-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L6fybxMtyw7KQtUIpEj4f+bAIkq5ZsBU6L90aN02czfhcmhkAYCHcEfAEG6M1wmH qtlmkMcT8qbQlOmkJuk7Mw== 0001032210-99-000416.txt : 19990330 0001032210-99-000416.hdr.sgml : 19990330 ACCESSION NUMBER: 0001032210-99-000416 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISHER COMPANIES INC CENTRAL INDEX KEY: 0001034669 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 910222175 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22439 FILM NUMBER: 99576103 BUSINESS ADDRESS: STREET 1: 1525 ONE UNION SQU STREET 2: 600 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101-3185 BUSINESS PHONE: 2066242752 MAIL ADDRESS: STREET 1: 1525 ONE UNION SQU STREET 2: 600 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101-3185 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number 000-22349 FISHER COMPANIES INC. (Exact name of registrant as specified in its charter) Washington 91-0222175 (State of Incorporation) (IRS Employer Identification No.) 1525 One Union Square 600 University Street, Seattle, Washington 98101-3185 (Address of principal executive offices) (Zip Code) (206) 624-2752 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.25 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 15, 1999, based on the last sale price quoted on the OTC Bulletin Board, was approximately $320,161,000. The number of shares outstanding of each of the registrant's classes of common stock as of March 15, 1999 was: Title of Class Number of Shares Outstanding -------------- ---------------------------- Common Stock, $1.25 Par Value 8,542,384 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 29, 1999, are incorporated by reference under Part III of this Report. PART I ITEM 1. BUSINESS. Through its operating subsidiaries, Fisher Companies Inc. (the "Company") is actively engaged in television and radio broadcasting, the operation of satellite teleports, the exploitation of other emerging technologies, and television programming production and syndication; flour milling and bakery products distribution; and real estate investment and proprietary property management. The Company provides direction and guidance to its operating subsidiaries. Note 10 to the Consolidated Financial Statements contains information regarding the Company's industry segments for the years ended December 31, 1998, 1997, and 1996. BROADCASTING OPERATIONS INTRODUCTION The Company's broadcasting operations are conducted through Fisher Broadcasting Inc. ("Fisher Broadcasting"), a Washington corporation. The Company owns all of the outstanding capital stock of Fisher Broadcasting, except that 3% of the outstanding shares of a class of nonvoting participating preferred stock is owned by third parties. Fisher Broadcasting owns and operates, directly or through subsidiaries in Washington, Oregon and Montana, two network-affiliated television stations, 25 radio stations, and two broadcast satellite teleports, and provides emerging media development services. Fisher Broadcasting's television stations reach nearly 2,500,000 households, or 2.5% of all U.S. television households. Its radio stations collectively represent the 25th largest radio group in the U.S. by revenue size, with over $38,000,000 in annual advertising sales. (Broadcasting and Cable, Oct. 12, 1998). Fisher Broadcasting's satellite teleports serve many of the Northwest's businesses and news organizations. Both of Fisher Broadcasting's television stations are located in top 25 television markets: KOMO TV 4 (ABC) Seattle-Tacoma, Washington, market rank 12; and KATU Television 2 (ABC), Portland, Oregon, market rank 23. See Broadcasting Operations - "Television - KOMO TV" and - "Television - KATU Television." Fisher Broadcasting's stations are rated either number one or two in overall audience delivery in their respective markets. Fisher Broadcasting's radio operations are concentrated in large, medium and small markets located in Washington, Oregon and Montana (see "Broadcasting Operations - Radio - Seattle Radio Market; Portland Radio Market; and - Medium - and Small - Market Radio Operations"). Fisher Communications Inc. ("FishComm"), a wholly owned subsidiary of Fisher Broadcasting, owns and operates Fisher Broadcasting's satellite teleport services, Internet services, and emerging media development operations. As of December 31, 1998, Fisher Broadcasting employed 740 full- and part-time employees. TELEVISION General Overview Commercial television broadcasting began in the United States on a regular basis in the 1940s. There are a limited number of channels available for broadcasting in any one geographic area, and the license to operate a television station is granted by the FCC. Television stations that broadcast over the very high frequency ("VHF") band (channels 2-13) of the spectrum generally have some competitive advantage over television stations that broadcast over the ultra- high frequency ("UHF") band (channels above 13) of the spectrum because VHF channels usually have better signal coverage and operate at a lower transmission cost. However, the improvement of UHF transmitters and receivers, the complete elimination from the marketplace of VHF-only television receivers and the expansion of cable and satellite television systems have reduced the competitive advantage of stations broadcasting over the VHF band. Television station revenues are primarily derived from the sale of local, regional and national advertising and, to a much lesser extent, from network compensation and studio rental and commercial production activities. Broadcast television stations' heavy reliance on advertising revenues renders the stations vulnerable to cyclical changes in the economy. The size of advertisers' budgets, which are affected by broad economic trends, affect the broadcast industry in general and, specifically, the revenues of individual broadcast television stations. Events outside the Company's control can adversely affect advertising revenues. For example, the Company has experienced declines in advertising revenue during some periods 2 as a result of strikes in major industries and as a result of acquisitions of advertising clients by buyers that do not place advertising with company stations. Television stations in the country are grouped by A.C. Nielsen & Co. ("Nielsen"), a company that provides audience measuring services, into approximately 210 generally recognized television markets that are ranked in size according to various formulae based upon an actual or potential audience. Each market is designated as an exclusive geographic area consisting of all counties in which the home-market commercial stations receive the greatest percentage of total viewing hours. Nielsen periodically publishes data on estimated audiences for television stations in the various markets throughout the country. These estimates are expressed in terms of the percentage of the total potential audience viewing a station in the market (the station's "rating") and of the percentage of the audience actually watching television (the station's "share"). Nielsen provides such data on the basis of total television households and selected demographic groupings in the market. The specific geographic markets are called Designated Market Areas, or "DMAs." Historically, three major broadcast networks, ABC, CBS, and NBC, dominated broadcast television. In recent years, The Fox Network ("Fox") has effectively evolved into the fourth major network, although the hours of network programming produced by Fox for its affiliated stations are fewer than those produced by the other three major networks. In addition, the United-Paramount Network ("UPN") and the Warner Brothers Network ("WB") have launched new television networks with a limited amount of weekly programming (see "Broadcasting Operations - Television - Network Affiliations"). The affiliation by a television station with one of the four major networks has a significant impact on the composition of the station's programming, revenues, expenses and operations. A typical affiliated station receives approximately 9 to 10 hours of each day's programming from the network. This programming, along with cash payments ("network compensation"), is provided to the affiliate by the network in exchange for a substantial majority of the advertising time sold during the airing of network programs. The network then sells this advertising time for its own account. The affiliate retains the revenues from time sold during designated breaks for local sale in and between network programs, and during programs produced by the affiliate or purchased from non-network sources. In acquiring programming to supplement network programming, network affiliates compete primarily with other affiliates and independent stations in their markets. In addition, a television station may acquire programming through bartering arrangements. Under such arrangements, which are becoming increasingly popular with both network affiliates and independents, a national program distributor may receive advertising time in exchange for the programming it supplies, with the station paying no cash or a reduced fee for such programming. An affiliate of UPN or WB receives a smaller portion of its programming from the network compared to an affiliate of NBC, ABC, CBS or Fox. Currently, UPN and WB provide 10 hours and 11 hours, respectively, of programming per week to their affiliates. As a result of the smaller amount of programming provided by their networks, affiliates of UPN or WB must purchase or produce a greater amount of their programming, resulting in generally higher programming costs. These stations, however, retain a larger portion of the inventory of advertising time and the revenues obtained from the sale of such time than stations affiliated with the major networks. Broadcast television stations compete for advertising revenues primarily with other broadcast television stations and, to a lesser extent, with radio stations, cable system and other multichannel operators and programmers and newspapers serving the same market. Traditional network programming, and recently Fox programming, generally achieves higher audience levels than syndicated programs aired by independent stations. However, as greater amounts of advertising time are available for sale by independent stations and Fox affiliates in syndicated programs, those stations typically achieve a share of the television market advertising revenues that is greater than their share of the market's audience. Through the 1970s, network television broadcasting enjoyed virtual dominance in viewership and television advertising revenues because network-affiliated stations only competed with each other in local markets. Beginning in the 1980s, this level of dominance began to change as the FCC authorized more local stations, and marketplace choices expanded with the growth of independent stations, cable television services, wireless cable, and direct broadcast satellites. Cable television systems were first installed in significant numbers in the 1970s and were initially used to retransmit broadcast television programming to paying subscribers in areas with poor broadcast signal reception. In the aggregate, cable-originated programming has emerged as a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels amounting to more than a small fraction of 3 any of the major broadcast networks. The advertising share of cable networks increased during the 1980s and 1990s as a result of the growth in cable penetration (the percentage of television households that are connected to a cable system). Notwithstanding such increases in cable viewership and advertising, over-the-air broadcasting remains the dominant distribution system for mass-market television advertising. Fisher Broadcasting believes that the market shares of television stations affiliated with NBC, ABC and CBS declined during the 1990's primarily because of the emergence of Fox and certain strong independent stations and, secondarily, because of increased cable penetration. Independent stations have emerged as viable competitors for television viewership share, particularly as a result of the availability of first-run, network-quality programming. In addition, there has been substantial growth in the number of home satellite dish receivers and video cassette recorders, which have further expanded the number of programming alternatives available to household audiences. Further advances in technology may increase competition for household audiences and advertisers. Video compression techniques, now in use with direct broadcast satellites and cable or wireless cable, are expected to permit greater numbers of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all digital delivery systems, including over-the-air broadcasting, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences is expected to alter the competitive dynamics for advertising expenditures. Fisher Broadcasting is unable to predict the effect that technological changes will have on the broadcast television industry or the future results of Fisher Broadcasting's operations. Competition Competition in the television industry, including the markets in which Fisher Broadcasting's stations compete, takes place on several levels: competition for audience, competition for programming (including news), competition for advertisers and competition for local staff and management. Additional factors material to a television station's competitive position include signal coverage and assigned frequency. The television broadcasting industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, changing business practices such as use of local marketing agreements ("LMAs") and joint sales agreements ("JSAs"), and governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material effect on the broadcasting business in general and Fisher Broadcasting's business in particular. Audience. Stations compete for audiences on the basis of program popularity, which has a direct effect on advertising rates. A majority of the daily programming on network-affiliated stations is supplied by the network with which such stations are affiliated. During periods of network programming, the stations are totally dependent upon the performance of the network programs in attracting viewers. The competition between the networks is intense and the success of any network's programming can vary significantly over time. Each station competes in non-network time periods on the basis of the performance of its programming during such time periods, using a combination of self-produced news, public affairs and other entertainment programming that each station believes will attract viewers. The competition between stations in non-network time periods is intense and here, too, success can vary over time. Fisher Broadcasting's stations compete for television viewership share against local network-affiliated and independent stations, as well as against cable and alternate methods of television distribution. These other transmission methods can increase competition for a station by bringing into its market distant broadcasting signals not otherwise available to the station's audience, and also by serving as a distribution system for non-broadcast programming originated on the cable system. Historically, cable operators have not sought to compete with broadcast stations for a share of the local news audience. To the extent cable operators elect to do so in the future, the increased competition for local news audiences could have an adverse effect on Fisher Broadcasting's advertising revenues. Other sources of competition for Fisher Broadcasting's television stations include home entertainment systems (including video cassette recorder and playback systems, videodisks and television game devices), Internet, multipoint distribution systems, multichannel-multipoint distribution systems, wireless cable and satellite master antenna television systems. Fisher Broadcasting's stations also face competition from high-powered, direct broadcast satellite services, such as DIRECT-TV, which transmit programming directly to homes equipped with special receiving antennas or to cable television systems for transmission to their subscribers. Fisher Broadcasting competes with these sources of competition both on the 4 basis of service and product performance (quality of reception and number of channels that may be offered) and price (the relative cost to utilize these systems compared to television viewing). Programming. Competition for non-network programming involves negotiating with national program distributors, or syndicators, which sell first-run and rerun packages of programming. Fisher Broadcasting's stations compete against in-market broadcast stations for exclusive access to off-network reruns and first-run product. Cable systems generally do not compete with local stations for programming, although various national cable networks continue to acquire programs that would have otherwise been offered to local television stations. Advertising. Advertising rates are based upon the size of the market in which a station operates, a program's popularity among the viewers an advertiser wishes to attract in that market, the number of advertisers competing for the available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces, and the development of projects, features and programs that tie advertiser messages to programming. Advertising rates are also determined by a station's overall ability to attract viewers in its market, as well as the station's ability to attract viewers among particular demographic groups that an advertiser may be targeting. Fisher Broadcasting's stations compete for advertising revenues with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail and local cable systems. In addition, another source of revenue is paid political and advocacy advertising, the amount of which fluctuates significantly, particularly being higher in national election years and very low in years in which there is little election or other ballot activity. Competition for advertising dollars in the television broadcasting industry occurs primarily within individual markets on the basis of the above factors as well as on the basis of advertising rates charged by competitors. Generally, a television broadcasting station in one market area does not compete with stations in other market areas. Fisher Broadcasting's television stations are located in highly competitive markets. Network Affiliations Fisher Broadcasting's television stations are both affiliated with the ABC Television Network. The stations' affiliation agreements with ABC provide each station with the right to broadcast all programs transmitted by the network. In return, the network has the right to sell most of the advertising time during such broadcasts. Each station receives a specified amount of network compensation for broadcasting network programs. To the extent a station's preemption of network programming exceeds a designated amount, such compensation may be reduced. The payments are also subject to decreases by the network during the term of the affiliation agreement under other circumstances, with provisions for advanced notice. Fisher Broadcasting's ABC affiliation agreements for KOMO TV and KATU expire in 2004. Although Fisher Broadcasting expects to continue to be able to renew its affiliation agreements with ABC, no assurance can be given that such renewals will be obtained. Also, the networks are seeking to modify the terms of their contracts with affiliates. It is uncertain how the nature of network-affiliate relations will change in the future. The non-renewal or modification of one or both of those agreements could have a material adverse effect on Fisher Broadcasting's results of operations. KOMO TV, Seattle, Washington Market Overview. KOMO TV, an ABC affiliate, operates in the Seattle-Tacoma market, the 12th largest DMA in the nation, with approximately 1.5 million television households and a population of approximately 3.9 million. In 1998, approximately 74% of the population in the DMA subscribed to cable. Major industries in the market include aerospace, biotechnology, forestry, software, telecommunications, transportation, retail and international trade. In 1998 television advertising revenue for the Seattle-Tacoma DMA was over $300 million, as reported by Miller, Kaplan, Arase & Co., an accounting firm that provides the television industry with revenue figures. Station Performance. KOMO TV had an average audience share of 13.6%, sign-on to sign-off during 1998. KOMO TV ranked second in its market in 1998, sign-on to sign-off, among six competitors (A.C. Nielsen Company average ratings Feb-Nov, 1998). Fisher Broadcasting believes that KOMO TV has established a strong local presence in the Seattle-Tacoma market through the station's community involvement, local news operation and local non-news programming. KOMO TV broadcasts 30 hours per week of scheduled live local news programs. KOMO News 4 has been recognized for excellence by the National Association of Broadcasters, the Radio and Television News Directors' Association, the National Association of Television Arts and Sciences and other organizations that present broadcasting awards. 5 KOMO TV broadcasts from its studios in Seattle. During the spring of 1998, Fisher Broadcasting began construction of a new broadcast center with digital equipment that will greatly expedite the transition from analog to digital high definition television broadcasting. Estimated cost of the new building and parking facility is $79,000,000. The project, named Fisher Plaza, is expected to be ready for occupancy during the second quarter of 2000. KATU Television, Portland, Oregon Market Overview. Portland, Oregon ranks as the 23rd largest DMA in the nation, with a population of approximately 2.5 million and approximately 994,000 television households. Approximately 62% of Portland's population subscribed to cable in 1998. Portland maintains a balanced economy based upon services, wholesale/retail and manufacturing. Major employers include high-technology companies such as Intel Corporation, Hewlett-Packard Company and Tektronix, Inc., as well as Nike, Inc., Kaiser Permanente, the United States Government and the State of Oregon. Station Performance. KATU, an ABC affiliate, had an average audience share of 15% during 1998, sign-on to sign-off. KATU ranked first in its market in 1998, sign-on to sign-off, among six competitors (A.C. Nielsen Company). KATU currently broadcasts 26 hours per week of scheduled live local news programs. The station has won numerous awards for excellence and has a strong commitment to public affairs and local interest programming. KATU operates from studios in the city of Portland. Digital/High Definition Television In January 1997, KOMO ABC 4 made history by becoming the third television station in the United States to transmit High Definition Digital Television. These transmissions took place over several days and were witnessed by several civic and industry leaders from throughout the Northwest. This milestone was made possible by on-site cooperative efforts of LARCAN Inc., Zenith Electronics Corporation, DiviCom Inc., Dielectric Communications, and the KOMO ABC 4 Engineering Department. Finding a way to transmit vast amounts of information in the same size channel (6 MHz) as the current analog standard television system proved to be quite a challenge. The new Digital Television ("DTV") standard, developed after years of research by the broadcast and electronics design community and approved by the FCC in December 1996, was the breakthrough that made such transmission possible. By utilizing this new technology, KOMO became the first station West of the Mississippi to transmit High Definition images. DTV brings with it three major changes to the way viewers experience television. First, DTV sets display pictures using a rectangular, wide-screen format, as opposed to the nearly square screens used by current analog TV sets. (In technical terms, this means DTV screens use a "16 by 9" aspect ratio while current analog TV sets use a "4 by 3" aspect ratio. Aspect ratio is the ratio of screen width to screen height.) Because of this new screen shape, watching programs on digital TV sets will be more like watching a movie at the theater, giving more life-like images and allowing the viewer to feel more involved in the action on screen. Second, DTV delivers 6 channels of CD-quality, digital surround sound using the same Dolby Digital technology heard in many movie theaters. Third, DTV can deliver high definition pictures with crisp, photographic quality, and greatly enhanced detail. KOMO began transmitting Standard Definition Digital Television signals on KOMO-DT Channel 38, 24 hours a day, for experimental test purposes during Spring 1998. KATU transmitted its first digital signals on KATU-DT Channel 43 during November 1998, which also marked the first High Definition broadcasts by ABC with the airing of feature length films. Both KOMO-DT and KATU-DT are currently equipped with temporary equipment to successfully receive and rebroadcast this programming, which amounts to approximately 4 hours per week, and are therefore transmitting digital signals before the FCC's required "DTV" start-of-service date, which is November 1, 1999. During Fall and Winter of 1998-99 KOMO engineers and consultants recorded test measurements of the KOMO channel 38 digital signal from 400 locations throughout the Puget Sound region, utilizing a van that KOMO had specially constructed for this purpose. The results of these tests are now being compiled and will provide information about digital signal coverage over hilly terrain. The test results will assist KOMO engineers to verify antenna performance and determine optimum configuration when KOMO transitions to its full power DTV transmitter and antenna. This information, along with similar tests conducted around the country by other broadcasters, will also help manufacturers design receivers that are capable of handling the reflection and ghosting characteristics of digital television signals. Both KOMO and KATU currently pass through the ABC digital signals at reduced power levels pending arrival of new full power digital transmitters, and for KATU completion of a shared use tower currently under construction in Portland, 6 Oregon. KATU is one of four members in the Sylvan Tower LLC that is constructing the tower, currently anticipated to be complete in late 1999. Production and switching equipment necessary to generate local programming in high definition will ultimately be added. However the speed with which this equipment is installed will depend on several factors. First, the new equipment must become available from vendors. Second, a determination must be made as to the cost vs. technical performance of first generation equipment. Finally, the ultimate success of the conversion to digital television will depend on public acceptance and willingness to buy new digital television sets. Unless initial consumers embrace digital television and purchase enough units to cause home receiver prices to decline, the general public may not switch to the new technology, delaying or preventing its ultimate economic viability. KOMO-TV anticipates that it will begin broadcasting from its new studio building during the early part of the year 2000. The new facility is being designed for digital television production, and equipment purchases are being conditioned upon future compatibility with Fisher Broadcasting's digital broadcasting plans. KATU anticipates that it will equip its studios for digital program origination as the public begins purchasing digital receivers in large enough quantities to justify the transition. Forward Looking Statements The discussion above under "KOMO TV, Seattle, Washington" regarding construction of the new broadcasting facility for Fisher Broadcasting, and the discussion above under "Digital/High Definition Television" regarding the intention of KOMO TV and KATU Television to transmit a digital/high definition signal on or before the date stipulated in FCC regulations, include certain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PLSRA"). This statement is included for the express purpose of availing the Company of the protections of the safe harbor provisions of the PLSRA. Management's ability to predict results or the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. With respect to the construction of the new broadcasting center, such factors could include unanticipated construction costs or delays in construction in connection with the building and parking facility, and delays or additional costs associated with the new equipment necessary to transmit a digital/high definition signal, as discussed below. With respect to the intention of KOMO TV and KATU Television to transmit a digital/high definition signal on or before the date stipulated in FCC regulations, factors that may cause actual results to differ materially from those projected include the increased costs of new equipment; the necessity of training current staff to operate new technology or hiring new staff knowledgeable in the technology; the timely availability of necessary new equipment from manufacturers; the purchase of newly developed equipment that has little or no track record of in-service broadcasting; the risk of purchasing equipment that could soon be outdated due to rapid technological change; the possibility that new transmission tower sites may be required; the necessity of obtaining all required licenses and permits; material changes in, or material additional requirements imposed by, FCC regulations; and the challenges and risks involved in the conversion to digital/high definition signal transmission generally, such as are described under "Licensing and Regulation Applicable to Television and Radio Broadcasting - Proposed Legislation and Regulations." RADIO General Overview Commercial radio broadcasting began in the United States in the early 1920s. There are a limited number of frequencies available for broadcasting in any one geographic area. The license to operate a radio station is granted by the FCC. There are currently two commercial radio broadcast bands, each of which employ different methods of delivering the radio signal to radio receivers. The AM band (amplitude modulation) consists of frequencies from 550 kHz to 1700 kHz. The FM (frequency modulation) band consists of frequencies from 88.1 MHz to 107.9 MHz. Radio listeners have gradually shifted over the years from AM to FM stations. Stations on the FM band are generally considered to have a competitive advantage over stations that broadcast on the AM band. FM reception is generally clearer than AM and provides greater tonal range and higher fidelity. Music formats that appeal to the younger demographics desired by the majority of advertisers are found almost exclusively on the FM band because of the disparity in the quality of reception. A radio station on the FM band, therefore, has an abundance of choices in format while AM stations tend to be limited to either spoken word formats or musical formats that appeal to adults 55 years of age and older. Nationally, the FM listener share is now in excess of 75%, and approximately 56% of all commercial stations are on the FM band. 7 Radio station revenues are derived almost exclusively from local, regional and national advertising. Radio stations generally employ a local sales force to call on local and regional advertisers and contract with a national firm to represent business from outside the market and/or region. Both sales forces are generally compensated by way of a commission on advertising time sold. Because radio stations rely on advertising revenues, they are sensitive to cyclical changes in the economy as well as the quality of the sales force. Radio is generally viewed as a highly targetable medium for advertisers. Radio stations are generally classified by their format, such as country, alternative, rock, news/talk, adult contemporary or oldies. A station's format and style of presentation enable it to target certain demographics and psychographics. By capturing a specific audience share of a market's radio listeners, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Most of a radio station's programming is produced locally, although syndicated programs contribute to many stations daily and weekly programming line-ups. These syndicated programs are obtained with either cash payments, barter agreements for air time on the station, or a combination of both. However, the emphasis on local programming provides radio stations with maximum flexibility in programming, retention of nearly its entire commercial inventory, and the revenue from sale of that time. Through the early 1970s, a handful of AM radio stations in each market dominated the listening shares. The rise of FM listening, brought about by an industry standard for FM stereo broadcast, essentially doubled the number of viable competitors in each market. In the early and mid-1980s, the FCC awarded additional FM signals to many communities, and a number of broadcasters moved the signals of suburban or rural stations closer to major metropolitan areas, to better cover the larger markets. In the early 1990s, the FCC expanded the AM band to 1700 kHz. The result of this increase in the number of viable competitors has been a significant decline in the listening shares reasonably available to the average radio station. By the late 1980s, the Radio Advertising Bureau estimated that one-third of all licensees were losing money. This, in part, led the FCC to relax its ownership regulations on radio stations and led to the creation of duopolies (ownership of more than one AM or FM station in a given market). The Telecommunications Act of 1996 further eased radio station ownership regulations governing multiple ownership (see "Broadcasting Operations-Licensing and Regulation Applicable to Television and Radio Broadcasting -Multiple Ownership Rules and Cross-Ownership Restrictions"). The common ownership of multiple stations in a single market allows for more aggressive marketing and can drive up the cost per rating point in such market. Further advances in technology may increase competition for radio listening shares. New media technologies, such as the delivery of audio programming by satellite, the internet, micro radio, digital audio broadcasting ("DAB") and cable television systems, are either in use currently or in development. Historically, the radio broadcasting industry has grown despite the introduction of new technologies for the delivery of entertainment and information, such as broadcast television, cable television, audio tapes and compact discs. A growing population and greater availability of radios, particularly car and portable radios, have contributed to this growth. There can be no assurance, however, that the development or introduction in the future of any new media technology will not have a material adverse effect on the radio broadcasting industry. The FCC has authorized the use of DAB to deliver audio programming direct from satellite. The Commission is also reviewing a proposal to allow In-Band-On- Channel DAB by existing radio broadcasters. This new technology would allow digital broadcasting by existing radio stations on their existing AM or FM frequencies. Because digital broadcasting is of a high quality, the adoption of proposed rules to allow this technology may increase the value of AM radio stations, by allowing them to broadcast a higher quality audio signal, more closely at parity with FM signals. Competition In recent years, a few companies have acquired large numbers of radio stations. Some of these companies also syndicate radio programs that are aired by Fisher Broadcasting's stations. Some of these large companies also operate radio stations in markets in which Fisher Broadcasting operates, and have much greater overall financial resources available for their operations. Competition in the radio industry, including each of the markets in which Fisher Broadcasting's radio stations compete, takes place primarily on two levels: competition for audience, and competition for advertisers. Additional significant factors affecting a radio station's competitive position include assigned frequency and signal strength. Another factor is competition for programming. The radio broadcasting industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, as well as governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material adverse effect on the broadcasting business. 8 Audience. Fisher Broadcasting's radio stations compete for audience on the basis of programming popularity, which has a direct effect on advertising rates. As a program or station grows in ratings (percentage of total population reached), the station is capable of charging a higher rate to advertising agencies, in particular, and direct advertisers, in general. Formats, stations and music in major markets are highly researched through large-scale perceptual studies, auditorium-style music tests and weekly call-outs. All are designed to evaluate the distinctions and unique tastes of formats and listeners. In the early days of radio, and until the early to mid-1970s, many stations programmed a variety of elements to attract larger shares of audience. In today's competitive market, new formats and audience niches have created very targeted advertising vehicles and programming that is highly focused and tightly regulated to appeal to a narrow segment of the population. Formats in one market targeting similar audiences with slight variances in demographic or psychographic appeal may be Classic Rock, Alternative Rock, Adult Album Alternative, and/or Album-Oriented-Rock. Tactical and strategic plans are utilized to attract larger shares of audience through marketing campaigns and promotions. Marketing campaigns through television, transit, outdoor, telemarketing or direct mail advertising are designed to improve a station's cume audience (total number of people listening) while promotional tactics such as cash giveaways, trips and prizes are utilized by stations to extend the TSL (time-spent-listening), which works in correlation to cume as a means of establishing a station's share of audience. In the effort to increase audience, the format of a station may be changed. Format changes can result in increased costs and create other difficulties which can adversely effect the performance of the station. Fisher Broadcasting has experienced this effect. Advertising. Advertising rates are based upon the number and mix of media outlets, the audience size of the market in which a radio station operates, the total number of listeners the station attracts in a particular demographic group that an advertiser may be targeting, the number of advertisers competing for the available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertisers' messages to programming. The amount of paid political advertising on radio fluctuates significantly and follows no particular pattern. Fisher Broadcasting's radio stations compete for revenue primarily with other radio stations and, to a lesser degree, with other advertising media such as television, cable, newspaper, yellow pages directories, direct mail, and outdoor and transit advertising. Competition for advertising dollars in the radio broadcasting industry occurs primarily within the individual markets on the basis of the above factors, as well as on the basis of advertising rates charged by competitors. Generally, a radio station in one market area does not compete with stations in other market areas. Staff. There is also competition for radio staff. The loss of key staff, including on-air personalities and sales staff, to competitors can, and in some instances has, significantly and adversely affected revenues and earnings of individual Fisher Broadcasting stations. Seattle Radio Market Introduction. Seattle, Washington was recently reclassified from the 13th to the 14th largest radio metropolitan area in the nation due to the introduction of Puerto Rico as a continuously rated market. The Seattle radio market has 20 FM and 31 AM stations licensed to the metro area according to BIA Research Inc. "Investing in Radio 1998." Fisher Broadcasting has owned and operated KOMO-AM since December 31, 1926 when the station signed on the air. When changes to FCC regulations allowed multiple station ownership in one market, Fisher Radio Seattle was formed, and Fisher Broadcasting purchased the assets of KVI-AM and KPLZ-FM. Since then, the staffs of all three stations and many operating functions have been consolidated into one facility in downtown Seattle. Station personnel work side-by-side to maximize available resources and talent at a considerable cost savings. In addition, fiber optic links between the radio and television facilities allow resources to be shared with KOMO TV. A more detailed description of Fisher Broadcasting's Seattle radio stations is set forth below. KOMO-AM [1000 kHz / 50 kW (day/night), Affiliation: ABC Information Network]. KOMO-AM, known as "KOMO News/Talk 1000," is one of the United States' heritage 50,000 watt radio stations. The station was ranked 14th in the market in 1998 among 51 competitors with a 3.4% share of listening among Persons 12+, Monday- Sunday, 6:00 a.m. to 12 midnight, according to the Arbitron Company (four-book average). The station's primary target audience is Adults 35-54. KOMO News/Talk 1000 programs a combination of news and talk, featuring a variety of information services such as hourly news, weather, traffic, sports and talk programs concerning local and national news issues. With a staff of eight news journalists, KOMO has one of the largest radio news staffs in the Northwest. KOMO is also the home of University of Washington Husky Sports. 9 KVI-AM [570 kHz / 5 kW (day/night), Affiliation: ABC Entertainment Network]. KVI-AM is known as "Talk Radio 570-KVI." During 1998, KVI was a leading talk radio station in Seattle, and ranked sixth overall among the 51 competitors in the market with a 4.2% share of listening among Persons 12+, Monday-Sunday, 6:00 a.m. to 12 midnight (Arbitron Co. four-book average). The station is a mixture of local talk programming featuring local and national hosts. While KVI and KOMO are complimentary formats, they maintain unique identities and format niches in the market. KPLZ-FM [101.5 MHz / 100 kW, Affiliation: Independent]. KPLZ-FM is known as "Star 101.5," playing a mix of music from the 80s, 90s and today. During 1998, the station was tied for sixth in the market with a 4.2% share of listening among Persons 12+, Monday-Sunday, 6:00 a.m. to 12 midnight (Arbitron Co. four-book average). Portland Radio Market Introduction. Portland, Oregon was recently reclassified from the 24th to the 25th largest radio metropolitan area in the nation due to the introduction of Puerto Rico as a continuously rated market. The FCC has licensed 14 FM and 25 AM stations in the Portland radio metro area according to BIA Research Inc. "Investing in Radio 1998." KOTK AM [1080 kHz / 50 kW (day), 10 kW (night), Affiliation: CNN]. KOTK-AM is known as "Hot Talk 1080 KOTK." During 1998, KOTK-AM was the 20th ranked radio station in the market, with a 1.2% share of listening Persons 12+, Monday- Sunday, 6:00 a.m. to 12:00 midnight, according to the Arbitron Company (four- book average). The station programs locally and nationally originated talk programming on contemporary topics. KOTK is also the home of University of Portland college basketball. KWJJ FM [99.5 MHz/52 kW, Affiliation: Independent]. During 1998, KWJJ-FM was the seventh-ranked radio station in the Portland market, with a 4.7% share of listening Persons 12+, Monday-Sunday, 6:00 a.m. to 12:00 midnight, according the the Arbitron Company (four-book average). KWJJ-FM, also known as "New Country `JJ 99-5," plays country music from the late 80's to today. Medium- and Small-Market Radio Operations Through Sunbrook, Fisher Broadcasting operates radio stations in five small and medium markets in the northwestern United States. Sunbrook is the leading radio broadcaster in Montana, with 15 radio stations and one construction permit in the four largest markets in the state. Additionally, Sunbrook owns five radio stations that serve the Wenatchee market, a market of approximately 55,000 people in the center of Washington State. Sunbrook has sought to acquire under-performing stations in small and medium markets at cash flow multiples that are considerably lower than in larger markets. The relaxation of federal multiple ownership rules has led Sunbrook to expand its holdings within its existing markets. The resulting synergy allows Sunbrook to better serve its communities while enjoying certain economies of scale. 10 The following table sets forth general information for each of Sunbrook's stations and the markets they serve.
# of Ratings/(1)/ Market Revenue Commercial ------------ -------------- Radio Stations Dial in the Rank in Station Station $ (in Market Station Position Power Market Market Share Share Thousands) Format - ----------------------------------------------------------------------------------------------------------------------------------- Billings, MT 14 $5,800 KRKX 94.1 FM 100 kW 1 22.0% 14% Classic Rock KYYA 93.3 FM 100 kW 6 6.0% 10% Adult Contemp KBLG(2) 910 AM 1 kW 9 4.0% 4% News/Talk KCMT(3) 96.3 FM 100 kW New New New Country Missoula, MT 8(4) $4,800 KZOQ 100.1 FM 14 kW 1 24.7% 28% Classic Rock KGGL 93.3 FM 43 kW 4 13.7% 23% Country KYLT 1340 AM 1 kW 7 2.8% 3% Oldies KGRZ 1450 AM 1 kW 8 (9) 1% Sports/Talk KBEB(4) 98.1 FM 15.5 kW (4) (4) (4) (4) Great Falls, MT 9 $3,100 KQDI FM 106.1 FM 100 kW 1 20.4% 18% Classic Rock KAAK 98.9 FM 100 kW 4 11.1% 19% Adult Contemp KXGF 1400 AM 1 kW 7 3.7% 2% Pop Standard KQDI AM 1450 AM 1 kW 7 3.7% 2% News/Talk Butte, MT 5 $1,900 KMBR 95.5 FM 50 kW 1 40.7% 23% Classic Rock KAAR 92.5 FM 4.5 kW 3 25.9% 28% Country KXTL 1370 AM 5 kW 5 (9) 5% Oldies/Talk Wenatchee, WA 9 $3,000 KZPH(5) 106.7 FM 3 kW 1 14.4% 8% Classic Rock KWWW(6) 96.7 FM .4 kW 2 14.0% 15% Adult Contemp KYSN(7) 97.7 FM 3 kW 3 10.3% 21% Country KXAA(8) 99.5 FM 5 kW 7 7.7% 8% Oldies KWWX 1340 AM 1 kW 8 3.6% 7% Spanish
- ------------------ (1) Ratings information in the above chart refers to average-quarter-hour share of listenership among total persons, Adults 25-54, Monday through Sunday, 6 a.m. to midnight, and is subject to the qualifications listed in each report. Sources: Billings, Montana: Arbitron Ratings, Spring, 1998 Billings Market Report Missoula, Montana: Willhight Research, Spring, 1998, Missoula Market Report Great Falls, Montana: Arbitron Ratings, Spring, 1998 Great Falls Market Report Butte, Montana: Arbitron Ratings, Spring, 1998 Butte- Bozema "Region 8" DMA Report Wenatchee, Washington: Hambleton Resources Audience Measurement, Fall, 1998 Wenatchee Market Report. (2) KBLG's power is 1,000 watts days, 63 watts nights. (3) KCMT signed on the air November, 1998, and is not listed in any ratings. (4) Sunbrook is the permittee of a construction permit for FM station KBEB. The station is not yet on the air. Sunbrook has applied to the FCC for approval to amend the permit to allow increased power to 100,000 watts and a change in frequency to 98.5. The station will be licensed to the city of Hamilton, Montana. The number of stations in the Missoula market will increase to 9 when KBEB signs on the air. (5) KZPH is licensed to the city of Cashmere, Washington. (6) KWWW is licensed to the city of Quincy, Washington. (7) KYSN is licensed to the city of East Wenatchee, Washington (8) KXAA is licensed to the city of Rock Island, Washington. (9) Listenership below minimum reporting standards. PENDING ACQUISITION In November 1998, the Company entered into an asset purchase and sale agreement with Retlaw Enterprises, Inc. and its subsidiaries ("Sellers") to purchase substantially all of the Sellers' broadcasting assets. Sellers' broadcasting assets include ten television stations and 50% of the outstanding stock of Southwest Oregon Television Broadcasting Corporation ("SWOT"), an Oregon corporation that owns and operates one television station. The aggregate purchase price is $215 million, including approximately $6 million of working capital. The Company has a commitment from a bank for senior credit facilities to fund the acquisition (see Note 5 to the Consolidated Financial Statements). The closing is subject to FCC approval for transfer of the applicable broadcast licenses. Following the closing, the Company will take ownership of Sellers' ten television stations in the following cities: Yakima and Pasco, Washington; Lewiston, Boise, and Idaho Falls, Idaho; Eugene and Coos Bay, Oregon; Fresno, California; and Columbus and Augusta, Georgia. The Company, following 11 the closing, will also take ownership of 50% of the outstanding stock of SWOT, which is the licensee of a television station in Roseburg, Oregon. Although the Company believes that it will receive FCC approval for the transfer of the licenses, there can be no assurance that such approval will be granted. However, pending approval, the Company expects the closing to take place during the latter part of the second quarter of 1999. Risks associated with this acquisition include: increased debt and debt service obligations; Fisher Broadcasting's inexperience in the Retlaw markets and operating television stations in markets smaller than Seattle and Portland; Fisher Broadcasting's inexperience with the Retlaw stations' personnel and possible loss of key personnel; the geographic dispersion of the Retlaw stations; the increased demands on Fisher Broadcasting's executive resources to supervise operations at many more television stations, some of which are distant from Fisher Broadcasting's current operations; and costs and possible difficulties in integrating Retlaw station operations and financial reporting into Fisher Broadcasting. LICENSING AND REGULATION APPLICABLE TO TELEVISION AND RADIO BROADCASTING The following is a brief discussion of certain provisions of the Communications Act of 1934, as amended (the "Communications Act"), most recently amended by the Telecommunications Act of 1996 (the "Telecommunications Act"), and of FCC regulations and policies that affect the television and radio broadcasting business conducted by Fisher Broadcasting. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC, on which this discussion is based, for further information concerning the nature and extent of FCC regulation of television and radio broadcasting stations. License Renewal, Assignments and Transfers Broadcasting licenses for both radio and television stations are currently granted for a maximum of eight years and are subject to renewal upon application to the FCC. The FCC prohibits the assignment of a license or the transfer of control of a television or radio broadcasting license without prior FCC approval. In determining whether to grant or renew a broadcasting license, the FCC considers a number of factors pertaining to the applicant, including compliance with limitations on alien ownership, common ownership of broadcasting, cable and newspaper properties, and compliance with character and technical standards. During certain limited periods when a renewal application is pending, petitions to deny a license renewal may be filed by interested parties, including members of the public. Such petitions may raise various issues before the FCC. The FCC is required to hold evidentiary, trial-type hearings on renewal applications if a petition to deny renewal raises a "substantial and material question of fact" as to whether the grant of the renewal application would be inconsistent with the public interest, convenience and necessity. The FCC is required to renew a broadcast license if: the FCC finds that the station has served the public interest, convenience and necessity; there have been no serious violations by the licensee of either the Communications Act or the FCC's rules; and there have been no other violations by the licensee which taken together would constitute a pattern of abuse. Additionally, in the case of renewal of television licenses, the FCC considers the station's compliance with FCC programming and commercialization rules relating to programming for children. If the incumbent licensee fails to meet the renewal standard, and if it does not show other mitigating factors warranting a lesser sanction, such as a conditional renewal, the FCC has the authority to deny the renewal application and permit the submission of competing applications for that frequency. Failure to observe FCC rules and policies, including, but not limited to, those discussed herein, can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full eight years) license renewals or, for particularly egregious violations, the denial of a license renewal application or revocation of a license. While the vast majority of such licenses are renewed by the FCC, there can be no assurance that Fisher Broadcasting's licenses will be renewed at their expiration dates, or, if renewed, that the renewal terms will be for eight years. Both of Fisher Broadcasting's television stations were granted license renewals effective February 1, 1999 for eight year terms ending February 1, 2007. Fisher Broadcasting's and Sunbrook's radio stations in Washington and Oregon were granted license renewals effective February 1, 1998 for eight year terms ending February 1, 2006. The license terms for all of Sunbrook's Montana radio stations expire on April 1, 2005. The non-renewal or revocation of one or more of Fisher Broadcasting's FCC licenses could have a material adverse effect on Fisher Broadcasting's television or radio broadcasting operations. Multiple Ownership Rules and Cross Ownership Restrictions 12 The FCC generally applies its ownership limits to "attributable" interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation's stock (or 10% or more of such stock in the case of insurance companies, mutual funds, bank trust departments and certain other passive investors that are holding stock for investment purposes only) are generally deemed to be attributable, as are interests held by officers and directors of a corporate parent of a broadcast licensee. Pursuant to the Telecommunications Act, the FCC has eliminated the restrictions on the total number of television stations in which a person or entity may have an attributable interest, but instead establishes a national television reach limit of 35%. The Telecommunications Act requires the FCC to conduct a rulemaking proceeding to determine whether the local "duopoly" television ownership rules should be retained, modified or eliminated. The present "duopoly" rules prohibit attributable interests in two or more television stations with overlapping service areas. The FCC initiated the rulemaking proceeding required by the Telecommunications Act in November 1996. Initial comments to the FCC's proposals were received by the FCC on February 7, 1997. This proceeding is currently pending before the FCC without resolution. While the FCC has proposed to allow ownership of television stations where the stations do not have substantial signal overlap and are in separate Designated Market Areas, the majority of comments in the proceeding urged the FCC to adopt a looser standard, thereby allowing more duopolies. The statutory prohibition against television station/cable system cross-ownership is repealed in the Telecommunications Act, but the FCC's parallel cross-ownership rule remains in place. The television station/daily newspaper cross-ownership prohibition in the FCC rules was not repealed by the Telecommunications Act. The FCC, however, is conducting a proceeding regarding waivers of that restriction. The Telecommunications Act requires the FCC to review its ownership rules biennially as part of its regulatory reform obligations. The FCC imposes less severe restraints on the control or ownership of AM and FM radio stations that serve the same area than are imposed with regard to television stations. Pursuant to the Telecommunications Act, the limits on the number of radio stations one entity may own locally have been increased as follows: (i) in a market with 45 or more commercial radio stations, an entity may own up to eight commercial radio stations, not more than five of which are in the same service (AM or FM); (ii) in a market with between 30 and 44 (inclusive) commercial radio stations, an entity may own up to seven commercial radio stations, not more than four of which are in the same service; (iii) in a market with between 15 and 29 (inclusive) commercial radio stations, an entity may own up to six commercial radio stations, not more than four of which are in the same service; and (iv) in a market with 14 or fewer commercial radio stations, an entity may own up to five commercial radio stations, not more than three of which are in the same service, except that an entity may not own more than 50% of the stations in such market. These numerical limits apply regardless of the aggregate audience share of the radio stations sought to be commonly owned. FCC ownership rules continue to permit an entity to own one FM and one AM station in a local market regardless of market size. Irrespective of FCC rules governing radio ownership, however, the Department of Justice and the Federal Trade Commission have the authority to determine, and in certain radio transactions have determined, that a particular transaction presents antitrust concerns. Moreover, in certain recent cases the FCC has signaled a willingness to independently examine issues of market concentration notwithstanding a transaction's compliance with the numerical radio station limits. The FCC has also indicated that it may propose further revisions to its radio multiple ownership rules. FCC rules also preclude the grant of applications for station acquisitions that would result in the creation of new radio-television combinations in the same market under common ownership, or the sale of such a combination to a single party, subject to the availability of a waiver. Under FCC policy, waiver applications that involve radio-television station combinations in the top 50 TV markets where there would be at least 30 separately owned, operated and controlled broadcast licensees after the proposed combination will generally be favorably received. At present, the FCC imposes no limits on the number of radio stations that may be directly or indirectly owned nationally by a single entity. National ownership of television stations by one entity, direct or indirect, is limited to a 35% national share, computed by dividing the aggregate number of households in each market in which the licensee owns a station by the total number of households nationally. In the case of UHF television stations, the number of households in such markets is halved for purposes of the foregoing formula. In addition, under its cross-interest policy, the FCC considers certain meaningful relationships among competing media outlets in the same market, even if the ownership rules do not specifically prohibit the relationship. Under this policy, the FCC may consider significant nonattributable equity or debt interests in a media outlet combined with an attributable interest in another media outlet in the same market, joint ventures, and common key employees among competitors. The cross-interest policy does not necessarily prohibit all of these interests, but requires that the FCC consider whether, in a particular market, the meaningful relationships between competitors could have a significant adverse effect upon economic competition and program diversity. 13 A number of television stations have entered into LMAs. While these agreements may take varying forms, pursuant to a typical LMA, separately owned and licensed television stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC's rules and policies. Under these types of arrangements, separately owned stations agree to function cooperatively in terms of programming, advertising sales, etc., subject to the requirement that the licensee of each station maintain independent control over the programming and operations of its own station. One typical type of LMA is a programming agreement between two separately owned television stations serving a common service area, whereby the licensee of one station programs substantial portions of the broadcast day on the other licensee's station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments. At present, FCC rules permit television station LMAs, and the licensee of a television station brokering time on another television station is not considered to have an attributable interest in the brokered station. However, in connection with its ongoing rulemaking proceeding regarding the television duopoly rule, the FCC has proposed to adopt rules providing that the licensee of a television station which brokers more than 15% of the time on another television station serving the same market would be deemed to have an attributable interest in the brokered station for purposes of the national and local multiple ownership rules. As in television, a number of radio stations have entered into LMAs. The FCC's multiple ownership rules specifically permit radio station LMAs to be entered into and implemented, so long as the licensee of the station which is being programmed under the LMA maintains complete responsibility for and control over programming and operations of its broadcast station and assures compliance with applicable FCC rules and policies. For the purposes of the multiple ownership rules, in general, a radio station being programmed pursuant to an LMA by an entity is not considered an attributable ownership interest of that entity unless that entity already owns a radio station in the same market. However, a licensee that owns a radio station in a market, and brokers more than 15% of the time on another station serving the same market (i.e., a station whose principal community contour overlaps that of the owned station), is considered to have an attributable ownership interest in the brokered station for purposes of the FCC's multiple ownership rules. The FCC's rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA arrangement where the brokered and brokering stations serve substantially the same area. A number of radio (and television) stations have entered into cooperative arrangements commonly known as JSAs. While these agreements may take varying forms, under the typical JSA, a station licensee obtains, for a fee, the right to sell substantially all of the commercial advertising on a separately-owned and licensed station in the same market. The typical JSA also customarily involves the provision by the selling licensee of certain sales, accounting, and "back office" services to the station whose advertising is being sold. The typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does not involve programming. The FCC has determined that issues of joint advertising sales should be left to enforcement by antitrust authorities, and therefore does not generally regulate joint sales practices between stations. Currently, stations for which a licensee sells time under a JSA are not deemed by the FCC to be attributable interests of that licensee. However, in connection with its ongoing rulemaking proceeding concerning the attribution rules, the FCC is considering whether JSAs should be considered attributable interests or within the scope of the FCC's cross-interest policy, particularly when JSAs contain provisions for the supply of programming services and/or other elements typically associated with LMAs. If an attributable stockholder of the Company has or acquires an attributable interest in other television or radio stations, or in daily newspapers or cable systems, depending on the size and location of such stations, newspapers, or cable systems, or if a proposed acquisition by the Company or Fisher Broadcasting would cause a violation of the FCC's multiple ownership rules or cross-ownership restrictions, Fisher Broadcasting may be unable to obtain from the FCC one or more authorizations needed to conduct its business and may be unable to obtain FCC consents for certain future acquisitions. Fisher Broadcasting is unable to predict the ultimate outcome of possible changes to these FCC rules and the impact such changes may have on its broadcasting operations. 14 Alien Ownership Under the Communications Act, broadcast licenses may not be granted to or held by any foreign corporation, or a corporation having more than one-fifth of its capital stock owned of record or voted by non-U.S. citizens (including a non- U.S. corporation), foreign governments or their representatives (collectively, "Aliens"). The Communications Act also prohibits a corporation, without an FCC public interest finding, from holding a broadcast license if that corporation is controlled, directly or indirectly, by a foreign corporation, or a corporation in which more than one-fourth of the capital stock is owned of record or voted by Aliens. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including general and limited partnerships. As a result of these provisions, and without an FCC public interest finding, the Company, which serves as a holding company for its television station licensee subsidiaries, cannot have more than 25% of its capital stock owned of record or voted by Aliens. While the Company does not track the precise percentage of stock owned by Aliens at any particular time, it does take steps to confirm continued compliance with these alien ownership restrictions when it files FCC applications for new stations or major changes in its stations. Programming and Operation The Communications Act requires broadcasters to serve the "public interest." Since 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. Broadcast station licensees continue, however, to be required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from viewers concerning a station's programming may be considered by the FCC when it evaluates license renewal applications, although such complaints may be filed, and generally may be considered by the FCC, at any time. Stations must also follow various FCC rules that regulate, among other things, children's television programming, political advertising, sponsorship identifications, contest and lottery advertising, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. In addition, in November 1998, the FCC released the text of a Notice of Proposed Rulemaking, which seeks to fashion a new equal employment opportunities ("EEO") rule. The FCC's former EEO rule as it relates to affirmative action was ruled unconstitutional in 1998 by the U.S. Court of Appeals for the District of Columbia Circuit in Lutheran Church - Missouri Synod v. FCC. Essentially, the FCC's Notice seeks to create an "outreach efforts" rule. The Notice, among other things, seeks comment on whether broadcasters and cable television system operators should be required to use a minimum number of recruiting sources on both a nationwide and local level when filling job vacancies, and, if so, what that minimum number should be. The proposed EEO rule specifically states that broadcasters are not required to consider race or gender in making hiring decisions. In addition, under the proposed rule, the FCC will no longer compare a broadcast station's workforce to the labor force in its community, nor will it require licensees to engage in such comparisons. This EEO proceeding is currently pending before the FCC and Fisher Broadcasting is unable to predict the outcome of this proceeding. Syndicated Exclusivity/Territorial Exclusivity Effective January 1, 1990, the FCC reimposed syndicated exclusivity rules and expanded the existing network non-duplication rules. The syndicated exclusivity rules allow local broadcast stations to require that cable television operators black out certain syndicated, non-network programming carried on "distant signals" (i.e., signals of broadcast stations, including so-called superstations, that serve areas substantially removed from the local community). Under certain circumstances, the network non-duplication rule allows local broadcast network affiliates to require that cable television operators black out duplicative network broadcast programming carried on more distant signals. Restrictions on Broadcast Advertising The advertising of cigarettes on broadcast stations has been banned for many years. The broadcast advertising of smokeless tobacco products has more recently been banned by Congress. Certain Congressional committees have examined legislative proposals to eliminate or severely restrict the advertising of alcohol, including beer and wine. Fisher Broadcasting cannot predict whether any or all of such proposals will be enacted into law and, if so, what the final form of such law might be. The elimination of all beer and wine advertising would have an adverse effect on Fisher Broadcasting's stations' revenues and operating income, as well as the revenues and operating incomes of other stations that carry beer and wine advertising. Additionally, the FCC has promulgated a number of regulations prohibiting, with certain exceptions, advertising relating to lotteries and casinos. The U.S. Court of Appeals for the Ninth Circuit recently ruled that the limits on casino 15 advertising are unconstitutional and therefore invalid. The U.S. Supreme Court has declined to review that decision. As a result, the FCC has suspended enforcement of the casino advertising rule in the Ninth Circuit, which includes Washington, Oregon and Montana. The FCC has also placed limits upon the amount of commercialization during, and adjacent to, television programming intended for an audience of children ages 12 and under. Closed Captioning In late 1998, on reconsideration of its decision earlier that year regarding requirements for closed captioning of video programming, the FCC adopted rules requiring that 100% of all new English-language video programming be closed captioned by January 2006, and all new Spanish-language programming be closed captioned by January 2010. The FCC was required to develop closed captioning rules by the Telecommunications Act. English and Spanish language programming first exhibited prior to January 1, 1998, is subject to different compliance schedules. In all cases, the FCC's new rules require programming distributors to continue to provide captioning at substantially the same level as the average level of captioning that they provided during the first six months of 1997, even if that amount exceeds the benchmarks applicable under the new rules. Certain station and programming categories are exempt from the closed captioning rules, including stations or programming for which the captioning requirement has been waived by the FCC after a showing of undue burden has been made. Other Programming Restrictions The Telecommunications Act requires that any newly manufactured television set with a picture screen of 13 inches or greater be equipped with a feature designed to enable viewers to block all programs with a certain violence rating (the "v-chip"). In an Order adopted March 12, 1998, the FCC required that at least one-half of all television receiver models with screen sizes 13 inches or greater produced after July 1, 1999 have the v-chip technology installed, and that all such television receivers have v-chips by January 1, 2000. The television industry has adopted, effective January 1, 1997, and subsequently revised, August 1, 1997, a voluntarily rating scheme regarding violence and sexual content contained in television programs. The March 12, 1998 order found that the industry scheme meets the standards of the Telecommunications Act. Fisher Broadcasting cannot predict whether the v-chip and a ratings system will have any significant effect on the operations of its business. The FCC has adopted regulations effectively requiring television stations to broadcast a minimum of three hours per week of programming designed to meet specifically identifiable educational and informational needs, and interests, of children. Present FCC regulations require that each television station licensee appoint a liaison responsible for children's' programming. Information regarding children's programming and commercialization during such programming is required to be compiled quarterly and made available to the public. This programming information is also required to be filed with the FCC annually. Fisher Broadcasting does not believe that the FCC children's programming regulations described above have, or will have, an adverse effect on the operation of its business. Cable "Must-Carry" or "Retransmission Consent" Rights The 1992 Cable Act requires television broadcasters to make an election to exercise either "must-carry" or "retransmission consent" rights in connection with the carriage of television stations by cable television systems in the station's local market. If a broadcaster chooses to exercise its must-carry rights, it may demand carriage on a specified channel on cable systems within its market, which, in certain circumstances, may be denied. Must-carry rights are not absolute, and their exercise is dependent on variables such as the number of activated channels on and the location and size of the cable system and the amount of duplicative programming on a broadcast station. If a broadcaster chooses to exercise its retransmission consent rights, it may prohibit cable systems from carrying its signal, or permit carriage under a negotiated compensation arrangement. Fisher Broadcasting has executed retransmission consent agreements with all of the cable systems operating within the DMAs of its two television stations. It is the cable industry's desire to eliminate the must-carry provision as the television converts of DTV. Elimination of must-carry could adversely affect Fisher Broadcasting's results of operations. 16 Satellite Home Viewer Act The Satellite Home Viewer Act ("SHVA") permits satellite carriers and direct broadcast satellite carriers to provide to certain satellite dish subscribers a package of network affiliated stations as part of their service offering. This service is not intended to be offered to subscribers who are capable of receiving their local affiliates off the air through the use of conventional rooftop antennas or who have received network affiliated stations by cable within the past 90 days. Furthermore, the package of affiliate stations is intended to be offered only for private home viewing, and not to commercial establishments. The purpose of the SHVA is to facilitate the ability of viewers in so-called "white areas" to receive broadcast network programming when they are unable to receive such programming from a local affiliate, while protecting local affiliates from having the programming of their network imported into their market by satellite carriers. Satellite carriers, however, reportedly have been offering program packages that include the package of network affiliates to large numbers of subscribers residing in the markets of local affiliates. The Courts, the Congress and the FCC have been asked to review the SHVA and the practices of satellite carriers thereunder. Fisher Broadcasting cannot predict what changes, if any, to the SHVA or the practices of satellite carriers thereunder may occur as a result. Nor can Fisher Broadcasting predict whether the SHVA will be reauthorized upon its expiration. Proposed Legislation and Regulations In February 1998, the FCC issued regulations regarding the implementation of advanced television in the United States. These regulations govern a new form of digital telecasting ("DTV") based on technical standards adopted by the FCC in December 1996. DTV is the technology that allows the broadcast and reception of a digital binary code signal, in contrast to the current analog signal, which is transmitted through amplitude and frequency variation of a carrier wave. Digitally transmitted sound and picture data can be compressed, allowing broadcasters to transmit several standard definition pictures within the same amount of spectrum currently required for a single analog channel. DTV also allows broadcasters to transmit enough information to create a high definition television ("HDTV") signal. The FCC's regulations permit, but do not require, broadcasters to provide an HDTV signal, which features over 1,000 lines of resolution, rather than the 525 lines of resolution used in analog television sets. The greater number of lines of resolution will allow HDTV to provide a far more detailed picture than existing television sets can produce. Under the FCC's DTV rules each existing station will be given a second channel on which to initiate DTV broadcasts. The FCC has specified the channel and the maximum power that may be radiated by each station. DTV stations will be limited to 1 million watts Effective Radiated Power, and no station has been assigned less than 50 thousand watts Effective Radiated Power. The FCC has stated that the new channels will be paired with existing analog channels, and broadcasters will not be permitted to sell their DTV channels, while retaining their analog channels, and vice versa. KOMO-TV was allotted DTV Channel 38, and KATU (TV) was allotted DTV Channel 43. Affiliates of the ABC, CBS, Fox and NBC television networks in the top 10 television markets will be given until May 1, 1999, to construct and commence operation of DTV facilities on their newly allocated DTV channels. Affiliates of those networks in markets 11 through 30 will be given until November 1, 1999 to do the same. All other commercial television stations will be given until May 1, 2002 to place a DTV signal on the air, and all non-commercial stations will have until May 1, 2003. As ABC affiliates operating in markets 12 and 23, Fisher Broadcasting's Seattle and Portland television stations will be required to commence DTV broadcasts by November 1, 1999. Stations will have one-half of the specified construction periods in which to apply to the FCC for a construction permit authorizing construction of the new DTV facilities. The FCC has indicated its intention to act expeditiously on such applications. While the FCC has announced its intention to grant extensions of the construction deadlines in appropriate cases, the impact of failing to meet these applications and construction deadlines cannot be predicted at this time. Once a Fisher Broadcasting station begins operation of its new DTV facilities it will be required to deliver, at a minimum, a free programming service with picture resolution at least as good as that of the current analog service provided by the station, and will have to be aired during the same time periods as the current service. It may prove possible to provide more than one of such "analog equivalent" signals over a single DTV channel, or to mix an "analog equivalent" signal with other forms of digital material. The FCC will not require a broadcaster to transmit a higher quality, HDTV signal over a DTV channel; the choice as to whether to transmit an HDTV signal or one or more "analog equivalent" channels will be left up to the station licensee. It is not believed possible, under the present state of the art, to transmit additional program material over the DTV signal while it is transmitting in the HDTV mode. It cannot be predicted whether competitors of Fisher Broadcasting's television stations will operate in the HDTV or "analog equivalent" mode or the economic impact of such choices on the stations' operations. 17 Stations operating in the DTV mode will be subject to existing public service requirements. The FCC has announced that it will consider imposing additional public service requirements, such as free advertising time for federal political candidates, and increased news, public affairs, and children's programming requirements, in the future. It cannot be predicted whether such changes will be adopted, or any impact they might have on station operations. By 2003, DTV stations will have to devote at least one-half of their broadcast time to duplication of the programming on their paired analog stations. In 2004, this simulcasting requirement will increase to 75%, and to 100% in 2005. The FCC has indicated that the transition from analog to digital service will end in 2006, at which time one of the two channels being used by broadcasters will have to be relinquished to the government, and DTV transmissions will be "repacked" into channels 2-51. Congress has established certain conditions that, if met, would allow the FCC to delay the termination of analog broadcasting beyond 2006. In addition, the FCC, in November 1998, voted to impose a fee on DTV licensees providing ancillary and supplementary services via their digital spectrum. The fee will equal five percent of gross revenues obtained from the provision of such ancillary and supplementary services, but will not be assessed against revenues generated by the traditional sale of broadcast time for advertising. The FCC said that it was following the stated goals of the Telecommunications Act to recover a portion of the value of the DTV spectrum, avoid unjust enrichment of broadcasters, and recover an amount equal to that which would have been obtained if the spectrum had been auctioned for such ancillary services. Implementation of DTV is expected to generally improve the technical quality of television signals received by viewers. Under certain circumstances, however, conversion to DTV may reduce a station's geographic coverage area or result in some increased interference. Also, the FCC's allocations could reduce the competitive advantage presently enjoyed by Fisher Broadcasting's Seattle and Portland television stations, which operate on low VHF channels serving broad areas. Implementation of DTV will impose substantial additional costs on television stations because of the need to replace equipment and because some stations will operate at higher utility costs. Fisher Broadcasting estimates that the adoption of DTV would require a broad range of capital expenditures to provide facilities and equipment necessary to produce and broadcast DTV programming. The introduction of this new technology will require that customers purchase new receivers (television sets) for DTV signals or, if available by that time, adapters for their existing receivers. Under certain circumstances, broadcast stations currently are required to provide political candidates with discounted air time in the form of lowest unit rates. A number of changes have been proposed before Congress to mandate public service obligations on broadcast stations such as the provision of free or discounted air time for political candidates. Fisher Broadcasting is unable to predict the outcome of this debate regarding political advertising and campaign finance reform. Other matters that could affect Fisher Broadcasting's stations include technological innovations affecting the mass communications industry such as technical allocation matters, including assignment by the FCC of channels for additional broadcast stations, low-power television stations and wireless cable systems and their relationship to and competition with full-power television broadcasting service. In addition, in January 1999, the FCC adopted a Notice of Proposed Rulemaking proposing the creation of a low power FM radio service. Congress and the FCC also have under consideration, or may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of Fisher Broadcasting's broadcasting business, resulting in the loss of audience share and advertising revenues of the stations, and affecting Fisher Broadcasting's ability to acquire additional, or retain ownership of existing, broadcast stations, or finance such acquisitions. Such matters include, for example, (i) changes to the license renewal process; (ii) imposition of spectrum use or other governmentally imposed fees upon a licensee; (iii) new EEO rules and other matters relating to minority and female involvement in broadcasting; (iv) proposals to increase the benchmarks or thresholds for attributing ownership interest in broadcast media; (v) proposals to change rules or policies relating to political broadcasting; (vi) technical and frequency allocation matters, including those relative to the implementation of DTV; (vii) proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on broadcast stations; (viii) changes in the FCC's cross-interest, multiple ownership, alien ownership and cross-ownership policies; (ix) changes to broadcast technical requirements; (x) proposals to restrict local marketing and time brokerage agreements; and (xi) proposals to limit the tax deductibility of advertising expenses by advertisers. Fisher Broadcasting cannot predict what other matters might be considered in the future, nor can it judge in advance what impact, if any, the implementation of any of these proposals or changes might have on its broadcasting business. 18 The foregoing is a summary of the material provisions of the Communications Act, the Telecommunications Act, and other Congressional acts or related FCC regulations and policies applicable to Fisher Broadcasting. Reference is made to the Communications Act, the Telecommunications Act, and other Congressional acts, such regulations, and the public notices promulgated by the FCC, on which the foregoing summary is based, for further information. There are many additional FCC regulations and policies, and regulations and policies of other federal agencies, that govern political broadcasts, public affairs programming, equal employment opportunities and other areas affecting Fisher Broadcasting's broadcasting business and operations. SATELLITE, INTERNET, AND EMERGING MEDIA OPERATIONS Introduction Fisher Communications (FishComm) is a regional satellite teleport operator, Internet service provider and emerging media development company. FishComm was created in 1995 to expand on Fisher Broadcasting's capacity to develop revenue from existing resources, such as satellite communications receive and transmit facilities, and to investigate the potential for revenue streams from new technologies such as the Internet. Since its inception, FishComm has operated satellite communications teleports in Portland and Seattle, primarily supplying news and sporting event video originating from these two markets for distant multi- and single market consumption. The Portland teleport consists of two C-band transmit and receive satellite dishes, while the Seattle Teleport consists of four such dishes. The teleports are connected to each other via a digital microwave line and to all major NW sports venues via fiber lines. KU-band satellite transmissions are handled by a mobile truck. The list of FishComm's current clients includes ABC, CNN, ESPN, MSNBC, ESPN, Fox News, Microsoft and Conus for occasional use video purposes and PrimeTime 24 and Canadian Communications Corporation for continuous use purposes. FishComm also operates a fiber optic terminal with connectivity to Vyvx national fiber optic network for point to point transmission of audio and video signals. In addition FishComm offers studio facilities for satellite interviews and distance learning, satellite and fiber booking services and tape playout capability in both Portland and Seattle markets. Fisher Broadcasting believes that the combination of fiber optic and satellite communication capabilities provides FishComm with a competitive advantage in the efficient transmission of point-to- point and point-to-multi-point video and audio from the Pacific Northwest. FishComm's Internet division currently provides bandwidth and e-mail services internally to other divisions of Fisher Companies Inc. and to a few outside clients. Current revenues attributable to FishComm's operations are not material to the Company's results of operations. As the Internet continues to expand, potential applications internally and externally are expected to grow. Company Performance From its inception, FishComm has focused on profitably marketing the excess capacity of Fisher Broadcasting's existing resources and adding to those resources to increase service offerings as the business expands and grows. Revenues generated through existing satellite transmission equipment and other associated services (i.e. studio use, tape playout, fiber transmission) have increased 12% in the past year. The addition of a KU-band truck has given FishComm the ability to offer on-site transmission services to clients, which in itself has increased revenues substantially. FishComm's revenues and earnings remain mainly event driven. News and sporting events occurring in the Northwest, primarily Portland and Seattle, create the demand for the transmission services that FishComm provides. PROGRAM CONTENT PRODUCTION AND SYNDICATION Introduction A new operating division of Fisher Broadcasting named Fisher Entertainment was formed in November, 1998 as part of an overall strategy to expand Fisher Broadcasting's program creation and ownership. The mission of Fisher Entertainment is to supply programming for cable networks, broadcast syndication and emerging media, and it plans to fulfill this mission by developing program content on its own, by exploiting the library of programming created by Fisher Broadcasting over the years, and by establishing alliances with other producers to enhance creative output and merge complementary skills. Fisher Broadcasting has significant experience in producing original programming. For example, KOMO-TV's weekday program, Northwest Afternoon, is the most successful and longest running locally produced daytime program in the U.S.. In addition, both KOMO and KATU have won numerous awards over the years for their locally produced programs. 19 "See Broadcasting Operations - "Television - KOMO TV" and "Television - KATU Television." As a content provider, Fisher Entertainment will take advantage of Fisher Broadcasting's expertise and the opportunities presented in the Fisher Plaza digital production facility anticipated to open in early 2000. This state- of-the-art production facility is expected to provide Fisher Entertainment with a competitive advantage in producing cost effective television content. Fisher Entertainment's focus will be primarily on supplying original productions for national cable television networks, secondarily for broadcast syndication, and thirdly, with a longer term focus, for emerging internet-based service providers. General Overview There are nearly 100 million U.S. television households of which approximately 67 million are wired cable households and 8 million receive television via direct broadcast satellite. Over the past five years, total U.S. TV households have increased by approximately 5 million, while cable households have increased by 8.5 million and virtually all of the 8 million DBS households have been added. Thus, the potential audience for programming delivered by satellite and cable networks has increased at a rate more than three times that of all U.S. TV households during that period. Overall household television viewing has risen to slightly more than 50 hours per week. The average home receives 43 channels and views 10 (watches 10 or more continuous minutes in a week). With the proliferation of viewing alternatives, the time spent per channel has decreased to 4.9 hours per channel per week. While adult viewing is increasing, viewing among teens and children is decreasing. The proliferation of viewing alternatives has increased the demand for more quality programming by cable channels and over the air broadcasters. Syndication revenue is comprised of national advertising in off-network reruns and original first-run daily and weekly programs produced for sale on a market by market basis. Syndicated programs fill the available time periods when there are no network programs Syndication is an effective vehicle for national advertisers when a program achieves 80+% coverage of U.S. TV households through local market station sales. Syndicated programming is a staple for many cable networks, as well as over the air broadcasters. It is currently estimated that 42% of TV households have video games, 40% have home computers and 10% have home internet access. Including the home, the workplace and school, 39% of persons 16 or older in the U.S. and Canada (88 million) have access to the internet, 21% (47 million) have used the world wide web in the past three months and 15% of those (5.6 million) have used it to purchase a product or service on-line. Internet advertising revenues were virtually non-existent in 1995. It is projected that advertisers will spend $2.3 billion on internet advertising in 1999, an increase of 75% over 1998. Competitive Marketplace Cable. It is projected that national cable networks spend $2.25 billion on original program production and as advertising revenues grow, budgets for original production are forecast to expand. The demand for original productions is expected to continue to escalate. Most cable networks rely on outside suppliers to fill their needs for non- fiction original productions. The majority of these original programs are commissioned from independent (non-studio affiliated) suppliers with whom the cable networks have long-term relationships. The cable networks often retain all ownership rights under these agreements. There are forty ad supported basic cable networks that achieve reported ratings. Twenty-four are fully distributed networks with more than 50 million households. Sixteen are mid-size networks with up to 50 million households. Fisher Entertainment has targeted seventeen ad supported cable networks for developing production alliances either because they are heavily reliant on externally produced product or because they pay consequential license fees. Ten are fully distributed (USA, Lifetime, Fox Family, A&E, Discovery Networks, The Nashville Network, The Learning Channel, Sci-Fi, The History Channel and E!). Seven are mid-size (Disney Channel, Animal Planet, Home & Garden, Food Network, Odyssey, Court TV and Travel Channel). As a producer of creative television content for cable networks, Fisher Entertainment will compete primarily with approximately 45 small to mid-size production entities. However, because of preferential access to KOMO-TV's new digital production facilities, Fisher Entertainment is also positioned to be a partner to these entities by providing production services at favorable rates. Fisher Entertainment's goal is to establish its market presence through such programming partnerships. Fisher Entertainment also will attempt to bring to these partnerships marketing and sales skills that many program producers 20 lack. Despite the growth in advertising revenues for the cable sector, individual networks continue to seek economies in original production to bolster operating cash flow. Fisher Entertainment is positioning itself to become a recognized cable content provider. Unlike its competitors, which primarily operate on a work-for-hire basis, Fisher Entertainment's business plan is predicated on strategic alliances in which it retains rights and equity in the creative television content it produces for cable. Broadcast Syndication. First-run syndication is the production of original programs that are sold on a station-by-station, market-by-market basis. Stations pay for the programs with cash, with a portion of the commercial time within the program (barter), or a combination of the two. The competition for station time periods is extreme among hundreds of distributors. Fisher Entertainment's goal is to enter the syndication marketplace in the 2000/2001 broadcast season with weekly series and specials. The strategy is to position Fisher Entertainment as a leader in the production and distribution of targeted, high quality, low cost information/entertainment programming. Broadcast syndication has shown the same downward pressure on rating delivery as network primetime due to the proliferation of viewing alternatives. As a result, profit pressures have increased. Strong production partnerships and production economies are as essential to profits in syndication as they are in cable. Secondary revenue opportunities such as foreign sales, ancillary revenues and back-end cable sales are key to determining which syndication projects to launch. The goal of Fisher Entertainment is to select and/or co-venture broadcast syndication productions with the highest potential in domestic syndication and the maximum opportunities to generate secondary revenues. Emerging Media. Internet content is in its infancy. Fisher Entertainment is focused on supplying digital programming for internet distribution when the Fisher Plaza digital production facility is completed, which is expected to be in early 2000. It is also a goal of Fisher Entertainment to establish strategic program production alliances with internet service providers with a view to creating content for broadcast television and cable that extends the internet brand to a mass television audience. Forward Looking Statements The current and proposed business plans of Fisher Entertainment discussed above include certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). This statement is included for the express purpose of availing the Company of the protections of the safe harbor provisions of the PSLRA. Management's ability to predict results or the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. Factors that could affect the actual results include unanticipated changes in the very rapidly developing cable, syndication and internet industries, the effects of intense competition and related performance and price pressures, both from existing competitors and new competitors that can be expected to enter into these markets, and uncertainties inherent in the start up of any new business venture, particularly in industries that are evolving as quickly and dramatically as those in which Fisher Entertainment will compete. While Fisher Broadcasting has created significant programming in the past, neither Fisher Broadcasting nor Fisher Companies has experience in the creation and distribution of programming on the scale contemplated by Fisher Entertainment. In addition to this inexperience and the other factors set out above, the risks associated with this new division include: startup costs, performance of certain key personnel new to the Company, the difficulties of retaining high content standards while producing mass appeal entertainment and the unpredictability of audience tastes. FLOUR MILLING AND FOOD DISTRIBUTION OPERATIONS INTRODUCTION The Company's flour milling and food distribution operations are conducted through Fisher Mills Inc. ("FMI"), a wholly owned subsidiary of the Company. FMI is a manufacturer of wheat flour and a distributor of bakery products. Wheat flour is produced at FMI's milling sites in Seattle, Washington; Portland, Oregon and Modesto, California. FMI and Koch Agriculture Company of Wichita, Kansas are each 50% owners of a limited liability company called Koch Fisher Mills L L C which owns and operates a flour milling facility in Blackfoot, Idaho. FMI has operating and sales responsibilities for the Blackfoot Facility. The Blackfoot facility commenced operations in April 1997, and was significantly expanded during 1998 with construction of a conventional flour mill, which began operations in December. During 1998, FMI produced approximately 2 million pounds of flour daily. FMI anticipates that, when the Blackfoot mill expansion achieves full commercial production, the Blackfoot facility will add an additional 1.25 million pounds of daily flour capacity. Fluctuations in wheat prices can result in fluctuations in FMI's revenues and profits. FMI 21 seeks to hedge flour sales through the purchase of wheat futures or cash wheat. FMI does not speculate in the wheat market. Wheat is purchased from grain merchandisers in Washington, Idaho, Montana and California, and is delivered directly to the mills by rail or truck. During 1998, FMI operated its mills more than 310 days. Bakery products purchased from other food manufacturers are warehoused and distributed, along with FMI-manufactured flour, from FMI's three warehouses in Seattle, Washington; Portland, Oregon and Rancho Cucamonga, California. FMI's distribution division markets its products primarily in the retail bakery and food manufacturing industries. FMI makes deliveries using company owned and leased vehicles with primarily company drivers. As of December 31, 1998 FMI had 215 full-time employees. BUSINESS PRODUCTS FMI's mills produce wheat flour for sale to a wide variety of end-users. FMI primarily serves specialty niche markets with bag product for smaller manufacturers, institutional markets such as restaurants and hotels, retail and in-store bakeries. Bulk flour shipped in rail cars and tanker trucks is delivered to large wholesale bakeries and mix manufacturers. FMI produces approximately 50 grades of flour, ranging from high-gluten spring wheat flour to low-protein cake and cookie flour. FMI believes that it differentiates itself from competitors by producing high quality specialty flours for specific applications. FMI also produces millfeed for sale to the animal feed industry. Millfeed is incorporated into feed rations for dairy cattle and other livestock. FMI's food distribution division purchases and markets approximately 2,000 bakery related items, including grain commodities (such as corn, oats, rye and barley products), mixes, sugars and shortenings, paper goods, and other items. Where appropriate, FMI takes advantage of bulk buying discounts and exclusive supplier agreements to purchase bakery products at favorable market prices. FMI intends to evaluate and, as appropriate, engage in new mill construction and acquisition of food distribution operations. The food distribution division continues to evaluate expansion opportunities through acquisitions in its current marketing area. COMPETITION The U.S. milling industry is currently composed of 195 flour mills, down from 252 in 1981, with a median mill size of approximately 7,500 cwts. per day capacity. During the same period, the number of milling companies has decreased from 166 to 95. Despite a decline in the number of milling companies, milling capacity has increased. The largest five manufacturers account for approximately 74% of total U.S. production. FMI, at 36,500 cwts of daily capacity (including the output of the Blackfoot facility), ranks 8th in the U.S. MARKETING FMI's milling division markets its products principally in the states of Washington, Oregon and California. The majority of FMI's flour sales are made under contractual agreements with large wholesale bakeries, mix manufacturers, blending facilities, food service distributors, and finished food manufacturers. No flour customer accounted for more than fifteen percent of FMI's total revenues during 1998. FMI's food distribution division, including its wholly-owned subsidiary, Sam Wylde Flour Co., Inc., markets its products primarily within a 100-mile radius of FMI's warehouses. FMI's customer base consists primarily of retail and wholesale bakeries, in-store bakeries, retail and wholesale donut shops, retail and wholesale bagel shops and small food manufacturers. FMI's milling division strives to differentiate itself from its competition with a strong service and technical department, an emphasis on branded products, new product development, and growth through the development of conventional and compact milling units. FMI targets its marketing in food groups that are in emerging or growth product life cycles. These food groups are characterized by growth rates higher than average, fragmented market share and a need for technological assistance in product formulation. FMI evaluates market conditions related to each of its products and will exit certain product categories where market consolidation, over capacity and lack of growth lead to lower flour margins. FMI's milling division also utilizes its technical service department as a value-added sales tool. The technical service department is accountable for developing and training salespersons in the company's network of food service 22 distributors. The technical service department also provides on-site product trouble-shooting and formulation assistance to small retail bakers and restaurants. FMI markets its flour through the use of branded products such as Mondako(R), Golden Mountain(R), and Power(R) and product category branded ingredients under the name Sol BrillanteO. This marketing strategy builds brand identity and differentiates a group of products from other products in the market. Trademarks are also registered in selected international markets in which FMI is engaged in business. In the past three years, FMI has sold products in Russia, Mexico, Japan and Canada. The global currency crisis of 1998 severely restricted export sales to Asia and Russia in the past year. FMI's international sales are not, in the aggregate, material to FMI's financial condition or results of operation. See Note 10 to the Consolidated Financial Statements regarding the amount of international sales. In 1991, FMI became the first milling company in the country to install a new milling concept called a KSU shortflow. The "shortflow" or "compact" process reduces the amount of building and equipment required to mill flour. The electronically controlled modular units can be installed at approximately 60 percent of the cost of a conventional mill and in one-third of the construction time. While compact units do not replace the need for conventional milling capacity, they do provide flexible milling capacity for niche milling segments. Since 1991, FMI has installed five additional compact units, including two units at the Blackfoot facility. To FMI's knowledge, there are only 16 compact milling units in operation in the world. FMI operates six compact milling units (including the Blackfoot facility), and to its knowledge no other milling company operates more than one. FMI thus believes that it is the world leader in compact flour production. RISKS ASSOCIATED WITH FOOD PRODUCTION The food manufacturing and distribution industry is subject to significant risk. The size and distribution of the U. S. wheat crop in any given year can adversely impact, and to date in 1999 adversely impacted, the economics of the Blackfoot mill, which sells most of its product to customers in locations distant from that mill in competition with mills much closer to those customers. Competition in the food industry is intense. Food production is a heavily regulated industry, and federal laws or regulations promulgated by the Food and Drug Administration, or agencies having jurisdiction at the state level, could adversely effect FMI's revenues and results of operations. Certain risks are associated with the production and sale of food products. Food producers can be liable for damages if contaminated food causes injury to consumers. Although flour is not a highly perishable product, FMI is subject to some risk as a result of its need for timely and efficient transportation of its flour. Costs associated with compliance with environmental laws can adversely affect profitability, although FMI's historical and currently anticipated costs of compliance have not had, and are not expected to have in the foreseeable future, a material effect on the capital expenditures, earnings or competitive position of FMI. The amount of wheat available for milling, and consequently the price of wheat, is affected by weather and growing conditions. There is competition for certain staff, including competition for sales staff in the food distribution portion of FMI's business. Loss of key sales staff can, and in some instances has, significantly and adversely affected certain food distribution operations. Production of food products also depends on transportation and can be adversely affected if a key carrier serving a facility (e.g., a railroad) experiences operational difficulties. REAL ESTATE OPERATIONS INTRODUCTION The Company's real estate operations are conducted through Fisher Properties Inc. ("FPI") a wholly owned subsidiary of the Company. FPI is a proprietary real estate company engaged in the acquisition, development, ownership and management of a diversified portfolio of real estate properties, principally located in the Seattle, Washington metropolitan area. FPI had 34 employees as of December 31, 1998. As of December 31, 1998, FPI's portfolio of real estate assets included 24 commercial and industrial buildings containing over 1.1 million square feet of leaseable space with approximately 150 tenants and a 201 slip marina. FPI also owns approximately 320 acres of unimproved land. A partnership in which FPI has a 50% interest has an option to acquire this land and an adjacent 160 acres for future residential development. FPI estimates that, based on capitalization of real estate net operating income, the total fair market value of FPI's real estate holdings was approximately $130 million as of December 31, 1998, excluding any related liabilities and potential liquidation costs. Although the foregoing fair market value estimate is based on information and assumptions considered to be adequate and reasonable by FPI, such estimate requires significant subjective judgments to be made by FPI. Such 23 estimate is not based on technical appraisals and will change from time to time, and could change materially, as economic and market factors change, and as management evaluates those and other factors. FPI's owned real estate is managed, leased, and operated by FPI. More than half of FPI's employees are engaged in activities related to service of FPI's existing buildings and their tenants. FPI does not manage properties for third- party owners, nor does it anticipate doing so in the future. BUSINESS FPI focuses on reducing debt, enhancing the revenue stream of FPI's existing properties, and acquiring or developing selected strategic properties. The cash flow from real estate operations is used entirely to pay real estate debt, maintain properties and otherwise finance real estate operations. As stated in Note 10 to the Consolidated Financial Statements, income from operations reported for the real estate segment excludes interest expense. When interest expense is taken into account, real estate operations have historically had negative income or nominal profit, including negative income in 1997 and 1998. FPI also would have incurred a loss in 1996, except for gain from the sale of real property. The majority of FPI's existing operating properties were developed by FPI. FPI anticipates that most future acquisition and development activities will be located near existing facilities to promote business efficiencies. FPI believes that developing, owning, and managing a diverse portfolio of properties in a relatively small geographic area, minimizes ownership risk. DEVELOPMENT AND ACQUISITION ACTIVITIES FPI plans to increase its ownership of industrial and office properties in the Seattle area. The timing and amount of such increase is uncertain and is subject to a variety of factors, including: interest rates; available real estate opportunities; the relationship of those opportunities to the Company's other business decisions on how much of its capital and borrowing capacity should be devoted to real estate at any given time and how much should be devoted to other aspects of the Company's business. FPI is significantly involved in planning and development of new studio space and corporate offices for Fisher Broadcasting on a block of land owned partially by Fisher Broadcasting and partially by FPI at Fourth Avenue and Denny Way in Seattle known as Fisher Plaza (see "Broadcasting Operations - KOMO TV"). FPI has Board of Directors approval to undertake pre-development activities for additional development of Fisher Plaza at an estimated cost of $2,000,000. From time to time, FPI may consider selling a property when it reaches a certain maturity, no longer fits FPI's investment goals, or is under threat of condemnation. FPI is aware of interest by the Washington State Department of Transportation to acquire, under threat of condemnation for its fair market value, all or a portion of FPI's property on Fourth Avenue South in Seattle (See Note 13 to the Consolidated Financial Statements). Other than the aforementioned, FPI has no current plans to sell any of its properties. 24 OPERATING PROPERTIES FPI's portfolio of operating properties are classified into three business categories: (i) marina properties; (ii) office; and (iii) warehouse and industrial. Note 4 to the Consolidated Financial Statements sets forth the minimum future rentals from leases in effect as of December 31, 1998 with respect to FPI's properties. The following table includes FPI's significant properties:
Land Approx. Ownership FPI's Year Area Rentable % Leased Name and Location Interest Interest Developed (Acres) Space 12/31/98 - ----------------- -------- -------- --------- ------- ----- -------- MARINA Marina Mart Moorings Fee & Leased 100% 1939 5.01 Fee 201 Slips 98% Seattle, WA to & 2.78 Leased 1987 OFFICE West Lake Union Center Fee 100% 1994 1.24 185,000 SF 100% Seattle, WA 487 car garage I-90 Building Fee 100% Renovated .34 28,265 SF 94% Seattle, WA 1990 22 car garage Fisher Business Center Fee 100% 1986 9.75 195,000 SF 99% Lynnwood, WA Parking for 733 cars Marina Mart Fee 100% Renovated * 18,950 SF 100% Seattle, WA 1993 Latitude 47 Restaurant Fee 100% Renovated * 15,470 SF 100% Seattle, WA 1987 1530 Building Fee 100% Renovated * 10,160 SF 100% Seattle, WA 1985 INDUSTRIAL Fisher Industrial Park Fee 100% 1982 and 22.08 398,600 SF 96% Kent, WA 1992 Fisher Commerce Center Fee 100% NA 10.21 171,400 SF 100% Kent, WA Fisher Industrial Center Fee 100% Redeveloped 3.3 80,475 SF 100% Seattle, WA 1980 Pacific North Equipment Co. Fee 100% NA 5.5 38,000 SF 100% Kent, WA 1741 Building Fee 100% Renovated .41 5,212 SF 100% Seattle, WA 1989 * Undivided land portion of Marina.
In addition to the above listed properties, FPI owns a 2.6 acre parking lot that serves Fisher Mills Inc. in Seattle which is expected to be reconfigured by the Port of Seattle during 1999, a one acre parking lot in Seattle that has served Fisher Broadcasting and is part of the redevelopment of the Fisher Plaza discussed above, 320 acres of unimproved land, held for future development, and a small residential property in Seattle. FPI does not currently intend to acquire other parking or residential properties. West Lake Union Center, Fisher Business Center, Fisher Industrial Park, and Fisher Commerce Center are encumbered by liens securing non-recourse, long-term debt financing that was obtained by FPI in connection with the development or refinancing of such properties. Each of these properties produces cash flow that exceeds debt service, and in no case does such debt exceed 75% of the estimated value of the financed property. Total FPI debt is approximately 45% of the estimated value of the total owned real estate. It is FPI's objective to reduce this ratio over time with excess cash flow not needed for capital investments. FPI believes that it currently has sufficient credit and cash flow to meet its investment objectives. 25 RISKS ASSOCIATED WITH REAL ESTATE The development, ownership and operation of real property is subject to varying degrees of risk. FPI's revenue, operating income and the value of its properties may be adversely affected by the general economic climate, the local economic climate and local real estate conditions, including the perceptions of prospective tenants of attractiveness of the properties and the availability of space in other competing properties; FPI's ability to provide adequate management, maintenance and insurance; the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise; and increased operating costs. Several of FPI's properties are leased to, and occupied by, single tenants which occupy substantial portions of such properties. Real estate income and values may also be adversely affected by such factors as applicable laws and regulations, including tax and environmental laws, interest rate levels and the availability of financing. FPI carries comprehensive liability, fire, extended coverage and rent loss insurance with respect to its properties, with policy specifications and insured limits customary for similar properties. There are, however, certain types of losses that may be either uninsurable or not economically insurable. If an uninsured loss occurs with respect to a property, FPI could lose both its invested capital in and anticipated profits from such property. INVESTMENT IN SAFECO CORPORATION A substantial portion of the Company's assets is represented by an investment in 3,002,376 shares of the common stock of SAFECO Corporation, an insurance and financial services corporation ("SAFECO"). The Company has been a stockholder of SAFECO since 1923. At December 31, 1998, the Company's investment constituted 2.2% of the outstanding common stock of SAFECO. The market value of the Company's investment in SAFECO common stock as of December 31, 1998 was approximately $128,915,000, representing 29% of the Company's total assets as of that date. Dividends received with respect to the Company's SAFECO common stock constituted 17.1% of the Company's net income for 1998. A significant decline in the market price of SAFECO common stock or a significant reduction in the amount of SAFECO's periodic dividends could have a material adverse effect on the financial condition or results of operation of the Company. The Company has no present intention of disposing of its SAFECO common stock or its other marketable securities, although such securities are classified as investments available for sale under applicable accounting standards (see "Notes to Consolidated Financial Statements; Note 1: Operations and Accounting Policies: Marketable Securities"). Mr. William W. Krippaehne, Jr., President, CEO, and a Director of the Company, is a Director of SAFECO. SAFECO's common stock is registered under the Securities Exchange Act of 1934, as amended, and further information concerning SAFECO may be obtained from reports and other information filed by SAFECO with the Securities and Exchange Commission (the "Commission"). SAFECO common stock trades on The NASDAQ Stock Market under the symbol "SAFC". ITEM 2. DESCRIPTION OF PROPERTIES. Fisher Broadcasting's television stations operate from offices and studios owned by Fisher Broadcasting and located in Seattle, Washington and Portland, Oregon. Television transmitting facilities and towers are also owned by Fisher Broadcasting. Radio studios are generally located in leased space. Radio transmitting facilities and towers are owned by Fisher Broadcasting, except KWJJ-FM and the stations operated by Sunbrook, where such facilities are situated on leased land. The Seattle flour mill and food distribution facility operate from FMI-owned facilities in Seattle, Washington. The compact flour mill and food distribution facilities located in Portland, Oregon, are owned by FMI. In California, FMI's food distribution activities and compact flour mill operate from leased facilities in Rancho Cucamonga and Modesto, respectively. Property operated by the Company's real estate subsidiary, FPI, is described under "Real Estate Operations - Operating Properties." Real estate projects that are subject to non-recourse mortgage loans are West Lake Union Center, Fisher Business Center, Fisher Industrial Park, and Fisher Commerce Center. The Company believes that the properties owned or leased by its operating subsidiaries are generally in good condition and well maintained, and are adequate for present operations. 26 ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to various claims, legal actions and complaints in the ordinary course of their businesses. In the Company's opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material adverse effect on the consolidated financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS No matters were submitted to a vote of securities holders in the fourth quarter of 1998. PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Bid and ask prices for the Company's Common Stock are quoted in the Pink Sheets and on the OTC Bulletin Board. As of December 31, 1998, there were five Pink Sheet Market Makers and nine Bulletin Board Market Makers. The range of high and low bid prices for the Company's Common Stock for each quarter during the two most recent fiscal years is as follows (adjusted to reflect the two-for- one stock split that was effective March 6, 1998):
Quarterly Common Stock Price Ranges /(1)/ ----------------------------------------- 1998 1997 ---- ---- Quarter High Low High Low - ------- ---- --- ---- --- 1st $64.25 $59.00 $60.50 $48.82 2nd 73.25 63.75 64.00 56.25 3rd 72.50 63.00 65.50 60.50 4th 68.50 57.50 61.50 59.50
- ------------- (1) This table reflects the range of high and low bid prices for the Company's Common Stock during the indicated periods, as published in the NQB Non- NASDAQ Price Report by the National Quotation Bureau. The quotations merely reflect the prices at which transactions were proposed, and do not necessarily represent actual transactions. Prices do not include retail markup, markdown or commissions. The approximate number of record holders of the Company's Common Stock as of December 31, 1998 was 439. In December 1997 the Board of Directors authorized a two-for-one stock split effective March 6, 1998 for shareholders of record on February 20, 1998. In connection with the stock split, the par value of the Company's Common Stock was adjusted from $2.50 per share to $1.25 per share. All share and per share amounts reported in this Form 10-K have been adjusted to reflect the split. The Company paid cash dividends on its Common Stock of $.98 and $1.00 per share (adjusted to reflect the two-for-one stock split described above), respectively, for the fiscal years 1997 and 1998. Commencing in 1998, dividends were declared on a quarterly basis, as opposed to the Company's past practice of declaring an annual dividend payable on quarterly payment dates. Accordingly, the Company declared, on December 2, 1998, a dividend of $.26 per share, payable on March 5, 1999 to shareholders of record on February 19, 1999. Annual cash dividends have been paid on the Company's Common Stock every year since the Company's reorganization in 1971. The Company currently expects that comparable cash dividends will continue to be paid in the future, although its ability to do so may be affected by the terms of the senior secured credit facilities described in Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Position and Results of Operations. ITEM 6. SELECTED FINANCIAL DATA. The following financial data of the Company are derived from the Company's historical audited financial statements and related footnotes. The information set forth below should be read in conjunction with "Management's Discussion and 27 Analysis of Financial Condition and Results of Operations" and the financial statements and related footnotes contained elsewhere in this Registration Statement. Selected Financial Data
Year ended December 31, 1998 1997 1996 1995 1994 --------- -------- -------- -------- --------- (All amounts in thousands except per share data) Sales and other revenue Broadcasting $127,637 $120,792 $111,967 $101,192 $ 87,112 Milling 108,056 123,941 135,697 112,360 93,277 Real estate 12,265 11,446 13,556 10,941 8,659 Corporate and other, primarily dividends and interest income (1) 4,224 3,855 4,000 4,087 3,460 -------- -------- -------- -------- -------- $252,182 $260,034 $265,220 $228,580 $192,508 ======== ======== ======== ======== ======== Operating income Broadcasting $ 33,937 $ 36,754 $ 34,025 $ 31,518 $ 26,066 Milling (1,440) 2,431 3,410 2,907 1,078 Real estate 4,117 3,231 5,749 3,267 2,199 Corporate and other (59) 863 1,948 2,152 2,236 -------- -------- -------- -------- -------- $ 36,555 $ 43,279 $ 45,132 $ 39,844 $ 31,579 ======== ======== ======== ======== ======== Income before effect of a change in accounting method $ 21,057 $ 24,729 $ 26,086 $ 22,683 $ 18,152 Cumulative effect of a change in method of accounting for postretirement benefits (2) (1,305) -------- -------- -------- -------- -------- Net income $ 21,057 $ 24,729 $ 26,086 $ 22,683 $ 16,847 ======== ======== ======== ======== ======== Per common share data (3) Income before effect of a change in accounting method $ 2.47 $ 2.90 $ 3.06 $ 2.66 $ 2.13 Cumulative effect of a change in method of accounting for postretirement benefits (2) (0.15) -------- -------- -------- -------- -------- Net income $ 2.47 $ 2.90 $ 3.06 $ 2.66 $ 1.98 ======== ======== ======== ======== ======== Income per common share assuming dilution: (3) Income before effect of a change in accounting method $ 2.46 $ 2.88 $ 3.05 $ 2.66 $ 2.13 Cumulative effect of a change in method of accounting for postretirement benefits (2) (0.15) -------- -------- -------- -------- -------- Net income assuming dilution $ 2.46 $ 2.88 $ 3.05 $ 2.66 $ 1.98 ======== ======== ======== ======== ======== Cash dividends declared (4) $ 1.01 $ 0.25 $ 1.84 $ 0.76 $ 0.67 ======== ======== ======== ======== ========
28
December 31, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Working capital $ 34,254 $ 36,336 $ 42,271 $ 49,744 $ 47,227 Total assets (5) 439,522 438,753 394,149 353,035 308,072 Total debt 76,736 73,978 74,971 71,869 75,859 Stockholders' equity (5) 266,548 266,851 232,129 203,681 170,751
(1) Included in this amount are dividends received from the Company's investment in SAFECO Corporation common stock amounting to $4,023 in 1998; $3,663 in 1997; $3,333 in 1996; $3,062 in 1995; and $2,822 in 1994. (2) In 1994, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106), which requires that the cost of health care and life insurance benefits provided to certain retired employees be accrued during the years that employees render service. Health care and life insurance benefits are provided to all non- broadcasting employees. The Company elected to immediately recognize the accumulated benefit obligation, measured as of December 31, 1993. Accordingly, the $2,012 cumulative effect of this change in accounting method on years prior to 1994 ($1,305 after income tax effects) is deducted from the results of operations for 1994. (3) Per-share amounts have been adjusted for a two-for-one stock split that was effective March 6, 1998 and a four-for-one stock split that was effective May 15, 1995. (4) 1998 amount includes $.26 per share declared for payment in 1999. 1997 amount was declared for payment in first quarter 1998. 1996 includes $.98 per share declared for payment in 1997. 1994 and 1995 amounts were declared and paid. (5) The Company applies Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), which requires investments in equity securities, be designated as either trading or available-for-sale. While the Company has no present intention to dispose of its investments in marketable securities, it has classified its investments as available-for- sale and, beginning in 1994, those investments are reported at fair market value. Accordingly, total assets include unrealized gain on marketable securities as follows: December 31, 1998 - $131,132; December 31, 1997 - $148,506; December 31, 1996 - $120,468; December 31, 1995 - $105,401; December 31, 1994 - $79,531. Stockholders' equity includes unrealized gain on marketable securities, net of deferred income tax, as follows: December 31, 1998 - $85,236; December 31, 1997 - $96,529; December 31, 1996 - $78,304; December 31, 1995 - $68,510; December 31, 1994 - $51,695. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS This discussion is intended to provide an analysis of significant trends and material changes in the Company's financial position and operating results during the period 1996 through 1998. During this three-year period, the Company's broadcasting subsidiary acquired seven small-market radio stations in Montana and eastern Washington and two radio stations in Portland, Oregon. In July 1996 the milling subsidiary became a 50% member of a Limited Liability Company formed to construct and operate a flour milling facility in Blackfoot, Idaho. During 1997 a second compact milling unit was installed at the Blackfoot site, and construction of a conventional flour mill commenced. Construction of the conventional flour mill was completed in December 1998. In 1996 the Company's real estate subsidiary sold, under threat of condemnation, certain unimproved property in Seattle, Washington and, in 1997, reinvested the proceeds of the sale in income producing property adjacent to an existing industrial park. Each of these transactions had an effect on the comparative results of operations in terms of revenue, costs and expenses, and operating income referred to in the following analysis. The Company plans to continue to implement strategic actions to further improve its competitiveness. These actions include a continuing focus on revenue and net income growth to enhance long-term shareholder value, while at the same time maintaining a strong financial position. 29 CONSOLIDATED RESULTS OF OPERATIONS
Sales and other revenue 1998 % Change 1997 % Change 1996 $252,182,000 -3.0% $260,034,000 -2.0% $265,220,000
Sales and other revenue increased 5.7% and 7.2% for broadcasting and real estate operations, respectively, in 1998, while milling operations experienced a decline of 12.8%. In 1997 sales and other revenue increased 7.9% for broadcasting operations, while milling and real estate operations experienced declines of 8.7% and 15.6%, respectively. Revenue of the corporate segment increased 9.6% in 1998 due to an increase in dividends from marketable securities, and declined by 3.6% in 1997 as increases in dividends from marketable securities were more than offset by reduced interest income as short-term cash investments were liquidated to partially fund acquisition of the Portland radio properties.
Cost of products and services sold 1998 % Change 1997 % Change 1996 $157,526,000 -3.2% $162,715,000 -4.3% $170,016,000 Percentage of 62.5% 62.6% 64.1% revenue
The decrease in cost of products and services sold in 1998 is attributable to lower cost of wheat used to produce flour and lower volume of flour sold by the milling segment, offset by increased costs to acquire, produce, and promote broadcast programming. Lower costs to produce flour offset by increased costs to acquire and produce broadcast programming caused a decrease in cost of products and services sold in 1997. Improved margins at broadcasting and milling operations contributed to a reduction in cost of products and services sold as a percentage of revenue.
Selling expenses 1998 % Change 1997 % Change 1996 $20,203,000 10.8% $18,228,000 7.6% $16,941,000 Percentage of 8.0% 7.0% 6.4% revenue
Selling expenses have increased each year as a result of increased commissions and related expenses resulting from increased broadcasting revenue. During 1998 the milling segment experienced increases in provision for doubtful accounts and advertising and promotion expenses.
General and administrative expenses 1998 % Change 1997 % Change 1996 $37,898,000 5.8% $35,812,000 8.1% $33,131,000 Percentage of 15.0% 13.8% 12.5% revenue
The increase in general and administrative expenses incurred in 1998 relates to additional depreciation of the Seattle broadcasting facility to be replaced by the new Fisher Plaza project in 2000, as well as to increased personnel and other expenses relating to growth and new strategic initiatives at the corporate segment. The fluctuations in general and administrative expenses expressed as a percentage of revenue are due to the fact that such expenses are relatively fixed, and do not vary directly with revenue, while revenues, especially in the flour milling segment, move substantially up or down with wheat markets. The increase in general and administrative expenses incurred in 1997 relates primarily to general and administrative expenses at recently acquired radio stations, as well as increased personnel and other administrative expense at each segment. 30
Interest expense 1998 % Change 1997 % Change 1996 $4,451,000 -18.6% $5,467,000 -3.6% $5,671,000
Interest expense declined in 1998 compared with 1997 due to lower average borrowing outstanding during 1998 and to the capitalization of interest related to borrowing for acquisition of property, plant and equipment. The average interest rate was 6.98% in 1998 and 7.0% in 1997. Interest expense declined in 1997 compared with 1996 due to lower average borrowing outstanding during 1997. The average interest rate was 7.0% in 1997 and 1996.
Provision for federal and state income taxes 1998 % Change 1997 % Change 1996 $11,047,000 -15.6% $13,083,000 -2.2% $13,375,000 Effective tax rate 34.4% 34.6% 33.9%
The provision for federal and state income taxes varies directly with pre- tax income. The effective tax rate is less than the statutory rate for all years primarily due to a deduction for dividends received, offset by the impact of state income taxes, net of the federal income tax benefit. The lower effective tax rate in 1996 compared to 1997 is due primarily to lower state income taxes which included a refund of state tax paid in prior years. Broadcasting Operations
Sales and other revenue 1998 % Change 1997 % Change 1996 $127,637,000 5.7% $120,792,000 7.9% $111,967,000
Notwithstanding that strong demand for television time by political advertisers contributed to record revenues for the broadcasting segment in 1998, overall revenues fell short of management's expectations. This was due in large measure to reduced automotive advertising during the second half of the year. Labor strikes in the automotive, airline, and telecommunications sectors, and consolidation of businesses in the telecommunications and banking industries, resulted in reduction or elimination of advertising budgets compared to previous years. KATU Television in Portland was able to produce a revenue increase of $3,400,000 despite reduced advertising by key automotive and telecommunications accounts. Increased political advertising accounted for nearly 40% of KATU's growth and most of the remaining growth was generated through development of new local advertising accounts and non-traditional revenue. In general, advertiser demand was stronger in the Portland market during 1998 than was the case throughout much of the country, including the Seattle market. For KOMO Television (Seattle), increases in political and national advertising offset a decrease in local business, resulting in an overall revenue increase of $850,000. Automotive advertising in 1998 was nearly $1,200,000 less than the prior year, which accounted for a substantial portion of the station's local revenue decrease. KOMO sales were also impacted by lower audience ratings during the ABC network "prime time" evening period. Newly acquired syndicated programming resulted in improved ratings and revenue during the early afternoon time periods. Radio operations reported a combined revenue increase of $2,500,000 in 1998. Seattle and Portland radio market conditions were strong throughout 1998 with double digit advertising growth noted in each market during the year. Revenue growth for the Seattle radio stations was slightly lower than the market, although STAR 101.5, an Adult Contemporary format FM, benefited from improved audience ratings that moved the station into the top 5 in the market. STAR's revenue growth exceeded that of the market as a result. Revenue for the Portland radio operations improved 3.4% for 1998, less than that of the overall market. A format change on the Portland AM station resulted in a decline in revenue for Portland radio operations during the first half of 1998, with accelerating growth during the second half of the year, as audience ratings began to register and then grow. Revenue growth for the smaller-market radio station group, which has stations in Eastern Washington and Montana, was 8.5%. The increase in 1997 broadcasting revenue compared with 1996, is due in part to revenue earned at KWJJ AM/FM in Portland, Oregon and six radio stations in eastern Washington and Montana acquired between May 1996 and January 1997. These stations contributed net revenue of approximately $8,500,000 during 1997, compared with $4,600,000 in 1996. Revenue from the Company's Seattle radio stations (KOMO AM, KVI AM and STAR 101.5) increased $3,000,000 over 1996 due to a strong advertising market during 1997. Revenue from KOMO Television in Seattle increased approximately 31 $3,000,000 in 1997 as a result of increased local and national advertising revenue, offset by lower revenue from political advertising in 1997 which was not a major political year.
Income from operations 1998 % Change 1997 % Change 1996 $33,937,000 -7.7% $36,754,000 8.0% $34,025,000 Percentage of 26.6% 30.4% 30.4% revenue
Following the strongest year in the broadcasting subsidiary's history, operating income declined in 1998. The decline resulted from revenue growth that did not meet management's expectations and did not fully offset increased expenses at several of the operations. Specifically, programming costs increased due to the acquisition of new syndicated programs, investment in news programming, and emphasis on promotion. Both KOMO Television in Seattle and KATU Television in Portland expanded news programming in response to intense competition for local news audience. Syndicated programming costs also increased at both stations. KOMO's 1998 results reflect the full-year cost of programming acquired during the Fall of 1997. KATU incurred additional costs to renew existing programs at higher license fees. The Portland radio group also incurred higher programming costs in 1998 as a consequence of changing the format of the AM station from music to talk. This change, which occurred during the fourth quarter of 1997, entailed the licensing of syndicated programming as well as hiring of local program hosts. The Seattle radio group also added new syndicated programming on its AM stations and increased promotion of its FM station, STAR 101.5. The increase in 1997 operating income compared with 1996 is primarily due to higher revenue at most broadcasting properties. Increased costs to acquire and produce broadcast programming were offset by cost control on operating expenses. Milling Operations
Sales and other revenue 1998 % Change 1997 % Change 1996 $108,056,000 -12.8% $123,941,000 -8.7% $135,697,000
Flour prices are largely dependent on the cost of wheat purchased to produce flour. During 1998 and 1997 wheat prices were lower than the historically high levels experienced in 1996. Average flour prices in 1998 were 8.4% lower than in 1997, and flour sales volume declined 3.9%, with the result that milling division revenue was $13,995,000, or 17.9% below the 1997 level. Average flour prices in 1997 were 13% lower than in 1996. An increase in flour sales volume of 6.9% during 1997 was not sufficient to offset the effect of lower prices, and 1997 milling division revenue declined $4,916,000 or 5.9%. 1998 food distribution revenue was $1,890,000, or 4.1% below 1997 levels. Food distribution division revenue decreased $6,761,000 or 12.9% in 1997. The declines in both years are due to a combination of lower sales prices, particularly for flour products, and lower sales volume, particularly in the Southern California market served by the Los Angeles Food Distribution Center where reorganization of sales territories, changes in sales personnel and strong competition negatively impacted volume.
Income from operations 1998 % Change 1997 % Change 1996 $(1,440,000) -159.2% $2,431,000 -28.7% $3,410,000 Percentage of -1.3% 2.0% 2.5% revenue
Income from operations is determined by deducting operating expenses from gross margin on sales. 1998 proved to be an extraordinarily difficult year for the milling segment. Flour margins were depressed for several reasons. As discussed above, wheat markets remained in retreat, forcing flour prices lower. At the same time industry milling capacity increased approximately 19,000 daily hundred-weights (cwts), and the industry experienced a substantial decrease in export sales of wheat and flour. For Fisher, where the largest export sales market was Eastern Russia, shipments dropped from 475,000 cwts in 1997 to 60,000 in 1998 with a corresponding loss in margin of approximately $400,000. Bad debt expense was adversely impacted by several failures of export and domestic customers to honor their contracts and to pay their debts. Also the industry, and Fisher, suffered substantial reductions in revenues and margins on millfeed, that portion of the wheat that does not yield flour and is sold into the animal feed markets resulting in a decline in monthly margin of approximately $70,000 from January to December, 1998. 32 The distribution division had mixed results during 1998. The Seattle and Portland units operated well, building sales revenues, market share and improving profitability over the previous year. In contrast, the Southern California unit suffered significant losses. Partly due to management turnover the unit was unable to effectively control operations and compete. Management believes that core business unit performance of the Southern California operations showed improvement in the fourth quarter of 1998. Flour milling operations were dominated by the construction and startup of the new conventional mill in Blackfoot, Idaho, which is owned by the Koch Fisher Mills L.L.C., in which Fisher Mills has a 50% ownership interest. The conventional mill was under construction throughout 1998 and began initial operations in December. Earnings of the L.L.C. were negatively impacted by costs incurred to recruit, hire and train personnel pending start up of the new unit. Fisher Mills has operating and sales responsibilities under the L.L.C. agreement, and incurred significant sales, marketing, and promotional expenses related to the development and startup of the new mill. Fisher's Seattle mill also incurred overtime costs and significant packaging and logistics expenses as it serviced customers which will be transferred to the L.L.C. when the new milling unit is in full commercial operation. In 1997 the gross margin percentage increased at both the milling and food distribution divisions. However, lower wheat prices and lower food distribution volume, particularly at Los Angeles, offset the improvements through a reduction in revenue. Operating expenses remained consistent during 1997 and 1996. Real Estate Operations
Sales and other revenue 1998 % Change 1997 % Change 1996 $12,265,000 7.2% $11,446,000 -15.6% $13,556,000
A gain on sale of real estate amounting to $2,300,000 that occurred in April 1996 affects comparability of sales and other revenue between the periods. If the 1996 amount is adjusted to exclude that transaction, 1998 and 1997 revenue increased 9.0% and 1.7%, respectively, over 1996. Real estate market conditions were strong in the Seattle area, and contributed to an average occupancy level of 98.2% during 1998, and higher rental rates for new and renewing leases. Average occupancy levels in 1997 and 1996 were 94.0% and 95.1%, respectively. The decline in average occupancy for 1997 was largely attributable to a vacancy during part of the year resulting from bankruptcy of a tenant.
Income from operations 1998 % Change 1997 % Change 1996 $4,117,000 27.4% $3,231,000 -43.8% $5,749,000 Percentage of 33.6% 28.2% 42.4% revenue
The 1996 real estate gain similarly affects comparability of income from operations between the periods. When the gain is excluded, operating income as a percentage of revenue is 30.6% in 1996. The improvement in 1998 income from operations compared with 1997, and as a percent of revenue, is due to increased revenue, and to lower administrative and net operating expenses. Lower occupancy plus higher personnel costs and other expenses incurred during 1997 in connection with systems improvement, and in anticipation of future business opportunities, contributed to the change in operating income as a percentage of revenue. Liquidity and Capital Resources As of December 31, 1998, the Company had working capital of $34,254,000 and cash and short-term cash investments totaling $3,968,000. The Company intends to finance working capital, debt service, capital expenditures, and dividend requirements primarily through operating activities. However, the Company will consider using available lines of credit to fund acquisition activities and significant real estate project development activities. In this regard, the Company has obtained a five-year unsecured revolving line of credit from a bank in a maximum amount of $100,000,000 to finance construction of a new digital broadcasting facility for KOMO Television (to be called Fisher Plaza), and for general corporate purposes. The revolving line of credit is governed by a credit agreement which provides that borrowings under the line will bear interest at a variable rate not to exceed the bank's publicly announced reference rate. The agreement also places limitations on the disposition or encumbrance of certain assets and requires the Company to maintain certain financial ratios. The Company has a commitment from a bank for eight-year senior secured credit facilities in the amount of $230,000,000 to finance the Retlaw acquisition and for general corporate purposes. See Note 12 to the consolidated financial statements for information concerning the acquisition. The senior credit facilities will be secured by a first priority perfected security 33 interest in the voting capital stock of the broadcasting subsidiary. The facilities will also place limitations on the disposition or encumbrance of certain assets and require the Company to maintain certain financial ratios. In addition to an amortization schedule which will require repayment of all borrowings under the facilities by June 2007, the amount available under the facilities will reduce each year beginning in 2002. Amounts borrowed under the facilities will bear interest at variable rates based on the Company's ratio of funded debt to operating cash flow, however will not exceed the bank's prime rate plus 75 basis points. For the year ended December 31, 1998 net cash provided by operating activities was $38,994,000. Net cash provided by operating activities consists of the Company's net income, increased by non-cash expenses such as depreciation and amortization, and adjusted by changes in operating assets and liabilities. Net cash used in investing activities during 1998 was $35,541,000. The principle uses of cash in investing activities were $10,648,000 invested in the 50% owned Koch Fisher Mills L.L.C., and $25,075,000 to purchase property, plant and equipment used in operations, including $11,772,000 for construction of the Fisher Plaza project. Net cash used in financing activities was $5,822,000. Cash provided for financing activities was obtained through borrowings of $12,000,000 under the line of credit to finance the Fisher Plaza project. Proceeds from these net borrowings were used to reduce net borrowings under lines of credit and notes from shareholders and directors, to finance acquisition of assets of the radio stations, investment in the L.L.C. referred to above, and purchase of property, plant and equipment to the extent such purchases exceeded net cash provided by operating activities. In addition, during 1998 the Company repaid $4,218,000 due on borrowing agreements and mortgage loans, and received proceeds of $57,000 from the exercise of stock options. Cash paid for dividends to stockholders totaled $8,637,000 or $1.00 per share. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The market risk in the Company's financial instruments represents the potential loss arising from adverse changes in financial and commodity market prices and rates. The Company is exposed to market risk in the areas of interest rates, securities prices and grain prices. These exposures are directly related to its normal funding and investing activities and to its use of agricultural commodities in its operations. Interest Rate Exposure The Company's strategy in managing exposure to interest rate changes is to maintain a balance of fixed- and variable-rate instruments. See Note 5 to the consolidated financial statements for information regarding the contractual interest rates of the Company's debt. The Company will also consider entering into interest rate swap agreements at such times as it deems appropriate. At December 31, 1998, the fair value of the Company's debt is estimated to approximate the carrying amount. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10 percent change in interest rates, and on the Company's fixed rate debt, amounts to $2,117,000 at December 31, 1998. The Company also has $24,121,000 in variable-rate debt outstanding at December 31, 1998. A hypothetical 10 percent change in interest rates underlying these borrowings would result in a $121,000 annual change in the Company's pre- tax earnings and cash flows. Marketable Securities Exposure The fair value of the Company's investments in marketable securities at December 31, 1998 is $132,281,000. Marketable securities consist of equity securities traded on a national securities exchange or reported on the NASDAQ securities market. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation. As of December 31, 1998, these shares represented 2.2% of the outstanding common stock of SAFECO Corporation. While the Company has no intention to dispose of its investments in marketable securities, it has classified its investments as available-for-sale under applicable accounting standards. Mr. William W. Krippaehne, Jr., President, CEO, and a Director of the Company, is a Director of SAFECO. A hypothetical 10 percent change in market prices underlying these securities would result in a $13,228,000 change in the fair value of the marketable securities portfolio. Although changes in securities prices would affect the fair value of the marketable securities portfolio and cause unrealized gains or losses, such gains or losses would not be realized unless the investments are sold. 34 Commodity Price Exposure The Company has exposure to adverse price fluctuations associated with its grain and flour inventories, product gross margins, and certain anticipated transactions in its milling operations. Commodities such as wheat are purchased at market prices that are subject to volatility. As an element of its strategy to manage the risk of market price fluctuations, the Company enters into various exchange-traded futures contracts. The Company closely monitors and manages its exposure to market risk on a daily basis in accordance with formal policies established for this activity. These policies limit the level of exposure to be hedged. All transactions involving derivative financial instruments are required to have a direct relationship to the price risk associated with existing inventories or future purchase and sales of its products. The Company enters into both forward purchase and sales commitments for wheat flour. At the same time, the Company enters into generally matched transactions using offsetting forward commitments and/or exchange-traded futures contracts to hedge against price fluctuations in the market price of wheat. The Company determines the fair value of its exchange-traded contracts based on the settlement prices for open contracts, which are established by the exchange on which the instruments are traded. The margin accounts for open commodity futures contracts, which reflect daily settlements as market values change, represent the Company's basis in those contracts. As of December 31, 1998, the carrying value of the Company's investment in commodities futures contracts and the total net deferred gains and losses on open contracts are immaterial. At December 31, 1998, the actual open positions of these instruments and the potential near-term losses in earnings, fair value, and/or cash flows from changes in market rates or prices are not material. YEAR 2000 The Year 2000 or Y2K problem is somewhat predictable in its timing, but unpredictable in its effects. In order to conserve limited computer memory, many computer systems, software programs, and other microprocessor dependent devices were created using only two digit dates, such that 1998 was represented as 98. These systems may not recognize certain 1999 dates, and the year 2000 and beyond, with the result that processors and programs may fail to complete the processing of information or revert back to the year 1900. As we approach the year 2000, we expect computer systems and software used by many companies in a wide variety of applications to experience operating difficulties unless they are modified or upgraded to process information involving, related to, or dependent upon the century change. Failures could incapacitate systems essential to the functioning of commerce, building systems, consumer products, utilities, and government services locally as well as worldwide. Significant uncertainty exists concerning the scope and magnitude of problems associated with Y2K. State Of Readiness The Company recognized the need to reduce the risks of Year 2000 related failures, and in August 1998 established a Y2K Task Force to address these risks. The Y2K Task Force, comprised of senior management from each of the Company's business segments and third party consultants, is leading the Year 2000 risk management efforts. The Y2K Task Force is coordinating the identification and testing of computer hardware and software applications, with a goal to ensure availability and integrity of the information systems and the reliability of the operational systems and manufacturing processes utilized by the Company and its subsidiaries. The Company has adopted a five-step process toward Year 2000 readiness:
Projected Completion Date Internal Systems Inventory 2nd Quarter 1999 Systems Testing and Repairs 2nd Quarter 1999 External Risk Assessment 2nd Quarter 1999 Contingency Planning 4th Quarter 1999 Financial Risk Transfer On-going
The Company has approached the first two items in its five-step process (Internal systems Inventory and Systems Testing and Repair) as a single task, and has divided this task into four major categories. . Building Systems . Information Systems . Broadcast Equipment . Milling Equipment 35 The Company has conducted a comprehensive evaluation of a majority of its building systems, related computer equipment and components that could be potentially impacted. Building computer system testing is also underway. To date, problems discovered in our building systems are minor and usually relate to building security systems. These problems are being addressed. Information systems are being tested with a licensed software program; a diagnostic tool designed for personal computers and servers that will identify Y2K issues related to computer hardware, software and data. To date, this testing appears to have been successful and has yielded no significant problems. With the constant introduction of new computer equipment and software, information systems testing will continue throughout the year. The Company has arranged with a systems integration company to provide a comprehensive Y2K assessment program for television and radio broadcast equipment. The systems integration company has considerable experience in the design and integration of conventional and digital communications, computer and broadcast facilities, as well as in large system integration. The systems integration company also has extensive experience working with major television networks and broadcasting companies in systems assessment. The Company is nearing completion of a comprehensive inventory of potential Y2K effected equipment at each of the milling locations. Compliance letters have been received from key vendors and testing of equipment will begin early in the second quarter, and will continue throughout the year as we increase our knowledge base. Risks The Company also faces risk to the extent suppliers of products, services, and systems relied upon by the Company and others with whom the Company or its subsidiaries transact business do not comply with Year 2000 requirements. In the event such third parties cannot provide the Company or its subsidiaries with products, services, or systems that meet the Year 2000 requirements on a timely basis, or in the event Year 2000 issues prevent such third parties from timely delivery of products or services required by the Company or its subsidiaries, the Company's results of operations could be materially adversely affected. To the extent Year 2000 issues cause significant delays in, or cancellation of, decisions to purchase, the Company's products or services, the Company's business, results of operations, and financial position would be materially adversely affected. The Company is assessing these risks and in some cases has initiated formal communications with significant suppliers and customers to determine the extent to which the Company is vulnerable to these third parties' failure to remediate their own Year 2000 issues. There can be no assurance the Company will identify and remediate all significant Year 2000 risks, or that such risks will not have a material adverse effect on the Company's business, results of operations, or financial position. Accordingly, the Company will continue to develop contingency plans in anticipation of unexpected Year 2000 events. Based on its assessment of year 2000 risks to date, the Company does not believe any material exposure to significant business interruption exists as a result of Year 2000 compliance issues. Contingency Plans Since the Year 2000 problem is pervasive, few, if any, companies can make absolute assurances that they will identify and remediate all Y2K risks. Accordingly, the Company expects the risk assessment and contingency planning to remain an ongoing process leading up to and beyond the year 2000. In addition, the potential Year 2000 problem is being addressed as part of the Company's overall emergency preparedness program that includes contingency planning for other potential major catastrophes like earthquakes, fires and floods. The Companies approach to Financial Risk Transfer has two main areas of focus. . Secure the broadest insurance coverage available at a reasonable cost and avoid exclusions or restrictions of coverage. . Explore other Financial Risk Transfer products and/or Y2K specific insurance coverage to the extent that it becomes available at economically feasible levels. Estimated Costs The Company is continuing to assess the potential impact of the century change on its business, results of operations, and financial position. The total cost of these Year 2000 compliance activities is not anticipated to be material to the Company's financial position or its results of operations. The cost of internal resources dedicated to the Year 2000 has not been estimated at this time. The Company currently estimates that the cost of assessment and testing of broadcast equipment will approximate $300,000. 36 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The discussion above under "Year 2000" includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). This statement is included for the express purpose of availing the Company of the protections of the safe harbor provisions of the PSLRA. Management's ability to predict results or the effect of future plans is inherently uncertain, and is subject to factors that may cause actual results to differ materially from those projected. Factors that could affect the actual results include the possibility that remediation programs will not operate as intended, the Company's failure to timely or completely identify all software or hardware applications requiring remediation, unexpected costs, and the uncertainty associated with the impact of year 2000 issues on the Company's customers, vendors and others with whom it does business. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and related documents listed in the index set forth in Item 14 in this report are filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the headings "Information With Respect to Nominees and Directors Whose Terms Continue", "Security Ownership of Certain Beneficial Owners and Management", and "Compliance With Section 16(a) Filing Requirements" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 29,1999, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the heading "Executive Compensation" and "Information With Respect to Nominees and Directors Whose Terms Continue" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 29, 1999, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 29, 1999, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the heading "Transactions With Management" contained in the definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on April 29, 1999, is incorporated herein by reference. 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Reports of Management and Independent Accountants. (2) Consolidated Statement of Income for the years ended December 31, 1998, December 31, 1997 and December 31, 1996. (3) Consolidated Statements of Stockholders' Equity. (4) Consolidated Balance Sheets at December 31, 1998 and December 31, 1997. (5) Consolidated Statements of Cash Flows for the years ended December 31, 1998, December 31, 1997 and December 31, 1996. (6) Consolidated Statements of Comprehensive Income for the years ended December 31, 1998, December 31, 1997 and December 31, 1996. (7) Notes to Consolidated Financial Statements. (8) Financial Statement Schedule: 8.1 Report of Independent Accountants 8.2 Schedule III - Real Estate and Accumulated Depreciation at December 31, 1998 (b) Exhibits: See "Exhibit Index." (c) Forms 8-K filed during fiscal year 1998. A Form 8-K was filed on November 18, 1998 with respect to the announcement of the Company's proposed acquisition of the broadcasting assets of Retlaw Enterprises, Inc. and related entities. 38 Report of Management Management is responsible for the preparation of the Company's consolidated financial statements and related information appearing in this annual report. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present the Company's financial position and results of operations in conformity with generally accepted accounting principles. Management also has included in the Company's financial statements amounts that are based on estimates and judgments which it believes are reasonable under the circumstances. The independent accountants audit the Company's consolidated financial statements in accordance with generally accepted auditing standards and provide an objective, independent review of the fairness of reported operating results and financial position. The Board of Directors of the Company has an Audit Committee composed of five non-management Directors. The Committee meets periodically with management and the independent accountants to review accounting, control, auditing and financial reporting matters. /s/ William W. Krippaehne, Jr. William W. Krippaehne, Jr. President and Chief Executive Officer /s/ David D. Hillard David D. Hillard Senior Vice President and Chief Financial Officer Report of Independent Accountants To the Stockholders and Board of Directors of Fisher Companies Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of stockholders' equity, of comprehensive income and of cash flows present fairly, in all material respects, the financial position of Fisher Companies Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington March 3, 1999 39 FISHER COMPANIES INC. AND SUBSIDIARIES Consolidated Statement of Income
Year Ended December 31 1998 1997 1996 --------- -------- -------- (In Thousands Except Per Share Amounts) Sales and other revenue Broadcasting $127,637 $120,792 $111,967 Milling 108,056 123,941 135,697 Real estate 12,265 11,446 13,556 Corporate and other, primarily dividends and interest income 4,224 3,855 4,000 -------- -------- -------- 252,182 260,034 265,220 -------- -------- -------- Costs and expenses Cost of products and services sold 157,526 162,715 170,016 Selling expenses 20,203 18,228 16,941 General, administrative and other expenses 37,898 35,812 33,131 -------- -------- -------- 215,627 216,755 220,088 -------- -------- -------- Income from operations Broadcasting 33,937 36,754 34,025 Milling (1,440) 2,431 3,410 Real estate 4,117 3,231 5,749 Corporate and other (59) 863 1,948 -------- -------- -------- 36,555 43,279 45,132 Interest expense 4,451 5,467 5,671 -------- -------- -------- Income before provision for income taxes 32,104 37,812 39,461 Provision for federal and state income taxes 11,047 13,083 13,375 -------- -------- -------- Net income $ 21,057 $ 24,729 $ 26,086 -------- -------- -------- Net income per share $2.47 $ 2.90 $ 3.06 Net income per share assuming dilution $2.46 $ 2.88 $ 3.05 Weighted average number of shares outstanding 8,541 8,534 8,530 Weighted average number of shares outstanding assuming dilution 8,575 8,577 8,552
See accompanying notes to consolidated financial statements. 40 FISHER COMPANIES INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity
Accumulated Capital in Other Common Stock Excess Deferred Comprehensive Retained Total Shares Amount of Par Compensation Income Earnings Equity --------- ------- ---------- ------------- -------------- --------- --------- (In thousands except share amounts) Balance Dec. 31, 1995 8,530,344 $10,663 $ 48 $ 68,510 $124,460 $203,681 Net income 26,086 26,086 Other comprehensive income-unrealized gain on securities net of deferred income taxes 9,794 9,794 Dividends (7,432) (7,432) --------- ------ ------ ---------- -------- -------- -------- Balance Dec. 31, 1996 8,530,344 10,663 48 78,304 143,114 232,129 Net income 24,729 24,729 Other comprehensive income-unrealized gain on securities net of deferred income taxes 18,225 18,225 Issuance of common stock under rights and options, and related tax benefit 5,088 6 229 235 Dividends (8,467) (8,467) --------- ------ ------ ---------- -------- -------- -------- Balance Dec. 31, 1997 8,535,432 10,669 277 96,529 159,376 266,851 Net income 21,057 21,057 Other comprehensive income-unrealized gain on securities net of deferred income taxes (11,293) (11,293) Issuance of common stock rights 1,169 $(1,169) Amortization of deferred compensation 436 436 Issuance of common stock under rights and options, and related tax benefit 6,952 9 346 355 Dividends (10,858) (10,858) --------- ------- ---------- ---------- --------- -------- -------- Balance Dec. 31, 1998 8,542,384 $10,678 $1,792 $ (733) $ 85,236 $169,575 $266,548 --------- ------- ---------- ---------- --------- -------- --------
See accompanying notes to consolidated financial statements. 41 FISHER COMPANIES INC. AND SUBSIDIARIES Consolidated Balance Sheet
December 31 1998 1997 --------- -------- (In thousands except share and per share amounts) Assets Current Assets Cash and short-term cash investments $ 3,968 $ 6,337 Receivables 44,481 44,623 Inventories 11,009 14,537 Prepaid expenses 6,993 6,922 Television and radio broadcast rights 8,190 6,912 -------- -------- Total current assets 74,641 79,331 -------- -------- Marketable Securities, at market value 132,281 149,616 -------- -------- Other Assets Cash value of life insurance and retirement deposits 10,900 10,052 Television and radio broadcast rights 49 170 Intangible assets, net of amortization 48,650 49,533 Investments in equity investees 15,126 4,478 Other 3,285 3,117 -------- -------- 78,010 67,350 -------- -------- Property, Plant And Equipment, net 154,590 142,456 -------- -------- $439,522 $438,753 -------- -------- liabilities and stockholders' equity Current Liabilities Notes payable $ 13,479 $ 18,363 Trade accounts payable 8,454 8,117 Accrued payroll and related benefits 5,071 5,274 Television and radio broadcast rights payable 7,675 6,846 Income taxes payable 457 617 Dividends payable 2,221 Other current liabilities 3,030 3,778 -------- -------- Total current liabilities 40,387 42,995 -------- -------- Long-Term Debt, net of current maturities 63,257 55,615 -------- -------- Other Liabilities Accrued retirement benefits 13,298 12,059 Deferred income taxes 55,048 60,495 Television and radio broadcast rights payable, long-term portion 24 Deposits and retainage payable 951 681 -------- -------- 69,297 73,259 -------- -------- Minority Interests 33 33 -------- -------- Commitments and Contingencies (Note 12) Stockholders' Equity Common stock, shares authorized 12,000,000, $1.25 par value; issued 8,542,384 in 1998 and 8,535,432 in 1997 10,678 10,669 Capital in excess of par 1,792 277 Deferred compensation (733) Accumulated other comprehensive income-unrealized gain on marketable securities, net of deferred income taxes of $45,935 in 1998 and $51,977 in 1997 85,236 96,529 Retained earnings 169,575 159,376 -------- -------- 266,548 266,851 -------- -------- $439,522 $438,753 -------- --------
See accompanying notes to consolidated financial statements. 42 FISHER COMPANIES INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows
Year Ended December 31 1998 1997 1996 --------- --------- --------- (in thousands) Cash flows from operating activities Net Income $ 21,057 $ 24,729 $ 26,086 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,176 11,975 10,753 Increase in noncurrent deferred income taxes 595 1,199 1,505 Issuance of stock pursuant to vested stock rights and related tax benefit 298 191 Amortization of deferred compensation 436 Loss (Gain) on sale of property, plant and equipment 466 (2,300) Change in operating assets and liabilities: Receivables 142 (14) (2,934) Inventories 3,528 (1,338) (1,406) Prepaid expenses (71) 937 (1,475) Cash value of life insurance and retirement deposits (848) (690) (481) Income taxes payable (160) (530) (907) Trade accounts payable, accrued payroll and related benefits and other current liabilities (614) (1,285) 4,120 Other assets (168) 570 (385) Accrued retirement benefits 1,239 135 428 Deposits and retainage payable 270 5 (271) Amortization of television and radio broadcast rights 11,822 9,396 8,575 Payments for television and radio broadcast rights (12,174) (9,240) (8,243) -------- -------- -------- Net cash provided by operating activities 38,994 36,040 33,065 -------- -------- -------- Cash flows from investing activities Proceeds from sale of property, plant and equipment 609 2,860 Investments in equity investees (10,648) (3,755) (554) Purchase assets of radio stations (427) (3,949) (36,684) Purchase of property, plant and equipment (25,075) (17,699) (8,730) -------- -------- -------- Net cash used in investing activities (35,541) (25,403) (43,108) -------- -------- -------- Cash flows from financing activities Net (payments) borrowings under notes payable (5,024) 9,004 (4,698) Borrowings under borrowing agreements and mortgage loans 12,000 120 44,000 Payments on borrowing agreements and mortgage loans (4,218) (10,117) (36,200) Proceeds from exercise of stock options 57 44 Cash dividends paid (8,637) (8,467) (7,432) -------- -------- -------- Net cash used in financing activities (5,822) (9,416) (4,330) -------- -------- -------- Net (decrease) increase in cash and short-term cash investments (2,369) 1,221 (14,373) Cash and short-term cash investments,beginning of year 6,337 5,116 19,489 -------- -------- -------- Cash and short-term cash investments, end of year $ 3,968 $ 6,337 $ 5,116 -------- -------- -------- Supplemental cash flow information is included in Notes 5, 7 and 8.
See accompanying notes to consolidated financial statements. FISHER COMPANIES INC. AND SUBSIDIARIES Consolidated Statement of Comprehensive Income
Year Ended December 31 1998 1997 1996 --------- ------- ------- (in thousands) Net Income $ 21,057 $24,729 $26,086 Other comprehensive income-unrealized gain on securities net of deferred income taxes of $(6,042) in 1998, $9,813 in 1997 and $5,273 in 1996 (11,293) 18,225 9,794 -------- ------- -------
43
Comprehensive Income $ 9,764 $42,954 $35,880 -------- ------- -------
See accompanying notes to consolidated financial statements. 44 FISHER COMPANIES INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1 Operations And Accounting Policies The principal operations of Fisher Companies Inc. and subsidiaries are television and radio broadcasting, flour milling and distribution of bakery supplies, and proprietary real estate development and management. The Companies conduct business primarily in Washington, Oregon, California and Montana. A summary of significant accounting policies is as follows: Principles of consolidation The consolidated financial statements include the accounts of Fisher Companies Inc. and its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Short-term cash investments Short-term cash investments comprise repurchase agreements collateralized by U.S. Government securities held by major banks. The recorded amount represents market value because of the short maturity of the investments. The Company considers short-term cash investments which have original maturities of 90 days or less to be cash equivalents. Inventories Inventories of grain and the grain component of finished products are valued at cost. Grain forward contracts are entered into by the milling subsidiary to protect the Company from risks related to commitments to buy grain and sell flour. Gains and losses arising from grain hedging activity are a component of the cost of the related inventory. The market value of hedges is based on spot prices obtained from brokers. All other inventories and inventory components are valued at the lower of average cost or market. Revenue recognition Television and radio revenue is recognized when the advertisement is broadcast. Sales of flour and food products are recognized when the product is shipped. Rentals from real estate leases are recognized over the term of the lease. Television and radio broadcast rights Costs of television and radio broadcast rights are charged to operations using accelerated or straight-line methods of amortization selected to match expense with anticipated revenue over the contract life. Asset costs and liabilities for television and radio broadcast rights are recorded without discount for any noninterest-bearing liabilities. Those costs attributable to programs scheduled for broadcast after one year have been classified as noncurrent assets in the accompanying financial statements. Marketable securities Marketable securities consist of equity securities traded on a national securities exchange or reported on the NASDAQ securities market. A significant portion of the marketable securities consists of 3,002,376 shares of SAFECO Corporation at December 31, 1998 and 1997. As of December 31, 1998, these shares represented 2.2% of the outstanding common stock of SAFECO Corporation. Market value is based on closing per share sale prices. While the Company has no intention to dispose of its investments in marketable securities, it has classified its investments as available-for-sale and those investments are reported at fair market value. Unrealized gains and losses are a separate component of stockholders' equity. Investments in equity investees Investments in equity investees represent investments in 50% owned entities, primarily the Koch Fisher Mills L.L.C. (See Note 11). Intangible assets Intangible assets represent the excess of purchase price of certain broadcast properties over the fair value of tangible net assets acquired (goodwill) and are amortized based on the straight-line method over the estimated useful life of 40 years. Accumulated amortization at December 31, 1998 and 1997 is $3,777,000 and $2,467,000, respectively. The Company periodically reviews its intangible assets to determine whether impairment has occurred. Property, plant and equipment Replacements and improvements are capitalized while maintenance and repairs are charged as expense when incurred. Real estate taxes, interest expense and certain other costs related to real estate projects constructed for lease to third parties are capitalized as a cost of such projects until the project, including major tenant improvements, is substantially completed. A project is generally considered to be substantially completed when a predetermined occupancy level has been reached or the project has been available for occupancy for a period of one year. Costs, including depreciation, applicable to a project are charged to expense based on the ratio of occupied space to total rentable space until the project is substantially completed, after which costs are expensed as incurred. For financial reporting purposes, depreciation of plant and equipment is determined primarily by the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements 30-55 years Machinery and equipment 3-20 years Land improvements 10-55 years 45 Impairment of long-lived assets The Company assesses the recoverability of intangible and long-lived assets by reviewing the performance of the underlying operations, in particular the operating cash flows (earnings before income taxes, depreciation and amortization) of the operation. No losses from impairment of value have been recorded in the financial statements. Income taxes Deferred income taxes are provided for all significant temporary differences in reporting for financial reporting purposes versus income tax reporting purposes. Advertising The Company expenses advertising costs at the time the advertising first takes place. Net advertising expense was $3,588,000, $2,191,000 and $2,507,000 in 1998, 1997 and 1996, respectively. Earnings per share Net income per share represents net income divided by the weighted average number of shares outstanding during the year. Net income per share assuming dilution represents net income divided by the weighted average number of shares outstanding including the potentially dilutive impact of the stock options and restricted stock rights issued under the Fisher Companies Incentive Plan of 1995. Common stock options and restricted stock rights are converted using the treasury stock method. A reconciliation of the number of shares outstanding to the weighted average number of shares outstanding assuming dilution is as follows:
Year Ended December 31 1998 1997 1996 --------- --------- --------- Shares outstanding at beginning of period 8,535,432 8,530,344 8,530,344 Weighted average of shares issued 5,239 3,846 --------- --------- --------- 8,540,671 8,534,190 8,530,344 Dilutive effect of: Restricted stock rights 15,460 23,391 16,166 Stock options 18,785 19,250 5,892 --------- --------- --------- 8,574,916 8,576,831 8,552,402 --------- --------- ---------
Fair value of financial instruments The carrying amount of cash and short-term cash investments, receivables, inventories, marketable securities, trade accounts payable and broadcast rights payable approximate fair value. The fair value of notes payable and long-term debt approximates the recorded amount based on borrowing rates currently available to the Company. Recent accounting pronouncements In June 1998, Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), was issued. This pronouncement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the financial statements and measure them at fair value. FAS 133 is required to be adopted by the Company for the year ended December 31, 2000. Early adoption is permitted. The Company is currently reviewing the requirements of FAS 133 and assessing its impact on the Company's financial statements. The Company has not made a decision regarding the period of adoption. Note 2 Receivables Receivables are summarized as follows (in thousands):
December 31 1998 1997 ------- ------- Trade accounts $45,424 $45,446 Other 413 436 ------- ------- 45,837 45,882 Less-Allowance for doubtful accounts 1,356 1,259 ------- ------- $44,481 $44,623 ------- -------
Note 3 Inventories
Inventories are summarized as follows (in thousands): December 31 1998 1997 ------- ------- Finished products $ 3,906 $ 5,114 Raw materials 6,983 9,258 Spare parts and supplies 120 165 ------- ------- $11,009 $14,537 ------- -------
46 Note 4 Property, Plant And Equipment Property, plant and equipment are summarized as follows (in thousands):
December 31 1998 1997 -------- -------- Buildings and improvements $126,575 $125,066 Machinery and equipment 95,532 93,075 Land and improvements 17,733 18,565 -------- -------- 239,840 236,706 Less-Accumulated depreciation 107,664 100,455 -------- -------- 132,176 136,251 Construction in progress 22,414 6,205 -------- -------- $154,590 $142,456 -------- --------
The Company's real estate subsidiary receives rental income principally from the lease of warehouse, office and retail space, boat moorages and unimproved properties under gross and net leases which expire at various dates through 2005. These leases are accounted for as operating leases. The subsidiary generally limits lease terms to periods not in excess of five years. Minimum future rentals from leases which were in effect at December 31, 1998 are (in thousands):
Year Rentals ---- ------- 1999 $10,176 2000 7,751 2001 5,619 2002 4,568 2003 3,810 Thereafter 2,160 ------- $34,084 -------
Property held by the real estate subsidiary includes property leased to third parties and to other subsidiaries of the Company and property held for future development. The investment in property held for lease to third parties included in property, plant and equipment at December 31, 1998 includes buildings, equipment and improvements of $99,734,000, land and improvements of $13,357,000 and accumulated depreciation of $32,995,000. Interest capitalized relating to construction of property, plant and equipment amounted to approximately $630,000 in 1998. No interest was capitalized in 1997 and 1996. Note 5 Notes Payable And Long-Term Debt Notes payable The Company maintains bank lines of credit which totaled $25,000,000 at December 31, 1998. The lines are unsecured and bear interest at rates no higher than the prime rate. $5,760,000 was outstanding under the lines at December 31, 1998. The notes payable to directors, stockholders and others comprise notes payable on demand. Such notes bear interest at rates equivalent to those available to the Company for short-term cash investments. Interest on such notes amounted to $534,000, $573,000 and $430,000 in 1998, 1997 and 1996, respectively. Notes payable are summarized as follows (in thousands):
December 31 1998 1997 ------- ------- Banks $ 5,760 $ 7,605 Directors, stockholders and others 6,361 9,540 Current maturities of long-term debt 1,358 1,218 ------- ------- $13,479 $18,363 ------- -------
Long-term debt Lines of credit The Company maintains an unsecured reducing revolving line of credit with a bank in the amount of $100,000,000 to finance construction of the Fisher Plaza project (See Note 12) and for general corporate purposes. The line is in the initial amount of $35,000,000, increasing to a maximum amount of $100,000,000 in the fourth year. The revolving line of credit is governed by a credit agreement which provides that borrowings under the line will bear interest at a variable rate not to exceed the bank's publicly announced 47 reference rate. The agreement also places limitations on the disposition or encumbrance of certain assets and requires the Company to maintain certain financial ratios. The line matures in 2003 and may be extended for two additional years. At December 31, 1998 $12,000,000 was outstanding under the line at an interest rate of 5.93%. The Company has a commitment from a bank for eight-year senior secured credit facilities in the amount of $230,000,000 to finance the Retlaw acquisition (See Note 12) and for general corporate purposes. The senior credit facilities will be secured by a first priority perfected security interest in the voting capital stock of the broadcasting subsidiary. The facilities will also place limitations on the disposition or encumbrance of certain assets and require the Company to maintain certain financial ratios. In addition to an amortization schedule which will require repayment of all borrowings under the facilities by June 2007, the amount available under the facilities will reduce each year beginning in 2002. Amounts borrowed under the facilities will bear interest at variable rates based on the Company's ratio of funded debt to operating cash flow, however will not exceed the bank's prime rate plus 75 basis points. Mortgage loans The real estate subsidiary maintains the following mortgage loans: Principal amount of $4,294,000 secured by an industrial park with a book value of $5,873,000 at December 31, 1998. The nonrecourse loan requires monthly payments including interest of $30,000. The loan matures in May 2006 and bears interest at 6.88%. The interest rate is subject to adjustment in May 2001 to the then prevailing market rate for loans of a similar type and maturity; the real estate subsidiary may prepay all or part of the loan on that date. Principal amount of $10,006,000 secured by an industrial park with a book value of $11,764,000 at December 31, 1998 and principal amount of $12,995,000 secured by two office buildings with a book value of $16,992,000 at December 31, 1998. The loans mature in 2008, bear interest at 7.04% and require monthly payments of $78,000 and $101,000, respectively, including interest. These mortgage loans are nonrecourse; however, the real estate subsidiary has guaranteed 20% of the combined outstanding principal balance until certain loan to value ratios are reached. The interest rates are subject to adjustment in December 2003 to the then prevailing rate for loans of a similar type and maturity; all or a portion of the outstanding principal balance may be prepaid on those dates. The agreements provide that the real estate subsidiary maintain a stipulated minimum net worth and hold marketable securities with a market value equal to 75% of the outstanding principal balance of the loans. Principal amount of $25,203,000 secured by an office building and parking structure with a book value of $31,797,000 at December 31, 1998. The nonrecourse loan matures in February 2006, bears interest at 7.72% and requires monthly payments of principal and interest amounting to $221,000. Long-term debt is summarized as follows (in thousands):
December 31 1998 1997 --------- ------- Notes payable under bank line of credit $12,000 $ 3,000 Mortgage loans payable 52,498 53,702 Other 117 131 --------- ------- 64,615 56,833 Less-Current maturities 1,358 1,218 --------- ------- $63,257 $55,615 --------- ------- Future maturities of notes payable and long-term debt are as follows (in thousands): Directors, Mortgage Stockholders Bank Line Loans Banks and Others of Credit and Other Total ------ ------------ --------- --------- ------- 1999 $5,760 $ 6,361 $ 1,358 $13,479 2000 1,460 1,460 2001 1,571 1,571 2002 1,690 1,690 2003 1,858 1,858 Thereafter $12,000 44,678 56,678 ------ ------ ------- --------- ------- $5,760 $6,361 $12,000 $52,615 $76,736 ------ ------ ------- --------- -------
Cash paid for interest (net of amounts capitalized) during 1998, 1997 and 1996 was $4,408,000, $5,512,000 and $6,184,000, respectively. 48 Note 6 Television And Radio Broadcast Rights Television and radio broadcast rights acquired under contractual arrangements were $ 12,981,000 and $10,778,000 in 1998 and 1997, respectively. At December 31, 1998, the broadcasting subsidiary had executed license agreements amounting to $45,631,000 for future rights to television and radio programs. As these programs will not be available for broadcast until after December 31, 1998, they have been excluded from the financial statements. Note 7 Stockholders' Equity The Board of Directors authorized a two-for-one stock split effective March 6, 1998 for stockholders of record on February 20, 1998. In connection with the stock split, the par value of the Company's common stock was adjusted from $2.50 per share to $1.25 per share. All share and per share amounts reported in the financial statements have been adjusted to reflect the stock split. During 1995 the stockholders approved the Fisher Companies Incentive Plan of 1995 (the Plan) which provides that up to 560,000 shares of the Company's common stock may be issued or sold to eligible key management employees pursuant to options and rights through 2002. Stock options The Plan provides that eligible key management employees may be granted options to purchase the Company's common stock at the fair market value on the date the options are granted. The options generally vest over five years and generally expire ten years from the date of grant. Restricted stock rights The Plan also provides that eligible key management employees may be granted restricted stock rights which entitle such employees to receive a stated number of shares of the Company's common stock. The rights generally vest over five years and expire upon termination of employment. Compensation expense of $436,000, $357,000 and $145,000 related to the rights was recorded during 1998, 1997 and 1996, respectively. A summary of stock options and restricted stock rights from the first date of grant on February 28, 1996 is as follows:
Restricted Stock Options Stock Rights -------------------------------- ------------- Weighted Number Average Exercise Number of Shares Price Per Share of Shares -------------- ---------------- ------------- Shares granted February 28, 1996 42,000 $37.25 19,400 ------- ------ ------ Balance, December 31, 1996 42,000 37.25 19,400 Shares granted 69,770 57.50 10,080 Options exercised (1,180) 37.25 Stock rights vested (3,988) Shares forfeited (1,810) 57.50 (1,290) ------- ------ ------ Balance, December 31, 1997 108,780 49.90 24,202 Shares granted 67,250 65.50 5,990 Options exercised (1,402) 40.46 Stock rights vested (5,778) Shares forfeited (1,550) 61.37 (716) ------- ------ ------ Balance, December 31, 1998 173,078 $55.94 23,698 ------- ------ ------
The weighted average remaining contractual life of options outstanding at December 31, 1998 is 8 years. At December 31, 1998 and 1997, options for 28,935 and 7,446 shares are exercisable at a weighted average exercise price of $47.08 and $37.25 per share, respectively. The Company accounts for common stock options and restricted common stock rights issued pursuant to the Plan in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), requires companies who elect to adopt its provisions to utilize a fair value approach for accounting for stock compensation. The Company has elected to continue to apply the provisions of APB 25 in its financial statements. If the provisions of FAS 123 were applied to the Company's stock options, net income, net income per share and net income per share assuming dilution would have been reduced by approximately $443,000, $277,000 and $163,000, or $0.05, $0.03 and $0.02 per share during 1998, 1997 and 1996, respectively. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield of 1.89%, 2.05% and 2.07%, volatility of 17.38%, 15.16% and 17.77%, risk-free interest rate of 5.61%, 6.38% and 5.74%, 49 assumed forfeiture rate of 0%, and an expected life of 5 years in all three years. Under FAS 123, the weighted average fair value of stock options granted during 1998, 1997 and 1996, respectively, was $14.40, $12.36 and $8.06. 50 Cash dividends are as follows (in thousands except per share amounts):
Year Ended December 31 1998 1997 1996 ------ ------ ------ Fisher Companies Inc. common stock, $1.00, $.98 and $.86 per share, respectively $8,540 $8,363 $7,337 Subsidiary's preferred stock held by minority interest 97 104 95 ------ ------ ------ $8,637 $8,467 $7,432 ------ ------ ------
On December 3, 1998 the Board of Directors declared a dividend in the amount of $.26 per share payable March 5, 1999 to stockholders of record February 19, 1999. Note 8 Income Taxes Income taxes have been provided as follows (in thousands):
Year Ended December 31 1998 1997 1996 ------- ------- ------- Payable currently $10,968 $12,052 $11,630 Current and noncurrent deferred income taxes 79 1,031 1,745 ------- ------- ------- $11,047 $13,083 $13,375 ------- ------- -------
Reconciliation of income taxes computed at federal statutory rates to the reported provisions for income taxes is as follows (in thousands):
Year Ended December 31 1998 1997 1996 -------- --------- --------- Normal provision computed at 35% of pretax income $11,236 $ 13,234 $ 13,811 Dividends received credit (1,013) (925) (844) State taxes, net of federal tax benefit 715 654 309 Other 109 120 99 ------- -------- -------- $11,047 $ 13,083 $ 13,375 ------- -------- -------- Deferred tax assets (liabilities) are summarized as follows (in thousands): December 31 1998 1997 -------- -------- Current: Accrued employee benefits $ (528) $ (839) Allowance for doubtful accounts 490 453 Accrued property tax (349) (321) Other 349 207 -------- -------- $ (38) $ (500) -------- -------- Noncurrent: Unrealized gain on marketable securities $(45,935) $(51,977) Property, plant and equipment (12,350) (11,538) Accrued employee benefits 3,237 3,020 -------- -------- $(55,048) $(60,495) -------- --------
The current deferred tax liability is reflected in other current liabilities. Cash paid for income taxes during 1998, 1997 and 1996 was $11,011,000, $12,457,000 and $12,636,000, respectively. Note 9 Retirement Benefits The Company and its subsidiaries have qualified defined benefit pension plans covering substantially all of their employees not covered by union plans. Benefits are based on years of service and, in one of the pension plans, on the employees' compensation at retirement. The Companies accrue annually the normal costs of their pension plans plus the amortization of prior service costs over periods ranging to 15 years. Such costs are funded in accordance with provisions of the Internal Revenue Code. 51 Changes in the projected benefit obligation and the fair value of assets for the Companies' pension plans are as follows (in thousands):
December 31 1998 1997 -------- -------- Projected benefit obligation-beginning of year $27,973 $25,668 Service cost 1,345 1,334 Interest cost 2,032 1,882 Liability experience 2,640 1,042 Benefit payments (1,909) (1,953) ------- ------- Projected benefit obligation-end of year $32,081 $27,973 ------- ------- Fair value of plan assets-beginning of year $30,258 $26,745 Actual return on plan assets 601 4,427 Contributions by employer 1,101 Benefits paid (1,909) (1,953) Plan expenses (134) (62) ------- ------- Fair value of plan assets-end of year $28,816 $30,258 ------- -------
The composition of the prepaid pension cost and the funded status are as follows (in thousands):
December 31 1998 1997 ------- ------- Projected benefit obligation $32,081 $27,973 Fair value of plan assets 28,816 30,258 ------- ------- Funded status (3,265) 2,285 Unrecognized transition asset (56) Unrecognized prior service cost 269 319 Unrecognized net (gain) loss 4,624 (32) ------- ------- Prepaid pension cost $ 1,628 $ 2,516 ------- -------
The net periodic pension cost for the Companies' qualified defined benefit pension plans is as follows (in thousands):
Year Ended December 31 1998 1997 1996 -------- -------- -------- Service cost $ 1,345 $ 1,334 $ 1,182 Interest cost 2,032 1,882 1,739 Expected return on assets (2,483) (2,202) (1,988) Amortization of transition asset (56) (67) (67) Amortization of prior service cost 50 375 449 Amortization of loss 18 18 ------- ------- Net periodic pension cost $ 888 $ 1,340 $ 1,333 ------- ------- -------
The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 1998 and 1997 was 7.5%; the rate of increase in future compensation was 4.5%. The expected long-term rate of return on assets ranged from 8.5% to 9.25% in both years. The Company and its subsidiaries have a noncontributory supplemental retirement program for key management. The program provides for vesting of benefits under certain circumstances. Funding is not required, but generally the Companies have acquired annuity contracts and life insurance on the lives of the individual participants to assist in payment of retirement benefits. The Companies are the owners and beneficiaries of such policies; accordingly, the cash value of the policies as well as the accrued liability are reported in the financial statements. The program requires continued employment through the date of expected retirement and the cost of the program is accrued over the participants' remaining years of service. 52 Changes in the projected benefit obligation and accrued pension cost of the Companies' supplemental retirement program are as follows (in thousands):
December 31 1998 1997 -------- -------- Projected benefit obligation-beginning of year $11,372 $11,256 Service cost 443 344 Interest cost 649 618 Liability experience (465) Assumption changes 330 332 Benefit payments (694) (713) ------- ------- Projected benefit obligation-end of year 12,100 11,372 Appreciation of policy value 301 142 Unrecognized net loss (1,171) (1,196) ------- ------- Accrued pension cost $11,230 $10,318 ------- -------
The net periodic pension cost for the Companies' supplemental retirement program is as follows (in thousands):
Year Ended December 31 1998 1997 1996 ------ ------- ------- Service cost $ 443 $ 344 $ 336 Interest cost 649 618 577 Amortization of transition asset (1) (1) (1) Amortization of loss 47 26 35 ------ ------- ------- Net periodic pension cost $1,138 $ 987 $ 947 ------ ------- -------
The discount rate used in determining the actuarial present value of the projected benefit obligation at December 31, 1998 and 1997 was 7.5%; the rate of increase in future compensation was 4.5%. The Companies have two defined contribution retirement plans which are qualified under Section 401(k) of the Internal Revenue Code. All U.S. employees who are age 21 or older and have completed one year of service are eligible to participate. The Companies match employee contributions up to a maximum of 3% of gross pay. Employer contributions to the plans were $1,036,000, $876,000 and $940,000 in 1998, 1997 and 1996, respectively. The Companies' net periodic postretirement cost was $109,000, $64,000 and $112,000 in 1998, 1997 and 1996, respectively. The accrued postretirement benefit cost at December 31, 1998 and 1997 was $1,859,000 and $1,866,000, respectively. The discount rate used in determining the actuarial present value of the accumulated postretirement benefit obligation at December 31, 1998 and 1997 was 6.75% and 7.5%, respectively. A one percent increase in the health care cost trend rate would not have had a significant effect on plan costs or the accumulated benefit obligation in 1998 and 1997. Plan costs are generally based on a defined maximum employer contribution which is not directly subject to health care cost trend rates. 53 Note 10 Segment Information The operations of the Company are organized into three principal business segments, broadcasting, milling and real estate. Operating results and other financial data for each segment are as follows (in thousands):
Corporate, Eliminations Broadcasting Milling Real Estate & Other Consolidated ------------ --------- ----------- ------------- ------------ Sales and other revenue 1998 $127,637 $108,056 $12,265 $ 4,224 $252,182 1997 120,792 123,941 11,446 3,855 260,034 1996 111,967 135,697 13,556 4,000 265,220 Income from operations 1998 $ 33,937 $ (1,440) $ 4,117 $ (59) $ 36,555 1997 36,754 2,431 3,231 863 43,279 1996 34,025 3,410 5,749 1,948 45,132 Interest expense 1998 $ 20 $ 4,053 $ 378 $ 4,451 1997 4,156 1,311 5,467 1996 4,365 1,306 5,671 Identifiable assets 1998 $148,046 $ 66,097 $86,766 $138,613 $439,522 1997 135,896 60,007 88,770 154,080 438,753 1996 120,911 57,638 86,600 129,000 394,149 Capital expenditures 1998 $ 20,091 $ 1,948 $ 2,961 $ 75 $ 25,075 1997 8,978 2,933 5,729 59 17,699 1996 5,092 2,207 1,365 66 8,730 Depreciation and amortization 1998 $ 6,304 $ 2,353 $ 4,455 $ 64 $ 13,176 1997 5,325 2,239 4,355 56 11,975 1996 4,391 2,009 4,314 39 10,753
Intersegment sales are not significant. Income from operations by business segment is total sales and other revenue less operating expenses. In computing income from operations by business segment, interest income and dividends from marketable securities have not been added, and interest expense, income taxes and unusual items have not been deducted. Income before provision for income taxes is computed by deducting interest expense from income from operations. Identifiable assets by business segment are those assets used in the operations of each segment. Corporate assets are principally marketable securities. Capital expenditures are reported exclusive of acquisitions. No geographic areas outside the United States were material relative to consolidated sales and other revenue, income from operations or identifiable assets. Export sales by the milling subsidiary were $723,000 in 1998, $6,100,000 in 1997 and $2,600,000 in 1996. Note 11 Acquisitions In June 1996 assignment of FCC licenses for radio broadcasting stations KWJJ AM/FM in Portland, Oregon was completed, and the broadcasting subsidiary acquired the assets, including real estate, of those stations for $35.2 million. Additionally, during May and June 1996, upon assignment of FCC licenses, the broadcasting subsidiary acquired the assets of four radio broadcasting stations in eastern Washington and Montana for $1.5 million. In January 1997 assignment of Federal Communication Commission (FCC) licenses for two radio broadcasting stations in Missoula, Montana was completed, and the broadcasting subsidiary acquired the assets, including real estate, of those stations for $3.9 million. In November 1997, upon assignment of FCC licenses, the broadcasting subsidiary acquired the assets of a radio broadcasting station in Wenatchee, Washington for $335,000 plus certain additional costs in 1998. The above transactions are accounted for under the purchase method. Accordingly, the Company has recorded identifiable assets and liabilities of the acquired stations at their fair market value. The excess of the purchase price over the fair market value of the assets acquired has been allocated to goodwill. The results of operations of the acquired radio stations are included in the financial statements from the date of acquisition. Unaudited pro forma results as if the acquired stations had been included in the financial results during the 54 year of acquisition and the year prior to acquisition are as follows (1997 is excluded as there is no material difference between the pro forma results and the results reported in the financial statements):
Year Ended December 31 1996 -------- (In thousands except per share amounts. All amounts are unaudited) Sales and other revenue $269,031 Net income $ 26,091 Income per share $ 3.06 Income per share assuming dilution $ 3.05
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire period presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. In July 1996 the milling subsidiary entered into an agreement to become a 50% member of a Limited Liability Company formed to construct and operate a flour milling facility in Blackfoot, Idaho to be owned and operated by Koch Fisher Mills L.L.C. The agreement provides for each 50% member to share equally in initial capital contributions, profits and losses, additional capital contributions, if any, and distributions. The milling subsidiary's investment in the L.L.C. is accounted for by the equity method and is reported in investments in equity investees in the accompanying balance sheet. The Company's share of earnings of the L.L.C. was a loss of $64,000 in 1998, income of $32,000 in 1997 and $0 in 1996. Note 12 Commitments In May 1998 the Company began redevelopment of the site on which KOMO Television is currently located. The project, known as Fisher Plaza, encompasses several elements including a new building and associated underground parking facilities that will serve the needs of KOMO Television and Fisher Broadcasting Inc. Estimated cost of the new building and parking facility is $79,000,000. Completion is anticipated in Spring 2000. In addition, the real estate subsidiary intends to undertake pre-development activities for additional development of the KOMO Block at an estimated cost of $2,000,000. In November 1998 the Company and its broadcasting subsidiary entered into a purchase and sale agreement to acquire all the broadcasting assets of Retlaw Enterprises Inc. Retlaw owns eleven network-affiliated television stations in seven markets located in California, the Pacific Northwest, and Georgia. Total consideration for the stations is $215 million, which includes $6 million of working capital at closing. The transaction, subject to regulatory approvals, is expected to close in the second quarter of 1999, and will be funded utilizing the senior secured credit facilities described in Note 5. Note 13 Subsequent Events On March 3, 1999 the Board of Directors approved a proposal to amend the Company's Articles of Incorporation to increase the authorized common stock to 50 million shares, divided into two series, each series no par value per share. If the Proposal is approved by the shareholders at the Annual Meeting to be held April 29, 1999, the Company's Articles of Incorporation will be amended to provide for two series of common stock: Series A with 30 million shares authorized, and Series B with 20 million shares authorized. The currently outstanding Company common stock will be redesignated as Series A common stock, and the par value will be eliminated, but will not otherwise be changed in any way. The new Series B common stock will have enhanced voting rights and will have significant restrictions on transfer. If the Proposal is approved, the Company intends to issue, as a stock split effected in the form of a share dividend, one share of Series B common stock for each share of Series A common stock issued and outstanding on a distribution record date to be established by the Board of Directors. The Company is aware of interest by the Washington State Department of Transportation to acquire, under threat of condemnation for its fair market value, all or a portion of the real estate subsidiaries' property on Fourth Avenue South in Seattle. The book value of the property at December 31, 1998 was $3,383,000. The real estate subsidiary plans to invest any proceeds received from such sale in other revenue-producing property. 55 Note 14
Interim Financial Information (Unaudited) Data may not add due to rounding (in thousands except per share amounts). First Second Third Fourth Quarter Quarter Quarter Quarter Annual ------- ------- ------- ------- -------- Sales and other revenue 1998 $58,237 $63,903 $60,350 $69,692 $252,182 1997 60,510 67,397 63,788 68,339 260,034 1996 57,518 68,669 66,360 72,673 265,220 Income from operations 1998 $ 6,267 $11,334 $ 7,599 $11,355 $ 36,555 1997 7,160 12,214 9,542 14,363 43,279 1996 6,138 14,858 10,083 14,053 45,132 Net income 1998 $ 3,375 $ 6,557 $ 4,092 $ 7,033 $ 21,057 1997 3,881 7,035 5,399 8,414 24,729 1996 3,244 8,770 5,597 8,475 26,086 Net income per share 1998 $ 0.40 $ 0.77 $ 0.48 $ 0.82 $ 2.47 1997 0.45 0.82 0.63 0.99 2.90 1996 0.38 1.03 0.66 0.99 3.06 Net income per share assuming dilution 1998 $ 0.39 $ 0.76 $ 0.48 $ 0.82 $ 2.46 1997 0.45 0.82 0.63 0.98 2.88 1996 0.38 1.03 0.65 0.99 3.05 Dividends paid per share 1998 $ 0.250 $ 0.250 $ 0.250 $ 0.250 $ 1.00 1997 0.245 0.245 0.245 0.245 0.98 1996 0.215 0.215 0.215 0.215 0.86 Common stock closing market prices (see Note 7) 1998 High $ 66.00 $ 75.75 $ 73.75 $ 69.50 $ 75.75 Low 59.00 64.00 64.00 57.00 57.00 1997 High $ 66.00 $ 66.00 $ 70.00 $ 63.50 $ 70.00 Low 49.00 57.00 60.50 59.50 49.00
56 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Fisher Companies Inc. Our audits of the consolidated financial statements referred to in our report dated March 3, 1999 appearing in this Form 10-K also included an audit of Financial Statement Schedule III. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington March 3, 1999 57 Schedule III FISHER COMPANIES INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1998
Life on Cost capitalized which Initial cost to Subsequent to Gross amount at which carried Accumu- depre- Company Acquisition at December 31, 1998 lated ciation ------------------- ------------------ ----------------------------- depre- Date of in latest Buildings Land Buildings ciation comple- income and Carrying and and and tion of Date state- Encum- Improve- Improve- costs Improve- Improve- amorti- construc- acquired ment is Description brances Land ments ments (note 2) ments ments Total zation tion (Note 3) computed - ----------- ------ ----- --------- ------- ---------- -------- ------- ------ ------- -------- -------- -------- (in thousands) MARINA Marina Mart Various to Moorings - (note 4) (note 4) $ 3,130 $ 107 $ 3,023 $ 3,130 $ 1,168 1987 1939 (note 9) Seattle, WA OFFICE West Lake Union Center $25,203 $ 266 $36,253 2,319 1,371 37,467 38,838 7,041 1994 (note 9) Seattle, WA I-90 Building Renovated Seattle, WA - (note 4) (note 4) 3,485 41 3,444 3,485 1,141 1990 (note 9) Fisher Business Center 12,995 2,230 17,850 5,353 3,155 22,278 25,433 8,441 1986 1980 (note 9) Lynnwood, WA Marina Mart Renovated Seattle, WA - (note 4) (note 4) 3,507 122 3,385 3,507 771 1993 (note 9) Latitude 47 Renovated Restaurant - (note 4) (note 4) 2,295 (note 5) 2,295 2,295 931 1987 (note 9) Seattle, WA 1530 Building Renovated Seattle, WA - (note 4) (note 4) 2,196 (note 5) 2,196 2,196 932 1985 (note 9) INDUSTRIAL Fisher 1982 and Industrial Park 10,006 2,019 4,739 11,012 4,461 13,309 17,770 6,006 1992 1980 (note 9) Kent, WA Fisher Commerce Center 4,294 1,804 4,294 2,003 2,132 5,969 8,101 2,228 Purchased 1989 (note 9) Kent, WA Pacific North Equipment 1,582 1,344 - 1,582 1,344 2,926 392 Purchased 1997 (note 9) Kent, WA Fisher Redeveloped Industrial 255 2,015 2,318 338 4,250 4,588 3,549 1980 (note 9) Center Seattle, WA MISCELLANEOUS INVESTMENTS, less than 5% of - 154 - 668 48 774 822 395 various various (note 9) total ------- ------ ------- ------- ------- ------- -------- ------- $52,498 $8,310 $66,495 $38,286 $13,357 $99,734 $113,091 $32,995 ======= ====== ======= ======= ======= ======= ======== ======= (Continued)
58 Schedule III, continued FISHER COMPANIES INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation (note 1) December 31, 1998 Notes: (1) Schedule III includes property held for lease to third parties by the Company's real estate subsidiary. Reference is made to notes 1, 4 and 5 to the consolidated financial statements. (2) The determination of these amounts is not practicable and, accordingly, they are included in improvements. (3) Where specific acquisition date is not shown property investments were acquired prior to 1971 and have been renovated or redeveloped as indicated. (4) Initial cost is not readily available as property has been renovated or redeveloped. Initial cost is included in subsequent improvements. (5) Undivided land portion of Marina. (6) The changes in total cost of properties for the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996 --------- --------- --------- Balance at beginning of year $112,253 $107,874 $108,704 Cost of improvements 993 5,191 1,162 Cost of properties sold (560) Cost of improvements retired (155) (812) (1,432) -------- -------- -------- Balance at end of year $113,091 $112,253 $107,874 ======== ======== ========
(7) The changes in accumulated depreciation and amortization for the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996 -------- -------- -------- Balance at beginning of year $29,076 $25,740 $23,064 Depreciation and amortization charged to operations 4,055 4,056 3,997 Retirements and other (136) (720) (1,321) ------- ------- ------- Balance at end of year $32,995 $29,076 $25,740 ======= ======= =======
(3) The aggregate cost of properties for Federal income tax purposes is approximately $105,942,000 at December 31, 1998. (4) Reference is made to note 1 to the consolidated financial statements for information related to depreciation. 59 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, on the 25th day of March, 1999. FISHER COMPANIES INC. ------------------------------------- (Registrant) By: /s/ Donald G. Graham, Jr. ------------------------------------- Donald G. Graham, Jr. Chairman of the Board 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 date indicated:
Signatures Title Date - --------------------------------------------- --------------------------- ---------------------- Principal Executive Officer: /s/ William W. Krippaehne, Jr. President, Chief Executive March 25, 1999 - --------------------------------------------- Officer, and Director William W. Krippaehne, Jr. Chief Financial and Accounting Officer: /s/ David D. Hillard Senior Vice President and March 25, 1999 - --------------------------------------------- Chief Financial Officer, David D. Hillard and Secretary A Majority of the Board of Directors: /s/ Robin E. Campbell Director March 23, 1999 - --------------------------------------------- Robin E. Campbell /s/ James W. Cannon - --------------------------------------------- Director March 17, 1999 James W. Cannon /s/ George D. Fisher - --------------------------------------------- Director March 17, 1999 George D. Fisher /s/ Phelps K. Fisher - --------------------------------------------- Director March 25, 1999 Phelps K. Fisher /s/ William O. Fisher - --------------------------------------------- Director March 25, 1999 William O. Fisher /s/ Carol H. Fratt - --------------------------------------------- Director March 10, 1999 Carol H. Fratt /s/ Donald G. Graham, III - --------------------------------------------- Director March 25, 1999 Donald G. Graham, III
60
Signatures Title Date - ---------- ------ ----- /s/ John D. Mangels Director March 19, 1999 - --------------------------------------------- John D. Mangels /s/ Jean F. McTavish Director March 25, 1999 - --------------------------------------------- Jean F. McTavish /s/ Jacklyn F. Meurk Director March 22, 1999 - --------------------------------------------- Jacklyn F. Meurk /s/ George F. Warren, Jr. Director March 25, 1999 - --------------------------------------------- George F. Warren, Jr. /s/ William W. Warren, Jr. Director March 17, 1999 - --------------------------------------------- William W. Warren, Jr.
61
EXHIBIT INDEX Exhibit No. Description - ------- ----------- 3.1* Articles of Incorporation. 3.2** Articles of Amendment to the Amended and Restated Articles of Incorporation filed December 10, 1997. 3.3* Bylaws. 10.1* Primary Television Affiliation Agreement between Fisher Broadcasting Inc. and American Broadcasting Companies, Inc., dated April 17, 1995, regarding KOMO TV. 10.2* Primary Television Affiliation Agreement between Fisher Broadcasting Inc. and American Broadcasting Companies, Inc., dated April 17, 1995, regarding KATU TV. 10.3* Fisher Companies Incentive Plan of 1995. 10.4* Fisher Companies Inc. Supplemental Pension Plan, dated February 29, 1996. 10.5* Fisher Broadcasting Inc. Supplemental Pension Plan, dated March 7, 1996. 10.6* Fisher Mills Inc. Supplemental Pension Plan, dated March 1, 1996. 10.7* Fisher Properties Inc. Supplemental Pension Plan, dated March 1, 1996. 10.8 Asset Purchase and Sale Agreement Among Fisher Companies Inc., and Fisher Broadcasting Inc., as the Purchaser and Retlaw Enterprises, Inc., Retlaw Broadcasting, L.L.C., Retlaw Broadcasting of Boise, L.L.C., Retlaw Broadcasting of Fresno, L.L.C., Retlaw Broadcasting of Idaho Falls, L.L.C., Retlaw Broadcasting of Yakima, L.L.C., Retlaw Broadcasting of Eugene, L.L.C., Retlaw Broadcasting of Columbus, L.L.C., and Retlaw Broadcasting of Augusta, L.L.C., as the Sellers dated November 18, 1998, as amended November 30, 1998 and December 7, 1998 10.9 Credit Agreement among Fisher Companies Inc. and Bank of America National Trust and Savings Association, doing business as Seafirst Bank as Agent, and Bank of America National Trust and Savings Association, doing business as Seafirst Bank and U. S. Bank National Association as Banks dated May 26, 1998 22* Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP. 27.1 Financial Data Schedule fiscal year end 1998.
* Incorporated by reference to the Exhibit of the same number filed as part of the Company's Registration Statement on Form 10 (File No. 000-22349). ** Incorporated by reference to the Exhibit of the same number filed as part of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 000-22349). EX-10.8 2 ASSET PURCHASE AND SALE AGREEMENT EXHIBIT 10.8 - -------------------------------------------------------------------------------- ASSET PURCHASE AND SALE AGREEMENT Among FISHER COMPANIES INC., and FISHER BROADCASTING INC., as the Purchaser and RETLAW ENTERPRISES, INC., RETLAW BROADCASTING, L.L.C., RETLAW BROADCASTING OF BOISE, L.L.C., RETLAW BROADCASTING OF FRESNO, L.L.C., RETLAW BROADCASTING OF IDAHO FALLS, L.L.C., RETLAW BROADCASTING OF YAKIMA, L.L.C., RETLAW BROADCASTING OF EUGENE, L.L.C., RETLAW BROADCASTING OF COLUMBUS, L.L.C., and RETLAW BROADCASTING OF AUGUSTA, L.L.C., as the Sellers November 18, 1998 TABLE OF CONTENTS Page ARTICLE I-DEFINITIONS............................................................................................. 2 1.1 Certain Defined Terms.............................................................................. 2 ARTICLE II-PURCHASE AND SALE OF ASSETS; LIABILITIES............................................................... 7 2.1 Purchase and Sale.................................................................................. 7 2.2 Excluded Assets.................................................................................... 9 2.3 Liabilities Assumed by Purchaser................................................................... 9 2.4 Liabilities Not Assumed by the Purchaser........................................................... 10 2.5 Further Assurances................................................................................. 11 2.6 Closing; Effective Time............................................................................ 11 ARTICLE III-PURCHASE PRICE FOR THE ACQUISITION ASSETS............................................................. 11 3.1 Purchase Price..................................................................................... 11 3.2 Purchase Price Adjustment.......................................................................... 11 3.3 Payment of Purchase Price.......................................................................... 13 3.4 Certain Prorations................................................................................. 13 3.5 Allocation of Purchase Price....................................................................... 13 ARTICLE IV-REPRESENTATIONS AND WARRANTIES OF SELLERS.............................................................. 14 4.1 Organization and Good Standing..................................................................... 14 4.2 Authorization of Agreement......................................................................... 15 4.3 Ownership of the Acquisition Assets................................................................ 15 4.4 Financial Statements and Condition................................................................. 15 4.5 Program Rights..................................................................................... 17 4.6 Real Property...................................................................................... 17 4.7 Personal Property.................................................................................. 18 4.8 Intellectual Property.............................................................................. 18 4.9 Agreement Not in Breach of Other Instruments....................................................... 19 4.10 Labor Matters...................................................................................... 19 4.11 Employees.......................................................................................... 20 4.12 Employee Benefit Plans............................................................................. 20 4.13 Litigation......................................................................................... 20 4.14 Contracts.......................................................................................... 20 4.15 Authorizations; License Rights; Station Transmissions.............................................. 21 4.16 Environmental Matters.............................................................................. 23 4.17 FCC Reports and Records............................................................................ 24 4.18 Compliance With Laws............................................................................... 24 4.19 Regulatory Licenses................................................................................ 24 4.20 Taxes.............................................................................................. 24 4.21 Insurance.......................................................................................... 25 4.22 No Brokers......................................................................................... 25
i 4.23 Towers.............................................................................. 25 4.24 Accounts Receivable................................................................. 25 4.25 South West Oregon Television........................................................ 25 4.26 Disclosure.......................................................................... 26 4.27 Bankruptcy.......................................................................... 26 4.28 Year 2000 Compliance................................................................ 26 ARTICLE V-REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.......................................... 26 5.1 Corporate Existence................................................................. 26 5.2 Authority........................................................................... 26 5.3 No Conflicts........................................................................ 27 5.4 Governmental Approvals and Filings.................................................. 27 5.5 Legal Proceedings................................................................... 27 5.6 Brokers............................................................................. 27 5.7 Financing........................................................................... 28 5.8 Disclosure.......................................................................... 28 5.9 FCC Qualification................................................................... 28 ARTICLE VI-COVENANTS OF SELLERS.................................................................... 28 6.1 Regulatory and Other Approvals...................................................... 28 6.2 HSR Filings......................................................................... 28 6.3 FCC Consent......................................................................... 29 6.4 Access.............................................................................. 29 6.5 Conduct of Operation of the Stations................................................ 29 6.6 Financial Statements and Reports.................................................... 30 6.7 Fulfillment of Conditions........................................................... 31 6.8 Consents and Notices................................................................ 31 6.9 Preservation of Assets.............................................................. 31 6.10 Accounts Receivable................................................................. 31 6.11 Termination of Employees............................................................ 32 6.12 Changes of Schedules................................................................ 32 6.13 Title Insurance..................................................................... 32 6.14 Officers' Certificates.............................................................. 32 6.15 Opinions of the Sellers' Counsel.................................................... 32 ARTICLE VII-COVENANTS OF PURCHASER................................................................. 33 7.1 Regulatory and Other Approvals...................................................... 33 7.2 HSR Filings......................................................................... 33 7.3 FCC Consent......................................................................... 33 7.4 Retlaw Name......................................................................... 34 7.5 Fulfillment of Conditions........................................................... 34 7.6 Employees........................................................................... 34 7.7 Compliance with Laws................................................................ 34 7.8 Assumption of Assumed Liabilities................................................... 34 7.9 Preparation of Financial Statements................................................. 34
ii 7.10 Officers' Certificates.............................................................. 34 7.11 Opinion of the Purchaser's Counsel.................................................. 35 ARTICLE VIII-RISK OF LOSS.......................................................................... 35 8.1 Risk of Loss; Insurance............................................................. 35 ARTICLE IX-INDEMNIFICATION......................................................................... 35 9.1 Indemnification by Sellers.......................................................... 35 9.2 Indemnification by Purchaser........................................................ 35 9.3 Claims for Indemnification.......................................................... 36 9.4 Defense by Indemnifying Party....................................................... 36 9.5 Expiration of Indemnification Obligations........................................... 37 9.6 Thresholds.......................................................................... 37 9.7 Limitation.......................................................................... 37 9.8 Indemnity Escrow Agreement.......................................................... 37 9.9 Exclusive Remedy.................................................................... 37 9.10 Reduction of Indemnity Payments..................................................... 37 ARTICLE X-CONDITIONS TO OBLIGATIONS OF PURCHASER................................................... 37 10.1 Representations and Warranties...................................................... 38 10.2 Performance......................................................................... 38 10.3 Orders and Laws..................................................................... 38 10.4 Regulatory Consents and Approvals................................................... 38 10.5 FCC License Renewal................................................................. 38 10.6 Consents to Assignments of Contracts................................................ 38 10.7 Additional Closing Documents of the Sellers......................................... 38 ARTICLE XI-CONDITIONS TO OBLIGATIONS OF SELLERS.................................................... 39 11.1 Representations and Warranties...................................................... 39 11.2 Performance......................................................................... 39 11.3 Orders and Laws..................................................................... 39 11.4 Regulatory Consents and Approvals................................................... 39 11.5 Additional Closing Documents of Purchaser........................................... 39 ARTICLE XII-DEFAULT AND TERMINATION................................................................ 39 12.1 Termination......................................................................... 39 12.2 Effect of Termination............................................................... 40 12.3 Specific Performance................................................................ 40 ARTICLE XIII-MISCELLANEOUS PROVISIONS.............................................................. 40 13.1 Notices............................................................................. 40 13.2 Survival of Representations and Warranties and Covenants............................ 42 13.3 Joint and Several Obligations....................................................... 42 13.4 Knowledge........................................................................... 42 13.5 Entire Agreement.................................................................... 42 13.6 Expenses............................................................................ 43
iii 13.7 Public Announcements................................................................ 43 13.8 Confidentiality..................................................................... 43 13.9 Exclusivity......................................................................... 43 13.10 Waiver.............................................................................. 44 13.11 Amendment........................................................................... 44 13.12 No Third Party Beneficiary.......................................................... 44 13.13 No Assignment; Binding Effect....................................................... 44 13.14 Headings............................................................................ 44 13.15 Invalid Provisions.................................................................. 44 13.16 Governing Law....................................................................... 44 13.17 Counterparts........................................................................ 44 13.18 Attorney's Fees..................................................................... 45 13.19 Jurisdiction/Venue.................................................................. 45 13.20 No Jury Trial....................................................................... 45 ARTICLE XIV EXHIBITS AND SCHEDULES................................................................. 45 14.1 Exhibits and Schedules.............................................................. 45
iv EXHIBITS AND SCHEDULES Exhibits - -------- Exhibit 3.3(b) Form of Escrow Indemnity Agreement Exhibit 6.14(a) Form of Seller's Certificate of Officer Exhibit 6.14(b) Form of Seller's Corporate Certificate Exhibit 6.15(a) Form of Opinion of Seller's Counsel Exhibit 6.15(b) Form of Opinion of Seller's FCC Counsel Exhibit 7.10(a) Form of Purchaser's Certificate of Officer Exhibit 7.10(b) Form of Purchaser's Corporate Certificate Exhibit 7.11 Form of Opinion of Purchaser's Counsel Exhibit 11.5(b) Form of Assignment and Assumption Agreement Schedules - --------- Schedule 2.1(a) Real Property Schedule 2.1(b) Personal Property Schedule 2.1(c)(i) FCC Authorizations Schedule 2.1(c)(ii) Regulatory Licenses Schedule 2.1(d)(i) Affiliation Agreements Schedule 2.1(d)(ii) Program Rights Schedule 2.1(e) Cable Carriage Agreements Schedule 2.1(f) Other Contracts Schedule 2.1(g) Intellectual Property Schedule 2.2 Excluded Assets Schedule 3.2 Normalized Working Capital Schedule 4.1(b) Jurisdictions of Qualification Schedule 4.1(e) Broadcast Seller's Subsidiaries Schedule 4.10(a) Labor Matters Schedule 4.10(b) Collective Bargaining and Labor Agreements Schedule 4.11 Employees Schedule 4.12 Employee Benefit Plans Schedule 4.13 Litigation Schedule 4.15(b) FCC Matters Schedule 4.15(c) Station Transmissions Schedule 4.15(d) Cable Carriage Schedule 4.16 Environmental Matters Schedule 4.18 Compliance with Laws Schedule 4.19 Other Regulatory Licenses Schedule 4.20 Taxes Schedule 4.23 Towers Schedule 4.25 South West Oregon Television Agreements Schedule 4.28 Year 2000 Schedule 6.9 Capital Expenditures v ASSET PURCHASE AND SALE AGREEMENT THIS ASSET PURCHASE AND SALE AGREEMENT is made and entered into as of November 18, 1998 (this "Agreement"), by and among FISHER COMPANIES INC., a Washington corporation ("FCI"), and FISHER BROADCASTING INC., a Washington corporation ("FBI") (FCI and FBI sometimes are collectively referred to as the "Purchaser"), and the following parties which sometimes are collectively referred to as the "Sellers": RETLAW ENTERPRISES, INC. a California corporation ("REI") RETLAW BROADCASTING, L.L.C. a Delaware limited liability company ("Broadcasting LLC") RETLAW BROADCASTING OF BOISE, L.L.C. a Delaware limited liability company ("Boise LLC") RETLAW BROADCASTING OF FRESNO, L.L.C. a Delaware limited liability company ("Fresno LLC") RETLAW BROADCASTING OF IDAHO FALLS, L.L.C. a Delaware limited liability company ("Idaho Falls LLC") RETLAW BROADCASTING OF YAKIMA, L.L.C. a Delaware limited liability company ("Yakima LLC") RETLAW BROADCASTING OF EUGENE, L.L.C. a Delaware limited liability company ("Eugene LLC") RETLAW BROADCASTING OF COLUMBUS, L.L.C. a Delaware limited liability company ("Columbus LLC") RETLAW BROADCASTING OF AUGUSTA, L.L.C. a Delaware limited liability company ("Augusta LLC")
RECITALS A. The following Sellers (collectively, the "Broadcast Sellers") are the respective licensees and either directly or through REI or Broadcasting LLC own or lease or have the right to use all of the assets used in the operation of the television stations set forth opposite their respective names below:
Seller Station Community ------ ------- --------- Boise LLC KBCI Boise, Idaho Fresno LLC KJEO Fresno, California Idaho Falls LLC KIDK Idaho Falls, Idaho Yakima LLC KIMA Yakima, Washington KEPR Pasco, Washington KLEW Lewiston, Idaho
1 Eugene LLC KVAL Eugene, Oregon KCBY Coos Bay, Oregon KPIC* Roseberg, Oregon Columbus LLC WXTX Columbus, Georgia Augusta LLC WFXG Augusta, Georgia
* Eugene LLC does not own Station KPIC. Eugene LLC owns 50% of the outstanding stock of South West Oregon Television Broadcasting Corporation, an Oregon corporation ("South West Oregon Television"), which is the licensee of Station KPIC and owns, leases or has the right to use the assets used in the operation of Station KPIC. B. Broadcast Sellers are wholly-owned subsidiaries of Broadcasting LLC, which is a wholly-owned subsidiary of REI. C. Sellers desire to sell to Purchaser all of the Stations, including all of the assets, properties and rights owned or held by Sellers and used in the operation of the Stations (except those hereinafter specifically excluded from such sale), and Purchaser desires to acquire from Sellers such assets, properties and rights, all on the terms and subject to the conditions set forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Certain Defined Terms. The following terms have the following meanings (such terms to be equally applicable to both the singular and the plural forms of the terms defined): "Accounts Receivable" has the meaning set forth in Section 2.1(i). "Acquisition Assets" has the meaning set forth in Section 2.1. "Affiliate" means any person that directly, or indirectly through one of more intermediaries, controls or is controlled by or is under common control with the person specified. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise and, in any event and without limitation of the previous sentence, any person owning ten percent (10%) or more of the voting securities of another person shall be deemed to control that person. "Affiliation Agreement" has the meaning set forth in Section 2.1(d)(i). 2 "Agreement" means this Agreement and the Exhibits, Schedules and Recitals hereto. "Assumed Contracts" means the written contracts, leases and other agreements which comprise part of the Assumed Liabilities. "Assumed Liabilities" has the meaning set forth in Section 2.3. "Benefit Plans" means any Plan established by REI or any other Seller, or any predecessor or Affiliate of any of the foregoing, existing at the Closing Date or at any time since December 31, 1996, to which REI or any Seller contributes or has contributed, or under which any employee, former employee or director of REI or other Seller or any beneficiary thereof is covered, is eligible for coverage or has benefit rights. "Bonus Letters" means the letter agreements entered into between one or more of the Sellers and certain of Sellers' Employees providing for bonus payments upon completion of a sale transaction involving the Stations. "Broadcast Sellers" has the meaning set forth in Recital A. "Business Day" means a day other than a Saturday or a Sunday or any other day on which commercial banks in New York are authorized or required by Law to close. "Closing" has the meaning set forth in Section 2.6. "Closing Date" has the meaning set forth in Section 2.6. "Code" means the Internal Revenue Code of 1986, as amended. "DOJ" means the United States Department of Justice. "Effective Time" has the meaning set forth in Section 2.6. "Environmental Hazard" means, with respect to any Real Property, any existing environmental hazard, for which there is a reasonable likelihood of a future liability for environmental damages or clean up costs. "Environmental Laws" means, collectively, all Laws relating to the protection of human health or safety or the environment, including, without limitation: (i) all requirements pertaining to reporting, licensing, permitting, controlling, investigating or remediating emissions, discharges, releases or threatened releases of Hazardous Materials into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use treatment, storage, disposal, transport or handling of Hazardous Materials; and (ii) all requirements pertaining to the protection of the health and safety of employees or the public. Without limiting the generality of the foregoing, "Environmental Laws" includes the Comprehensive Environmental Response, Compensation and Liability Act of 1980, ("CERCLA") as amended by the Superfund Amendments and Authorization Act of 1986 ("SARA"), 42 U.S.C. 9601 et seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et seq.; the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq.; the Safe Drinking Water Act, 42 U.S.C. 300f et seq.; and the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., and all analogous state laws, in each case including the rules and regulations thereunder, and in each case as supplemented or amended from time to time. 3 "EPA" means the United States Environmental Protection Agency, or any successor agency. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any Person who is in the same controlled group of corporations or who is under common control with any Seller (within the meaning of Section 414 of the Code). "Escrow Agent" has the meaning set forth in the Indemnity Escrow Agreement. "Eugene LLC" has the meaning set forth in Recital A. "Excluded Assets" has the meaning set forth in Section 2.2. "Excluded Liabilities" means the debts, liabilities and obligations described (generally or in particular) in Section 2.4. "FBI" means Fisher Broadcasting Inc. "FCC" means the Federal Communications Commission, or any successor agency. "FCC Applications" has the meaning set forth in Section 6.3. "FCC Authorizations" has the meaning set forth in Section 2.1(c). "FCC Consents" has the meaning set forth in Section 6.3. "FCC Regulations" means all applicable provisions of the Communications Act of 1934, as amended, and all applicable published rules, regulations, policies, orders and decisions of the FCC. "FCI" means Fisher Companies Inc. "Final Order" means any action by the FCC that has not been reversed, stayed, enjoined, set aside, annulled or suspended and with respect to which no actions or requests are pending for administrative or judicial review, reconsideration, appeal or stay, and the time for filing any such requests and the time for the FCC to set aside such action on its own motion have expired. "First Union Bank Loan" means the credit facilities advanced by First Union National Bank to Sellers. "FTC" means the Federal Trade Commission or any successor agency. "GAAP" means generally accepted accounting principles in the United States. "Governmental Authority" means any nation or government, any state or other political subdivision thereof or any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government and any tribunal or arbitrator of competent jurisdiction. The term "Governmental Authority" includes, without limitation, the FCC, the DOJ, the EPA and the FTC. "Hazardous Materials" means any wastes, substances, chemicals or materials, whether solids, liquids or gases, that are defined, listed or regulated as hazardous wastes, hazardous substances, toxic 4 substances, radioactive materials, pollutants, contaminants or other similar designations under any Environmental Laws. The term "Hazardous Materials" includes, but is not limited to, polychlorinated biphenyls (PCBs), petroleum, pesticides, solvents, explosives, asbestos and lead-based paints. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Indemnity Deposit" has the meaning set forth in Section 3.3(b). "Indemnity Escrow Account" has the meaning set forth in the Indemnity Escrow Agreement. "Indemnity Escrow Agreement" means an Indemnity Escrow Agreement, dated as of the Closing Date, among the Sellers, Purchaser and a party identified as the Escrow Agent, substantially in the form of Exhibit 3.3(b). "Intellectual Property" has the meaning set forth in Section 2.1(g). "Laws" means all applicable provisions of all (i) constitutions, treaties, statutes, laws, rules, regulations and ordinances of any Governmental Authority, (ii) authorizations, consents, approvals, permits or licenses issued by, or registrations or filings with, any Government Authority and (iii) orders, decisions, judgments, awards and decrees of any Governmental Authority. "Liens" means any liens, mortgages, pledges, security interests, restrictions, assignments, claims or encumbrances of any kind or nature whatsoever. "Loan Payoff" has the meaning set forth in Section 3.3. "Material Assumed Contracts" means all (i) Affiliation Agreements, (ii) those Real Property Agreements identified as "material" on Schedule 2.1(a), and (iii) those Program Right agreements identified as "material" on Schedule 2.1(d)(ii). "Normalized Working Capital" means the difference, as of the date of determination set forth in Schedule 3.2, between current assets (excluding cash) and current liabilities, in each instance consisting only of those line items set forth on Section 3.2, or such other line items as may be agreed upon by the parties. "Permitted Lien" means (i) any Lien for Taxes not yet due or delinquent, (ii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business for amounts which are not overdue or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of Sellers, in conformity with GAAP; (iii) any minor imperfection of title, including easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the operation of any Station, (iv) any Lien which will be released and removed from title effective as of or prior to the Closing Date; (v) any interest or title of a lessor, including statutory landlord liens, under any Lease to which a Seller is the tenant, which do not materially detract from the value of such lease or interfere with the operation of any Station; and (vi) any extension, renewal or replacement, in whole or in part, of any Lien referred to in the foregoing clauses (excluding iv); provided that such 5 extension, renewal or replacement Lien shall be limited to all or a part of the property which secured the Lien so extended, renewed or replaced. "Person" means any individual, corporation, partnership, limited liability company, joint venture, trust, association or other entity. "Personal Property" has the meaning set forth in Section 2.1(b). "Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any, "employee benefit plan" within the meaning of Section 3(3) of ERISA. "Program Rights" has the meaning set forth in Section 2.l(d)(ii). "Purchase Price" means the amount set forth in Section 3.1. "Purchaser" has the meaning set forth in the preamble. "Real Property" means all real property and leases of, and other interests in, the real property described in Schedule 2.1(a). "Real Property Agreements" has the meaning set forth in Section 2.3(a). "Regulatory Licenses" has the meaning set forth in Section 2.l(c). "Returns" means all returns, declarations, reports, statements and other documents required to be filed in respect of Taxes. "Sellers" has the meaning set forth in the preamble to this Agreement. "Seller's Employees" means collectively, all employees of Broadcast Sellers, REI and Broadcasting LLC to the extent the same provide services to the Stations employed immediately before Closing, including any such employees who are on vacation or on family, illness or disability leave. "South West Oregon Stock" has meaning set forth at Section 4.1(d). "Stations" means the television stations listed in Recital A and, to the extent applicable, the translators, microwave facilities, earth stations and other auxiliary facilities associated with the television stations. "Taxes" means (i) all federal, state, local or foreign and other net income, gross income, gross receipts, sales, use, ad valorem, gaming, value added, intangible, unitary, capital gain, transfer, franchise, profits, license, lease, service, service use, withholding, backup withholding, payroll, employment, estimated, excise, severance, environmental, stamp, occupation, premium, property, prohibited transactions, windfall or excess profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (ii) any liability for payment of amounts described in clause (i) whether as a result 6 of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law, and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person. ARTICLE II PURCHASE AND SALE OF ASSETS; LIABILITIES 2.1 Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Sellers shall sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall acquire, accept and purchase from Sellers, all of Sellers' right, title and interest in all assets, properties and rights, whether tangible or intangible, whether real, personal or mixed, and wherever located, used or usable in the operation of the Stations (such assets, properties and rights described in this Section 2.1 are referred to collectively as the "Acquisition Assets"), including: (a) Real Property. All right, title and interest in, to or under all real property and leases of, and other interests in, the real property set forth on Schedule 2.l(a), in each case together with all buildings, structures, fixtures and other improvements actually or constructively attached thereto (the "Real Property") ; (b) Personal Property. All towers, transmitters and antenna installations (whether considered real property or personal property), machinery, equipment, computers, furniture, furnishings, motor vehicles, all spare parts, tube inventory, vinyl inventory, tapes, disks, supplies and other inventories, and all other Personal Property of every kind and character, including replacements and additions occurring after the date of this Agreement through the Closing, including the Personal Property set forth on Schedule 2.l(b) (the "Personal Property"); (c) Regulatory Licenses and FCC Authorizations. (i) All licenses, authorizations, permits or approvals issued by the FCC and associated with the operation of the Stations, including those set forth on Schedule 2.1(c)(i) (the "FCC Authorizations"), and all pending applications and subsequently issued licenses, authorizations, permits or approvals with respect to the Stations, and (ii) All other regulatory licenses, authorizations, permits or approvals with respect to the Stations issued by any other Governmental Authority in connection with the operation of the Stations, including those set forth on Schedule 2.1(c)(ii) (the "Regulatory Licenses"); (d) Program Rights and Affiliation Agreements. (i) All contracts, agreements and/or understandings relating to the affiliation of any of the Stations with any programming network or organization, and all amendments, extensions, renewals, substitutions and replacements of, and additions to, such contracts, agreements and understandings as may be entered into by Broadcast Sellers from the date of this Agreement through the Closing in 7 accordance with Section 6.5 including those set forth on Schedule 2.1(d)(i) (the "Affiliation Agreements"), and (ii) All broadcast and other rights to films and programs (the "Program Rights"), all broadcasting facilities contracts, agreements or arrangements, all programming and production materials, film libraries, inventories or programming items, materials or supplies, and all contracts, agreements and writings with respect to the foregoing, and all amendments, extensions, renewals, substitutions and replacements of, and additions to, such contracts, agreements, arrangements and other rights as may be entered into by Broadcast Sellers from the date of this Agreement through the Closing in accordance with Section 6.5, including those set forth on Schedule 2.1(d)(ii); (e) Cable Carriage. All retransmission consent agreements and copyright indemnification agreements and similar cable carriage arrangements entered into by Broadcast Sellers and cable companies serving their respective designated market areas, and all similar agreements and arrangements as may be entered into by Broadcast Sellers through Closing in accordance with Section 6.5, including those set forth on Schedule 2.1(e); (f) Other Contracts. All contracts or other rights of Broadcast Sellers not listed elsewhere in this Section 2.1 and which are used in the operation of the Stations (other than Excluded Liabilities), including, without limitation, all contracts for the sale of advertising time or talent, trade or barter contracts, leases of personal property, and licenses with BMI, ASCAP or SESAC for use of copyrighted materials, and all amendments, extensions, renewals, substitutions and replacements of, and additions to, such contracts and other rights as may be entered into by Broadcast Sellers from the date of this Agreement through the Closing in accordance with Section 6.5, including those set forth on Schedule 2.1(f) (the "Other Contracts"); (g) Intellectual Property. All intellectual property and other intangible assets of Broadcast Sellers not listed elsewhere in this Section 2.1, including, without limitation, all software, all works subject to copyright, patents, trademarks, trade names, Internet domain names, and service marks used or usable in the operation of the Stations, and any pending applications, registrations, extensions and renewals for any of the foregoing, the call letters identified in Recital A above, and any and all additions to any of the foregoing acquired from the date hereof through the Closing, including those set forth on Schedule 2.l(g) (the "Intellectual Property"); (h) Deposits. All deposits and prepaid rents, charges or expenses held by third parties in connection with any contracts, leases or other agreements held for the benefit of any of the Broadcast Sellers; (i) Accounts Receivables. All accounts receivable, notes receivable and other rights to receive payment attributable to the Stations ("Accounts Receivable"); (j) Records. All books, records and files of Broadcast Sellers (including all historical accounting and financial books and records and all FCC- related applications, reports, statements and files) relating to the operation of the Stations, exclusive of corporate records, tax returns and supporting documents of the Broadcast Sellers; 8 (k) Southwest Oregon Stock. All stock, membership interests and other ownership interests in any corporation, limited liability company or other entity owned by any of the Broadcast Sellers, including without limitation, the Southwest Oregon Stock and the right to receive all dividends and other distributions applicable to the fiscal year in which Closing occurs; and (l) Goodwill. All goodwill attributable to the Stations. 2.2 Excluded Assets. Notwithstanding anything contained in Section 2.1 to the contrary, Sellers are not selling, and Purchaser is not purchasing, any of the following assets, properties or rights, all of which shall be retained by Sellers (the "Excluded Assets"): (a) cash or cash equivalents; (b) life insurance policies funding deferred compensation obligations not assumed by Purchaser; (c) the books and records of the Sellers that pertain to the corporate existence or capitalization of the Sellers; (d) the assets held in the Benefit Plans and the 401(k) Plan maintained by Sellers for the benefit of Sellers' Employees; (e) the trademark "Retlaw"; (f) those assets, properties and rights owned or held by REI or Broadcasting LLC that are not used or useable in the operation of the Stations; and (g) those assets listed on Schedule 2.2, regardless if owned by REI, Broadcasting LLC or Sellers. 2.3 Liabilities Assumed by Purchaser. At the Closing, Purchaser shall assume and agree to pay and perform when due (or reimburse Sellers, to the extent applicable, for any liabilities under subsection (d) below paid by Sellers) the executory liabilities and obligations of the assigning Seller, which except in the case of subsection (d) below, arise after the Effective Time with respect to each of the following (the "Assumed Liabilities"): (a) Real Property. The real property leases, special use permits, access agreements, options, possessory agreements, and other rights and agreements listed on Schedule 2.1(a) (the "Real Property Agreements"); (b) Program Rights. The Affiliation Agreements and Program Rights agreements and other arrangements listed on Schedule 2.1(d)(i) and Schedule 2.1(d)(ii); (c) Cable Carriage. The retransmission consent agreements, copyright indemnification agreements and other cable carriage arrangements listed on Schedule 2.1(e); (d) Ordinary Course Liabilities. The current liabilities of Sellers included in the calculation of Normalized Working Capital in accordance with Section 3.2 and those 9 incurred in the operation of the Stations in the ordinary course of business in accordance with Section 6.5 from the date of determination under Section 3.2; and (e) Other Contracts. The other agreements, contracts, arrangements, understandings and rights of Sellers which constitute Acquisition Assets. 2.4 Liabilities Not Assumed by the Purchaser. Purchaser shall not assume, nor shall Purchaser be obligated to pay, perform or discharge, any debt, liability, obligation or commitment of any Seller of any kind (the "Excluded Liabilities"), unless described in Section 2.3 as an Assumed Liability. Without limiting the generality of the immediately foregoing sentence, Purchaser shall not be deemed by anything contained in this Agreement or otherwise to have assumed any of the following as such liabilities exist on the Closing Date (each of which is an Excluded Liability): (a) except for any of the following which are expressly assumed by Purchaser under Section 2.3(d), (i) any salaries, wages, severance or other compensation payments and benefits payable with respect to any Sellers' Employees, including, without limitation, any deferred compensation obligations, payments or benefits relating to vacation or holidays, any COBRA obligations or Benefit Plans, (ii) any bonus, change of control, severance, termination or other payment or benefit payable to any Sellers' Employees pursuant to any agreement, program, commitment or undertaking of any Seller, or (iii) any liabilities, obligations or expenses (including attorneys' fees) arising out of or relating to any claim, demand, action or cause of action made or brought by any Sellers' Employee, union, or Governmental Authority with respect to or in connection with the employment and/or termination of any Sellers' Employee; (b) except for any of the following which are expressly assumed by Purchaser under Section 2.3(d), any responsibility for, or any liability or obligation with respect to, any Benefit Plans, or any liability for contributions or payments to be made in respect of service for any periods under any other employee benefit plans or benefit arrangements provided or made available to the Sellers' Employees, including without limitation as listed on Schedule 4.12; (c) any debt, claim, liability or obligation (including, without limitation, any accounts payable) of any nature arising out of, accruing from or relating to the operations of the Stations before the Closing, including, without limitation, liabilities or obligations arising from or relating to benefits or services received or receivable under the Assumed Liabilities before the Closing, except for any such obligation incurred in the ordinary course of business pursuant to Section 6.5 or otherwise expressly assumed by Purchaser under Section 2.3; (d) any contract or agreement not validly assigned to Purchaser, except to the extent Purchaser will receive the benefit of same; (e) any actions, causes of action, Governmental Authority proceedings, arbitrations, union grievance proceedings, or other litigation or similar proceedings arising out of, or relating to, the operations of the Stations before the Closing, including without limitation those items listed on Schedule 4.10(a) and Schedule 4.13; 10 (f) any liability or obligation of any Seller for Taxes, or any interest or penalties thereon, except to the extent such Taxes have been prorated pursuant to Section 3.3; (g) any obligations pursuant to any expired or existing collective bargaining agreements, including without limitation as listed on Schedule 4.10(b), other than any duty to recognize and/or bargain with those unions listed on Schedule 4.10(b); (h) any claims, liabilities, actions, causes of actions, investigations, damages or costs (including attorneys' fees) arising from the operation of the Stations by Sellers prior to the Closing or in connection with any condition or circumstance existing prior to the Closing Date concerning Environmental Laws or Hazardous Materials, including without limitation any condition or circumstance constituting a breach of Sellers' representations under Section 4.16; nor (i) any liabilities associated with items on any Schedule which the parties specifically designate on the Schedule as an Excluded Liability. 2.5 Further Assurances. From time to time after the Closing, each Seller agrees to execute and deliver to the Purchaser such instruments of sale, transfer, conveyance, assignment and delivery, consents, assurances, powers of attorney and other instruments as may be reasonably requested by the Purchaser or its counsel in order to vest in the Purchaser all right, title and interest of such Seller in and to the Acquisition Assets and otherwise in order to carry out the purpose and intent of this Agreement. 2.6 Closing; Effective Time. The purchase and sale of the Acquisition Assets (the "Closing") shall, unless another date, time or place is agreed to in writing by the parties, take place at the offices of Milbank, Tweed, Hadley & McCloy, 601 South Figueroa Street, 31st Floor, Los Angeles, California at 10:00 A.M., local time, the first Business Day of the month following the month in which the last FCC Consent has become a Final Order and the other conditions to Closing set forth in Articles X and XI have been satisfied (the "Closing Date"); provided that the Closing Date shall not occur before May 1, 1999 without Sellers' consent. The effective time of the transfer to the Purchaser of the Acquisition Assets and the Stations shall be deemed to occur at 12:00:01 A.M., local time, on the Closing Date (the "Effective Time"). ARTICLE III PURCHASE PRICE FOR THE ACQUISITION ASSETS 3.1 Purchase Price. In consideration for the purchase of the Acquisition Assets, Purchaser shall pay to Sellers US$215,000,000 (the "Purchase Price") in immediately available funds by wire transfer in accordance with this Section 3.1, Section 3.2 and Section 3.3, and shall assume, discharge and perform when due the liabilities to be assumed by the Purchaser pursuant to Section 2.3. 3.2 Purchase Price Adjustment. (a) Sellers shall, at Sellers' expense, cause to be prepared and delivered to Purchaser, as of the last day of the month which occurs not later than forty (40) days prior to the Closing Date, a balance sheet for Sellers' broadcasting operations (the "Closing Balance Sheet"), 11 which shall set forth the Normalized Working Capital in accordance with Section 1.1 and Schedule 3.2, prepared to the extent applicable, in accordance with GAAP and on a basis consistent with the preparation of the audited Balance Sheet of REI for broadcasting operations as of September 30, 1998. Sellers shall deliver the Closing Balance Sheet to Purchaser as promptly as practicable but, in any event, not less than ten (10) days prior to the Closing Date. (b) Purchaser shall, within five (5) days after delivery of the Closing Balance Sheet by Sellers, complete its review of the Normalized Working Capital as set forth on the Closing Balance Sheet. In the event Purchaser determines that Normalized Working Capital has not been determined in accordance with Section 1.1 and Schedule 3.2, Purchaser shall inform Sellers in writing setting forth an explanation of and the adjustments to Normalized Working Capital which Purchaser believes should be made. Sellers shall then have two (2) days to review and respond to Purchaser's adjustments. If Sellers and Purchaser are unable to resolve such adjustments within three (3) days prior to the Closing Date, the Closing shall nevertheless take place as provided in Section 2.6 but the portion of any adjustment which is disputed in good faith by Purchaser shall be withheld from the payment of the Purchase Price under Section 3.3 pending a final determination as provided in subsection 3.2(c) below; provided, that the amount of the disputed adjustment withheld from the Purchase Price on Closing, together with any downward adjustment in the Purchase Price on Closing in accordance with Section 3.2(e), shall not, in any event, be greater than the amount of the Required Working Capital set forth in Section 3.2(e). (c) If the parties cannot agree prior to Closing on the amount of the adjustment to the Purchase Price to be paid on the Closing Date, then within ten (10) Business Days after Closing, either party can submit the issue to PricewaterhouseCoopers, LLP, who shall, acting as experts and not as arbiters, determine on the basis of the standards set forth in Section 1.1, this Section 3.2 and Schedule 3.2 to what extent, if any, Normalized Working Capital as reflected on the Closing Balance Sheet requires adjustment. Sellers and Purchaser shall direct PricewaterhouseCoopers to use its best efforts to render its determination within forty-five (45) days. PricewaterhouseCoopers' determination shall be conclusive and binding upon the parties hereto. Fees and disbursements of PricewaterhouseCoopers shall be shared equally by the parties. Purchaser and Sellers shall make readily available to PricewaterhouseCoopers all relevant nonproprietary books and records and any work papers (including those of the parties' respective accountants), relating to the Closing Balance Sheet and all other items reasonably requested by PricewaterhouseCoopers. (d) Sellers and Purchaser shall fully cooperate in providing access to their respective accountants, accounting records and other information to the extent reasonably necessary for preparation of the Closing Balance Sheet and the review thereof. (e) In the event Normalized Working Capital as shown on the Closing Balance Sheet, subject to any adjustment under Sections 3.2(b) or (c), is less than $6,000,000 (the "Required Working Capital"), Seller shall make an adjustment payment to Purchaser in an amount equal to the difference between (x) the Required Working Capital and (y) the Normalized Working Capital reflected on the Closing Balance Sheet. Any payment required by this Section 3.2(e) shall be made by Sellers to Purchaser, if determined prior 12 to the Closing Date, by a dollar for dollar downward adjustment in the Purchase Price and, if post-Closing, in cash in immediately available funds, net of any amount withheld from the Purchase Price on Closing under Section 3.2(b), within five (5) Business Days after the determination by PricewaterhouseCoopers. (f) In the event the Normalized Working Capital as shown on the Closing Balance Sheet, subject to any adjustment under Sections 3.2(b) or (c), is more than the Required Working Capital, as reduced by the amount, if any, withheld from the Purchase Price paid on the Closing Date, Purchaser shall make an adjustment payment to Sellers in an amount equal to the difference between (x) the Normalized Working Capital as shown on the Closing Balance Sheet and (y) the Required Working Capital. Any payment required by this subsection 3.2(f) shall be made by Purchaser to Sellers, if determined prior to the Closing Date, by an upward adjustment of the Purchase Price payable on Closing under Section 3.3 or, if post-Closing, by payment in cash in immediately available funds within five (5) Business Days after the determination by PricewaterhouseCoopers in an amount equal to Normalized Working Capital plus the amount withheld from the Purchase Price paid on the Closing Date minus the Required Working Capital. 3.3 Payment of Purchase Price. Purchaser shall pay the Purchase Price, as may be adjusted in accordance with Section 3.2, to Sellers upon Closing by executing federal wire transfers as follows : (a) First Union Loan Payoff. One or more wire transfers in the total amount required to pay off all existing secured debt on the Acquisition Assets, including without limitation the balance and any fees and costs owing under the First Union Bank Loan (the "Loan Payoff"), to an account and in an amount designated by REI. (b) Indemnity Escrow Account. One wire transfer equal to $10 million delivered to the Indemnity Escrow Account administered by the Escrow Agent in accordance with the Indemnity Escrow Agreement attached to this Agreement as Exhibit 3.3(b) (the balance held in the Indemnity Escrow Account is herein referred to as the "Indemnity Deposit"). (c) Sellers' Account. One wire transfer to an account designated by REI equal to the Purchase Price, as may be adjusted in accordance with Section 3.2, minus the amounts wired under Subsections (a) and (b) above. 3.4 Certain Prorations. Sellers and Purchaser shall prorate as of the Effective Time all real and personal property Taxes, with final settlement to be made within 60 days of the Closing Date. The Person that paid the Tax shall be reimbursed within such time period by the Person that owes the Tax under this Section 3.4. 3.5 Allocation of Purchase Price. Within thirty (30) days of the date of this Agreement, Purchaser shall provide REI with a statement setting forth the allocation of the Purchase Price among the Acquisition Assets. REI shall have twenty (20) days after receipt to accept the statement or to propose changes. If REI provides no notice of proposed changes within the twenty- day period, the allocations set forth in the statement shall be deemed conclusive and the statement shall be the Certificate of Allocation. If Purchaser accepts any proposed changes, the modified statement shall be the Certificate of Allocation. If the parties cannot agree on the allocation within twenty 13 (20) days of Purchaser's receipt of REI's proposed changes, either party can submit the issue to PricewaterhouseCoopers LLP, whose determination shall be final and binding on the parties. Each party agrees to file all elections and returns required or desirable under applicable federal, state and local Tax laws in accordance with the allocations reflected in the Certificate of Allocation, including, without limitation, the filing of the Asset Acquisition Statement on Form 8594 required under Section 1060 of the Code. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS The Sellers represent and warrant to the Purchaser that: 4.1 Organization and Good Standing. (a) REI is a corporation duly organized, validly existing and in good standing under the laws of the State of California, with full corporate power and authority to carry on its business and to own, lease and operate, its properties as and in the places where such business is being conducted and such properties are owned, leased or operated. Broadcasting LLC and each of the Broadcast Sellers are duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to carry on their respective businesses, and to own, lease and operate their respective properties as and in the places where such businesses are being conducted and such properties are owned, leased or operated. South West Oregon Television is a corporation duly organized, validly existing and in good standing under the laws of the State of Oregon, with full corporate power and authority to carry on its business and to own, lease and operate, its properties as and in the places where such business is being conducted and such properties are owned, leased or operated. (b) Broadcasting LLC, each of the Broadcast Sellers, and South West Oregon Television are qualified to do business and are in good standing in the jurisdictions set forth opposite their respective names on Schedule 4.1(b), which constitutes all jurisdictions in which each such company is required to be qualified to do business, except where the failure to so qualify would not have a material adverse effect on such company or its assets. (c) Each Broadcast Seller has delivered to Purchaser true and complete copies of its certificate of formation, LLC operating agreement, and other relevant organizational documents, in each case as amended and in effect on the date hereof. None of the Broadcast Sellers is in violation of any of the provisions of its certificate of formation, LLC operating agreement, or other organizational documents. (d) Eugene LLC has delivered to Purchaser true and complete copies of South West Oregon Television's articles of incorporation, bylaws and meeting minutes, in each case as amended and in effect on the date hereof. South West Oregon Television is not in violation of any of the provisions of its articles of incorporation, bylaws, corporate resolutions or any organizational documents. South West Oregon Television has a capitalization which consists of 100 shares of authorized common stock, no par value per share (the "South West Oregon Stock"), all of which is issued and outstanding. All of 14 the South West Oregon Stock has been duly authorized and validly issued and is fully paid and nonassessable. There are no outstanding rights, subscriptions, warrants, calls, preemptive rights, options or other agreements of any kind with respect to the South West Oregon Stock. Eugene LLC owns 50% (50 shares) of the South West Oregon Stock, free and clear of any liens, claims or encumbrances, except as will be removed on or prior to Closing. The only other shareholder of South West Oregon Television is California Oregon Broadcasting, Inc., which owns the other 50 shares of the South West Oregon Stock. South West Oregon Television does not own an interest in any other Person. (e) Each Broadcast Seller is wholly-owned by Broadcasting LLC, and none of the Broadcast Sellers owns any interest in any subsidiary or other entity, except as set forth on Schedule 4.1(e). (f) Broadcasting LLC and the Broadcast Sellers are the only subsidiaries of REI other than South West Oregon Television. The term "consolidated subsidiaries" when used in connection with REI means Broadcasting LLC and the Broadcast Sellers. 4.2 Authorization of Agreement. The execution and delivery by Sellers of this Agreement, and the performance by Sellers of their obligations hereunder, have been duly and validly authorized by the Board of Directors of REI and by the members of the Broadcast Sellers, and no other action on the part of the Sellers is necessary other than approval of the REI shareholders. This Agreement has been duly and validly executed and delivered by the Sellers and constitutes a legal, valid and binding obligation of the Sellers enforceable against them in accordance with its terms, except to the extent such enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (b) is subject to general principles of equity. 4.3 Ownership of the Acquisition Assets. Sellers are the lawful owners of, or have lawful rights to use and (subject to obtaining the FCC Consents and the consents to the assignment of the Assumed Contracts and Regulatory Licenses) transfer to Purchaser, the Acquisition Assets and Sellers have good and marketable title to the Acquisition Assets, free and clear of all Liens, except for Permitted Liens. The delivery to Purchaser of the instruments of transfer of ownership contemplated by Article X will vest in Purchaser good and marketable title to all of the Acquisition Assets, free and clear of all Liens except for Permitted Liens. Immediately following the Closing, Purchaser will own and possess all assets, properties and rights owned or used by the Sellers in the operation of the Stations, which assets, properties and rights are necessary in the operation of the Stations. 4.4 Financial Statements and Condition. (a) Sellers have delivered to Purchaser true and complete copies of (i) the audited balance sheets of the broadcast business of REI at September 30, 1995 and 1996, and the related audited consolidated statements of operations, stockholders' equity and cash flows for each of the fiscal years then ended, together with a true and correct copy of the report on such audited information by Miller, Kaplan, Arase & Co., LLP, and all letters from such accountants with respect to the results of such audits; (ii) the audited balance sheets of the broadcast business of REI at September 30, 1997, and the related audited consolidated statements of operations, stockholders' equity and cash flow for the fiscal 15 year then ended, together with a true and correct copy of the report on such audited information by Price Waterhouse LLP, and all letters from such accountants with respect to the results of such audits; and (iii) the unaudited balance sheets of the broadcast business of REI at September 30, 1997 and 1998, and the related unaudited consolidated statements of operations, stockholders' equity and cash flows for the portion of the fiscal year then ended. (b) Except as set forth in the notes to such financial statements, (i) all such financial statements were prepared in accordance with GAAP; (ii) fairly present in all material respects the consolidated financial condition and results of the operations of the Stations as of the respective dates thereof and for the respective periods covered thereby; (iii) were prepared from the books and records of REI and its consolidated subsidiaries; and (iv) contain and reflect adequate provisions for all liabilities for Taxes, if any, incurred or accrued by the Broadcast Sellers. (c) Except for the execution and delivery of this Agreement and except as disclosed on any Schedule attached hereto, since September 30, 1998, the Stations and the Acquisition Assets have been operated in the ordinary course of business and there has not been: (i) any material adverse change in the business, operations, condition (financial or otherwise), assets, or liabilities (whether absolute, accrued, contingent or otherwise); (ii) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting any of the material tangible Acquisition Assets; (iii) any sale or transfer of any material portion of the assets used in the operation of the Stations, other than as permitted under this Agreement; (iv) any Lien, or subjection to Lien, of any of the material assets used in the operation of the Stations, except for Permitted Liens; (v) any material amendment to, or termination of, any Material Assumed Contract; (vi) any increase in, or commitment to increase, the compensation payable, or to become payable to, any Sellers' Employees other than routine increases made in the ordinary course of business not exceeding four percent (4%) per annum individually and in the aggregate, excluding any greater increases required by law or by existing contract or commitment and excluding the amounts payable to certain employees by REI under the Bonus Letters; (vii) any adoption of a plan or agreement or amendment to any plan or agreement providing any new or additional "fringe benefits" for any Sellers' Employees, excluding the Bonus Letters; (viii) any material alteration in the manner of keeping the books, accounts, or records of any of the Sellers, or in the accounting practices therein reflected; or (ix) any other event or condition of any character which has a material adverse effect on the Stations or Acquisition Assets. 16 (d) REI is a subchapter S corporation. (e) Each of the Broadcast Sellers and Broadcast LLC, for federal income tax purposes, is (i) an entity all of whose equity interests may be held by a subchapter S corporation without disqualifying such corporation as such, (ii) and is not treated as a separate corporation, and (iii) all assets, liabilities, and items of income, deduction, and credit of each LLC is treated as assets, liabilities and such items (as the case may be) of REI. 4.5 Program Rights. Schedules 2.1(d)(i) and 2.1(d)(ii) accurately set forth Sellers' interest in all Affiliation Agreements and Program Rights used or useable in the business and operation of the Stations as of the date hereof. All of Sellers' rights, title and interest in such programs and the Affiliation Agreements are, subject to receipt of any required third party consents, assignable to Purchaser on the Closing Date. Except as otherwise expressly disclosed on the appropriate Schedule, as of the date hereof Sellers have the right to broadcast each program or program segment presently scheduled for broadcast by any of the Stations, no Seller is in material default with respect to any Program Right or Affiliation Agreement, Sellers have no knowledge of any litigation, claim, or threatened litigation or claim with respect to any Program Right or Affiliation Agreement, and Sellers have not received any notice of termination or default with respect to any Affiliation Agreement or Program Rights. 4.6 Real Property. (a) Schedule 2.1(a) sets forth by Station a true and complete (i) description of each parcel of real property used or usable in the operation of the Stations that Sellers own or purport to own, which description includes the name of the owner of such parcel, a street address and a legal description thereof, (ii) description of each parcel of real property used in the operation of the Stations under which any Seller is or purports to be either a lessee, lessor, sublessee or sublessor, which description identifies the applicable leases or subleases, the names of the parties thereto and the expiration dates thereof (including any renewal options), and (iii) description of the easements, rights of way, special use permits, licenses and other agreements pursuant to which transmitters, towers, translators and the like used in the operation of the Stations under which any Seller holds or purports to hold a possessory interest, which description identifies the applicable easement, right of way, special use permit, license or other agreement, the names of the parties thereto and the expiration dates thereof (including any renewal options). The Real Property constitutes all of the fee, leasehold, and other possessory interests in real property used or held for use by the Sellers in connection with, and necessary for, the operation of the Stations. (b) Except for Permitted Liens and as otherwise disclosed in Schedule 2.1(a): (i) Seller has good and marketable fee simple title to all the owned real property listed in Schedule 2.1(a), free and clear of all liens, mortgages, pledges, covenants, easements, restrictions, encroachments, charges, rights of occupancy, and others claims and encumbrances; (ii) With respect to each lease, sublease, or other possessory agreement identified in Schedule 2.1(a), (A) all are in full force and effect and are valid, binding, and enforceable in accordance with their respective terms, none is subject to any 17 offset, defense, or counterclaim by any party thereto, and none is subject to any verbal agreement not contained therein, and (B) no Seller is, and no Seller has any knowledge that any other party to any such lease, sublease or possessory agreement is, in default with respect to any material term or condition thereof, and no Seller has any knowledge that any event has occurred which, through the passage of time or the giving of notice or both, would constitute a material default thereunder or would cause the acceleration of any obligation of any party thereto or the creation of any Lien upon any asset of any Seller; (iii) All of the buildings, structures, fixtures and other improvements being conveyed to Purchaser are in good operating condition and repair for buildings, structures, fixtures, and improvements of their age and usage, ordinary wear and tear excepted, and, to the best knowledge of the Sellers, have no latent defects. All buildings, structures, fixtures and other improvements were constructed and are operated and used in conformance, in all material respects, with all setback requirements, easements, covenants, restrictions, and all applicable building, fire, zoning, health and safety codes and other similar laws or regulations; and (iv) Subject to the receipt of each required consent to the assignment of any real property lease, sublease, or possessory agreement, Sellers have the full power and authority to assign their respective interests under the leases, subleases and possessory agreements in accordance with this Agreement. 4.7 Personal Property. Schedule 2.1(b) sets forth as of the date hereof a true and complete (a) list of each material item of Personal Property owned or held for use by the Sellers, and used in the operation of the Stations, including a description and identifying the location of each such item, (b) identification of the owner of, and any agreement relating to the use of, each such item of Personal Property (other than motor vehicles), the rights to which are to be transferred to the Purchaser pursuant hereto under leases or similar agreements or arrangements which provide for rental payments at a rate in excess of $1,000 per month, and (c) identification of the owner of, and any agreement relating to the use of each motor vehicle used in the operation of the Stations, the rights to which are to be transferred to the Purchaser pursuant hereto. Except as disclosed on Schedule 2.1(b), the Personal Property subject to FCC regulation is operating in conformity with FCC Regulations and the FCC Authorizations (including without limitation all regulations governing human exposure to radio-frequency radiation) and, to Sellers' knowledge, standards of good engineering practice. 4.8 Intellectual Property. (a) Schedule 2.1(g) sets forth as of the date hereof by Station a true and complete list of all (i) trademarks, trademark registrations, trade names, service marks, Internet domain registrations, patents, patent applications, invention disclosures, and applications for any of the foregoing, used by the Sellers in the operation of the Stations, (ii) proprietary software used in the operation of the Stations, (iii) license agreements or similar arrangements to which any Seller is a party, either as licensee or a licensor, for each such item of Intellectual Property, and (iv) other items of Intellectual Property used in and necessary to the operation of the Stations as presently operated. (b) Except as indicated in Schedule 2.l(g), as of the date hereof: 18 (i) There have not been any actions or other judicial or adversary proceedings involving any Seller concerning any items of Intellectual Property, nor, to the knowledge of the Sellers, is any such action or proceeding threatened; (ii) Each Broadcast Seller has the right and authority to use all items of Intellectual Property in the operation of the Stations in the manner presently operated and to convey such right and authority to Purchaser, and no Seller has received any notice that such use conflicts with, infringes upon or violates any right of any other Person; and (iii) There are no outstanding nor, to the knowledge of the Sellers, any threatened disputes or disagreements with respect to any license agreements or similar agreements with respect to any Intellectual Property. (c) Immediately following the Closing, Purchaser will own, or will have all lawful rights to use, all Intellectual Property set forth on Schedule 2.1(g), free of any Liens other than Permitted Liens, on the same terms and conditions as owned or used by Sellers prior to the Closing. 4.9 Agreement Not in Breach of Other Instruments. Subject to receipt of the FCC Consents, passage of the waiting period under the HSR Act and receipt of third party consents required under the Assumed Contracts, the execution and delivery by each Seller of this Agreement and related agreements to which each such Seller is a party, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby, will not result in a breach of any of the terms and provisions of, or constitute a default under, or conflict with (a) any Assumed Contract or any other material agreement, indenture or other instrument to which any Seller is a party or by which any Seller or its assets are bound, (b) the articles of incorporation or bylaws of REI or of South West Oregon Television, or the certificate of formation or the LLC operating agreement of any of the other Sellers, as amended through the date hereof, or (c) any Law with respect to any Seller, its assets or the Stations. 4.10 Labor Matters. (a) Each of the Sellers has complied, and is currently in compliance, in all material respects with all Laws, publicly available policies, standards, official interpretations and publicly available guidelines regarding employment and employment practices, and has not and is not engaged in any unfair labor practice or unlawful discriminatory act or other unlawful act with respect to employment or employment practices. Except as disclosed on Schedule 4.10(a), as of the date hereof, there is no pending or, to the knowledge of the Sellers, threatened charge, grievance or complaint by or against any Seller before the National Labor Relations Board or the Equal Employment Opportunity Commission, or any other Governmental Authority relating to labor or employment practices or omissions, decisions or practices, and no labor strike or other labor trouble is pending or, to the knowledge of the Sellers, threatened by, against or affecting any Seller. (b) Except as disclosed in Schedule 4.10(b), as of the date hereof, no Seller is a party to or bound by any collective bargaining agreement or other labor agreement, and there is no labor union or other organization representing, purporting to represent or attempting to organize or represent any Employees, no Broadcast Seller has experienced, within the 19 past 24 months, nor is any Broadcast Seller now experiencing, any work stoppage, noticeable slowdown or other labor difficulty, and no Seller has any reason to believe that any organizational effort by any of its employees or any union is imminent. 4.11 Employees. Schedule 4.11 sets forth, as of the date hereof, a true and complete list by Station and corporate office of each employee employed by any Seller, whether part time or full time, along with the following information for each: name, identifying code, job title, rate of pay, date of hire, name of employer, accrued vacation time, and whether such individual is bound by an employment agreement. 4.12 Employee Benefit Plans. Schedule 4.12 sets forth, as of the date hereof, a true and complete list and description of each of the Benefit Plans. (a) Neither any of Sellers, any ERISA Affiliate nor any other corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA has at any time contributed to any "multi-employer plan", as that term is defined in Section 4001 of ERISA. (b) Complete and correct copies of the following documents have been made available to Purchaser prior to the execution of this Agreement: (i) current summary Plan descriptions of each Benefit Plan subject to ERISA; and (ii) the most recent Form 5500 and schedules thereto for each Benefit Plan subject to ERISA reporting requirements. 4.13 Litigation. Except as disclosed in Schedule 4.13 and except for proceedings of general applicability within the television broadcast industry, as of the date hereof, (a) there is no legal, administrative, arbitration or other proceeding, and no governmental investigation of any kind, pending or, to the knowledge of Sellers, threatened against any Seller with respect to any of the Acquisition Assets, the Stations, or any of the officers, directors, shareholders or employees of any Seller, and (b) no claim, demand or dispute that involves or could reasonably involve at least $25,000 or more has been made or currently exists against any Seller with respect to the Acquisition Assets or the Stations. 4.14 Contracts. (a) Schedules 2.1(a), 2.1(d)(i), 2.1(d)(ii), 2.1(e), 2.1(f), and 2.1(g) set forth, as of the date hereof, by Station true and complete lists and descriptions of each material contract (other than contracts for the sale of advertising time), agreement, understanding, and lease pertaining to the operation of the Stations, except those which involve the payment or delivery of services of less than $25,000 in any twelve month period or which will expire (and not be renewed) prior to the Closing Date or which do not constitute Acquisition Assets. The Sellers have previously delivered to the Purchaser true and complete copies of all such written Contracts and a written description of all such oral contracts (and all amendments and modifications thereto). (b) Except as set forth in such Schedules, (i) each Material Assumed Contract is in full force and effect, and the Sellers do not have any knowledge that such Material Assumed Contract is not a valid and binding agreement of the other parties thereto, (ii) there exists no payment default or any material non-payment default under any Material Assumed Contract on the part of any Seller, and the Sellers do not have any knowledge that any 20 payment default or any material non-payment default under any Material Assumed Contract on the part of the other parties thereto exists, (iii) the Sellers do not have any knowledge that any event has occurred which, with the giving of notice or the lapse of time or both, would constitute any material default under any of the Material Assumed Contracts, and (iv) there are no outstanding material disputes under any of the Material Assumed Contracts. (c) Except as set forth on such schedules, all the Material Assumed Contracts are assignable (subject to obtaining the FCC Consents, passage of the waiting period under the HSR Act, and receipt of certain third party consents) to Purchaser, and upon Closing will be validly assigned to Purchaser and enforceable by Purchaser in accordance with its material terms, except to the extent such enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (b) is subject to general principles of equity. 4.15 Authorizations; License Rights; Station Transmissions. (a) FCC Authorizations. Except as to Station KPIC, each Broadcast Seller listed in Recital A holds the valid FCC Authorizations for the operation of the Station(s) listed in Schedule 2.l(c)(i). South West Oregon Television holds the valid FCC Authorization for Station KPIC. Schedule 2.l(c)(i) correctly sets forth, as of the date hereof, the expiration date of each such FCC Authorization. The FCC Authorizations permit the operation of the Stations as presently operated and are in full force and effect. To Sellers' knowledge and except as disclosed on Schedule 2.1(c)(i), the Stations are being operated in accordance with (a) the terms and conditions of their FCC Authorizations and (b) the FCC Regulations, and the Stations will be so operated through and as of the Closing. The FCC has allocated channels to each of the eleven Stations listed in Recital A for digital transmissions; and, to Sellers' knowledge, such allocations are sufficient to permit Sellers, upon obtaining appropriate construction permits from the FCC, to construct digital facilities which materially replicate the present NTSC coverage areas of each Station, using the antenna heights, power levels, and antenna patterns specified in the FCC's digital Table of Allotments with respect to such Station. (b) FCC Matters. Except for proceedings affecting the television broadcast industry as a whole and except as disclosed on Schedule 2.1(c)(i), no actions, proceedings or investigations are pending or, to the knowledge of the Sellers, threatened which is reasonably expected to result in the revocation, cancellation, nonrenewal or limitation of any of the FCC Authorizations or the denial of any pending application for renewal of any FCC Authorization or the imposition of any administrative sanctions with respect to the Stations or any of their operations. Applications for renewal of the FCC Authorizations associated with Stations KJEO, KVAL, KPIC, KCBY, KBCI, KIMA, and KEPR are pending as of the date of this Agreement before the FCC. Except as disclosed on Schedule 4.15(b), Sellers know of no reason why said FCC Authorizations will not be renewed for the full term without imposition of any materially adverse condition to such renewal. Except for such renewals and as disclosed on Schedule 2.1(c)(i), there are no proceedings, complaints, notices of forfeiture, claims, or investigations by the FCC pending, or to the knowledge of Sellers, threatened against or in respect to any of the Stations that would materially impair the qualifications of Sellers to perform their obligations under this Agreement or delay the processing or grant of the FCC Consent. 21 (c) Station Transmissions. Except as set forth on Schedule 4.15(c), as of the date hereof, (i) to the knowledge of the Sellers, the eleven Stations listed in Recital A are not short-spaced, on a grandfathered basis or otherwise, to any existing broadcast television station, outstanding construction permit or pending application therefor, domestic or international, (ii) neither the Sellers nor any such Station has, within one (1) year of the date of execution of this Agreement, received any notice to the effect that any such Station is causing objectionable interference with the transmissions of any other television station or communications facility or received any written complaints with respect thereto, and (iii) to the knowledge of the Sellers, no other television station or communications facility is causing objectionable interference with the transmission or the public's reception of the transmissions of any such Station. (d) Cable Carriage. Schedule 4.15(d) sets forth (or has appended to it, in the case of the items described in clauses (iv) and (vi) below), as of the date hereof, for each of the eleven Stations listed in Recital A, the following: (i) a true and complete list of all U.S. cable systems which carry each such Station's signal; (ii) a true and complete list of all cable systems located in the Arbitron ADI television markets recognized by the FCC in which such Stations are located as to which such Stations have provided a must-carry or retransmission consent election notice in accordance with the provisions of the Cable Television consumer Protection and Competition Act of 1992 and the rules and regulations promulgated by the FCC relating thereto, as well as a list of any such cable systems to which such Stations have not provided any such must-carry or retransmission consent notice; (iii) a true and complete list of all retransmission consent and/or copyright indemnification agreements, if any, entered into by Sellers with respect to such Stations; (iv) a true and complete list of each notice, if any, received by Sellers from any cable system within the last two years alleging that any such Station does not deliver an adequate signal level, as defined in Section 76.55(c)(3) of the rules and regulations of the FCC, to such cable system's principal head-end (other than any such notice as to which such failure has been remedied or been determined not to exist), and all further correspondence between Sellers and such Stations and any such cable system relating to such notice; (v) a true and complete list of all pending petitions for special relief to include any additional community or area of any such Station's television market, as defined in Section 76.55(e) of the rules and regulations of the FCC, if any, filed by any of the Sellers with respect to any such Station; and (vi) a true and complete list of each pending petition of which any Seller is aware for special relief requesting the deletion of any community or area from any such Station's television market, if any, which is pending before the FCC. 22 4.16 Environmental Matters. Except as set forth in Schedule 4.16: (a) Each Seller is, and at all times has been, in compliance in all material respects with all Environmental Laws related to the Real Property, and all current and past activities on the Real Property comply and have complied in all material respects with all Environmental Laws; (b) Each Seller has obtained all permits, authorizations, licenses and approvals under Environmental Laws which are required in connection with the operations of its Stations, all of which are in full force and effect. Each Seller is in compliance in all material respects with all terms and conditions of such permits, authorizations, licenses and approvals, no action or proceeding which could result in the revocation or suspension of any such permits, authorizations, licenses and approvals is pending or, to the knowledge of the Sellers, threatened, and such Seller has not, and to the knowledge of the Sellers, no other Person has, engaged in any conduct or activity which could likely cause revocation or suspension of any of such permits, authorizations, licenses or approvals; (c) No Seller has engaged in or permitted any activity upon any Real Property in any way involving Hazardous Materials in violation of Environmental Laws on, under, in or abutting any Real Property or transported any Hazardous Materials to, from or across any Real Property in violation of any Environmental Laws. No Hazardous Materials are currently being produced, constructed, deposited, stored or otherwise located on, under, in or about any Real Property in violation of any Environmental Laws; (d) There are no conditions or circumstances relating to the operation of the Stations or like condition of Real Property which likely would give rise to claims, expenses, losses, liabilities, or governmental action against the Purchaser in connection with any Hazardous Materials present at or disposed of from the Real Property. Without limiting the generality of the foregoing: (i) no Hazardous Materials have migrated or have threatened to migrate from any Real Property to other properties, and no Hazardous Materials have migrated or threatened to migrate from other properties to any Real Property; (ii) there are no PCB's or any equipment that contains PCB's or asbestos-containing materials present on or in any Real Property which violate Environmental Laws; and (iii) there are no underground storage tanks, or underground piping associated with such underground tanks, used currently or in the past, for the management of Hazardous Materials which violate Environmental Laws. (e) No portion of any Real Property has been designated, listed, or identified in any manner by the EPA, or any other federal, state, local or other Governmental Authority, or under and pursuant to any Environmental Laws as a Hazardous Materials, hazardous waste or hazardous substance disposal or removal site, Superfund or clean-up site, or candidate for clean-up, investigation, removal or closure pursuant to any Environmental Laws; 23 (f) Other than with respect to items listed on Schedule 4.16, no Seller has received at any time prior to the date hereof a summons, citation, notice, directive, letter or other communication, written or oral, from the EPA or any other federal, state, local or other Governmental Authority, authorized pursuant to any Environmental Laws, concerning any intentional or unintentional action or omission by any Seller, or, to the knowledge of Seller, any previous owner or user of the Real Property, related to the Real Property or to the operation of the Stations constituting a violation or potential violation of any Environmental Laws, including, without limitation, violations relating to the migration, releasing or spilling of Hazardous Materials into the environment resulting in damage thereto or to any natural resources; and (g) No Seller has received at any time prior to the date hereof any summons, citation, notice, directive, letter or other communication, written or oral, of any potential claim or liability under any Environmental Laws, including, without limitation, any notification as a potentially responsible party with respect to any Superfund or other clean-up site. To the knowledge of the Sellers, there are no events, conditions, circumstances, activities, practices, incidents, actions or plans at or concerning the Real Property or the operations of the Sellers which may (i) interfere with or prevent continued compliance by the Sellers with any Environmental Laws, (ii) give rise to any claim or liability under any Environmental Laws or (iii) form the basis for any claim, action, suit, proceeding, hearing or investigation under any Environmental Laws. 4.17 FCC Reports and Records. All applications, reports and statements relating to the Stations required to be filed by any Seller with the FCC have been timely filed and are true and complete in all material respects. All such applications, reports and statements shall continue to be filed on a current basis until the Closing, and will be true and complete in all material respects. All documents required by the rules and regulations of the FCC to be placed in the Stations' public files have been placed in such files on a timely basis and, to the extent required, are being held in such files. All logs and business records of every type and nature relating to the Stations and required to be maintained by the rules and regulations of the FCC have been maintained in all material respects in accordance with such rules and regulations and are located at the Stations. 4.18 Compliance With Laws. Except as disclosed on Schedule 4.18, each Seller is currently in compliance in all material respects with all Laws pertaining to the Acquisition Assets and the operation of the Stations and has not received any notice asserting any violation or noncompliance in connection with the business or operations of the Stations or the use of any of the Acquisition Assets with any Law. 4.19 Regulatory Licenses. In addition to the FCC Authorizations which are covered by Section 4.15, each Broadcast Seller holds all material valid permits, licenses, authorizations and approvals from all Governmental Authorities necessary to operate the Stations and to own, use and maintain the Acquisition Assets owned, used or maintained by such Broadcast Seller. Schedule 4.19 sets forth a true and complete list of all material Regulatory Licenses held by Broadcast Sellers, the Authorities that issued such license and its expiration date. 4.20 Taxes. Except as disclosed on Schedule 4.20: (a) Each Seller has filed all Tax Returns required to be filed by it by Law. With respect to all Taxes imposed upon any Seller, or for which any Seller is or could be liable, and with 24 respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax Laws and agreements have been fully complied with, and all such amounts required to be paid by any Seller to taxing authorities or others have been paid as due; (b) Each Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party; (c) There are no liens for Taxes (other than for current Taxes not yet due and payable and other Permitted Liens) upon any assets of any Seller; and (d) No Seller is a "foreign person" for purposes of Section 1445 of the code or any other laws requiring withholding of amounts paid to foreign persons. 4.21 Insurance. The Sellers have delivered to the Purchaser true and complete copies of all policies of property, fire, casualty, workers compensation, and liability insurance, together with all riders and amendments thereto. Such policies are in full force and effect, and all premiums due thereon have been paid. The Sellers have complied in all material respects with the terms and provisions of such policies. The insurance coverage provided by such policies is sufficient and adequate. 4.22 No Brokers. Except for Donaldson, Lufkin & Jenrette Securities Corporation, whose fees, commissions and expenses are the sole responsibility of REI, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Sellers directly with Purchaser without intervention of any other Person on behalf of the Sellers in such manner as to give rise to any valid claim by any Person against Purchaser, Sellers, the Stations, or any of the Acquisition Assets for a finder's fee, brokerage commission, investment banking fee or similar payment. 4.23 Towers. Except as provided on Schedule 4.23, the Federal Aviation Administration ("FAA") and each other applicable state, local, or other agency or authority having jurisdiction over such matters has issued a determination of no hazard to air navigation with respect to each communications tower owned or leased by Sellers and used in the operation of the Stations for which such determination is required. Except as provided on Schedule 4.23, each communications tower owned or leased by Sellers and used in the operation of the Stations is properly lighted and painted, is of the height authorized by the FCC and set forth in the relevant FAA determination, is located at the unique geographic coordinates specified in the relevant FCC Authorization and the relevant FAA determination, and such FCC and FAA heights and geographic coordinates are accurate and consistent with each other. 4.24 Accounts Receivable. All of Sellers' Accounts Receivable were incurred in the ordinary course of business and in accordance with GAAP and represent valid rights to receive payment for services rendered or products delivered. 4.25 South West Oregon Television. Schedule 4.25 sets forth the terms and conditions upon which Eugene LLC manages the operations of Station KPIC, including without limitation (i) the agreements with South West Oregon Television and California Oregon Broadcasting, Inc. detailing Eugene LLC's specific management obligations and its rights as a shareholder; (ii) the agreement with California Oregon Broadcasting, Inc. detailing the distribution of dividends and 25 other payments to Eugene LLC and California Oregon Broadcasting, Inc.; and (iii) the allocation of income and expenses among the three Stations operated by Eugene LLC. Except as described on Schedule 4.25, there is no shareholder agreement, buy/sell agreement, management agreement, option, or any other right or agreement of any kind binding upon Eugene LLC's interests in South West Oregon Television. 4.26 Disclosure. This Agreement and each related agreement and certificate and other document delivered by or on behalf of the Sellers to the Purchaser or any of its agents or representatives in connection with transactions contemplated by this Agreement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein, when taken together in light of the circumstances in which they were made, not misleading. 4.27 Bankruptcy. No insolvency proceedings of any character, including without limitation bankruptcy, receivership, reorganization, composition or arrangement with creditors, voluntary or involuntary, relating to Sellers or any of the Acquisition Assets, are pending or, to the best of Sellers' knowledge, threatened, and no Seller has made any assignment for the benefit of creditors or taken any action in contemplation of or which would constitute the basis for the institution of such insolvency proceedings. 4.28 Year 2000 Compliance. Except as disclosed on Schedule 4.28, Seller has no knowledge of any reason any Seller will fail to timely achieve Year 2000 Compliance before the end of 1999. Except as disclosed on Schedule 4.28, the costs of achieving Year 2000 Compliance will not have a material adverse effect on the operations or financial condition of any Station. For purposes of this Agreement, "Year 2000 Compliance" means that Sellers' Information Technology will accurately receive, provide and process date/time data from, into and between the twentieth and twenty-first centuries, including the years 1999 and 2000, and leap year calculations and will not malfunction, cease to function, or provide invalid or incorrect results as a result of date/time data. For purposes of this Agreement, "Information Technology" means computer software, computer firmware, computer hardware (whether general or specific purpose) or other similar or related automated or computerized items (including such items embedded in broadcast equipment) that are owned, leased, used or relied on by Sellers in the operation of the Stations. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER Purchaser represents and warrants to the Seller that: 5.1 Corporate Existence. Purchaser is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Washington. Purchaser has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. 5.2 Authority. The execution and delivery by Purchaser of this Agreement, and the performance by Purchaser of its obligations hereunder, have been duly and validly authorized by the Board of Directors of Purchaser, no other corporate action on the part of Purchaser or its stockholders 26 being necessary. This Agreement has been duly and validly executed and delivered by Purchaser and constitutes a legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except to the extent such enforceability (a) may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally, and (b) is subject to general principles of equity. 5.3 No Conflicts. The execution and delivery by Purchaser of this Agreement do not and the consummation of the transactions contemplated hereby will not: (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation or by-laws of Purchaser; (b) subject to obtaining the FCC Consents and the HSR Act, conflict with or result in a violation or breach of any term or provision of any Law applicable to Purchaser or any of its assets and properties (other than such conflicts, violations or breaches which could not in the aggregate reasonably be expected to adversely affect the validity or enforceability of this Agreement); or (c) except as could not, individually or in the aggregate, reasonably be expected to adversely affect the ability of Purchaser to consummate the transactions contemplated hereby or to perform its obligations hereunder, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require Purchaser to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, or (iv) result in the creation or imposition of any Lien upon Purchaser or any of its assets or properties under, any material contract or license to which Purchaser is a party or by which any of its assets and properties is bound. 5.4 Governmental Approvals and Filings. Except as to the FCC Consents and the HSR Act, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of Purchaser is required in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except where the failure to obtain any such consent, approval or action, to make any such filing or to give any such notice could not reasonably be expected to adversely affect the ability of Purchaser to consummate the transactions contemplated by this Agreement or to perform its obligations hereunder. 5.5 Legal Proceedings. There are no orders outstanding and no actions or proceedings pending or, to the knowledge of Purchaser, threatened against, relating to or affecting Purchaser or any of its assets which could reasonably be expected to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement. 5.6 Brokers. Except for Credit Suisse First Boston, whose fees, commissions and expenses are the sole responsibility of Purchaser, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Purchaser directly with Sellers without the intervention of any Person on behalf of Purchaser in such manner as to give rise to any valid claim by any Person against Sellers for a finder's fee, brokerage commission or similar payment. 27 5.7 Financing. Purchaser has sufficient cash and/or available credit facilities to pay the Purchase Price and to make all other necessary payments of fees and expenses in connection with the transactions contemplated by this Agreement, as evidenced by Bank of America's commitment letter and term sheet dated October 27, 1998, a copy of which has been delivered to Sellers. 5.8 Disclosure. None of Purchaser's representations and warranties made in this Agreement or in any other document delivered to Sellers by Purchaser in connection with the transactions contemplated by this Agreement contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, when taken together in light of the circumstances, not misleading. 5.9 FCC Qualification. To Purchaser's knowledge, there is no fact, allegation, condition or circumstance concerning Purchaser that could reasonably be expected to prevent the prompt granting of the FCC Consents. Other than the need to request a single waiver of the FCC's TV "duopoly" rule with respect to overlapping coverage contours between Purchaser's existing television station in Portland, Oregon and Station KVAL, Purchaser knows of no fact that would disqualify Purchaser under the FCC Regulations. There are no proceedings, complaints, notices of forfeiture, claims, or investigations by the FCC pending, or to the knowledge of Purchaser, threatened against or in respect to any of the broadcasting stations licensed to FBI or otherwise involving Purchaser that would materially impair the qualifications of Purchaser to acquire the Stations or delay processing of the FCC Consents. Purchaser will not, prior to Closing, acquire or seek to acquire any media interests that would pose any material conflict under the FCC Regulations with its ownership of the Stations. ARTICLE VI COVENANTS OF SELLERS Sellers covenant and agree with Purchaser that Sellers will comply with all covenants and provisions of this Article, except to the extent Purchaser may otherwise consent in writing. 6.1 Regulatory and Other Approvals. The Sellers, as appropriate, as promptly as reasonably practicable will (a) take all commercially reasonable steps necessary or desirable (including payment of any fees, costs or penalties) to obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of any of the Sellers to consummate the transactions contemplated hereby, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as such Governmental or Regulatory Authorities or other Persons may reasonably request in connection therewith and (c) provide reasonable cooperation to Purchaser in connection with the performance of its obligations under Article VII below. Sellers will provide, or cause to be provided, notification to Purchaser when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Purchaser of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement. 6.2 HSR Filings. REI and any of its Affiliates, as necessary, will (a) take promptly all actions necessary to make the filings required of them under the HSR Act, (b) comply at the earliest 28 practicable date with any request for additional information received from the FTC or the Antitrust Division of the Department of Justice pursuant to the HSR Act, and (c) cooperate with Purchaser in connection with Purchaser's filing under the HSR Act and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement commenced by either the FTC or the Antitrust Division of the Department of Justice or state attorneys general. 6.3 FCC Consent. Not later than ten (10) Business Days following execution of this Agreement, Sellers shall join with, and shall cause South West Oregon Television to join with, Purchaser in the preparation and tendering to the FCC of one or more application(s) (collectively, the "FCC Applications") for consent to the assignment of license or transfer of control, as appropriate, of each of the Stations to Purchaser (collectively, the "FCC Consents"). Sellers shall conscientiously and in good faith prosecute said application toward a grant by the FCC, and shall submit such pleadings and other documents as may reasonably be required in order to obtain prompt favorable action on said applications without materially adverse impact to Sellers. Seller shall bear the legal and other costs relating to its actions seeking FCC consent to the transactions contemplated by this Agreement. All filing fees imposed by the FCC with respect to the submission of such applications shall be shared equally by Sellers and Purchaser. 6.4 Access. Sellers will, upon reasonable prior notice and during normal business hours, (a) provide Purchaser with full access to the Stations and the Real Property for the purpose of inspection, including conducting environmental reviews if Purchaser desires; provided that any Phase II environmental audit will require the consent of Sellers, which shall not be unreasonably delayed or withheld; (b) allow Purchaser access to Sellers' Employees and Sellers' officers, agents and accountants; (c) grant Purchaser access to Sellers' Records pertaining to the Stations and Acquisition Assets; and (d) furnish to Purchaser such additional information and data concerning the Stations and Acquisition Assets as Purchaser reasonably may request. 6.5 Conduct of Operation of the Stations. From the date of this Agreement through the Closing, the Sellers shall conduct the operation of the Stations in the ordinary course of business consistent with all laws and regulations and with their respective past practices. No Broadcast Seller may (except with the prior consent of the Purchaser, which shall not be unreasonably withheld or delayed and except as otherwise required by this Agreement): (a) enter into any transaction outside the ordinary course of business (including, without limitation, merge or consolidate with or into any other Person), unless otherwise permitted by this Section 6.5; (b) sell or transfer any of the Acquisition Assets, except in the ordinary course of business where the same is replaced where appropriate with an item of equal or greater value; (c) mortgage, pledge or encumber any of the Acquisition Assets, or permit to exist any Liens on such assets, except for Permitted Liens or currently existing Liens that will be released at or prior to the Closing; (d) enter into any agreement, contract, lease, commitment or understanding requiring the payment or delivery of services valued at more than $25,000 annually, which will not be satisfied on or before Closing, unless otherwise permitted by this Section 6.5; 29 (e) unless otherwise permitted by this Section 6.5, enter into any trade or barter agreements or similar contracts, commitments or understandings to provide broadcast time, except those which are in the ordinary course of business, and which can be and are performed completely prior to the Closing; (f) terminate, renew, extend or amend or modify in any material respect any Material Assumed Contract affecting the operation of the Stations; (g) take any action which could reasonable jeopardize the validity or enforceability of or rights under the FCC Authorizations, the Affiliation Agreements or any other Material Assumed Contract; (h) make any increase in, or any commitment to increase, the compensation payable to any of the employees or agents of the Broadcast Sellers, other than payments required by Law or by existing contract or commitment as of the date hereof or under the Bonus Letters and routine increases made in the ordinary course of business which may not exceed four percent (4%) per annum for any of them individually; (i) hire any new employees, except for such employees as are replacements of terminated employees or as required in the reasonable judgment of Sellers; (j) materially alter the manner of keeping the books, accounts or records of the Stations or the accounting practices therein reflected; nor (k) make any capital expenditures or commitments for additions to property, plant or equipment other than as set forth in the budget or in Schedule 6.9 or as should reasonably be made in the ordinary course of business. 6.6 Financial Statements and Reports. (a) As promptly as practicable and in any event no later than forty five (45) days after the end of each fiscal quarter ending after the date hereof and before the Closing Date (other than the fourth quarter) or one hundred twenty (120) days after the end of each fiscal year ending on or after September 30, 1998, and before the Closing Date, as the case may be, REI will deliver to Purchaser true and complete copies of (in the case of any such fiscal year) the audited and (in the case of any such fiscal quarter) the unaudited consolidated balance sheet, and the related audited or unaudited consolidated statements of operations, stockholders' equity and cash flows for the broadcasting operations of REI, Broadcasting LLC and Broadcast Sellers and, in each case as of and for the fiscal year then ended or as of and for each such fiscal quarter and the portion of the fiscal year then ended, as the case may be, together with the notes, if any, relating thereto, which financial statements shall be prepared on a basis consistent with the Audited Financial Statements. (b) As promptly as practicable, REI will deliver to Purchaser true and complete copies of such other regularly-prepared financial statements, reports and analyses as may be prepared by REI or any other Seller relating to the Stations, including monthly financial reports, general managers' operating reports, and sales reports. 30 6.7 Fulfillment of Conditions. Each of the Sellers (a) will execute and deliver at the Closing each certificate, document and instrument that they are required to execute and deliver as a condition to Closing, (b) will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith (i) to satisfy each condition to the obligations of Purchaser contained in this Agreement and (ii) to consummate all of the transactions contemplated by this Agreement, and (c) will not take or fail to take any action (excluding its reasonable decision not to waive a condition precedent to its obligation to close) that could reasonably be expected to result in the nonfulfillment of any obligation of any of the Sellers or Purchaser contained in this Agreement. 6.8 Consents and Notices. The Sellers, as appropriate, as promptly as reasonably practicable (a) shall take all commercially reasonable steps necessary or desirable (which may include payment of fees, costs and penalties) to obtain all consents, approvals or actions of, and give all notices to all parties to Assumed Liabilities, necessary to consummate the transactions contemplated by this Agreement, including specifically obtaining the consent to assignment of all the Affiliation Agreements, (b) shall take all commercially reasonable steps necessary or appropriate to extend, with Purchaser's approval, any Program Rights Agreement which is identified on Schedule 2.1(d)(ii) as material and which, prior to Closing, comes up for renewal or otherwise expires, and (c) provide such other information and communications to such parties as they may reasonably request, subject to the confidentiality requirements of this Agreement. 6.9 Preservation of Assets. From the date of this Agreement to the Closing, the Sellers shall use their reasonable efforts to (a) preserve the operation of the Stations and the organization of the Broadcast Sellers; (b) maintain and preserve the goodwill, business relationships, licenses and franchises of the Broadcast Sellers; (c) keep all of the Acquisition Assets in good working order and repair (reasonable wear and tear excepted); (d) pay all of their obligations as and when they become due and payable in the ordinary course of business; (e) maintain in full force and effect all of the existing casualty, liability and other insurance through the Closing in amounts not less than those in effect on the date hereof; (f) keep available the services of the present employees of the Broadcast Sellers provided nothing herein shall preclude termination of any employee for cause; (g) continue to make capital expenditures in accordance with Schedule 6.9, subject to the covenants of the First Union Bank Loan; (h) pay the premiums for, and maintain in full force, all of Sellers' insurance policies in substantially the same coverage amounts as are in force on the date of this Agreement. 6.10 Accounts Receivable. (a) Promptly after the Closing (but no later than twenty (20) days thereafter), REI shall prepare and deliver to the Purchaser a list of all Accounts Receivable of each of the Broadcast Sellers outstanding as of the close of business on the date immediately preceding the Closing Date. (b) The Broadcast Sellers authorize Purchaser to open any and all mail addressed to any Broadcast Seller (if delivered to the Purchaser) if received on or after the Closing Date and grants to the Purchaser a power of attorney to endorse and cash any checks or instruments made payable or endorsed to the Broadcast Sellers or their order and received by the Purchaser in payment of the Accounts Receivable. 31 (c) Any sums received by any Seller in respect of Accounts Receivable after the Closing Date shall be promptly delivered to Purchaser. 6.11 Termination of Employees. The Sellers shall terminate, as of the Effective Time, each Seller's Employee who Purchaser indicates in accordance with Section 7.6 it will hire. Sellers shall be responsible for the payment of all compensation, severance, benefits, COBRA continuation coverage and other payments owed to Sellers' Employees in connection with termination other than Assumed Liabilities. Sellers shall be responsible for complying with all applicable federal, state and local laws regarding the termination of its employees including, without limitation, compliance, if applicable, with the Worker Adjustment and Retraining Notification Act of 1988, as amended. 6.12 Changes to Schedules. Each Seller shall deliver to Purchaser no later than three (3) Business Days prior to Closing any changes in the Schedules prepared by Sellers necessary to render Sellers' representations and warranties true and complete as of Closing as if all uses of the phrase "as of the date hereof" in Article IV were deemed to refer to the Closing Date for purposes of such Schedules. Notwithstanding the foregoing, such delivery of the Schedule changes shall be for informational purposes only and shall in no way modify Seller's representations and warranties or impair or diminish (a) Purchaser's indemnity rights under Section 9.1 as a result of any breach of a representation or warranty based on the content of the Schedules prior to such delivery, and (b) Purchaser's obligation to purchase the Acquisition Assets. 6.13 Title Insurance. Purchaser may, at its option, obtain (i) a commitment issued by a recognized title insurance company for any of the Real Property, committing to issue to Purchaser on the Closing Date a fee or leasehold owner's standard or ALTA extended policy of title insurance with respect to any of the Real Property Purchaser desires to insure, and (ii) a current ALTA survey of any of the Real Property Purchaser desires to insure sufficient for the issuance of the ALTA extended policy of title insurance. The cost of title insurance and the surveys shall be paid by Purchaser. Purchaser shall have thirty (30) days after receipt of the title commitments and surveys to examine the same and to object to any exceptions for which it cannot obtain satisfactory endorsements from the title company to cover such exceptions. Purchaser shall make the objections in writing to Sellers and Sellers shall diligently undertake to use their best efforts, including without limitation providing affidavits as may be required by the title company to remove the subject exceptions from title. Notwithstanding the foregoing, Seller's failure to remove the subject exceptions shall in no way impair or diminish (a) Purchaser's indemnity rights under Section 9.1 as a result of any breach of a representation or warranty, including but not limited to Sellers' representations contained in Section 4.6, and (b) Purchaser's obligation to purchase the Acquisition Assets. 6.14 Officers' Certificates. Sellers shall deliver to Purchaser upon the Closing certificates, dated the Closing Date and executed in the name and on behalf of each Seller by an executive officer, substantially in the form and to the effect of Exhibit 6.14(a) attached hereto, and a certificate, dated the Closing Date and executed by the Secretary or any assistant Secretary of REI, substantially in the form and to the effect of Exhibit 6.14(b) attached hereto. 6.15 Opinions of the Sellers' Counsel. Sellers shall cause the following legal opinions to be delivered to Purchaser at the Closing (i) an opinion of Milbank Tweed, Hadley & McCloy, special counsel to certain shareholders of REI, or Riordan and McKinzie, special counsel to 32 Sellers, or other counsel reasonably satisfactory to Purchaser, dated as of the Closing, addressed to the Purchaser, with respect to the opinions set forth in Exhibit 6.15(a) and otherwise in form and substance reasonably satisfactory to the Purchaser, and (ii) an opinion of Wiley, Rein & Fielding, FCC counsel to the Sellers, dated as of the Closing, with respect to the opinions set forth in Exhibit 6.15(b) and otherwise in form and substance reasonably satisfactory to the Purchaser. ARTICLE VII COVENANTS OF PURCHASER Purchaser covenants and agrees with Sellers that Purchaser will comply with all covenants and provisions of this Article, except to the extent REI may otherwise consent in writing. 7.1 Regulatory and Other Approvals. Purchaser will as promptly as practicable (a) take all commercially reasonable steps necessary or desirable to obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other person required of Purchaser to consummate the transactions contemplated hereby, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other persons as such Governmental or Regulatory Authorities or other persons may request in connection therewith and (c) provide cooperation to the Sellers in connection with the performance of their obligations under Sections 6.1, 6.2 and 6.3 above. Purchaser will provide prompt written notification to Sellers when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Sellers of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement. 7.2 HSR Filings. In addition to and without limiting Purchaser's covenants contained in Section 7.1 above, Purchaser will (a) take promptly all actions necessary to make the filings required of Purchaser or its Affiliates under the HSR Act, (b) comply at the earliest practicable date with any request for additional information received by Purchaser or its Affiliates from the Federal Trade Commission or the Antitrust Division of the Department of Justice pursuant to the HSR Act and (c) cooperate with the Sellers in connection with the Sellers' filing under the HSR Act and in connection with resolving any investigation or other inquiry concerning the transactions contemplated by this Agreement commenced by either the Federal Trade Commission or the Antitrust Division of the Department of Justice or state attorneys general. 7.3 FCC Consent. Not later than ten (10) Business Days following execution of this Agreement, Purchaser shall join with Sellers and with South West Oregon Television in the preparation and tendering to the FCC of the FCC Applications. It is understood and agreed by all parties hereto that waiver of the FCC's multiple ownership rules may be required in order for the FCC to consent to the transactions contemplated hereby. Purchaser shall conscientiously and in good faith seek such waiver and prosecute said application toward a grant by the FCC, and shall submit such pleadings and other documents as may reasonably be required in order to obtain prompt favorable action on said applications without materially adverse impact to Purchaser, provided, that in no event shall Purchaser be required to divest any media interest or other business unit in order to qualify to acquire the Station's or otherwise to comply with its 33 obligations hereunder. Purchaser shall bear the legal and other costs relating to its actions seeking FCC consent to the transactions contemplated by this Agreement. All filing fees imposed by the FCC with respect to the submission of such applications shall be shared equally by Purchaser and Sellers. Between the date hereof and the Closing Date, the Purchaser and its employees shall not control or direct, or attempt to control or direct, the operations of the Stations, such control and direction being the sole responsibility of the Sellers. 7.4 Retlaw Name. From and after the Closing, neither Purchaser nor any of its Affiliates will use any trade name, trademark, service mark, Internet domain name or other electronic designation which includes the word "Retlaw" or is confusingly similar thereto. In addition, Purchaser will, as soon as practicable after the Closing and in no event later than thirty (30) days after the Closing, not use the word "Retlaw" in advertising or promotional material of any kind. 7.5 Fulfillment of Conditions. Purchaser (a) will execute and deliver at the Closing each certificate, document and instruments that Purchaser is required to execute and deliver as a condition to the Closing, (b) will take all commercially reasonable steps necessary or desirable and proceed in good faith (i) to satisfy each other condition to the obligations of Sellers contained in this Agreement and (ii) to consummate all of the transactions contemplated in this Agreement, and (c) will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any obligation of the Company, any Seller or Purchaser contained in this Agreement. 7.6 Employees. Upon the Closing Date, Purchaser shall hire not less than 67% of Sellers' Employees at each Station, including those identified by Purchaser on Schedule 4.11 as new hires. Each of Sellers' Employees hired by Purchaser shall receive past-service credit for hours of service with Sellers for purposes of determining eligibility and vesting under Purchaser's employee benefit plans available to such employees. Fifteen (15) Business Days before Closing, Purchaser will indicate in writing on Schedule 4.11 to REI which of Sellers' Employees Purchaser will hire upon Closing. 7.7 Compliance with Laws. From and after the Closing, Purchaser shall use reasonable efforts to comply with all Laws governing employee relations and unionized labor. 7.8 Assumption of Assumed Liabilities. Purchaser shall assume in accordance with Section 2.3 and timely perform all Assumed Liabilities. 7.9 Preparation of Financial Statements. Purchaser shall cooperate with Sellers in the preparation of Sellers' closing financial statements, including allowing and instructing Messrs. Tucker and Spector and other appropriate Sellers' Employees to devote a reasonable amount of time to the task after the Closing Date to the extent it does not unreasonably interfere with performance of normal work duties for Purchaser. 7.10 Officers' Certificates. Purchaser shall deliver to Sellers upon Closing, a certificate, dated the Closing Date and executed in the name and on behalf of Purchaser by the Chairman of the Board or the President of Purchaser, substantially in the form and to the effect of Exhibit 7.10(a) as attached hereto, and a certificate, dated the Closing Date and executed by the Secretary of Purchaser, substantially in the form and to the effect of Exhibit 7.10(b) as attached hereto. 34 7.11 Opinion of the Purchaser's Counsel. Purchaser shall cause Sellers to be furnished, at Closing, with an opinion of Graham & Dunn, P.C., counsel to the Purchaser, dated as of the Closing Date, addressed to Sellers, with respect to the opinions set forth in Exhibit 7.11 and otherwise in form and substance reasonably satisfactory to Sellers. ARTICLE VIII RISK OF LOSS 8.1 Risk of Loss; Insurance. The risk of loss or damage by fire or other casualty or cause to the Acquisition Assets from the date hereof through the time of the Closing, shall be upon the Sellers, and the Sellers shall maintain its full existing insurance coverage during such period. In the event of any material loss, damage or other casualty to the Real Property or Personal Property included in the Acquisition Assets prior to the Closing, Sellers shall immediately notify Purchaser of such event and the extent to which such loss, damage or casualty may be covered by any insurance policies of the Sellers. Not less than ten (10) days after receipt of such notice, Purchaser shall either (a) proceed with the Closing, in which case the Sellers shall assign to the Purchaser at the Closing all insurance proceeds to which the Sellers would be entitled as a result of such loss or damage, or (b) postpone the Closing up to 60 days, in which event Sellers agree to join in all necessary applications for extension of the effective period of the FCC's Consents, and Sellers shall expeditiously and diligently effect such repair, replacement or restoration at Sellers' sole expense without regard for the amount of insurance coverage. Notwithstanding the foregoing, neither Sellers' failure to timely effect such repair, replacement or restoration nor any deficiency in the amount of such insurance proceeds shall in any way impair or diminish (a) Purchaser's indemnity rights under Section 9.1 as a result of any breach of a representation or warranty or a covenant or other obligation, including but not limited to Seller's representations contained in Section 4.21 or Sellers' covenants contained in Section 6.5, Section 6.9 or this Section 8.1, and (b) Purchaser's obligation to purchase the Acquisition Assets. ARTICLE IX INDEMNIFICATION 9.1 Indemnification by Sellers. Subject to the conditions and provisions of this Article IX, Sellers shall indemnify, defend and hold harmless Purchaser from and against any and all demands, claims, complaints, actions or causes of action, suits, proceedings, investigations, arbitrations, assessments, Liens, losses, damages, liabilities, costs and expenses, including, but not limited to, interest, penalties and reasonable attorneys' fees and disbursements, asserted against, imposed upon or incurred by Purchaser, directly or indirectly, by reason of or resulting from any (i) breach by any Sellers of any representation or warranty of any Sellers in this Agreement or in any closing certificate delivered by any of Sellers in connection herewith, (ii) any breach by any Sellers of any covenant or other obligation to be performed by any Sellers under the terms of this Agreement, or (iii) Excluded Liabilities. 9.2 Indemnification by Purchaser. Subject to the conditions and provisions of this Article IX, Purchaser shall indemnify, defend and hold harmless Sellers from and against any and all demands, claims, complaints, actions or causes of action, suits, proceedings, investigations, 35 arbitrations, assessments, Liens, losses, damages, liabilities, costs and expenses, including, but not limited to, interest, penalties and reasonable attorneys' fees and disbursements, asserted against, imposed upon or incurred by them, directly or indirectly, by reason of or resulting from any (i) breach by Purchaser of any representation or warranty of Purchaser in this Agreement or in any closing certificate delivered by Purchaser in connection herewith; (ii) breach by Purchaser of any covenant or other obligation to be performed by Purchaser under the terms of this Agreement, (iii) Assumed Liabilities; or (iv) of Purchaser's activities or operations of the Stations after the Closing Date. 9.3 Claims for Indemnification. Whenever any claim shall arise for indemnification under this Article IX, the party entitled to indemnification (the "indemnified party") shall promptly notify the other party (the "indemnifying party") of the claim and, when known, the facts constituting the basis for such claim. In the event of any claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party, the notice to the indemnifying party shall specify, if known, the amount or an estimate of the amount of the liability arising therefrom. The indemnified party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder, without the prior written consent of the indemnifying party (which shall not be unreasonably withheld), unless suit shall have been instituted against it and the indemnifying party shall not have taken control of such suit within a reasonable time after notification thereof as provided in Section 9.4 of this Agreement. 9.4 Defense by Indemnifying Party. In connection with any claim giving rise to indemnity hereunder resulting from or arising out of any claim or legal proceedings by a third party, the indemnifying party at its sole cost and expense may, upon written notice to the indemnified party, assume the defense of any such claim or legal proceeding if it acknowledges to the indemnified party in writing its obligations to indemnify the indemnified party with respect to all elements of such claim. The indemnified party shall be entitled to participate in (but not control) the defense, compromise or settlement of any such action, with its counsel and at its own expense. Such participation shall include, without limitation, the right to consult with the indemnifying party and its counsel or other representatives concerning such claim and the indemnifying party and the indemnified party and their respective counsel or other representatives shall cooperate with respect to such claim. The indemnifying party shall not, without the indemnified party's written consent, settle or compromise any claim or consent to entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such claim. If the indemnifying party shall elect not to undertake such defense, or within a reasonable time after notice of such claim, does not assume the defense of any such claim or litigation resulting therefrom, (a) the indemnified party, at the expense of the indemnifying party, may defend against such claim or litigation, in such manner as the indemnified party may deem appropriate, including, but not limited to settling such claim or litigation, after giving notice of the same to the indemnifying party, on such terms as the indemnified party may deem appropriate, and (b) the indemnifying party shall be entitled to participate in (but not control) the defense of such action, with its counsel and at its own expense. If the indemnifying party thereafter seeks to question the manner in which the indemnified party defended such third party claim or the amount or nature of any such settlement, the indemnifying party shall have the burden to prove by a preponderance of the evidence that the indemnified party did not defend or settle such third party claim in a reasonably prudent manner. 36 9.5 Expiration of Indemnification Obligations. Any claim or action for indemnification under this Article IX (excluding any claim based on fraud which shall survive) must be initiated on or before the first anniversary of the Closing Date. Except for claims made before such expiration date and those based on fraud, all rights to claim indemnification under this Article IX shall expire upon the first anniversary of the Closing Date. 9.6 Thresholds. Notwithstanding anything to the contrary in this Article IX, the indemnified party shall not be entitled to receive, and the indemnifying party shall not be obligated to pay, any indemnity obligations pursuant to Sections 9.1 or 9.2, as applicable, until such amounts aggregate $250,000, whereupon all amounts exceeding such threshold amount shall be payable. 9.7 Limitation. In no event shall the indemnifying party's aggregate indemnity obligations under Sections 9.1 or 9.2, as the case may be, exceed $10 million. 9.8 Indemnity Escrow Agreement. In order to secure Sellers' indemnification obligations under this Article IX, the Indemnity Deposit will, in accordance with Section 3.3(b), be deposited to the Indemnity Escrow Account which shall be held and released in accordance with the Indemnity Escrow Agreement attached to this Agreement as Exhibit 3.3(b). The initial amount of the Indemnity Deposit is $10 million. On the first Business Day six months after the Closing Date, Purchaser and REI shall instruct the Escrow Agent to release to REI on behalf of Sellers the balance of the Indemnity Deposit which exceeds the sum of (i) $5 million, and (ii) any amounts of any pending indemnification claim by Purchaser. On the first Business Day 12 months after the Closing Date, Purchaser and REI shall instruct the Escrow Agent to release to REI on behalf of Sellers the balance of the Indemnity Deposit which exceeds the amount of any pending indemnification claim by Purchaser, plus an amount reasonably estimated to cover expenses, not to exceed 10% of the amount of such pending claims. 9.9 Exclusive Remedy. Notwithstanding anything in this Article IX to the contrary, Purchaser's right to indemnity payments from Sellers under this Article IX shall be limited to the amount held in the Indemnity Escrow Account. Sellers shall have no obligation to pay any claims for indemnity in excess of such amount or from sources other than the Indemnity Escrow Account and Purchaser's remedies against Sellers under this Agreement are limited exclusively to those set forth in this Article IX. 9.10 Reduction of Indemnity Payments. Notwithstanding anything in this Article IX to the contrary, any indemnity payment owed by one party to another party pursuant to this Article IX shall be reduced by any amounts actually received by the indemnified party under insurance policies in connection with the claim for which the indemnification pursuant to this Agreement relates. ARTICLE X CONDITIONS TO OBLIGATIONS OF PURCHASER The obligations of Purchaser to purchase the Acquisition Assets are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Purchaser in its sole discretion): 37 10.1 Representations and Warranties. The representations and warranties made by Sellers in this Agreement concerning the Affiliation Agreements (Section 4.5) and the FCC Authorizations (Section 4.15(a), other than the portion of the last sentence thereof following the semicolon therein) shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date. 10.2 Performance. Sellers shall have performed and complied with, in all material respects, the agreements, covenants and obligations required by this Agreement concerning the Affiliation Agreements (Section 4.5) and the FCC Authorizations (Section 4.15(a), other than the portion of the last sentence thereof following the semicolon therein) to be so performed or complied with by Sellers at or before the Closing. 10.3 Orders and Laws. There shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement. 10.4 Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Purchaser and Sellers to perform their respective obligations under this Agreement and to consummate the transactions contemplated hereby, including, without limitation, the FCC Consents, shall have been duly obtained, made or given without conditions materially adverse to Purchaser and shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement, including under the HSR Act, shall have occurred. 10.5 FCC License Renewal. The license renewal applications for Stations KJEO, KVAL, KPIC, KCBY, KBCI, KIDK, KIMA, KEPR and KLEW shall have been granted for a term of not less than eight (8) years without materially adverse conditions, and such grants shall have become Final Orders. 10.6 Consents to Assignments of Contracts. The necessary consents to the assignment and transfer of Affiliation Agreements and Real Property Agreements which have been designated as Material Assumed Contracts shall have been obtained by the Sellers in written instruments reasonably satisfactory to Purchaser, copies of which shall be furnished to Purchaser. 10.7 Additional Closing Documents of the Sellers. The Purchaser shall have received at the Closing the following documents, dated the Closing Date: (a) Copies, certified by the Secretary of each Seller as of the Closing, of resolutions of the Board of Directors or Members of such Seller authorizing the execution, delivery and performance of this Agreement and other related agreements to which such Seller is a party; and (b) Bills of sale, real property warranty deeds, assignments and other appropriate instruments of conveyance, in form and substance reasonably satisfactory to Purchaser, sufficient to convey and assign the Acquisition Assets in accordance with this Agreement. 38 ARTICLE XI CONDITIONS TO OBLIGATIONS OF SELLERS The obligations of the Sellers hereunder to sell the Acquisition Assets are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by REI in its sole discretion): 11.1 Representations and Warranties. The representations and warranties made by Purchaser in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though made on and as of the Closing Date. 11.2 Performance. Purchaser shall have performed and complied with, in all material respects, the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Purchaser at or before the Closing. 11.3 Orders and Laws. There shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement. 11.4 Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Sellers and Purchaser to perform their obligations under this Agreement and to consummate the transactions contemplated hereby, including, without limitation, the FCC Consents, shall have been duly obtained, made or given without conditions materially adverse to Sellers and shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement, including under the HSR Act, shall have occurred. 11.5 Additional Closing Documents of Purchaser. Sellers shall have received at the Closing the following documents, dated the Closing Date: (a) Copy, certified by the Secretary of Purchaser as of the Closing, of resolutions of the Board of Directors of Purchaser authorizing the execution, delivery and performance of this Agreement and other related agreements to which Purchaser is a party; and (b) An assignment and assumption agreement sufficient to assign to, and cause the assumption by, Purchaser of the Assumed Liabilities in accordance with this Agreement in the form attached hereto as Exhibit 11.5(b). ARTICLE XII DEFAULT AND TERMINATION 12.1 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, provided that, in the case of subsections (b) or (c), the terminating party is not then in material breach or default of this Agreement: (a) at any time before the Closing, by mutual written agreement of REI and Purchaser; 39 (b) at any time before the Closing without liability to the terminating party, by REI or Purchaser, in the event that any Order or Law becomes effective restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement upon notification of the non- terminating party by the terminating party; (c) at any time before the Closing, by REI or Purchaser upon notification of the non-terminating party by the terminating party that the satisfaction of any condition to the terminating party's obligations under this Agreement becomes impossible or impracticable with the use of commercially reasonable efforts, if the failure of such condition to be satisfied is not caused by a breach of this Agreement by the terminating party; or (d) at any time after December 31, 1999, without liability to the terminating party, by any Seller or Purchaser upon notification of the non-terminating party by the terminating party if the Closing shall not have occurred on or before such date and such failure to consummate is not caused by a breach of this Agreement by the terminating party. 12.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 12.1 above, this Agreement will forthwith become null and void and, except as set forth in the next sentence, there will be no liability or obligation on the part of any Seller or Purchaser (or any of their respective officers, directors, employees, agents or other representatives or Affiliates), except that the provisions relating to expenses in Section 13.6 and confidentiality in Section 13.8 will continue to apply following any such termination. Notwithstanding any other provision in this Agreement to the contrary, upon termination of this Agreement pursuant to clauses (b), (c) or (d) of Section 12.1 above, Sellers will remain liable to Purchaser for any material breach of this Agreement by any Seller existing at the time of such termination, and Purchaser will remain liable to Sellers for any material breach of this Agreement by Purchaser existing at the time of such termination, and Sellers or Purchaser, as the case may be, may seek such remedies, including damages and attorneys' fees against the other with respect to any such breach as are provided in this Agreement or as are otherwise available at Law or in equity. 12.3 Specific Performance. Either party may seek specific performance of the other party's obligations under this Agreement, so long as the party seeking specific performance is not in material default of its obligations. The parties acknowledge and agree that the Stations and Acquisition Assets are unique in nature and that damages resulting from a breach are not readily ascertainable, and therefore they agree not to interpose the availability of monetary damages as an appropriate remedy in defense to a request for specific performance. ARTICLE XIII MISCELLANEOUS PROVISIONS 13.1 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers: 40 If to Purchaser, to: Fisher Companies Inc. 1525 One Union Square 600 University Street Seattle, WA 98101 Facsimile No.: (206) 224-6765 Attn: William W. Krippaehne, Jr. with copies to: Fisher Broadcasting Inc. 100 Fourth Avenue North Seattle, Washington 98109 Facsimile No.: (206) 443-4014 Attn: Patrick M. Scott and (which shall not constitute notice) Graham & Dunn, P.C. 1420 Fifth Avenue Suite 3300 Seattle, Washington 98101 Attn: Jack G. Strother, Esq. If to Sellers, to: Retlaw Enterprises, Inc. 4880 North First St. Fresno, California 93726 Facsimile No.: (209) 222-5593 Attn: Ben Tucker and 12716 Riverside Drive North Hollywood, California 91607 Facsimile No.: (818) 985-6295 Attn: Warren Spector with copies to: Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street, 31/st /Floor Los Angeles, California 90017 Facsimile No.: (213) 629-5063 Attn: Neil J Wertlieb, Esq. 41 and Hill, Farrer & Burrill LLP One California Plaza, 37/th /Floor 300 South Grand Avenue Los Angeles, California 90071 Facsimile No.: (213) 624-4840 Attn: Thomas F. Reed, Esq. All such notices, requests and other communications will (a) if delivered personally to the address as provided in this Section 13.1, be deemed given upon delivery, (b) if delivered by facsimile transmission to the facsimile number as provided in this Section 13.1, be deemed given upon receipt, and (c) if delivered by mail in the manner described above to the address as provided in this Section 13.1, be deemed given five (5) days after being so mailed (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 13.1). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto, except that Sellers may only change any such information with respect to copies if confirmed in writing by counsel to receive such copies. 13.2 Survival of Representations and Warranties and Covenants. All representations, warranties and covenants made by the parties in this Agreement shall survive the Closing for a period of one (1) year, except as to (a) any matter for which any claim has been made in writing prior to the expiration of such survival period and identified as an indemnification claim made under this Agreement, and (b) any matter which is based upon fraud, in which case such matter shall survive until it is finally resolved; provided, however, that nothing in this Section 13.2 shall negate the fact that Purchaser shall have no liability whatsoever, under this Agreement or otherwise, for any of the Excluded Liabilities at any time, whether prior to, during or after the survival period referred to in this Section 13.2. 13.3 Joint and Several Obligations. The representations, warranties, covenants, and agreements of Sellers and Purchaser herein are made jointly and severally by Sellers or FCI and FBI, as applicable. 13.4 Knowledge. The term "to the knowledge of Sellers" or similar term means the current actual knowledge, after reasonable inquiry, of any of Ben Tucker, Warren Spector and the General Manager of each Station or, if no such position exists, the Station Manager. The term "to the knowledge of Purchaser" or similar term means the current actual knowledge, after reasonable inquiry, of any of William Krippaehne, Patrick Scott, and John Ulman. The term "reasonable inquiry" as used in this Section means the level of investigation into a matter that a reasonably prudent manager in similar circumstances would make in order to verify the truth of a representation made by him concerning such matter. 13.5 Entire Agreement. This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. 42 13.6 Expenses. (a) Generally. Except as otherwise provided in this Agreement, whether or not the transactions contemplated hereby are consummated, Purchaser shall pay its own costs and expenses incurred in connection with the negotiation, execution and closing of this Agreement and the transactions contemplated hereby including without limitation, any fees or commissions due to Credit Suisse First Boston Corporation, and the Sellers shall pay their own costs and expenses incurred in connection with the negotiation, execution and closing of this Agreement and the transactions contemplated hereby including without limitation, any fees or commissions due to Donaldson, Lufkin & Jenrette Securities Corporation. (b) Transfer Taxes. Purchaser shall pay all personal property sales and use Taxes arising out of or in connection with the transfer of the Acquisition Assets and the transactions effected pursuant to this Agreement. Sellers shall pay all real property transfer or excise, recording, stock transfer and other like Taxes applicable to the transfer of real property and stock. 13.7 Public Announcements. Purchaser and Sellers will cooperate and seek the prior approval of the other party of any press release relating to the existence of this Agreement or to the transactions contemplated hereby. 13.8 Confidentiality. Each party will hold, and will use its best efforts to cause its Affiliates and agents to, hold in strict confidence from any Person, unless (a) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement or the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of Law or (b) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, all documents and information concerning the other party or any of its Affiliates furnished to it by or on behalf of the other party in connection with this Agreement or the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (i) previously known by the party receiving such documents or information, (ii) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (iii) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to keep such documents and information confidential; provided, however, that following the Closing the foregoing restrictions will not apply to Purchaser's use of documents and information concerning the Stations or Acquisition Assets. If the transactions contemplated hereby are not consummated, upon the request of the other party, each party hereto will, and will cause its Affiliates and agents to, promptly redeliver all copies of confidential documents and information furnished by the other party in connection with this Agreement or the transactions contemplated hereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon. 13.9 Exclusivity. From and after the date hereof, none of the Sellers or their Affiliates shall (i) solicit, initiate or encourage the submission of any proposal or offer from any person related to the direct or indirect sale or transfer of any of the Acquisition Assets, or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in or facilitate in any manner any effort or attempt by any person to do or make such 43 an offer or proposal. No Seller shall enter into any agreement or commitment for the sale or merger of their interest in any Acquisition Assets (except in ordinary course in accordance with Section 6.5), Stations, Broadcast Seller, the South West Oregon Stock, or their stock or membership interests. 13.10 Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative. 13.11 Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by Purchaser and Sellers. 13.12 No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person. 13.13 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void, except (a) for assignments and transfers by operation of Law and (b) that Purchaser may assign any or all of its rights, interests and obligations hereunder to an Affiliate, provided that any such Affiliate agrees in writing to be bound by all the terms, conditions and provisions contained herein, but no such assignment referred to in clause (b) shall relieve Purchaser of its obligations hereunder. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns. 13.14 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof. 13.15 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. 13.16 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof . 13.17 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 44 13.18 Attorneys' Fees. In any dispute between the parties to this Agreement, the substantially prevailing party in any action or proceeding shall be entitled to recover from the other party its costs and expenses, including its reasonable attorneys' fees. 13.19 Jurisdiction/Venue. Any litigation instituted to enforce the terms of this Agreement shall be venued in the appropriate state or federal courts located in San Francisco, California, as to which jurisdiction Purchaser and Sellers hereby consent. 13.20 No Jury Trial. In the event of any litigation under this Agreement, the parties waive all rights to demand trial by jury. ARTICLE XIV EXHIBITS AND SCHEDULES 14.1 Exhibits and Schedules. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge and agree that the Exhibits and Schedules referred to in this Agreement are currently in draft form (the "Draft Exhibits and Draft Schedules"), have not been delivered in final form and are not attached hereto, and that any and all references to such Exhibits and Schedules herein shall be deemed to refer to, and be qualified in their entirety by reference to, the Final Exhibits and Final Schedules (as defined in this Section). Each of the parties hereto agrees that it shall use its respective best efforts to complete and finalize the Draft Exhibits and Draft Schedules as soon as practicable, but in no event later than November 30, 1998. In the event the parties complete and finalize the Exhibits and Schedules by such date, or by such later date as shall be mutually agreed to by REI and FCI, then (a) REI and FCI shall so acknowledge in a writing attached to such Exhibits and Schedules, (b) such Exhibits and Schedules shall be affixed to the originally executed copies of this Agreement, and (c) the term "Final Exhibits and Final Schedules" shall refer to such Exhibits and Schedules. In the event the parties are unable to complete and finalize each Exhibit and Schedule by such date, or by such later date as shall be mutually agreed to by REI and FCI, then this Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time thereafter by REI or FCI, without liability to the terminating party, upon notification by the terminating party to the non-terminating party. Section 12.2 shall apply to any such termination as if such termination were in accordance with Section 12.1(d); provided, however, that in such event no party shall have any liability to any other party with respect to the content or lack thereof of any Schedule or Exhibit or with respect to any representation or warranty that is qualified by or that refers to any Schedule or Exhibit. [Signatures appear on next page.] 45 PURCHASER FISHER COMPANIES INC., a Washington corporation By:/s/ William W. Krippaehne, Jr. ------------------------------------------------- William W. Krippaehne, Jr., President and CEO FISHER BROADCASTING INC., a Washington corporation By:/s/ Patrick M. Scott ------------------------------------------------- Patrick M. Scott, President and CEO SELLERS RETLAW ENTERPRISES, INC., a California corporation By /s/ Benjamin W. Tucker ------------------------------------------------- Its Vice President --------------------------------------------- RETLAW BROADCASTING, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------------- Its Vice President --------------------------------------------- RETLAW BROADCASTING OF BOISE, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------------- Its President --------------------------------------------- RETLAW BROADCASTING OF FRESNO, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------------- Its President --------------------------------------------- 46 RETLAW BROADCASTING OF IDAHO FALLS, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------ Its President -------------------------------------- RETLAW BROADCASTING OF YAKIMA, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------ Its President -------------------------------------- RETLAW BROADCASTING OF EUGENE, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------ Its President -------------------------------------- RETLAW BROADCASTING OF COLUMBUS, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------ Its President -------------------------------------- RETLAW BROADCASTING OF AUGUSTA, L.L.C., a Delaware limited liability company By /s/ Benjamin W. Tucker ------------------------------------------ Its President -------------------------------------- 47 AMENDMENT NO. 1 To ASSET PURCHASE AND SALE AGREEMENT This Amendment No. 1 to Asset Purchase and Sale Agreement (this "Amendment") is made and entered into as of November 30, 1998 by and among Fisher Companies Inc., a Washington corporation ("FCI"), Fisher Broadcasting Inc., a Washington corporation ("FBI", and collectively with FCI, the "Purchaser"), Retlaw Enterprises, Inc., a California corporation ("REI"), and Retlaw Broadcasting, L.L.C., Retlaw Broadcasting of Boise, L.L.C., Retlaw Broadcasting of Fresno, L.L.C., Retlaw Broadcasting of Idaho Falls, L.L.C., Retlaw Broadcasting of Yakima, L.L.C., Retlaw Broadcasting of Eugene, L.L.C., Retlaw Broadcasting of Columbus, L.L.C. and Retlaw Broadcasting of Augusta, L.L.C., each a Delaware limited liability company (collective with REI, the "Sellers"). RECITALS WHEREAS, the Purchaser and the Sellers are parties to that certain Asset Purchase and Sale Agreement dated as of November 18, 1998 (the "Purchase Agreement"); and WHEREAS, the Purchaser and the Sellers desire to amend the Purchase Agreement to extend the deadline for completion of the Exhibits and Schedules. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. Amendment to the Purchase Agreement. Section 14.1 of the Purchase Agreement is hereby amended by deleting the words "November 30, 1998" in the second sentence thereof and substituting therefor the words "December 8, 1998". Except as specifically amended by this Amendment, the Purchase Agreement shall remain in full force and effect and is hereby ratified and confirmed. Section 2. Miscellaneous. The headings used in this Amendment have been inserted for convenience of reference only and do not define or limit the provisions hereof. This Amendment shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. This Amendment may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [Signatures appear on next page.] 1 PURCHASER --------- FISHER COMPANIES INC., a Washington corporation By: /s/ William W. Krippaehne ------------------------------------------------------ William W. Krippaehne, Jr., President and CEO FISHER BROADCASTING INC., a Washington corporation By: /s/ Patrick M. Scott ------------------------------------------------------ Patrick M. Scott, President and CEO SELLERS ------- RETLAW ENTERPRISES, INC., a California corporation By: /s/ Benjamin W. Tucker ------------------------------------------------------ Benjamin W. Tucker, Vice President RETLAW BROADCASTING, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------ Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF BOISE, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------ Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF FRESNO, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------ Benjamin W. Tucker, Vice President 2 RETLAW BROADCASTING OF IDAHO FALLS, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF YAKIMA, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF EUGENE, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF COLUMBUS, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF AUGUSTA, L.L.C., a Delaware limited liability company By: /s/ Benjamin W. Tucker ------------------------------------------------------- Benjamin W. Tucker, Vice President 3 AMENDMENT NO. 2 To ASSET PURCHASE AND SALE AGREEMENT This Amendment No. 2 to Asset Purchase and Sale Agreement (this "Amendment") is made and entered into as of December 7, 1998 by and among Fisher Companies Inc., a Washington corporation ("FCI"), Fisher Broadcasting Inc., a Washington corporation ("FBI", and collectively with FCI, the "Purchaser"), Retlaw Enterprises, Inc., a California corporation ("REI"), and Retlaw Broadcasting, L.L.C., Retlaw Broadcasting of Boise, L.L.C., Retlaw Broadcasting of Fresno, L.L.C., Retlaw Broadcasting of Idaho Falls, L.L.C., Retlaw Broadcasting of Yakima, L.L.C., Retlaw Broadcasting of Eugene, L.L.C., Retlaw Broadcasting of Columbus, L.L.C. and Retlaw Broadcasting of Augusta, L.L.C., each a Delaware limited liability company (collective with REI, the "Sellers"). RECITALS WHEREAS, the Purchaser and the Sellers are parties to that certain Asset Purchase and Sale Agreement dated as of November 18, 1998, as amended by that certain Amendment No. 1 to Asset Purchase and Sale Agreement dated as of November 30, 1998 (collectively, the "Purchase Agreement"); and WHEREAS, the Purchaser and the Sellers desire to further amend the Purchase Agreement to extend the deadline for completion of the Exhibits and Schedules. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. Amendment to the Purchase Agreement. Section 14.1 of the Purchase Agreement, as amended, is hereby further amended by deleting the words "December 8, 1998" in the second sentence thereof and substituting therefor the words "December 15, 1998". Except as specifically amended by this Amendment, the Purchase Agreement shall remain in full force and effect and is hereby ratified and confirmed. Section 2. Miscellaneous. The headings used in this Amendment have been inserted for convenience of reference only and do not define or limit the provisions hereof. This Amendment shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. This Amendment may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. [Signatures appear on next page.] 1 PURCHASER --------- FISHER COMPANIES INC., a Washington corporation By: /s/ ------------------------------------------------------ William W. Krippaehne, Jr., President and CEO FISHER BROADCASTING INC., a Washington corporation By: /s/ ------------------------------------------------------ Patrick M. Scott, President and CEO SELLERS ------- RETLAW ENTERPRISES, INC., a California corporation By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF BOISE, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF FRESNO, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President 2 RETLAW BROADCASTING OF IDAHO FALLS, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF YAKIMA, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------ Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF EUGENE, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF COLUMBUS, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------- Benjamin W. Tucker, Vice President RETLAW BROADCASTING OF AUGUSTA, L.L.C., a Delaware limited liability company By: /s/ ------------------------------------------------------ Benjamin W. Tucker, Vice President 3 EX-10.9 3 CREDIT AGREEMENT EXHIBIT 10.9 CREDIT AGREEMENT among FISHER COMPANIES INC. and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, DOING BUSINESS AS SEAFIRST BANK as Agent and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, DOING BUSINESS AS SEAFIRST BANK and U.S. BANK NATIONAL ASSOCIATION as Banks dated May 26, 1998 -1- TABLE OF CONTENTS EXHIBITS: - -------- Exhibit A: Forms of Revolving Notes Exhibit B: Form of CFO Certificate -2- CREDIT AGREEMENT THIS CREDIT AGREEMENT ("Agreement") is made among FISHER COMPANIES INC., a Washington corporation ("Borrower"), Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK, a national banking association, as agent ("Agent"), and the following financial institutions that are individually called a "Bank" and collectively called the "Banks," including their respective successors and/or assigns: Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK (in its capacity as a Bank, "Seafirst"), and U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"). The parties agree as follows: ARTICLE 1 Definitions All terms defined below shall have the meaning indicated. All references in this Agreement to: (a) "dollars" or "$" shall mean U.S. dollars; (b) "Article," "Section," or "Subsection" shall mean articles, sections, and subsections of this Agreement, unless otherwise indicated; (c) terms defined in the Washington version of the Uniform Commercial Code, R.C.W. (S)62A.9-101, et seq. ("UCC"), and not otherwise defined in this Agreement, shall have the meaning given in the UCC; and (d) an accounting term not otherwise defined in this Agreement shall have the meaning assigned to it under GAAP. 1.1 Adjusted LIBOR Rate shall mean for any day that per annum rate equal to the sum of (a) the LIBOR Margin, and (b) the quotient of (i) the LIBOR Rate as determined for such day, divided by (ii) the Reserve Adjustment. The Adjusted LIBOR Rate shall change with any change in the LIBOR Rate on the first day of each Interest Period and on the effective date of any change in the Reserve Adjustment. 1.2 Advances shall mean the disbursement of loan proceeds under the Revolving Loan. An Advance shall not constitute a "payment order" under R.C.W. (S)62A.4A-103. 1.3 Affiliate(s) shall mean, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. 1.4 Agent-Related Persons shall mean Agent, its affiliates, and all officers, directors, and employees of Agent and such affiliates. 1.5 Available Amount shall mean at any time the amount of the Credit Limit, minus the combined unpaid balance of the Revolving Notes, minus the principal amount of any long-term permanent refinancing obtained by Borrower for the KOMO Block Project. 1.6 Business Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in Seattle, Washington, are authorized or required by law to close. 1.7 Capitalization Ratio shall mean the ratio of (a) Funded Debt, to (b) the sum of Funded Debt plus shareholders' equity (as determined in accordance with GAAP). 1.8 Commencement Date shall mean the first day of any Interest Period as requested by Borrower. 1.9 Credit Limit shall mean $35,000,000, increasing to $75,000,000 on January 1, 1999, to $85,000,000 on January 1, 2000, and to $100,000,000 on January 1, 2001, contingent on Borrower paying to Agent for the account of Banks at the time of each increase a step up fee equal to 0.10% of the principal amount of the increase (e.g., 0.10% of $40,000,000 on the increase to $75,000,000). 1.10 Debt shall mean all consolidated obligations, on a GAAP basis, included in the liability section of a balance sheet of Borrower. -3- 1.11 EBITDA shall mean earnings before interest expense, taxes, depreciation, and amortization for the most recent four quarters. 1.12 ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.13 Floating Rate Loans shall mean those portions of principal of the Revolving Notes accruing interest at the Reference Rate. 1.14 Funded Debt shall mean all consolidated interest-bearing Debt (including capital lease obligations) of Borrower and its Subsidiaries, and all interest-bearing indebtedness guaranteed (in whole or in part) by Borrower or any of its Subsidiaries. 1.15 GAAP shall mean generally accepted accounting principles as in effect from time to time in the United States and as consistently applied by Borrower. 1.16 Interest Payment Dates shall mean the last Business Day of each month as to each Floating Rate Loan and the last day of each Interest Period as to each LIBOR Rate Loan (and if the Interest Period is more than three months, the end of the third month of the Interest Period shall also be an Interest Payment Date), and upon maturity, including upon maturity by acceleration. 1.17 Interest Period shall mean the period commencing on the date of any Advance at or conversion to an Adjusted LIBOR Rate and ending on any date thereafter as selected by Borrower, subject to the restrictions of Section 4.3. If any Interest Period would end on a day which is not a Business Day, the Interest Period shall be extended to the next succeeding Business Day, unless the next succeeding Business Day falls in the next month, in which case the Interest Period shall be shortened to the preceding Business Day. 1.18 KOMO Block Project shall mean a new 300,000 square foot complex to house KOMO-TV, other Fisher entities, and business tenants. 1.19 LIBOR Rate shall mean for any Interest Period the per annum rate, calculated on the basis of actual number of days elapsed over a year of 360 days, for U.S. Dollar deposits for a period equal to the Interest Period appearing on the display designated as "Page 3750" on the Telerate Service (or such other page on that service or such other service designated by the British Banker's Association for the display of that Association's Interest Settlement Rates for U.S. Dollar deposits) as of 11:00 a.m., London time, on the day which is two London Banking Days prior to the first day of the Interest Period. If there is no applicable quote available from the Telerate Service, the LIBOR Rate shall be determined by Agent in its sole discretion as the rate of interest at which dollar deposits for the applicable Interest Period and in the amount of the LIBOR Rate Loan requested would be offered to major banks in the London interbank market at approximately 11:00 a.m. (London time) on a London Banking Day two Business Days prior to the Commencement Date. 1.20 LIBOR Rate Loans shall mean those portions of principal of the Revolving Notes accruing interest at the Adjusted LIBOR Rate. 1.21 Loan Documents shall mean collectively this Agreement, the Revolving Notes, and all other agreements, documents, and instruments now or later executed in connection with this Agreement. 1.22 London Banking Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in London, England, are authorized or required by law to close. 1.23 Majority Banks shall mean Banks holding 67% of the Pro Rata Shares. 1.24 Margin shall mean (a) as to LIBOR Rate Loans, the "LIBOR Margin" as determined by the following chart; and (b) as to the calculation of the commitment fee under Section 2.5, the "Fee Margin" as determined by the following chart: ====================================================================== Capitalization Ratio* LIBOR Margin Fee Margin - ---------------------------------------------------------------------- ? .40 to 1 0.40% 0.125% - ---------------------------------------------------------------------- ? .50 to 1 0.50% 0.150% - ---------------------------------------------------------------------- ? .60 to 1 0.625% 0.200% -5- ====================================================================== Capitalization Ratio* LIBOR Margin Fee Margin - ---------------------------------------------------------------------- ? .65 to 1 0.875% 0.275% ====================================================================== * as determined based on the most recently delivered quarterly consolidated financial statement of Borrower. Upon receipt of a quarterly financial statement showing a decrease or increase in Capitalization Ratio which places Borrower in a new pricing category, all Advances and commitment fees shall begin being calculated at the higher or lower margin, as the case may be, for the period beginning on the date 60 days after the end of the quarter reported on in such statement. 1.25 Obligations shall mean the Revolving Notes, and all fees, costs, expenses, and indemnifications due to Agent and Banks under this Agreement. 1.26 Person shall mean any individual, partnership, corporation, business trust, unincorporated organization, joint venture, limited liability company, or any governmental entity, department, agency, or political subdivision. 1.27 Plan shall mean any employee benefit plan or other plan maintained for Borrower's employees and covered by Title IV of ERISA, excluding any plan created or operated by or for any labor union. 1.28 Pro Rata Share(s) shall mean the following percentages as to the Bank indicated: SEAFIRST 60% U.S. BANK 40% 1.29 Reference Rate shall mean the rate of interest publicly announced from time to time by Agent in San Francisco, California, as its "Reference Rate," calculated on the basis of actual number of days elapsed over a year of 365/366 days. The Reference Rate is set based on various factors, including Agent's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Agent may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate. 1.30 Reserve Adjustment shall mean as of any day the remainder of one minus that percentage (expressed as a decimal) which is the highest of any such percentages established by the Board of Governors of the Federal Reserve System (or any successor) for required reserves (including any emergency, marginal, or supplemental reserve requirement) regardless of the aggregate amount of deposits with said member bank and without benefit of any possible credit, proration, exemptions, or offsets for time deposits established at offices of member banks located outside of the United States or for eurocurrency liabilities, if any. 1.31 Subsidiary(ies) of a Person shall mean any Person of which more than 50% of the voting stock, membership interests, or other equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of Borrower. 1.32 Termination Date shall mean March 31, 2003, or such earlier date upon which Banks' commitment to lend is terminated pursuant to Subsection 10.2(a); provided, that Borrower may request Banks to extend the Termination Date by giving written notice of such request to Agent by January 31, 2001, which must indicate whether such request is for a one-year or two-year extension. Banks shall give their response to such request by March 31, 2001. Upon the mutual written consent of Agent and all Banks, which any one or more of them may withhold in their sole discretion, such extension shall be granted upon payment of a fee of $75,000 for an extension of one year or $100,000 for an extension of two years. -6- ARTICLE 2 Revolving Loan 2.1 Revolving Loan Facility. Subject to the terms and conditions of this Agreement and to the extent of its Pro Rata Share of the Credit Limit, each Bank shall make Advances to Borrower from time to time, until the Termination Date ("Revolving Loan"), with the aggregate principal amount at any one time outstanding not to exceed the Credit Limit. Borrower may use the Revolving Loan by borrowing, repaying and reborrowing the Available Amount, in whole or in part; provided that Borrower shall fully and finally repay the Revolving Loan on the Termination Date. No Bank shall be liable for any failure of any other Bank to fund its Pro Rata Share of Advances. At no time shall any Bank be obligated to make Advances that exceed its Pro Rata Share of the Credit Limit. Each borrowing by Borrower under this Agreement shall constitute a representation and warranty by Borrower as of the date of each such borrowing that the conditions precedent contained in Sections 5.6 and 5.7 of this Agreement have been satisfied. 2.2 Revolving Notes. The obligation of Borrower to repay the Revolving Loan shall be evidenced by two promissory notes (including all renewals, modifications and extensions thereof, collectively called the "Revolving Notes") made by Borrower to the order of each of the Banks, and shall bear interest as provided in Article 4. The Revolving Notes shall be unsecured and shall be in substantially the same form as Exhibits A-1 and A-2 attached. Each of the Banks shall note on its internal records each Advance made by it, each payment on its respective Revolving Note and any interest rate conversions; provided, however, that the failure of a Bank to make, or an error in making, a notation thereon with respect to any Revolving Loan shall not limit or otherwise affect the obligations of Borrower under this Agreement or under any such Revolving Note to such Bank. 2.3 Procedure for Floating Rate Loans. In accordance with all terms and conditions of this Agreement, Borrower may borrow at the Reference Rate under the Revolving Loan on any Business Day. Borrower shall give Agent irrevocable notice (written or oral, but with oral requests to be confirmed promptly in writing) specifying the amount to be borrowed on or before 9:30 a.m., Seattle time, on the day that a Floating Rate Loan is requested; all Floating Rate Loans shall be discretionary to the extent notification by Borrower is given subsequent to that time. Agent shall advise each Bank by 11:00 a.m., Seattle time, of a request for a Floating Rate Loan, and each Bank shall make available to Agent its respective Pro Rata Share of such requested Floating Rate Loan no later than 12:00 noon, Seattle time, on the date of Floating Rate Loan. Whether or not any Bank fails to fund its Pro Rata Share of a Floating Rate Loan, each Bank shall only be obligated to disburse to Agent such Bank's Pro Rata Share of such requested Floating Rate Loan. 2.4 Procedure for LIBOR Rate Loans. In accordance with all terms and conditions of this Agreement, Borrower may borrow at the Adjusted LIBOR Rate under the Revolving Loan on any Commencement Date. In accordance with Section 4.2, Borrower shall give Agent irrevocable notice (written or oral, but with oral requests to be confirmed promptly in writing), no later than 9:30 a.m. on a London Banking Day three Business Days prior to the requested Commencement Date, specifying the amount to be borrowed, the Interest Period, and the requested borrowing date, and on the Commencement Date each Bank shall make available to Agent its respective Pro Rata Share of such requested LIBOR Rate Loan no later than 12:00 noon, Seattle time, on the date of the LIBOR Rate Loan. Whether or not any Bank fails to fund its Pro Rata Share of a LIBOR Rate Loan, each Bank shall only be obligated to disburse to Agent such Bank's Pro Rata Share of such requested LIBOR Rate Loan. At the time that Agent learns of any change in the Reserve Adjustment, Agent shall notify Borrower of the change and of the impact on any LIBOR Rate Loans then outstanding. 2.5 Facility Fee. On the last Business Day of each quarter beginning with the quarter ending June 30, 1998, and upon termination of Banks' commitment to make Advances either by agreement of the parties or by the operation of Section 10.2(a), Borrower shall pay to Agent for the account of Banks, in accordance with their respective Pro Rata Shares, in arrears a commitment fee equal to Fee Margin per annum multiplied by the difference between the Credit Limit and the daily combined outstanding principal balance of the Revolving Notes. -7- ARTICLE 3 Guaranties The Obligations shall be absolutely and unconditionally guaranteed by Fisher Broadcasting Inc., Fisher Mills Inc., and Fisher Properties Inc., each a Washington corporation, jointly and severally, in form satisfactory to Agent. Borrower authorizes Agent to release to any of the aforementioned guarantors all information Agent possesses concerning Borrower or any loans, credits, or other financial accommodations made to Borrower by Agent or Banks. ARTICLE 4 Interest Rate Options 4.1 Interest Rates and Payment Date. The Revolving Notes shall each bear interest from the date of Advance on the unpaid principal balance outstanding from time to time at the Reference Rate or Adjusted LIBOR Rate as selected by Borrower and all accrued interest shall be payable in arrears on each Interest Payment Date. 4.2 Procedure. Borrower may, on any London Banking Day three London Banking Days before a Commencement Date, request Agent to give an Adjusted LIBOR Rate quote for a specified loan amount and Interest Period. Agent will then quote to Borrower the then-current Adjusted LIBOR Rate. Borrower shall have two hours from the time of the quote to elect an Adjusted LIBOR Rate by giving Agent irrevocable notice of such election. 4.3 Option Restrictions. Each Interest Period shall be one, two, three, or six months. In no event shall an Interest Period extend beyond the Termination Date. The minimum amount of a LIBOR Rate Loan shall be $1,000,000. No more than 12 different LIBOR Rate Loans may be outstanding at any one time. 4.4 Prepayments. If Borrower prepays all or any portion of a LIBOR Rate Loan prior to the end of an Interest Period, there shall be due at the time of any such prepayment the Prepayment Fee, determined in accordance with Form 51-6325, which shall be attached as Exhibit 1 to each Revolving Note, based on calculations as determined by each Bank. Each Bank shall notify Agent of its calculation, and Agent will invoice Borrower therefor. Floating Rate Loans may be prepaid on any Business Day without premium or penalty. 4.5 Conversion to Reference Rate. The Revolving Notes shall each bear interest at the Reference Rate unless an Adjusted LIBOR Rate is specifically selected. At the termination of any Interest Period, each LIBOR Rate Loan shall convert to a Floating Rate Loan unless Borrower directs otherwise pursuant to Section 4.2. 4.6 Inability to Participate in Market. If Banks in good faith cannot participate in the offshore U.S. dollar market for legal or practical reasons, and so notify Agent, the Adjusted LIBOR Rate shall cease to be an interest rate option. Agent shall notify Borrower if and when Banks notify Agent that it has again become legal or practical to participate in the Eurodollar market, at which time the Adjusted LIBOR Rate shall resume being an interest rate option. 4.7 Costs. Borrower shall, as to LIBOR Rate Loans, reimburse Agent, for the account of Banks, for all costs, taxes, and expenses, and defend and hold Banks harmless for any liabilities, which Banks may incur as a consequence of any changes in the cost of participating in, or in the laws or regulations affecting, the Eurodollar market, including any additional reserve requirements, except to the extent such costs are already calculated into the Adjusted LIBOR Rate. This covenant shall survive this Agreement and the payment of the Revolving Notes. 4.8 Basis of Quotes. Borrower acknowledges that Agent or Banks may or may not in any particular case actually match-fund a LIBOR Rate Loan. Whether the mechanism for setting a particular rate in fact represents the actual cost to Banks for any particular dollar or Eurodollar deposit or any LIBOR Rate Loan will depend upon how such Bank actually chooses to fund the LIBOR Rate Loan. By electing an Adjusted LIBOR Rate, Borrower waives any right to object to Agent's means of calculating the Adjusted LIBOR Rate quote accepted by Borrower. ARTICLE 5 Conditions of Lending Banks' obligation to make the initial Advance is subject to the conditions precedent listed in Sections 5.1 through 5.5, and to make subsequent Advances is subject to the conditions precedent listed in Sections 5.6 and 5.7, unless waived by all Banks in writing: 5.1 Authorization. Borrower shall have delivered to Agent a certified copy of the resolution of Borrower's board of directors authorizing the transactions contemplated by this Agreement and the execution, delivery, and performance of all Loan Documents, together with appropriate certificates of incumbency. Each corporate guarantor -8- shall have delivered to Agent a certified copy of a resolution of such guarantor's board of directors, satisfactory in form to Agent, authorizing its guaranty. 5.2 Documentation. Borrower shall have executed and delivered to Agent all documents to reflect the existence of the Obligations. 5.3 Guaranties. Each guarantor shall have executed and delivered its guaranty to Agent, and each such guaranty shall remain in full force and effect. 5.4 Closing Fees. Borrower shall have paid to Agent the upfront fee due on closing described in the commitment letter dated November 21, 1997 (revised), from Robert M. Ingram III to David D. Hillard; Agent shall have paid to U.S. Bank the fees described in the letter dated April 6, 1998, from Dora Brown to Peter Bentley; and Borrower shall have paid the costs and expenses required to be paid pursuant to Section 11.3. 5.5 Proof of Insurance. Proof of insurance on the KOMO Block Project, satisfactory to Banks, shall have been provided to Agent. 5.6 Representations and Warranties. The representations and warranties made by Borrower in the Loan Documents and in any certificate, document, or financial statement furnished at any time shall continue to be true and correct, except to the extent that such representations and warranties expressly relate to an earlier date. 5.7 Compliance. No Default or other event which, upon notice or lapse of time or both would constitute a Default, shall have occurred and be continuing, or shall exist after giving effect to the advance of credit to be made. -9- ARTICLE 6 Representations and Warranties To induce Banks to enter into this Agreement, Borrower represents, warrants, and covenants to Agent and Banks as follows: 6.1 Existence. Borrower and its Subsidiaries are each in good standing as a corporation under the laws of the state of Washington, has the power, authority, and legal right to own and operate its property or lease the property it operates and to conduct its current business; and is qualified to do business and is in good standing in all other jurisdictions where the ownership, lease, or operation of its property or the conduct of its business requires such qualification. 6.2 Enforceability. The Loan Documents, when executed and delivered by Borrower, shall be enforceable against Borrower in accordance with their respective terms, subject to rules of equity and to bankruptcy, insolvency, or other similar laws affecting the enforcement of creditors' rights in general. 6.3 No Legal Bar. The execution, delivery, and performance by Borrower and its Subsidiaries of the Loan Documents, and the use of the loan proceeds, shall not, to the best of Borrower's knowledge, violate any currently-existing law or regulation applicable to Borrower or any of its Subsidiaries; any ruling applicable to Borrower or any of its Subsidiaries of any court, arbitrator, or governmental agency or body of any kind; Borrower's or any of its Subsidiaries' organizational documents; any security issued by Borrower or any of its Subsidiaries; or any mortgage, indenture, lease, contract, undertaking, or other agreement to which Borrower or any of its Subsidiaries is a party or by which Borrower or any of its Subsidiaries or any of its respective property may be bound. 6.4 Financial Information. By submitting each of the financial statements required by Subsection 7.4 (a) and 7.4 (b), Borrower is deemed to represent and warrant that, to the best of Borrower's knowledge: (a) such statement is complete and correct and fairly presents the financial condition of Borrower as of the date of such statement; (b) such statement discloses all liabilities of Borrower that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent; and (c) such statement has been prepared in accordance with GAAP. As of this date, to the best of Borrower's knowledge, there has been no adverse change in Borrower's financial condition since preparation of the last such financial statements delivered to Banks which would materially impair Borrower's ability to repay the Obligations. 6.5 Liens and Encumbrances. As of this date, Borrower and each of its Subsidiaries has, to the best of Borrower's knowledge, good and marketable title to its property free and clear of all security interests, liens, encumbrances, or rights of others, except as disclosed in writing to Banks, and except for taxes which are not yet delinquent and for conditions, restrictions, easements, and rights of way of record which do not materially affect the use of any of Borrower's or any such Subsidiary's property. 6.6 Litigation. Except as disclosed in writing to Banks, there is no threatened (to Borrower's knowledge) or pending litigation, investigation, arbitration, or administrative action which may materially adversely affect Borrower's or any of its Subsidiaries' business, property, operations, or financial condition. 6.7 Payment of Taxes. To the best of Borrower's knowledge, Borrower and each of its Subsidiaries has filed or caused to be filed all tax returns when required to be filed; and has paid all taxes, assessments, fees, licenses, excise taxes, franchise taxes, governmental liens, penalties, and other charges levied or assessed against Borrower or any such Subsidiary or any of its respective property imposed on it by any governmental authority, agency, or instrumentality that are due and payable (other than those returns or payments of which the amount, enforceability, or validity are contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP are provided on Borrower's or any such Subsidiary's books). 6.8 Employee Benefit Plan. To the best of Borrower's knowledge, Borrower and each of its Subsidiaries is in compliance in all respects with the provisions of ERISA and the regulations and published interpretations thereunder. Borrower and each of its Subsidiaries has not engaged, to the best of Borrower's knowledge, in any acts or omissions which would make it liable to the Plan, to any of its participants, or to the Internal Revenue Service, under ERISA. 6.9 Misrepresentations. To the best of Borrower's knowledge, no information, exhibits, data, or reports furnished by Borrower or any of its Subsidiaries or delivered to Agent or Banks in connection with Borrower's application for credit misstates any material fact, or omits any fact necessary to make such information, exhibits, data, or reports not misleading. -10- 6.10 No Default. To the best of Borrower's knowledge, Borrower is not in default in any Loan Document, nor is Borrower nor any of its Subsidiaries in default under any material contract, agreement, or instrument to which it is a party. 6.11 Year 2000 Compliance. Borrower is actively assessing the impact of the upcoming change in the century on its computer software and hardware, and on Borrower's products, services, and competitive conditions. Certain software applications have been identified for replacement prior to the year 2000. Based on Borrower's analysis to date, Borrower believes that the impact of year 2000 issues will not be material to Borrower's business, operations, or financial condition, and that the cost of remediating such matters will not be material. However, the impact of the failure of computer systems of customers, vendors, and others with whom Borrower does business is uncertain and has not been assessed by Borrower. 6.12 No Burdensome Restrictions. To the best of Borrower's knowledge, no contract or other instrument to which Borrower or any of its Subsidiaries is a party, or order, award, or decree of any court, arbitrator, or governmental agency, materially impairs Borrower's or any such Subsidiary's ability to repay the Obligations. 6.13 Margin Stock. Neither Borrower nor any of its Subsidiaries is engaged, nor shall it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" margin stock under Regulation U of the Board of Governors of the Federal Reserve System. Borrower shall not use any part of the proceeds of any Advance for any purpose which violates or is inconsistent with the provisions of Regulation G, T, U, or X of such Board of Governors, as the same may be amended, supplemented, or modified from time to time. ARTICLE 7 Affirmative Covenants So long as this Agreement shall remain in effect, or any liability exists under the Loan Documents, Borrower shall, and with respect to Sections 7.5 through 7.10 Borrower and each of its Subsidiaries shall, unless the Majority Banks waive compliance in writing: 7.1 Use of Proceeds. Use the proceeds of the Revolving Loan for construction financing for the KOMO Block Project and for working capital or other general corporate purposes. 7.2 Capitalization Ratio. Maintain a Capitalization Ratio of not more than 0.65 to 1, measured as of each fiscal quarter end. 7.3 EBITDA Ratio. Maintain a ratio of Funded Debt to EBITDA in a ratio of not more than 3.50 to 1, measured as of each fiscal quarter end. 7.4 Financial Information. Maintain a standard system of accounting in accordance with GAAP and furnish to Agent, with enough copies for Agent and each Bank, the following: (a) Quarterly Financial Statements. As soon as available and, in any event, within 60 days after the end of each except the last fiscal quarter of each fiscal year, a copy of the consolidated statement of income and retained earnings of Borrower for the quarter and for the current fiscal year through such quarter, and for each such quarter a copy of the consolidated balance sheet, consolidated statement of shareholders' equity, and consolidated statement of cash flow of Borrower as of the end of such quarter, setting forth, in each case, in comparative form, figures for the corresponding period of the preceding fiscal year, all in reasonable detail and satisfactory in scope to Agent, prepared under the supervision of the chief financial officer of Borrower, and in form and substance satisfactory to Agent; (b) Annual Financial Statements. As soon as available and, in any event, within 120 days after the end of each fiscal year, a copy of the consolidated balance sheet, consolidated statement of income and retained earnings, consolidated statement of shareholders' equity, and consolidated statement of cash flow of Borrower for such year, setting forth in each case, in comparative form, corresponding figures from the preceding annual statements, each audited by independent certified public accountants of recognized standing selected by Borrower and satisfactory to Agent certifying that such statement is complete and correct, fairly presents without qualification the financial condition of Borrower for such period, is prepared in accordance with GAAP, and has been audited in conformity with generally accepted auditing standards; -11- (c) Internal Reports. Quarterly internal financial reports of each guarantor within 60 days of each fiscal quarter end, and annual internal financial reports of each guarantor within 120 days of each fiscal year end; (d) Other Certificates. Together with the delivery of the financial statements required by Subsections 7.4(a) and 7.4 (b), a certificate of the chief financial officer of Borrower, in the form of Exhibit B attached; and (e) Additional Financial Information. As soon as available and, in any event, within ten days after request, such other financial data, information, or documentation as Agent may reasonably request. 7.5 Maintenance of Existence. Preserve and maintain its existence, powers, and privileges in the jurisdiction of its formation, and qualify and remain qualified in each jurisdiction in which its presence is necessary or desirable in view of its business, operations, or ownership of its property. Borrower and each of its Subsidiaries shall also maintain and preserve all of their property which is necessary or useful in the proper course of its business, in good working order and condition, ordinary wear and tear excepted. 7.6 Books and Records. Keep accurate and complete books, accounts, and records in which complete entries shall be made in accordance with GAAP, reflecting all financial transactions of Borrower and any such Subsidiary. 7.7 Access to Premises and Records. At all reasonable times and as often as Agent or Banks may reasonably request, permit any authorized representative designated by Agent or Banks to have access to any premises or property of Borrower and each such Subsidiary where financial records of Borrower or any such Subsidiary are located, including all records relating to the finances, operations, and procedures of Borrower and each such Subsidiary, to view financial records and to make copies of or abstracts from such records. 7.8 Notice of Events. Furnish Agent prompt written notice of: (a) Proceedings. Any proceeding instituted by or against Borrower or any such Subsidiary in any court or before any commission or regulatory body, or any proceeding threatened against it in writing by any governmental agency which if adversely determined would have a material adverse effect on Borrower's or any such Subsidiary's business, property, or financial condition, or where the amount involved is $3,000,000 or more and not covered by insurance; (b) Material Development. Any material development in any such proceeding referred to in Subsection 7.8(a); (c) Defaults. Any accident, event, or condition which is or, with notice or lapse of time or both, would constitute a Default, or a default under any other agreement to which Borrower or any such Subsidiary is a party; and (d) Adverse Effect. Any other action, event, or condition of any nature which could result in a material adverse effect on the business, property, or financial condition of Borrower or any of its Subsidiaries. 7.9 Payment of Debts and Taxes. Pay all Debt and perform all obligations promptly and in accordance with their terms, and pay and discharge promptly all taxes, assessments, and governmental charges or levies imposed upon Borrower or any such Subsidiary, its property, or revenues prior to the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies, or otherwise which, if unpaid, might become a lien or charge upon Borrower's or any such Subsidiary's property. Neither Borrower nor or any such Subsidiary shall, however, be required to pay or discharge any such obligation, tax, assessment, charge, levy, or claim so long as its enforceability, amount, or validity is contested in good faith by appropriate proceedings. 7.10 Insurance. Maintain commercially adequate levels of coverage with financially sound and reputable insurers, including, without limitation: (a) Property Insurance. Insurance on all property of a character usually insured by organizations engaged in the same or similar type of business as Borrower or any such Subsidiary against all usually insured-against risks, casualties, and losses through extended coverage or otherwise and of the kind customarily insured against by such organizations; -12- (b) Liability Insurance. Public liability insurance against tort claims which may be asserted against Borrower or any such Subsidiary; and (c) Additional Insurance. Such other insurance as may be required by law. ARTICLE 8 Negative Covenants So long as Banks have a commitment to make Advances under the Revolving Loan, or any Obligations are outstanding, neither Borrower nor any of its Subsidiaries shall, without prior written consent of Majority Banks (which consent shall not be unreasonably withheld or delayed): 8.1 Securities Portfolio. Create, incur, or assume, or agree to create, incur, or assume any lien, whether consensual or nonconsensual, on any investment securities owned by Borrower or any such Subsidiary. 8.2 Disposition of Assets. Sell, transfer, lease, or otherwise assign or dispose of more than 10% of Borrower's consolidated total assets, excluding transactions involving Fisher Properties Inc., to any Person, outside the ordinary course of business; nor shall Borrower cease to own all common stock of Fisher Broadcasting Inc., Fisher Mills Inc., and Fisher Properties Inc. 8.3 Mergers. Become a party to a merger, consolidation, or like corporate change, other than where Borrower or a Subsidiary is the surviving corporation, and neither Section 7.2 nor 7.3 is thereby violated. 8.4 ERISA. Engage in a Prohibited Transaction (as defined under ERISA) or a violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in consolidated liability of Borrower of $3,000,000 or more. 8.5 Dissolution. Adopt an agreement or resolution for dissolving Borrower, Fisher Broadcasting Inc., Fisher Mills Inc., or Fisher Properties Inc. 8.6 Permissible Investments. Make any investment outside the ordinary course of Borrower's or any such Subsidiary's business, except: (a) Certificates of Deposit. Investments in certificates of deposit maturing within one year from the date of acquisition from any one or more of the top 100 commercial banks in the United States; (b) Commercial Paper. Prime commercial paper with maturities of less than one year; (c) U. S. Government Paper. Obligations issued or guaranteed by the United States Government or its agencies; and (d) Other Investments. Other investments, including but not limited to capital investments in stock, shares, licenses, or other equity interests in any businesses, not exceeding $25,000,000 in the aggregate. 8.7 Permissible Loans. Make any loans or other extensions of credit to any individual or entity outside the ordinary course of business, except for loans or extensions of credit that do not exceed an aggregate amount of $3,000,000 outstanding at any one time, on a consolidated basis. ARTICLE 9 Agent 9.1 Appointment and Authorization; "Agent". Each Bank hereby irrevocably (subject to Section 9.9) appoints, designates, and authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, Agent shall not have any duties or responsibilities, except those expressly set forth in this Agreement, nor shall Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a -13- matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 9.2 Delegation of Duties. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees, or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation, or warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement, or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability, or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books, or records of Borrower or any of Borrower's Subsidiaries or Affiliates. 9.4 Reliance by Agent. (a) Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement, or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants, and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document, in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Article 5, each Bank that has executed this Agreement shall be deemed to have consented to, approved, or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance, or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank. 9.5 Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest, and fees required to be paid to Agent for the account of Banks, unless Agent shall have received written notice from a Bank or Borrower referring to this Agreement, describing such Default, and stating that such notice is a "notice of default." Agent will notify Banks of its receipt of any such notice. Agent shall take such action with respect to such Default as may be requested by the Majority Banks in accordance with Article 10; provided, however, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of Banks. 9.6 Credit Decision. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrower and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial, and other condition and creditworthiness of Borrower and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower under this Agreement. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals, and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial, and other condition and creditworthiness of Borrower. Except for notices, reports, and other documents expressly herein required to be furnished to Banks by Agent, Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, -14- operations, property, financial, and other condition or creditworthiness of Borrower which may come into the possession of any of the Agent-Related Persons. 9.7 Indemnification of Agent. Whether or not the transactions contemplated by this Agreement are consummated, Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), in accordance with their respective Pro Rata Share, from and against any and all Indemnified Liabilities; provided, however, that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including outside or in-house attorneys' fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings, insolvency proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to in this Agreement, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment of all Obligations and the resignation or replacement of Agent. For purposes of this Section, "Indemnified Liabilities" shall mean any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses, and disbursements (including both outside and in-house attorneys' fees) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Revolving Loan and the termination, resignation, or replacement of the Agent or replacement of any Bank) be imposed on, incurred by, or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation, or proceeding (including any insolvency proceeding or appellate proceeding) related to or arising out of this Agreement or the Revolving Loan or the use of the proceeds thereof. 9.8 Agent in Individual Capacity. Seafirst and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrower and its Subsidiaries and Affiliates as though Seafirst were not Agent hereunder and without notice to or consent of Banks. Banks acknowledge that, pursuant to such activities, Seafirst or its Affiliates may receive information regarding Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of Borrower or such Subsidiary) and acknowledge that Agent shall be under no obligation to provide such information to them. With respect to its Revolving Note, Seafirst shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not Agent, and the terms "Bank" and "Banks" include Seafirst in its individual capacity. 9.9 Successor Agent. Agent may, and at the request of the Majority Banks shall, resign as Agent upon 30 days' notice to Banks. If Agent resigns under this Agreement, the Majority Banks shall appoint from among Banks a successor agent for Banks. If no successor agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with Banks and Borrower, a successor agent from among Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term "Agent" shall mean such successor agent; and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 9 and Section 11.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. ARTICLE 10 Events and Consequences of Default 10.1 Events of Default. Any of the following events shall constitute a default by Borrower and each of its Subsidiaries under the terms of this Agreement, the Revolving Notes, and all other Loan Documents ("Default"); provided, that no event described in Subsections 10.1 (d), (e), (f), or (g)(i) shall be deemed a Default unless such event continues unremedied for 30 days after written notice thereof has been given to Borrower by Agent; and provided, in the case of Subsection 10.1(b), if the event is one which cannot reasonably be remedied within 30 days, such event shall not be deemed a Default so long as Borrower is diligently pursuing a cure, with such extended cure period to be no longer than six months after notice of default has been given to Borrower by Agent: (a) Nonpayment. Any payment or reimbursement due or demanded under this Agreement or any Loan Document is not made within five days of the date when due; (b) Breach of Warranty. Any representation or warranty made in connection with this Agreement or any other Loan Document, or any certificate, notice, or report furnished pursuant -15- hereto, is determined by any Bank to be false in any respect when made, and is relied upon by such Bank to its detriment, or any of Borrower's or any of its Subsidiaries' representations regarding the "year 2000 problem" cease to be true, whether or not true when made, and as a result Bank reasonably believes that Borrower's or any of its Subsidiaries' financial condition or its ability to pay its debts as they come due will thereby be materially impaired; (c) Failure to Perform. Any other term, covenant, or agreement contained in any Loan Document is not performed or satisfied, and, if remediable, such failure continues unremedied for 30 days after written notice thereof has been given to Borrower by Agent; (d) Defaults on Other Obligations. There exists a default in the performance of any other agreement or obligation for the payment of borrowed money of $3,000,000 or more, for the deferred purchase price of property or services, or for the payment of rent under any lease, whether by acceleration or otherwise, which would permit such obligation to be declared due and payable prior to its stated maturity; and such default continues for 30 days after Borrower or the Subsidiary so affected receives written notice thereof from the creditor so affected; (e) Guaranties. Any guarantor of all or any portion of the Obligations revokes or attempts to revoke such guaranty, whether with respect to future transactions or outstanding Obligations, or otherwise breaches the terms and conditions of such guaranty; (f) Loss, Destruction, or Condemnation of Property. A portion of Borrower's or any of its Subsidiary's property is affected by any uninsured loss, damage, destruction, theft, sale, or encumbrance other than created herein or is condemned, seized, or appropriated, the effect of which materially impairs Borrower's or any such Subsidiary's financial condition or its ability to pay its debts as they come due; (g) Attachment Proceedings and Insolvency. Borrower, any Subsidiary or any of its respective property is affected by any: (i) Judgment lien, execution, attachment, garnishment, general assignment for the benefit of creditors, sequestration, or forfeiture, to the extent Borrower's or any such Subsidiary's financial condition or its ability to pay its debts as they come due is thereby materially impaired; or (ii) Proceeding under the laws of any jurisdiction relating to receivership, insolvency, or bankruptcy, whether brought voluntarily or involuntarily by or against Borrower or any such Subsidiary, including, without limitation, any reorganization of assets, deferment or arrangement of debts, or any similar proceeding, and, if such proceeding is involuntarily brought against Borrower or such Subsidiary, it is not dismissed within 60 days; (h) Judgments. Final judgment on claims not covered by insurance which, together with other outstanding final judgments against Borrower or any of its Subsidiaries, exceeds $3,000,000, is rendered against Borrower or any such Subsidiary and is not discharged, vacated, or reversed, or its execution stayed pending appeal, within 60 days after entry, or is not discharged within 60 days after the expiration of such stay; or (i) Government Approvals. Any governmental approval, registration, or filing with any governmental authority, now or later required in connection with the performance by Borrower or any of its Subsidiaries of its obligations under the Loan Documents, is revoked, withdrawn, or withheld, or fails to remain in full force and effect, except Borrower shall have 60 days after notice of any such event to take whatever action is necessary to obtain all necessary approvals, registrations, and filings, and provided that any such event shall not be deemed a Default unless the financial condition of the Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower and its Subsidiaries, taken as a whole, to pay the Obligations, is thereby materially impaired. 10.2 Remedies Upon Default. If any Default occurs under Subsection 10.1 (g) (ii), the Banks' commitment to make Advances shall immediately and automatically terminate (but Agent shall have no liability to any other Bank for any Advances made by Agent prior to Agent receiving actual notice of such occurrence, absent Agent's willful misconduct or gross negligence), and all Obligations, including all accrued interest, shall immediately and automatically become due and payable, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived by Borrower, and Agent may immediately, upon receiving notice of such an occurrence, exercise any or all of the following remedies for Default; and if any other Default occurs and is continuing, Agent, upon direction of Majority Banks, shall, by notice from Agent to Borrower: -16- (a) Terminate Commitments. Terminate Banks' commitment to make Advances; (b) Suspend Commitments. Refuse to make further Advances until any Default has been cured; (c) Accelerate. Declare the Revolving Notes, together with all accrued interest, to be immediately due and payable without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived by Borrower; (d) Setoff. Exercise its right of setoff against deposit accounts of Borrower and/or any Subsidiary with Bank, or place an administrative freeze on any such accounts; and/or (e) All Remedies. Pursue any other available legal and equitable remedies. In addition, each Bank shall have the right to set off against deposit accounts of Borrower and/or each Subsidiary at such Bank any amounts owing under the Obligations, including amounts in excess of such Bank's Pro Rata Share of the outstanding balance of the Obligations. Any such amounts, and any other amounts received by any Bank on account of the Obligations, other than from Agent, shall be delivered to Agent to be distributed to each Bank in accordance with its respective Pro Rata Share; provided, however, that if all or any portion of such payment turned over from a Bank to Agent and distributed to each Bank is thereafter recovered by Borrower or any such Subsidiary from such Bank, each Bank shall, in accordance with its respective Pro Rata Share, reimburse such other Bank for the amount so recovered. All of Banks' and Agent's rights and remedies in all Loan Documents shall be cumulative and can be exercised separately or concurrently. Borrower shall have no liability to any Bank with respect to any sum that Agent receives in accordance with this Agreement and fails to distribute to such Bank as required by this Agreement. -17- ARTICLE 11 Miscellaneous 11.1 Manner of Payments. (a) Payments on Nonbusiness Days. Whenever any event is to occur or any payment is to be made under any Loan Document on any day other than a Business Day, such event may occur or such payment may be made on the next succeeding Business Day and such extension of time shall be included in computation of interest in connection with any such payment. (b) Payments. All payments and prepayments to be made by Borrower shall be made to Agent when due, at Agent's office as may be designated by Agent, without offsets or counterclaims for any amounts claimed by Borrower to be due from Agent or Banks, in U.S. dollars and in immediately available funds. (c) Application of Payments. All payments made by Borrower shall be applied first against fees, expenses, and indemnities due; second, against interest due; and third, against principal, with Agent having the right, after a Default which is continuing, to apply any payments or collections received against any one or more of the Obligations in any manner which Banks, by unanimous consent, may choose. Except for payments made by Borrower to Agent for fees and indemnities due Agent, all payments made by Borrower shall be deemed to be made to Agent, as agent for Banks in accordance with each Bank's Pro Rata Share, and shall be distributed by Agent to Banks according to their respective Pro Rata Share. Any such payments which are received by a Bank shall be delivered immediately by such Bank to Agent for distribution to Banks in accordance with this subsection. (d) Recording of Payments. Agent is authorized to record on a schedule or computer-generated statement the date and amount of each Advance, all conversions between interest rate options, and all payments of principal and interest. All such schedules or statements shall constitute prima facie evidence of the accuracy of the information so recorded. 11.2 Notices. Agent may make Advances and conversions between interest rates based on telephonic, telex, and oral requests made by any Person whom Agent in good faith believes to be authorized to act on behalf of Borrower. All other notices, demands, and other communications to be given pursuant to any of the Loan Documents shall be in writing and shall be deemed received the earlier of when actually received, or two days after being mailed, postage prepaid and addressed as follows, or as later designated in writing: Agent: Banks: SEAFIRST BANK SEAFIRST BANK Seafirst Agency Services Metropolitan Wholesale, Team 2 701 Fifth Avenue, 16th Floor 701 Fifth Avenue, 11th Floor Seattle, Washington 98104 Seattle, Washington 98104 Attention: Dora Brown Attention: Robert M. Ingram III Borrower: FISHER COMPANIES INC. U.S. BANK NATIONAL ASSOCIATION 1525 One Union Square 1420 Fifth Avenue, Floor 11 600 University Street Seattle, Washington 98101 Seattle, Washington 98101 Attention: Peter Bentley Attention: David D. Hillard 11.3 Documentation Expenses. Borrower shall pay, reimburse, and indemnify Agent and Banks for all of Agent's and Banks' reasonable costs and expenses, including, without limitation, all accounting, appraisal, and report preparation fees or expenses, all attorneys' fees (including the allocated cost of in-house counsel), legal expenses, and recording or filing fees, incurred in connection with the negotiation, preparation, and execution of this Agreement and all other Loan Documents, and all amendments, supplements, or modifications thereto, and the perfection of all security interests, liens, or encumbrances that may be granted to Banks. Borrower acknowledges that any legal counsel retained or employed by Agent or Banks acts solely on Agent's and Banks' behalf and not on Borrower's behalf, despite Borrower's obligation to reimburse Agent and Banks for the cost of such legal counsel, and that Borrower has had sufficient opportunity to seek the advice of its own legal counsel with regard to this Agreement. 11.4 Collection Expenses. The nonprevailing party shall, upon demand by the prevailing party, reimburse the prevailing party for all of its costs, expenses, and reasonable attorneys' fees (including the allocated cost of in-house -18- counsel) incurred in connection with any controversy or claim between said parties relating to this Agreement or any of the other Loan Documents, or to an alleged tort arising out of the transactions evidenced by this Agreement, including those incurred in any action, bankruptcy proceeding, arbitration or other alternative dispute resolution proceeding, or appeal, or in the course of exercising any judicial or nonjudicial remedies. 11.5 Waiver. No failure to exercise and no delay in exercising, on the part of Agent or Banks, any right, power, or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power, or privilege. Further, no waiver or indulgence by Agent or Banks of any Default shall constitute a waiver of Agent's and Banks' right to declare a subsequent similar failure or event to be a Default. 11.6 Assignment. This Agreement is made expressly for the sole benefit of Borrower and for the protection of Agent and Banks and their respective successors and assigns. The rights of Borrower hereunder shall not be assignable by operation of law or otherwise, without the prior written consent of Agent and Banks. Neither Bank may assign its rights to another Bank or to any other financial institution without the prior written consent of Borrower and Agent, which consent shall not be unreasonably withheld; provided that such consent shall not be required if a Default has occurred and is continuing. 11.7 Merger. The rights and obligations set forth in this Agreement shall not merge into or be extinguished by any of the Loan Documents, but shall continue and remain valid and enforceable. This Agreement and the other Loan Documents constitute Agent's and Banks' entire agreement with Borrower with regard to the Revolving Loan, and supersede all prior writings and oral negotiations. No oral or written representation, covenant, commitment, waiver, or promise of either Agent, any Bank, Borrower, or any of its Subsidiaries shall have any effect, whether made before or after the date of this Agreement, unless contained in this Agreement or another Loan Document, or in an amendment complying with Section 11.8. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 11.8 Amendments. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower or any Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by Agent at the written request of the Majority Banks) and Borrower and acknowledged by Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and Borrower and acknowledged by Agent, do any of the following: (a) increase or extend the commitment of any Bank to make Advances (or reinstate any such commitment terminated pursuant to Section 10.2(a)); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due to Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Advance, or (subject to clause (ii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of total Pro Rata Shares which is required for Banks or any of them to take any action hereunder; or (e) amend this Section or any provision herein providing for consent or other action by all Banks; and, provided further, that (i) no amendment, waiver, or consent shall, unless in writing and signed by Agent in addition to the Majority Banks or all Banks, as the case may be, affect the rights or duties of Agent under this Agreement or any other Loan Document, and (ii) the fee letters referred to in Section 5.4 may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 11.9 Mandatory Arbitration. (a) At the request of Agent, any Bank, or Borrower, any controversy or claim between Agent and Banks and Borrower, arising from or relating to this Agreement or any of the other Loan Documents, or arising from an alleged tort, shall be settled by arbitration in Seattle, Washington. The United States Arbitration Act shall apply even though this Agreement is otherwise governed by Washington law. The proceedings shall be administered by the American -19- Arbitration Association under its commercial rules of arbitration. Any controversy over whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction over the parties. The institution and maintenance of an action for judicial relief or pursuit of an ancillary or provisional remedy shall not constitute a waiver of the right of either party, including the plaintiff, to submit the controversy or claim to arbitration if such action for judicial relief is contested. For purposes of the application of the statute of limitations, the filing of an arbitration pursuant to this subsection is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this subsection is subject to any applicable statute of limitations. The arbitrator(s) will have the authority to decide whether any such claim or controversy is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. The parties consent to the joinder of any guarantor, hypothecator, or other party having an interest relating to the claim or controversy being arbitrated in any proceedings under this Section. (b) Notwithstanding the provisions of subsection 11.9(a), no controversy or claim shall be submitted to arbitration without the consent of all parties if at the time of the proposed submission, such controversy or claim arises from or relates to an obligation secured by real property. (c) No provision of this subsection shall limit the right of Borrower or Agent or Banks to exercise self-help remedies such as set-off, foreclosure, retention or sale of any collateral, or obtaining any ancillary, provisional, or interim remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration proceeding. The exercise of any such remedy does not waive the right of either party to request arbitration. 11.10 Construction. Each term of this Agreement and each Loan Document shall be binding to the extent permitted by law and shall be governed by the laws of the State of Washington, excluding its conflict of laws rules. If one or more of the provisions of this Agreement should be invalid, illegal, or unenforceable in any respect, the remaining provisions of this Agreement shall remain effective and enforceable. If there is a conflict among the provisions of any Loan Documents, the provisions of this Agreement shall be controlling. The captions and organization of this Agreement are for convenience only, and shall not be construed to affect any provision of this Agreement. 11.11 Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures to such counterparts were upon the same instrument. This Agreement shall become effective when Agent shall have received counterparts of the Agreement signed by all of the parties to the Agreement. DATED May 26, 1998. Borrower: Agent: FISHER COMPANIES INC. SEAFIRST BANK By /s/ David D. Hillard By /s/ Dora A. Brown Title Senior Vice President Title Vice President Banks: SEAFIRST BANK U.S. BANK NATIONAL ASSOCIATION By /s/ Robert M. Ingram, III By /s/ Peter Bentley Title Vice President Title Senior Vice President -20- Consent of Subsidiaries/Guarantors The undersigned Subsidiaries, which are also guarantors of the Obligations, acknowledge receipt of a copy of the above Agreement, consent to its contents, and agree to each representation, warranty, and covenant applicable to them therein. DATED May 26, 1998. FISHER BROADCASTING INC. FISHER PROPERTIES INC. By /s/ Patrick M. Scott By /s/ Mark A. Weed Title President & CEO Title President FISHER MILLS INC. By /s/ Terry Barrans Title President -21- EX-23 4 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-32103) of Fisher Companies Inc. of our report dated March 3, 1999 appearing in this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Seattle, Washington March 25, 1999 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 3,968 132,281 45,837 1,356 11,009 74,641 262,254 107,664 439,522 40,387 0 0 0 10,678 255,870 439,522 247,958 252,182 157,526 157,526 57,056 1,045 4,451 32,104 11,047 21,057 0 0 0 21,057 2.47 2.46
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