in the market. If we determine that a station could improve its operating performance by serving a different demographic, we may change the format of that station. Our competitors may respond to our actions by more aggressive promotions of their stations or by replacing the format we vacate, limiting our options if we do not achieve expected results with our new format.
From time to time, other stations may change their format or programming, a new station may adopt a format to compete directly with our stations for audiences and advertisers, or stations might engage in aggressive promotional campaigns. These tactics could result in lower ratings and advertising revenue or increased promotion and other expenses and, consequently, lower earnings and cash flow for us. Any failure by us to respond, or to respond as quickly as our competitors, could also have an adverse effect on our business and financial performance.
Because of the competitive factors we face, we cannot assure investors that we will be able to maintain or increase our current audience ratings and advertising revenue.
Our radio operations are heavily concentrated in the New York market.
Our radio operations are located exclusively in the New York City Metro area. Since our radio stations’ revenues are concentrated in this market, an economic downturn, increased competition or another significant negative event in the New York City market could reduce our revenues more dramatically than other companies that do not depend as much on this market, which could have a material and adverse effect on our financial condition and results of operations.
Our radio operations lack the scale of some of our competitors.
MediaCo's only radio stations are two stations in New York. Some of our competitors in this market have larger clusters of radio stations. Our competitors may be able to leverage their market share to extract a greater percentage of available advertising revenues in this market and
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may be able to realize operating efficiencies by programming multiple stations in the market. Also, given our reliance on urban formats in New York, our financial condition and results of operations could be materially and adversely affected by additional urban format competition by our competitors.
Our operations may be adversely affected by the occurrence of a pandemic.
We hold a number of events, most notably Summer Jam in June of each year, in which large numbers of people are in close proximity. If we were required to postpone or cancel Summer Jam, which may occur as a result of the on-going COVID-19 outbreak, or if people were unwilling to attend such an event due to contagion risk and our ticket sales declined precipitously, it would have a material adverse effect on our financial results. Furthermore, we are already beginning to feel the adverse impact of the COVID-19 outbreak, with certain advertisers cancelling their orders and an overall reduction in new advertising orders. If economic activity continues to slow as a result of a pandemic, our financial results would continue to be negatively affected.
We depend upon Emmis’ management to operate our radio stations and expect to do so for the foreseeable future.
We entered into a management agreement (the “Management Agreement”) with EOC. Pursuant to this Management Agreement, EOC is responsible for substantially all of the operations and management of our radio stations for a fee. As such, we are dependent on the reliability and effectiveness of Emmis' management, and cannot guarantee that their officers and employees will be sufficient in number or will have the necessary capability for their assigned roles, particularly with Emmis personnel who, for the first time, have responsibility for running two public companies at the same time.
We can make no assurances that we will be able to continue to receive such services from Emmis on a long-term basis on acceptable terms or at all. We would be materially adversely affected if Emmis becomes unable or unwilling to continue providing services for our benefit at the level of quality and at the cost provided in the Management Agreement. If we were required to employ a management company other than EOC, we cannot offer any assurances that the terms of such Management Agreement would be on terms as favorable to the Company in the long term.
In our outdoor advertising markets, we face competition from larger and more diversified outdoor advertisers and other forms of advertising.
While we enjoy a significant market share in our outdoor advertising markets, we face competition from other outdoor advertisers and other media in these markets. Although we are one of the largest companies focusing exclusively on outdoor advertising in our outdoor advertising markets, we compete in these markets against larger companies with diversified operations, such as television, radio and other broadcast media. These diversified competitors have the advantage of cross-selling complementary advertising products to advertisers.
We also compete against an increasing variety of out-of-home advertising media, such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters and supermarkets, and on taxis, trains and buses. To a lesser extent, we also face competition from other forms of media, including radio, newspapers, direct mail advertising, telephone directories and the Internet. We may be unable to compete against these forms of advertising competition in the future, and the competitive pressures that we face could adversely affect our profitability or financial performance.
Outdoor advertising is subject to expansive federal, state and local regulation, which could negatively affect our operations and financial results.
Outdoor advertising is subject to governmental regulation at the federal, state and local levels. Regulations generally restrict the size, spacing, lighting and other aspects of advertising structures and pose a significant barrier to entry and expansion in many markets.
Federal law, principally the Highway Beautification Act of 1965, or the HBA, regulates outdoor advertising on Federal—Aid Primary, Interstate and National Highway Systems roads. The HBA requires states, through the adoption of individual Federal/State Agreements, to “effectively control” outdoor advertising along these roads, and mandates a state compliance program and state standards regarding size, spacing and lighting. These state standards, or their local and municipal equivalents, may be modified over time in response to legal challenges or otherwise, which may have an adverse effect on our business. All states have passed billboard control statutes and regulations at least as restrictive as the federal requirements, including laws requiring the removal of illegal signs at the owner’s expense (and without compensation from the state). Additionally, some existing regulations restrict or prohibit digital billboards and similar types of digital displays. Digital billboards have been developed and introduced relatively recently into the market on a large scale; however, existing regulations that currently do not apply to them by their terms could be revised or new regulations could be enacted to impose greater restrictions. These regulations may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety. The introduction of new, or the expansion of existing, regulations by federal, state or local governments may impose undue restrictions or burdens on our outdoor advertising business and could materially harm our outdoor advertising operations and financial results.
We are a "controlled company" within the meaning of the Nasdaq listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. Investors in our Class A common stock will not have the same protections afforded to shareholders of companies that are subject to such requirements.
As of March 9, 2020, SG Broadcasting controls approximately 96.98% of the outstanding voting interests of MediaCo through its ownership of MediaCo Class B common stock. Because of the voting power of SG Broadcasting, we are considered a "controlled company" for purposes of Nasdaq requirements. As such, we are exempt from certain corporate governance requirements of Nasdaq, including the requirements that (i) a majority of the board of directors consist of independent directors, (ii) we have a Nominating and Corporate Governance Committee that is composed entirely of independent directors and (iii) we have a Compensation Committee that is composed entirely of independent directors. Currently, MediaCo does have a majority of independent directors, and the Compensation Committee does consist
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entirely of independent directors, however, we do not have a Nominating and Corporate Governance Committee. MediaCo could chose to take advantage of the exemptions relating to the board and the Compensation Committee. Accordingly, investors in our Class A common stock would not have the same protections afforded to shareholders of companies that are subject to all of Nasdaq's corporate governance requirements.
We must respond to the rapid changes in technology, services and standards that characterize our industry in order to remain competitive, and changes in technology may increase the risk of material intellectual property infringement claims.
The radio broadcasting industry is subject to rapid technological changes, evolving industry standards and the emergence of competition from new technologies and services. We cannot assure that we will have the resources to acquire new technologies or to introduce new services that could compete with these new technologies. Various media technologies and services that have been developed or introduced include:
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satellite-delivered digital audio radio service, which has resulted in subscriber-based satellite radio services with numerous niche formats; |
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audio programming by cable systems, direct-broadcast satellite systems, Internet content providers and other digital audio broadcast formats, including podcasts; |
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personal digital audio devices; |
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HD Radio®, which provides multi-channel, multi-format digital radio services in the same bandwidth currently occupied by traditional AM and FM radio services; and |
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low-power FM radio, which could result in additional FM radio broadcast outlets, including additional low-power FM radio signals authorized in December 2010 under the Local Community Radio Act. |
New media has resulted in fragmentation in the radio broadcasting advertising market, but we cannot predict the impact that additional competition arising from new technologies may have on the radio broadcasting industry or on our financial condition and results of operations.
A number of automakers are introducing more advanced, interactive dashboard technology including the introduction of technologies like Apple CarPlay and Google Android Auto that enable vehicle entertainment systems to more easily interface with a consumer’s smartphone and include alternative audio entertainment options.
Programmatic buying, which enables an advertiser to purchase advertising inventory through an exchange or other service and bypass the traditional personal sales relationship, has become widely adopted in the purchase of digital advertising and is an emerging trend in the radio industry. We cannot predict the impact programmatic buying may have on the radio industry or our financial condition and results of operations.
Additionally, technological advancements in the operation of radio stations and related businesses have increased the number of patent and other intellectual property infringement claims brought against broadcasters, including MediaCo. While MediaCo has not historically been subject to material patent and other intellectual property claims and takes certain steps to limit the likelihood of, and exposure to, such claims, no assurance can be given that material claims will not be asserted in the future.
Our business depends heavily on maintaining our licenses with the FCC. We could be prevented from operating a radio station if we fail to maintain its license.
The radio broadcasting industry is subject to extensive and changing regulation. The Communications Act and FCC rules and policies require FCC approval for transfers of control and assignments of FCC licenses. The filing of petitions or complaints against FCC licensees could result in the FCC delaying the grant of, or refusing to grant, its consent to the assignment of licenses to or from an FCC licensee or the transfer of control of an FCC licensee. In certain circumstances, the Communications Act and FCC rules and policies will operate to impose limitations on alien ownership and voting of our common stock. There can be no assurance that there will be no changes in the current regulatory scheme, the imposition of additional regulations or the creation of new regulatory agencies, which changes could restrict or curtail our ability to acquire, operate and dispose of stations or, in general, to compete profitably with other operators of radio and other media properties.
Each of our radio stations operates pursuant to one or more licenses issued by the FCC. Under FCC rules, radio licenses are granted for a term of eight years. Our licenses expire in June 2022. Although we will apply to renew these licenses, third parties could challenge our renewal applications. While we are not aware of facts or circumstances that would prevent us from having our current licenses renewed, there can be no assurance that the licenses will be renewed or that renewals will not include conditions or qualifications that could adversely affect our business and operations. Failure to obtain the renewal of any of our broadcast licenses would likely have a material adverse effect on our business and operations. In addition, if we or any of our officers, directors or significant stockholders materially violates the FCC’s rules and regulations or the Communications Act, is convicted of a felony or is found to have engaged in unlawful anticompetitive conduct or fraud upon another government agency, the FCC may, in response to a petition from a third party or on its own initiative, in its discretion, commence a proceeding to impose sanctions upon us which could involve the imposition of monetary fines, the revocation of our broadcast licenses or other sanctions. If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the applicable radio station only after we had exhausted all rights to administrative and judicial review without success.
We disseminate large amounts of content to the public. An ill-conceived or mistimed on-air statement or social media post could have a material adverse effect on our business.
The FCC’s rules prohibit the broadcast of obscene material at any time and prohibit indecent material between the hours of 6 a.m. and 10 p.m. Broadcasters risk violating the prohibition on the broadcast of indecent material because of the FCC’s broad definition of such material, coupled with the spontaneity of live programming.
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Congress has dramatically increased the penalties for broadcasting obscene, indecent or profane programming and broadcasters can potentially face license revocation, renewal or qualification proceedings in the event that they broadcast indecent material. In addition, the FCC’s heightened focus on indecency, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. As a result of these developments, we have implemented certain measures that are designed to reduce the risk of broadcasting indecent material in violation of the FCC’s rules. These and other future modifications to our programming in an effort to reduce the risk of indecency violations could have an adverse effect on our competitive position.
Even statements or social media posts that do not violate the FCC’s indecency rules could offend our audiences and advertisers or infringe the rights of third parties, resulting in a decline in ratings, a loss in revenues, a challenge to our broadcast licenses, or extended litigation. While we maintain insurance covering some of these risks, others are effectively uninsurable and could have a material adverse effect on our financial condition and results of operations.
Changes in current Federal regulations could adversely affect or business operations
Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies that could, directly or indirectly, affect the profitability of our broadcast stations. In particular, Congress is considering a revocation of radio's exemption from paying royalties to performing artists for use of their recordings (radio already pays a royalty to songwriters). A requirement to pay additional royalties could have a material and adverse effect on our financial condition and results of operations.
Our business strategy and our ability to operate profitably depend on the continued services of our key employees, the loss of whom could have a material adverse effect on our business.
Our success depends in large part upon the leadership and performance our radio and outdoor management teams and other key personnel, many of whom will initially continue to be employed by Emmis under the terms of the Employee Leasing Agreement. Operating as an independent public company demands a significant amount of time and effort from our management and other personnel and may give rise to increased turnover. If we lose the services of members of our management team or other key personnel, we may not be able to successfully manage our business or achieve our business objectives.
We need to continue to attract and retain qualified key personnel in a highly competitive environment. Our ability to attract, recruit and retain such talent will depend on a number of factors, including the hiring practices of our competitors, the performance of our developing business programs, our compensation and benefits, and economic conditions affecting our industry generally. Our radio stations' personnel includes several on-air personalities and hosts of syndicated radio programs with large and loyal audiences in their respective broadcast areas. These on-air personalities are sometimes significantly responsible for the ranking of a station and, thus, the ability of the station to sell advertising. Such on-air personalities or other key individuals may not remain with our radio stations and we may not retain their audiences, which could affect our competitive position. If we cannot effectively hire and retain qualified employees, our business, prospects, financial condition and results of operations could suffer.
Impairment losses related to our intangible assets could reduce our stations’ earnings in the future.
As of December 31, 2019, our FCC licenses comprised 38% of our total assets. We did not record any impairment charges during the year ended February 28, 2019 or the ten-month period ended December 31, 2019. However, if events occur or circumstances change, or even if radio valuations trend downward, the fair value of our FCC licenses might fall below the amount reflected on our balance sheet, and we may be required to recognize impairment charges in our statement of operations, which may be material, in future periods.
Our operating results have been and may again be adversely affected by acts of war, a global health crisis, terrorism and natural catastrophes.
Acts of war and terrorism against the United States, and the country’s response to such acts, may negatively affect the U.S. advertising market, which could cause our advertising revenues to decline due to advertising cancellations, delays or defaults in payment for advertising time, and other factors. In addition, these events may have other negative effects on our business, the nature and duration of which we cannot predict.
For example, after the September 11, 2001 terrorist attacks, we decided that the public interest would be best served by the presentation of continuous commercial-free coverage of the unfolding events on our stations. This temporary policy had a material adverse effect on our advertising revenues and operating results for the month of September 2001. Future events like those of September 11, 2001, or the evolving COVID-19 situation, may cause us to adopt similar policies, which could have a material adverse effect on our advertising revenues and operating results.
Additionally, the attacks on the World Trade Center on September 11, 2001 resulted in the destruction of the transmitter facilities that were located there. Although we had no transmitter facilities located at the World Trade Center, broadcasters that had facilities located in the destroyed buildings experienced temporary disruptions in their ability to broadcast. Since we tend to locate transmission facilities for stations serving urban areas on tall buildings or other significant structures, such as the Empire State Building in New York, further terrorist attacks or other disasters could cause similar disruptions in our broadcasts in the areas affected. If these disruptions occur, we may not be able to locate adequate replacement facilities in a cost-effective or timely manner or at all. Failure to remedy disruptions caused by terrorist attacks or other disasters and any resulting degradation in signal coverage could have a material adverse effect on our business and results of operations.
Similarly, hurricanes, floods, tornadoes, earthquakes, wild fires and other natural disasters can have a material adverse effect on our operations in any given market. While we generally carry insurance covering such catastrophes, we cannot be sure that the proceeds from such insurance will be sufficient to offset the costs of rebuilding or repairing our property or the lost income.
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Our business is dependent upon the proper functioning of our internal business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.
The proper functioning of our internal business processes and information systems is critical to the efficient operation and management of our business. If these information technology systems fail or are interrupted, our operations may be adversely affected and operating results could be harmed. Our business processes and information systems need to be sufficiently scalable to adapt to the size of our business and may require modifications or upgrades that expose us to a number of operational risks. Our information technology systems, and those of third party providers, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic intrusions, unauthorized access and cyber-attacks. Any material disruption, malfunction or similar challenges with our business processes or information systems, or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse effect on our financial condition and results of operations.
We may not be successful in identifying any additional suitable acquisition or investment opportunities.
As part of our business strategy, we may pursue acquisitions or other investment opportunities. However, there is no assurance that we will be successful in identifying or consummating any suitable acquisitions and certain acquisition opportunities may be limited or prohibited by applicable regulatory regimes. Even if we do complete acquisitions or business combinations, there is no assurance that any of them will be of value in enhancing our business or our financial condition. In addition, our ongoing activities could divert a substantial amount of our management time and may be difficult for us to integrate, which could adversely affect management's ability to identify and consummate other investment opportunities. The failure to identify or successfully integrate future acquisitions and investment opportunities could have a material adverse effect on our results of operations and financial condition.
Because we face significant competition for acquisition and investment opportunities, it may be difficult for us to fully execute our business strategy. We expect to encounter intense competition for acquisition and investment opportunities from both strategic investors and other potential competitors, such as private investors (which may be individuals or investment partnerships), blank check companies, and other entities, domestic and international, competing for the type of businesses that we may intend to acquire. Many of these competitors possess greater technical, human and other resources, or more local industry knowledge, or greater access to capital, than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. These factors may place us at a competitive disadvantage in successfully completing future acquisitions and investments.
In addition, while we believe that there are numerous target businesses that we could potentially acquire or invest in, our ability to compete with respect to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing acquisition and investment opportunities.
Future acquisitions or investments could involve unknown risks that could harm our business and adversely affect our financial condition.
We may make acquisitions in a variety of industries and market sectors. Future acquisitions that we consummate will involve unknown risks, some of which will be particular to the industry in which the acquisition target operates. We may be unable to adequately address the financial, legal and operational risks raised by such acquisitions, especially if we are unfamiliar with the industry in which we invest. The realization of any unknown risks could prevent or limit us from realizing the projected benefits of the acquisitions, which could adversely affect our financial condition and liquidity. In addition, our financial condition and results of operations will be subject to the specific risks applicable to any company in which we invest.
Risks Related to our Indebtedness:
Our substantial indebtedness could adversely affect our financial health.
We have a significant amount of indebtedness. As of March 27, 2020, our total indebtedness was $89.0 million, consisting of $72.7 million under our senior credit facility, $5.0 million of notes payable to Emmis, and $11.3 million of notes payable to SG Broadcasting. Our substantial indebtedness could have important consequences to investors. For example, it could:
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• |
make it more difficult for us to satisfy our obligations with respect to our indebtedness; |
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• |
increase our vulnerability to generally adverse economic and industry conditions; |
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• |
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; |
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• |
result in higher interest expense in the event of increases in interest rates because our debt is at variable rates of interest; |
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• |
limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; |
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• |
place us at a competitive disadvantage compared to some of our competitors that have less debt; and |
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• |
limit, along with the financial and other restrictive covenants in our credit agreements, our ability to borrow additional funds or make acquisitions. |
If we cannot continue to comply with the financial covenants in our debt instruments, or obtain waivers or other relief from our lenders, we may default, which could result in loss of our sources of liquidity and acceleration of our indebtedness.
We have a substantial amount of indebtedness, and the instruments governing such indebtedness contain restrictive financial covenants. Our ability to comply with the covenants in our debt instruments will depend upon our future performance and various other factors, such as business, competitive, technological, legislative and regulatory factors, some of which are beyond our control. We may not be able to maintain
16
compliance with all of these covenants. In that event, we would need to seek an amendment to our debt instruments, or would need to refinance our debt instruments. There can be no assurance that we can obtain future amendments or waivers of our debt instruments, or refinance our debt instruments and, even if so, it is likely that such relief would only last for a specified period, potentially necessitating additional amendments, waivers or refinancings in the future. In the event that we do not maintain compliance with the covenants under our debt instruments, the lenders could declare an event of default, subject to applicable notice and cure provisions, resulting in a material adverse impact on our financial position. Upon the occurrence of an event of default under our debt instruments, the lenders could elect to declare all amounts outstanding under our credit agreements to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the lenders accelerate the repayment of borrowings, we may be forced to liquidate certain assets to repay all or part of our debt instruments, and we cannot be assured that sufficient assets will remain for us to continue our business operations after we have paid all of the borrowings under our debt instruments. Our ability to liquidate assets is affected by the regulatory restrictions associated with radio stations, including FCC licensing, which may make the market for these assets less liquid and increase the chances that these assets will be liquidated at a significant loss.
The terms of any future indebtedness may restrict our current and future operations, particularly our ability to respond to changes in market conditions or to take some actions.
Any future long-term debt instruments may impose significant operating and financial restrictions on us. These restrictions will likely significantly limit or prohibit, among other things, our ability to incur additional indebtedness, pay dividends on securities, incur liens, enter into asset purchase or sale transactions, merge or consolidate with another company, dispose of our assets or make certain other payments or investments.
These restrictions may limit our ability to grow our business through acquisitions and could limit our ability to respond to market conditions or meet extraordinary capital needs. They also could restrict our corporate activities in other ways and could adversely affect our ability to finance our future operations or capital needs.
To service our indebtedness and other obligations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our current credit agreement requires, and any future long-term debt agreements will likely require, us to pay periodic interest and principal payments during the term of such indebtedness. Our ability to make payments on indebtedness and to fund capital expenditures will depend on our ability to generate cash in the future. This ability to generate cash, to a certain extent, will be subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our businesses might not generate sufficient cash flow from operations. We might not be able to complete future offerings, and future borrowings might not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
Risks Related to our Common Stock:
SG Broadcasting possesses significant voting interest with respect to our outstanding common stock, which limits the influence on corporate matters by a holder of MediaCo Class A common stock.
As of March 9, 2020, SG Broadcasting holds approximately 96.98% of the voting interests of our outstanding common stock on a fully diluted basis. Accordingly, SG Broadcasting has the ability to significantly influence our management and affairs through the election and removal of our board of directors and all other matters requiring shareholder approval unless a separate vote of the MediaCo Class A common stock is required by our articles of incorporation or Indiana law, including any future merger, consolidation or sale of all or substantially all of our assets. This concentrated voting interest could also discourage others from initiating any potential merger, takeover or other change-of-control transaction that may otherwise be beneficial to our shareholders. Furthermore, this concentrated control limits the practical effect of the influence by holders of MediaCo Class A common stock over our business and affairs, through any shareholder vote or otherwise. Accordingly, the effects of any of the above could depress the price of MediaCo Class A common stock.
Standard General’s and Emmis’ interests may conflict with those of other shareholders.
SG Broadcasting, a company wholly owned by funds managed by Standard General, beneficially owns shares representing approximately 96.98% of the outstanding combined voting power of all classes of our common stock. Therefore, SG Broadcasting is in a position to exercise substantial influence over the outcome of most matters submitted to a vote of our shareholders, including the election of a majority of our directors, the determination to engage in a merger, acquisition or disposition of a material amount of assets, or otherwise.
Additionally, other than with respect to the Emmis Promissory Note which will be convertible into MediaCo Class A common stock after May 25, 2020, Emmis no longer holds any material amount of common stock of MediaCo after distribution to Emmis’ shareholders on January 17, 2020, and its officers will be serving as the initial MediaCo Class A Directors. These officers will initially be shareholders of MediaCo, but no assurance can be given that they will retain their ownership of MediaCo shares. Further, during the term of the Management Agreement or so long as amounts remain outstanding under Emmis’ Promissory Note, MediaCo's board of directors is obligated to nominate as MediaCo Class A Directors only persons specified by Emmis. Under Indiana law, directors of MediaCo may, in considering the best interests of the Company, consider the effects of any action on shareholders, employees, suppliers, and customers of the Company, and communities in which offices or other facilities of the Company are located, and any other factors the directors consider pertinent.
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MediaCo Class A common stock may cease to be listed on Nasdaq.
MediaCo’s Class A common stock is listed on Nasdaq under the ticker symbol "MDIA". We may not be able to meet the continued listing requirements of Nasdaq, which require, among other things, a minimum closing price of MediaCo Class A common stock, a minimum market capitalization and minimum shareholders' equity. If we are unable to satisfy the requirements of Nasdaq for continued listing, MediaCo Class A common stock would be subject to delisting from that market, and we might or might not be eligible to list our shares on another market.
A delisting of MediaCo Class A common stock from Nasdaq could negatively impact us by, among other things, reducing the liquidity and market price of MediaCo Class A common stock. There can be no assurance that we will be able to comply with Nasdaq's continued listing requirements.
Our By-Laws designate the Circuit or Superior Courts of Marion County, Indiana, or the United States District Court for the Southern District of Indiana in a case of pendant jurisdiction, as the exclusive forum for certain litigation that may be initiated by holders of shares of MediaCo, which would discourage lawsuits against us and our director and officers.
Pursuant to our By-laws, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, a Circuit or Superior Court of Marion County Indiana, or the United States District Court for the Southern District of Indiana in a case of pendent jurisdiction, shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee or agent of MediaCo to the Company or the holders of shares MediaCo, (iii) any action asserting a claim arising pursuant to any provision of the Indiana Business Corporation Law (the "IBCL"), the Articles of Incorporation or the By-laws or (iv) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said court having personal jurisdiction over the indispensable parties named as defendants therein. Though Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, the Company intends for this forum selection provision to apply to the fullest extent permitted by law, including to actions or claims arising under the Securities Act. While holders of shares of MediaCo cannot waive compliance with the federal securities laws and the rules and regulations thereunder, and therefore the forum selection provision does not apply to claims arising under the Exchange Act or the rules and regulations thereunder, this forum selection provision may limit the ability of holders of shares of MediaCo to bring a claim arising in other instances in a judicial forum that such shareholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against the Company and/or our directors and officers. Alternatively, if a court outside of the State of Indiana were to find this forum selection provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or claims described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business, prospects, financial condition and results of operations.
We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, MediaCo Class A common stock may be less attractive to investors for so long as we remain an emerging growth company.
We are an "emerging growth company," as defined in the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are afforded to emerging growth companies, including, but not limited to, exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find MediaCo Class A common stock less attractive because we intend to rely on these exemptions. If some investors find MediaCo Class A common stock less attractive as a result, there may be a less active trading market for MediaCo Class A common stock and its stock price may be lower or more volatile as a result. We may take advantage of these exemptions until we no longer qualify as an emerging growth company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
The types of properties required to support our radio stations include offices, studios and transmitter/antenna sites. We lease our studio and office spaces. Our stations' studios are housed within its offices in Manhattan. We generally consider our facilities to be suitable and of adequate size for our current and intended purposes. We lease primary and backup transmitter/antenna sites for WQHT and WBLS in Manhattan. With regard to WBLS, we lease an additional backup transmitter/antenna site in Lyndhurst, New Jersey from WLIB Tower LLC, an Indiana corporation and subsidiary of Emmis ("WLIB") pursuant to a transmitter/antenna site lease. The transmitter/antenna site lease is for an initial term of 20 years, with two automatic renewal periods of 10 years each, unless MediaCo provides notice to WLIB of its intention to not renew the lease for an additional term. The transmitter/antenna site for each station is generally located so as to provide maximum market coverage, consistent with the station's FCC license. In general, we do not anticipate difficulties in renewing the transmitter/antenna site leases or in leasing additional space or sites if required.
Our outdoor advertising business requires advertising structures which we construct and own, as well as small parcels of land on which we place them. These parcels of land are either owned, leased or subject to easements. As of December 31, 2019 we have approximately 1,290 leases in place. We have regional management offices in Valdosta, Georgia and Hagerhill, Kentucky, which we lease.
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Our principal executive offices are located at 40 Monument Circle, Suite 700, Indianapolis, Indiana 46204, in approximately 115,000 square feet of office space owned by Emmis and which we share with Emmis during the term of the Management Agreement. We do not pay any rent to Emmis as our shared use of these offices is covered by the terms of the Management Agreement.
We are not a party to any material legal proceedings at this time. From time to time, we may be subject to various legal proceedings and claims, which may have a material adverse effect on our financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION FOR OUR COMMON STOCK
MediaCo’s Class A common stock is quoted on the Nasdaq Capital Market under the symbol MDIA. There is no established public trading market for MediaCo’ Class B common stock or Series A convertible preferred stock.
HOLDERS
At March 9, 2020, there were 2,201 beneficial holders of the Class A common stock, and there was one beneficial holder of the Class B common stock.
DIVIDENDS
MediaCo currently intends to retain future earnings for use in its business and has no plans to pay any dividends on shares of its common stock in the foreseeable future. MediaCo’s senior credit agreement sets forth certain restrictions on our ability to pay dividends. See Note 5 to the accompanying consolidated and combined financial statements for more discussion of the revolving credit agreement.
EQUITY COMPENSATION PLAN INFORMATION
As of December 31, 2019, MediaCo had no securities authorized for issuance pursuant to an equity compensation plan.
UNREGISTERED SALES OF EQUITY SECURITIES
In connection with the Transaction, on November 25, 2019, the Company issued 1,666,667 shares of MediaCo Class A common stock to Emmis as partial consideration for the transfer of the Stations and the related assets and liabilities to MediaCo and issued 5,359,753 shares of MediaCo Class B common stock to SG Broadcasting in exchange for an initial capital contribution of $41.5 million, the proceeds of which were used to fund a portion of the consideration owed to Emmis in exchange for the Stations and the related assets and liabilities. These issuances of shares were issued in reliance upon an exemption from registration pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”). This issuance was not a “public offering” because no more than 35 non-accredited investors received securities of the Company, the Company did not engage in general solicitation or advertising with regard to the issuance and sale of shares of MediaCo Class A and Class B common stock and the Company did not make a public offering in connection with the sale of shares of MediaCo Class A and Class B common stock.
On December 13, 2019, the Company issued 220,000 shares of MediaCo Series A Preferred Shares to SG Broadcasting in exchange for $22.0 million, the proceeds of which were used to fund a portion of the purchase price of the Fairway Acquisition. This issuance of shares was issued in reliance upon an exemption from registration pursuant to Section 4(a)(2) under the Securities Act. This issuance was not a “public offering” because no more than 35 non-accredited investors received securities of the Company, the Company did not engage in general solicitation or advertising with regard to the issuance and sale of shares of MediaCo Series A Preferred Shares and the Company did not make a public offering in connection with the sale of shares of MediaCo Series A Preferred Shares. At any time on or after May 25, 2020, at the option of the holder, each share of MediaCo Series A Preferred Shares will be convertible, without the payment of additional consideration, into such number of MediaCo Class A common stock as determined by dividing (x) the original purchase price plus any accrued dividends by (y) the thirty day volume-weighted average price of the MediaCo Class A common stock as of the conversion date.
ITEM 6. SELECTED FINANCIAL DATA.
As a smaller reporting company, we are not required to provide this information.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The following discussion pertains to MediaCo Holding Inc. and its subsidiaries (collectively, “MediaCo” or the “Company”).
We own and operate two radio stations located in New York City and outdoor advertising businesses geographically focused in Southern Georgia and Eastern Kentucky. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales represent approximately two-thirds of our consolidated revenues. These rates are in large part based on our radio stations’ ability to attract audiences in demographic groups targeted by their advertisers and the number of persons exposed to our billboards. The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter™, which includes all of our radio stations. Because audience ratings in a station’s local market are critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.
Our revenues vary throughout the year. Revenue and operating income are usually lowest in the first calendar quarter for both our radio and outdoor advertising segments, partly because retailers cut back their advertising spending immediately following the holiday shopping season.
In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of the product or service received. We generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash. In addition, it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade.
The following table summarizes the sources of our revenues for the year ended February 28, 2019 and the ten-month period ended December 31, 2019. The category “Non Traditional” principally consists of ticket sales and sponsorships of events our stations and magazines conduct in their local markets. The category “Other” includes, among other items, revenues related to network revenues and barter.
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Year Ended February 28, 2019 |
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Ten Months Ended December 31, 2019 |
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Net revenues: |
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Local |
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$ |
24,539 |
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56.9 |
% |
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$ |
20,914 |
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51.3 |
% |
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National |
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|
3,799 |
|
|
|
8.8 |
% |
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|
3,912 |
|
|
|
9.6 |
% |
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Political |
|
|
559 |
|
|
|
1.3 |
% |
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|
— |
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|
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0.0 |
% |
|
Non Traditional |
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|
7,024 |
|
|
|
16.3 |
% |
|
|
8,166 |
|
|
|
20.0 |
% |
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Digital |
|
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2,756 |
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|
|
6.4 |
% |
|
|
3,018 |
|
|
|
7.4 |
% |
|
Outdoor Advertising |
|
|
— |
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|
|
0.0 |
% |
|
|
759 |
|
|
|
1.9 |
% |
|
Other |
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|
4,414 |
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|
|
10.3 |
% |
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|
4,031 |
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|
|
9.8 |
% |
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Total net revenues |
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$ |
43,091 |
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|
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|
|
$ |
40,800 |
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A significant portion of our expenses varies in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as salaries, commissions and bad debt. Our costs that do not vary as much in relation to revenue are mostly in our programming and general and administrative departments, such as talent costs, syndicated programming fees, utilities, billboard site lease fees, office expenses and salaries. Lastly, our costs that are highly discretionary are costs in our marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
The U.S. radio industry is a mature industry and its growth rate has stalled. Management believes this is principally the result of two factors: (1) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and (2) the fragmentation of the radio audience and time spent listening caused by satellite radio, audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished.
Along with the rest of the radio industry, our stations have deployed HD Radio®. HD Radio offers listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. In addition to offering secondary channels, the HD Radio spectrum allows broadcasters to transmit other forms of data. We are participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices. The number of radio receivers incorporating HD Radio has increased in the past year, particularly in new automobiles. It is unclear what impact HD Radio will have on the markets in which we operate.
The Company has also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners, deploying mobile applications and streaming our content, and harnessing the power of digital video on our websites and YouTube channels.
The results of our radio operations are solely dependent on the results of our stations in the New York market. Some of our competitors that operate larger station clusters in the New York market are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates. Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 2.0% for the twelve months ended February 28, 2019, but up 2.6% for the ten months ended December 31, 2019, as compared to the same period of the prior year. During these periods, revenues for our New York cluster were down 3.4% and up 9.5%, respectively. Our underperformance in the twelve months ended February 28, 2019 was largely attributable to lower ticket sales revenue for our
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largest concert, Summer Jam. Poor weather on the day of the concert in June 2018 negatively impacted ticket sales. However, our outperformance in the ten months ended December 31, 2019 was principally due to record-setting ticket sales associated with the concert in June 2019.
As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, MediaCo’s long-term debt agreements substantially limit our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so.
The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve. Our priority has been the safety of our employees and those employees that we lease from EOC, as well as the informational needs of the communities that we serve. Through the first quarter of 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic. In an effort to mitigate the continued spread of COVID-19, federal, state and local governments, including New York Governor Andrew Cuomo, have mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. As a consequence of outbreaks of COVID-19, the current and any future responses by federal, state and local governments, and any general desire by the public to avoid large gatherings, it is likely that we will see a decline in attendance at our live events or such events could also be postponed or cancelled as a precautionary measure. Furthermore, if the resulting downturn of the United States economy continues or worsens, we may see a decline in advertising revenue generated by our radio broadcasting and outdoor advertising businesses. While it is still too early to estimate the effect that the spread of COVID-19 will have on our results of operations, if the spread of COVID-19 continues and public and private entities continue to implement restrictive measures, we could experience a material adverse effect on our business, results of operations, financial condition and cash flows.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially derive materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below.
Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired and outdoor revenue is recognized over the life of the applicable lease of each billboard. Both broadcasting revenue and outdoor revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue or displayed for outdoor revenue. Broadcasting advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
FCC Licenses
We have made acquisitions in the past for which a significant amount of the purchase price was allocated to FCC licenses and goodwill assets. As of December 31, 2019, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 38% of our total assets.
In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor our stations’ compliance with the various regulatory requirements. Historically, all of our FCC licenses have been renewed at the end of their respective periods, and we expect that all FCC licenses will continue to be renewed in the future. We consider our FCC licenses to be indefinite-lived intangibles.
We do not amortize indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by Accounting Standards Codification (“ASC”) Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting.
In the ten-month period ended December 31, 2019, we completed our annual impairment test on November 25, 2019, the date the stations were transferred by Emmis. Going forward we will complete our annual impairment tests on October 1 of each year and perform additional interim impairment testing whenever triggering events suggest such testing is warranted.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considered both income and market valuation methods when it performed its impairment tests. Under the income method, the Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in each market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables
22
that may be beyond our control. The projections incorporated into our license valuations take current economic conditions into consideration. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value.
Below are some of the key assumptions used in our income method annual impairment assessments. In recent years, we have reduced long-term growth rates in the New York market in which we operate based on recent industry trends and our expectations for the market going forward.
|
|
|
December 1, 2018 |
|
|
November 25, 2019 |
|
|
Discount Rate |
|
11.9% |
|
|
11.9% |
|
|
Long-term Revenue Growth Rate |
|
0.3% |
|
|
-0.6% |
|
|
Mature Market Share |
|
12.9% |
|
|
9.0% |
|
|
Operating Profit Margin |
|
38.0% |
|
|
22.7-26.7% |
|
Valuation of Goodwill
As a result of the Fairway Acquisition, the Company has preliminarily recorded $11.4 million of goodwill. This accounts for all goodwill on the consolidated and combined balance sheets as of December 31, 2019. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. The Fairway Acquisition closed on December 13, 2019 and all assets acquired and liabilities assumed were valued as of that date, resulting in a preliminary goodwill valuation of $11.4 million. There have been no indicators of impairment that have arisen since that date that would require us to assess the goodwill for impairment. The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period. The purchase price allocation described in Note 7 is preliminary and subject to adjustment. Any adjustment to the purchase price allocation may directly impact the value of goodwill.
Sensitivity Analysis
Based on the results of our November 25, 2019 annual impairment assessment, the fair value of our broadcasting licenses was approximately $90.3 million, which was in excess of the $63.3 million carrying value by $27 million, or 42.8%. Should our estimates or assumptions worsen, or should negative events or circumstances occur in the units that have limited fair value cushion, additional license impairments may be needed.
|
|
|
Radio Broadcasting Licenses |
|
|||||||||
|
|
|
As of November 25, 2019 |
|
|
|
|
|
|||||
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|||||
|
Unit of Accounting |
|
Carrying Value |
|
|
Fair Value |
|
|
Percentage by which fair value exceeds carrying value |
|
|||
|
WBLS-FM and WQHT-FM |
|
|
63,266 |
|
|
|
90,321 |
|
|
|
42.8 |
% |
If we were to assume a 100 basis point change in any of our three key assumptions (a reduction in the long-term revenue growth rate, a reduction in local commercial share or an increase in the discount rate) used to determine the fair value of our broadcasting licenses under the income method on December 1, 2018, fair value of the FCC licenses would still exceed carrying value.
Deferred Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2019 COMPARED TO TEN MONTHS ENDED DECEMBER 31, 2019
Net revenues:
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
43,091 |
|
|
$ |
40,041 |
|
|
$ |
(3,050 |
) |
|
|
(7.1 |
)% |
|
Outdoor Advertising |
|
|
— |
|
|
|
759 |
|
|
|
759 |
|
|
N/A |
|
|
|
Total net revenues |
|
$ |
43,091 |
|
|
$ |
40,800 |
|
|
$ |
(2,291 |
) |
|
|
(5.3 |
)% |
23
Radio net revenues decreased because the ten months ended December 31, 2019 contains two fewer months as compared to the year ended February 28, 2019. We typically monitor the performance of our stations against the performance of the New York radio market based on reports for the periods prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter arrangements. A summary of market revenue performance and MediaCo’s revenue performance in the New York market for the ten-month period ended December 31, 2019 is presented below:
|
|
|
For the ten months ended December 31, 2019 |
|
|||||
|
|
|
Overall Market |
|
|
MediaCo |
|
||
|
Market |
|
Revenue Performance |
|
|
Revenue Performance |
|
||
|
New York |
|
|
2.6 |
% |
|
|
9.5 |
% |
Our outperformance as compared to the overall market revenue performance in the ten months ended December 31, 2019 was largely driven by record-setting ticket sales associated with our largest concert, Summer Jam, which occurred in June 2019.
We acquired two outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky on December 13, 2019, so there are no comparable results in the year ended February 28, 2019.
Operating expenses excluding depreciation and amortization expense:
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|||||||||
|
Operating expenses excluding depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
33,830 |
|
|
$ |
30,751 |
|
|
$ |
(3,079 |
) |
|
|
(9.1 |
)% |
|
Outdoor Advertising |
|
|
— |
|
|
|
375 |
|
|
|
375 |
|
|
N/A |
|
|
|
Total operating expenses excluding depreciation and amortization expense |
|
$ |
33,830 |
|
|
$ |
31,126 |
|
|
$ |
(2,704 |
) |
|
|
(8.0 |
)% |
Operating expenses excluding depreciation and amortization expense for our radio division decreased because the ten months ended December 31, 2019 contains two fewer months as compared to the year ended February 28, 2019. We acquired two outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky on December 13, 2019, so there are no comparable results in the year ended February 28, 2019.
Corporate expenses excluding depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|||||||||
|
Corporate expenses excluding depreciation and amortization expense |
|
$ |
— |
|
|
$ |
4,303 |
|
|
$ |
4,303 |
|
|
N/A |
Corporate expenses excluding depreciation and amortization expense for the ten months ended December 31, 2019 mostly relate to transaction fees and expenses associated with the acquisition of two radio stations in New York and two outdoor advertising businesses during the period.
Depreciation and amortization:
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|||||||||
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
1,318 |
|
|
$ |
980 |
|
|
$ |
(338 |
) |
|
|
(25.6 |
)% |
|
Outdoor Advertising |
|
|
— |
|
|
|
100 |
|
|
|
100 |
|
|
N/A |
|
|
|
Total depreciation and amortization |
|
$ |
1,318 |
|
|
$ |
1,080 |
|
|
$ |
(238 |
) |
|
|
(18.1 |
)% |
24
Radio depreciation and amortization expense decreased because the ten months ended December 31, 2019 contains two fewer months as compared to the year ended February 28, 2019. Additionally, a number of assets became fully depreciated during the ten months ended December 31, 2019. We acquired two outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky on December 13, 2019, so there are no comparable results in the year ended February 28, 2019.
Operating income (loss):
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|||||||||
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
7,887 |
|
|
$ |
8,310 |
|
|
$ |
423 |
|
|
|
5.4 |
% |
|
Outdoor Advertising |
|
|
— |
|
|
|
284 |
|
|
|
284 |
|
|
N/A |
|
|
|
Corporate |
|
|
— |
|
|
|
(4,303 |
) |
|
|
(4,303 |
) |
|
N/A |
|
|
|
Total operating income (loss) |
|
$ |
7,887 |
|
|
$ |
4,291 |
|
|
$ |
(3,596 |
) |
|
|
(45.6 |
)% |
Radio operating income increased principally due to improved financial performance of our largest concert, Summer Jam, which occurred in June 2019.
Interest expense:
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|||||||||
|
Interest expense |
|
$ |
— |
|
|
$ |
(821 |
) |
|
$ |
821 |
|
|
N/A |
For the year ended February 28, 2019 there was no interest expense allocated to MediaCo from Emmis in connection with the carved-out financial statements. During the ten-month period ended December 31, 2019, the Company entered into numerous debt instruments to finance SG Broadcasting’s acquisition of a controlling interest in the Company from Emmis in November 2019 and two outdoor advertising businesses in December 2019.
Provision for income taxes:
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|||||||||
|
Provision for income taxes |
|
$ |
2,518 |
|
|
$ |
1,522 |
|
|
$ |
(996 |
) |
|
|
(39.6 |
)% |
Our effective income tax rate was 32% and 44% for the year ended February 28, 2019 and ten months ended December 31, 2019, respectively. Our effective income tax rate increased in the ten months ended December 31, 2019 due to a change in our state income tax rate resulting from the Fairway Acquisition and the application of the new rate to existing deferred tax balances. Our effective income tax rates differ from the statutory rates primarily due to the impact of permanent differences and state income taxes.
Consolidated net income:
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|
|
|
|
|||||||||
|
Consolidated net income |
|
$ |
5,369 |
|
|
$ |
1,948 |
|
|
$ |
(3,421 |
) |
|
|
(63.7 |
)% |
The decrease in consolidated net income is principally due to transaction fees and expenses associated with the acquisition of two radio stations in New York and two outdoor advertising businesses during the ten months ended December 31, 2019.
LIQUIDITY AND CAPITAL RESOURCES
On November 25, 2019, the Company entered into a $50.0 million, five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, a Delaware limited liability company, as administrative agent and collateral agent. The Senior Credit Facility provides for initial borrowings of up to $50.0 million, of which net proceeds of $48.3 million after debt discount of $1.7 million, were paid concurrently to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company, as well as one tranche of additional borrowings of $25.0 million. The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor. The Senior Credit Facility requires interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount are due on the last day of each calendar quarter. The Senior Credit Facility includes covenants pertaining to, among other things, the
25
ability to incur indebtedness, restrictions on the payment of dividends, minimum Liquidity (as defined in the Senior Credit Facility) of $2.0 million for the period from the effective date until November 25, 2020, $2.5 million for the period from November 26, 2020 until November 25, 2021, and $3.0 million for the period thereafter, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) of 1.10:1.00, and other customary restrictions. The Company borrowed $23.4 million of the remaining available borrowings to fund the Fairway Acquisition on December 13, 2019. Proceeds received were $22.6 million, net of a debt discount of $0.8 million. The Senior Credit Facility is carried net of a total unamortized discount of $2.4 million at December 31, 2019. On March 27, 2020, the Company amended and restated its Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity requirement to $1.0 million through September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note, as amended and restated, to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the SG Broadcasting Promissory Note, as amended and restated, to $20.0 million. In connection with this amendment, the Company incurred an amendment fee of approximately $0.2 million, which was added to the principal amount of the Senior Credit Facility then outstanding.
On November 25, 2019, as part of the consideration owed to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company, the Company issued to Emmis the Emmis Convertible Promissory Note in the amount of $5.0 million. The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. Because the Senior Credit Facility prohibits the Company from paying interest in cash on the Emmis Convertible Promissory Note, the Company has been accruing interest since inception using the rate applicable if the interest will be paid in kind. The Emmis Convertible Promissory Note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. The Emmis Convertible Promissory Note matures on November 25, 2024.
On November 25, 2019, the Company issued the SG Broadcasting Promissory Note, a subordinated convertible promissory note payable by the Company to SG Broadcasting, in return for which SG Broadcasting contributed to MediaCo $6.3 million for working capital and general corporate purposes. The SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. The SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. As of March 27, 2020, SG Broadcasting had loaned $11.3 million to the Company pursuant to the SG Broadcasting Promissory Note, as amended and restated, and is expected to lend additional amounts under the note from time to time.
On December 13, 2019, in connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock. The MediaCo Series A Convertible Preferred Stock ranks senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock. Pursuant to our Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Convertible Preferred Stock, will be subject to certain restrictions, including that (i) the MediaCo Series A Convertible Preferred Stock shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Convertible Preferred Stock could be converted when such conversion becomes active, and (ii) the MediaCo Series A Convertible Preferred Stock, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a preference on the assets of the Company. Issued and outstanding shares of MediaCo Series A Convertible Preferred Stock shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior credit facility of the Company, or if no senior debt is outstanding, 6.0%, plus additional increases of 1.0% on December 12, 2020 and each anniversary thereof.
As part of the acquisition of SG Broadcasting’s controlling interest in the Company from Emmis on November 25, 2019, Emmis retained the working capital of the stations, but the Company was permitted to collect and use, for a period of nine months, the first $5.0 million of net working capital attributable to the stations as of the closing date. This amount is due to Emmis on the nine month anniversary of the closing date, or August 25, 2020. This right to $5.0 million of retained net working capital was satisfied in January 2020 and used in the operations of the business. MediaCo does not believe it will generate $5.0 million of excess cash from operations by August 25, 2020 to repay this amount to Emmis, but Standard General has guaranteed this payment to Emmis in the event MediaCo is unable to make the payment when due.
SOURCES OF LIQUIDITY
Our primary sources of liquidity are cash provided by operations and cash available through borrowings under the SG Broadcasting Promissory Note. Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements and acquisitions.
26
At December 31, 2019, we had cash and cash equivalents of $2.1 million and net working capital of ($4.7) million. At February 28, 2019, we had no cash and cash equivalents and net working capital of $5.9 million. The decrease in net working capital is largely due to the fact that Emmis retained the working capital of the stations upon consummation of the Transaction.
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, and principal and interest payments on its indebtedness. As of the filing of this Form 10-K, management believes the Company can meet its liquidity needs through the end of 2020 with cash and cash equivalents on hand, projected cash flows from operations, and reliance on the $5.0 million guarantee by Standard General previously discussed. Based on these projections, management also believes the Company will be in compliance with its debt covenants through the end of 2020.
Operating Activities
Cash flows provided by operating activities were $3.6 million for the ten months ended December 31, 2019 versus cash flows provided by operating activities of $8.7 million for the year ended February 28, 2019. The decrease in cash flows provided by operating activities was mostly attributable to lower net income in the ten months ended December 31, 2019.
Investing Activities
Cash flows used in investing activities of $43.2 million for the ten months ended December 31, 2019 consisted of $43.1 million used to purchase Fairway Outdoor and $0.1 million used for capital expenditures.
Cash flows used in investing activities of $0.2 million for the year ended February 28, 2019 was attributable to capital expenditures.
Financing Activities
Cash provided by financing activities of $41.7 million for the ten months ended December 31, 2019 primarily consisted of proceeds of debt of $29.4 million and proceeds from the issuance of stock of $22.0 million. This was partially offset by net transactions with Emmis of $6.3 million and payments of debt related costs of $2.5 million.
Cash used in financing activities of $8.5 million for the year ended February 28, 2019 related solely to net transactions with Emmis.
As of December 31, 2019, MediaCo had outstanding $72.5 million of borrowings under the Senior Credit Facility, of which $3.7 million is current. As of December 31, 2019, the borrowing rate under our Senior Credit Facility was 9.5%.
Additionally, MediaCo had $5.0 and $6.3 million of promissory notes outstanding at December 31, 2019 to Emmis and SG Broadcasting, respectively, none of which is current.
The debt service requirements of MediaCo over the next twelve-month period are expected to be $10.6 million related to our Senior Credit Facility ($3.7 million of principal repayments and $6.9 million of interest payments). The Senior Credit Facility bears interest at a variable rate. The Company estimates interest payments by using the amounts outstanding as of December 31, 2019 and then-current interest rates. There are no debt service requirements over the next twelve months for either the Emmis Convertible Promissory Note or the SG Broadcasting Promissory Note.
As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, our Senior Credit Facility substantially limits our ability to make acquisitions.
INTANGIBLES
As of December 31, 2019, approximately 38% of our total assets consisted of FCC licenses, the value of which depends significantly upon the operational results of our businesses. In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor the activities of our stations for compliance with regulatory requirements. Historically, all of our FCC licenses have been renewed (or a waiver has been granted pending renewal) at the end of their respective eight-year periods, and we expect that all of our FCC licenses will continue to be renewed in the future.
SEASONALITY
Our results of operations are usually subject to seasonal fluctuations, which result in higher second quarter revenues and operating income. For our radio operations, this seasonality is largely due to the timing of our largest concert in June of each year. Results are typically lowest in the first calendar quarter.
INFLATION
The impact of inflation on operations has not been significant to date. However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results, particularly since our Senior Credit Facility is comprised entirely of variable-rate debt.
OFF-BALANCE SHEET FINANCINGS AND LIABILITIES
Other than legal contingencies incurred in the normal course of business, and contractual commitments to purchase goods and services, all of which are discussed in Note 11 to the consolidated financial statements, which is incorporated by reference herein, the Company does not
27
have any material off-balance sheet financings or liabilities. The Company does not have any majority-owned and controlled subsidiaries that are not included in the consolidated financial statements, nor does the Company have any interests in or relationships with any “special-purpose entities” that are not reflected in the consolidated financial statements or disclosed in the Notes to Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide this information.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of MediaCo Holding Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated and combined balance sheets of MediaCo Holding Inc. and Subsidiaries (the Company) as of December 31, 2019 and February 28, 2019, the related consolidated and combined statements of operations, changes in equity, and cash flows for the ten-months ended December 31, 2019 and the year ended February 28, 2019, and the related notes (collectively referred to as the “consolidated and combined financial statements”). In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and February 28, 2019, and the results of its operations and its cash flows for the ten-months ended December 31, 2019 and the year ended February 28, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 8 to the consolidated and combined financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Indianapolis, Indiana
March 27, 2020
29
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
||
|
NET REVENUES |
|
|
$ |
43,091 |
|
|
$ |
40,800 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
|
33,830 |
|
|
|
31,126 |
|
|
Corporate expenses |
|
|
|
— |
|
|
|
4,303 |
|
|
Depreciation and amortization |
|
|
|
1,318 |
|
|
|
1,080 |
|
|
Loss on sale of assets |
|
|
|
56 |
|
|
|
— |
|
|
Total operating expenses |
|
|
|
35,204 |
|
|
|
36,509 |
|
|
OPERATING INCOME |
|
|
|
7,887 |
|
|
|
4,291 |
|
|
OTHER EXPENSE: |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
— |
|
|
|
(821 |
) |
|
Total other expense |
|
|
|
— |
|
|
|
(821 |
) |
|
INCOME BEFORE INCOME TAXES |
|
|
|
7,887 |
|
|
|
3,470 |
|
|
PROVISION FOR INCOME TAXES |
|
|
|
2,518 |
|
|
|
1,522 |
|
|
CONSOLIDATED NET INCOME |
|
|
|
5,369 |
|
|
|
1,948 |
|
|
PREFERRED STOCK DIVIDENDS |
|
|
|
— |
|
|
|
110 |
|
|
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
|
$ |
5,369 |
|
|
$ |
1,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share attributable to common shareholders: |
|
|
$ |
3.22 |
|
|
$ |
0.80 |
|
|
Basic and diluted weighted average common shares outstanding |
|
|
|
1,667 |
|
|
|
2,298 |
|
The accompanying notes to consolidated and combined financial statements are an integral part of these statements.
30
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
FEBRUARY 28, |
|
|
DECEMBER 31, |
|
||
|
|
|
2019 |
|
|
2019 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
2,083 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $198 and $157, respectively |
|
|
7,886 |
|
|
|
11,101 |
|
|
Prepaid expenses |
|
|
1,680 |
|
|
|
1,111 |
|
|
Other |
|
|
220 |
|
|
|
1,798 |
|
|
Total current assets |
|
|
9,786 |
|
|
|
16,093 |
|
|
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
|
|
|
|
Land and buildings |
|
|
— |
|
|
|
1,660 |
|
|
Leasehold improvements |
|
|
8,474 |
|
|
|
8,483 |
|
|
Broadcasting equipment |
|
|
6,134 |
|
|
|
5,956 |
|
|
Outdoor advertising structures |
|
|
— |
|
|
|
27,425 |
|
|
Office equipment, computer equipment, software and automobiles |
|
|
1,671 |
|
|
|
1,683 |
|
|
Construction in progress |
|
|
— |
|
|
|
629 |
|
|
|
|
|
16,279 |
|
|
|
45,836 |
|
|
Less-accumulated depreciation and amortization |
|
|
13,858 |
|
|
|
14,273 |
|
|
Total property and equipment, net |
|
|
2,421 |
|
|
|
31,563 |
|
|
INTANGIBLE ASSETS: |
|
|
|
|
|
|
|
|
|
Indefinite lived intangibles |
|
|
63,265 |
|
|
|
63,996 |
|
|
Goodwill |
|
|
— |
|
|
|
11,424 |
|
|
Other intangibles |
|
|
2,154 |
|
|
|
5,184 |
|
|
|
|
|
65,419 |
|
|
|
80,604 |
|
|
Less-accumulated amortization |
|
|
1,394 |
|
|
|
1,655 |
|
|
Total intangible assets, net |
|
|
64,025 |
|
|
|
78,949 |
|
|
OPERATING LEASE RIGHT-OF-USE ASSETS |
|
|
— |
|
|
|
26,339 |
|
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
6,753 |
|
|
|
13,863 |
|
|
Deposits and other |
|
|
143 |
|
|
|
359 |
|
|
Total other assets |
|
|
6,896 |
|
|
|
14,222 |
|
|
Total assets |
|
$ |
83,128 |
|
|
$ |
167,166 |
|
The accompanying notes to consolidated and combined financial statements are an integral part of these statements.
31
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS – (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
FEBRUARY 28, |
|
|
DECEMBER 31, |
|
||
|
|
|
2019 |
|
|
2019 |
|
||
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
809 |
|
|
$ |
11,184 |
|
|
Current maturities of long-term debt |
|
— |
|
|
|
3,672 |
|
|
|
Accrued salaries and commissions |
|
|
370 |
|
|
|
728 |
|
|
Deferred revenue |
|
|
1,299 |
|
|
|
1,688 |
|
|
Income taxes payable |
|
|
850 |
|
|
|
— |
|
|
Operating lease liabilities |
|
— |
|
|
|
3,161 |
|
|
|
Other |
|
|
543 |
|
|
|
346 |
|
|
Total current liabilities |
|
|
3,871 |
|
|
|
20,779 |
|
|
LONG-TERM DEBT, NET OF CURRENT PORTION |
|
|
— |
|
|
|
77,668 |
|
|
OPERATING LEASE LIABILITIES, NET OF CURRENT |
|
|
— |
|
|
|
22,983 |
|
|
ASSET RETIREMENT OBLIGATION |
|
— |
|
|
|
5,623 |
|
|
|
OTHER NONCURRENT LIABILITIES |
|
|
1,779 |
|
|
|
239 |
|
|
Total liabilities |
|
|
5,650 |
|
|
|
127,292 |
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 11) |
|
|
|
|
|
|
|
|
|
SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING |
|
— |
|
|
|
22,110 |
|
|
|
SHAREHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
|
Net parent company investment |
|
|
77,478 |
|
|
|
— |
|
|
Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 0 shares and 1,666,667 shares at February 28, 2019 and December 31, 2019, respectively |
|
— |
|
|
|
17 |
|
|
|
Class B common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 0 shares and 5,359,753 shares at February 28, 2019 and December 31, 2019, respectively |
|
— |
|
|
|
54 |
|
|
|
Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued |
|
— |
|
|
— |
|
||
|
Additional paid-in capital |
|
— |
|
|
|
20,644 |
|
|
|
Retained earnings |
|
— |
|
|
|
(2,951 |
) |
|
|
Total equity |
|
|
77,478 |
|
|
|
17,764 |
|
|
Total liabilities and equity |
|
$ |
83,128 |
|
|
$ |
167,166 |
|
The accompanying notes to consolidated and combined financial statements are an integral part of these statements.
32
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED FEBRUARY 28, 2019 AND TEN MONTHS ENDED DECEMBER 31, 2019
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
APIC |
|
|
Net Parent Investment |
|
|
Retained Earnings |
|
|
Total |
|
||||||||
|
BALANCE, FEBRUARY 28, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
80,291 |
|
|
$ |
— |
|
|
$ |
80,291 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,369 |
|
|
|
|
|
|
|
5,369 |
|
|
Net distributions to Emmis Communications Corp. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,182 |
) |
|
|
— |
|
|
|
(8,182 |
) |
|
BALANCE, FEBRUARY 28, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
77,478 |
|
|
$ |
— |
|
|
$ |
77,478 |
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,789 |
|
|
|
(2,841 |
) |
|
|
1,948 |
|
|
Net distributions to Emmis Communications Corp. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,349 |
) |
|
|
— |
|
|
|
(8,349 |
) |
|
Allocated charges funded by Emmis Communications Corp. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,193 |
|
|
|
— |
|
|
|
2,193 |
|
|
Transaction adjustments from transactions amongst shareholders (1) |
|
|
1,666,667 |
|
|
|
17 |
|
|
|
5,359,753 |
|
|
|
54 |
|
|
|
20,644 |
|
|
|
(76,111 |
) |
|
|
— |
|
|
|
(55,396 |
) |
|
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(110 |
) |
|
|
(110 |
) |
|
BALANCE, DECEMBER 31, 2019 |
|
|
— |
|
|
$ |
17 |
|
|
|
— |
|
|
$ |
54 |
|
|
$ |
20,644 |
|
|
$ |
— |
|
|
$ |
(2,951 |
) |
|
$ |
17,764 |
|
|
(1) See Note 1 for further discussion. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated and combined financial statements are an integral part of these statements.
33
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
|
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
|
$ |
5,369 |
|
|
$ |
1,948 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities— |
|
|
|
|
|
|
|
|
|
|
Noncash accretion of asset retirement obligations |
|
|
|
— |
|
|
|
33 |
|
|
Amortization of deferred financing costs, including original issue discount |
|
|
|
— |
|
|
|
50 |
|
|
Depreciation and amortization |
|
|
|
1,318 |
|
|
|
1,080 |
|
|
Provision for bad debts |
|
|
|
329 |
|
|
|
140 |
|
|
Change in deferred income taxes |
|
|
|
2,518 |
|
|
|
1,211 |
|
|
Noncash compensation |
|
|
|
281 |
|
|
|
219 |
|
|
Loss on sale of assets |
|
|
|
56 |
|
|
|
— |
|
|
Changes in assets and liabilities— |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
(299 |
) |
|
|
(1,679 |
) |
|
Prepaid expenses and other current assets |
|
|
|
(729 |
) |
|
|
(797 |
) |
|
Other assets |
|
|
|
100 |
|
|
|
1,513 |
|
|
Accounts payable and accrued liabilities |
|
|
|
(560 |
) |
|
|
1,624 |
|
|
Deferred revenue |
|
|
|
576 |
|
|
|
(371 |
) |
|
Income taxes |
|
|
|
— |
|
|
|
311 |
|
|
Other liabilities |
|
|
|
(306 |
) |
|
|
(1,669 |
) |
|
Net cash provided by operating activities |
|
|
|
8,653 |
|
|
|
3,613 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
|
(190 |
) |
|
|
(89 |
) |
|
Purchase of Fairway Outdoor |
|
|
|
— |
|
|
|
(43,108 |
) |
|
Net cash used in investing activities |
|
|
|
(190 |
) |
|
|
(43,197 |
) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
Net transactions with Emmis Communications Corp. |
|
|
|
(8,463 |
) |
|
|
(6,280 |
) |
|
Payments on long-term debt |
|
|
|
— |
|
|
|
(918 |
) |
|
Proceeds from long-term debt |
|
|
|
— |
|
|
|
29,352 |
|
|
Proceeds of stock issuances |
|
|
|
— |
|
|
|
22,000 |
|
|
Payments for debt related costs |
|
|
|
— |
|
|
|
(2,487 |
) |
|
Net cash (used in) provided by financing activities |
|
|
|
(8,463 |
) |
|
|
41,667 |
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
|
— |
|
|
|
2,083 |
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
— |
|
|
|
— |
|
|
End of period |
|
|
$ |
— |
|
|
$ |
2,083 |
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
|
|
Cash paid for — |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
$ |
— |
|
|
$ |
606 |
|
|
Noncash financing transactions — |
|
|
|
|
|
|
|
|
|
|
Consideration received by Emmis Communications Corporation as a result of the Transaction described in Note 1 to the accompany consolidated and combined financial statements |
|
|
|
— |
|
|
|
105,339 |
|
The accompanying notes to consolidated and combined financial statements are an integral part of these statements.
34
MEDIACO HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS INDICATED OTHERWISE)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019 by Emmis Communications Corporation (“Emmis”) to facilitate the sale of a controlling interest in Emmis’ radio stations WQHT-FM and WBLS-FM (the “Stations”) to SG Broadcasting LLC (“SG Broadcasting”), an affiliate of Standard General L.P. (“Standard General”) pursuant to an agreement entered into on June 28, 2019. The sale (the “Transaction”) closed on November 25, 2019. On November 26, 2019, the Company’s Form 10 was declared effective and the Company became subject to SEC periodic filing requirements. As of December 31, 2019, all of the Company’s Class A common stock was held by Emmis and all the Company’s Class B common stock was held by SG Broadcasting. On January 17, 2020, Emmis distributed the Class A common stock pro rata to Emmis’ shareholders, making MediaCo a publicly traded company listed on the Nasdaq Capital Market.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo after giving effect to the contribution of the Stations by Emmis, as well as to the Stations while they were wholly owned by Emmis. Prior to November 25, 2019, MediaCo had not conducted any business as a separate company and had no assets or liabilities. The operations of the Stations contributed to us by Emmis on November 25, 2019, are presented as if they were our operations for all historical periods described and at the carrying value of such assets and liabilities reflected in Emmis’ books and records.
On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC (“Fairway Outdoor”) from Fairway Outdoor Advertising Group, LLC (the “Fairway Acquisition”). Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.
Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,300 advertising structures in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.
On October 25, 2019, in order to more closely align our operations and internal controls with standard market practice, our Board of Directors approved the change in our fiscal year end from the last day in February to December 31. The result is that this transition report covers the ten-month period March 1, 2019 to December 31, 2019. A comparative, unaudited income statement for the ten-month period ended December 31, 2018 is presented below.
|
|
For the Ten Months Ended December 31, 2018 (unaudited) |
|
|
|
NET REVENUES |
$ |
38,057 |
|
|
OPERATING EXPENSES: |
|
|
|
|
Operating expenses excluding depreciation and amortization expense |
|
29,445 |
|
|
Depreciation and amortization |
|
1,045 |
|
|
Total operating expenses |
|
30,490 |
|
|
OPERATING INCOME |
|
7,567 |
|
|
INCOME BEFORE INCOME TAXES |
|
7,567 |
|
|
PROVISION FOR INCOME TAXES |
|
2,414 |
|
|
CONSOLIDATED NET INCOME |
$ |
5,153 |
|
|
NET INCOME PER SHARE- BASIC AND DILUTED |
$ |
3.09 |
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING- BASIC AND DILUTED |
|
1,666,667 |
|
Basis of Presentation and Combination
Our Consolidated and Combined Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.
35
For the year-ended February 28, 2019 and until November 25, 2019 of the ten-month period ended December 31, 2019, MediaCo was 100% owned by Emmis. Our financial statements for these periods are derived from the books and records of Emmis and were carved-out from Emmis at a carrying value reflective of historical cost in Emmis’ records. Our historical combined financial results include an allocation of expense related to certain Emmis corporate functions, including executive oversight, legal, finance, human resources, and information technology. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount and other measures. We consider this expense allocation methodology and results thereof to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for all periods presented. It is impracticable to estimate what the standalone costs of MediaCo would have been in the historical periods.
The equity balance in the consolidated and combined financial statements prior to the Transaction represents the excess of total assets over total liabilities. All transactions between the Stations and Emmis were considered to be effectively settled in the consolidated and combined financial statements at the time the intercompany transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the consolidated and combined statements of cash flow as a financing activity and in the consolidated and combined statements of changes in equity as net parent company investment.
Upon consummation of the Transaction, the debt which the Company assumed in connection with transactions between shareholders was recorded to equity, and the total amount of net parent company investment was reclassified to additional paid in capital in the accompanying consolidated and combined financial statements.
In connection with the Transaction, the Company recorded deferred tax assets associated with the difference between the book basis and the tax basis of the Stations’ assets. The Company also eliminated certain tax accounts of the Stations from historical periods prior to the Transaction. These adjustments are included as transaction adjustments in the accompanying consolidated and combined statements of changes in equity and resulted in a net increase to equity of $8.4 million as of the Transaction date.
Allocation Policies
The following allocation policies were established by management of Emmis. Unless otherwise noted, these policies were consistently applied in the historical financial statements. In the opinion of management, the methods for allocating these costs were reasonable. It is not practicable to estimate the costs that would have been incurred by us if we had been operated on a stand‑alone basis.
(i) Specifically Identifiable Operating Expenses
Costs which related entirely to the operations of the Stations were attributed entirely to the Stations. These expenses consisted of costs of personnel who are 100% dedicated to the operations of the Stations, all costs associated with locations that conducted only the business of the Stations and amounts paid to third parties for services rendered to the Stations. In addition, any costs incurred by Emmis, which were specifically identifiable to the operations of the Stations, were attributed to the Stations.
(ii) Shared Operating Expenses
Emmis incurred the cost of certain corporate general and administrative services and shared services that benefited all of its entities, including the Stations. These shared services included radio executive management, legal, accounting, information services, telecommunications, human resources, insurance, and intellectual property compliance and maintenance. These costs were allocated to the Stations based on one of the following allocation methods: (1) percentage of Company revenues, (2) percentage of Company’s radio revenues, (3) headcount, and (4) pro rata portion based on the number of stations owned by Emmis. Management determined which allocation method was appropriate based on the nature of the shared service being provided.
(iii) Taxes
The Stations' allocated share of the consolidated Emmis federal tax provision was determined using the separate return method. Under the separate return method, tax expense or benefit was calculated as if the Stations were subject to their own tax returns. State income taxes generally were allocated in a similar manner. Deferred tax assets and liabilities were determined based on differences between the financial reporting and tax bases of assets and liabilities carried by the Stations, and were measured using the enacted tax rates that are expected to be in effect in the period in which these differences were expected to reverse. The principal components of deferred taxes related to tax amortization of indefinite-lived intangibles, namely FCC licenses, which are not amortized (but subject to impairment testing) for financial reporting purposes.
(iv) Allocated Charges
Allocations of Emmis’ costs were included in the combined condensed statements of operations of the Stations as follows:
|
|
For the Year Ended February 28, 2019 |
|
|
For the Ten Months Ended December 31, 2019 |
|
||
|
Station operating expenses, excluding depreciation and amortization expense |
$ |
2,613 |
|
|
$ |
1,903 |
|
|
Noncash compensation |
|
281 |
|
|
|
219 |
|
|
Allocated charges from Emmis |
$ |
2,894 |
|
|
$ |
2,122 |
|
36
The Company generates revenue from the sale of services and products including, but not limited to: (i) on-air commercial broadcast time, (ii) non-traditional revenues including event-related revenues and event sponsorship revenues, (iii) digital advertising, and (iv) outdoor advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized within twelve months of the payment date. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded based on management’s judgment of the collectability of receivables. When assessing the collectability of receivables, management considers, among other things, historical loss experience and existing economic conditions. Amounts are written off after all normal collection efforts have been exhausted. The activity in the allowance for doubtful accounts for the year ended February 28, 2019 and the ten months ended December 31, 2019 was as follows:
|
|
|
Balance At Beginning Of Period |
|
|
Provision |
|
|
Write-Offs |
|
|
Balance At End Of Period |
|
||||
|
Year ended February 28, 2019 |
|
$ |
170 |
|
|
|
329 |
|
|
|
(301 |
) |
|
$ |
198 |
|
|
Ten months ended December 31, 2019 |
|
$ |
198 |
|
|
|
140 |
|
|
|
(181 |
) |
|
$ |
157 |
|
Cash and Cash Equivalents
MediaCo considers time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is generally computed using the straight-line method over the estimated useful lives of the related assets, which are 30 to 39 years for buildings, the shorter of economic life or expected lease term for leasehold improvements, five to seven years for broadcasting equipment, five years for automobiles, office equipment and computer equipment, 15 years for advertising structures, and three to five years for software. Maintenance, repairs and minor renewals are expensed as incurred; improvements are capitalized. On a continuing basis, the Company reviews the carrying value of property 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. See below for more discussion of impairment policies related to our property and equipment. Depreciation expense for the year ended February 28, 2019 and ten-month period ended December 31, 2019 was $1.0 million, and $0.8 million, respectively.
Intangible Assets and Goodwill
Indefinite-lived Intangibles and Goodwill
Goodwill consists of the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired. In accordance with ASC Topic 350, “ Intangibles—Goodwill and Other,” goodwill, radio broadcasting licenses, and tradenames are not amortized, but are tested at least annually for impairment at the reporting unit level and unit of accounting level, respectively. We test for impairment annually, on October 1 of each year, or more frequently when events or changes in circumstances or other conditions suggest impairment may have occurred. Impairment exists when the asset carrying values exceed their respective fair values, and the excess is then recorded to operations as an impairment charge. See Note 9, Intangible Assets and Goodwill, for more discussion of our interim and annual impairment tests performed during the year ended February 28, 2019 and ten-month period ended December 31, 2019.
Definite-lived Intangibles
The Company’s definite-lived intangible assets consist of programming agreements related to our radio business and customer relationships relating to our outdoor advertising business. These are amortized over the period of time the intangible assets are expected to contribute directly or indirectly to the Company’s future cash flows.
Advertising Costs
Advertising costs are expensed when incurred. Advertising expenses for the year ended February 28, 2019, and ten months ended December 31, 2019 were $0.5 million, and $0.4 million, respectively.
Asset Retirement Obligations
We are required to estimate our obligations upon the termination or non-renewal of a lease to dismantle and remove its advertising structures from the leased land and to reclaim the site to its original condition. The Company records the present value of obligations associated with the retirement of its advertising structures in the period in which the obligation is incurred. When the liability is recorded the cost is capitalized as part of the related advertising structure’s carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset.
37
The significant assumptions used in estimating the asset retirement obligation include the third-party cost of removing the asset, the cost of remediating the leased property to its original condition where required and the timing and number of lease renewals, all of which are estimated based on historical experience. The interest rate used to calculate the present value of such costs over the estimated retirement period is based on an estimated risk adjusted credit rate for the same period.
Deferred Revenue and Barter Transactions
Deferred revenue includes deferred barter and other transactions in which payments are received prior to the performance of services (e.g., cash-in-advance advertising). Barter transactions are recorded at the estimated fair value of the product or service received. Revenue from barter transactions is recognized when commercials are broadcast. The appropriate expense or asset is recognized when merchandise or services are used or received. Barter revenues for the year ended February 28, 2019 and the ten months ended December 31, 2019, were $1.0 million, and $0.8 million, respectively, and barter expenses were $1.0 million, and $0.9 million, respectively.
Earnings Per Share
ASC Topic 260, “Earnings Per Share,” requires presentation of basic income per share (“EPS”) on the face of the income statement for all entities with simple capital structures. Basic EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. For entities with complex capital structures, diluted EPS is also required. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The 1,666,667 Class A shares issued to Emmis have been assumed to have been outstanding for all periods through December 31, 2019. There were no potentially dilutive securities during the year ended February 28, 2019 and the ten-month period ended December 31, 2019, as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 5, nor the Series A convertible preferred stock described in Note 3, are convertible until May 25, 2020.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for income tax purposes.
After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.
Long-Lived Tangible Assets
The Company periodically considers whether indicators of impairment of long-lived tangible assets are present. If such indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals and other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment charge to the extent the asset’s carrying value is greater than the fair value. The fair value of the asset then becomes the asset’s new carrying value, which, if applicable, the Company depreciates or amortizes over the remaining estimated useful life of the asset.
Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
Recent Accounting Standards Updates
On March 1, 2019, the stations adopted Accounting Standard Update 2016-02, Leases, using the modified retrospective approach, applied at the beginning of the period of adoption, and we elected the package of transitional practical expedients. The adoption of this standard resulted in recording operating lease liabilities of approximately $14.9 million as of March 1, 2019, along with a corresponding right-of-use asset. The implementation of this standard did not have an impact on our consolidated and combined statements of operations. See Note 8 for more discussion of the Company’s leases.
Recent Accounting Pronouncements Not Yet Implemented
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated and combined financial statements.
38
MediaCo has authorized Class A common stock, Class B common stock, and Class C common stock. The rights of these three classes are essentially identical except that each share of Class A common stock has one vote with respect to substantially all matters, each share of Class B common stock has 10 votes with respect to substantially all matters, and each share of Class C common stock has no voting rights with respect to substantially all matters. At December 31, 2019 all Class A common stock was owned by Emmis. Emmis distributed all shares of Class A common stock to its shareholders on January 17, 2020. All Class B common stock is owned by SG Broadcasting. At February 28, 2019 and December 31, 2019, no shares of Class C common stock were issued or outstanding.
3. CONVERTIBLE PREFERRED STOCK
In connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock, par value $0.01 (the “MediaCo Series A Preferred Shares”) in exchange for a cash contribution of $22.0 million (the “SG Broadcasting Contribution”). This issuance of shares was issued in reliance upon an exemption from registration pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended. This issuance was not a “public offering” because no more than 35 non-accredited investors received securities of the Company, the Company did not engage in general solicitation or advertising with regard to the issuance and sale of shares of MediaCo Series A Preferred Shares and the Company did not make a public offering in connection with the sale of shares of MediaCo Series A Preferred Shares.
MediaCo Series A Preferred Shares rank senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock. Pursuant to the Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Preferred Shares, will be subject to certain restrictions, including that (i) the MediaCo Series A Preferred Shares shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Preferred Share could be converted, and (ii) the MediaCo Series A Preferred Shares, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a preference on the assets of the Company. Issued and outstanding shares of MediaCo Series A Preferred Shares shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior debt of the Company (see Note 5), or if no senior debt is outstanding, 6%, plus additional increases of 1% on December 12, 2020 and each anniversary thereof.
MediaCo Series A Preferred Shares are redeemable for cash at the option of SG Broadcasting at any time on or after June 12, 2025, and so the shares are classified outside of permanent equity. The Series A Preferred Shares are also convertible into shares of Class A common stock at the option of SG Broadcasting at any time on or after May 25, 2020, with the number of shares of common stock determined by dividing the original contribution, plus accrued dividends, by the 30-day volume weighted average share price of Class A common shares. On and after May 25, 2020, when the conversion option becomes effective, the Series A Preferred Shares will be considered participating securities and earnings per share will be calculated using the two-class method.
4. REVENUE
The Company generates revenue from the sale of services including, but not limited to: (i) on-air commercial broadcast time, (ii) non-traditional revenues including event-related revenues and event sponsorship revenues, (iii) digital advertising and (iv) outdoor advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized within twelve months of the payment date. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Advertising revenues presented in the combined condensed financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
Radio Advertising
On-air broadcast revenue is recognized when or as performance obligations under the terms of a contract with a customer are satisfied. This typically occurs over the period of time that advertisements are provided, or as an event occurs. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the consolidated and combined balance sheets. Substantially all deferred revenue is recognized within twelve months of the payment date.
Nontraditional
Nontraditional revenues principally consist of ticket sales and sponsorship of events our stations conduct in their local market. These revenues are recognized when our performance obligations are fulfilled, which generally coincides with the occurrence of the related event.
Digital
Digital revenue relates to revenue generated from the sale of digital marketing services (including display advertisements and video sponsorships) to advertisers. Digital revenues are generally recognized as the digital advertising is delivered.
39
Our outdoor advertising business has a total of 3,346 faces consisting of bulletins, posters and digital billboards. Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic. Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic. Digital billboards are computer controlled LED displays where six to eight advertisers rotate continuously, each one having seven to ten seconds to display a static image. Digital billboards are generally located on major traffic arteries and streets.
Other
Other revenue includes barter revenue and network revenue. The Company provides advertising broadcast time in exchange for certain products and services, including on-air radio programming. These barter arrangements generally allow the Company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration. These barter arrangements are valued based upon the Company’s estimate of the fair value of the products and services received. Revenue is recognized on barter arrangements when we broadcast the advertisements. Advertisements delivered under barter arrangements are typically aired during the same period in which the products and services are consumed. The Company also sells certain remnant advertising inventory to third-parties for cash, and we refer to this as network revenue. The third-parties aggregate our remnant inventory with other broadcasters' remnant inventory for sale to third parties, generally to large national advertisers. This network revenue is recognized as we broadcast the advertisements.
Disaggregation of revenue
The following table presents the Company's revenues disaggregated by revenue source:
|
|
Year Ended February 28, 2019 |
|
|
Ten Months Ended December 31, 2019 |
|
||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising |
$ |
28,897 |
|
|
|
67.1 |
% |
|
$ |
24,826 |
|
|
|
60.8 |
% |
|
Non Traditional |
|
7,024 |
|
|
|
16.3 |
% |
|
|
8,166 |
|
|
|
20.0 |
% |
|
Digital |
|
2,756 |
|
|
|
6.4 |
% |
|
|
3,018 |
|
|
|
7.4 |
% |
|
Outdoor Advertising(1) |
|
— |
|
|
|
0.0 |
% |
|
|
759 |
|
|
|
1.9 |
% |
|
Other |
|
4,414 |
|
|
|
10.2 |
% |
|
|
4,031 |
|
|
|
9.9 |
% |
|
Total net revenues |
$ |
43,091 |
|
|
|
|
|
|
$ |
40,800 |
|
|
|
|
|
(1) A substantial portion of this revenue from the Fairway Acquisition date of December 13, 2019 through December 31, 2019 is lessor revenue derived from operating leases accounted for under ASC 842, “Leases.”
5. LONG-TERM DEBT
Long-term debt was comprised of the following at February 28, 2019, and December 31, 2019:
|
|
|
As of February 28, 2019 |
|
|
As of December 31, 2019 |
|
||
|
Senior credit facility |
|
$ |
— |
|
|
$ |
72,527 |
|
|
Notes payable to Emmis |
|
|
— |
|
|
|
5,000 |
|
|
Notes payable to SG Broadcasting |
|
|
— |
|
|
|
6,250 |
|
|
Less: Current maturities |
|
|
— |
|
|
|
(3,672 |
) |
|
Less: Unamortized original discount |
|
|
— |
|
|
|
(2,437 |
) |
|
Total long-term debt, net of current portion and debt discount |
|
$ |
— |
|
|
$ |
77,668 |
|
On November 25, 2019, the Company entered into a $50.0 million, five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, a Delaware limited liability company, as administrative agent and collateral agent, which included one tranche of additional borrowings of $25.0 million. The Senior Credit Facility provides for initial borrowings of up to $50.0 million, of which net proceeds of $48.3 million after debt discount of $1.7 million, were paid concurrently to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company. The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor. The Senior Credit Facility requires interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount are due on the last day of each calendar quarter. The Senior Credit Facility includes covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum Liquidity (as defined in the Senior Credit Facility) of $2.0 million for the period from the effective date until November 25, 2020, $2.5 million for the period from November 26, 2020 until November 25, 2021, and $3.0 million for the period thereafter, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) of 1.10:1.00, and other customary restrictions. The Company borrowed $23.4 million of the remaining available borrowings to fund the Fairway Acquisition on December 13, 2019. Proceeds received were $22.6 million, net of a debt
40
discount of $0.8 million. The Senior Credit Facility is carried net of a total unamortized discount of $2.4 million at December 31, 2019. Subsequent to December 31, 2019, the Company amended its Senior Credit Facility. See Note 15 for further discussion.
On November 25, 2019, as part of the consideration owed to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company, the Company issued to Emmis the Emmis Convertible Promissory Note in the amount of $5.0 million. The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. Because the Senior Credit Facility prohibits the Company from paying interest in cash on the Emmis Convertible Promissory Note, the Company has been accruing interest since inception using the rate applicable if the interest will be paid in kind. The Emmis Convertible Promissory Note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. The Emmis Convertible Promissory Note matures on November 25, 2024.
On November 25, 2019, the Company issued the SG Broadcasting Promissory Note, a subordinated convertible promissory note payable by the Company to SG Broadcasting, in return for which SG Broadcasting contributed to MediaCo $6.25 million for working capital and general corporate purposes. The SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. The SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. Subsequent to December 31, 2019, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note and the Company borrowed additional amounts thereunder. See Note 15 for further discussion.
Based on amounts outstanding at December 31, 2019, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
|
Year ended December 31, |
|
Senior Credit Facility |
|
|
Emmis Notes |
|
|
SG Broadcasting Notes |
|
|
Total |
|
||||
|
2020 |
|
$ |
3,672 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,672 |
|
|
2021 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
2022 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
2023 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
2024 |
|
|
57,839 |
|
|
|
5,000 |
|
|
|
— |
|
|
|
62,839 |
|
|
Thereafter |
|
|
— |
|
|
|
— |
|
|
|
6,250 |
|
|
|
6,250 |
|
|
Total |
|
$ |
72,527 |
|
|
$ |
5,000 |
|
|
$ |
6,250 |
|
|
$ |
83,777 |
|
6. FAIR VALUE MEASUREMENTS
As defined in ASC Topic 820, “Fair Value Measurement,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
Recurring Fair Value Measurements
The Company has no financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2019.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 9, Intangible Assets and Goodwill, and Note 7, Acquisition, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 9 for more discussion).
41
Fair Value of Other Financial Instruments
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The estimated fair value of financial instruments is determined using the best available market information and appropriate valuation methodologies. Considerable judgment is necessary, however, in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange, or the value that ultimately will be realized upon maturity or disposition. The use of different market assumptions may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of financial instruments:
- Cash and cash equivalents : The carrying amount of these assets approximates fair value because of the short maturity of these instruments.
- Senior Credit Facility : As of December 31, 2019, the fair value and carrying value, excluding original issue discount, of the Company’s Senior Credit Facility debt was $72.5 million. This debt is not actively traded and is considered a Level 3 instrument. The Company believes the current carrying value of this debt approximates its fair value.
- Other long-term debt : The Emmis Promissory Note and SG Broadcasting Note are not actively traded and are considered Level 3 instruments. The Company believes the current carrying value of this debt approximates its fair value.
7. ACQUISITION
On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC from Fairway Outdoor Advertising Group, LLC for a purchase price of $43.1 million, subject to customary working capital adjustments. Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia. Fees and expenses associated with the transaction were $1.2 million, which are included in corporate expenses in the consolidated and combined statement of operations. The acquisition was funded through $23.4 million of additional borrowings under the Senior Credit Facility as described in Note 5, which were net of a debt discount of $0.8 million, resulting in $22.6 million of proceeds. The remainder was financed by SG Broadcasting through $22.0 million of newly-issued Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock pays an in-kind dividend equal to the rate on the existing SG Broadcasting Promissory Note described in Note 5, is convertible into MediaCo Class A common stock on the same terms as the SG Broadcasting Promissory Note, and is redeemable at the option of the holder five years and six months after issuance. The Company believes this is a highly-scalable business model with attractive operative leverage.
As of December 31, 2019, our fair value allocation of the assets acquired and liabilities assumed from Fairway is considered preliminary and is subject to revision, which may result in adjustments to this allocation. We continue to analyze inputs to the valuation models for all long term assets, including intangibles, as well as estimated asset retirement obligations. We expect to finalize these amounts during 2020. The allocations presented in the table below are based upon management’s estimate of the fair value using valuation techniques including income, cost and market approaches. The most significant asset acquired, property, plant and equipment, was valued using the cost approach. The preliminary purchase price allocation was as follows:
|
Cash consideration |
$ |
43,108 |
|
|
Due from Seller |
|
(106 |
) |
|
Total Consideration |
$ |
43,002 |
|
|
|
|
|
|
|
Accounts receivable |
$ |
1,676 |
|
|
Other current assets |
|
105 |
|
|
Property, plant and equipment |
|
29,971 |
|
|
Operating lease, right-of-use assets |
|
15,267 |
|
|
Goodwill |
|
11,424 |
|
|
Intangibles (Note 9) |
|
3,760 |
|
|
Deferred tax asset |
|
1,040 |
|
|
Other assets |
|
16 |
|
|
Assets Acquired |
$ |
63,259 |
|
|
Accounts payable |
$ |
73 |
|
|
Accrued expenses and other current liabilities |
|
539 |
|
|
Current portion of operating lease liabilities |
|
822 |
|
|
Operating lease liabilities, less current portion |
|
12,320 |
|
|
Asset retirement obligations (Note 10) |
|
5,590 |
|
|
Deferred revenue |
|
760 |
|
|
Other noncurrent liabilities |
|
153 |
|
|
Liabilities Assumed |
$ |
20,257 |
|
|
Net Assets Acquired |
$ |
43,002 |
|
42
The Fairway Acquisition was accounted for under the acquisition method of accounting, and, accordingly, the accompanying consolidated and combined financial statements include the results of operations of each acquired entity from the date of acquisition. The revenues and operating income contributed to MediaCo by the acquired businesses for the period December 13, 2019 to December 31, 2019 were $0.7 million and $0.2 million respectively. The operating income is exclusive of acquisition costs of $1.2 million that are included in “All Other” in Note 13.
The following unaudited pro forma financial information for the Company gives effect to the acquisitions as if they had occurred on March 1, 2018. These pro forma results do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on such date or to project the Company’s results of operations for any future period.
|
|
|
Year Ended February 28, 2019 (unaudited) |
|
|
Ten Months Ended December 31, 2019 (unaudited) |
|
||
|
Net revenues |
|
$ |
56,489 |
|
|
$ |
51,869 |
|
|
Net income attributable to common shareholders |
|
|
1,831 |
|
|
|
1,042 |
|
Goodwill of $11.4 million was recognized as a result of the purchase which represented the excess of the purchase price over the identifiable acquired assets, $9.0 million of which is deductible for tax purposes. The goodwill acquired is assigned to the outdoor advertising segment.
8. LEASES
We determine if an arrangement is a lease at inception. We have operating leases for office space, tower space, the land on which some outdoor advertising structures are erected, equipment and automobiles expiring at various dates through October 2049. Some leases have options to extend and some have options to terminate. Beginning March 1, 2019, operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our consolidated and combined balance sheets.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable. Our lease terms may include options to extend or terminate the lease, which we treat as exercised when it is reasonably certain and there is a significant economic incentive to exercise that option.
Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred. Variable lease expense recognized in the ten months ended December 31, 2019, was not material.
We elected not to apply the recognition requirements of ASC 842, “Leases,” to short-term leases, which are deemed to be leases with a lease term of twelve months or less. Instead, we recognized lease payments in the consolidated and combined statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred. We elected this policy for all classes of underlying assets. Short-term lease expense recognized in the ten months ended December 31, 2019, was not material.
The impact of operating leases to our combined and consolidated financial statements was as follows:
|
|
|
Ten Months Ended December 31, |
|
|
|
|
|
2019 |
|
|
|
Lease Cost |
|
|
|
|
|
Operating lease cost |
|
$ |
2,266 |
|
|
Other Information |
|
|
|
|
|
Operating cash flows from operating leases |
|
|
2,495 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
30,204 |
|
|
Weighted average remaining lease term - operating leases (in years) |
|
|
9.5 |
|
|
Weighted average discount rate - operating leases |
|
|
8.3 |
% |
43
As of December 31, 2019, the annual minimum lease payments of our operating lease liabilities were as follows:
|
Year ending December 31, |
|
|
|
|
2020 |
$ |
4,539 |
|
|
2021 |
|
5,211 |
|
|
2022 |
|
5,105 |
|
|
2023 |
|
4,123 |
|
|
2024 |
|
2,712 |
|
|
After 2024 |
|
18,970 |
|
|
Total lease payments |
|
40,660 |
|
|
Less imputed interest |
|
14,516 |
|
|
Total recorded lease liabilities |
$ |
26,144 |
|
Our outdoor advertising business generates lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Minimum fixed lease consideration under non-cancelable operating leases for each of the next five years and thereafter, excluding variable lease consideration, as of December 31, 2019, is as follows:
9. INTANGIBLE ASSETS AND GOODWILL
In accordance with ASC Topic 350, Intangibles—Goodwill and Other, the Company reviews goodwill and other intangibles at least annually for impairment. In connection with any such review, if the recorded value of goodwill and other intangibles is greater than its fair value, the intangibles are written down and charged to results of operations. FCC licenses are renewed every eight years at a nominal cost, and historically both of our FCC licenses have been renewed at the end of their respective eight-year periods. Since we expect that both of our FCC licenses will continue to be renewed in the future, we believe they have indefinite lives. Given that our radio stations operate in the same geographic market they are considered a single unit of accounting.
Impairment Testing
The Company generally performs its annual impairment review of indefinite-lived intangibles as of October 1 each year. In the ten months ended December 31, 2019, the Company performed the analysis of the FCC licenses as of November 25, the date of the transfer of the stations from Emmis to MediaCo. At the time of each impairment review, if the fair value of the indefinite-lived intangible is less than its carrying value, a charge is recorded to results of operations. When indicators of impairment are present, the Company will perform an interim impairment test. We will perform additional interim impairment assessments whenever triggering events suggest such testing for the recoverability of these assets is warranted. During the year ended February 28, 2019 and the ten-month period ended December 31, 2019 the Company did not record any impairment losses.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considered both income and market valuation methods when it performed its impairment tests. Under the income method, the Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in each market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take current economic conditions into consideration. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value.
44
Below are some of the key assumptions used in our income method annual impairment assessments. In recent years, we have reduced long-term growth rates in the New York market in which we operate based on recent industry trends and our expectations for the market going forward. The methodology used to value our FCC licenses has not changed during any of the periods presented.
|
|
|
December 1, 2018 |
|
|
November 25, 2019 |
|
|
Discount Rate |
|
11.9% |
|
|
11.9% |
|
|
Long-term Revenue Growth Rate |
|
0.3% |
|
|
-0.6% |
|
|
Mature Market Share |
|
12.9% |
|
|
9.0% |
|
|
Operating Profit Margin |
|
38.0% |
|
|
22.7-26.7% |
|
As of both February 28, 2019 and December 31 2019, the carrying amounts of the Company’s FCC licenses were $63.3 million.
Valuation of Goodwill
As a result of the acquisition of the Fairway Acquisition discussed in Note 7, goodwill of $11.4 million was recognized during the year. This accounts for all goodwill on the consolidated and combined balance sheets as of December 31, 2019. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. The acquisition closed on December 13, 2019 and all assets acquired and liabilities assumed were valued as of that date, resulting in a goodwill valuation of $11.4 million. There have been no indicators of impairment that have arisen since that date that would require us to assess the goodwill for impairment. The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period. The purchase price allocation described in Note 7 is preliminary and subject to adjustment. Any adjustment to the purchase price allocation may directly impact the value of goodwill.
Valuation of Trade Name
As a result of the Fairway Acquisition, the Company acquired the trade name ‘Fairway’. The trade name is well known in the industry and is being retained for continued market use following the acquisition. This trade name favorably factors into customer purchasing decisions. For the purchase price allocation, the trade name was valued using the relief from royalty method. This method is based on what a company would be willing to pay for a royalty in order to exploit the related benefits of the trade name. The value of the trade name is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the trade name. The preliminary valuation assigned to the trade name as a result of the purchase price accounting is $0.7 million. The trade name is an indefinite-lived intangible asset based on our intention to renew it when legally required and to utilize it going forward. We will assess the trade name annually for impairment on October 1 of each year.
Definite-lived Intangibles
The following table presents the weighted-average remaining useful life at December 31, 2019 and gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at February 28, 2019, and December 31, 2019:
|
|
|
|
|
|
|
As of February 28, 2019 |
|
|
As of December 31, 2019 |
|
||||||||||||||||||
|
|
|
Weighted Average Remaining Useful Life (in years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|||||||
|
Programming Contract |
|
|
1.8 |
|
|
$ |
2,154 |
|
|
$ |
1,394 |
|
|
$ |
760 |
|
|
$ |
2,154 |
|
|
$ |
1,640 |
|
|
$ |
514 |
|
|
Customer List |
|
|
3.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,030 |
|
|
|
14 |
|
|
|
3,016 |
|
The customer list was acquired as part of the Fairway Acquisition on December 13, 2019 and was valued as part of the purchase price allocation performed at closing. Customer relationships represent a source of repeat business. The information contained in such relationships usually includes the preferences of the customer, the buying patterns of the customer, and the history of purchases that have been made by the customer. In calculating the value of Fairway Outdoors’ customer relationships, we employed the multiperiod excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. This methodology resulted in a preliminary valuation of $3.0 million. A useful life of three years has been assigned to the customer list.
Total amortization expense from definite-lived intangibles was $0.3 million for both the year ended February 28, 2019, and the ten-month period ended December 31, 2019. The following table presents the Company’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles:
|
Year ended December 31, |
|
Expected Amortization Expense |
|
|
|
2020 |
|
$ |
1,332 |
|
|
2021 |
|
|
1,230 |
|
|
2022 |
|
|
968 |
|
|
2023 |
|
|
— |
|
|
2024 |
|
|
— |
|
45
10. ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligation includes the costs associated with the removal of its structures, resurfacing of the land and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations.
|
Balance at February 28, 2019 |
|
|
$ |
— |
|
|
Additions to asset retirement obligations |
|
|
|
5,590 |
|
|
Accretion expense |
|
|
|
33 |
|
|
Balance at December 31, 2019 |
|
|
$ |
5,623 |
|
11. OTHER COMMITMENTS AND CONTINGENCIES
a. Commitments
In addition to the lease payments described in Note 8, the Company has various commitments under the following types of material contracts: (i) Management Agreement with Emmis (Note 14) and (ii) other contracts with annual commitments (including payouts to former management of Fairway Outdoor) at December 31, 2019 as follows:
|
Year ending December 31, |
|
Management Agreement |
|
|
Other Contracts |
|
|
Total |
|
|||
|
2020 |
|
$ |
1,250 |
|
|
$ |
363 |
|
|
$ |
1,613 |
|
|
2021 |
|
|
500 |
|
|
|
81 |
|
|
|
581 |
|
|
2022 |
|
|
— |
|
|
|
76 |
|
|
|
76 |
|
|
2023 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Thereafter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
1,750 |
|
|
$ |
520 |
|
|
$ |
2,270 |
|
As part of the acquisition of SG Broadcasting’s controlling interest in the Company from Emmis on November 25, 2019, MediaCo owed to Emmis the working capital of the stations, but the Company was permitted to collect and use, for a period of nine months, the first $5.0 million of net working capital attributable to the stations as of the closing date. This amount is due to Emmis on the nine month anniversary of the closing date, or August 25, 2020. This right to $5.0 million of retained net working capital was satisfied in January 2020 and used in the operations of the business. MediaCo does not believe it will generate $5.0 million of excess cash from operations by August 25, 2020 to repay this amount to Emmis, but Standard General has guaranteed this payment to Emmis in the event MediaCo is unable to make the payment when due.
b. Litigation
From time to time, our stations are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
12. INCOME TAXES
The provision for income taxes for the year ended February 28, 2019 and ten months ended December 31, 2019 consisted of the following:
|
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
||
|
Current: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
$ |
— |
|
|
$ |
187 |
|
|
State |
|
|
|
— |
|
|
|
124 |
|
|
Total current |
|
|
|
— |
|
|
|
311 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
1,644 |
|
|
|
522 |
|
|
State |
|
|
|
874 |
|
|
|
689 |
|
|
Total deferred |
|
|
|
2,518 |
|
|
|
1,211 |
|
|
Provision for income taxes |
|
|
$ |
2,518 |
|
|
$ |
1,522 |
|
46
The provision for income taxes for the year ended February 28, 2019 and the ten-month period ended December 31, 2019 differs from that computed at the Federal statutory corporate tax rate as follows:
|
|
|
|
For the year ended February 28, 2019 |
|
|
For the ten months ended December 31, 2019 |
|
||
|
Federal statutory income tax rate |
|
|
|
21 |
% |
|
|
21 |
% |
|
Computed income tax provision at federal statutory rate |
|
|
$ |
1,656 |
|
|
$ |
729 |
|
|
State income tax |
|
|
|
874 |
|
|
|
265 |
|
|
State tax rate change |
|
|
|
— |
|
|
|
549 |
|
|
Entertainment disallowance |
|
|
|
18 |
|
|
|
20 |
|
|
Other |
|
|
|
(30 |
) |
|
|
(41 |
) |
|
(Benefit) provision for income taxes |
|
|
$ |
2,518 |
|
|
$ |
1,522 |
|
The final determination of our income tax liability may be materially different from our income tax provision. Significant judgment is required in determining our provision for income taxes. Our calculation of the provision for income taxes is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. In addition, our income tax returns are subject to periodic examination by the Internal Revenue Service and other taxing authorities. As of December 31, 2019, the Company had no open income tax examinations. The Company’s federal and state income tax filing obligation will begin with the returns for the tax year ended December 31, 2019.
The components of deferred tax assets and deferred tax liabilities at February 28, 2019 and December 31, 2019 were as follows:
|
|
|
As of February 28, 2019 |
|
|
As of December 31, 2019 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
$ |
12,935 |
|
|
$ |
15,200 |
|
|
Lease liability |
|
|
— |
|
|
|
7,843 |
|
|
Compensation relating to stock options |
|
|
101 |
|
|
|
— |
|
|
Accrued rent |
|
|
698 |
|
|
|
— |
|
|
Net operating losses |
|
|
86 |
|
|
|
6,013 |
|
|
Other |
|
|
114 |
|
|
|
252 |
|
|
Total deferred tax assets |
|
|
13,934 |
|
|
|
29,308 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
|
(6,854 |
) |
|
|
(4,818 |
) |
|
Right of use asset |
|
|
— |
|
|
|
(7,902 |
) |
|
Property and equipment |
|
|
(327 |
) |
|
|
(2,725 |
) |
|
Total deferred tax liabilities |
|
|
(7,181 |
) |
|
|
(15,445 |
) |
|
Net deferred tax assets |
|
$ |
6,753 |
|
|
$ |
13,863 |
|
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset (“DTA”) will not be realized. The Company has considered future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowance. The Company has performed an analysis and determined that a valuation allowance is not necessary at this time. The Company will assess quarterly whether it remains more likely than not that the deferred tax assets will be realized.
The Company has federal net operating losses (“NOLs”) of $28 million and state NOLs of $1.5 million available to offset future taxable income. The federal and certain state net operating loss carryforwards do not expire, and the remaining state net operating loss carryforwards expire in the year ending December 2039.
Accounting Standards Codification paragraph 740-10 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken within a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of December 31, 2019, the Company has no uncertain tax positions.
13. SEGMENT INFORMATION
The Company’s operations are aligned into two business segments: (i) Radio, and (ii) Outdoor advertising. Radio includes the operations and results of WQHT-FM and WBLS-FM, and outdoor advertising includes the operations and results of the Fairway businesses acquired in December 2019. The Company groups activities that are not considered operating segments in the “All Other” category.
These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Corporate expenses, including transaction costs, are not allocated to reportable segments. The Company’s segments operate exclusively in the United States.
47
The accounting policies as described in the summary of significant accounting policies included in Note 1 to these consolidated and combined financial statements, are applied consistently across segments.
|
Ten Months Ended December 31, 2019 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
|
Net revenues |
|
$ |
40,041 |
|
|
$ |
759 |
|
|
$ |
— |
|
|
$ |
40,800 |
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
30,751 |
|
|
|
375 |
|
|
|
— |
|
|
|
31,126 |
|
|
Corporate expenses excluding depreciation and amortization expense |
|
|
— |
|
|
|
— |
|
|
|
4,303 |
|
|
|
4,303 |
|
|
Depreciation and amortization |
|
|
980 |
|
|
|
100 |
|
|
|
— |
|
|
|
1,080 |
|
|
Operating income (loss) |
|
$ |
8,310 |
|
|
$ |
284 |
|
|
$ |
(4,303 |
) |
|
$ |
4,291 |
|
|
Year Ended February 28, 2019 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
|
Net revenues |
|
$ |
43,091 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
43,091 |
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
33,830 |
|
|
|
— |
|
|
|
— |
|
|
|
33,830 |
|
|
Depreciation and amortization |
|
|
1,318 |
|
|
|
— |
|
|
|
— |
|
|
|
1,318 |
|
|
Loss on sale of fixed assets |
|
|
56 |
|
|
|
— |
|
|
|
— |
|
|
|
56 |
|
|
Operating income (loss) |
|
$ |
7,887 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,887 |
|
|
Total Assets |
|
Radio |
|
|
Outdoor Advertising |
|
|
Consolidated |
|
|||
|
As of February 28, 2019 |
|
$ |
83,128 |
|
|
$ |
- |
|
|
$ |
83,128 |
|
|
As of December 31, 2019 |
|
|
102,921 |
|
|
|
64,245 |
|
|
|
167,166 |
|
14. RELATED PARTY TRANSACTIONS
Corporate Overhead and Share-Based Compensation
For the year-ended February 28, 2019 and until November 25, 2019 of the ten-month period ended December 31, 2019, MediaCo was 100% owned by Emmis. Our financial statements for these periods are derived from the books and records of Emmis and were carved-out from Emmis at a carrying value reflective of historical cost in Emmis’ records. Our historical combined financial results include an allocation of expense related to certain Emmis corporate functions, including executive oversight, legal, finance, human resources, and information technology. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount and other measures. We consider this expense allocation methodology and results thereof to be reasonable for all periods presented.
Transaction Agreement with Emmis and SG Broadcasting
On June 28, 2019, MediaCo entered into a Contribution and Distribution Agreement with Emmis and SG Broadcasting, pursuant to which (i) Emmis contributed the assets of its radio stations WQHT-FM and WBLS-FM, in exchange for $91.5 million in cash, a $5.0 million note and 23.72% of the common stock of MediaCo, (ii) Standard General purchased 76.28% of the common stock of MediaCo, and (iii) the common stock of MediaCo received by Emmis was distributed pro rata in a taxable dividend to Emmis’ shareholders on January 17, 2020. The common stock of MediaCo acquired by Standard General is entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders is entitled to one vote per share. Emmis will continue to provide management services to the Stations under a management agreement, subject to the direction of the MediaCo board of directors which initially consists of four directors appointed by Standard General and three directors appointed by Emmis. MediaCo will pay Emmis an annual management fee of $1.3 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business. The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into a management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements. The Management Agreement with Emmis Operating Company is for an initial term of two years (cancellable by MediaCo after 18 months) under which Emmis will provide various services to us, including accounting, human resources, information technology, legal, public reporting and tax. We will pay Emmis an annual fee of $1.3 million in equal monthly installments for these services, plus reimbursement of certain expenses directly related to our operations. For the ten months ended December 31, 2019, MediaCo recorded $0.1 million of management fee expense which is included in corporate expenses in the accompanying consolidated and combined statements of operations. This fee was unpaid as of December 31, 2019 and is included in accounts payable and accrued expenses in the accompanying consolidated and combined balance sheets. Under the Employee Leasing Agreement, the employees of the Stations will remain employees of Emmis and we will reimburse Emmis for the cost of these employees, including health and benefit costs. The initial term of the Employee Leasing Agreement will last through December 31, 2020, and will automatically renew for successive six-month periods, unless otherwise terminated upon the occurrence of certain events. Upon termination of the Employee Leasing Agreement, we will hire all of the leased employees and assume employment and collective bargaining agreements related to those employees. Expense related to the Employee Leasing Agreement was $1.2 million for the period November 25, 2019 to December 31, 2019. This expense is recognized in operating expenses
48
excluding depreciation and amortization in the consolidated and combined statements of operations. $0.5 million is unpaid as of December 31, 2019 and is included in accounts payable and accrued expenses in the consolidated and combined balance sheets.
As part of the acquisition of SG Broadcasting’s controlling interest in the Company from Emmis on November 25, 2019, MediaCo owed to Emmis the working capital of the stations, but the Company was permitted to collect and retain, for a period of nine months, the first $5.0 million of net working capital attributable to the stations as of the closing date. This amount is due to Emmis on the nine month anniversary of the closing date, or August 25, 2020. This right to $5.0 million of retained net working capital was satisfied in January 2020 and used in the operations of the business. MediaCo does not believe it will generate $5.0 million of excess cash from operations by August 25, 2020 to repay this amount to Emmis, but Standard General has guaranteed this payment to Emmis in the event MediaCo is unable to make the payment when due. Total net working capital due to Emmis of $8.5 million (of which $5 million is guaranteed by Standard General) is recorded in accounts payable and accrued expenses in the December 31, 2019 consolidated and combined balance sheet.
Convertible Promissory Notes
As a result of the transaction described above, on November 25, 2019, we issued convertible promissory notes to both Emmis and SG Broadcasting in the amounts of $5.0 million and $6.3 million, respectively. The terms of these notes are described in Note 5. Subsequent to December 31, 2019, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note and the Company borrowed additional amounts thereunder. See Note 15 for further discussion.
Convertible Preferred Stock
On December 13, 2019, in connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock. See Note 3 for a description of the Preferred Stock.
15. SUBSEQUENT EVENTS
On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.
On February 28, 2020, the Company entered into Amendment No. 1 to its Senior Credit Facility, in order to, among other things, increase the maximum aggregate principal amount issuable under the SG Broadcasting Promissory Note to $10.3 million.
On March 27, 2020, the Company entered into Amendment No. 2 (“Amendment No. 2”) to its amended and restated Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity (as defined in the Senior Credit Facility) requirement to $1.0 million through September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note and any amendments thereto to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the Second Amended and Restated SG Broadcasting Promissory Note (as defined below) from $10.3 million to $20.0 million. In connection with Amendment No. 2, the Company incurred an amendment fee of approximately $0.2 million, which was added to the principal amount of the Senior Credit Facility then outstanding.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Promissory Note”) such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes. Consequently, the principal amount outstanding under the Second Amended and Restated SG Broadcasting Promissory Note as of March 27, 2020 was $11.3 million.
In March 2020 the World Health Organization declared the global novel coronavirus disease 2019 (COVID-19) outbreak a pandemic. As of the date these financial statements were filed, we are already starting to feel the impact of COVID-19 on the advertising and event-related revenues of our radio segment and, to a lesser degree, the revenues of our outdoor advertising segment. The Company’s operations are being adversely affected as a result of COVID-19, with certain advertisers cancelling their orders and an overall reduction in new advertising orders, but the full extent of the impact is not known at this point as the scale and severity of the outbreak is still unknown.
49
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
As of the end of the period covered by this transition report, the Company evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (“Disclosure Controls”). This evaluation (the “Controls Evaluation”) was performed under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).
Based upon the Controls Evaluation, our CEO and CFO concluded that as of December 31, 2019, our Disclosure Controls are effective to ensure that information relating to MediaCo Holding Inc. and Subsidiaries that is required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
The Company is in the process of implementing our standardized control procedures within Fairway Outdoor and expects this to be completed during 2020.
There were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Amended and Restated SG Broadcasting Promissory Note
On March 27, 2020, the Company entered into a second amendment and restatement of the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Broadcasting Promissory Note”). The Second Amended and Restated SG Broadcasting Promissory Note, among other things, increases the maximum aggregate principal amount issuable under the note from $10.3 million to $20.0 million. As of March 27, 2020, SG Broadcasting has loaned to the Company $11.3 million under the Second Amended and Restated SG Broadcasting Promissory Note and expects to make additional loans from time to time.
The Second Amended and Restated SG Broadcasting Promissory Note contains a limitation on conversion of the outstanding principal and any accrued but unpaid interest thereunder into shares of the Class A Common Stock, par value $0.01 per share (the “Class A Stock”), of the Company, such that the maximum number of shares of Class A Stock to be issued in connection with the conversion of the Second Amended and Restated SG Broadcasting Promissory Note shall not, without the prior approval of the shareholders of the Company, (i) exceed a number of shares equal to 19.9% of the outstanding shares of common stock of the Company immediately prior to February 28, 2020, (ii) exceed a number of shares that would evidence voting power greater than 19.9% of the combined voting power of the outstanding voting securities of the Company immediately prior to February 28, 2020, or (iii) otherwise exceed such number of shares of capital stock of the Company that would violate applicable listing rules of the Nasdaq Stock Market (“Nasdaq”), in each of subsections (i) through (iii), only to the extent required by applicable Nasdaq rules and guidance (the “Share Cap”). In the event the number of shares of Class A Stock to be issued upon conversion of the Second Amended and Restated SG Broadcasting Promissory Note exceeds the Share Cap, then the portions of the Second Amended and Restated SG Broadcasting Promissory Note that would result in the issuance of any excess shares shall cease being convertible, and the Company shall instead either (x) repay such portions of the Second Amended and Restated SG Broadcasting Promissory Note in cash or (y) obtain shareholder approval of the issuance of shares of Class A Stock in excess of the Share Cap prior to the issuance thereof.
As of March 27, 2020, SG Broadcasting is the controlling shareholder of the Company, beneficially owning more than 76.28% of the outstanding common stock of the Company, including 100% of the outstanding Class B Common Stock, par value $0.01 per share (the “Class B Stock”), of the Company, which percentages of Class A Stock and Class B Stock collectively represent more than 96.98% of the combined voting power of the outstanding voting securities of the Company.
Amendment No. 2 to our Senior Credit Facility
On March 27, 2020, the Company entered into Amendment No. 2 to its amended and restated Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity (as defined in the Senior Credit Facility) requirement to $1.0 million through
50
September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note and any amendments thereto to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the Second Amended and Restated SG Broadcasting Promissory Note from $10.3 million to $20.0 million.
The foregoing descriptions are qualified in their entireties by reference to the complete terms and conditions of the Second Amended and Restated SG Broadcasting Promissory Note, which is filed as Exhibit 10.19 hereto, and Amendment No. 2 to our Senior Credit Facility, which is filed as Exhibit 10.20 hereto, and which are incorporated by reference herein.
51
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item with respect to directors or nominees to be directors of MediaCo is incorporated by reference from the sections entitled “Proposal 1: Election of Directors,” “Delinquent Section 16(a) Reports,” “Corporate Governance – Certain Committees of the Board of Directors,” and “Corporate Governance – Code of Ethics” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies. Information about executive officers of MediaCo or its affiliates who are not directors or nominees to be directors is presented in Part I under the caption “Information about our Executive Officers.”
ITEM 11.EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance – Compensation of Directors,” and “Executive Compensation” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Information required by this item is incorporated by reference from the section entitled “Security Ownership of Beneficial Owners and Management” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance – Independent Directors” and “Corporate Governance – Transactions with Related Persons” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this item is incorporated by reference from the section entitled “Matters Relating to Independent Registered Public Accountants” in the proxy statement for the Annual Meeting of Shareholders expected to be filed within 120 days after the end of the fiscal year to which this report applies.
52
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Financial Statements
The financial statements filed as a part of this report are set forth under Item 8.
Financial Statement Schedules
No financial statement schedules are required to be filed with this report.
Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
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Filed Herewith |
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Form |
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Period Ending |
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Exhibit |
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Filing Date |
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2.1 |
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8-K |
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2.1 |
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11/27/2019 |
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3.1 |
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Amended and Restated Articles of Incorporation of MediaCo Holding Inc., as amended. |
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X |
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3.2 |
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10-12B/A |
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3.2 |
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11/22/2019 |
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4.1 |
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X |
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10.1 |
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8-K |
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10.1
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11/27/2019 |
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10.2 |
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8-K |
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10.2 |
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11/27/2019 |
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10.3 |
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8-K |
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10.3 |
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11/27/2019 |
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10.4 |
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8-K |
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10.4 |
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11/27/2019 |
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10.5 |
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8-K |
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10.5 |
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11/27/2019 |
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10.6 |
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8-K |
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10.6 |
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11/27/2019 |
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10.7 |
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8-K |
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10.7 |
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11/27/2019 |
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10.8 |
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8-K |
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10.8 |
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11/27/2019 |
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10.9 |
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8-K |
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10.9 |
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11/27/2019 |
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10.10 |
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10.11 |
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8-K |
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10.1 |
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12/18/2019 |
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10.12 |
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8-K |
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10.2 |
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12/18/2019 |
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53
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8-K |
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10.3 |
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12/18/2019 |
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10.14 |
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8-K |
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10.4 |
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12/18/2019 |
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10.15 |
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8-K |
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10.5 |
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12/18/2019 |
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10.16 |
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8-K |
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10.6 |
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12/18/2019 |
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10.17 |
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8-K |
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10.1 |
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3/2/2020 |
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10.18 |
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8-K |
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10.2 |
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3/2/2020 |
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10.19 |
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X |
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10.20 |
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X |
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21 |
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X |
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24 |
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X |
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31.1 |
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X |
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31.2 |
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X |
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32.1 |
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X |
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32.2 |
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X |
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101.INS |
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XBRL Instance Document |
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X |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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X |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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X |
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101.LAB |
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XBRL Taxonomy Extension Labels Linkbase Document |
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X |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
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X |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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X |
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* Schedules and exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or exhibit as a supplement to the Commission or its staff upon request.
# Portions of this exhibit, marked by brackets, have been omitted pursuant to Item 601(b)(10) of Regulation S-K because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The registrant undertakes to promptly provide an unredacted copy of the exhibit on a supplemental basis, if requested by the Commission or its staff.
+ Management contract or compensatory plan or arrangement.
54
None.
55
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.
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MEDIACO HOLDING INC. |
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Date: March 27, 2020 |
By: |
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/s/ Jeffrey H. Smulyan |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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SIGNATURE |
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TITLE |
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Date: March 27, 2020 |
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/s/ Jeffrey H. Smulyan |
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Chief Executive Officer and Director |
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Jeffrey H. Smulyan |
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(Principal Executive Officer) |
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Date: March 27, 2020 |
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/s/ Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer |
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Ryan A. Hornaday |
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and Treasurer (Principal Financial Officer and |
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Principal Accounting Officer) |
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Date: March 27, 2020 |
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/s/ Patrick M. Walsh |
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President, Chief Operating Officer and Director |
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Patrick M. Walsh |
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Date: March 27, 2020 |
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/s/ J. Scott Enright |
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Executive Vice President, General Counsel and |
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J. Scott Enright |
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Secretary and Director |
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Date: March 27, 2020 |
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Andrew Glaze* |
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Director |
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Andrew Glaze |
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Date: March 27, 2020 |
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Laura Lee* |
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Director |
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Laura Lee |
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Date: March 27, 2020 |
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Mary Beth McAdaragh* |
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Director |
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Mary Beth McAdaragh |
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Date: March 27, 2020 |
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Deborah McDermott* |
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Director |
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Deborah McDermott |
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*By: |
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/s/ J. Scott Enright |
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J. Scott Enright Attorney-in-Fact |
56
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MEDIACO HOLDING INC.
These Amended and Restated Articles of Incorporation (the “Articles”) of MediaCo Holding Inc., a corporation organized and existing under the laws of the State of Indiana (the “Corporation”), which was duly incorporated as of June 27, 2019, hereby amend, restate and replace the previously existing Articles of Incorporation of the Corporation as follows:
ARTICLE I
Corporate Name
The name of the Corporation is MediaCo Holding Inc.
ARTICLE II
Purposes
The purpose of the Corporation is to transact any or all lawful business for which corporations may be incorporated under the Indiana Business Corporation Law, as now or hereafter amended (the “Act”). The Corporation shall have the same capacity to act as possessed by natural persons and shall have and exercise all powers granted to business corporations formed under the Act and permitted by the laws of the State of Indiana in force from time to time hereafter, including, but not limited to, the general rights, privileges and powers set out in the Act, the power to enter into and engage in partnerships and joint ventures, and to act as agent. The Corporation shall have the power and capacity to engage in all business activities, either directly or through any person, firm, entity, trust, partnership or association.
ARTICLE III
Definitions
As used herein, the following terms shall have the meanings indicated:
“Act” has the meaning defined in Article II.
“Affiliate of SG” means (i) any person or entity that, directly or indirectly, controls, is controlled by or is under common control with SG, or (ii) any corporation or organization (other than the Corporation or a majority-owned subsidiary of the Corporation) of which SG is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of voting securities, or in which SG has a substantial beneficial interest.
“Alien” has the meaning defined in Article XI.
“Articles” has the meaning defined in the introduction to these Articles of Incorporation of MediaCo Holding Inc.
“Board of Directors” has the meaning defined in Section 7.2(a).
“Class A Directors” has the meaning defined in Section 7.4(b).
“Class A Shares” has the meaning defined in Section 6.1(a).
“Class B Directors” has the meaning defined in Section 7.4(c).
“Class B Shares” has the meaning defined in Section 6.1(b).
“Class C Shares” has the meaning defined in Section 6.1(c).
“Common Shares” has the meaning defined in Section 6.1(c).
“Corporation” has the meaning defined in the introduction to these Articles.
“Effective Date” means November 14, 2019, the date and time at which the Corporation’s Articles are effective.
“Event of Automatic Conversion” means each of the automatic conversion events described in Section 7.6(b).
“FCC” has the meaning defined in Article XI.
“FCC Regulatory Limitation” has the meaning defined in Article XII.
“Federal Communications Laws” has the meaning defined in Article XI.
“Going Private Transaction” shall mean any transaction that is a “Rule 13e-3 Transaction,” as such term is defined in Rule 13e-3(a)(3), 17 C.F.R. § 240.13e-3, as amended from time to time, promulgated under the Securities Exchange Act of 1934, as amended; provided, however, that the term “affiliate” as used in Rule 13e-3(a)(3)(i) shall be deemed to include an Affiliate of SG.
“Group” shall have the meaning contemplated by Rule 13d-5(b), 17 C.F.R. § 240.13d-5, as amended from time to time, promulgated under the Securities Exchange Act of 1934, as amended.
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“Independent Director” shall have the meaning defined in set forth in the listing standards of the stock exchange on which the Common Shares are listed from time to time.
“Management Agreement” means that certain Management Agreement, by and between Emmis Operating Company and the Corporation, dated as of November 14, 2019.
“Management Company” means and refers to Emmis Operating Company.
“Note” means that certain Unsecured Promissory Note by the Corporation in favor of Emmis Communications Corporation, dated as of November 14, 2019, in the original principal amount of $5,000,000.
“Preferred Stock” has the meaning defined in Section 6.1(d).
“SG” means and refers to SG Broadcasting LLC.
ARTICLE IV
Term of Existence
The period during which the Corporation shall continue is perpetual.
ARTICLE V
Registered Office and Registered Agent
The street address of the registered office of the Corporation is 135 N. Pennsylvania St., Suite 1610, Indianapolis, IN 46204, and the name of the registered agent at such office is Corporation Service Company.
ARTICLE VI
Capital Structure
6.1. Authorized Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is Two Hundred Sixty Million (260,000,000), consisting of the following:
(a)One Hundred Seventy Million (170,000,000) shares of Class A Common Stock, par value $.01 per share (the “Class A Shares”);
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(b)Fifty Million (50,000,000) shares of Class B Common Stock, par value $.01 per share (the “Class B Shares”);
(c)Thirty Million (30,000,000) shares of Class C Common Stock, par value $.01 per share (the “Class C Shares” and together with the Class A Shares and the Class B Shares, the “Common Shares”); and
(d)Ten Million (10,000,000) shares of Preferred Stock, par value $.01 per share (the “Preferred Stock”).
6.2. Terms of Stock. The designations, preferences, powers, qualifications and special or relative rights or privileges of the capital stock of the Corporation shall be as set forth in Articles VII and VIII.
ARTICLE VII
Common Shares
7.1. Identical Rights. Except (a) as otherwise provided in these Articles or (b) approved by the affirmative vote of the holders of a majority of the outstanding Class A Shares and a majority of the outstanding Class B Shares, each voting separately as a class, all Common Shares shall be identical and shall entitle the holders thereof to the same rights and privileges, including, but not limited to, the right to share ratably in liquidation distributions after payment in full of creditors and payment in full to any holders of Preferred Stock then outstanding of any amount required to be paid under the terms of such Preferred Stock.
7.2. Dividends.
(a)General. When, as and if dividends are declared by the Corporation’s board of directors (the “Board of Directors”), whether payable in cash, securities of the Corporation or other property, the holders of Common Shares shall be entitled, in accordance with the number of Common Shares held by each, to share equally in and to receive all such dividends, except that if dividends are declared that are payable in Common Shares, such stock dividends shall be payable at the same rate on each class of Common Shares and shall be payable only in Class A Shares to holders of Class A Shares, in Class B Shares to holders of Class B Shares and in Class C Shares to holders of Class C Shares; provided, however, that holders of Class B Shares may receive a different dividend or share of dividends than is received by the holders of Class A Shares and Class C Shares if such disparity is approved in advance by the affirmative vote of the holders of a majority of the outstanding Class A Shares and a majority of the outstanding Class B Shares, each voting separately as a class.
(b)Record Date. Dividends declared by the Board of Directors shall be paid to the holders of record of the outstanding Common Shares as their names shall appear on the stock register of the Corporation on the record date fixed by the Board of Directors in advance of declaration and payment of each dividend.
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(c)Stock Dividends. Any Common Shares issued as a dividend shall, when so issued, be duly authorized, validly issued, fully paid and non-assessable. The Corporation shall not issue fractions of Common Shares on payment of any such stock dividend but shall issue a whole number of shares to such holder of Common Shares rounded up or down in the Corporation’s sole discretion to the nearest whole number, without compensation to the stockholder whose fractional share has been rounded down or from any stockholder whose fractional share has been rounded up.
7.3. Stock Splits. The Corporation shall not in any manner subdivide (by stock split, reverse stock split, reclassification, stock dividend, recapitalization or otherwise) or combine the outstanding shares of one class of Common Shares unless the outstanding shares of all classes of Common Shares shall be proportionately subdivided or combined; provided, however, that shares of one such class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved in advance by the affirmative vote of the holders of a majority of the outstanding Class A Shares and a majority of the outstanding Class B Shares, each voting separately as a class.
7.4. Voting Rights.
(a)General. The holders of the Class A Shares and the Class B Shares shall vote as a single class in all matters submitted to a vote of the stockholders, with each Class A Share being entitled to one vote and each Class B Share being entitled to ten (10) votes, except (i) for the election of directors, which shall be governed by Subsections (b) and (c) below, (ii) with respect to any Going Private Transaction described in Subsection (g) below, which shall be governed by such Subsection, and (iii) as otherwise provided by law. The holders of the Class C Shares have no right to vote on any matter except as otherwise provided by law.
(b)Class A Directors. In the election of directors, the holders of Class A Shares shall be entitled by class vote, exclusive of all other stockholders, to elect three (3) of the Corporation’s directors (the “Class A Directors”), with each Class A Share entitled to one vote provided, however, that each Class A Director may not be an officer, director, employee or agent of SG or an Affiliate of SG. Any vote by stockholders on the removal of a Class A Director shall only be by the class vote of the holders of Class A Shares.
(c)Class B Directors. In the election of directors, the holders of Class B Shares shall be entitled by class vote, exclusive of all other stockholders, to elect four (4) of the Corporation’s directors (the “Class B Directors”), with each Class B Share entitled to one vote. Any vote by stockholders on the removal of a Class B Director shall only be by the class vote of the holders of Class B Shares.
(d)Other Directors. Except as provided in Subsections (b) and (c) above, the holders of Class A Shares and Class B Shares, voting as a single class, shall have the right to vote on the election or removal of all directors of the Corporation (other than directors, if any, who may be elected by the holders of Preferred Stock), with each Class A Share entitled to one (1) vote and each Class B Share entitled to [ten (10)] votes.
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(e)Class A Director Vacancies. In the event of the death, removal or resignation of a Class A Director prior to expiration of the director’s term, the vacancy on the Board of Directors created thereby may be filled by a majority of the directors then in office, although less than a quorum; provided, however, that any person appointed to fill a vacancy created by the death, removal or resignation of a Class A Director shall be an Independent Director. A director elected in such manner to fill such a vacancy shall hold office until the director’s successor has been duly elected and qualified at a meeting of holders of Class A Shares duly called for such purpose.
(f)Class B Director Vacancies. In the event of the death, removal or resignation of a Class B Director prior to expiration of the director’s term, the vacancy on the Board of Directors created thereby shall be filled by a majority of the directors then in office, although less than a quorum, in accordance with the instructions given to such directors by SG. A director elected in such manner to fill such a vacancy shall hold office until the director’s successor has been duly elected and qualified at a meeting of holders of Class B Shares duly called for such purpose.
(g)Going Private Transaction. In addition to majority approval voting as set forth in Section 7.4(a), the approval (by affirmative vote) of the holders of a majority of the outstanding Class A Shares shall be required to approve any Going Private Transaction between the Corporation and (i) SG, (ii) any Affiliate of SG or (iii) any Group of which SG or any Affiliate of SG is a member.
7.5. Issuance of Common Shares. Each new issuance of Common Shares after the Effective Date shall be an issuance of Class A Shares or Class C Shares.
7.6. Conversion.
(a)Voluntary Conversion. Each Class B Share shall be convertible, at the option of its holder, into one fully paid and non-assessable Class A Share at any time.
(b)Automatic Conversion.
(i) Each Class B Share shall convert automatically into one fully paid and non-assessable Class A Share upon the sale, gift or other transfer of such share, voluntarily or involuntarily, to a person or entity other than SG or an Affiliate of SG; provided, however, that the pledge of a Class B Share pursuant to a bona fide pledge as security for indebtedness owed to the pledgee shall not constitute a transfer for purposes of this Subsection (b) until such time as either (A) such share is registered in the name of the pledgee, (B) the pledgee acquires the right to vote such share and exercises such right, in which case the automatic conversion into a Class A Share shall be deemed to occur immediately prior to such vote, or (C) ownership of the pledged share is transferred pursuant to enforcement of such pledge to a person or entity other than SG or an Affiliate of SG.
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(ii) All Class B shares shall convert automatically into fully paid and non-assessable Class A Shares (on the basis of one Class A Share for each Class B Share) at such date and time, or the occurrence of an event, specified by the affirmative vote of the holders of two-thirds of the then-outstanding shares Class B Shares, voting as a separate class.
(c)Voluntary Conversion Procedure. At the time of a voluntary conversion, the holder of Class B Shares shall deliver to the office of the Corporation or any transfer agent for the Common Shares (i) the certificate or certificates representing the Class B Shares to be converted, duly endorsed in blank or accompanied by proper instruments of transfer, and (ii) written notice to the Corporation stating that such holder elects to convert such share or shares and stating the names and addresses in which each certificate for Class A Shares issued upon such conversion is to be issued. Voluntary conversion shall be deemed to have been effected at the close of business on the date when such delivery is made to the Corporation of the shares to be converted, and the person or entity exercising such voluntary conversion shall be deemed to be the holder of record of the number of Class A Shares issuable upon such conversion at such time. The Corporation shall promptly deliver certificates evidencing the appropriate number of Class A Shares to such holder.
(d)Automatic Conversion Procedure. Promptly upon the occurrence of an Event of Automatic Conversion pursuant to Section 7.6(b), such that Class B Shares are converted automatically into Class A Shares, the holder of such converted shares shall surrender the certificate or certificates therefor, duly endorsed in blank or accompanied by proper instruments of transfer, at the office of the Corporation or of any transfer agent for the Common Shares and shall give written notice to the Corporation, at such office (A) stating that the shares are being converted pursuant to an Event of Automatic Conversion into Class A Shares as provided in Section 7.6(b), (B) specifying the Event of Automatic Conversion (and, if the occurrence of such event is within the control of the transferor, stating the transferor’s intent to effect an Event of Automatic Conversion), (C) identifying the number of Class B Shares being converted, and (D) setting out the name or names (with addresses) and denominations in which the certificate or certificates shall be issued, and instructions for the delivery thereof. Delivery of such notice together with the certificates representing the converted shares shall obligate the Corporation to issue and deliver, and thereupon the Corporation or its transfer agent shall promptly issue and deliver, at such stated address to such holder or to the transferee of the converted shares a certificate or certificates for the number Class A Shares to which such holder or transferee is entitled, registered in the name of such holder, the designee of such holder or transferee as specified in such notice. Nothing contained in this Subsection (d) or elsewhere in these Articles shall be construed to permit or provide for the transfer of any Class B Shares to any person or entity other than SG or an Affiliate of SG without the conversion of such Class B Shares into Class A Shares upon such transfer.
To the extent permitted by law, conversion pursuant to an Event of Automatic Conversion shall be deemed to have been effected as of the date and time at which the Event of Automatic Conversion occurs (such time being the “Conversion Time”). The person or entity entitled to receive the Class A Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Class A Shares at and as of the Conversion Time, and such person’s or entity’s rights as a holder of the Class B Shares so converted shall cease and terminate at and as of the Conversion Time, in each case without regard to any failure by the holder to deliver the certificates or the notice required by this Subsection (d).
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The Corporation shall not, whether by merger, consolidation or otherwise, amend, alter, repeal or waive this Subsection (d) (or adopt any provision inconsistent therewith), without first obtaining the affirmative vote of the holders of a majority of the then outstanding Class B Shares, voting as a separate class, in addition to any other vote required by applicable law, these Articles or the By-laws of the Corporation.
(e)Unconverted Shares; Notice Required. In the event of the conversion of less than all of the Class B Shares evidenced by a certificate surrendered to the Corporation in accordance with the procedures of Section 7.6(c) or (d), the Corporation shall execute and deliver to or upon the written order of the holder of such certificate, without charge to such holder, a new certificate evidencing the number of Class B Shares not converted. Class B Shares shall not be transferred as Class B Shares on the books of the Corporation unless the Corporation shall have received from the holder thereof the written notice described herein.
(f)Reservation. The Corporation hereby reserves and shall at all times reserve and keep available, out of its authorized and unissued Class A Shares, for the purposes of effecting conversions, such number of duly authorized Class A Shares as shall from time to time be sufficient to effect the conversion of all outstanding Class B Shares. The Corporation covenants that all the Class A Shares so issuable shall, when so issued, be duly and validly issued, fully paid and non-assessable. Subject to Article XI, the Corporation will take all such action as may be necessary to assure that all such Class A Shares may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Class A Shares may be listed.
7.7. Consideration on Merger, Consolidation, etc. In any merger, consolidation or business combination, the consideration to be received per share by the holders of Class A Shares, Class B Shares and Class C Shares must be identical for each class of stock, except that in any such transaction in which shares of common stock are to be distributed, (a) such shares may differ as to voting rights to the extent that the voting rights provided in these Articles differ between the Class A Shares, the Class B Shares and the Class C Shares and (b) holders of Class B Shares may receive different or disproportionate distributions or payments in connection with such merger, consolidation or business combination as compared to those received by the holders of Class A and Class C shares if such merger, consolidation or business combination is approved by the affirmative vote of the holders of a majority of the outstanding Class A Shares and a majority of the outstanding Class B Shares, each voting separately as a class.
ARTICLE VIII
Preferred Stock
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation shall have authority to fix by resolution or resolutions the designations and powers, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof, including, without limitation, the voting rights,
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dividend rate, purchase or sinking funds, provisions for redemption, conversion rights, redemption price and liquidation preference, of any series of shares of Preferred Stock, to fix the number of shares constituting any such series and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution or resolutions originally fixing the number of shares of such series.
ARTICLE IX
Board of Directors
9.1Number of Directors. The number of directors constituting the Board of Directors shall be fixed by the By-Laws of the Corporation and shall be not less than six (6) and not more than fifteen (15). No amendment to the By-Laws decreasing the number of directors shall have the effect of shortening the term of any incumbent director. No amendment to the By-Laws to increase the number of directors shall be effected unless previously approved by the holders of the Class B Shares, voting as a separate class.
9.2Board Seats. During the Term of the Management Agreement (as defined in the Management Agreement) or so long as any amounts under the Note remain outstanding, the Board of Directors shall nominate only individuals specified by Management Company to serve as Class A Directors and shall not nominate any other persons for such director positions; provided that this Section 9.2 shall not apply if Management Company waives its rights under this Section 9.2 or fails to specify individuals to serve as Class A Directors within ten (10) business days of written request from the Corporation.
9.3 Removal of Directors.
(a)A Class A Director may be removed by the holders of Class A Shares as provided in Section 7.4(b) with or without cause and only if the removal has been approved by the holders of an 80% majority of the Class A Shares, cast at a special meeting of the shareholders called for that purpose. A Class B Director may be removed by the holders of Class B Shares as provided in Section 7.4(c) with or without cause and only if the removal has been approved by the holders of an 80% majority of the Class B Shares, cast at a special meeting of the shareholders called for that purpose.
(b)This section does not apply to any directors elected pursuant to special voting rights of one or more series of Preferred Stock.
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9.4Amendment or Repeal of this Article. Notwithstanding any other provision of these Articles or the By-Laws of the Corporation, and in addition to any other procedure specified under Indiana law, any amendment or repeal of or adoption of a provision inconsistent with any provision in this Article IX is not effective unless it is approved by at least an 80% majority of the combined voting power of the outstanding Common Shares.
ARTICLE X
Control Share Acquisitions
Chapter 42 of the Act (I.C. 23-1-42) shall not apply to control share acquisitions of shares of capital stock of the Corporation.
ARTICLE XI
Alien Ownership
The following provisions are included in these Articles for the purpose of ensuring that control and management of the Corporation complies with any and all laws administered or enforced by the Federal Communications Commission or any successor governmental agency (the “FCC”), including, without limitation, the Communications Act of 1934, as amended, and the rules, regulations, orders and policies of the FCC (collectively, the “Federal Communications Laws”):
(a)The Corporation (i) shall not issue to or for the account of (A) a person who is a citizen of a country other than the United States; (B) an entity organized under the laws of a government other than the government of the United States or any state, territory, or possession of the United States; (C) a government other than the government of the United States or of any state, territory, or possession of the United States; or (D) a representative of, or an individual or entity controlled by, any of the foregoing (each person or entity described in any of the foregoing clauses (A) through (D), an “Alien”) any share of capital stock of the Corporation if such issuance would cause the total capital stock of the Corporation directly or indirectly held or voted by Aliens to exceed 25% of (1) the total capital stock of the Corporation outstanding at any time or (2) the total voting power of all shares of such capital stock outstanding and entitled to vote at any time, and (ii) shall not permit the transfer on the books of the Corporation of any capital stock that would result in the total capital stock of the Corporation directly or indirectly held or voted by Aliens to exceed such 25% limits, unless the Corporation shall have received from the FCC a declaratory ruling (a “Declaratory Ruling”) authorizing such limits to be exceeded.
(b)If the Corporation believes that the ownership or proposed ownership of shares of capital stock of the Corporation by any person or entity may result in a violation of the provisions of this Article XI to be violated, such person or entity shall furnish promptly to the Corporation such information (including, without limitation, information with respect to citizenship, ownership and affiliations) as the Corporation shall request.
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(c)No more than one-fourth of the total number of directors of the Corporation at any time may be Aliens, if such would violate the Communications Act or any Declaratory Ruling.
(d)The Board of Directors shall have all powers necessary to implement and ensure compliance with the provisions of this Article XI, including, without limitation, the power to prohibit the transfer of any shares of capital stock of the Corporation to any Alien, to suspend those rights of stock ownership the exercise of which causes or could cause the provisions of this Article XI to be violated, and to take or cause to be taken such action as it deems appropriate to implement such prohibition or suspension. Without limiting the generality of the foregoing and notwithstanding any other provision of these Articles to the contrary, any shares of capital stock of the Corporation determined by the Board of Directors to be owned beneficially by an Alien or Aliens shall always be subject to redemption by the Corporation by action of the Board of Directors to the extent necessary in the judgment of the Board of Directors to comply with the provisions of this Article XI. The terms and conditions of such redemption shall be as follows:
(i) The redemption price of the shares to be redeemed pursuant to this Article shall be equal to the lower of (A) the fair market value of the shares to be redeemed, as determined by the Board of Directors in good faith, and (B) such Alien’s purchase price of such shares;
(ii) The redemption price of such shares may be paid in cash, securities or any combination thereof;
(iii) If less than all the shares held by Aliens are to be redeemed, the shares to be redeemed shall be selected in any manner determined by the Board of Directors to be fair and equitable;
(iv) At least ten (10) days’ written notice of the redemption date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder), provided that the redemption date may be the date on which written notice shall be given to record holders if the cash or securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates for their shares to be redeemed;
(v) From and after the redemption date, the shares to be redeemed shall cease to be regarded as outstanding and any and all rights of the holders in respect of the shares to be redeemed or attaching to such shares of whatever nature (including, without limitation, any rights to vote or participate in dividends declared on stock of the same class or series as such shares) shall cease and terminate, and the holders thereof shall thereafter be entitled only to receive the cash or securities payable upon redemption; and
(vi) Such other terms and conditions as the Board of Directors shall determine.
For purposes of this Article, the determination of the beneficial ownership of shares of capital stock of the Corporation shall be made pursuant to Rule 13d-3, 17 C.F.R. § 240.13d-3, as amended from time to time, promulgated under the Securities Exchange Act of 1934, as amended, or in such other manner as determined in good faith by the Board of Directors to be fair and equitable.
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ARTICLE XII
Ownership Restriction
The Corporation may restrict the ownership, conversion, or proposed ownership, of shares of the Corporation by any person if such ownership, conversion or proposed ownership, either alone or in combination with other actual or proposed ownership (including due to conversion) of shares of capital stock of any other person, would give rise to an FCC Regulatory Limitation (as hereinafter defined). Ownership, conversion, or proposed ownership shall be deemed to give rise to an “FCC Regulatory Limitation” if it (1) is inconsistent with, or in violation of, any provision of the Federal Communications Laws, (2) materially limits or materially impairs any existing business activity of the Corporation or any of its subsidiaries under the Federal Communications Laws, (3) materially limits or materially impairs under the Federal Communications Laws the acquisition of an attributable interest in a full-power television station or a full-power radio station by the Corporation or any of its subsidiaries for which the Corporation or its subsidiary is considering entering into a definitive agreement with a third party, (4) subjects or could reasonably be expected to subject the Corporation or any of its subsidiaries to any rule, regulation, order or policy under the Federal Communications Laws having or which could reasonably be expected to have a material effect on the Corporation or any subsidiary of the Corporation to which the Corporation or any subsidiary of the Corporation would not be subject but for such ownership, conversion or proposed ownership, (5) would, in the good faith judgment of the Corporation, materially delay or impair the ability of the Corporation to obtain approval or consent of the FCC in connection with a proposed business combination transaction or (6) requires prior approval from the FCC for a change of control and such approval has not been obtained. The Corporation may, but is not required to, take any action permitted under this Article XII; and the grant of specific powers to the Corporation under this Article XII shall not be deemed to restrict the Corporation from pursuing, alternatively or concurrently, any other remedy or alternative course of action available to the Corporation. In furtherance of the foregoing, if in connection with any proposed plan of merger, share exchange or entity conversion, any holder of shares of the Corporation would be entitled to receive, or would beneficially own, voting stock of the Corporation or any other surviving corporation that would be deemed to give rise to an FCC Regulatory Limitation, then the Corporation shall have the right to provide in such plan of merger, share exchange or entity conversion that such holder shall instead receive non-voting stock of the Corporation or surviving corporation to the extent necessary to ensure that the transaction will not be deemed to give rise to an FCC Regulatory Limitation; provided that the shares of non-voting stock received by such holder, as determined by the Board of Directors in good faith, shall have all of the same preferences, limitations and relative rights as the voting stock of the Corporation or such surviving corporation other than voting rights. Nothing contained in this Article XII shall be deemed to limit any provision of Article XI.
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Indemnification
13.1. General. The Corporation shall, to the fullest extent to which it is empowered to do so by the Act, or any other applicable laws, as from time to time in effect, indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, by reason of the fact that such person is or was a director or officer of the Corporation, or who, while serving as such a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, whether for profit or not, against expenses (including counsel fees), judgments, settlements, penalties and fines (including excise taxes assessed with respect to employee benefit plans) actually or reasonably incurred by such person in accordance with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed, in the case of conduct in his or her official capacity, was in the best interests of the Corporation, and in all other cases, was not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, such person either had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not meet the prescribed standard of conduct.
13.2. Authorization of Indemnification. To the extent that a director or officer of the Corporation has been wholly successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Section 13.1, or in the defense of any claim, issue or matter therein, the Corporation shall indemnify such person against expenses (including counsel fees) actually and reasonably incurred by such person in connection therewith. Any other indemnification under Section 13.1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case, upon a determination that indemnification of the director or officer is permissible in the circumstances because he or she has met the applicable standard of conduct. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not at the time parties to such action, suit or proceeding; or (ii) if a quorum cannot be obtained under clause (i), by a majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to such action, suit or proceeding; or (iii) by special legal counsel (A) selected by the Board of Directors or its committee in the manner prescribed in clauses (i) or (ii), or (B) if a quorum of the Board of Directors cannot be obtained under clause (i) and a committee cannot be designated under clause (ii), selected by a majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (iv) by the stockholders, but shares owned by or voted under the control of directors or officers who are at the time parties to such action, suit or proceeding may not be voted on the determination.
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Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under foregoing clause (iii) to select counsel.
13.3. Good Faith. For purposes of any determination under Section 13.1, a person shall be deemed to have acted in good faith and to have otherwise met the applicable standard of conduct set forth in Section 13.1 if his or her action is based on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by (i) one or more officers or employees of the Corporation or other enterprise whom he or she reasonably believes to be reliable and competent in the matters presented; (ii) legal counsel, public accountants, appraisers or other persons as to matters he or she reasonably believes are within the person’s professional or expert competence; or (iii) a committee of the Board of Directors of the Corporation or other enterprise of which the person is not a member if he or she reasonably believes the committee merits confidence. The term “other enterprise” as used in this Section 13.3 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, partner, trustee, employee or agent. The provisions of this Section 13.3 shall not be exclusive or limit in any way the circumstances in which a person may be deemed to have met the applicable standards of conduct set forth in Section 13.1.
13.4. Payment of Expenses in Advance. Expenses incurred in connection with any civil or criminal action, suit or proceeding may be paid for or reimbursed by the Corporation in advance of the final disposition of such action, suit or proceeding, as authorized in the specific case in the same manner described in Section 13.2, upon receipt of the director or officer’s written affirmation of his or her good faith belief that he or she has met the standard of conduct described in Section 13.1 and upon receipt of a written undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she did not meet the standard of conduct set forth in this Article XIII, and a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article XIII.
13.5. Other Indemnitees. The Corporation may, by action of its Board of Directors, indemnify employees and agents of the Corporation with the same scope and effect and pursuant to the same procedures as provided in this Article XIII for directors and officers.
13.6. Provisions Not Exclusive. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under these Articles of Incorporation, the Corporation’s By-Laws, any resolution of the Board of Directors or stockholders, any other authorization, whenever adopted, after notice, by a majority vote of all voting shares of the Corporation then outstanding, or any contract, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to serve in his or her official capacity, and shall inure to the benefit of the heirs, executors and administrators of such a person.
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13.7. Vested Right to Indemnification. The right of any person to indemnification under this Article shall vest at the time of occurrence or performance of any event, act or omission giving rise to any action, suit or proceeding of the nature referred to in Section 13.1 and, once vested, shall not later be impaired as a result of any amendment, repeal, alteration or other modification of any or all of these provisions. Notwithstanding the foregoing, the indemnification afforded under this Article shall be applicable to all alleged prior acts or omissions of any individual seeking indemnification hereunder, regardless of the fact that such alleged acts or omissions may have occurred prior to the adoption of this Article. To the extent such prior acts or omissions cannot be deemed to be covered by this Article XIII, the right of any person to indemnification shall be governed by the indemnification provisions in effect at the time of such prior acts or omissions.
13.8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by the individual in that capacity or arising from the individual’s status as a director, officer, employee or agent, whether or not the Corporation would have power to indemnify the individual against the same liability under this Article.
13.9. Additional Definitions. For purposes of this Article:
(i) References to the “Corporation” shall include any domestic or foreign predecessor entity of the Corporation in a merger or other transaction in which the predecessor’s existence ceased upon consummation of the transaction.
(ii) Serving an employee benefit plan at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interest of the Corporation” referred to in this Article XIII.
(iii) The term “party” includes any individual who is or was a plaintiff, defendant or respondent in any action, suit or proceeding, or who is threatened to be made a named defendant or respondent in any action, suit or proceeding.
(iv) The term “official capacity,” when used with respect to a director, shall mean the office of director of the Corporation; and when used with respect to an individual other than a director, shall mean the office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation. “Official capacity” does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not.
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Severability
In the event that any Article or Section (or portion thereof) of these Articles shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions, or portion thereof, of these Articles shall be deemed to remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of these Articles remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders notwithstanding any such findings.
ARTICLE XV
SG Affiliate Transactions
In addition to any restrictions or other approval requirements imposed by the Act, any transaction between the Corporation and (1) SG or (2) any Affiliate of SG, must be on fair and reasonable terms and conditions no less favorable in the aggregate to the Corporation than those that would have been obtained in a comparable transaction on an arm’s length basis from an unrelated third party.
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ARTICLES OF AMENDMENT
TO
AMENDED & RESTATED ARTICLES OF INCORPORATION
OF
MEDIACO HOLDING INC.
December 13, 2019
MediaCo Holding Inc., a corporation organized and existing under the laws of the State of Indiana (the “Corporation”), does hereby certify that, pursuant to authority conferred upon the Board of Directors by Article VIII of the Amended and Restated Articles of Incorporation of the Corporation (the “Articles of Incorporation”), and pursuant to the provisions of the Indiana Business Corporation Law, said Board of Directors, at a special meeting held on December 9, 2019, adopted resolutions providing for the designation, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions of the Corporation’s Series A Convertible Preferred Stock, which resolutions are as follows:
WHEREAS, the Articles of Incorporation of this Corporation provides for four classes of shares known as Class A Common Stock (“Class A Shares”), Class B Common Stock (“Class B Shares”), Class C Common Stock (“Class C Shares” and together with Class A Shares and the Class B Shares, the “Common Shares”), and preferred stock (“Preferred Stock”); and
WHEREAS, the Board of Directors of this Corporation is authorized by the Articles of Incorporation to provide for the issuance of the shares of Preferred Stock in one or more series, and by filing articles of amendment pursuant to the applicable law of the State of Indiana, to establish from time to time the number of shares to be included in each such series, and to fix the designation, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof, including, without limitation, the voting rights, dividend rate, purchase or sinking funds, provisions for redemption, conversion rights, redemption price and liquidation preference.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors deems it advisable to, and hereby does, designate a Series A Convertible Preferred Stock and fixes and determines the preferences, rights, qualifications, limitations and restrictions relating to the Series A Convertible Preferred Stock as follows:
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1.1“30-Day VWAP” means the price equal to the average of the volume-weighted average prices of the Class A Shares on the Trading Market for the last thirty (30) Trading Days prior to the date of determination; provided, that if there is no Trading Market for any such day, then the price used for such day shall be the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTCQX, OTCQB, Pink or Grey markets (in that order) operated by OTCMarkets.
1.2“Accrued Value” means, with respect to each share of Series A Preferred Stock, the sum (as adjusted for stock dividends, stock splits, combinations, recapitalizations or other similar events affecting the Series A Preferred Stock) of (i) the Original Purchase Price plus (ii) an additional amount equal to any dividends on a share of Series A Preferred Stock which have accrued as of the date the Accrued Value is determined and have not been previously added to such Accrued Value.
1.3“Affiliate” means a Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, a specified Person as of the date on which, or at any time during the period for which, the determination of affiliation is being made. The term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other ownership interest, by contract or otherwise.
1.4“Base Rate” means the interest rate on the Company Senior Debt, or if no Company Senior Debt is outstanding, six percent (6%).
1.5“Business Day” means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by applicable Law to close.
1.6“Company Senior Debt” means all principal of, premium (if any), interest (including, without limitation, interest accruing or that would have accrued but for the filing of a bankruptcy, reorganization or other insolvency proceeding whether or not such interest constitutes an allowable claim in such proceeding) on, and any and all other fees, expense reimbursement obligations, and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (i) indebtedness for borrowed money of the Corporation (including, without limitation, guarantees and other contingent obligations with respect to indebtedness for borrowed money of its Subsidiaries) of the type typically held by commercial banks, investment banks, insurance companies and other recognized lending institutions, entities and funds or subsidiaries thereof, whether now outstanding or hereafter created, incurred, assumed or guaranteed, (ii) obligations evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, of the type typically held by commercial banks, investment banks, insurance companies and other recognized lending institutions, entities and funds or subsidiaries thereof, whether now outstanding or hereafter created, incurred, assumed or guaranteed, or (iii) capital
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leases and similar types of financing, together with renewals, extensions, refundings, refinancings, deferrals, restructurings, amendments and modifications of the items described in (i), (ii), or (iii) above; provided that Company Senior Debt shall not include any of the foregoing to the extent owing to an Affiliate of the Corporation.
1.7“Company Senior Debt Documentation” has the meaning set forth in Section 8.
1.8“Original Purchase Price” means $100 per share of Series A Preferred Stock.
1.9“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust (including any beneficiary thereof), a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.
1.10“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity.
1.11“Trading Day” means (a) any day on which the Class A Shares is listed or quoted and traded on its Trading Market or (b) if the Class A Shares is not then listed or quoted and traded on any Trading Market, then a day on which trading occurs on the Nasdaq Global Select Market (or any successor thereto).
1.12“Trading Market” means the following market(s) or exchange(s) on which the Class A Shares is primarily listed or quoted for trading on the date in question (as applicable): the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NYSE American or the New York Stock Exchange (or any successors to any of the foregoing).
2.Designation. A total of 300,000 shares of the Corporation’s Preferred Stock shall be designated the “Series A Convertible Preferred Stock” (referred to herein as “Series A Preferred Stock”).
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3.1Preferred Dividend. From and after the date the Series A Preferred Stock is issued (the “Issue Date”), cumulative dividends shall accrue on the Series A Preferred Stock at the annual rate (the “Rate”), equal to (a) the Base Rate, plus (b) an increase of one (1) percent on December 12, 2020 and additional increases of one (1) percent following on each anniversary thereof. Dividends on the Series A Preferred Stock shall be cumulative and shall accrue daily from and after, but shall compound annually on each anniversary of the Issue Date whether or not earned or declared, and whether or not there are earnings or profits, surplus or other funds or assets of the Corporation legally available for the payment of dividends. All such dividends shall compound and be added to the Accrued Value on each anniversary of the Issue Date, as provided in the definition of Accrued Value. Dividends shall be payable solely in additional shares of Series A Preferred Stock, which shares shall be deemed to be validly issued and outstanding and fully paid and nonassessable.
3.2In the event that the Board of Directors shall declare a dividend payable upon the then outstanding Common Shares (other than a stock dividend on the Common Shares payable solely in the form of additional Common Shares), the holders of the Series A Preferred Stock shall be entitled, in addition to any cumulative dividends to which the Series A Preferred Stock may be entitled under Section 3.1 above, to receive the amount of dividends per share of Series A Preferred Stock that would be payable on the number of whole Common Shares into which each share of such Series A Preferred Stock held by each holder could be converted pursuant to the provisions of Section 6 below, such number to be determined as of the record date for the determination of holders of Common Shares entitled to receive such dividend.
4.Liquidation, Dissolution or Winding Up.
4.1Treatment at Liquidation, Dissolution or Winding Up.
4.1.1In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or in the event of its insolvency, before any distribution or payment is made to any holder of Class A Shares, Class B Shares, Class C Shares or any other class or series of Preferred Stock of the Corporation designated to be junior to the Series A Preferred Stock in liquidation preference, and subject to the liquidation rights and preferences of any class or series of Preferred Stock designated in the future to be senior to, or on a parity with, the Series A Preferred Stock with respect to liquidation preference, the holders of Series A Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Corporation’s capital stock of all classes, whether such assets are capital, surplus or earnings (“Available Assets”). The amount per share to be paid to the holders of the Series A Preferred Stock shall be an amount equal to the greater of (i) the Accrued Value of a share of Series A Preferred Stock or (ii) such amount per share of Series A Preferred Stock as would have been payable had each share of Series A Preferred Stock which is convertible into Class A Shares been so converted immediately prior to such liquidation, dissolution or winding up.
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If, upon liquidation, dissolution or winding up of the Corporation, the Available Assets shall be insufficient to pay the holders of shares of Series A Preferred Stock and of any other class or series of Preferred Stock on parity with the Series A Preferred Stock with respect to the liquidation preference the full amounts to which they otherwise would be entitled, the holders of Series A Preferred Stock and such other class or series of Preferred Stock shall share ratably in any distribution of Available Assets pro rata in proportion to the respective liquidation preference amounts which would otherwise be payable upon liquidation with respect to the outstanding shares of the Series A Preferred Stock and such other class or series of Preferred Stock if all liquidation preference dollar amounts with respect to such shares were paid in full.
4.1.2After payment of all liquidation preferences to all holders of the Series A Preferred Stock, the entire remaining Available Assets, if any, shall be distributed among the holders of any other class or series of Preferred Stock of the Corporation designated to be junior to the Series A Preferred Stock and to the holders of Common Shares in such proportion and amounts as provided by the terms of the instruments governing such stock and applicable law.
4.2Treatment of Reorganization, Consolidation, Merger or Sale of Assets. Any merger, consolidation or other corporate reorganization or combination to which the Corporation is a non-surviving party, and any sale of all or substantially all of the assets of the Corporation, shall be regarded as a liquidation, dissolution or winding up of the affairs of the Corporation for purposes of this Section 4.
The foregoing provisions of this Section 4.2 shall not apply to (i) any reorganization, merger or consolidation involving only a change in the state of incorporation of the Corporation, (ii) a merger of the Corporation with or into a wholly-owned subsidiary of the Corporation that is incorporated in the United States of America, or (iii) a merger, reorganization, consolidation or other combination in which the Corporation is the surviving corporation.
4.3Distributions Other than Cash. Whenever the distribution provided for in this Section 4 shall be payable in whole or in part in property other than cash, the value of any property distributed shall be the fair market value of such property as reasonably determined in good faith by the Board of Directors of the Corporation. All distributions of property other than cash made hereunder shall be made, to the maximum extent possible, pro rata with respect to each series and class of Preferred Stock and Common Shares in accordance with the liquidation amounts payable with respect to each such series and class in the same manner as if such distribution were made in cash.
5.Voting Power. For as long as any shares of Series A Preferred Stock are outstanding, then, the affirmative vote or written consent of the holders of more than 50% of the Series A Preferred Stock then outstanding and voting as a separate class shall be necessary or effective to adversely alter or change the rights, preferences or privileges of the Series A Preferred Stock.
6.Conversion and Exchange Rights. The holders of the Series A Preferred Stock, shall have the following rights and be subject to the following obligations with respect to the conversion of such shares into shares of Class A Shares:
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6.1Voluntary Conversion of Series A Preferred Stock. Subject to and in compliance with the provisions of this Section 6, on or after May 25, 2020, each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable Class A Shares as is determined by dividing (i) the Accrued Value of a share of Series A Preferred Stock by (ii) to the 30-Day VWAP of the Class A Shares determined as of the Conversion Date. The “Conversion Date” shall be the fifth (5th) Business Day after the date on which the holder of Series A Preferred Stock gives notice of such conversion.
6.2Exercise of Conversion Privilege. To exercise its conversion privilege, a holder of Series A Preferred Stock shall surrender the certificate or certificates representing the shares being converted to the Corporation at its principal office, and shall give written notice to the Corporation at that office that such holder elects to convert such shares. Such notice shall also state the name or names (with address or addresses) in which the certificate or certificates for shares of Class A Shares issuable upon such conversion shall be issued. The certificate or certificates for shares of Series A Preferred Stock surrendered for conversion shall be accompanied by proper assignment thereof to the Corporation or in blank. The date when such written notice is received by the Corporation, together with the certificate or certificates representing the shares of Series A Preferred Stock being converted, shall be the “Series A Conversion Date.” As promptly as practicable after the Series A Conversion Date, the Corporation shall issue and deliver to the holder of the shares of Series A Preferred Stock being converted, or on its written order, such certificate or certificates as it may request for the number of whole shares of Class A Shares issuable upon the conversion of such shares of Series A Preferred Stock in accordance with the provisions of this Section 6, and cash, as provided in Section 6.4, in respect of any fraction of a share of Class A Shares issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the Series A Conversion Date, and at such time the rights of the holder as holder of the converted shares of Series A Preferred Stock shall cease and the person(s) in whose name(s) any certificate(s) for shares of Class A Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares of Class A Shares represented thereby.
6.3Cash in Lieu of Fractional Shares. No fractional shares of Class A Shares or scrip representing fractional shares shall be issued upon the conversion of shares of Series A Preferred Stock. Instead of any fractional shares of Class A Shares which would otherwise be issuable upon conversion of Series A Preferred Stock, the Corporation shall pay to the holder of the shares of Series A Preferred Stock which were converted a cash adjustment in respect of such fractional shares in an amount equal to the same fraction of the market price per share of the Class A Shares (as reasonably determined by the Board of Directors) at the close of business on the Series A Conversion Date. The determination as to whether or not any fractional shares are issuable shall be based upon the aggregate number of shares or fractional shares of Series A Preferred Stock being converted at any one time by any holder thereof, not upon each share or fractional share of Series A Preferred Stock being converted.
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6.4Partial Conversion. In the event some but not all of the shares of Series A Preferred Stock represented by a certificate(s) surrendered by a holder are converted, the Corporation shall execute and deliver to or on the order of the holder, within ten (10) days thereafter, at the expense of the Corporation, a new certificate representing the number of shares of Series A Preferred Stock which were not converted.
6.5Reservation of Class A Shares. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Shares, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Class A Shares as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock (including any shares of Series A Preferred Stock represented by any warrants, options, subscription or purchase rights for Series A Preferred Stock), and if at any time the number of authorized but unissued shares of Class A Shares shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock (including any shares of Series A Preferred Stock represented by any warrants, options, subscriptions or purchase rights for such Series A Preferred Stock), the Corporation shall take such action as may be necessary to increase its authorized but unissued shares of Class A Shares to such number of shares as shall be sufficient for such purpose.
7.Notices of Record Date. In the event of
(a)any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividends or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities or property, or to receive any other right, or
(b)any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation, or any transfer of all or substantially all of the assets of the Corporation to any other corporation, or any other entity or person, or
(c)any voluntary or involuntary dissolution, liquidation or winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to each holder of Series A Preferred Stock a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and a description of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (iii) the time, if any, that is to be fixed, as to when the holders of record of Class A Shares (or other securities) shall be entitled to exchange their shares of Class A Shares (or other securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up. Such notice shall be mailed by first class mail, postage prepaid, at least ten (10) days prior to the date specified in such notice on which action is being taken.
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8.Redemption. Unless prohibited by (i) Indiana law governing distributions to shareholders or (ii) the terms of the documentation governing the Corporation’s senior debt (the “Company Senior Debt Documentation”), shares of Series A Preferred Stock shall be redeemed by the Corporation at a price equal to the Accrued Value per share (the “Redemption Price”), promptly (but no more than five (5) business days) after receipt by the Corporation, at any time on or after June 12, 2025, from the holders of outstanding shares of Series A Preferred Stock of written notice requesting redemption of some or all of such shares of Series A Preferred Stock (the “Redemption Request”). Upon receipt of a Redemption Request, the Corporation shall apply all of its assets to any such redemption, and to no other corporate purpose, except to the extent prohibited by (i) Indiana law governing distributions to shareholders or (ii) Company Senior Debt Documentation. If on any Redemption Date Indiana law governing distributions to shareholders or the Company Senior Debt Documentation prevent the Corporation from redeeming all shares of Series A Preferred Stock to be redeemed, the Corporation shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully be permitted to do so under such law or such Company Senior Debt Documentation, as applicable.
8.1Surrender of Certificates; Payment. On or before the applicable Redemption Date, each holder of shares of Series A Preferred Stock to be redeemed on such Redemption Date shall surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Series A Preferred Stock represented by a certificate are redeemed, a new certificate, instrument, or book entry representing the unredeemed shares of Series A Preferred Stock shall promptly be issued to such holder.
8.2Interest. If any shares of Preferred Stock are not redeemed for any reason on any Redemption Date, all such unredeemed shares shall remain outstanding and entitled to all the rights and preferences provided herein, and the Corporation shall pay interest on the Redemption Price applicable to such unredeemed shares at an aggregate per annum rate equal to ten percent (10%), with such interest to accrue daily in arrears and be compounded annually; provided, however, that in no event shall such interest exceed the maximum permitted rate of interest under applicable law (the “Maximum Permitted Rate”), provided, however, that the Corporation shall take all such actions as may be necessary, including without limitation, making any applicable governmental filings, to cause the Maximum Permitted Rate to be the highest possible rate. In the event any provision hereof would result in the rate of interest payable hereunder being in excess of the Maximum Permitted Rate, the amount of interest required to be paid hereunder shall automatically be reduced to eliminate such excess; provided, however, that any subsequent increase in the Maximum Permitted Rate shall be retroactively effective to the applicable Redemption Date to the extent permitted by law.
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8.3Rights Subsequent to Redemption. If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Series A Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that any certificates evidencing any of the shares of Series A Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Series A Preferred Stock shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of any such certificate or certificates therefor.
9.Status of Converted or Repurchased Series A Preferred Stock. Any share or shares of Series A Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be returned to the status of authorized but unissued shares of undesignated Preferred Stock. Upon the cancellation of all outstanding shares of Series A Preferred Stock, the provisions of this Designation of Series A Preferred Stock shall terminate and have no further force and effect.
IN WITNESS WHEREOF, the undersigned has caused these Articles of Amendment to be signed by on the date first written above.
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MEDIACO HOLDING INC. |
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By: |
/s/ J. Scott Enright |
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Name: Scott Enright |
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Title: Executive Vice President, General Counsel and Secretary |
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Exhibit 4.1
DESCRIPTION OF CAPITAL STOCK
Common Stock
General. Our authorized common stock consists of 170,000,000 shares of Class A Common Stock, $.01 par value per share, 50,000,000 shares of Class B Common Stock, $.01 par value per share, and 30,000,000 shares of Class C Common Stock, $.01 par value per share. Under Indiana law, shareholders are generally not liable for our debts or obligations.
Dividends. Holders of record of shares of common stock on a record date fixed by our board of directors are entitled to receive such dividends as may be declared by the board of directors out of funds legally available for such distributions. MediaCo may not declare or pay dividends in cash or property on any share of any classes of common stock, however, unless simultaneously the same dividend is declared or paid on each share of the other class of common stock. In the case of any stock dividend, holders of MediaCo Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of MediaCo Class A Common Stock) as the holders of MediaCo Class B Common Stock receive (payable in shares of MediaCo Class B Common Stock) and the holders of MediaCo Class C Common Stock receive (payable in shares of MediaCo Class C Common Stock). Notwithstanding the forgoing, holders of MediaCo Class B Common Stock may receive a different dividend or share of dividends than is received by the holders of MediaCo Class A Common Stock and MediaCo Class C Common Stock if such disparity is approved in advance by the affirmative vote of the holders of the majority of the then-outstanding MediaCo Class A Common Stock and a majority of the then-outstanding MediaCo Class B Common Stock, each voting as a separate class. The payment of common stock dividends is currently restricted by our credit facility.
Voting Rights. Holders of MediaCo Class A Common Stock and holders of MediaCo Class B Common Stock vote as a single class on all matters submitted to a vote of the common shareholders, with each share of MediaCo Class A Common Stock entitled to one vote and each share of MediaCo Class B Common Stock entitled to ten votes, except:
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for the election of three directors voted on by the holders of MediaCo Class A Common Stock voting as a separate class (the "MediaCo Class A Directors") and the election of four directors voted on by the holders of MediaCo Class B Common Stock voting as a separate class (the "MediaCo Class B Directors"); |
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with respect to any proposed "going private" transaction (as defined below) between the Company and SG Broadcasting (the holder of all the MediaCo Class B Common Stock), or an affiliate of SG Broadcasting, or any group of which SG Broadcasting or an affiliate of SG Broadcasting is a member; and |
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as otherwise provided by law. |
In the election of directors, the holders of MediaCo Class A Common Stock are entitled to vote as a separate class to elect the MediaCo Class A Directors. Under MediaCo's Articles of Incorporation, during the term of that certain Management Agreement between MediaCo and Emmis Operating Company (“EOC”) dated November 25, 2019, or so long as amounts remain outstanding under that certain promissory note dated November 25, 2019, from MediaCo to Emmis Communications Corporation, MediaCo's board of directors is required to nominate three persons specified by EOC, and no other persons, to serve as MediaCo Class A Directors. The holders of MediaCo Class B Common Stock are entitled to vote as a separate class to elect the MediaCo Class B Directors. The holders of MediaCo Class A Common Stock and the holders of MediaCo Class B Common Stock are entitled to elect the remaining directors by voting as a single class with each share of MediaCo Class A Common Stock entitled to one vote and each share of MediaCo Class B Common Stock entitled to ten votes.
Directors are divided into three classes, as nearly equal in number as possible, whose three-year terms expire in successive years. At each annual election of directors, the successors to the class of directors whose term then expires are elected to hold office for a term of three years and until the director's successor is elected and qualifies or until the director's earlier resignation, removal from office or death. Holders of common stock are not entitled to cumulate votes in the election of directors.
Exhibit 4.1
The holders of MediaCo Class A Common Stock and the holders of MediaCo Class B Common Stock vote as a single class with respect to any proposed "going private" transaction, with each share of MediaCo Class A Common Stock entitled to one vote and each share of MediaCo Class B Common Stock entitled to ten votes. In addition, the approval of any proposed "going private" transaction requires the approval of the holders of the majority of the outstanding MediaCo Class A Common Stock. A "going private" transaction is any "Rule 13e-3 Transaction" (as that term is defined in Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as amended) between MediaCo and SG Broadcasting, any affiliate of SG Broadcasting or any group of which SG Broadcasting or an affiliate of SG Broadcasting is a member. An "affiliate" is defined as:
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any individual or entity who or that, directly or indirectly, controls, is controlled by, or is under common control with SG Broadcasting; or |
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any corporation or organization (other than MediaCo or a majority-owned subsidiary of MediaCo) of which SG Broadcasting is, directly or indirectly, the beneficial owner of 10% or more of any class of voting securities, or in which SG Broadcasting has a substantial beneficial interest. |
Under Indiana law, the affirmative vote of the holders of a majority of the outstanding shares of any class of capital stock is required to approve, among other things, a change in the designation, rights, preferences or limitations of the shares of such class of capital stock.
Holders of MediaCo Class C Common Stock do not have any rights to vote, except as may be required by Indiana law.
Liquidation Rights. Upon liquidation, dissolution or winding-up of MediaCo, except as otherwise provided in the Articles of Incorporation or as approved by the affirmative vote of the holders of a majority of the then-outstanding MediaCo Class A Common Stock and the holders of a majority of the then-outstanding MediaCo Class B Common Stock, each voting as a separate class, the holders of MediaCo Class A Common Stock will be entitled to share ratably with the holders of MediaCo Class B Common Stock in all assets available for distribution after payment in full of creditors and payment in full to any holders of our preferred stock then outstanding of any amount required to be paid under the terms of such preferred stock.
Conversion. Each share of MediaCo Class B Common Stock is convertible, at the option of its holder, into one share of MediaCo Class A Common Stock at any time. One share of MediaCo Class B Common Stock will convert automatically and without the requirement of any further action into one share of MediaCo Class A Common Stock upon its sale or other transfer to a person or entity other than SG Broadcasting or an affiliate of SG Broadcasting. A pledge of shares of MediaCo Class B Common Stock is not considered a transfer for this purpose unless the pledge is enforced. All outstanding shares of MediaCo Class B Common Stock will convert automatically and without the requirement of any further action into an equivalent number of shares of MediaCo Class A Common Stock upon the affirmative vote of the holders of two-thirds of the holders of the then-outstanding MediaCo Class B Common Stock, voting as a separate class.
Other Provisions. The holders of common stock are not entitled to preemptive rights
In any merger, consolidation or business combination, the consideration to be received per share by the holders of MediaCo Class A Common Stock, MediaCo Class B Common Stock and MediaCo Class C Common Stock must be identical for each class of stock, except that (i) in any such transaction in which shares of common stock are to be distributed, such shares may differ as to voting rights to the extent that the voting rights provided in the MediaCo Articles of Incorporation differ between the MediaCo Class A Common Stock, the MediaCo Class B Common Stock and the MediaCo Class C Common Stock, and (ii) holders of MediaCo Class B Common Stock may receive different or disproportionate distributions or payments in connection with such merger, consolidation or business combination as compared to those received by the holders of MediaCo Class A Common Stock and MediaCo Class C Common Stock if such merger, consolidation or business combination is approved by the affirmative vote of the holders of the majority of the then-outstanding MediaCo Class A Common Stock, a majority of the then-outstanding MediaCo Class B Common Stock, and a majority of the then-outstanding MediaCo Class C Common Stock, each voting as a separate class.
No class of common stock may be subdivided, combined, or reclassified unless concurrently the other classes of common stock are subdivided, consolidated, reclassified or otherwise changed in the same proportion and in the same
Exhibit 4.1
manner, except that shares of one class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved by the affirmative vote of the holders of the majority of the then-outstanding MediaCo Class A Common Stock, a majority of the then-outstanding MediaCo Class B Common Stock, and a majority of the then-outstanding MediaCo Class C Common Stock, each voting as a separate class.
Foreign Ownership Restriction. Our Articles of Incorporation restrict the ownership, voting and transfer of our capital stock, including the MediaCo Class A Common Stock, in accordance with the Communications Act of 1934, as amended (the "Communications Act"), and the rules of the Federal Communications Commission (the "FCC"), to prohibit ownership of more than 25% of our outstanding capital stock or more than 25% of the voting rights it represents by or for the account of aliens (as defined in the Communications Act) or corporations otherwise subject to domination or control by aliens. The Articles of Incorporation authorize our board of directors to prohibit any transfer of our capital stock that would cause MediaCo to violate this prohibition. In addition, the Articles of Incorporation provide that shares of our capital stock determined by the board of directors to be beneficially owned by an alien shall always be subject to redemption by MediaCo by action of the board of directors to the extent necessary, in the judgment of the board of directors, to comply with the alien ownership restrictions of the Communications Act and FCC rules. The Articles of Incorporation further authorize our board of directors to adopt such provisions as it deems necessary to enforce these alien ownership restrictions.
Listing. MediaCo Class A Common Stock is listed on Nasdaq under the symbol "MDIA."
Preferred Stock
Our authorized stock also includes 10,000,000 shares of preferred stock, $.01 par value per share. The preferred stock may be issued with such designations, preferences, limitations and relative rights as the board of directors may authorize, including but not limited to:
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the distinctive designation of each series and the number of shares that will constitute such series; |
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the dividend rate on the shares of such series, any restriction, limitation or condition upon the payment of such dividends, whether dividends shall be cumulative, and the dates on which dividends are payable; |
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the prices at which, and the terms and conditions on which, the shares of such series may be redeemed, if such shares are redeemable; |
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the purchase or sinking fund provisions, if any, for the purchase or redemption of shares of such series; |
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any preferential amount payable upon shares of such series in the event of the liquidation, dissolution or winding-up of the company or the distribution of its assets; and |
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the prices or rates of conversion at which, and the terms and conditions of which, the shares of such series may be converted into other securities, if such shares are convertible. |
On December 13, 2019, our Articles of Incorporation were amended to designate 300,000 shares of the Company’s preferred stock as MediaCo Series A Preferred Shares. The Series A Preferred Shares carry an original purchase price of $100 per share, are entitled to cumulative dividends accruing at an annual rate equal to the rate of interest on any senior credit facility of MediaCo, or if no senior credit facility is outstanding, of 6.00%, and an additional increase of 1.00% following the first anniversary of the date of issuance and additional increases of 1.00% following each successive anniversary thereafter. All such dividends will compound and be added to the accrued value of the Series A Preferred Shares on the anniversary of the issue date and shall be payable solely in additional Series A Preferred Shares. In the event of a liquidation, dissolution or winding up of MediaCo, the Series A Preferred Shares shall be paid the greater of the accrued value of the Series A Preferred Shares or the amount per share as would have been payable had each Series A Preferred Share been converted into MediaCo Class A Common Stock immediately prior to such liquidation, dissolution or winding up, and in either case shall be paid before any payments are made upon Common Stock or any shares of MediaCo preferred stock that are not designated to be senior to or on parity with the Series A Preferred Shares. The affirmative vote of the holders of more than fifty percent (50%) of the Series A Preferred Shares shall be required to adversely alter or change the rights, preferences or privileges of the Series A Preferred Shares. The Series A Preferred
Exhibit 4.1
Shares are convertible at the option of the holder into a number of shares of MediaCo Class A Common Stock equal to the accrued value of such shares divided by the thirty day volume-weighted average price of the MediaCo Class A Common Stock immediately prior to the conversion date, with any fractional shares paid in cash. Unless prohibited by Indiana law or the terms of MediaCo’s senior debt, any Series A Preferred Shares shall be redeemed by MediaCo for cash equal to the accrued value of such Series A Preferred Shares upon written demand for redemption by a holder of the Series A Preferred Shares made any time on or after June 12, 2025. If any Series A Preferred Shares presented for redemption are not permitted to be redeemed, such shares shall be redeemed as soon as lawfully permitted thereafter. Pending such delayed redemption, such Series A Preferred Shares shall remain outstanding and entitled to all of the rights and privileges of Series A Preferred Shares, and MediaCo shall pay interest on the redemption price at a per annum rate equal to ten percent (10%) or the maximum amount permitted by law. Any Series A Preferred Shares acquired by the Company for any reason shall be returned to the status of authorized but unissued preferred stock.
. The foregoing description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our Articles of Incorporation, By-laws, and the applicable provisions of the Indiana Business Corporation Law.
Exhibit 10.19
This instrument and the rights and obligations evidenced hereby are subordinate in the manner and to the extent set forth in that certain Second Amended and Restated Shareholder Note Subordination Agreement (as amended, modified, restated or replaced from time to time, the “Subordination Agreement”), dated as of March 27, 2020, between SG BROADCASTING LLC and GACP FINANCE CO., LLC, in its capacity as agent. Notwithstanding any contrary statement contained in the within instrument, no payment on account of the principal thereof or interest thereon shall become due or payable except in accordance with the express terms of the Subordination Agreement.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY COMPARABLE STATE SECURITIES LAW. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER THIS NOTE NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY HAS RECEIVED EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE COMPANY.
MEDIACO HOLDING INC.
Second Amended and REstated
unsecured CONVERTIBLE PROMISSORY NOTE
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March 27, 2020 |
$20,000,000.00 |
MediaCo Holding Inc., an Indiana corporation (the “Company”), hereby promises to pay to SG Broadcasting LLC, a Delaware limited liability company (the “Holder”), the principal amount of up to $20,000,000.00 (the “Outstanding Principal Amount”), together with interest thereon calculated from the date hereof in accordance with the provisions of this Second Amended and Restated Unsecured Promissory Note (as amended, amended and restated, modified or supplemented, this “Note”). Except as defined in Section 6 hereof or unless otherwise indicated herein, capitalized terms used in this Note have the same meanings set forth in the Contribution Agreement.
1.Interest Accrual and Payment. Subject to Section 4(b)(ii) below, interest shall accrue on the principal sums outstanding at a rate per annum equal to the Base Rate, plus an increase of 1.00% following the second anniversary of the date of the Original Note (as defined below) and additional increases of 1.00% following each anniversary of the date of the Original Note thereafter (the “Applicable Interest”). The Applicable Interest shall become due and payable in accordance with Section 2. Any accrued interest which for any reason has not theretofore been paid shall be paid in full on the Maturity Date.
2.Payment of Principal and Interest on Note.
(a)Scheduled Payments. The Company shall pay the Applicable Interest solely in kind annually on the date of this Note, with such interest shall be added to the principal amount of this Note on such payment date. The Company shall pay the entire principal amount of this Note, together with all accrued interest thereon, on the Maturity Date or such earlier date as required by the terms hereof.
DB1/ 113112335.3
(b)Optional Prepayments. The Company may, at any time and from time to time, no later than five (5) days after providing notice thereof to the Holder, without premium or penalty, prepay all or any portion of the outstanding principal amount of, or interest on, this Note; provided that such prepayment is not prohibited by Section 3 hereof or any applicable subordination agreement executed by the Holder. In connection with each prepayment of principal hereunder, the Company shall also pay all then accrued and unpaid interest hereunder.
(c)Mandatory Prepayments. Upon the first to occur of (i) a Sale of the Company or (ii) a Change of Control, the Company shall pay the outstanding principal amount of this Note, together with all accrued and unpaid interest on the principal amount being repaid.
(d)Application of Payments. Payments under this Note shall be applied (i) first, to the payment of then accrued interest hereunder until all such interest is paid and (ii) second, to the repayment of the principal outstanding hereunder.
3.Subordination. If at any time a Senior Lender requires this Note to be subordinated to such Senior Lender’s Company Senior Debt, Holder hereby agrees to subordinate this Note to such Senior Lender’s Company Senior Debt upon commercially reasonable terms and conditions and execute all documents, including any amendments to this Note, requested by such Senior Lender to evidence such subordination. Such subordination agreement shall permit payments pursuant to Section 1 hereof.
(a)Definition. For purposes of this Note, an “Event of Default” shall be deemed to have occurred if:
(i)subject to any applicable subordination agreement executed by the Holder and the Company Senior Debt, the Company fails to pay the full principal amount of this Note together with accrued and unpaid interest thereon on the date the same becomes due and payable hereunder, and such failure to pay is not cured within fifteen (15) days after the occurrence thereof;
(ii)the Company fails to comply with any other provision of this Note and such failure is not cured within thirty (30) days after the occurrence thereof; or
(iii)an Insolvency Event occurs.
The foregoing shall constitute Events of Default whatever the reason or cause for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court of competent jurisdiction or any order, rule or regulation of any administrative or governmental body having jurisdiction therein.
(b)Consequences of Events of Default.
(i)Subject to Section 3 above, any applicable subordination agreement executed by the Holder, and the Company Senior Debt, if an Event of Default other than of the type described in Section 4(a)(ii) has occurred, the Holder may declare the aggregate principal amount of this Note (together with all accrued interest thereon and all other amounts due and payable with respect thereto, including without limitation all interest accrued pursuant to Section 4(b)(ii), below) to be immediately due and payable and the Company shall immediately thereafter pay to the Holder all amounts due and payable with respect to this Note.
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(ii)Upon and during the continuance of an Event of Default, the Applicable Interest shall be equal to the Base Rate plus four percentage points (4.0%).
(iii)Subject to Section 3 above, any applicable subordination agreement executed by the Holder, and the Company Senior Debt, the Holder shall also have any other rights which the Holder may have pursuant to applicable law.
5.Conversion.
(a)Optional Conversion. On or after the date that is six (6) months after the date of the Original Note, all or a portion of the outstanding principal and any accrued but unpaid interest hereunder (the “Conversion Amount”) shall be convertible, at the option of the Holder upon notice to the Company, into shares of the Class A Common Stock, par value $0.01 per share (the “Class A Stock”), of the Company, at a conversion price equal to the 30-Day VWAP of the Class A Stock determined as of the Conversion Date. The “Conversion Date” shall be the fifth (5th) Business Day after the date on which the Holder gives notice of such conversion.
(b)Conversion Procedure; Effect of Conversion. If this Note is to be converted pursuant to Section 5(a), the Holder shall surrender this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement acceptable to the Company whereby the Holder agrees to indemnify the Company from any loss incurred by it in connection with this Note) for cancellation. Upon conversion of this Note in part, the Company shall reissue the Holder a replacement note in an amount equal to the aggregate of the outstanding amount and accrued but unpaid interest not included in the Conversion Amount. Upon conversion of this Note in full and the payment of the amounts specified in this section, the Company shall be forever released from all of its obligations and liabilities under this Note, and this Note shall be deemed of no further force or effect, whether or not the original of this Note has been delivered to the Company for cancellation.
(c)Limitation on Conversion. Notwithstanding anything herein to the contrary, the maximum number of shares of Class A Stock to be issued in connection with the conversion of this Note shall not, without the prior approval of the shareholders of the Company, (i) exceed a number of shares equal to 19.9% of the outstanding shares of common stock of the Company immediately prior to the date of the First A&R Note (as defined below), (ii) exceed a number of shares that would evidence voting power greater than 19.9% of the combined voting power of the then-outstanding voting securities of the Company immediately prior to the date of the First A&R Note, in each of subsections (i) and (ii) as such numbers of shares are calculated before the issuance of the Class A Stock upon conversion of this Note, or (iii) otherwise exceed such number of shares of capital stock of the Company that would violate applicable listing rules of the Nasdaq Stock Market (“Nasdaq”), in each of subsections (i) through (iii), only to the extent required by applicable Nasdaq rules and guidance (the “Share Cap”). In the event the number of shares of Class A Stock to be issued upon conversion of this Note exceeds the Share Cap, then the portions of this Note that would result in the issuance of any excess shares shall cease being convertible, and the Company shall instead either (x) repay such portions of this Note in cash or (y) obtain shareholder approval of the issuance of shares of Class A Stock in excess of the Share Cap prior to the issuance thereof. For the avoidance of doubt, this Section 5(c) shall be void and have no further effect immediately following such time as shareholders of the Company approve the issuance of shares of Class A Stock in excess of the Share Cap pursuant to the conversion of this Note.
6.Definitions. For purposes of this Note, the following capitalized terms have the following meaning.
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“30-Day VWAP” means the price equal to the average of the volume-weighted average prices of the Class A Stock on the Trading Market for the last thirty (30) Trading Days prior to the date of determination; provided, that if there is no Trading Market for any such day, then the price used for such day shall be the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTCQX, OTCQB, Pink or Grey markets (in that order) operated by OTCMarkets.
“Base Rate” means the interest rate on the Company Senior Debt, or if no Company Senior Debt is outstanding, 6.00%.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized or required to close under the laws of, or are in fact closed in the State of New York.
“Capital Stock” means any and all shares, interests, participations, units or other equivalents (however designated) of capital stock of a corporation, membership interests in a limited liability company, partnership interests of a limited partnership, any and all equivalent ownership interests in a Person, and in each case any and all warrants, rights or options to purchase, and all conversion or exchange rights, voting rights, calls or rights of any character with respect to, any of the foregoing.
“Change of Control” means the occurrence of any of the following:
(a)the SG Affiliates (taken as a whole) at any time ceasing (i) to own and control, directly or indirectly, beneficially and of record, on a fully diluted basis, at least 51.0% on a fully diluted basis of the outstanding Voting Stock of the Company or (ii) to have or exercise the power to elect a majority of the board of directors or other managing body of the Company;
(b)any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) becoming the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a greater amount of Voting Stock of the Company than is owned and controlled, directly or indirectly, by the SG Affiliates (taken as a whole);
(c)the completion of a sale of any Capital Stock of the Company pursuant to a registration statement which has become effective under the Securities Act; or
(d)a “change of control” (or any comparable term or provision) (i) as defined in any Company Senior Debt document, or any term of similar effect under any document executed in connection with any other Company Senior Debt document or (ii) under or with respect to any documents or agreements governing the Capital Stock of the Company.
“Company Senior Debt” means all principal of, premium (if any), interest (including, without limitation, interest accruing or that would have accrued but for the filing of a bankruptcy, reorganization or other insolvency proceeding whether or not such interest constitutes an allowable claim in such proceeding) on, and any and all other fees, expense reimbursement obligations, and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (i) indebtedness for borrowed money of the Company (including, without limitation, guarantees and other contingent obligations with respect to indebtedness for borrowed money of its Subsidiaries) of the type typically held by commercial banks, investment banks, insurance companies and other recognized lending institutions, entities and funds or subsidiaries thereof, whether now outstanding or hereafter created, incurred, assumed or guaranteed which is not by its terms on parity with or subordinated to the Company’s obligations under this Note, (ii) obligations evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, of the type
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typically held by commercial banks, investment banks, insurance companies and other recognized lending institutions, entities and funds or subsidiaries thereof, whether now outstanding or hereafter created, incurred, assumed or guaranteed which is not by its terms on parity with or subordinated to the Company’s obligations under this Note, or (iii) capital leases and similar types of financing, together with renewals, extensions, refundings, refinancings, deferrals, restructurings, amendments and modifications of the items described in (i), (ii), or (iii) above; provided that Company Senior Debt shall not include any of the foregoing to the extent owing to an Affiliate of the Company.
“Contribution Agreement” means that certain Contribution and Distribution Agreement, dated as of June 28, 2019, as amended, amended and restated, modified or supplemented, by and among Emmis Communications Corporation, an Indiana corporation, the Holder and the other parties identified therein.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Insolvency Event” means the occurrence of any of the following: (i) the Company makes a general assignment for the benefit of creditors; (ii) an order, judgment or decree is entered adjudicating the Company bankrupt or insolvent; (iii) any order for relief with respect to the Company is entered under any applicable bankruptcy law; (iv) the Company petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Company or of any substantial part of the assets of the Company, or commences any proceeding relating to the Company under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or (v) any such petition or application is filed, or any such proceeding is commenced, against the Company and not dismissed or stayed within 60 days.
“Maturity Date” means the date that is six (6) months after the fifth (5th) anniversary of after the date of the Original Note.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust (including any beneficiary thereof), a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.
“Sale of the Company” means the sale of the Company to a third party or group of third parties pursuant to which such party or parties acquire all or substantially all of the assets or business of the Company on a consolidated basis.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Senior Lender” means any holders of Company Senior Debt.
“SG Affiliates” means Standard General, L.P. and the funds for which is serves as an investment advisor and their respective Affiliates.
“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or
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other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity.
“Trading Day” means (a) any day on which the Class A Stock is listed or quoted and traded on its Trading Market or (b) if the Class A Stock is not then listed or quoted and traded on any Trading Market, then a day on which trading occurs on the Nasdaq Global Select Market (or any successor thereto).
“Trading Market” means the following market(s) or exchange(s) on which the Class A Stock is primarily listed or quoted for trading on the date in question (as applicable): the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NYSE American or the New York Stock Exchange (or any successors to any of the foregoing).
“Voting Stock” means, with respect to any Person, shares of such Person’s Capital Stock having the right to vote for the election of directors (or Persons acting in a comparable capacity) of such Person under ordinary circumstances.
7.Amendment and Waiver. Subject to any applicable subordination agreement, this Note may be amended only with the written consent of the Company and the Holder.
8.Assignment and Transfer. Except as set forth below, the Holder shall not sell, assign, transfer, pledge, hypothecate, mortgage, or otherwise encumber this Note; provided, however, that the Holder may assign or transfer all or any portion of this Note with the prior written consent of the Company, in its sole discretion (provided that any such assignee agrees to be bound by and subject to the terms and conditions of this Note and any applicable subordination agreement executed by the Holder). The Company shall not assign its interest in this Note, either voluntarily or by operation of law, without the prior written consent of the Holder; provided, that the Company shall be permitted to assign this Note to any Affiliate of equivalent or greater net worth as the Company at the time of such assignment.
9.Cancellation. After all principal and then accrued interest at any time owed on this Note has been paid in full, this Note shall be surrendered to the Company for cancellation and shall not be reissued.
10.Payments. All payments to be made to the Holder shall be made in U.S. Dollars by check or wire transfer of immediately available funds.
11.Place of Payment. Payments of principal and interest shall be delivered to the Holder at such address as is specified by timely prior written notice by the Holder.
12.Governing Law. All questions concerning the construction, validity, and interpretation of this Note will be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflicts of laws provision or rule (whether of the State of New York or any other jurisdiction) that would compel the application of the substantive laws of any jurisdiction other than the State of New York.
13.Business Days. If any payment is due, or any time period for giving notice or taking action expires, on a day which is not a Business Day, the payment shall be due and payable on, and the time period shall
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automatically be extended to, the next day Business Day, and interest shall continue to accrue at the required rate hereunder until any such payment is made.
14.Notice. The notice provisions set forth in Section 13.2 of the Contribution Agreement are incorporated by reference in this Note and made a part hereof as if they were set forth herein.
15.Acknowledgement. The Holder (a) is, by reason of its and its advisors’ business and financial experience, capable of evaluating the merits and risks of this Note and making an informed investment decision with respect hereto and with respect to the Company’s ability to repay the Note, in each case without reliance upon any Affiliate of the Company, (b) has had full access to such other information (including the opportunity to ask questions and receive answers) concerning the Company as the Holder has deemed appropriate, and has made its own investigation, without reliance upon the Company (other than as set forth in the Contribution Agreement and the documents referred to therein) or any of its Affiliates, into the business, prospects, operations, property, financial, and other condition and creditworthiness of the Company, and (c) is able to bear the economic and financial risk of the Note.
16.Usury Laws. It is the intention of the Company and the Holder to conform strictly to all applicable usury laws now or hereafter in force, and any interest payable under this Note shall be subject to reduction to the amount not in excess of the maximum legal amount allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction over such matters. The aggregate of all interest (whether designated as interest, service charges, points, or otherwise) contracted for, chargeable, or receivable under this Note shall under no circumstances exceed the maximum legal rate upon the unpaid principal balance of this Note remaining unpaid from time to time. If such interest does exceed the maximum legal rate, it shall be deemed a mistake and such excess shall be canceled automatically and, if theretofore paid, rebated to the Company or credited on the principal amount of this Note, or if this Note has been repaid, then such excess shall be rebated to the Company.
17.Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS NOTE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
18.Effect of Amendment and Restatement.
(a)This Note is a replacement note that supersedes in its entirety, as of the date hereof, that certain Unsecured Convertible Promissory Note dated as of November 25, 2019, executed by the Company in favor of the Holder (the “Original Note”, and, as amended by that certain Amended and Restated Unsecured Convertible Promissory Note, dated as of February 28, 2020, the “First A&R Note”).
(b)In addition to the amounts contributed by the Holder to the Company on November 25, 2019 (the “Original Contribution”), and the $2,000,000 contributed by the Holder to the Company on February 28, 2020 (the “First Contribution”), the Holder hereby agrees to contribute to the Company $3,000,000 as of the date hereof (the “Second Contribution” and, together with the Original Contribution, the First Contribution and any Subsequent Contribution (as defined below), the “Contributions”). For the avoidance of doubt, any subsequent contribution made hereunder (such contribution, a “Subsequent Contribution”) shall not be considered part of the Outstanding Principal Amount under this Note until it is disbursed to the Company by the Holder pursuant to the terms of this Note. In consideration of the Holder making the Contributions, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and agreed, intending to be legally bound, the Company and the Holder desire to amend and restate the Original Note on the terms as set forth herein. It is the intention of the Company and the Holder that while this Note replaces the Original
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Note, it is not in payment or satisfaction of the Original Note, but rather is the substitution of one evidence of debt for another without any intent to extinguish such debt.
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IN WITNESS WHEREOF, each of the Company and the Holder has executed and delivered this Second Amended and Restated Unsecured Promissory Note on the date first above written.
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MEDIACO HOLDING INC.
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By: |
/s/ J. Scott Enright |
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Name: |
J. Scott Enright |
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Title: |
Executive Vice President, General Counsel and Secretary |
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ACCEPTED AND AGREED:
SG BROADCASTING LLC
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By: |
/s/ Soohyung Kim |
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Name: |
Soohyung Kim |
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Title: |
Managing Member |
[Signature Page to Second Amended and Restated Unsecured Convertible Promissory Note]
Exhibit 10.20
AMENDMENT NO. 2 TO AMENDED AND RESTATED
TERM LOAN AGREEMENT
AMENDMENT NO. 2 TO AMENDED AND RESTATED TERM LOAN AGREEMENT, dated as of March 27, 2020 (this “Amendment No. 2”), is by and among MEDIACO HOLDING INC., an Indiana corporation (“MediaCo”), MEDIACO WQHT LICENSE LLC, an Indiana limited liability company (“MediaCo WQHT”) and MEDIACO WBLS LICENSE LLC, an Indiana limited liability company (“MediaCo WBLS”), FMG Kentucky, LLC, a Delaware limited liability company (“FMG Kentucky”), Fairway Outdoor LLC, a Delaware limited liability company (“Fairway”) and FMG Valdosta, LLC, a Delaware limited liability company (“FMG Valdosta”) the other Persons party hereto that are designated as “Borrowers” (collectively with MediaCo, MediaCo WQHT, MediaCo WBLS, FMG Kentucky, Fairway and FMG Valdosta, the “Borrowers” and each a “Borrower”), GACP FINANCE CO., LLC, a Delaware limited liability company (in its individual capacity, “GACP”), as administrative agent and collateral agent (in such capacities, the “Term Agent”) for the financial institutions from time to time party to this Agreement (collectively, the “Lenders” and individually each a “Lender”) and for itself, and the Lenders.
W I T N E S S E T H :
WHEREAS, Term Agent, Lenders, Borrowers and others have entered into financing arrangements pursuant to which Lenders (or Term Agent on behalf of Lenders) have made loans and advances and provide other financial accommodations to Borrowers as set forth in the Amended and Restated Term Loan Agreement, dated as of December 13, 2019, as amended by that certain Amendment No. 1 and Waiver to Amended and Restated Term Loan Agreement (“Amendment No. 1”), dated as of February 28, 2020, as supplemented by that certain Borrower Joinder Agreement, dated as of March 13, 2020 (as may be further amended, restated and otherwise modified prior to the date hereof, the “Loan Agreement”) and the other Loan Documents;
WHEREAS, Borrowers have requested that the Lenders and Term Agent make certain amendments set forth in Section 2 below, including, inter alia, (1) modifying the definition of Consolidated Fixed Charge Coverage Ratio and the thresholds relating thereto in Section 5.22, (2) modifying the Minimum Liquidity thresholds required under Section 5.22 and (3) increasing the maximum principal amount of Indebtedness permitted to be issued under the SG Broadcasting Subordinated Note to $20,000,000;
WHEREAS, Borrowers, Lenders and Term Agent have agreed to make such amendments to the Loan Agreement on the terms set forth herein;
WHEREAS, Section 8.1 of the Loan Agreement provides that, among other things, the Borrowers and the Required Lenders may make certain amendments to the Loan Agreement and the other Loan Documents for certain purposes; and
WHEREAS, by this Amendment No. 2, Term Agent, Lenders signatory hereto and Borrowers intend to evidence and effect such amendments;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, the parties hereto agree as follows:
1.Interpretation. For purposes of this Amendment No. 2, all terms used herein which are not otherwise defined herein, including, but not limited to, those terms used in the recitals hereto, shall have the respective meanings assigned thereto in the Loan Agreement as amended by this Amendment No. 2.
2.Amendments
(a)Section 5.5(k) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“(k)Indebtedness of the Borrower Representative owed to SG Broadcasting under the SG Broadcasting Subordinated Note; provided that the aggregate original principal amount of such Indebtedness shall not exceed $20,000,000.”
(b)Section 5.22 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“(a) Minimum Liquidity. The Borrowers shall not permit Liquidity, at any time, (i) for the period from the Effective Date until September 30, 2020, to be less than $1,000,000, (ii) for the period from October 1, until November 25, 2020 to be less than $2,000,000, (iii) for the period from November 26, 2020 until November 25, 2021, to be less than $2,500,000, and (iv) thereafter, to be less than $3,000,000.
(b) Minimum Consolidated Fixed Charge Coverage Ratio. The Borrowers shall not permit the Consolidated Fixed Charge Coverage Ratio, measured as of the last day of any Fiscal Quarter of the Borrowers, to be less than (i) 1.10 to 1.00, through and including March 31, 2020, (ii) 1.00 to 1.00, on and after April 1, 2020 through and including December 31, 2020, and (ii) 1.10 to 1.00, on and after January 1, 2021.”
(c)The following definitions set forth in Section 10.1 of the Loan Agreement are hereby amended and restated in their entirety to read as follows:
“Consolidated Fixed Charge Coverage Ratio” means, for any period, the ratio of (a) Consolidated EBITDA (including amounts contributed in the 2020 calendar year that are: (x) contributed as Indebtedness of the Borrower Representative owed to SG Broadcasting under the SG Broadcasting Subordinated Note to the extent permitted to be incurred by this Agreement or (y) contributed to the Borrower in the form of cash equity contributions from SG Broadcasting, but, in each case, excluding any such amount used for the repayment of Indebtedness (other than the repayment of principal under the Term Loans pursuant to Section 1.6(a) of this Agreement; for the avoidance of doubt, any amounts used to repay either the Emmis Radio Seller Note or the Emmis working capital loan that is guaranteed by SG Broadcasting, shall not be added back to Consolidated EBITDA for purposes of this definition), to (b) the sum of (i) Consolidated Interest Expense paid or payable in cash by Borrowers during such period, plus (ii) all scheduled principal payments made by Borrowers during such period on account of Indebtedness (including, without limitation, obligations with respect to Capital Leases, but excluding all voluntary and mandatory prepayments and all principal payments made in connection with any revolving credit facility which do not result in a permanent reduction of such facility), plus (iii) Restricted Payments paid in cash by MediaCo during such period, in each case determined in accordance with GAAP to the extent applicable, plus (iv) Unfinanced Capital Expenditures paid in cash by Borrowers during such period, plus (v) the aggregate amount (but not less than $0) of federal, state, local and foreign income taxes paid in cash by Borrowers during such period provided that, notwithstanding anything to the contrary contained herein, solely for the purpose of calculating the Consolidated Fixed Charge Coverage Ratio for any period ending prior to the first anniversary of the
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Original Closing Date, the amount of the items set forth in clauses (b)(i) and (b)(ii) above shall be calculated for the period from the Original Closing Date through and including the date of determination and multiplied by a fraction, the numerator of which is 365 and the denominator of which is the number of days in such period.”
“SG Broadcasting Subordinated Note” means the Second Amended and Restated Unsecured Convertible Promissory Note dated as of March 27, 2020, made by MediaCo to SG Broadcasting, in an aggregate principal amount of up to $20,000,000.
“SG Broadcasting Subordinated Note Subordination Agreement” means the Second Amended and Restated Shareholder Note Subordination Agreement, dated as of March 27, 2020, by and between SG Broadcasting and the Term Agent.”
(d)The following definitions shall be added to Section 10.1 of the Loan Agreement in proper alphabetical order:
“Amendment No. 2” means the Amendment No. 2 to Amended and Restated Term Loan Agreement, dated as of March 27, 2020, by and among the Borrowers, the Term Agent and the lenders party thereto.”
3.Representations and Warranties. Each Loan Party, jointly and severally, hereby:
(a)reaffirms all representations and warranties made to Term Agent and Lenders under the Loan Agreement and all of the other Loan Documents and confirms that all are true and correct in all material respects as of the date hereof except to the extent that (i) such representations or warranties are qualified by a materiality standard, in which case they shall be true and correct in all respects and (ii) such representations or warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date (or, if such representations or warranties are qualified by a materiality standard, in all respects as of such earlier date));
(b)reaffirms all of the covenants contained in the Loan Agreement;
(c)represents and warrants that, after giving effect to this Agreement, no Default or Event of Default has occurred and is continuing;
(d)represents and warrants that the execution, delivery and performance by each Loan Party of this Amendment No. 2 and the other documents, agreements and instruments executed by any Loan Party in connection herewith (collectively, together with this Amendment No. 2, the “Amendment Documents”) and the consummation of the transactions contemplated hereby or thereby, are within such Loan Party’s powers, have been duly authorized by all necessary organizational action, and do not contravene (i) the charter or by-laws or other organizational or governing documents of such Loan Party or (ii) any law or any contractual restriction binding on or affecting any Loan Party, except, for purposes of this clause (ii), to the extent such contravention would not reasonably be expected to have a Material Adverse Effect;
(e)represents and warrants that no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other third party is required for the due execution, delivery and performance by any Loan Party of any Amendment Document to which it is a party that has not already been obtained if the failure to obtain such authorization, approval or other action could reasonably be expected to result in a Material Adverse Effect; and
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(f)represents and warrants that each Amendment Document has been duly executed and delivered by each Loan Party thereto. This Amendment No. 2 constitutes, and each other Amendment Document will constitute upon execution, the legal, valid and binding obligation of each Loan Party thereto enforceable against such Loan Party in accordance with its respective terms subject to the effect of any applicable bankruptcy, insolvency, reorganization or moratorium or similar laws affecting the rights of creditors generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).
4.Conditions Precedent. This Amendment No. 2 shall be effective upon the satisfaction of each of the following conditions precedent (the “Second Amendment Effective Date”):
(a)Term Agent shall have received counterparts of this Amendment No. 2, duly authorized, executed and delivered by Borrowers, Term Agent and the Required Lenders;
(b)No Default or Event of Default shall have occurred and be continuing;
(c) The Borrowers shall have reimbursed the Term Agent, for all reasonable and documented fees, costs and expenses incurred through the Second Amendment Effective Date (including, without limitation, Attorney Costs related to the preparation, negotiation, execution, delivery of this Amendment No. 2);
(d)Term Agent shall have received the Second Amended and Restated Unsecured Convertible Promissory Note dated as of the Second Amendment Effective Date, in form and substance reasonably acceptable to Term Agent.
(e)Term Agent shall have received the Second Amended and Restated Shareholder Note Subordination Agreement dated as of the Second Amendment Effective Date, in form and substance reasonably acceptable to Term Agent.
(f)Term Agent shall have received a certificate of an Authorized Officer of the Borrower dated as of the Second Amendment Effective Date certifying the representations set forth in Section 3 hereof; and
(g)Borrower shall have paid the Agent, for the ratable benefit of Lenders the Amendment Fee described in Section 5 below.
5.Amendment Fee. The Borrowers shall have paid to the Term Agent, for the ratable benefit of the Term Lenders, in Dollars, an amendment fee equal to 0.25% of the aggregate outstanding principal amount of the Term Loan (the “Amendment Fee”), which Amendment Fee shall be fully earned and payable on the Second Amendment Effective Date and shall not be refundable for any reason whatsoever; provided, that at the option of the Borrowers, the Amendment Fee may instead be added to the aggregate outstanding principal amount of the Term Loan.
6.General.
(a)Effect of this Amendment No. 2. Except as expressly provided herein, no other consents, waivers, changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof.
(b)Expenses. Borrowers agree to pay on demand all expenses of Term Agent and
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Lenders in connection with the administration of this Amendment No. 2 in accordance with Section 8.5 of the Loan Agreement.
(c)Governing Law. This Amendment No. 2 shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of laws principles thereof.
(d)Submission to Jurisdiction; Service of Process; Waiver of Jury Trial. SECTIONS 8.18(a) THROUGH (d) AND SECTION 8.19 OF THE LOAN AGREEMENT ARE HEREBY INCORPORATED BY REFERENCE INTO THIS AMENDMENT NO. 2 MUTATIS MUTANDIS AND SHALL APPLY HERETO AS IF ORIGINALLY MADE A PART HEREOF.
(e)Binding Effect. This Amendment No. 2 shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto.
(f)Counterparts, etc. This Amendment No. 2 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment No. 2 by telecopier or by electronic transmission of a pdf formatted counterpart shall be effective as delivery of a manually executed counterpart of this Amendment No. 2.
(g)Financing Document. This Amendment No. 2 constitutes a Loan Document.
(h)Reaffirmation. Each of the undersigned Loan Parties acknowledges (i) all of its Obligations under the Loan Agreement and each other Loan Document to which it is a party are reaffirmed and remain in full force and effect on a continuous basis, (ii) its grant of security interests pursuant to the Loan Documents are reaffirmed and remain in full force and effect after giving effect to this Amendment No. 2, (iii) the Obligations include, among other things and without limitation, the due and punctual payment of the principal of, interest on, and premium (if any) on, the Obligations and (iv) the execution of this Amendment No. 2 shall not operate as a waiver of any right, power or remedy of Term Agent or any other Secured Party, constitute a waiver of any provision of any of the Loan Documents or serve to effect a novation of the Obligations.
(i)Release. In consideration of the agreements of Term Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Borrower, on behalf of itself and its respective successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Term Agent and Lenders, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Term Agent, each Lender and all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set off, demands and liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known as of the date of this Amendment No. 2, both at law and in equity, which each Borrower, or any of its respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment No. 2, in each case for or on account of, or in relation to, or in any way in connection with any of the Loan Agreement, or any of the other Loan Documents or transactions thereunder or related thereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered by their authorized officers as of the day and year first above written.
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MEDIACO HOLDING INC. |
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By: |
/s/ J. Scott Enright |
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Name: |
J. Scott Enright |
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Title: |
Executive Vice President, General Counsel and Secretary |
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MEDIACO WQHT LICENSE LLC MEDIACO WBLS LICENSE LLC FAIRWAY OUTDOOR LLC
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By: |
MEDIACO HOLDING INC., its sole member and manager |
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By: |
/s/ J. Scott Enright |
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Name: |
J. Scott Enright |
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Title: |
Executive Vice President, General Counsel and Secretary |
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FMG KENTUCKY, LLC FMG VALDOSTA, LLC
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By: |
FAIRWAY OUTDOOR LLC, its sole member and manager |
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By: |
/s/ J. Scott Enright |
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Name: |
J. Scott Enright |
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Title: |
Secretary |
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GACP FINANCE CO., LLC, as Term Agent |
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By: |
/s/ John Ahn |
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Name: |
John Ahn |
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Title: |
Chief Executive Officer |
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GACP II, L.P., as a Lender |
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By: |
/s/ John Ahn |
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Name: |
John Ahn |
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Title: |
Chief Executive Officer |
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HANMI BANK, as a Lender |
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By: |
/s/ Jay Kim |
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Name: |
Jay Kim |
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Title: |
EVP & Regional Chief Banking Officer |
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Exhibit 21
INFORMATION REGARDING SUBSIDIARIES OF THE REGISTRANT
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Name Under Which Subsidiary Does Business |
Jurisdiction of Organization |
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MediaCo Holding Inc. |
IN |
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MediaCo WQHT License LLC |
IN |
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MediaCo WBLS License LLC |
IN |
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FMG Kentucky, LLC |
DE |
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FMG Valdosta, LLC |
DE |
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Fairway Outdoor LLC |
DE |
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Patrick M. Walsh and J. Scott Enright, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of MediaCo Holding Inc. on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto.
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Dated: March 23, 2020 |
/s/ Andrew Glaze |
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Andrew Glaze |
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Patrick M. Walsh and J. Scott Enright, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of MediaCo Holding Inc. on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto.
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Dated: March 20, 2020 |
/s/ Laura Lee |
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Laura Lee |
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Patrick M. Walsh and J. Scott Enright, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of MediaCo Holding Inc. on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto.
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Dated: March 23, 2020 |
/s/ Mary Beth McAdaragh |
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Mary Beth McAdaragh |
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below, hereby constitutes and appoints Jeffrey H. Smulyan, Patrick M. Walsh and J. Scott Enright, or any of them, his attorneys-in-fact and agents, with full power of substitution and resubstitution for him in any and all capacities, to sign the annual report of MediaCo Holding Inc. on Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each of such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each of such attorneys-in-fact and agents or his substitute or substitutes may do or cause to be done by virtue hereto.
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Dated: March 20, 2020 |
/s/ Deborah McDermott |
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Deborah McDermott |
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jeffrey H. Smulyan, certify that:
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I have reviewed this transition report on Form 10-K of MediaCo Holding Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 27, 2020
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/s/ Jeffrey H. Smulyan |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Ryan A. Hornaday, certify that:
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I have reviewed this transition report on Form 10-K of MediaCo Holding Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 27, 2020
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/s/ Ryan A. Hornaday |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit 32.1
SECTION 1350 CERTIFICATION
The undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Transition Report of the Company on Form 10-K for the period ended December 31, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: March 27, 2020
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/s/ Jeffrey H. Smulyan |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Exhibit 32.2
SECTION 1350 CERTIFICATION
The undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Transition Report of the Company on Form 10-K for the period ended December 31, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: March 27, 2020
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/s/ Ryan A. Hornaday |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and Treasurer |