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 December 31, 2021
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☐ |
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
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.)
395 HUDSON STREET, FLOOR 7
NEW YORK, New York 10014
(Address of principal executive offices)
(212) 229-9797
(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 |
☒ |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
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 June 30, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter, was $10,182,038.
The number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of March 16, 2022, was:
2,914,606 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 2022 Annual Meeting of Shareholders expected to be filed by May 2, 2022 (the first business day following the day that is 120 days after the last day of the registrant’s 2021 fiscal year) |
Part III |
MEDIACO HOLDING INC. AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
2
CERTAIN DEFINITIONS
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.
3
PART I
ITEM 1. BUSINESS
GENERAL
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an owned and operated multi-media company formed in Indiana in 2019, focused on radio and outdoor advertising.
Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City demographic market area that primarily targets Black, Hispanic, and multi-cultural consumers, as well as approximately 3,500 outdoor advertising displays in the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions of the United States. We derive our revenues primarily from radio, outdoor, and digital advertising sales, but we also generate revenues from events, including sponsorships and ticket sales, licensing, and syndication.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.
BUSINESS STRATEGY
We are committed to improving the operating results of our core assets while simultaneously seeking future growth opportunities in new radio businesses that focus predominately on multi-cultural audiences in the national and digital advertising spaces and outdoor advertising businesses that focus on underserved areas. Our strategy is focused on the following operating principles:
Develop unique and compelling content and strong brands
Our established nationally recognized media brands have achieved and sustained a leading position in their respective local market segments over many years, with each having a strong brand identity that reaches beyond its local footprint. The 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 and fresh, 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 our end user.
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.
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 technology solutions to help further streamline 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.
4
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’s Investing In Radio 2021, fourth edition. “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 2022 Nielsen Audio, Inc. (“Nielsen”) Portable People Meter results. A “t” indicates the station tied with another station for the stated ranking. “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.
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STATION AND MARKET |
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MARKET RANK BY REVENUE |
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FORMAT |
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PRIMARY DEMOGRAPHIC TARGET AGES |
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RANKING IN PRIMARY DEMOGRAPHIC TARGET |
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STATION AUDIENCE SHARE |
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New York, NY |
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2 |
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WQHT-FM |
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|
|
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Hip-Hop |
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18-34 |
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4 |
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5.1 |
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WBLS-FM |
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|
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Urban Adult Contemporary |
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25-54 |
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4 |
|
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5.0 |
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RADIO ADVERTISING SALES
Our stations derive their advertising revenue from local and regional spot radio and digital 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 year ended December 31, 2021, approximately 21% of our total radio advertising revenues were derived from national sales, and 79% 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 Hot 97's Summer Jam, 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
As of December 31, 2021, we owned and operated approximately 3,500 outdoor advertising displays in seven states. Our outdoor advertising businesses generally derive approximately 74% of billboard advertising net revenues from bulletin rentals, 15% from poster rentals, and 11% from digital billboard 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, 2021, we operated approximately 1,115 bulletin structures with a total of 2,530 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.
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, 2021, we operated approximately 335 poster displays with a total of 729 faces.
We generally lease poster space for four 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 can generate 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, 2021, our inventory included 21 digital display billboards with a total of 200 faces. We own the physical structures on which the advertising copy is displayed. We build the structures on locations we either own or lease.
5
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 5% 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 to adjacent areas of entertainment, including streaming, gaming, and sports, and to increase audience reach via connected devices.
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, Hip Hop has Heart, the Harlem Chamber of Commerce, the Sarcoidosis Foundation, New York Cares, American AIDS Foundation and the Queens Police Service Area Community Counsel.
In January 2022, we helped raise over $1 million by broadcasting a day-long fundraiser for the families impacted by the Bronx apartment fire at Twin Parks North-West.
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, streaming services, 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 ownership and joint operation of local stations. Our radio stations take advantage of these joint arrangements when appropriate 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 ours 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.
6
HUMAN CAPITAL RESOURCES
Our mission is to connect brands and consumers by delivering innovative advertising insights and solutions while enhancing our communities. We believe that our success is dependent upon successful execution of this mission, and a critical component in achieving this mission is attracting, motivating and retaining great people who allow us to continue to find new and innovative ways to serve our customers and our communities. We believe our key human capital management objective is to attract, retain and develop the highest quality talent and subject matter experts in the sectors we operate. We believe an alignment between talent and strategy is key to scaling the business.
At December 31, 2021, we had 192 full-time and part-time employees, compared to 189 at December 31, 2020, of which 134 were employed under the prior employee leasing arrangement (the “Employee Leasing Agreement”) with Emmis Operating Company (“EOC”). On January 1, 2021, we hired all the leased employees under the Employee Leasing Agreement with EOC and assumed the employment and collective bargaining agreements related to those employees.
To facilitate talent attraction and retention, we strive to create strong teams and vibrant culture at every level of our organization through our core values of integrity, innovation, excellence and safety. We also strive to offer a fair and competitive compensation and benefits program, foster a community where everyone feels included and empowered to do their best work, provide a safe workplace, and give employees the opportunity to give back to their communities and make a social impact. We believe people can achieve their full potential when they enjoy their work, so it is our priority to provide a workplace where growth, success and fun go hand in hand. We are implementing annual goal-setting and performance management processes, as well as formal surveys of our employees on a periodic and ongoing basis to measure engagement and identify areas for improvement.
Code of Business Conduct
We are deeply committed to promoting a culture of ethical conduct and compliance. Our Code of Business Conduct and Ethics, which applies to all employees as well as officers and all members of the Board, reinforces our core values and helps drive our workplace culture of compliance with ethical standards, integrity and accountability. Training on the Code is mandatory upon employment and is provided on an annual basis. Highlights from our Code include a no retaliation policy for anyone who, acting in good faith, notifies us of a possible violation of the Code, our policies or the law; a commitment to human rights and labor protections in all of our operations, and the expectation that our business partners uphold the same standards; and an anti-corruption policy that prohibits offering, attempting to offer, authorizing or promising any bribe or kickback for the purpose of obtaining or retaining business or an unfair advantage.
Compensation and Benefits Programs
Our compensation and benefits programs are designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders. We provide competitive packages to address the needs of the individuals we employ to ensure we have alignment with culture, expectations and value driven results. Our sales employees are incentivized through sales commission programs. Our executives and certain other employees receive long-term equity awards that vest over time. We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests.
We also provide our employees and their families with access to a variety of healthcare and insurance benefits, qualified spending accounts, retirement savings plans and various other benefits.
Diversity and Inclusion
We are an equal opportunity employer and are committed to providing a work environment that is free of discrimination and harassment. We respect and embrace diversity of thought and experience and believe that a diverse workforce produces more innovative insights and solutions, resulting in better products and services for our customers. As we bring brands face-to-face with people, we believe our teams need to be as diverse in their composition and outlook as the audiences we reach every day, and we work together to create an inclusive environment where everyone can bring their true selves to work. We work on building teams that reflect the life experiences of those we serve. Our teams align with our mission and values; of the 192 full-time and part-time employees driving the business, over 66% are Black, Hispanic, or Asian, and 39% are female.
Community Involvement
One of our guiding principles is making a difference in the communities we serve, and our corporate social responsibility initiatives are an important part of our culture. We believe that building connections between our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace. As a company, we endeavor to use our resources and products to drive meaningful societal change and have collaborated with local and national organizations globally to improve health and public safety; to ensure a sustainable environment; to promote arts, education and cultural diversity; and to support market-by-market advertising standards. MediaCo aims to be purposeful and do the right thing and over the years we have worked with our community to educate, understand, guide and amplify their voices to ensure our audience feels heard and appreciated.
7
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Listed below is certain information about the executive officers of MediaCo as of December 31, 2021. All of our executive officers serve at the pleasure of the Board of Directors. There are no family relationships among any of our executive officers or directors.
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NAME |
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POSITION |
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AGE AT DECEMBER 31, 2021 |
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YEAR FIRST ELECTED OFFICER |
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Rahsan-Rahsan Lindsay |
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Chief Executive Officer and Director |
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50 |
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2021 |
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Bradford A. Tobin |
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President, Chief Operating Officer and General Counsel |
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39 |
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2020 |
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Ann C. Beemish |
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Executive Vice President, Chief Financial Officer and Treasurer |
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49 |
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2021 |
Mr. Lindsay was appointed to the position of Chief Executive Officer in June 2021. Prior to joining MediaCo, Mr. Lindsay served as the Executive Vice President of Advertising Sales and Marketing for Urban One, Inc. for nine years, where he oversaw advertising sales, integrated marketing, and sales operations for TV One and sister network CLEO TV, which he helped launch in 2019. In 2020, he took over as head of iOne Digital ad sales and One Solution, Urban One’s cross-platform marketing group, as well as One X Studios, the branded content production arm of Urban One. Mr. Lindsay has been a member of the Advisory Board of Rutgers University School of Business since 2018. In addition, he maintains a seat on the International Radio and Television Society board, a position that he has held for the past four years and serves as the co-chair of the board of directors for The Brotherhood/Sister Sol, a Harlem-based nonprofit organization providing education and personal development, career training and support services to underserved youth.
Mr. Tobin has served as President, Chief Operating Officer, and General Counsel since June 2021, after being appointed as Chief Operating Officer in August 2020. Mr. Tobin has over 12 years of legal and operational experience. Prior to joining the Company, Mr. Tobin served as Secretary, General Counsel and Chief Compliance Officer of Standard Diversified Inc. (a former affiliate of the Company), and before that served as the General Counsel and Senior Vice President of General Wireless Operations Inc. d/b/a RadioShack. Preceding this role, Mr. Tobin served on the distressed debt team at Silver Point Capital, LP.
Ms. Beemish was appointed to the position of Executive Vice President, Chief Financial Officer and Treasurer in November 2021. Ms. Beemish was previously the Senior Vice President of Finance at MediaCo since March 2021. Prior to joining MediaCo, Ms. Beemish served as Knotel's Head of Global Administration and Readiness and Head of Global People Operations. She founded consultancy Huppe Beemish LLC in 2016 and served as Senior Vice President of Operational Finance and Corporate Development at Granite Broadcasting. Ms. Beemish began her career as an investment banker at Donaldson, Lufkin & Jenrette and Merrill Lynch. She holds an MBA from New York University's Leonard N. Stern School of Business and a bachelor's degree from Saint John's University.
AVAILABLE INFORMATION
Our website address is 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, as amended (the “Communications Act”), including 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 FCC filings 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 so as to 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 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 or otherwise affect the Company, 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.
8
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 application and approval by the FCC. License renewal applications for both WQHT-FM and WBLS-FM are currently pending before the FCC. The following table sets forth our current 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, 2021:
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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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|||
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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 |
|
|
107.5 |
|
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June 2022 |
|
B |
|
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1,362 |
|
|
|
4.2 |
|
Under the Communications Act, upon the filing of an application for renewal of a station license, 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 the vast majority of cases, the FCC renews a broadcast license even when petitions to deny have been filed against the renewal application. We do not anticipate any impediments to the renewal of our radio licenses.
Review of Ownership Restrictions
The FCC is required by statute to review its broadcast ownership rules on a quadrennial basis (i.e., every four years) and to repeal or modify 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. In April 2021, the U.S. Supreme Court reversed a lower court decision blocking a number of FCC rule changes designed to update the FCC’s media ownership regulations. As a result, the FCC’s Radio/Television Cross-Ownership Rule, which limited the number of radio and television and stations that could be commonly owned in a single market, was eliminated.
The FCC initiated its 2018 quadrennial review in December 2018 and that proceeding remains pending. We cannot predict whether the quadrennial review proceeding will result in modifications of the ownership rules or the impact (if any) that such modifications would have on our business.
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, such that there would be a violation of the FCC’s rules where such person or entity holds 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., a broadcast station). |
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 could require divestitures by either the Company or the affected shareholders, officers or directors. Such conflicts could also 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.
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Local Radio Ownership:
The local radio ownership rule limits the number of commercial radio stations in a radio market in which a person or entity may hold an attributable interest 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 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 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.
In the 2018 quadrennial review order, the FCC is considering all aspects of the local radio ownership rule, including whether the rule in its current form remains necessary in the public interest.
Alien Ownership:
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. 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.
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. Federal law also imposes sponsorship identification (or “payola”) requirements, which mandate the disclosure of information concerning programming the airing of which is paid for by third parties. The company may receive letters of inquiry or other notifications concerning alleged violations of the FCC’s rules at its stations. We cannot predict the outcome of any complaint proceeding or investigation or the extent or nature of any future FCC enforcement action.
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 promotions, and technical operations, including limits on radio frequency radiation.
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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 over 2000 such stations have been licensed. 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 full-power 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 in October 2020, adopted rules permitting all-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 has negotiated individual licensing agreements with radio stations for songs within its repertoire. 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.
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 be paid to performance rights organizations. In 2021, the Copyright Royalty Board (“CRB”) completed its proceeding to set rates for the 2021-2025 license period. The CRB set a rate during this period for performances by non-subscription noninteractive services of $0.0021 per listener per song, and a rate for noninteractive subscription services of $0.0026 per listener per song, both of which are subject to changes that mirror changes in the Consumer Price Index.
Legislation also has regularly 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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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 to modify broadcasters’ public interest obligations; and |
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proposals, including by states, to limit the tax deductibility of advertising expenses by advertisers. |
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.
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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 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 at 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.
ITEM 1A. RISK FACTORS.
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, weakness in the United States economy generally has an adverse effect on our advertising revenue and, therefore, our results of operations. For example, the economic tumult caused by the on-going coronavirus (“COVID-19”) pandemic has had a material adverse effect on our advertising revenues, particularly at our New York radio stations.
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 are highly correlated to the performance of the economy of United States. New York market revenues, as measured by the accounting firm Miller Kaplan Arase LLP ("Miller Kaplan"), during the year ended December 31, 2021, and the year ended December 31, 2020, were up 41.2% and down 31.3%, respectively. During these same periods, the U.S. Bureau of Economic Analysis reports that U.S. real gross domestic product grew 5.7% and contracted 3.4%, respectively.
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.
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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 entirely 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 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 have been, and continue to be, adversely affected by the 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. We were required to cancel Summer Jam in 2020 due to the COVID-19 pandemic, which adversely impacted our financial results in 2020. We delayed Summer Jam in 2021 until late August due to slower than expected reopening of the New York/New Jersey market. Summer Jam in 2021 was further impacted by the effects of hurricane Henri. Our ability to successfully hold future Summer Jams is dependent on, among other things, state and local restrictions on crowd sizes and people’s willingness to attend large gatherings. We cannot predict when, if ever, advertising levels will return to pre-pandemic levels.
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.
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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 December 31, 2021, SG Broadcasting controlled approximately 94.7% 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:
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a majority of the board of directors consist of independent directors, |
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we have a Nominating and Corporate Governance Committee that is composed entirely of independent directors, and |
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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 entirely of independent directors; however, we do not have a Nominating and Corporate Governance Committee. MediaCo could choose 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 the radio broadcasting 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. |
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 not be changes in the current regulatory scheme, 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.
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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. We are currently in the renewal process for our licenses with the FCC. While we are not aware of facts or circumstances that would prevent us from having our current licenses renewed, though third parties could challenge our renewal applications, and 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 a government agency, the FCC may, in response to a petition from a third party or on its own initiative, 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.
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.
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 such 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.
Misalignment with public and consumer taste and preferences could negatively impact advertising demand and profitability of our business.
Our business creates content for our target audiences. Our business relies on an alignment between our brands and our audience taste and preferences through the distribution of content over-the-air, digitally and visually. If the alignment between our brands and our audience shifts, then we might experience a shift in advertising revenue and categories.
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. 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.
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Impairment losses related to our intangible assets could reduce our earnings in the future.
As of December 31, 2021, our intangible assets comprised 53% of our total assets. We did not record any impairment charges during the years ended December 31, 2021, and December 31, 2020. However, if events occur or circumstances change, the fair value of our intangible assets 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. Similarly, the COVID-19 pandemic caused severe trauma to our business during 2020, with advertisers pulling advertisements and events like Summer Jam being canceled. Future events like those of September 11, 2001, or the evolving COVID-19 pandemic, may 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.
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.
16
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 December 31, 2021, our total indebtedness was $102.1 million, consisting of $68.3 million under our five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC (“GACP”) as administrative agent and collateral agent, $6.2 million of notes payable (the “Emmis Promissory Note”) to Emmis Communications Corporation (“Emmis”), from which we were spun off in November 2019, and $27.6 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. |
Noncompliance with the financial covenants in our debt instruments could result in the loss of our sources of liquidity and acceleration of our indebtedness and cause substantial doubt about our ability to continue as a going concern.
The Company has debt service obligations of approximately $10.1 million due under its Senior Credit Facility from March 24, 2022, on which we are filing this Annual Report on Form 10-K, through March 24, 2023. In addition, our Senior Credit Facility, requires us to maintain Minimum Liquidity (as defined in the Senior Credit Facility) of $3.0 million monthly until maturity and Minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) of 1.00:1.00 through and including December 31, 2022, with it increasing to 1.10:1.00 on and after January 1, 2023. The Company expects its revenues and profitability to continue to experience the impact of the lingering COVID-19 pandemic. We remain uncertain of the duration and severity of the future COVID impact on the business and remains unknown as of the date of issuance of these financial statements. Management anticipates that the Company will be able to meet its liquidity needs and comply with the covenants of our Senior Credit Facility for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings.
Our Senior Credit Facility includes a loan to value calculation, whereby the amount of debt outstanding thereunder is limited to a formula based on low and high watermark trigger of 60% or 70% of the fair value of the Company’s FCC licenses plus corresponding low or highwater mark trigger based on a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility). If the most recent appraisal of the fair value of our FCC licenses obtained in connection with our annual impairment testing as of October 1, 2021 is deemed to be an Acceptable Appraisal (as defined in the Senior Credit Facility) by our lender in its sole discretion, we believe will remain in compliance for this calculation. Our lender is not required to accept this appraisal and has the right to obtain a different appraisal, which could result in a different borrowing base calculation amount, if any.
We believe based on our projected financial performance, our ability to closely run and monitor our business and our ability to draw on capital, that we will remain in compliance with all covenants throughout the next twelve months.
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.
17
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 December 31, 2021, SG Broadcasting held approximately 94.7% 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 94.7% 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 is convertible into MediaCo Class A common stock, Emmis no longer holds any common stock of MediaCo, though its officers serve as the MediaCo Class A Directors. These officers were initially shareholders of MediaCo, but no assurance can be given that they have or will retain their ownership of MediaCo shares. Further, 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.
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, the Circuit or any 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:
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any derivative action or proceeding brought on behalf of the Company, |
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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, |
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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 |
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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. |
18
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 under it, 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 under it, and therefore the forum selection provision does not apply to claims arising under the Exchange Act or the rules and regulations under it, 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 they 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 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.
ITEM 2. PROPERTIES.
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 and principal executive offices 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, 2021 we have approximately 1,240 leases in place. We have regional management offices in Valdosta, Georgia and Hagerhill, Kentucky, which we lease.
ITEM 3. LEGAL PROCEEDINGS.
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.
19
PART II
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 16, 2022, there were 243 stockholders of record of the Class A common stock, and there was one stockholder of record of the Class B common stock. These figures do not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.
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 6 to the accompanying consolidated financial statements for more discussion of the revolving credit agreement.
ITEM 6. [RESERVED]
None.
20
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 the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales are the primary component 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 both of our radio stations, while Geopath Insight Suite is the annual audience location measurement used for our billboards. Because audience ratings in a radio 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 years ended December 31, 2021, and 2020. The category “Nontraditional” principally consists of ticket sales and sponsorships of events our stations conduct in their local markets. The category “Other” includes, among other items, revenues related to network revenues, production of billboard advertisements and barter.
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(Dollars in thousands) |
Year Ended December 31, 2021 |
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Year Ended December 31, 2020 |
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Net revenues: |
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Radio Advertising |
$ |
30,012 |
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54.1 |
% |
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$ |
19,129 |
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48.8 |
% |
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Outdoor Advertising |
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12,725 |
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22.9 |
% |
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12,459 |
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31.7 |
% |
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Nontraditional |
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4,864 |
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8.8 |
% |
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761 |
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1.9 |
% |
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Digital |
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2,864 |
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5.2 |
% |
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2,256 |
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5.7 |
% |
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Other |
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5,028 |
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9.0 |
% |
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4,656 |
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11.9 |
% |
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Total net revenues |
$ |
55,493 |
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$ |
39,261 |
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Roughly 20% 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, rating fees, rents, utilities 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.
Our stations have 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.
21
The results of our broadcast 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 up 41.2% for the year ended December 31, 2021, but down 31.3% for the year ended December 31, 2020, as compared to the same periods of the prior year. During these periods, revenues for our New York cluster were up 62.2% and down 42.1%, respectively. The increases in the year ended December 31, 2021, as compared to the prior year were largely driven by revenues generated by our largest outdoor concert, Summer Jam, which was held in August 2021, but was cancelled in 2020 due to the pandemic, which led to reduced revenues in the year ended December 31, 2020.
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 or otherwise monetize 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, as well as the informational needs of the communities that we serve. Through the first few months of calendar 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, many federal, state and local governments 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. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. While not a material amount, some of our advertisers experienced a material decline in their businesses and were not able to pay amounts owed to us when they came due. Throughout 2021, with the increased availability of vaccines, the U.S. experienced an easing of restrictions on travel as well as social gatherings and business activities. However, the broad economic impact of the COVID-19 pandemic remains across multiple sectors, specifically disrupting logistics and global supply chains. If the spread of COVID-19 reaccelerates, or if supply chain disruptions persist, causing certain advertising categories (e.g., automotive dealers) to advertise less, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.
CRITICAL ACCOUNTING ESTIMATES
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.
FCC Licenses
As of December 31, 2021, we have recorded approximately $63.3 million for FCC licenses, which represents approximately 43% of our total assets. We would not be able to operate our radio stations 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, each of our FCC licenses has been renewed at the end of its respective period, and we expect that each FCC license will continue to be renewed in the future. We consider our FCC licenses to be indefinite-lived intangible.
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 if they are not being operated under a Local Marketing Agreement by another broadcaster. Consequently, our two radio stations in New York are considered a single unit of accounting.
For the years ended December 31, 2021, and 2020, we completed our annual impairment tests on October 1 of each year and will continue to perform our assessments on this date in future years.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the stick value 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 considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit 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 the unit of accounting’s market remains unchanged, with the exception that the 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 then 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
22
Below are some of the key assumptions used in our income method annual impairment assessments. Long-term growth rates in the New York market in which we operate are based on recent industry trends and our expectations for the market going forward.
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October 1, 2021 |
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October 1, 2020 |
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Discount Rate |
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12.1% |
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12.4% |
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Long-term Revenue Growth Rate |
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1.3% |
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1.0% |
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Mature Market Share |
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9.2% |
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9.4% |
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Operating Profit Margin |
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24.2-29.0% |
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26.6-29.5% |
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Valuation of Goodwill
The Company has recorded $13.1 million of goodwill on the consolidated balance sheet as of December 31, 2021, of which all is part of the Outdoor Advertising segment. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. Under ASC 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We perform this assessment annually as of October 1.
When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit. Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple. Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions. To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations.
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.
RESULTS OF OPERATIONS
Year ended December 31, 2021 compared to year ended December 31, 2020
Net revenues:
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Year ended December 31, |
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Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
41,727 |
|
|
$ |
26,020 |
|
|
$ |
15,707 |
|
|
|
60.4 |
% |
|
Outdoor Advertising |
|
|
13,766 |
|
|
|
13,241 |
|
|
|
525 |
|
|
|
4.0 |
% |
|
Total net revenues |
|
$ |
55,493 |
|
|
$ |
39,261 |
|
|
$ |
16,232 |
|
|
|
41.3 |
% |
Net radio revenues increased due to overall advertising revenues rebounding from the COVID-19 pandemic. In addition, various state and local departments of health increased their advertising to drive education and awareness surrounding vaccination efforts. Our stations benefited more than stations serving the general population due to the targeted nature of the awareness campaigns. Also, during the current year, we held our annual outdoor concert, Summer Jam, which was cancelled in the prior year due to the COVID-19 pandemic.
We typically monitor the performance of our stations against the aggregate performance of the market in which we operate based on reports for the period prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter and syndication arrangements. Miller Kaplan reported gross revenues for the New York radio market increased 41.2% for the year ended December 31, 2021, as compared to the prior year. Our gross revenues reported to Miller Kaplan were up 62.2% for the year ended December 31, 2021, as compared to the prior year.
Outdoor advertising revenues increased due to overall advertising revenues rebounding from the COVID-19 pandemic. Revenues in our outdoor advertising business have been less volatile than our radio business due to greater geographic diversification and longer duration advertising contracts with customers.
23
Operating expenses excluding depreciation and amortization expense:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Operating expenses excluding depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
28,667 |
|
|
$ |
22,827 |
|
|
$ |
5,840 |
|
|
|
25.6 |
% |
|
Outdoor Advertising |
|
|
9,057 |
|
|
|
9,517 |
|
|
|
(460 |
) |
|
|
(4.8 |
)% |
|
Total operating expenses excluding depreciation and amortization expense |
|
$ |
37,724 |
|
|
$ |
32,344 |
|
|
$ |
5,380 |
|
|
|
16.6 |
% |
Radio operating expenses excluding depreciation and amortization expense increased during the year ended December 31, 2021 due to expenses associated with holding Summer Jam, partially offset by $1.1 million of employee retention credits for the year ended December 31, 2021.
Outdoor advertising operating expenses excluding depreciation and amortization are largely fixed in nature; however, we recorded approximately $0.6 million of employee retention credits in the year ended December 31, 2021, which reduced operating expenses when compared to the prior year.
Corporate expenses:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Corporate expenses |
|
$ |
8,434 |
|
|
$ |
4,338 |
|
|
$ |
4,096 |
|
|
|
94.4 |
% |
The increase in corporate expenses was related to personnel hires as the management agreement with Emmis ended in November 2021, as well as noncash compensation expense associated with restricted stock awards. These increases were partially offset by $0.2 million of employee retention credits in the current year.
Depreciation and amortization:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
667 |
|
|
$ |
893 |
|
|
$ |
(226 |
) |
|
|
(25.3 |
)% |
|
Outdoor Advertising |
|
|
3,258 |
|
|
|
3,188 |
|
|
|
70 |
|
|
|
2.2 |
% |
|
Total depreciation and amortization |
|
$ |
3,925 |
|
|
$ |
4,081 |
|
|
$ |
(156 |
) |
|
|
(3.8 |
)% |
Radio depreciation and amortization expense decreased due to certain assets becoming fully depreciated in the prior year.
Outdoor advertising depreciation and amortization increased due to revisions to the preliminary purchase price allocation recorded during 2020 and associated adjustments to depreciation and amortization, coupled with depreciation expense associated with two small asset acquisitions that closed in the second quarter of the current year.
(Gain) loss on disposal of assets:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
(Gain) loss on disposal of assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
N/A |
|
|
|
Outdoor Advertising |
|
|
(47 |
) |
|
|
197 |
|
|
|
(244 |
) |
|
|
(123.9 |
)% |
|
(Gain) loss on disposal of assets |
|
$ |
(47 |
) |
|
$ |
197 |
|
|
$ |
(244 |
) |
|
|
(123.9 |
)% |
The gain on sale of asset for the year ended December 31, 2021 principally relates to the disposal of certain outdoor advertising assets. Loss on disposal of assets for the year ended December 31, 2020, relates to the disposal of various billboard structures in the ordinary course of business.
Operating income (loss):
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
12,393 |
|
|
$ |
2,300 |
|
|
$ |
10,093 |
|
|
|
438.8 |
% |
|
Outdoor Advertising |
|
|
1,498 |
|
|
|
339 |
|
|
|
1,159 |
|
|
|
341.9 |
% |
|
All Other |
|
|
(8,434 |
) |
|
|
(4,338 |
) |
|
|
(4,096 |
) |
|
|
94.4 |
% |
|
Total operating income (loss) |
|
$ |
5,457 |
|
|
$ |
(1,699 |
) |
|
$ |
7,156 |
|
|
|
(421.2 |
)% |
See “Net revenues,” “Operating expenses excluding depreciation and amortization,” and “Corporate expenses” above.
24
Interest expense:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Interest expense |
|
$ |
(11,100 |
) |
|
$ |
(9,493 |
) |
|
$ |
(1,607 |
) |
|
|
16.9 |
% |
Interest expense increased due to (i) the additional funding from SG Broadcasting during 2021, which took the form of additional loans, (ii) accrued interest on the Emmis Promissory Note and SG Broadcasting Promissory Notes being paid in kind in the fourth quarter of 2020, and (iii) an additional 1% paid in kind interest rate applicable beginning May 19, 2021 as a result of Amendment No. 4 to the senior credit facility.
Provision for income taxes:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Provision for income taxes |
|
$ |
358 |
|
|
$ |
15,561 |
|
|
$ |
(15,203 |
) |
|
|
(97.7 |
)% |
As a result of a sharp deterioration of business activity related to the COVID-19 pandemic during 2020, the Company concluded that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a valuation allowance against these assets.
Consolidated net loss:
|
|
|
Year ended December 31, |
|
|
Change |
|
||||||||||
|
(Dollars in thousands) |
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
|
Consolidated net loss |
|
$ |
(6,082 |
) |
|
$ |
(26,753 |
) |
|
$ |
20,671 |
|
|
|
(77.3 |
)% |
See “Net revenues,” “Operating expenses excluding depreciation and amortization,”, “Corporate expenses,” “Interest expense,” and “Provision for income taxes” above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations, cash available through borrowings under the SG Broadcasting Promissory Note, and our At Market Issuance Sales Agreement, under which we had $12.2 million of availability as of March 16, 2022. Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements and acquisitions.
At December 31, 2021 we had cash and cash equivalents of $6.1 million and net working capital of $7.7 million. At December 31, 2020, we had cash and cash equivalents of $4.2 million and net working capital of $4.4 million. The increase in net working capital is due to an increase in cash and accounts receivable resulting from improved business operations, partially offset by an increase in accrued interest due to the timing of payments.
During 2021, MediaCo benefitted from The Consolidated Appropriations Act, passed in December 2020, which expanded the employee retention credit program. The credits cover 70% of qualified wages, plus the cost to continue providing health benefits to our employees, subject to a $7 thousand cap per employee per quarter. Due to revenue declines, we qualified for approximately $1.9 million of employee retention credits during 2021, of which $1.1 million was received in cash and $0.8 million of employment tax withholdings were retained.
At December 31, 2021, we had $68.3 million of borrowings outstanding under the Senior Credit Facility, of which $2.8 million is current. The borrowing rate under our Senior Credit Facility was 9.5% at December 31, 2021. Additionally, at December 31, 2021, we had $6.2 million and $27.6 million of promissory notes outstanding to Emmis and SG Broadcasting, respectively, all of which is classified as long-term.
The debt service requirements of MediaCo over the next twelve-month period are expected to be $9.3 million related to our Senior Credit Facility ($2.8 million of principal repayments and $6.5 million of interest payments). These anticipated payments assume our lender does not accelerate the debt as a result of non-compliance with any debt covenant described above. The Senior Credit Facility bears interest at a variable rate. The Company estimates interest payments by using the amounts outstanding as of December 31, 2021 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.
Operating Activities
Cash provided by operating activities was $2.9 million for the year ended December 31, 2021 compared to cash used in operating activities of $9.6 million for the year ended December 31, 2020. The increase was mainly attributable to an increase in operating income as we recover from the COVID-19 pandemic.
Investing Activities
Cash used in investing activities of $1.3 million and $0.4 million for the years ended December 31, 2021, and 2020, respectively, was attributable to capital expenditures.
25
Financing Activities
Cash provided by financing activities of $0.3 million for the year ended December 31, 2021, was due to debt proceeds of $4.0 million and proceeds from the issuance of Class A common stock of $0.3 million, partially offset by debt payments and debt related costs of $3.4 million and settlement of tax withholding obligations of $0.7 million.
Cash provided by financing activities of $12.1 million for the year ended December 31, 2020, primarily consisted of proceeds of debt of $12.2 million, net of debt payments.
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 12 to the consolidated financial statements, which is incorporated by reference herein, the Company does not 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.
26
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 balance sheets of MediaCo Holding Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in retained deficit, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
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, IN
March 24, 2022
27
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Year ended December 31, |
|
|||||
|
(in thousands, except per share amounts) |
|
2021 |
|
|
2020 |
|
||
|
NET REVENUES |
|
$ |
55,493 |
|
|
$ |
39,261 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
37,724 |
|
|
|
32,344 |
|
|
Corporate expenses |
|
|
8,434 |
|
|
|
4,338 |
|
|
Depreciation and amortization |
|
|
3,925 |
|
|
|
4,081 |
|
|
(Gain) loss on disposal of assets |
|
|
(47 |
) |
|
|
197 |
|
|
Total operating expenses |
|
|
50,036 |
|
|
|
40,960 |
|
|
OPERATING INCOME (LOSS) |
|
|
5,457 |
|
|
|
(1,699 |
) |
|
OTHER EXPENSE: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11,100 |
) |
|
|
(9,493 |
) |
|
Loss on debt extinguishment |
|
|
(81 |
) |
|
|
— |
|
|
Total other expense |
|
|
(11,181 |
) |
|
|
(9,493 |
) |
|
LOSS BEFORE INCOME TAXES |
|
|
(5,724 |
) |
|
|
(11,192 |
) |
|
PROVISION FOR INCOME TAXES |
|
|
358 |
|
|
|
15,561 |
|
|
CONSOLIDATED NET LOSS |
|
|
(6,082 |
) |
|
|
(26,753 |
) |
|
PREFERRED STOCK DIVIDENDS |
|
|
2,752 |
|
|
|
2,148 |
|
|
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
(8,834 |
) |
|
$ |
(28,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common shareholders: |
|
$ |
(1.22 |
) |
|
$ |
(4.07 |
) |
|
Basic and diluted weighted average common shares outstanding |
|
|
7,217 |
|
|
|
7,094 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
28
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
DECEMBER 31, |
|
|
DECEMBER 31, |
|
||
|
(in thousands, except share data) |
|
2021 |
|
|
2020 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,121 |
|
|
$ |
4,171 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $313 and $503, respectively |
|
|
13,756 |
|
|
|
8,508 |
|
|
Prepaid expenses |
|
|
1,238 |
|
|
|
1,247 |
|
|
Other |
|
|
526 |
|
|
|
1,274 |
|
|
Total current assets |
|
|
21,641 |
|
|
|
15,200 |
|
|
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
|
|
|
|
Land and buildings |
|
|
1,736 |
|
|
|
1,669 |
|
|
Leasehold improvements |
|
|
8,479 |
|
|
|
8,479 |
|
|
Broadcasting equipment |
|
|
5,989 |
|
|
|
5,927 |
|
|
Outdoor advertising structures |
|
|
27,344 |
|
|
|
26,390 |
|
|
Office equipment, computer equipment, software and automobiles |
|
|
2,566 |
|
|
|
2,210 |
|
|
Construction in progress |
|
|
88 |
|
|
|
37 |
|
|
|
|
|
46,202 |
|
|
|
44,712 |
|
|
Less accumulated depreciation and amortization |
|
|
(19,669 |
) |
|
|
(17,062 |
) |
|
Total property and equipment, net |
|
|
26,533 |
|
|
|
27,650 |
|
|
INTANGIBLE ASSETS: |
|
|
|
|
|
|
|
|
|
Indefinite lived intangibles |
|
|
63,999 |
|
|
|
63,999 |
|
|
Goodwill |
|
|
13,102 |
|
|
|
13,102 |
|
|
Other intangibles |
|
|
5,060 |
|
|
|
5,060 |
|
|
|
|
|
82,161 |
|
|
|
82,161 |
|
|
Less accumulated amortization |
|
|
(4,131 |
) |
|
|
(2,944 |
) |
|
Total intangible assets, net |
|
|
78,030 |
|
|
|
79,217 |
|
|
OTHER ASSETS: |
|
|
|
|
|
|
|
|
|
Operating lease right of use assets |
|
|
21,663 |
|
|
|
23,953 |
|
|
Deposits and other |
|
|
343 |
|
|
|
331 |
|
|
Total other assets |
|
|
22,006 |
|
|
|
24,284 |
|
|
Total assets |
|
$ |
148,210 |
|
|
$ |
146,351 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
29
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – (CONTINUED)
|
|
|
DECEMBER 31, |
|
|
DECEMBER 31, |
|
||
|
(in thousands, except share data) |
|
2021 |
|
|
2020 |
|
||
|
LIABILITIES AND RETAINED DEFICIT |
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
2,710 |
|
|
$ |
2,557 |
|
|
Current maturities of long-term debt |
|
|
2,754 |
|
|
|
1,836 |
|
|
Accrued salaries and commissions |
|
|
1,284 |
|
|
|
709 |
|
|
Deferred revenue |
|
|
2,022 |
|
|
|
1,535 |
|
|
Operating lease liabilities |
|
|
3,801 |
|
|
|
3,573 |
|
|
Other |
|
|
1,412 |
|
|
|
549 |
|
|
Total current liabilities |
|
|
13,983 |
|
|
|
10,759 |
|
|
LONG-TERM DEBT, NET OF CURRENT PORTION |
|
|
97,527 |
|
|
|
93,918 |
|
|
OPERATING LEASE LIABILITIES, NET OF CURRENT |
|
|
16,909 |
|
|
|
20,176 |
|
|
ASSET RETIREMENT OBLIGATION |
|
|
7,267 |
|
|
|
6,316 |
|
|
DEFERRED INCOME TAXES |
|
|
2,069 |
|
|
|
1,711 |
|
|
OTHER NONCURRENT LIABILITIES |
|
|
16 |
|
|
|
221 |
|
|
Total liabilities |
|
|
137,771 |
|
|
|
133,101 |
|
|
COMMITMENTS AND CONTINGENCIES (NOTE 12) |
|
|
|
|
|
|
|
|
|
SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING |
|
|
27,010 |
|
|
|
24,258 |
|
|
RETAINED DEFICIT: |
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 3,056,757 shares and 1,785,880 shares at December 31, 2021 and 2020, respectively |
|
|
31 |
|
|
|
18 |
|
|
Class B common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 5,413,197 shares at December 31, 2021 and 2020 |
|
|
54 |
|
|
|
54 |
|
|
Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued |
|
|
— |
|
|
|
— |
|
|
Additional paid-in capital |
|
|
24,030 |
|
|
|
20,772 |
|
|
Accumulated deficit |
|
|
(40,686 |
) |
|
|
(31,852 |
) |
|
Total deficit |
|
|
(16,571 |
) |
|
|
(11,008 |
) |
|
Total liabilities and deficit |
|
$ |
148,210 |
|
|
$ |
146,351 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
30
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2021, AND 2020
|
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
(in thousands, except share data) |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
APIC |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||
|
BALANCE, DECEMBER 31, 2019 |
|
|
1,666,667 |
|
|
$ |
17 |
|
|
|
5,359,753 |
|
|
$ |
54 |
|
|
$ |
20,644 |
|
|
$ |
(2,951 |
) |
|
$ |
17,764 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26,753 |
) |
|
|
(26,753 |
) |
|
Adjustments related to distribution of common shares |
|
|
16,596 |
|
|
|
— |
|
|
|
53,444 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of class A to employees, officers and directors |
|
|
102,617 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
128 |
|
|
|
— |
|
|
|
129 |
|
|
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,148 |
) |
|
|
(2,148 |
) |
|
BALANCE, DECEMBER 31, 2020 |
|
|
1,785,880 |
|
|
$ |
18 |
|
|
|
5,413,197 |
|
|
$ |
54 |
|
|
$ |
20,772 |
|
|
$ |
(31,852 |
) |
|
$ |
(11,008 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,082 |
) |
|
|
(6,082 |
) |
|
Sale of class A common shares |
|
|
34,609 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
341 |
|
|
|
— |
|
|
|
342 |
|
|
Issuance of class A to employees, officers and directors |
|
|
1,236,268 |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
2,917 |
|
|
|
— |
|
|
|
2,929 |
|
|
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,752 |
) |
|
|
(2,752 |
) |
|
BALANCE, DECEMBER 31, 2021 |
|
|
3,056,757 |
|
|
$ |
31 |
|
|
|
5,413,197 |
|
|
$ |
54 |
|
|
$ |
24,030 |
|
|
$ |
(40,686 |
) |
|
$ |
(16,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
31
MEDIACO HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Year ended December 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Consolidated net loss |
|
$ |
(6,082 |
) |
|
$ |
(26,753 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
81 |
|
|
|
— |
|
|
Depreciation and amortization |
|
|
3,925 |
|
|
|
4,081 |
|
|
Amortization of deferred financing costs, including original issue discount |
|
|
636 |
|
|
|
590 |
|
|
Noncash interest expense |
|
|
3,575 |
|
|
|
1,684 |
|
|
Noncash lease expense |
|
|
3,016 |
|
|
|
2,852 |
|
|
Provision for bad debts |
|
|
71 |
|
|
|
543 |
|
|
Accretion of asset retirement obligations |
|
|
848 |
|
|
|
726 |
|
|
Provision for deferred income taxes |
|
|
358 |
|
|
|
15,561 |
|
|
Noncash compensation |
|
|
3,650 |
|
|
|
129 |
|
|
(Gain) loss on sale of property and equipment |
|
|
(47 |
) |
|
|
197 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(5,319 |
) |
|
|
1,896 |
|
|
Prepaid expenses and other current assets |
|
|
757 |
|
|
|
416 |
|
|
Other assets |
|
|
(784 |
) |
|
|
(331 |
) |
|
Accounts payable and accrued liabilities |
|
|
640 |
|
|
|
(8,761 |
) |
|
Deferred revenue |
|
|
487 |
|
|
|
(146 |
) |
|
Operating lease liabilities |
|
|
(3,039 |
) |
|
|
(2,395 |
) |
|
Other liabilities |
|
|
167 |
|
|
|
68 |
|
|
Net cash provided by (used in) operating activities |
|
|
2,940 |
|
|
|
(9,643 |
) |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(1,403 |
) |
|
|
(409 |
) |
|
Other |
|
|
146 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
(1,257 |
) |
|
|
(409 |
) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Payments on long-term debt |
|
|
(3,000 |
) |
|
|
(1,836 |
) |
|
Proceeds from long-term debt |
|
|
4,000 |
|
|
|
14,000 |
|
|
Proceeds of stock issuances |
|
|
342 |
|
|
|
— |
|
|
Payments for debt related costs |
|
|
(354 |
) |
|
|
(24 |
) |
|
Settlement of tax withholding obligations |
|
|
(721 |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
|
267 |
|
|
|
12,140 |
|
|
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
1,950 |
|
|
|
2,088 |
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
4,171 |
|
|
|
2,083 |
|
|
End of period |
|
$ |
6,121 |
|
|
$ |
4,171 |
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
6,308 |
|
|
$ |
7,067 |
|
|
Income taxes |
|
|
— |
|
|
|
— |
|
|
Noncash financing transactions: |
|
|
|
|
|
|
|
|
|
Noncash debt-related costs |
|
|
— |
|
|
|
281 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
32
MEDIACO HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Unless Indicated Otherwise)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an owned and operated multi-media company formed in Indiana in 2019, focused on radio, outdoor and digital advertising.
Our assets consist of two radio stations, WQHT-FM and WBLS-FM (the “Stations”), which serve the New York City demographic market area that primarily targets Black, Hispanic, and multi-cultural consumers, as well as approximately 3,500 outdoor advertising displays in the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions of the United States. We derive our revenues primarily from radio, outdoor, and digital advertising sales, but we also generate revenues from events, including sponsorships and ticket sales, licensing, and syndication.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.
Basis of Presentation and Consolidation
Our consolidated 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.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Revenue Recognition
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 years ended December 31, 2021, and 2020, was as follows:
|
|
|
Balance At Beginning Of Period |
|
|
Provision |
|
|
Write-Offs |
|
|
Balance At End Of Period |
|
||||
|
Year ended December 31, 2020 |
|
$ |
157 |
|
|
|
543 |
|
|
|
(197 |
) |
|
$ |
503 |
|
|
Year ended December 31, 2021 |
|
$ |
503 |
|
|
|
71 |
|
|
|
(261 |
) |
|
$ |
313 |
|
33
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 years ended December 31, 2021, and 2020, was $2.7 million and $2.8 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 10, Intangible Assets and Goodwill, for more discussion of our annual impairment tests performed during the years ended December 31, 2021, and 2020.
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 were $0.2 million and $0.4 million for the years ended December 31, 2021, and 2020, 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.
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 were $1.0 million and $0.9 million for the years ended December 31, 2021, and 2020, respectively. Barter expenses were $1.0 million and $0.9 million for the years ended December 31, 2021, and 2020, respectively.
Earnings Per Share
Our basic and diluted net loss per share is computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Shares of Series A preferred stock include rights to participate in dividends and distributions to common stockholders on an if-converted basis, and accordingly are considered participating securities. During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses.
34
The following is a reconciliation of basic and diluted net loss per share attributable to Class A and Class B common shareholders:
|
|
Year Ended December 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Net loss |
$ |
(6,082 |
) |
|
$ |
(26,753 |
) |
|
Preferred dividends |
|
2,752 |
|
|
|
2,148 |
|
|
Net loss attributable to common shareholders |
$ |
(8,834 |
) |
|
$ |
(28,901 |
) |
|
Basic and diluted weighted average common shares outstanding |
|
7,217 |
|
|
|
7,094 |
|
|
Net loss per share attributable to common shareholders |
$ |
(1.22 |
) |
|
$ |
(4.07 |
) |
Because we have incurred a net loss for the period where the Company had potentially dilutive securities, diluted net loss per common share is the same as basic net loss per common share. The following convertible equity shares and restricted stock awards were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive.
|
|
Year Ended December 31, |
|
|||||
|
(in thousands) |
2021 |
|
|
2020 |
|
||
|
Convertible Emmis promissory note |
|
2,269 |
|
|
|
1,370 |
|
|
Convertible Standard General promissory notes |
|
8,725 |
|
|
|
5,308 |
|
|
Series A convertible preferred stock |
|
9,845 |
|
|
|
6,005 |
|
|
Restricted stock awards |
|
515 |
|
|
|
39 |
|
|
Total |
|
21,354 |
|
|
|
12,722 |
|
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 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, as well as the informational needs of the communities that we serve. Through the first few months of calendar 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, many federal, state and local governments 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. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. While not a material amount, some of our advertisers experienced a material decline in their businesses and were not able to pay amounts owed to us when they came due. Throughout 2021, with the increased availability of vaccines, the U.S. experienced an easing of restrictions on travel as well as social gatherings and business activities. However, the broad economic impact of the COVID-19 pandemic remains across multiple sectors, specifically disrupting logistics and global supply chains. If the spread of COVID-19 reaccelerates, or if supply chain disruptions persist, causing certain advertising categories (e.g., automotive dealers) to advertise less, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.
35
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Due to the uncertain future impacts of the COVID-19 pandemic and the related economic disruptions, actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company. The extent to which the COVID-19 pandemic and related economic disruptions impact the Company’s business and financial results will depend on future developments including, but not limited to: (i) the continued spread, duration and severity of the COVID-19 pandemic, (ii) the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks after the initial outbreak has subsided, (iii) the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity, (iv) the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event, and (v) how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, our ability to realize our deferred tax assets, and the carrying value of goodwill, FCC licenses and other long-lived assets.
As discussed in Note 13, during 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses we incurred, we were unable to conclude that it was more likely than not that we would be able to realize our deferred tax assets; accordingly, we recorded a $18.8 million valuation allowance against these assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material changes to the estimates and material impacts to the Company’s consolidated financial statements in future reporting periods.
Reclassifications
Certain amounts have been reclassified to conform to the current year presentation.
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 financial statements.
2. COMMON STOCK
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. All Class B common stock outstanding is owned by SG Broadcasting. At December 31, 2021 and December 31, 2020, no shares of Class C common stock were issued or outstanding.
On August 20, 2021, MediaCo Holding Inc. entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc.(“B. Riley”), pursuant to which the Company may offer and sell, from time to time through or to B. Riley, as agent or principal, shares of the Company’s Class A Common Stock, $0.01 par value per share, having an aggregate offering price of up to $12.5 million. During the year ended December 31, 2021, Class A stock totaling $0.3 million was sold under the agreement.
3. CONVERTIBLE PREFERRED STOCK
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 6), or if no senior debt is outstanding, 6%, plus additional increases of 1% on December 12, 2020 and each anniversary thereof. On December 13, 2021, and 2020, dividends of $2.7 million and $2.1 million, respectively, were paid in kind. The payment in kind increased the accrued value of the preferred stock and no additional shares were issued as part of this payment.
36
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 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 became effective, the Series A Preferred Shares became participating securities and we began calculating earnings per share using the two-class method.
4. SHARE BASED PAYMENTS
The amounts recorded as share based compensation expense consist of restricted stock awards issued to officers and employees that have vesting periods up to three years. Awards are typically made pursuant to employment agreements. Restricted stock awards are granted out of the Company’s 2021 and 2020 Equity Compensation Plans.
We determine the fair value of restricted stock and RSUs based on the closing price of our stock on the date of grant. We generally recognize compensation expense related to restricted stock and RSUs on a straight-line basis over the period during which the restriction lapses. Forfeitures are recognized in the period in which they occur. The following table presents a summary of the Company’s restricted stock grants outstanding at December 31, 2021, and restricted stock activity during the year ended December 31, 2021 (“Price” reflects the weighted average share price at the date of grant):
|
|
|
Awards |
|
|
Price |
|
||
|
Grants outstanding, beginning of period |
|
|
103 |
|
|
$ |
5.41 |
|
|
Granted |
|
|
1,366 |
|
|
|
3.67 |
|
|
Vested (restriction lapsed) |
|
|
(363 |
) |
|
|
3.75 |
|
|
Forfeited |
|
|
(22 |
) |
|
|
5.56 |
|
|
Grants outstanding, end of period |
|
|
1,084 |
|
|
$ |
3.77 |
|
Recognized Non-Cash Compensation Expense
The following table summarizes stock-based compensation expense recognized by the Company for the years ended December 31, 2021, and 2020. The Company recognized tax benefits of $0.2 million related to stock-based compensation for the year ended December 31, 2021. No tax benefits were recognized for the year ended December 31, 2020.
|
|
|
Year Ended December 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating expenses excluding depreciation and amortization |
|
$ |
1,436 |
|
|
$ |
— |
|
|
Corporate expenses |
|
|
2,214 |
|
|
|
129 |
|
|
Stock-based compensation expense |
|
$ |
3,650 |
|
|
$ |
129 |
|
As of December 31, 2021, there was $1.7 million of unrecognized compensation cost related to nonvested stock-based compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately 1.7 years.
5. REVENUE
The Company generates revenue from the sale of services including, but not limited to: (i) on-air commercial broadcast time, (ii) display advertising on outdoor structures, (iii) non-traditional revenues including event-related revenues and event sponsorship revenues, and (iv) digital 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 condensed consolidated 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 balance sheets. Substantially all deferred revenue is recognized within twelve months of the payment date.
Outdoor Advertising
Our outdoor advertising business has approximately 3,500 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. A substantial portion of this revenue is lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Rental revenue is recognized on a straight-line basis over the term of the respective lease.
37
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, but excluding digital billboard advertisements) to advertisers on Company-owned websites and from revenue generated from content distributed across other digital platforms. Digital revenues are generally recognized as the digital advertising is delivered.
Other
Other revenue includes barter revenue, network revenue, and production 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. In connection with certain outdoor advertising arrangements, the customer may request that the Company produce the billboard wrap (commonly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure. This production revenue is recognized as the deliverable is made available to the customer or attached to our outdoor structure. Other revenue also includes the management fee received from Billboards LLC (see Note 15.)
Disaggregation of revenue
The following table presents the Company's revenues disaggregated by revenue source:
|
|
Year Ended December 31, |
|
|||||||||||||
|
|
2021 |
|
|
2020 |
|
||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising |
$ |
30,012 |
|
|
|
54.1 |
% |
|
$ |
19,129 |
|
|
|
48.7 |
% |
|
Nontraditional |
|
4,864 |
|
|
|
8.8 |
% |
|
|
761 |
|
|
|
1.9 |
% |
|
Digital |
|
2,864 |
|
|
|
5.2 |
% |
|
|
2,256 |
|
|
|
5.7 |
% |
|
Outdoor Advertising (1) |
|
12,725 |
|
|
|
22.9 |
% |
|
|
12,459 |
|
|
|
31.7 |
% |
|
Other |
|
5,028 |
|
|
|
9.0 |
% |
|
|
4,656 |
|
|
|
12.0 |
% |
|
Total net revenues |
$ |
55,493 |
|
|
|
|
|
|
$ |
39,261 |
|
|
|
|
|
(1) A substantial portion of this revenue is from lessor revenue derived from operating leases accounted for under ASC 842, “Leases.”
6. LONG-TERM DEBT
Long-term debt was comprised of the following at December 31, 2021, and December 31, 2020:
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Senior credit facility |
|
$ |
68,343 |
|
|
$ |
70,972 |
|
|
Notes payable to Emmis |
|
|
6,154 |
|
|
|
5,535 |
|
|
Notes payable to SG Broadcasting |
|
|
27,574 |
|
|
|
21,400 |
|
|
Less: Current maturities |
|
|
(2,754 |
) |
|
|
(1,836 |
) |
|
Less: Unamortized original discount |
|
|
(1,790 |
) |
|
|
(2,153 |
) |
|
Total long-term debt, net of current portion and debt discount |
|
$ |
97,527 |
|
|
$ |
93,918 |
|
Senior secured term loan agreement
The Company has a senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, (“GACP”) a Delaware limited liability company, as administrative agent and collateral agent. 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 and a 1.0% incremental interest rate paid in kind under certain circumstances (as discussed below). The Senior Credit Facility matures on November, 25, 2024. Prior to subsequent amendments discussed below, the Senior Credit Facility required 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 were due on the last day of each calendar quarter. At its inception, the Senior Credit Facility included covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum liquidity requirements, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of , and other customary restrictions.
38
As of December 31, 2021, several amendments had been entered into by the Company and GACP to modify, among other things, certain provisions relating to the repayment of the Term Loan (as defined in the Senior Credit Facility). On May 19, 2021, the Company entered into Amendment No. 4 to its Senior Credit Facility. Under the terms of Amendment No. 4:
|
|
• |
SG Broadcasting agreed to contribute up to $7.0 million to the Company in the form of subordinated debt, with $3.0 million contributed at closing, $1.0 million contributed on June 1, 2021, and up to an additional $3.0 million to be contributed through June 30, 2022, if necessary, to satisfy certain conditions described in Amendment No. 4; |
|
|
• |
the Company made a principal payment of $3.0 million to reduce borrowings outstanding under the Senior Credit Facility; |
|
|
• |
no quarterly scheduled principal payments are required through and including the quarter ending March 31, 2022; |
|
|
• |
the Minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) was reduced to from April 1, 2020 through and including December 31, 2022, with it increasing to on and after January 1, 2023; |
|
|
• |
for purposes of calculating compliance with the Minimum Consolidated Fixed Charge Coverage Ratio, Consolidated EBITDA (as defined in the Senior Credit Facility) includes certain amounts contributed by SG Broadcasting in the form of subordinated debt or equity, including those described above; |
|
|
• |
for purposes of calculating the Company’s borrowing base under the Senior Credit Facility, the multiple applied to Billboard Cash Flow (as defined in the Senior Credit Facility) increased from 3.5 to 5.0 and the advance rate applied to the radio stations’ FCC licenses increased from 60% to 70%; |
|
|
• |
at any time the multiple applied to Billboard Cash Flow exceeds 3.5 or the advance rate applied to the radio stations’ FCC licenses exceeds 60%, an incremental annual interest rate of 1.0% applies and is paid-in-kind monthly; |
|
|
• |
certain specified events of default were waived; and |
|
|
• |
an amendment fee of $0.4 million was paid in cash. |
As a result of the $3.0 million payment made under the amendment, the Company recorded a loss on debt extinguishment of $81 thousand during the year ended December 31, 2021.
For the period May 19, 2021 through December 31, 2021, the multiple applied to billboard cash flow was in excess of 3.5x and the advance rate applied to the Company's FCC Licenses exceeded 60% in order for the Company to achieve minimal compliance with its loan to value covenant. Therefore, the incremental annual interest rate of 1.0% applied during this period and additional interest payments of $0.4 million were paid in kind during the year ended December 31, 2021, all of which was added to the principal balance outstanding. $0.1 million of incremental interest was accrued at December 31, 2021 and was paid-in-kind after January 1, 2022.
As of December 31, 2021, there is $68.3 million outstanding under the Senior Credit Facility, which is carried net of a total unamortized discount of $1.8 million.
Emmis Convertible Promissory Note
The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, including any applicable paid in kind rate, 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 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. For the year ended December 31, 2021, interest of $0.6 million was paid-in-kind and added to the principal balance outstanding which was $6.2 million December 31, 2021.
Second Amended and Restated SG Broadcasting Promissory Note, Additional SG Broadcasting Promissory Note and May 2021 SG Broadcasting Promissory Note
The Second Amended and Restated SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, including any applicable paid-in-kind rate, 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 Second Amended and Restated SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the Second Amended 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 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 Additional SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, including any applicable paid-in-kind rate, 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 Additional SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the Additional 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 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. For the year ended December 31, 2021, annual interest of $2.2 million was paid-in-kind and added to the principal balance outstanding.
39
On May 19, 2021, the Company issued to SG Broadcasting a subordinated convertible promissory note (the “May 2021 SG Broadcasting Promissory Note”), in return for which SG Broadcasting contributed $3.0 million to the Company to make the prepayment of Senior Credit Facility debt required under Amendment No. 4. Up to $7.0 million may be borrowed pursuant to the May 2021 SG Broadcasting Promissory Note. The May 2021 SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, including any applicable paid-in-kind rate, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% on November 25, 2021 and additional annual increases of 1.0% following each successive anniversary thereafter. The May 2021 SG Broadcasting Promissory Note matures on May 25, 2025 and interest is payable in-kind through maturity. Subject to prior shareholder approval of the issuance of the shares, the May 2021 SG Broadcasting Promissory Note is convertible into MediaCo Class A common stock at the option of SG Broadcasting 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 June 1, 2021, SG Broadcasting contributed $1.0 million to the Company under the May 2021 SG Broadcasting Promissory Note as required by Amendment No. 4 to the Senior Credit Facility.
As of December 31, 2021, there was a total of $27.6 million outstanding under the Second Amended and Restated SG Broadcasting Promissory Note, the Additional SG Broadcasting Promissory Note and the May 2021 SG Broadcasting Promissory Note.
In March 2022, the Company extended the ability to draw the remaining $3.0 million on the May 2021 SG Broadcasting Promissory Note to June 30, 2023 and intends to draw the amount necessary to remain in compliance with our debt covenants under the Senior Credit Facility throughout the term of the note.
Based on amounts outstanding at December 31, 2021, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
7. FAIR VALUE MEASUREMENTS
Fair value is the exchange price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company uses market data or assumptions 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 may be readily observable, corroborated by market data, or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
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, 2021 or 2020.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis including those described in Note 10, Intangible Assets and Goodwill, 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 10 for more discussion).
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, 2021, the fair value and carrying value, excluding original issue discount, of the Company’s Senior Credit Facility debt was $68.3 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. |
40
|
• |
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. |
8. ACQUISITION
On May 25, 2021, the Company purchased 24 outdoor advertising structures consisting of 41 faces from DS Outdoor LLC dba Hotspots Outdoor for $0.4 million. The structures are located in Alabama.
On June 25, 2021, the Company purchased 8 outdoor advertising structures consisting of 26 faces from Carpenter Outdoor, LLC for $0.4 million. The structures are located in Georgia.
Both acquisitions are accounted for as asset purchases and our accounting for these transactions was finalized in 2021. The assets associated with both acquisitions are assigned to our Outdoor Advertising segment. In connection with the two asset acquisitions, the Company recorded $0.9 million of property, plant and equipment, $0.3 million of operating lease right-of-use assets and corresponding operating lease liabilities and $0.1 million of additional asset retirement obligations.
9. LEASES
We determine if an arrangement is a lease at inception. We have operating leases for office space, sites upon which advertising structures are built, tower space, equipment and automobiles expiring at various dates through October 2049. Some leases have options to extend and some have options to terminate. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our consolidated 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. Our outdoor advertising segment treats evergreen leases as though they will be automatically renewed at the end of each term.
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 for the years ended December 31, 2021, and 2020, was $0.2 million.
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 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 for the years ended December 31, 2021, and 2020, was not material.
The impact of operating leases to our consolidated financial statements was as follows:
|
|
Year Ended December 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Lease Cost |
|
|
|
|
|
|
|
|
Operating lease cost |
$ |
5,018 |
|
|
$ |
4,986 |
|
|
Other Information |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
5,858 |
|
|
|
5,020 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
754 |
|
|
|
— |
|
|
Weighted average remaining lease term - operating leases (in years) |
|
|
|
|
|
|
|
|
Weighted average discount rate - operating leases |
|
9.4 |
% |
|
|
9.1 |
% |
As of December 31, 2021, the annual minimum lease payments of our operating lease liabilities were as follows:
|
Year ended December 31, |
|
|
|
|
2022 |
$ |
4,922 |
|
|
2023 |
|
4,390 |
|
|
2024 |
|
2,890 |
|
|
2025 |
|
2,873 |
|
|
2026 |
|
2,740 |
|
|
After 2026 |
|
12,785 |
|
|
Total lease payments |
|
30,600 |
|
|
Less: imputed interest |
|
(9,890 |
) |
|
Total recorded lease liabilities |
$ |
20,710 |
|
41
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, 2021, is as follows:
10. INTANGIBLE ASSETS AND GOODWILL
As of December 31, 2021 and 2020, intangible assets consisted of the following:
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
FCC Licenses |
|
$ |
63,266 |
|
|
$ |
63,266 |
|
|
Trade Name |
|
|
733 |
|
|
|
733 |
|
|
Goodwill |
|
|
13,102 |
|
|
|
13,102 |
|
|
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
Programming Contract |
|
|
— |
|
|
|
220 |
|
|
Customer List |
|
|
929 |
|
|
|
1,896 |
|
|
Total |
|
$ |
78,030 |
|
|
$ |
79,217 |
|
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. 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.
Impairment Testing
The Company generally performs its annual impairment review of indefinite-lived intangibles as of October 1 each year. 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 years ended December 31, 2021, and 2020, 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 considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its 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 its 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 into consideration the current economic conditions. 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. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting.
42
Below are some of the key assumptions used in our income method annual impairment assessments. The long-term growth rates in the New York market in which we operate are based on recent industry trends and our expectations for the market going forward.
|
|
|
October 1, 2021 |
|
|
October 1, 2020 |
|
|
Discount Rate |
|
12.1% |
|
|
12.4% |
|
|
Long-term Revenue Growth Rate |
|
1.3% |
|
|
1.0% |
|
|
Mature Market Share |
|
9.2% |
|
|
9.4% |
|
|
Operating Profit Margin |
|
24.2-29.0% |
|
|
26.6-29.5% |
|
As of both December 31, 2021 and December 31 2020, the carrying amount of the Company’s FCC licenses was $63.3 million.
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 valuation assigned to the trade name as a result of the purchase price accounting was $0.7 million. We assess the trade name annually for impairment on October 1 of each year along with our other indefinite-lived intangibles.
Valuation of Goodwill
As a result of the Fairway Acquisition during 2019, the Company recorded $13.1 million of goodwill which accounts for all goodwill on the consolidated balance sheet as of December 31, 2021 and is part of the Outdoor Advertising segment. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. Under ASC 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We perform this assessment annually as of October 1.
When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit. Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple. Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions. To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations.
Definite-lived Intangibles
The following table presents the weighted-average remaining useful life at December 31, 2021 and gross carrying amount and accumulated amortization for each major class of definite-lived intangible assets at December 31, 2021 and 2020:
|
|
|
|
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
|
|
|
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 |
|
|
|
|
|
$ |
2,154 |
|
|
$ |
2,154 |
|
|
$ |
— |
|
|
$ |
2,154 |
|
|
$ |
1,934 |
|
|
$ |
220 |
|
|
Customer List |
|
|
|
|
|
|
2,906 |
|
|
|
1,977 |
|
|
|
929 |
|
|
|
2,906 |
|
|
|
1,010 |
|
|
|
1,896 |
|
|
Total |
|
|
|
|
|
$ |
5,060 |
|
|
$ |
4,131 |
|
|
$ |
929 |
|
|
$ |
5,060 |
|
|
$ |
2,944 |
|
|
$ |
2,116 |
|
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 valuation of $2.9 million. A useful life of three years was assigned to the customer list.
Total amortization expense from definite-lived intangibles for the years ended December 31, 2021, and 2020, was $1.2 million and $1.3 million, respectively. The Company estimates amortization expense of $0.9 million for the year ended December 31, 2022 and none thereafter.
11. 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.
43
|
Balance at December 31, 2019 |
|
|
$ |
5,623 |
|
|
Purchase price allocation adjustment |
|
|
|
29 |
|
|
Accretion expense |
|
|
|
726 |
|
|
Liabilities settled |
|
|
|
(62 |
) |
|
Balance at December 31, 2020 |
|
|
$ |
6,316 |
|
|
Additions to asset retirement obligations |
|
|
|
179 |
|
|
Accretion expense |
|
|
|
848 |
|
|
Liabilities settled |
|
|
|
(76 |
) |
|
Balance at December 31, 2021 |
|
|
$ |
7,267 |
|
12. OTHER COMMITMENTS AND CONTINGENCIES
Commitments
In addition to the lease payments described in Note 9, the Company has various commitments under contracts that include purchase obligations, employment agreements, and payouts to former management of Fairway Outdoor, with annual commitments at December 31, 2021 as follows:
|
Year ended December 31, |
|
Total Payments |
|
|
|
2022 |
|
$ |
1,137 |
|
|
2023 |
|
|
249 |
|
|
2024 |
|
|
— |
|
|
2025 |
|
|
— |
|
|
2026 |
|
|
— |
|
|
Thereafter |
|
|
— |
|
|
Total |
|
$ |
1,386 |
|
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.
13. INCOME TAXES
The provision for income taxes for the years ended December 31, 2021, and 2020, consisted of the following:
|
|
Year Ended December 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Current: |
|
|
|
|
|
|
|
|
Federal |
$ |
— |
|
|
$ |
— |
|
|
State |
|
— |
|
|
|
— |
|
|
Total current |
|
— |
|
|
|
— |
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
110 |
|
|
|
10,146 |
|
|
State |
|
248 |
|
|
|
5,415 |
|
|
Total deferred |
|
358 |
|
|
|
15,561 |
|
|
Provision for income taxes |
$ |
358 |
|
|
$ |
15,561 |
|
The provision for income taxes for the years ended December 31, 2021, and 2020, differs from that computed at the Federal statutory corporate tax rate as follows:
|
|
Year Ended December 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Federal statutory income tax rate |
|
21 |
% |
|
|
21 |
% |
|
Computed income tax provision at federal statutory rate |
$ |
(1,203 |
) |
|
$ |
(2,350 |
) |
|
State income tax |
|
(473 |
) |
|
|
(920 |
) |
|
Equity based compensation |
|
(201 |
) |
|
|
— |
|
|
Valuation allowance |
|
2,205 |
|
|
|
18,795 |
|
|
Other |
|
30 |
|
|
|
36 |
|
|
Provision for income taxes |
$ |
358 |
|
|
$ |
15,561 |
|
44
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, 2021, the Company had no open income tax examinations.
The components of deferred tax assets and deferred tax liabilities at December 31, 2021, and 2020, were as follows:
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Intangible assets |
|
$ |
13,622 |
|
|
$ |
14,427 |
|
|
Lease liability |
|
|
6,230 |
|
|
|
7,125 |
|
|
Interest deduction carryforward |
|
|
4,311 |
|
|
|
2,219 |
|
|
Stock compensation |
|
|
726 |
|
|
|
39 |
|
|
Net operating losses |
|
|
8,674 |
|
|
|
8,009 |
|
|
Other |
|
|
412 |
|
|
|
285 |
|
|
Valuation allowance |
|
|
(21,000 |
) |
|
|
(18,795 |
) |
|
Total deferred tax assets |
|
|
12,975 |
|
|
|
13,309 |
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
|
(7,056 |
) |
|
|
(5,939 |
) |
|
Right of use asset |
|
|
(6,477 |
) |
|
|
(7,186 |
) |
|
Property and equipment |
|
|
(1,511 |
) |
|
|
(1,895 |
) |
|
Total deferred tax liabilities |
|
|
(15,044 |
) |
|
|
(15,020 |
) |
|
Net deferred tax liabilities |
|
$ |
(2,069 |
) |
|
$ |
(1,711 |
) |
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. As of December 31, 2021, and 2020, the Company recorded a valuation allowance against its deferred tax assets, because the Company's management determined that it was more likely than not that certain assets would not be fully realized, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic.
The Company records certain deferred tax liabilities (“DTLs”) related to indefinite lived intangibles that are not expected to reverse during the carry-forward period. These DTLs can be considered a source of future taxable income to support realization of net operating losses (“NOLs”) that do not expire and DTAs that upon reversal would give rise to NOLs that do not expire. With this consideration, the total valuation allowance recorded at December 31, 2021, and 2020, was $21.0 million and $18.8 million, respectively, resulting in a net $2.1 million and $1.7 million DTL, respectively.
The Company has federal net operating losses (“NOLs”) of $34.8 million and state NOLs of $22.1 million available to offset future taxable income. The federal and certain state NOL carryforwards do not expire, and the remaining state NOL carryforwards begin expiring 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, 2021, the Company has no uncertain tax positions.
14. 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 and additional acquisitions thereafter. 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.
45
The accounting policies as described in the summary of significant accounting policies included in Note 1 to these consolidated financial statements, are applied consistently across segments.
|
Year Ended December 31, 2021 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
|
Net revenues |
|
$ |
41,727 |
|
|
$ |
13,766 |
|
|
$ |
— |
|
|
$ |
55,493 |
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
28,667 |
|
|
|
9,057 |
|
|
|
— |
|
|
|
37,724 |
|
|
Corporate expenses |
|
|
— |
|
|
|
— |
|
|
|
8,434 |
|
|
|
8,434 |
|
|
Depreciation and amortization |
|
|
667 |
|
|
|
3,258 |
|
|
|
— |
|
|
|
3,925 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
(47 |
) |
|
Operating income (loss) |
|
$ |
12,393 |
|
|
$ |
1,498 |
|
|
$ |
(8,434 |
) |
|
$ |
5,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
|
Net revenues |
|
$ |
26,020 |
|
|
$ |
13,241 |
|
|
$ |
— |
|
|
$ |
39,261 |
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
22,827 |
|
|
|
9,517 |
|
|
|
— |
|
|
|
32,344 |
|
|
Corporate expenses |
|
|
— |
|
|
|
— |
|
|
|
4,338 |
|
|
|
4,338 |
|
|
Depreciation and amortization |
|
|
893 |
|
|
|
3,188 |
|
|
|
— |
|
|
|
4,081 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
197 |
|
|
|
— |
|
|
|
197 |
|
|
Operating income (loss) |
|
$ |
2,300 |
|
|
$ |
339 |
|
|
$ |
(4,338 |
) |
|
$ |
(1,699 |
) |
|
Total Assets |
|
Radio |
|
|
Outdoor Advertising |
|
|
Consolidated |
|
|||
|
December 31, 2021 |
|
$ |
90,485 |
|
|
$ |
57,725 |
|
|
$ |
148,210 |
|
|
December 31, 2020 |
|
|
84,219 |
|
|
|
62,132 |
|
|
|
146,351 |
|
15. EMPLOYEE RETENTION CREDITS
The Consolidated Appropriations Act, passed in December 2020, expanded the employee retention credit program through December 2021. The credits cover 70% of qualified wages, plus the cost to continue providing health benefits to our employees, subject to a $7 thousand cap per employee per quarter. Due to revenue declines we have experienced, we qualified for approximately $1.9 million of employee retention credits during the year ended December 31, 2021, of which $1.1 million was received in cash and $0.8 million of employment tax withholdings were retained. $1.7 million was recorded in Operating expenses excluding depreciation and amortization expense and $0.2 million was recorded in Corporate expenses.
16. RELATED PARTY TRANSACTIONS
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. 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 was for an initial term of two years (cancellable by MediaCo after 18 months) under which Emmis provided various services to us, including accounting, human resources, information technology, legal, public reporting and tax. The Management Agreement was terminated in at the expiration of the initial term. We paid 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 years ended December 31, 2021, and 2020, MediaCo recorded $1.1 million and $1.3 million, respectively, of management fee expense which is included in corporate expenses in the accompanying consolidated statements of operations, all of which was paid as of December 31, 2021.
The initial term of the Employee Leasing Agreement lasted through December 31, 2020. Effective January 1, 2021, the Employee Leasing Agreement was terminated, and the Company hired all of the leased employees and assumed the employment and collective bargaining agreements related to leased employees. The Employee Leasing Agreement was terminated at the expiration of the initial term, so no early termination penalties were incurred. Expense related to the Employee Leasing Agreement was $9.6 million for the year ended December 31, 2020. This expense was recognized in operating expenses excluding depreciation and amortization in the consolidated statements of operations. No amount remains unpaid as of December 31, 2021.
46
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 right to $5.0 million of retained net working capital was satisfied in January 2020 and used in the operations of the business. This amount was paid to Emmis during the three months ended September 30, 2020.
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.
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 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. 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.
On August 28, 2020, SG Broadcasting loaned an additional $8.7 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes, bringing the total principal amount outstanding to $20.0 million.
On September 30, 2020, SG Broadcasting loaned an additional $0.3 million to the Company pursuant to the Additional SG Broadcasting Promissory Note for working capital purposes.
On November 25, 2020, annual interest of $0.5 million and $1.1 million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Note, respectively. Consequently, the principal amount outstanding under the Emmis Convertible Promissory Note and SG Broadcasting Promissory Note as of December 31, 2020 was $5.5 million and $21.2 million, respectively.
On May 19, 2021, the Company issued to SG Broadcasting the May 2021 SG Broadcasting Promissory Note, in return for which SG Broadcasting loaned $3.0 million to the Company to make the prepayment of Senior Credit Facility debt required under Amendment No. 4. Up to $7.0 million may be borrowed pursuant to the May 2021 SG Broadcasting Promissory Note.
On June 1, 2021, SG Broadcasting loaned $1.0 million to the Company under the May 2021 SG Broadcasting Promissory Note as required by Amendment No. 4 to the Senior Credit Facility.
On September 30, 2021, annual interest of $25 thousand on the Second Amended Promissory Note was paid in kind and added to the principal balance outstanding.
On November 25, 2021, annual interest of $0.6 million and $2.2 million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Note, respectively. Consequently, the principal amount outstanding under the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes as of December 31, 2021 was $6.2 million and $27.6 million, respectively.
The Company recognized interest expense of $0.6 million and $2.5 million related to the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes, respectively. The terms of these notes are described in Note 6.
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. Dividends on Series A Convertible Preferred Stock held by SG Broadcasting were $2.8 million and $2.1 million for the years ended December 31, 2021, and 2020. On December 13, 2021, and 2020, $2.7 million and $2.1 million, respectively, of dividends were paid in kind. These payments in kind increased the accrued value of the preferred stock and no additional shares were issued as part of this payment. As of December 31, 2021, and 2020, unpaid cumulative dividends were $0.2 million and $0.1 million, respectively, and included in the balance of preferred stock in the accompanying consolidated balance sheets. See Note 3 for a description of the Preferred Stock.
Loan Proceeds Participation Agreement
On April 22, 2020, MediaCo and Emmis entered into a certain Loan Proceeds Participation Agreement (the “LPPA”) pursuant to which (i) Emmis agreed to use certain of the proceeds of the loan Emmis received pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act to pay certain wages of employees leased to MediaCo pursuant to the Employee Leasing Agreement, between Emmis and MediaCo (ii) Emmis agreed to waive up to $1.5 million in reimbursement obligations of MediaCo to Emmis under the Employee Leasing Agreement to the extent that the PPP Loan is forgiven, and (iii) MediaCo agreed to promptly pay Emmis an amount equal to 31.56% of the amount of the PPP Loan, if any, that Emmis is required to repay, up to the amount of the reimbursement obligations forgiven under (ii) above. Standard General L.P., on behalf of all of the funds for which it serves as an investment advisor, agreed to guaranty MediaCo’s obligations under the LPPA. During 2021, Emmis received notification that the full amount of the loan was forgiven.
47
Management Agreement for Billboards LLC
On August 11, 2020, the board of directors of the Company unanimously authorized the entry into a certain Management Agreement (the “Billboard Agreement”) between Fairway Outdoor LLC (a subsidiary of the Company, “Fairway”) and Billboards LLC (an affiliate of Standard General, “Billboards”). Under the Billboard Agreement, Fairway will manage the billboard business of Billboards in exchange for payments of $25,000 per quarter and reimbursement of all out-of-pocket expenses incurred by Fairway in the performance of its duties under the Billboard Agreement. The Billboard Agreement has an effective date of August 1, 2020, has a term of three years, and has customary provisions on limitation of liability and indemnification. $0.1 million of income was recognized in the year ended December 31, 2021 in relation to the Billboard Agreement, none of which was outstanding as of December 31, 2021. Additionally, Fairway incurred $0.2 million of out-of-pocket expenses for the period, $0.1 million of which has been reimbursed as of December 31, 2021.
17. SUBSEQUENT EVENTS
In March 2022, a bonus award of $1.3 million was approved and granted to certain employees based on their service and results in 2021. These awards are to be paid partially in cash and partially in restricted stock awards, which vest immediately upon grant in March 2022. For the year ended December 31, 2021, we recorded $0.5 million of expense related to the cash portion of the awards, of which $0.2 million and $0.3 million are included in Operating expenses excluding depreciation and amortization expense and Corporate expenses, respectively. $0.8 million was recorded as stock-based compensation expense in 2022.
In March 2022, the Company extended the time we are able to make additional draws on the May 2021 SG Broadcasting Promissory Note. See Note 6 for further discussion.
48
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, 2021, 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.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the quarter ended December 31, 2021 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.
Management’s Report on Internal Control Over Financial Reporting
The management of MediaCo Holding Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, MediaCo Holding Inc.’s principal executive and principal financial officers and effected by MediaCo Holding Inc.’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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(1) |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
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(2) |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of MediaCo Holding Inc. are being made only in accordance with authorizations of management and directors of the Company; and |
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(3) |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of MediaCo Holding Inc.’s assets that could have a material effect on the financial statements. |
Management has evaluated the effectiveness of its internal control over financial reporting as of December 31, 2021, based on the control criteria established in a report entitled Internal Control—Integrated Framework (2013 Framework), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, management has concluded that its internal control over financial reporting is effective as of December 31, 2021.
ITEM 9B. OTHER INFORMATION
On March 18, 2022, the Company and SG Broadcasting agreed to amend the May 2021 SG Broadcasting Promissory Note to extend the Company’s ability to draw the remaining $3.0 million on the May 2021 SG Broadcasting Promissory Note from June 30, 2022 to June 30, 2023.
On March 23, 2022, the Board of Directors approved amendments to the Company’s Code of Bylaws to change the Company’s primary business address from One Emmis Plaza, Suite 700, 40 Monument Circle, Indianapolis, Indiana 46204 to 395 Hudson Street, 7th Floor, New York, New York 10014 and to provide that meetings of the Company’s shareholders will be held in New York or such other place as the Board of Directors may determine, including by remote means.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
49
PART III
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.
Equity Compensation Plan Information
The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under our 2021 and 2020 Equity Compensation Plans as of December 31, 2021. Our shareholders have approved these plans.
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Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
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Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |
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Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) |
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Plan Category |
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(A) |
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(B) |
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(C) |
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Class A common stock |
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Equity Compensation Plans |
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Approved by Security Holders |
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1,084,019 |
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$ |
3.77 |
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1,667,525 |
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Equity Compensation Plans |
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Not Approved by Security Holders |
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— |
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— |
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— |
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Total |
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1,084,019 |
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$ |
3.77 |
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1,667,525 |
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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
Our independent registered public accounting firm is Ernst & Young LLP, Indianapolis, IN, PCAOB ID 42.
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.
50
PART IV
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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3.1 |
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Amended and Restated Articles of Incorporation of MediaCo Holding Inc., as amended. |
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10-KT |
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12/31/2019 |
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3.1 |
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3/27/2020 |
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3.2 |
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X |
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4.1 |
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10-KT |
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12/31/2019 |
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4.1 |
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3/27/2020 |
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10.1† |
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10-Q |
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9/30/2021 |
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10.1 |
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11/12/2021 |
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10.2† |
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Definitive Proxy |
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Ex. A |
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4/2/2021 |
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10.3 |
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8-K |
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10.1
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3/2/2020 |
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10.4 |
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8-K |
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10.2 |
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5/21/2021 |
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10.5 |
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8-K |
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10.2 |
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3/2/2020 |
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10.6 |
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10-KT |
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12/31/2019 |
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10.19 |
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3/27/2020 |
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10.7 |
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10-KT |
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12/31/2019 |
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10.20 |
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3/27/2020 |
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10.8† |
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Form of Restricted Stock Agreement under 2020 Equity Compensation Plan. |
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10-Q |
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6/30/2020 |
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10.2 |
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8/14/2020 |
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10.9 |
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Management Agreement, effective August 1, 2020, between Fairway Outdoor LLC and Billboards LLC. |
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10-Q |
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6/30/2020 |
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10.3 |
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8/14/2020 |
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10.10 |
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8-K |
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10.1 |
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8/31/2020 |
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51
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Incorporated by Reference |
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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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10.11 |
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8-K |
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10.1 |
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5/21/2021 |
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10.12 |
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X |
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21 |
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23 |
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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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Inline XBRL Instance Document |
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X |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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X |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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X |
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101.LAB |
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Inline XBRL Taxonomy Extension Labels Linkbase Document |
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X |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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X |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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X |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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X |
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† Constitutes a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
52
Signatures.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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MEDIACO HOLDING INC. |
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Date: March 24, 2022 |
By: |
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/s/ Rahsan-Rahsan Lindsay |
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Rahsan-Rahsan Lindsay |
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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 24, 2022 |
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/s/ Rahsan-Rahsan Lindsay |
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Chief Executive Officer and Director |
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Rahsan-Rahsan Lindsay |
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(Principal Executive Officer) |
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Date: March 24, 2022 |
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/s/ Ann C. Beemish |
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Executive Vice President, Chief Financial Officer |
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Ann C. Beemish |
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and Treasurer (Principal Financial Officer and |
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Principal Accounting Officer) |
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Date: March 24, 2022 |
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/s/ Patrick M. Walsh |
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Director |
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Patrick M. Walsh |
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Date: March 24, 2022 |
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/s/ J. Scott Enright |
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Director |
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J. Scott Enright |
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Date: March 24, 2022 |
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/s/ Andrew Glaze |
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Director |
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Andrew Glaze |
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Date: March 24, 2022 |
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/s/ Laura Lee |
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Director |
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Laura Lee |
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Date: March 24, 2022 |
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/s/ Mary Beth McAdaragh |
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Director |
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Mary Beth McAdaragh |
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Date: March 24, 2022 |
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/s/ Deborah McDermott |
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Director |
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Deborah McDermott |
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Date: March 24, 2022 |
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/s/ Jeffrey H. Smulyan |
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Director |
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Jeffrey H. Smulyan |
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53
Exhibit 3.2
AMENDED AND RESTATED
CODE OF BY-LAWS
OF
MEDIACO HOLDING INC.
ARTICLE 1 Identification And Offices
Section 1.1 Name. The name of the Corporation is MediaCo Holding Incorporated (hereinafter referred to as the "Corporation").
Section 1.2 Registered Office. The registered office and registered agent of the Corporation is as provided and designated in the Corporation’s Amended and Restated Articles of Incorporation, as the same may be amended, restated, or otherwise modified from time to time (the “Articles”). The Board of Directors may, from time to time, change its registered office or registered agent. On or before the day that any such change is to become effective, a certificate of such change shall be filed with the Secretary of State of the State of Indiana.
Section 1.3 Other Offices. The Corporation may establish and maintain such other offices, within or without the State of Indiana, as are from time to time authorized by the Board of Directors. The principal office of the Corporation is 395 Hudson Street, 7th Floor, New York, New York 10014.
ARTICLE 2 Meetings of Shareholders
Section 2.1 Place of Meeting. All meetings of the shareholders of the Corporation (the “Shareholders,” and each, a “Shareholder”) shall be held at the principal office of the Corporation in the State of New York or at such other place within or without the State of New York as may be fixed from time to time by the Board of Directors or the Chairman of the Board.
Section 2.2 Annual Meeting. The annual meeting of the Shareholders shall be held each year within twelve (12) months after the end of the previous fiscal year, unless otherwise required by law, for the purpose of electing Directors and for the transaction of such other business as may properly come before the annual meeting. If for any reason an annual meeting is not held during the time period herein provided, such annual meeting may be held at any time thereafter, or the business to be transacted at such annual meeting may be transacted at any special meeting of the Shareholders called for that purpose.
Section 2.3 Special Meetings. Special meetings of all Shareholders or a class of Shareholders for any purpose or purposes, unless otherwise prescribed by law or the Articles, may be called by the Board of Directors or the Chairman of the Board.
Section 2.4 Notice of Meetings. Written notice of the place, date and hour of each meeting of the Shareholders and, in the case of a special meeting, the purpose or purposes for which such meeting is called, shall be mailed or delivered, not less than ten (10) days nor more than sixty (60)
days prior to the meeting, to each Shareholder of record entitled to notice of such meeting. If such notice is mailed, it shall be deemed to have been given to a Shareholder when deposited in the United States mail, postage prepaid, addressed to the Shareholder at his or her address as it appears on the records of Shareholders of the Corporation. No notice shall be required to be given by mail or otherwise where the meeting is an adjourned meeting and the date, time and place of the meeting were announced at the time of adjournment.
Section 2.5 Waiver of Notice. Notice of any meeting may be waived in writing by a Shareholder before or after the date and time stated in the notice. Attendance by a Shareholder at a meeting in person or by proxy waives objection to (i) lack of notice or defective notice of the meeting unless the Shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and (ii) consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Shareholder objects to considering the matter when it is presented.
Section 2.6 Quorum; Adjourned Meetings. Except as otherwise required by law, the presence in person or by proxy of the holders of record of a majority of the combined voting power of the outstanding shares entitled to vote at a meeting of the Shareholders shall constitute a quorum for the transaction of business at such meeting. In case a quorum shall not be present at a meeting, those present may adjourn to such day as they shall, by majority vote, agree upon, without notice other than announcement at the meeting of the date, time and place of the adjourned meeting, unless the date of the adjourned meeting requires that the Board of Directors fix a new record date therefor, in which case notice of the adjourned meeting shall be given. At adjourned meetings at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally noticed. Once a quorum is present during the meeting, the Shareholders may continue to transact business until adjournment notwithstanding the withdrawal of enough Shareholders to leave less than a quorum.
Section 2.7 Voting. Except as otherwise required by the Articles or as may be provided with respect to any series of Preferred Stock, each Shareholder of Class A Common Stock shall be entitled to one (1) vote for each such share held by such Shareholder and each Shareholder of Class B Common Stock shall be entitled to ten (10) votes for each such share held by such Shareholder. A Shareholder may vote in person or by proxy; provided, however, that no proxy shall be voted after eleven (11) months from its date unless such proxy provides for a longer or shorter period. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated for holding such meeting, but in any event no later than the time designated in the order of business for so delivering such proxies. All actions shall be authorized by the affirmative vote of holders of a majority in voting power of the outstanding shares of the Corporation entitled to vote thereon, voting together as a single class, present in person (unless such meeting is held by means of the Internet or other electronic technology in which case the Proponent (as defined below) or Nominating Shareholder (as defined below) or its qualified representative shall be present at such meeting of Shareholders by means of the Internet or other electronic technology) (“Present in Person”) or represented by proxy, unless a different or minimum vote is required by the Articles or as may be provided with respect to any series of Preferred Stock, these By-Laws, the rules or regulations of any stock exchange applicable to the Corporation, or any law or regulation
2
applicable to the Corporation or its securities, in which case such different or minimum vote shall be the applicable vote on the matter.
Section 2.8 Closing of Books. The Board of Directors may fix a time, not exceeding seventy (70) calendar days preceding the date of any meeting of Shareholders, as a record date for the determination of the Shareholders entitled to notice of, and to vote at, such meeting, notwithstanding any transfer of shares on the books of the Corporation after any record date so fixed. The Board of Directors may close the books of the Corporation against the transfer of shares during the whole or any part of such period. If the Board of Directors fails to fix a record date for determination of the Shareholders entitled to notice of, and to vote at, any meeting of Shareholders, the record date shall be the date specified by the Chairman of the Board in his or her call of the meeting or, if no such date is so specified, the record date shall be the twentieth (20th) day preceding the date of such meeting.
Section 2.9 Organization of Meetings. The Chairman of the Board, or in his or her absence, any person appointed by the Chairman of the Board, or if no such person is appointed, any person chosen by the Board of Directors shall preside at and act as chairman of all meetings of the Shareholders; and the Secretary, or in his or her absence, any person appointed by the Chairman of the Board, shall act as secretary of the meeting. The order of business and all other matters of procedure at every meeting of the Shareholders shall be determined by the presiding officer of the meeting.
Section 2.10 Shareholder List. The Secretary shall prepare before each meeting a complete list of the Shareholders entitled to notice of such meeting, arranged in alphabetical order by class of shares (and each series within a class), and showing the address of, and the number of shares entitled to vote held by, each Shareholder (the “Shareholder List”). Beginning five (5) business days before the meeting and continuing throughout the meeting, the Shareholder List shall be on file at the Corporation’s principal office or at a place identified in the meeting notice in the city where the meeting will be held, and shall be available for inspection by any Shareholder entitled to vote at the meeting. On written demand, made in good faith and for a proper purpose and describing with reasonable particularity the Shareholder’s purpose, and if the Shareholder List is directly connected with the Shareholder’s purpose, a Shareholder (or such Shareholder’s agent or attorney authorized in writing) shall be entitled to inspect and to copy the Shareholder List, during regular business hours and at the Shareholder’s expense, during the period the Shareholder List is available for inspection. The original stock register or transfer book, or a duplicate thereof kept in the State of Indiana, shall be the only evidence as to who are the Shareholders entitled to examine the Shareholder List, or to notice of or to vote at any meeting.
Section 2.11 Advance Notice of Business to Be Presented at Annual Meetings.
(a)Except as otherwise provided by applicable law or regulations, at any annual meeting of Shareholders, only such business shall be conducted as shall have been properly brought before the annual meeting in accordance with the provisions of the Articles, these ByLaws and the Indiana Business Corporation Law (the “IBCL”). In order to be properly brought before an annual meeting of Shareholders, such business must have either been (i) specified in the written notice of the meeting (or any supplement thereto) given to Shareholders of record on the record date for such
3
meeting by or at the direction of the Board of Directors (or any committee thereof duly authorized by the affirmative vote of a majority of the Board of Directors), (ii) brought before the meeting at the direction of the Board of Directors, any committee thereof duly authorized by the affirmative vote of a majority of the Board of Directors, or the presiding officer of the meeting if delegated that authority by a resolution of the Board of Directors adopted by an affirmative vote of a majority of the Board of Directors, or (iii) brought before the meeting by any Shareholder of the Corporation Present in Person who (A) is a Shareholder of record of stock of the Corporation on the date of the delivery of the notice provided for in this Article II, (B) is entitled to vote at the meeting, and (C) complies with all applicable requirements set forth in this Section 2.11.
(b)Except with respect to proposed nominations of persons for election to the Board of Directors, which must be made in compliance with the provisions of Section 2.12 herein and except for Shareholder proposals submitted for inclusion in the Corporation’s proxy statement pursuant to, and in compliance with, Rule 14a-8 (and the interpretations thereunder) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”) and which proposals are not excludable under Rule 14a-8 of the Exchange Act, whether pursuant to a no-action letter from the Staff of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Corporation Finance or a determination of a federal court of competent jurisdiction, and which are included in the notice of meeting given by or at the direction of the Board of Directors (or any committee thereof duly authorized by the affirmative vote of a majority of the Entire Board) and the Corporation’s proxy statement pursuant to Rule 14a-8 of the Exchange Act, Section 2.11(a)(iii) of this Article II shall be the exclusive means for a Shareholder to propose business to be brought before an annual meeting of Shareholders.
(c)In addition to the other requirements set forth in this Section 2, for any proposal of business to be properly brought before an annual meeting of Shareholders, it (i) must be a proper subject for action by Shareholders of the Corporation under these By-Laws, the Articles, the IBCL and other applicable law, and (ii) must not relate to a matter that is expressly reserved for action by the Board of Directors under these By-Laws, the Articles, the IBCL or other applicable law.
(d)Nothing in this Section 2.11 shall be deemed to give any Shareholder the right to have any proposal included in any proxy statement prepared by the Corporation, and, to the extent any such right exists under the Exchange Act, including pursuant to Rule 14a-8 under the Exchange Act (or any successor rule), or other applicable law or governmental regulation, such right shall be limited to the right expressly provided under such applicable law or governmental regulation and nothing in this Section 2.11 shall be deemed to affect such rights.
(e)In addition to any other applicable requirements, for business to be properly brought before an annual meeting of Shareholders by a Shareholder pursuant to Section 2.11(a)(iii) of this Article II, such Shareholder must (i) have given Timely Notice (as defined below) thereof in proper written form to the Secretary of the Corporation containing the information as required to be set forth by this Section 2.11 (the “Proposal Notice”), and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.11. To be timely, a Proposal Notice or Nominating Notice (as defined in Section 2.12(b) herein) shall be delivered personally, or mailed to, the Secretary at the principal executive offices of the Corporation and received not
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less than ninety (90) calendar days nor more than one hundred twenty (120) calendar days prior to the first anniversary of the date of the preceding calendar year’s annual meeting of Shareholders; provided, however, that in the event that the date of the annual meeting of Shareholders is advanced by more than thirty (30) calendar days or delayed by more than sixty (60) calendar days from the anniversary of the preceding calendar year’s annual meeting, or if the Corporation did not hold an annual meeting in the preceding calendar year, the Proposal Notice or Nominating Notice to be timely must be delivered to, and received by, the Secretary at the principal executive offices of the Corporation not earlier than the one-hundred twentieth (120th) calendar day prior to such annual meeting and not later than the close of business on the later of (i) the ninetieth (90th) calendar day prior to such annual meeting or (ii) the tenth (10th) calendar day following the day on which notice of the date of such meeting was mailed or on which public disclosure (as defined below) of the date of such meeting is first made by the Corporation, whichever first occurs (such notice that is provided within such time periods, a “Timely Notice”). For purposes of these ByLaws, “Proposal Notice Deadline” shall mean the last date for a Shareholder to deliver a Proposal Notice in accordance with the provisions of the previous sentence. In no event shall any adjournment, postponement or recess of an annual meeting of Shareholders or the public disclosure thereof commence a new time period (or extend any time period) for the giving of a Proposal Notice as described above;
(f)To be in proper written form, the Proposal Notice must set forth:
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(i) |
the name and record address of each Shareholder proposing to bring business before the annual meeting of Shareholders (each, a “Proponent”), as they appear on the Corporation’s books; |
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(ii) |
the name and address of each Shareholder Associated Person. “Shareholder Associated Person” means with respect to any Proponent or Nominating Shareholder (as defined below), (i) any other beneficial owner of stock of the Corporation owned of record or beneficially by such Proponent or Nominating Shareholder, (ii) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A) with such Proponent or Nominating Shareholder in any solicitation contemplated by the Proposal Notice or the Nominating Notice, (iii) each person who is disclosed as a member of a “group” with any such Proponent or Nominating Shareholder or beneficial owner in a Schedule 13D or an amendment thereto filed with the SEC relating to the equity securities of the Corporation, and (iv) any person that directly, or indirectly through one or more intermediaries, is Acting in Concert with such Proponent or Nominating Shareholder or a Shareholder Associated Person of such Proponent or Nominating Shareholder. A person shall be deemed to be “Acting in Concert” with another person if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or towards a common goal relating to the management, governance or control of the Corporation in parallel with, such other person where (A) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decisionmaking processes and (B) at least one additional |
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factor suggests that such persons intend to act in concert or in parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions, or making or soliciting invitations to act in concert or in parallel; provided, that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person; |
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(iii) |
as to each Proponent and each Shareholder Associated Person, (A) the class or series and number of shares of stock directly or indirectly held of record and beneficially by such Proponent or Shareholder Associated Person, (B) a description in reasonable detail of any agreement, arrangement or understanding, written or oral, direct or indirect, with respect to the business proposed to be brought before the annual meeting of Shareholders by the Proponent, between or among any Proponent or any Shareholder Associated Person and any other person or entity (naming each person or entity), including without limitation any agreements, arrangements and understandings that would be required to be disclosed pursuant to Item 5 or Item 6 of Schedule 13D if a Schedule 13D relating to the Corporation was filed by such Proponent or Shareholder Associated Person pursuant to the Exchange Act and the rules and regulations promulgated thereunder (regardless of whether the requirement to file a Schedule 13D is applicable to such Proponent or Shareholder Associated Person), (C) a description in reasonable detail of any plans or proposals of such Proponent or Shareholder Associated Person relating to the Corporation that would be required to be disclosed by such Proponent or Shareholder Associated Person pursuant to Item 4 of Schedule 13D if a Schedule 13D relating to the Corporation was filed with the SEC by such Proponent or Shareholder Associated Person pursuant to the Exchange Act and the rules and regulations promulgated thereunder (regardless of whether the requirement to file a Schedule 13D with the SEC is applicable to such Proponent or Shareholder Associated Person) together with a description of any agreements, arrangements or understandings (whether written or oral) that relate to such plans or proposals and naming all the parties to any such agreements, arrangements or understandings, (D) a description in reasonable detail of any agreement, arrangement or understanding, written or oral, (including any derivative or short positions, profit interests, options, hedging transactions and borrowed or loaned shares) that has been entered into, directly or indirectly, as of the date of the notice by, or on behalf of, any Proponent or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease |
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the voting power of, any Proponent or any Shareholder Associated Person with respect to shares of stock of the Corporation (a “Derivative”), (E) a description in reasonable detail of any proxy (including revocable proxies), contract, arrangement, understanding or other relationship between any Proponent or any Shareholder Associated Person and any other person or entity (naming each such person or entity) pursuant to which such Proponent or Shareholder Associated Person has a right to vote any shares of stock of the Corporation, and (F) a description in reasonable detail of any profit-sharing or any performance-related fees (other than an assetbased fee) that any Proponent or any Shareholder Associated Person is entitled to, based on any increase or decrease in the value of stock of the Corporation or Derivatives thereof, if any, as of the date of such notice. The information specified in Section 2.11(f)(i) to (iii) of this Article II is referred to herein as “Shareholder Information”; |
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(iv) |
a representation that each Proponent is a holder of record of stock of the Corporation entitled to vote at the annual meeting and intends to be Present in Person at the annual meeting to propose such proposed business; |
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(v) |
as to each item of business such Proponent proposes to bring before the annual meeting of Shareholders, (A) a description in reasonable detail of such business, (B) the complete text of the proposal (including the complete text of any resolutions proposed for consideration and, if such business includes a proposal to amend the By-Laws or the Articles, the language of the proposed amendment), and (C) a description in reasonable detail of the reasons for conducting such business at the annual meeting of Shareholders; |
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(vi) |
any material interest of any Proponent and any Shareholder Associated Person in such proposed business; |
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(vii) |
a representation as to whether the Proponent(s) intend (A) to deliver a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt such proposed business or (B) otherwise to solicit proxies from |
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Shareholders in support of such proposed business;
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(viii) |
all other information relating to the proposal of such business that would be required to be disclosed in a proxy statement or other filing required to be filed with the SEC in connection with a contested solicitation of proxies in which the Proponent(s) or Shareholder Associated Persons are participants in a solicitation subject to Section 14 of the Exchange Act (or any successor of such section); and |
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(ix) |
a representation that each Proponent shall provide any other information reasonably requested by the Corporation in the form and manner, and within the time period, reasonably requested by the Corporation. |
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(g)A Proponent shall update and supplement its Proposal Notice as necessary, from time to time, so that the information provided or required to be provided in such notice pursuant to this Section 2.11 shall be true, correct and complete in all respects not only as of the Proposal Notice Deadline but also at all times thereafter and prior to the annual meeting of Shareholders, and such update and supplement shall be received by the Secretary not later than the earlier of (A) five (5) business days following the occurrence of any event, development or occurrence that would cause the information provided in the Proposal Notice to be not true, correct and complete in all respects, or (B) ten (10) business days prior to the announced date of the meeting at which such proposals contained therein are to be considered; provided, however, that should any such event, development or occurrence take place within ten (10) business days prior to such meeting, such update and supplement shall be received by the Secretary not later than one (1) business day following any such event, development or occurrence. For the avoidance of doubt, the updates required pursuant to this Section 2.11 do not cause a notice that was not true, correct and complete in all respects and in compliance with this Section 2.11 when first delivered to the Corporation prior to the Proposal Notice Deadline to thereafter be in proper form in accordance with this Section 2.11.
(h)The presiding officer of the meeting shall, if the facts warrant, determine, in consultation with counsel (who may be the Corporation’s internal counsel), and declare to the meeting, that the proposed business was not properly brought before the meeting in accordance with the procedures set forth in this Section 2.11, and, if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(i)A Proponent, by delivering a Proposal Notice to the Corporation, represents and warrants that all information contained therein, as of the Proposal Notice Deadline, is true, accurate and complete in all respects and contains no false or misleading statements, and such Proponent acknowledges that it intends for the Corporation and the Board of Directors to rely on such information as being true, accurate and complete in all respects and not containing any false or misleading statements.
(j)If the Proponent proposing such business (or a qualified representative (as defined below) thereof) is not Present in Person at the annual meeting of Shareholders to present the proposed business, such business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. In addition, business proposed to be brought by a Proponent may not be brought before an annual meeting of Shareholders if (i) such Shareholder takes action contrary to the representations made in the Proposal Notice applicable to such business, (ii) when submitted to the Corporation prior to the Proposal Notice Deadline, the Proposal Notice applicable to such business contained information submitted pursuant to this Section 2.11 that was not true, correct or complete in all respects, an untrue statement of a fact or an omission to state a fact necessary to make the statements therein not misleading, or (iii) after being submitted to the Corporation, the Proposal Notice applicable to such business was not updated in accordance with these By-Laws to cause the information provided in the Proposal Notice to be true, correct and complete in all respects and not contain any false or misleading statements. For purposes of this Section 2.11, a “qualified representative” of any Shareholder means a person who is a duly authorized officer, manager or partner of such Shareholder
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(including, as applicable, a Proponent or a Nominating Shareholder) or has been authorized by a writing executed by such Shareholder or an electronic transmission delivered by such Shareholder to act for such Shareholder as proxy with respect to the specific matter to be considered at the meeting of Shareholders and such person must produce such writing or electronic transmission, or a reliable reproduction (to the reasonable satisfaction of the presiding officer of the meeting) of the writing or electronic transmission, at the meeting of Shareholders prior to the taking of action by such person on behalf of the Shareholder.
(k)A Proponent, by delivering a Proposal Notice to the Corporation, acknowledges that it understands that nothing contained therein shall be considered confidential or proprietary information and that neither the Corporation nor the Board of Directors shall be restricted, in any manner, from publicly disclosing or using any of the information contained in the Proposal Notice.
(l)Notwithstanding any notice of a Shareholder meeting or proxy statement sent to Shareholder on behalf of the Corporation or filed with the SEC, a Shareholder must separately comply with this Section 2.11 to propose business at any annual meeting. If the Shareholder’s proposed business is the same or relates to business brought by the Corporation and included in the Corporation’s meeting notice, proxy statement or any supplement thereto, the Shareholder nevertheless is still required to comply with this Section 2.11 and deliver, prior to the Proposal Notice Deadline, its own separate and timely Proposal Notice to the Secretary that complies in all respects with the requirements of this Section 2.11.
(m)Nothing in this Section 2.11 shall be deemed to affect any rights of the holders of any series of Preferred Stock of the Corporation pursuant to any applicable provision of the Articles or as may be provided with respect to any such series of Preferred Stock.
Section 2.12 Advance Notice of Nominations to Be Presented.
(a)Subject to the rights of the holders of Class A Common Stock and Class B Common Stock and any outstanding series of Preferred Stock under the Articles, nominations of any person for election to the Board of Directors at an annual or special meeting of Shareholders (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting of Shareholders in accordance with these By-Laws) may be made at such meeting only (i) by or at the direction of the Board of Directors, including by any committee or persons duly authorized to do so by the affirmative vote of a majority of the Board of Directors or these By-Laws (including, without limitation, by making reference to the nominees in the proxy statement delivered to the Corporation’s Shareholders on behalf of the Board of Directors), or (ii) by a Shareholder Present in Person who (A) is a Shareholder of record on the date of the delivery of the notice provided for in this Section 2.12, (B) is entitled to vote at the meeting, and (C) complies with all applicable notice procedures and requirements set forth in this Section 2.12. The foregoing clause (ii) shall be the exclusive means for a Shareholder to propose any nomination of a person or persons for election to the Board of Directors at a Shareholders’ meeting. If a Shareholder is entitled to vote only for a specific class or category of directors at an annual or special meeting of the Shareholders, such Shareholder’s right to make an advance notice of nomination pursuant to this Section 2.12 shall be limited to such class or category of directors.
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(b)Without qualification, for a Shareholder to propose a nomination of a person or persons for election to the Board of Directors at an annual meeting of Shareholders, such Shareholder must (i) provide Timely Notice thereof in proper written form to the Secretary containing the information with respect to such Shareholder and its proposed candidates for nomination for election to the Board of Directors as required to be set forth by this Section 2.12 (collectively, the “Nominating Notice”), and (ii) provide any updates or supplements to such Nominating Notice at the times and in the forms required by this Section 2.12.
(c)Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling a special meeting of Shareholders, then for a Shareholder to make any nomination of a person or persons for election to the Board of Directors at a special meeting of Shareholders, the Shareholder must (i) provide timely notice thereof in proper written form to the Secretary containing the information with respect to such Shareholder and its proposed candidates for nomination for election to the Board of Directors as required by this Section 2.12, and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.12. To be timely, a Shareholder’s notice for nominations to be made at a special meeting of Shareholders shall be delivered personally or mailed to the Secretary at the principal executive offices of the Corporation and received not earlier than the one hundred twentieth (120th) calendar day prior to such special meeting and not later than the close of business on the later of (x) the ninetieth (90th) calendar day prior to such special meeting or (y) the tenth (10th) calendar day following the day on which notice of the date of such special meeting was mailed or on which public disclosure of the date of such special meeting was first made by the Corporation, whichever first occurs.
(d)In no event shall any adjournment or postponement of an annual meeting of Shareholders or special meeting of Shareholders or the public disclosure thereof commence a new time period for the giving of a Nominating Notice as described above. For purposes of these By-Laws, “Nominating Notice Deadline” shall mean the last date for a Shareholder to deliver a Nominating Notice in accordance with the provisions of this Section 2.12.
(e)To be in proper written form, a Nominating Notice shall set forth:
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(i) |
the Shareholder Information with respect to each Shareholder nominating persons for election to the Board of Directors (each, a “Nominating Shareholder”) and each Shareholder Associated Person; |
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(ii) |
a representation that each Nominating Shareholder is a holder of record of stock of the Corporation entitled to vote at the meeting and intends to be Present in Person at the meeting to propose such nomination; |
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(iii) |
all information regarding each Nominating Shareholder, each person whom the Nominating Shareholder proposes to nominate for election or re-election as a director (each, a “Shareholder Nominee”) and each Shareholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be filed by the Nominating Shareholder |
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with the SEC in connection with a contested solicitation of proxies subject to Section 14 of the Exchange Act; |
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(iv) |
as to each Shareholder Nominee, (A) all information that would be required to be set forth in a Nominating Notice pursuant to this Section 2.12 if such Shareholder Nominee was a Nominating Shareholder; (B) a list of all other publicly-traded companies, whether or not currently publicly-traded or currently in existence, where such Shareholder Nominee had been proposed as a candidate for election to a board of directors by a Nominating Shareholder; (C) a description in reasonable detail of any and all other agreements, arrangements and/or understandings (whether written or oral and formal or informal) between such Shareholder Nominee and any person or entity (naming such person or entity) in connection with such Shareholder Nominee’s service or action as a proposed candidate and, if elected, as a member of the Board of Directors; (D) to the extent that such Shareholder Nominee has been convicted of any past criminal offenses involving a felony, fraud, dishonesty or a breach of trust or duty, a description in reasonable detail of such offense and all legal proceedings relating thereto; (E) to the extent that such Shareholder Nominee has been determined by any governmental authority or self-regulatory organization to have violated any federal or state securities or commodities laws, including but not limited to, the Securities Act of 1933, as amended, the Exchange Act or the Commodity Exchange Act, a description in reasonable detail of such violation and all legal proceedings relating thereto; (F) to the extent that such Shareholder Nominee has ever been suspended or barred by any governmental authority or self-regulatory organization from engaging in any profession or participating in any industry, or has otherwise been subject to a disciplinary action by a governmental authority or self-regulatory organization that provides oversight over the Shareholder Nominee’s current or past profession or an industry that the Shareholder Nominee has participated in, a description in reasonable detail of such action and the reasons therefor; and (G) a description in reasonable detail of any and all litigation, whether or not judicially resolved, settled or dismissed, relating to the Shareholder Nominee’s past or current service on the board of directors (or similar governing body) of any corporation, limited liability company, partnership, trust or any other entity where a legal complaint filed in any state or federal court located within the United States alleges that the proposed candidate committed any act constituting (1) a breach of fiduciary duties, (2) misconduct, (3) fraud, (4) breaches of confidentiality obligations, and/or (5) a breach of the entity’s code of conduct applicable to directors; |
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(v) |
(A) each Shareholder Nominee’s written consent to being named in the proxy statement of the Nominating Shareholder as a nominee of the Nominating Shareholder and to serving as a director of the Corporation if elected; (B) a written questionnaire completed and signed by each |
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Shareholder Nominee with respect to the background, qualifications and independence of such Shareholder Nominee and any other information of the Shareholder Nominee reasonably requested by the Corporation (in the form provided by the Secretary upon written request); and (C) each Shareholder Nominee’s written representation and agreement (in the form provided by the Secretary upon written request), (w) that such person is not a party to any agreement, arrangement or understanding (written or oral) with, and has not given any commitment or assurance (written or oral) to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been expressly disclosed in writing to the Corporation or any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (x) that such person is not a party to any agreement, arrangement, or understanding (written or oral) with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement, or indemnification in connection with service or action as a director that has not been expressly disclosed in writing to the Corporation, (y) that such person is not a party to any agreement, arrangement or understanding (written or oral) with any person or entity, that contemplates such person resigning as a member of the Board of Directors prior to the conclusion of the term of office to which such person was elected, and has not given any commitment or assurance (written or oral) to any person or entity that such person intends to, or if asked by such person or entity would, resign as a member of the Board of Directors prior to the end of the conclusion of the term of office to which such person was elected, except as expressly disclosed in writing to the Corporation, and (z) that in the person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed policies, codes or guidelines of the Corporation with respect to |
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ethics and/or business conduct, corporate governance, conflicts of interest, confidentiality, public disclosure, hedging and pledging relating to the Corporation’s securities, and stock ownership and stock trading, and any other policies, codes and guidelines of the Corporation applicable to Corporation directors; and (D) for each Shareholder Nominee who is not a member of the Board of Directors at the time of his or her nomination, such Shareholder Nominee’s irrevocable and executed letter of resignation as a director of the Corporation, effective upon such person’s failure to receive the required vote for re-election at the next meeting of Shareholders at which such person would face re-election and upon acceptance of such resignation by the Board of Directors;
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(vi) |
a description in reasonable detail of all direct and indirect compensation, reimbursement, indemnification, benefits and other monetary agreements, arrangements and understandings (written or oral) during the past three years, and any other relationships, between or among any Nominating Shareholder, Shareholder Associated Person or others Acting in Concert therewith, including, but not limited to, all information that would be required to be disclosed pursuant to Items 403 and 404 promulgated under Regulation S-K (or any such successor rule) if the Nominating Shareholder, Shareholder Associated Person or any person Acting in |
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Concert therewith, were the “registrant” for purposes of such rule and the Shareholder Nominee were a director or executive of such registrant;
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(vii) |
a representation as to whether the Nominating Shareholder(s) intend (A) to deliver a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve the nomination or (B) otherwise to solicit proxies from Shareholders in support of such nomination; |
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(viii) |
all other information that would be required to be disclosed in a proxy statement or other filing required to be filed with the SEC in connection with a contested solicitation of proxies in which the Nominating Shareholder(s) or Shareholder Associated Person(s) are participants in a solicitation subject to Section 14 of the Exchange Act (or any such successor of such section); and |
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(ix) |
a representation that each Nominating Shareholder shall provide any other information reasonably requested by the Corporation in the form and manner, and within the time period, reasonably requested by the Corporation. |
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(f)A Nominating Shareholder shall update and supplement its Nominating Notice as necessary, from time to time, so that the information provided or required to be provided in such notice pursuant to this Section 2.12 shall be true, correct and complete in all respects not only as of the Nominating Notice Deadline but also at all times thereafter and prior to the Shareholders’ meeting, and such update and supplement shall be received by the Secretary not later than the earlier of (A) five (5) business days following the occurrence of any event, development or occurrence that would cause the information provided in the Nominating Notice to be not true, correct and complete in all respects, or (B) ten (10) business days prior to the meeting at which such proposed nominations contained therein are to be considered; provided, however, that should any such event, development or occurrence take place within ten (10) business days prior to such meeting, such update and supplement shall be received by the Secretary not later than one (1) business day following any such event, development or occurrence. For the avoidance of doubt, the updates required pursuant to this Section 2.12 do not cause a notice that was not true, correct and complete in all respects and in compliance with this Section 2.12 when delivered to the Corporation prior to the Nominating Notice Deadline to thereafter be in proper form in accordance with this Section 2.12.
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(g)The presiding officer of the meeting shall, if the facts warrant, determine, in consultation with counsel (who may be the Corporation’s internal counsel), and declare to the meeting, that the proposed nomination was not made in accordance with the procedures set forth in this Section 2.12, and, if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.
(h)A Nominating Shareholder, by delivering a Nominating Notice to the
Corporation, represents and warrants that all information contained therein, as of the Nominating Notice Deadline, is true, accurate and complete in all respects and contains no false or misleading statements, and such Nominating Shareholder acknowledges that it intends for the Corporation and the Board of Directors to rely on such information as being true, accurate and complete in all respects and not containing any false or misleading statements.
(i)If the Nominating Shareholder (or a qualified representative thereof) is not Present in Person at the applicable Shareholder meeting to nominate the Shareholder Nominees, such nomination shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. In addition, a proposed nomination to be brought by a Nominating Shareholder may not be brought before a Shareholders’ meeting if (i) such Shareholder takes action contrary to the representations made in the Nominating Notice applicable to such proposed nomination, (ii) when submitted to the Corporation prior to the Nominating Notice Deadline, the Nominating Notice applicable to such nomination contained information submitted pursuant to this Section 2.12 that was not true, correct or complete in all respects, an untrue statement of a fact or an omission to state a fact necessary to make the statements therein not misleading, or (iii) after being submitted to the Corporation, the
Nominating Notice applicable to such nomination was not updated in accordance with these ByLaws to cause the information provided in the Nominating Notice to be true, correct and complete in all respects and not contain any false or misleading statements.
(j)A Nominating Shareholder, by delivering a Nominating Notice to the
Corporation, acknowledges that it understands that nothing contained therein shall be considered confidential or proprietary information and that neither the Corporation nor the Board of Directors shall be restricted, in any manner, from publicly disclosing or using any of the information contained in the Nominating Notice.
(k)Notwithstanding any notice of a Shareholders’ meeting or proxy statement sent to Shareholders on behalf of the Corporation or filed with the SEC by the Corporation, a Shareholder must separately comply with this Section 2.12 to propose director candidates at any
Shareholders’ meeting and is still required to deliver its own separate and timely Nominating Notice to the Secretary prior to the Nominating Notice Deadline that complies in all respects with the requirements of this Section 2.12.
(l)Nothing in this Section 2.12 shall be deemed to affect any rights of the holders of any series of Preferred Stock of the Corporation pursuant to any applicable provision of the Articles or as may be provided with respect to any such series of Preferred Stock.
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ARTICLE 3 The Board of Directors
Section 3.1 General Powers. The business and affairs of the Corporation shall be managed by or under the authority of its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, the Articles or these By-Laws required to be exercised or done by the Shareholders.
Section 3.2 Number, Qualification and Term of Office.
(a)The business and affairs of the Corporation shall be managed under the direction of a Board of Directors consisting of at least six (6) directors (the “Directors”). Subject to the provisions of Section 9.1 of the Articles, the actual number of Directors shall be fixed from time to time by resolution of the Board of Directors.
(b)The Board of Directors shall be divided into three (3) classes, designated Class I, Class II and Class III, as nearly equal in number as possible. The number of Class A Directors (as defined in the Articles) and Class B Directors (as defined in the Articles) in each class shall also be as nearly equal in number as possible. The initial term of office of directors in Class I will expire at the annual meeting of Shareholders in 2020. The initial term of office of directors in Class II will expire at the annual meeting of Shareholders in 2021. The initial term of office of directors in Class III will expire at the annual meeting of Shareholders in 2022. At each annual election beginning at the annual meeting of Shareholders in 2020, the successors to the class of directors whose term then expires shall be elected to hold office for a term of three (3) years and until his or her successor is elected and qualified or until his or her earlier resignation, removal from office or death. This subsection (b) does not apply to any directors elected pursuant to special voting rights of one or more series of Preferred Stock.
(c)The Board of Directors shall appoint a Chairman of the Board, who shall preside at each Board of Directors meeting, and in his or her absence, any person appointed by the Chairman of the Board shall preside at the meeting. If no such person is appointed, any person appointed by the Board of Directors shall preside at the meeting.
Section 3.3 Annual Board Meeting. Unless otherwise determined by the Board of Directors, the Board of Directors shall meet each year immediately after the annual meeting of the Shareholders, at the place where such meeting of the Shareholders has been held, for the purpose of organization, election of officers and consideration of any other business that may properly be brought before such annual meeting of the Board of Directors. No notice shall be necessary for the holding of the annual meeting of the Board of Directors. If the annual meeting of the Board of Directors is not held as above provided, the election of officers may be held at any subsequent duly constituted meeting of the Board of Directors.
Section 3.4 Regular Board Meetings. Regular meetings of the Board of Directors may be held at stated times or from time to time, and at such place, either within or outside the State of Indiana, as the Board of Directors may determine, without call and without notice.
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Section 3.5 Special Board Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the President, at such place (within or outside the State of Indiana), date and hour as specified in the respective notices of such meetings. Special meetings of the Board of Directors may be called on twenty-four (24) hours notice if notice is given to each Director personally or by telephone, telecopier or other telephonic or electronic communication, or on three (3) days’ notice if notice is mailed to each Director.
Section 3.6 Waiver of Notice and Assent. A Director may waive notice of any meeting of the Board of Directors before or after the date and time of the meeting stated in the notice by a written waiver signed by the Director and filed with the minutes or corporate records. A Director’s attendance at or participation in a meeting shall constitute a waiver of notice of such meeting and assent to any corporate action taken at such meeting, unless (i) the Director at the beginning of the meeting (or promptly upon his or her arrival) objects to the holding the meeting of or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting; (ii) the Director’s dissent or abstention from the action taken is entered in the minutes of such meeting; or (iii) the Director delivers written notice of his or her dissent or abstention to the presiding office at such meeting before its adjournment or to the Secretary immediately after its adjournment. The right of dissent or abstention is not available to a Director who votes in favor of the action taken.
Section 3.7 Quorum. At all meetings of the Board of Directors, a majority of the total number of Directors specified in Section 3.2(a) shall constitute a quorum for the transaction of any business, except (i) as provided in the Articles, (ii) for the purpose of filling vacancies, a majority of Directors then in office shall constitute a quorum; provided, that, if a vacancy occurs in in the Class A Directors or Class B Directors, a majority of the Directors representative of the class of director to-be-elected then in office shall constitute a quorum, and (iii) a lesser number may adjourn a meeting from time to time until a quorum is present. The act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, except as otherwise provided by law, the Articles or these By-Laws.
Section 3.8 Conference Communications. Any or all Directors may participate in any meeting, or of any duly authorized committee of Directors, by any means of communications through which the Directors may simultaneously hear each other during such meeting. For the purposes of establishing a quorum and taking any action at the meeting, such Directors participating pursuant to this Section 3.8 shall be deemed present in person at the meeting, and the place of the meeting shall be the place of origination of the conference communication.
Section 3.9 Vacancies; Newly Created Directorships. Subject to Section 7.4 of the Articles, any vacancy occurring in the Board of Directors, including any vacancy resulting from an increase in the number of Directors, may be filled by a majority vote of the Directors then in office, although less than a quorum. A Director elected to fill a vacancy or a newly created Directorship shall hold office until his or her successor has been elected and qualified or until his or her earlier death, resignation or removal.
Section 3.10 Removal.
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(a)A Director, other than a Class A Director or Class B Director, may be removed by the Shareholders only for cause and only if the removal has been approved by an 80% majority of the combined voting power of the shares entitled to vote for the election of such Director, cast at a special meeting of the Shareholders called for that purpose. A Class A Director may be removed by the holders of Class A Shares as provided in Section 9.3(a) of the Articles 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 9.3(a) of the Articles 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. Cause for removal exists only if:
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the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction and the conviction is no longer subject to direct appeal; or |
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the director whose removal is proposed has been adjudicated by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of his or her duty to the Corporation in a matter of substantial importance to the Corporation, and the adjudication is not longer subject to direct appeal. |
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(b)This section does not apply to any directors elected pursuant to special voting rights of one or more series of Preferred Stock.
(c)Removal of a Director by the Board of Directors shall require the affirmative vote of the number of Directors constituting a majority of the total authorized number of Directors.
Section 3.11 Committees. A resolution approved by the affirmative vote of a majority of the Board of Directors may establish committees having the authority of the Board of Directors in the management of the business of the Corporation to the extent provided in the resolution and may appoint members of the Board of Directors to serve of them. Committees are subject to the direction and control of, and vacancies in the membership thereof shall be filled by, the Board, except as otherwise provided by law. A majority of the members of a committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the Board of Directors.
Section 3.12 Written Action. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all members of the Board of Directors, and such written consent is filed with the minutes of the proceedings. Such action shall be effective on the date on which the last signature is placed on such writing or writings or such earlier or later effective date as is set forth therein.
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Section 3.13 Resignations. Any Director may resign at any time by giving written notice to the Secretary. Such resignation shall take effect at the time of receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 3.14 Compensation of Directors. By resolution of the Board, each Director may be paid his or her expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated amount as Director or a fixed sum for attendance at each meeting of the Board of Directors, or both. No such payment shall preclude a Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed, pursuant to resolution by the Board of Directors, like compensation for attending committee meetings.
Section 3.15 Election Not to be Governed by § 23-1-33-6(c). The Corporation shall not be governed by Indiana Code (“I.C.”) § 23-1-33-6(c).
Section 3.16 Electronic Action. Subject to any limitations or requirements contained in applicable law or in any policy adopted by the Board of Directors, any notice or consent required or permitted to be given in writing by the Corporation to a Director or by a Director to the Corporation may be in the form of an electronic record and may be signed with an electronic signature, as those terms are defined in I.C. §26-2-8. Any electronic record to be sent by the Corporation to a Director is properly sent if it is sent in the manner and to the electronic address or other means of receipt designated by the Director to receive the electronic record as shown in the Corporation’s current records. Any electronic record to be sent by a Director to the Corporation is properly sent if it is sent in the manner and to the electronic address or other means of receipt designated by the Corporation in a publication or in a notice provided by the Corporation to the Director. The Corporation or a Director may revoke or change any instruction applicable to him or her regarding the manner, electronic address or means of receipt required for electronic records by sending notice of the change and the corresponding new information.
ARTICLE 4 Officers
Section 4.1 Number. The officers of the Corporation shall be chosen by the Board of Directors and shall include a Chief Executive Officer, a President, a Secretary, and a Treasurer.
The Board of Directors may also choose one or more Divisional Presidents, Executive Vice Presidents, Vice Presidents, Assistant Secretaries or Assistant Treasurers, or such other officers as they may deem advisable. Any number of offices may be held by the same person.
Section 4.2 Election, Term of Office and Qualifications. The Board of Directors shall elect the officers of the Corporation, each of whom shall have the powers, rights, duties, responsibilities, and terms in office provided in these By-Laws or in a resolution of the Board of Directors not inconsistent herewith. No officer need be a Director. The President and all other officers, who may be Directors other than the Chairman of the Board, shall continue to hold office until the election and qualification of their successors, notwithstanding an earlier termination of the directorship.
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Section 4.3 Removal and Vacancies. Any officer may be removed from his or her office at any time, with or without cause, by majority vote of the entire Board of Directors. Such removal, however, shall be without prejudice to the contract rights of the person so removed. If there is a vacancy among the officers of the Corporation by reason of death, resignation, or otherwise, such vacancy shall be filled for the unexpired term by the Board of Directors.
Section 4.4 Chief Executive Officer. The Chief Executive Officer shall, subject to the provisions of these by-laws, the control of the Board of Directors and as may be required by applicable law, have general supervision, direction, and control over the business of the Corporation and over its officers. The Chief Executive Officer shall make reports to the Board of
Directors and the Shareholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. The Chief Executive Officer shall perform all duties incident to the office of the Chief Executive Officer, and any other duties as may be from time to time assigned to the Chief Executive Officer by the Board of Directors, in each case subject to the control of the Board of Directors.
Section 4.5 President. The President shall act in a general executive capacity and shall report and be responsible to the Chief Executive Officer. The President shall have such powers and perform such duties as from time to time may be assigned or delegated to the President by the Board of Directors or the Chief Executive Officer or that are incident to the office of president.
Section 4.6 Executive Vice Presidents and other Vice Presidents. The Executive Vice Presidents and any other Vice Presidents shall have such powers and perform such duties as may be assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer, or the President, or that are incident to the office of vice president.
Section 4.7 Secretary. The Secretary shall be the secretary of and shall attend all meetings of the Shareholders and Board of Directors and record all proceedings of such meetings in the minute book of the Corporation. The Secretary shall give proper notice of meetings of Shareholders and Directors, and shall perform such other duties as may be prescribed from time to time by the Chief Executive Officer or Board of Directors.
Section 4.8 Chief Financial Officer. The Chief Financial Officer shall act in an executive financial capacity. The Chief Financial Officer shall assist the Chief Executive Officer and the President in the general supervision of the Corporation’s financial policies and affairs and shall perform all duties incidental to the office that may be required by applicable law and shall perform such other duties as may be prescribed from time to time by the Chief Executive Officer or Board of Directors.
Section 4.9 Treasurer. The Treasurer shall maintain a correct and complete record of account showing accurately at all times the financial condition of the Corporation. The Treasurer shall be the legal custodian of all monies, notes, securities and other valuables, which may from time to time come into the possession of the Corporation. The Treasurer shall immediately deposit all funds of the Corporation coming into his or her hands in some reliable bank or other depositary to be designated by the Board of Directors and shall keep such bank account in the name of the
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Corporation and shall perform such other duties as may be prescribed from time to time by Chief Executive Officer or Board of Directors.
Section 4.10 Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Chief Executive Officer or Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
Section 4.11 Delegation of Authority. In the case of the absence or disability of any officer, or for any other reason that the Board of Directors may deem sufficient, the Chief Executive Officer or the Board of Directors may delegate the powers or duties of such officer to any other officer or to any director.
ARTICLE 5 Certificates of Stock
Section 5.1 Certificates of Stock.
(a)The shares of the Corporation shall be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock or, if approved by the Board of Directors, shall be represented by certificates in such form as shall be approved by the Board of Directors, or a combination of both. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a notice in accordance with I.C. 23-1-26-7(b). To the extent that shares are represented by certificates, the certificates shall be signed by any two officers of the Corporation authorized by the Board of Directors. Each certificate shall set forth the number and class of shares and series, if any, and shall state that the Corporation will furnish information relating to the rights, preferences and limitations of the class or series upon request.
(b)The stock ledger and blank share certificates, if any, shall be kept by the Secretary or by a transfer agent or registrar or by any other officer or agent designated by the Board of Directors.
Section 5.2 Issuance of Shares. The Board of Directors is authorized to cause to be issued shares of the Corporation up to the full amount authorized by the Articles in such amounts as determined by the Board of Directors and permitted by law. If shares are issued for promissory notes or for promises to render services in the future, the Corporation must comply with I.C. 23-1-53-2(b).
Section 5.3 Facsimile Signatures. Where a certificate is signed (i) by a transfer agent or an assistant transfer agent, or (ii) by a transfer clerk acting on behalf of the Corporation, and a registrar, the signature of the officers may be a facsimile. In case any officer or officers who have signed or whose facsimile signature or signatures have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though
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the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation.
Section 5.4 Lost or Destroyed Certificates. Any Shareholder claiming a certificate for shares to be lost, stolen or destroyed shall make an affidavit of that fact in such form as the Board of Directors, the Chairman of the Board or President shall require and shall, if the Board of Directors so requires, give the Corporation a bond of indemnity in a form, in an amount, and with one or more sureties satisfactory to the Board of Directors or the Chief Executive Officer, to indemnify the Corporation against any claim which may be made against it on account of the reissue of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been lost, stolen or destroyed.
Section 5.5 Transfers of Stock. Subject to the power of the Board of Directors under Article XI of the Articles to provide certain transfers of stock ownership to Aliens (as defined in the Articles), upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares fully endorsed or accompanies by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 5.6 Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
Section 5.7 Restrictions on Ownership, Voting and Transfer Right to Redeem. Article XI of the Articles restricts the ownership, voting and transfer of shares of capital stock of the Corporation to the extent necessary to prevent ownership of such shares by Aliens from violating the Communications Act of 1934, as amended (the “Communications Act”), and the regulations of the Federal Communications Commission (the “FCC Regulations”). In addition, Article XI of the Articles entitles the Corporation to redeem shares of capital stock determined by the Board of Directors to be owned beneficially by an Alien or Aliens if such ownership violates the Communications Act or FCC Regulations. Each certificate representing shares of capital stock of the Corporation shall contain a legend referencing such restrictions and right to redeem set forth in Article XI of the Articles.
ARTICLE 6 General Provisions
Section 6.1 Dividends. Subject to applicable law and the Articles, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, in property or in shares of the capital stock.
Section 6.2 Record Date. Subject to any provisions of the Articles, the Board of Directors may fix a date not more than 120 days before the date fixed for the payment of any dividend as the record date for the determination of the Shareholders entitled to receive payment of the dividend,
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and, in such case, only Shareholders of record on the date so fixed shall be entitled to receive payment of such dividend notwithstanding any transfer of shares on the books of the Corporation after the record date. The Board of Directors may close the books of the Corporation against the transfer of shares during the whole or any part of such period.
Section 6.3 Checks. All agreements, checks or demands for money or notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. If no such designation is made, they may be signed by any officer, singly.
Section 6.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board and in the absence of such resolution, the Corporation shall have a February 28/29 fiscal year.
Section 6.5 Seal. The Corporation shall have no corporate seal.
Section 6.6 Exclusive Forum for Certain Claims. Unless the Corporation consents in writing to the selection of an alternative forum, a Circuit or Superior Courts of the Marion County, State of Indiana, or the United States District Court in 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 Corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee or agent of the Corporation to the Corporation or the Shareholders, (iii) any action asserting a claim arising pursuant to any provision of the IBCL, the articles of incorporation or the bylaws of the Corporation 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.
ARTICLE 7 Amendments
Section 7.1 Any amendment of these By-Laws shall require approval by the number of Directors constituting a majority of the total number of Directors specified in Section 3.2(a).
Section 7.2 Any amendment of these By-Laws shall be consistent with the Articles and provisions of applicable law then in effect, including without limitation, the Communications Act and the FCC Regulations.
ARTICLE 8 Securities of Other Corporations
Unless otherwise ordered by the Board of Directors, the Chief Executive Officer, the President, the Secretary or the Treasurer shall have full power and authority on behalf of the Corporation to purchase, sell, transfer, encumber or vote any and all securities of any other corporation owned by the Corporation, and may execute and deliver such documents as may be necessary to effectuate such purchase, sale, transfer, encumbrance or vote. The Board of Directors may, from time to time, confer like powers upon any other person or persons.
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Exhibit 10.12
AMENDMENT NO. 1 TO UNSECURED CONVERTIBLE PROMISSORY NOTE
THIS AMENDMENT NO. 1 TO UNSECURED CONVERTIBLE PROMISSORY NOTE (this “Amendment”), dated as of March [●], 2022, is by and between MediaCo Holding Inc., an Indiana corporation (the “Company”), and SG Broadcasting LLC, a Delaware limited liability company (the “Holder”).
BACKGROUND
WHEREAS, the Company issued to the Holder that certain Unsecured Convertible Promissory Note, dated as of May 19, 2021 (the “Note”);
WHEREAS, the Note provided for the loan by the Company of up to $7,000,000, of which $3,000,000 was contributed the Holder to the Company on or about May 19, 2021 and an additional $1,000,000 was contributed the Holder to the Company on or about June 1, 2021, with the remaining $3,000,000 committed through June 30, 2022; and
WHEREAS, the Company and the Holder desire to amend the Note to provide that the remaining $3,000,000 shall be committed through June 30, 2023.
NOW, THEREFORE, in consideration of the foregoing recitals, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENT
1.Amendment to the Note. Effective immediately upon the execution of this Amendment, the date June 30, 2022 in Section 18 of the Note shall be replaced by the date June 30, 2023.
2.Miscellaneous.
(a)This Amendment and any term of this Amendment may be amended, terminated or waived only with the written consent of the Company and the Holder.
(b)This Amendment may be executed in any number of counterparts (including facsimile or PDF counterparts), each of which will be deemed an original, but all of which together will constitute one and the same instrument.
(c)Except as otherwise provided herein, the Note shall remain in full force and effect, unmodified hereby.
[SIGNATURE PAGE FOLLOWS]
DB1/ 128373354.1
Exhibit 10.12
IN WITNESS WHEREOF, each of the Company and the Holder has executed and delivered this Amendment on the date first above written.
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MEDIACO HOLDING INC.
B |
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By: |
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Name: |
Ann C. Beemish |
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Title: |
Executive Vice President, Chief Financial Officer and Treasurer |
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ACCEPTED AND AGREED:
SG BROADCASTING LLC
By: ________________________________
Soohyung Kim
Managing Member
[Signature Page to Amendment No. 1 to Unsecured Convertible Promissory Note]
DB1/ 128373354.1
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 23
Consent Of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements:
(1) Registration Statement (Form S-3 No. 333-258593) of MediaCo Holding, Inc. and Subsidiaries,
(2) Registration Statement (Form S-8 No. 333-246338) pertaining to the 2020 Equity Compensation Plan of MediaCo Holding Inc. and Subsidiaries, and
(3) Registration Statement (Form S-8 No. 333-256430) pertaining to the 2021 Equity Compensation Plan of MediaCo Holding Inc. and Subsidiaries;
of our report dated March 24, 2022, with respect to the consolidated financial statements of MediaCo Holding Inc. and Subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 2021.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 24, 2022
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Rahsan-Rahsan Lindsay, certify that:
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I have reviewed this 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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3. |
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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4. |
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 24, 2022
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/s/ Rahsan-Rahsan Lindsay |
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Rahsan-Rahsan Lindsay |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Ann C. Beemish, certify that:
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I have reviewed this 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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3. |
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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4. |
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 24, 2022
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/s/ Ann C. Beemish |
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Ann C. Beemish |
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Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2022
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 their capacity as an officer of MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Form 10-K for the period ended December 31, 2021, 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 24, 2022
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/s/ Rahsan-Rahsan Lindsay |
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Rahsan-Rahsan Lindsay |
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Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2022
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 their capacity as an officer of MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Form 10-K for the period ended December 31, 2021, 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 24, 2022
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/s/ Ann C. Beemish |
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Ann C. Beemish |
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Executive Vice President, Chief Financial Officer and Treasurer |