<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 9, 1996
----------------------------
(Date of earliest event reported)
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
Maryland 33-69482 52-1494660
(State of incorporation) (Commission File Number) (IRS Employer
Identification Number)
2000 W. 41st Street, Baltimore, Maryland 21211-1420
---------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (410) 467-5005
---------------
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The Financial statements required by this item are submitted in a
separate section of this report.
SUPERIOR COMMUNICATIONS GROUP, INC.
Independent Auditors Report
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995 and December 31, 1994
Consolidated Statements of Stockholder's Equity for the Years
Ended December 31, 1995 and December 31, 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
The pro forma financial information required by this item is submitted
in the pages to follow.
(c) Exhibits
Asset Purchase Agreement dated April 10, 1996 is by and between KRRT,
Inc. and Sinclair Broadcast Group, Inc.
Item 5. Other Matters
(a) Financial Statements of Probable Business Acquisitions
The Financial statements required by this item are submitted in a
separate section of this report.
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
Report of Independent Public Accountants
Consolidated Balance sheets as of August 3, 1995 and
December 31, 1994
Consolidated Statements of Operations for the period from January 1,
1995 through August 3, 1995 and the Year Ended December 31,
1994
Consolidated Statements of Stockholders' Equity for the Period from
January 1, 1995 through August 3, 1995 and the
Year Ended December 31, 1994
Consolidated Statements of Cash Flows for the Period from January 1,
1995 through August 3, 1995 and the Year Ended December 31,
1994
Notes to Consolidated Financial Statements
KRRT, Inc.
Report of Independent Public Accountants
Balance Sheet as of December 31, 1995
Statement of Operations for the Period from July, 25 1995
through December 31, 1995
Statements of Changes in Stockholders' Equity for the Period from July
25, 1995 through December 31, 1995
Statements of Cash Flows for the Period from July 25, 1995 through
December 31, 1995
Notes to Financial Statements
KANSAS CITY TV 62 LIMITED PARTNERSHIP
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and December 31, 1994 Statements
of Operations for the Years Ended December 31, 1995 and
December 31, 1994
Statements of Cash Flows for the Years Ended December 31, 1995
and December 31, 1994
Statements of Changes is Partners' Capital for the Years Ended December
31, 1995 and December 31, 1994
Notes to Financial Statements
CINCINNATI TV 64 LIMITED PARTNERSHIP
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and December 31, 1994 Statements
of Operations for the Years Ended December 31, 1995 and
December 31, 1994
Statements of Changes in Partners' Capital for the Years Ended December
31, 1995 and December 31, 1994
Statements of Cash Flows for the Years Ended December 31, 1995
and December 31, 1994
Notes to Financial Statements
<PAGE>
RIVER CITY BROADCASTING L.P.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1994 and
December 31, 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995
Consolidated Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995
Notes to Consolidated Financial Statements
Supplementary Information-Consolidating Balance Sheet as of
December 31, 1995
Supplementary Information-Consolidating Schedule of Operations
for the Year Ended December 31, 1995
(b) Pro Forma Financial Information
The pro forma information required by this item is submitted in the
pages to follow.
(c) PRO FORMA CONSOLIDATED FINANCIAL DATA
The Pro Forma Consolidated Financial Data includes the unaudited pro
forma consolidated balance sheet of the Company as of December 31, 1995 (the
"Pro Forma Consolidated Balance Sheet") and the unaudited pro forma consolidated
statement of operations for the year ended December 31, 1995 (the "Pro Forma
Consolidated Statement of Operations").
The unaudited Pro Forma Consolidated Balance Sheet is adjusted to give
effect to (I) the consummation of the acquisition of the assets and liabilities
of Superior Communications Group, Inc. ("Superior"), and the probable
acquisitions of (II) KRRT, Inc., Kansas City TV 62 Limited Partnership ("KSMO"),
Cincinnati TV 64 Limited Partnership ("WSTR") and River City Broadcasting L.P.
("RCB") and (III) cash on hand and borrowings under the existing Bank Credit
Agreement and New Credit Facilities in amounts sufficient to complete the
transactions described in (I) and (II) above.
The unaudited Pro Forma Consolidated Statement of Operations is
adjusted to give effect to (I) the consummation of the acquisition of Superior,
(II) the probable acquisitions of KRRT, Inc., KSMO, WSTR and RCB and (III) cash
on hand and borrowings under the existing Bank Credit Agreement and New Credit
Facilities in amounts sufficient to complete the transactions described in (I)
and (II) above. The WSYX-TV information in the Pro Forma Consolidated Balance
Sheet and Pro Forma Consolidated Statement of Operations reflects the
modification of the current acquisition documents eliminating Sinclair Broadcast
Group, Inc's. ("SBG") option to acquire the assets of WSYX-TV. This resulted
from the Department of Justice ("DOJ") expressing preliminary concerns about
SBG's operation of two television stations in Columbus, Ohio. In order to
maintain the original schedule for the rest of the transaction, SBG and RCB have
entered into an agreement with the DOJ that will result in a modification of the
terms of the previously mentioned probable transaction.
<PAGE>
The pro forma adjustments are based upon available information and
certain assumptions the Company believes are reasonable. The Pro Forma
Consolidated Financial Data should be read in conjunction with the Company's
Consolidated Financial Statements and related notes thereto, the Financial
Statements and related notes of Superior, KRRT, Inc., KSMO, WSTR and RCB. The
unaudited Pro Forma Consolidated Data do not purport to represent what the
Company's results of operations or financial position would have been had any of
the above events occurred on the dates specified or to project the Company's
results of operations or financial position for or at any future period or date.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Superior
Consolidated Flint Commmunications Pro Forma Pro Forma
Historical TV, Inc.(a) Group, Inc.(b) Adjustments Consummated
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents................ $112,450 $ - $ - $(37,550)(c) $ 74,900
Accounts receivable, net of allowance for
doubtful accounts....................... 50,022 2,801 52,823
Current portion of program contract costs....... 18,036 378 2,028 20,442
Deferred barter costs........................... 1,268 1,268
Prepaid expenses and other current assets....... 1,972 106 2,078
Deferred tax asset.............................. 4,565 4,565
--------------------------------------------------------------------
Total current assets............ 188,313 378 4,935 (37,550) 156,076
PROPERTY AND EQUIPMENT, net............................. 42,797 2,276 9,993 55,066
PROGRAM CONTRACT COSTS, less current portion............ 19,277 744 3,131 23,152
LOANS TO OFFICERS AND AFFILIATES, net................... 11,900 11,900
NON-COMPETE AND CONSULTING AGREEMENTS, net.............. 30,379 30,379
DEFERRED TAX ASSET...................................... 16,462 16,462
OTHER ASSETS............................................ 27,355 (1,000)(c) 26,355
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net............ 268,789 33,905 57,522 360,216
--------------------------------------------------------------------
Total assets.................... $605,272 $37,303 $75,581 $(38,550) $679,606
=====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 2,187 $ - $ 366 $ - $ 2,553
Income taxes payable............................ 3,944 3,944
Accrued Liabilities............................. 20,720 362 21,082
Current portion of long-term liabilities-
Notes payable and commercial bank
financing.......................... 1,133 1,133
Capital leases payable.................. 524 524
Notes and capital leases payable to
affiliates......................... 1,867 1,867
Program contracts payable............... 26,395 848 1,825 29,068
Deferred barter revenues........................ 1,752 1,752
--------------------------------------------------------------------
Total current liabilities....... 58,522 848 2,553 - 61,923
LONG-TERM LIABILITIES
Notes payable and commercial bank financing..... 400,644 59,850 (c) 460,494
Capital leases payable.......................... 44 44
Notes and capital leases payable to affiliates.. 13,959 13,959
Program contracts payable....................... 30,942 1,055 2,783 34,780
Deferred tax liability.......................... - 3,736 3,736
Other long-term liabilites...................... 2,442 3,509 5,951
--------------------------------------------------------------------
Total liabilities............... 506,553 1,903 12,581 59,850 580,887
--------------------------------------------------------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY............ 2,345 - - - 2,345
--------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES...........................
STOCKHOLDERS' EQUITY....................................
Preferred stock, $.01 par value, 5,000,000 shares
authorized and -0- outstanding.......... - -
Class A Common stock, $.01 par value, 35,000,000
shares authorized and -0- and 5,750,000
shares issued and outstanding,
respectively............................ 58 58
Class B Common stock, $.01 par value, 35,000,000
shares authorized and 29,000,000 shares
issued and outstanding.................. 290 290
Additional paid-in-capital...................... 116,089 116,089
Accumulated deficit............................. (20,063) (20,063)
--------------------------------------------------------------------
Total stockholders' equity...... 96,374 - - - 96,374
--------------------------------------------------------------------
Total Liabilities and Stock-
holders' Equity........... $605,272 $ 1,903 $12,581 $ 59,850 $679,606
=====================================================================
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(a) The Flint TV, Inc. (WSMH) column reflects the assets and liabilities
acquired in connection with the purchase of WSMH. Total acquired
intangibles are calculated as follows:
WSMH
----
Purchase price........................................ $ 35,400
Add: Liabilities acquired -
Current portion of program contract costs... 848
Long-term portion of program contract costs. 1,055
Less: Assets acquired -
Current portion of program contracts........ (378)
Property and equipment...................... (2,276)
Non-current portion of program contracts.... (744)
----
Acquired intangibles........................ $ 33,905
========
(b) The Superior Communications Group, Inc. (Superior) column reflects the
assets and liabilities acquired in connection with the purchase of the
outstanding stock of Superior. Total acquired intangibles are calculated
as follows:
Superior
--------
Purchase price........................................ $63,000
Add: Liabilities acquired -
Accounts payable............................ 366
Accrued expenses............................ 362
Current portion of program contract costs... 1,825
Long-term portion of program contract costs. 2,783
Deferred tax liability...................... 3,736
Other long-term liabilities................. 3,509
Less: Assets acquired -
Accounts receivable......................... (2,801)
Current portion of program contracts........ (2,028)
Prepaid expenses and other current assets... (106)
Property and equipment...................... (9,993)
Non-current portion of program contracts.... (3,131)
------
Acquired intangibles........................ $57,522
========
(c) In July 1995, the Company exercised its option to purchase WSMH in Flint,
Michigan for an option exercise price of $1 million. In February 1996, the
Company consummated the acquisition for a purchase price of $35.4 million
at which time the balance due of $34.4 million was paid from the Company's
existing cash balance.
In March 1996, the Company entered into an agreement to acquire the
outstanding stock of Superior and made a cash payment of $3.2 million to
be applied against cash proceeds to the stockholders of Superior upon
closing. The Company funded the remaining cash proceeds to the seller of
$59.8 million by utilizing available indebtedness under Facility B of the
Bank Credit Agreement.
The pro forma cash adjustment is calculated as follows:
Cash paid for WSMH acquisition........................ $34,400
Cash paid for Superior acquisition.................... 3,150
-----
Total cash paid....................................... $37,550
=======
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Superior
Consolidated Flint Commmunications Pro Forma Pro Forma
Historical TV, Inc.(a) Group, Inc.(b) Adjustments Consummated
-------------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions................................ $ 187,934 $ 7,217 $ 13,400 $ $ 208,551
Revenues realized from station barter
arrangements............................... 18,200 18,200
-----------------------------------------------------------------------------
Total revenues.................. 206,134 7,217 13,400 - 226,751
-----------------------------------------------------------------------------
OPERATING EXPENSES:
Program and production....................... 22,563 511 1,461 24,535
Selling, general and administrative.......... 41,763 2,114 4,188 48,065
Expenses realized from station barter
arrangements......................... 16,120 16,120
Amortization of program contract costs
and net realizable value
adjustments.......................... 29,021 897 4,899 34,817
Depreciation and amortization of property
and equipment........................ 5,400 20 1,660 (217)(c) 6,863
Amortization of acquired intangible broad-
casting assets, non-compete and
consulting agreements and other
assets............................... 45,989 12 1,066 7,819 (d) 54,886
-----------------------------------------------------------------------------
Total operating expenses........ 160,856 3,554 13,274 7,602 185,286
-----------------------------------------------------------------------------
Broadcast operating income
(loss)....................... 45,278 3,663 126 (7,602) 41,465
-----------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt
discount expense........................... (39,253) (39,253)
Interest (expense)........................... - - (1,579) (5,372)(e) (6,951)
Interest income.............................. 3,942 81 (796)(f) 3,227
Other income (expense)....................... 221 41 (188) 74
-----------------------------------------------------------------------------
Income (loss) before (provision)
benefit for income taxes and
extraordinary items........... 10,188 3,785 (1,641) (13,770) (1,438)
(PROVISION) BENEFIT FOR INCOME TAXES................. (5,200) (1,514) 461 6,610 (g) 357
-----------------------------------------------------------------------------
Net income (loss) before
extraordinary items........... 4,988 2,271 (1,180) (7,160) (1,081)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of related income tax benefit..... (4,912) (4,912)
-----------------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS... $ 76 $ 2,271 $ (1,180) $ (7,160) $ (5,993)
=============================================================================
EARNINGS PER COMMON SHARE
Net income before extraordinary
items........................ $ 0.15 $ (0.03)
Extraordinary items............ $ (0.15) $ (0.15)
-----------------------------------------------------------------------------
Net loss per common share........................... $ - $ (0.19)
=============================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands).. 32,198 32,198
=============================================================================
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
(a) The Flint Inc. column reflects the results of operations for WSMH for the
year ended 12/31/95 as the purchase transaction was consummated in
February 1996.
(b) The Superior Communications Group, Inc. column reflects the results of
operations for Superior for the year ended 12/31/95 as the purchase
transaction was consummated in May 1996.
(c) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by WSMH and Superior. Tangible
assets are to be depreciated over lives ranging from 5 to 29.5 years,
calculated as follows:
WSMH Superior Total
---- -------- -----
Depreciation expense on acquired assets..... $ 191 $ 1,272 $1,463
Less: Depreciation expense recorded by WSMH
and Superior............................ (20) (1,660) (1,680)
--- ------ ------
Pro forma adjustment........................ $ 171 $ (388) $ (217)
======= ======= ======
(d) To record amortization expense related to acquired intangible assets and
eliminate amortization expense recorded by WSMH and Superior. Intangible
assets are to be amortized over lives ranging from 1 to 40 years,
calculated as follows:
WSMH Superior Total
---- -------- -----
Amortization relating to acquired intangible
assets................................... $1,002 $ 7,895 $8,897
Less: Intangible amortization recorded by
WSMH and Superior........................ (12) (1,066) (1,078)
--- ------ ------
Pro forma adjustment........................ $ 990 $ 6,829 $7,819
====== ======= ======
(e) To record interest expense on acquisition financing relating to WSMH and
Superior of $34,400 (in Credit Facility with commercial bank at 8.4% for 8
months) and $59,850 (8.4% for 12 months), respectively and eliminate
interest expense recorded.
WSMH Superior Total
---- -------- -----
Interest expense adjustment as noted above.. $1,924 $ 5,027 $6,951
Less: Interest expense recorded by WSMH and
Superior................................ - (1,579) (1,579)
------ ------ ------
Pro forma adjustment........................ $1,924 $ 3,448 $5,372
====== ======= ======
(f) To eliminate interest income on public debt proceeds relating to WSMH and
Superior of $34,400 and $3,150 (with commercial bank at 5.7% for 4
months), respectively and eliminate interest income recorded.
WSMH Superior Total
---- -------- -----
Interest income adjustment as noted above... $ (655) $ (60) $ (715)
Less: Interest income recorded by WSMH and
Superior................................. (81) - (81)
--- --- ---
Pro forma adjustment........................ $ (736 $ (60) $ (796)
======= ====== =======
(g) To record tax benefit of pro forma adjustments.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
KRRT Inc. (a)
-------------------------
Paramount
Pro Forma Stations Group KRRT
Consummated of Kerville, Inc. Inc. KSMO(b) WSTR(c)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents................ $ 74,900 $ $ $ 590 $ 641
Accounts receivable, net of allowance
for doubtful accounts..................... 52,823 3,953 3,091
Current portion of program contract costs ...... 20,442 1,452 3,380 4,461
Deferred barter costs........................... 1,268
Prepaid expenses and other current assets....... 2,078 21 15
Deferred tax asset.............................. 4,565
----------------------------------------------------------------------
Total current assets.............. 156,076 - 1,452 7,944 8,208
PROPERTY AND EQUIPMENT, net........................ 55,066 3,068 3,286 8,357
PROGRAM CONTRACT COSTS, less current portion....... 23,152 869 3,754 4,339
LOANS TO OFFICERS AND AFFILIATES, net.............. 11,900
NON-COMPETE AND CONSULTING AGREEMENTS, net......... 30,379
DEFERRED TAX ASSET................................. 16,462
OTHER ASSETS....................................... 26,355
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net....... 360,216 26,532 10,014 8,807
---------------------------------------------------------------------
Total assets...................... $679,606 $ $ 31,921 $ 24,998 $29,711
=====================================================================
River City Pro Forma Pro Forma
Broadcasting L.P.(d) WSYX(e) Adjustments Consummated/Probable
--------------------------------------------- ----------------------
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents................ $ $ $ (72,882)(f) $ 3,249
Accounts receivable, net of allowance
for doubtful accounts..................... 10,000 69,867
Current portion of program contract costs ...... 23,276 (1,432) 51,579
Deferred barter costs........................... 1,268
Prepaid expenses and other current assets....... 2,114
Deferred tax asset.............................. 4,565
----------------------------------------- --------------------
Total current assets.............. 33,276 (1,432) (72,882) 132,642
PROPERTY AND EQUIPMENT, net........................ 134,879 (18,200) 186,456
PROGRAM CONTRACT COSTS, less current portion....... 19,650 (917) 50,847
LOANS TO OFFICERS AND AFFILIATES, net.............. 11,900
NON-COMPETE AND CONSULTING AGREEMENTS, net......... 30,379
DEFERRED TAX ASSET................................. 16,462
OTHER ASSETS....................................... 14,725 (g) 41,080
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net....... 795,695 1,201,264
----------------------------------------- --------------------
Total assets...................... $ 983,500 $(20,549) $ (58,157) $ 1,671,030
========================================= ====================
<PAGE>
KRRT Inc. (a)
-------------------------
Paramount
Pro Forma Stations Group KRRT
Consummated of Kerville, Inc. Inc. KSMO(b) WSTR(c)
----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable................................ $ 2,553 $ $ $ 1,578 $ 1,127
Income Taxes Payable............................ 3,944
Accrued Liabilities............................. 21,082
Current portion of long-term liabilities-
Notes payable and commercial bank
financing........................... 1,133
Capital leases payable..................... 524
Notes and capital leases payable to
affiliates.......................... 1,867
Program contracts payable.................. 29,068 1,452 4,020 5,221
Deferred barter revenues......................... 1,752
---------------------------------------------------------------------
Total current liabilities.......... 61,923 - 1,452 5,598 6,348
LONG-TERM LIABILITIES
Notes payable and commercial bank financing..... 460,494
Capital leases payable........................... 44
Notes and capital leases payable to affiliates... 13,959
Program contracts payable........................ 34,780 869 3,107 4,262
Deferred Tax Liability........................... 3,736
Other long-term liabilites....................... 5,951 8,737
---------------------------------------------------------------------
Total liabilities.................. 580,887 - 2,321 17,442 10,610
---------------------------------------------------------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 2,345 - - -
---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES.......................
STOCKHOLDERS' EQUITY................................
Preferred stock, $.01 par value, 5,000,000 shares
authorized and -0- outstanding............. -
Class A Common stock, $.01 par value, 35,000,000
shares authorized and -0- and 5,750,000
shares issued and outstanding, respectively 58
Class B Common stock, $.01 par value, 35,000,000
shares authorized and 29,000,000 shares
issued and outstanding..................... 290
Additional paid-in-capital....................... 116,089
Accumulated deficit.............................. (20,063)
-----------------------------------------------------------------------
Total stockholders' equity......... 96,374 - - - -
-----------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity.................... $ 679,606 $ - $ 2,321 $ 17,442 $10,610
=======================================================================
<PAGE>
River City Pro Forma Pro Forma
Broadcasting L.P.(d) WSYX(e) Adjustment Consummated/Probable
------------------------------------------ ----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable................................ $ $ $ $ 5,258
Income Taxes Payable............................ 3,944
Accrued Liabilities............................. 21,082
Current portion of long-term liabilities
Notes payable and commercial bank
financing........................... 1,133
Capital leases payable..................... 524
Notes and capital leases payable to
affiliates.......................... 1,867
Program contracts payable.................. 21,585 (1,727) 59,619
Deferred barter revenues......................... 1,752
----------------------------------------- ----------------------
Total current liabilities.......... 21,585 (1,727) - 95,179
LONG-TERM LIABILITIES
Notes payable and commercial bank financing...... 799,787 (h) 1,260,281
Capital leases payable........................... 44
Notes and capital leases payable to affiliates... 13,959
Program contracts payable........................ 27,580 (1,174) 69,424
Deferred Tax Liability........................... 3,736
Other long-term liabilites....................... 14,688
----------------------------------------- ----------------------
Total liabilities.................. 49,165 (2,901) 799,787 1,457,311
----------------------------------------- ----------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY........ - - - 2,345
----------------------------------------- ----------------------
COMMITMENTS AND CONTINGENCIES.......................
STOCKHOLDERS' EQUITY................................
Preferred stock, $.01 par value, 5,000,000 shares
authorized and -0- outstanding.............
Class A Common stock, $.01 par value, 35,000,000
shares authorized and -0- and 5,750,000
shares issued and outstanding, respectively 42 (i) 100
Class B Common stock, $.01 par value, 35,000,000 -
shares authorized and 29,000,000 shares -
issued and outstanding..................... 290
Additional paid-in-capital....................... 114,958 (j) 231,047
Accumulated deficit.............................. (20,063)
----------------------------------------- -----------------------
Total stockholders' equity......... - - 115,000 211,374
----------------------------------------- -----------------------
Total Liabilities and Stockholders'
Equity.................... $ 49,165 $ (2,901) $914,787 $1,671,030
=========================================== =======================
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(a) The KRRT Inc. (KRRT) column reflects the assets and liabilities acquired
in connection with the purchase of KRRT. Total acquired intangibles are
calculated as follows:
Purchase price ............................................ $29,600
Add: Liabilities acquired -
Current portion of program contracts....... 1,452
Long - term portion of program contracts... 869
Less: Assets acquired
Current portion of program contracts ...... (1,452)
Non-current portion of program contracts .. (869)
Property and equipment .................... (3,068)
------
Acquired intangibles ...................... $26,532
=======
The KSMO and WSTR columns reflect the assets and liabilities acquired in
connection with the purchase of KSMO and WSTR. Total acquired intangibles
are calculated as follows:
(b) KSMO:
Purchase price ............................................ $ 7,556
Add: Liabilities acquired -
Accounts Payable........................... 1,578
Current portion of program contracts....... 4,020
Long - term portion of program contracts... 3,107
Subordinated debt ......................... 8,737
Less: Assets acquired
Current portion of program contracts ...... (3,380)
Non-current portion of program contracts .. (3,286)
Cash....................................... (590)
Accounts Receivable........................ (3,953)
Prepaid expenses........................... (21)
Property and equipment .................... (3,754)
------
Acquired intangibles ...................... $ 10,014
========
(c) WSTR:
Purchase price ............................................ $19,101
Add: Liabilities acquired -
Accounts Payable........................... 1,127
Current portion of program contracts....... 5,221
Long - term ............................... 4,262
Less: Assets acquired
Current portion of program contracts ...... (4,461)
Non-current portion of program contracts .. (4,339)
Cash....................................... (641)
Accounts Receivable........................ (3,091)
Prepaid expenses........................... (15)
Property and equipment .................... (8,357)
------
Acquired intangibles ...................... $ 8,807
========
<PAGE>
(d) The River City Broadcasting L.P. (RCB) column reflects the assets and
liabilities acquired in connection with the purchase RCB. Total acquired
intangibles are calculated as follows:
Purchase price ............................................ $916,687
Add: Liabilities acquired -
Current portion of program contracts....... 19,858
Long - term portion of program contracts... 26,406
Less: Assets acquired-
Accounts receivable........................ (10,000)
Current portion of program contracts ...... (21,844)
Non-current portion of program contracts .. (18,733)
Property and equipment .................... (116,679)
--------
Acquired intangibles ...................... $795,695
========
(e) To reflect the modification of the current acquisition documents
eliminating the Company's option to acquire WSYX-TV.
(f) To reflect the pay-off by the Company of KSMO and WSTR's debt of $12,882
which was purchased by Chase Bank, and to reflect the cash payment of
$60.0 million made in conjunction with the purchase agreement between the
Company and River City Broadcasting L.P. which will be applied against the
cash proceeds upon closing.
(g) To record debt acquisition costs incurred in conjunction with the Senior
Secured Credit Facilities of $28.5 million, and removal of the $9.0
million purchase option to acquire KSMO & WSTR and the $4,775 note
receivable from WSTR.
(h) In April 1996, the Company entered into separate agreements to acquire the
assets of River City Broadcasting L.P. and KRRT Inc. The cash proceeds due
the seller at closing of $847,456, $29,600, and $28,500 (transaction costs
due to the lender) will be made utilizing available indebtedness under the
Senior Secured Credit Facilities less the amount attributable to the
purchase of WSYX-TV.
(i) In conjunction with the River City Broadcasting L.P. agreement, the seller
will receive $115 million of Series A Exchangeable Preferred Stock.
Pending shareholder approval, the Series A Exchangeable Preferred Stock
will be exchangeable for 4,181,818 shares of $.01 par value Class A Common
Stock.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
KRRT Inc. (a)
-------------------------
Paramount
Pro Forma Stations Group KRRT
Consummated of Kerville, Inc. Inc. KSMO(b) WSTR(c)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions............................... $ 208,551 $ 7,567 $ 1,437 $ 17,484 $ 15,529
Revenues realized from station barter
arrangements.............................. 18,200
--------------------------------------------------------------------------
Total revenues................... 226,751 7,567 1,437 17,484 15,529
--------------------------------------------------------------------------
OPERATING EXPENSES:
Program and production........................... 24,535 833 193 3,347 1,002
Selling, general and administrative.............. 48,065 1,958 688 4,374 4,023
Expenses realized from station barter
arrangements.............................. 16,120 876
Amortization of program contract costs and net
realizable value adjustments.............. 34,817 921 70 4,007 4,971
Depreciation and amortization of property
and equipment............................. 6,863 194 328 632 585
Amortization of acquired intangible broad-
casting assets, non-compete and
consulting agreements and other
assets.................................... 54,886 253 493 210 77
--------------------------------------------------------------------------
Total operating expenses......... 185,286 5,035 1,772 12,570 10,658
Broadcast operating income
(loss).......................... 41,465 2,532 (335) 4,914 4,871
--------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense........................................ (39,253)
Interest (expense)............................... (6,951) (880) (2,039) (2,506)
Interest income.................................. 3,227 11
Other income (expense)........................... 74 63 630
--------------------------------------------------------------------------
Income (loss) before (provision)
benefit for income taxes and
extraordinary items.......... (1,438) 2,595 (1,204) 3,505 2,365
(PROVISION) BENEFIT FOR INCOME TAXES................ 357 (1,076) - (1,682) (1,135)
--------------------------------------------------------------------------
Net income (loss) before
extraordinary items.......... (1,081) 1,519 (1,204) 1,823 1,230
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
related income tax benefit................ (4,912)
--------------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREOLDERS... $ (5,993) $ 1,519 $(1,204) $ 1,823 $ 1,230
==========================================================================
EARNINGS PER COMMON SHARE
Net income before extraordinary
items........................ $ (0.03)
Extraordinary items.............. $ (0.15)
--------------------------------------------------------------------------
Net loss per common share........................... $ (0.19)
==========================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands).. 32,198
==========================================================================
<PAGE>
River City Pro Forma Pro Forma
Broadcasting L.P. WSYX (e) Adjustments Consummated/Probable
---------------------------------------------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions.............................. 188,190 (28,767) $ (1,437) $ 408,554
Revenues realized from station barter
arrangements............................. 18,200
---------------------------------------------- ----------------
Total revenues.................. 188,190 (28,767) (1,437) 426,754
---------------------------------------------- ----------------
-
OPERATING EXPENSES: -
Program and production.......................... 62,041 (8,133) (1,437) (g) 82,381
Selling, general and administrative............. 30,456 (3,153) (620) (h) 85,791
Expenses realized from station barter
arrangements............................. 16,996
Amortization of program contract costs and net
realizable value adjustments............. 33,452 (2,624) 75,614
Depreciation and amortization of property
and equipment............................ 11,524 (2,107) 3,433 (i) 21,452
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreement
and other assets......................... 27,649 (9,780) 41,136 114,924
---------------------------------------------- ----------------
Total operating expenses........ 165,122 (25,797) 42,512 397,158
---------------------------------------------- ----------------
Broadcast operating income
(loss)......................... 23,068 (2,970) (43,949) 29,596
---------------------------------------------- ----------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense. (39,253)
Interest expense................................ (34,523) (39,371) (k) (86,270)
Interest income................................. 1,715 (3,673) (k) 1,280
Other income expense............................ (22) 57 802
---------------------------------------------- ----------------
Income (loss) before (provision)
benefit for income taxes and
extraordinary items......... (9,762) (2,913) (86,993) (93,845)
-
(PROVISION) BENEFIT FOR INCOME TAXES............... 4,686 1,398 41,756 (i) 44,304
---------------------------------------------- ----------------
Net income (loss) before
extraordinary items......... (5,076) (1,515) (45,237) (49,541)
-
EXTRAORDINARY ITEM: -
Loss on early extinguishment of debt, net of
related income tax benefit............... (4,912)
---------------------------------------------- ----------------
-
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREOLDERS.. $ (5,076) $ 1,515 $(45,237) $ (54,453)
============================================== =================
EARNINGS PER COMMON SHARE
Net income before extraordinary
items....................... $ (1.43)
Extraordinary items............. $ (0.14)
---------------------------------------------- ----------------
Net loss per common share.......................... $ (1.57)
============================================== =================
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands). 34,687 (m)
============================================== =================
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
(a) The KRRT Inc. column reflects the results of operations for Paramount
Stations Group for the seven months and three days ended 8/3/95 and KRRT
for the five months ended December 31, 1995.
(b) The KSMO column reflects the results of operations for the year ended
12/31/95.
(c) The WSTR column reflects the results of operations for the year ended
12/31/95.
(d) The River City Broadcasting L.P. (RCB) column reflects the results of
operations for RCB for the year ended 12/31/95.
(e) To reflect the modification of the current acquisition documents
eliminating the Company's option to acquire WSYX-TV.
(f) To eliminate LMA fees from RCB.
(g) To eliminate LMA and license fees paid by RCB to KRRT and JJK.
(h) To eliminate management fees paid during 1995 by River City and record
additional corporate expenses as follows:
Corporate expenses on a pro forma basis........................... $9,236
Less: Corporate expenses recorded by Company...................... (5,374)
Less: Management fees paid during 1995 by RCB..................... (4,482)
-------
Pro forma adjustment.............................................. $ (620)
(i) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Paramount and KRRT, KSMO, WSTR,
and RCB. Tangible assets are to be depreciated over lives ranging from 5
to 29.5 years, calculated as follows:
Depreciation expense on acquired assets.......................... $14,589
Less: Depreciation expenses recorded by Paramount and KRRT,
KSMO, WSTR and RCB ........................................ (11,156)
-------
Pro forma adjustment............................................. $ 3,433
=======
<PAGE>
(j) To record amortization expense related to acquired intangible assets and
deferred financing costs, and eliminate amortization expense recorded by
Paramount and KRRT, KSMO, WSTR, and RCB. Intangible assets are to
amortized over lives ranging from 1 to 40 years, calculated as follows:
FCC License..................................................... $ 9,434
Affiliation Agreements........................................... 19,854
Goodwill......................................................... 5,963
Goodwill (LMA).................................................. 20,577
-------
55,828
Deferred financing costs......................................... 3,718
Less: Intangible amortization recorded by Paramount and KRRT, KSMO
WSTR, and RCB............................................... (18,410)
-------
Pro forma adjustment............................................. $41,136
========
(k) To record interest expense on acquisition financing of $875,956 for 12
months on the Senior Secured Credit Facilities for RCB and on acquisition
financing of $60,000, $12,882, $29,600 (in Credit Facility with commercial
bank at 8.4% for 8 months), respectively, for RCB, KSMO, WSTR, and KRRT.
To eliminate interest income on public debt proceeds of $60,000 and
$12,882 (with commercial bank at 5.7% for 4 months), for KSMO, WSTR, and
RCB, respectively, and to eliminate interest expense and interest income
recorded by KSMO, WSTR, Paramount, KRRT, and RCB.
<TABLE>
<CAPTION>
Interest Interest
Expense Income
------- ------
<S> <C> <C>
Interest expense and interest income adjustment as noted above.. $79,319) $ (1,947)
Less: Interest expense and interest income recorded by RCB, KSMO
and WSTR and Paramount and KRRT............................ (39,948) (1,726)
------ -------
Pro forma adjustment............................................ $39,371 $ (3,673)
======== =======
</TABLE>
(l) To record tax benefit of pro forma adjustments
(m) Weighted average shares outstanding on a Pro Forma Consummated/Probable
basis assumes that the $115 million of Series A Exchangeable Preferred
Stock was exchanged for 4,181,818 shares of $.01 par value Class A Common
Stock as of the IPO date (June 13, 1995).
<PAGE>
Consolidated Financial Statements
and Other Financial Information
Superior Communications Group, Inc.
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Superior Communications Group, Inc.
Consolidated Financial Statements
and Other Financial Information
Years ended December 31, 1995 and 1994
Contents
Report of Independent Auditors ..............................................1
Consolidated Financial Statements
Consolidated Balance Sheets .................................................2
Consolidated Statements of Operations .......................................4
Consolidated Statements of Stockholders' Equity .............................5
Consolidated Statements of Cash Flows .......................................6
Notes to Consolidated Financial Statements ..................................7
Other Financial Information
Report of Independent Auditors on Other Financial Information ..............17
Details of Consolidated Balance Sheet ......................................18
Details of Consolidated Statement of Operations.............................19
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Superior Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Superior
Communications Group, Inc. (the Company) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Superior
Communications Group, Inc. as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 23, 1996
<PAGE>
Superior Communications Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
----------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 272,218 $ 1,088,527
Accounts receivable, less allowance
for doubtful accounts of $200,000 and $150,000 2,800,531 2,608,609
Deferred film costs 2,028,478 2,474,170
Prepaid expenses and other 106,344 165,053
----------------------------------
Total current assets 5,207,571 6,336,359
Property and equipment:
Land 538,144 535,347
Building 723,186 723,186
Equipment and fixtures 8,731,303 8,482,329
----------------------------------
9,992,633 9,740,862
Accumulated depreciation (2,604,504) (1,618,864)
----------------------------------
7,388,129 8,121,998
Other assets:
Deferred film costs, net 3,131,340 3,533,338
Intangible assets, net 8,778,246 10,413,781
Other assets 4,408 20,156
----------------------------------
11,913,994 13,967,275
----------------------------------
Total assets $24,509,694 $28,425,632
==================================
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
December 31
1995 1994
--------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 1,805,532 $ 1,617,089
Current portion of film contract commitments 1,824,891 1,559,914
Accounts payable 365,615 257,770
Accrued expenses 362,315 416,379
Due to related parties 58,760 62,482
--------------------------------
Total current liabilities 4,417,113 3,913,634
Long-term debt 12,185,454 12,469,015
Film contract commitments 2,783,220 2,298,625
Due to related parties 35,000 100,000
Deferred income taxes 3,383,907 3,899,249
Deferred income 31,341 37,341
Stockholders' equity:
Preferred stock, $.001 par value, 20,000 shares authorized,
10,190.84 shares issued, 8,147.97 and 10,190.84 shares
outstanding at cost in 1995 and 1994. (Liquidation
preference at December 31, 1995 and 1994 of $10,043,731
and $11,323,291, respectively) 9,365,801 9,365,801
Class B common stock, $.001 par value, 100,000 shares
authorized, 10,190.84 shares issued, 9,169.405 and
10,190.84 shares outstanding in 1995 and 1994. 10 10
Class A common stock, $.001 par value, 10,000 shares
authorized, 1,870.7 shares issued and outstanding 2 2
Additional paid-in capital 36,210 16,053
Retained deficit (4,853,864) (3,674,098)
Treasury stock (2,874,500) -
--------------------------------
Total stockholders' equity 1,673,659 5,707,768
--------------------------------
Total liabilities and stockholders' equity $24,509,694 $28,425,632
================================
</TABLE>
See accompanying notes.
-3-
<PAGE>
Superior Communications Group, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
--------------------------------
<S> <C> <C>
Gross sales $15,837,243 $13,974,224
Less agency commissions 2,437,582 2,032,429
--------------------------------
Net sales 13,399,661 11,941,795
Operating expenses:
Sales and promotion 2,127,911 2,015,648
Broadcast operations 1,460,716 1,065,579
General and administrative 2,059,805 2,013,921
--------------------------------
5,648,432 5,095,148
--------------------------------
Operating income 7,751,229 6,846,647
Other expenses:
Amortization--deferred film costs and barter programming 4,899,093 4,382,047
Depreciation and amortization 2,725,654 3,064,864
Interest expense, net 1,578,898 1,324,130
Other expense, net 188,111 -
--------------------------------
9,391,756 8,771,041
--------------------------------
Loss before income tax benefit (1,640,527) (1,924,394)
Income tax benefit (460,761) (89,202)
--------------------------------
Net loss $ (1,179,766) $ (1,835,192)
================================
Undeclared preferred stock dividend requirement, inception to date
$ 1,895,761 $ 1,132,451
================================
</TABLE>
See accompanying notes.
-4-
<PAGE>
Superior Communications Group, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Partners' Preferred Class B Class A Paid-In
Capital Stock Common Stock Common Stock Capital
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $5,950,100 $ - $ - $ - $ -
Conversion of Superior Communication
of Kentucky, L.P. interest into
preferred and common stock of
Company, January 28, 1994 (5,950,100) 5,950,091 7 2 -
Equity contribution, January 28, 1994 - 3,099,997 3 - -
Conversion of stockholder note into
preferred and common stock of
Company, January 28, 1994 - 172,713 - - -
Contribution of net assets by former
general partner including cash of
$17,052, January 28, 1994 - 143,000 - - -
Vesting of 120.7 shares of common stock
from stock grant - - - - 16,053
Net loss - - - - -
-----------------------------------------------------------------------------
Balance at December 31, 1994 - 9,365,801 10 2 16,053
Purchase of 2,042.87 shares of preferred
stock and 1,021.435 of Class B
common stock by the Company - - - - -
Vesting of shares of common stock from
stock grant - - - - 20,157
Net loss - - - - -
-----------------------------------------------------------------------------
Balance at December 31, 1995 $ - $9,365,801 $10 $ 2 $ 36,210
===============================================================================
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Retained Treasury Total
Deficit Stock Equity
----------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1994 $(1,838,906) $ - $4,111,194
Conversion of Superior Communication
of Kentucky, L.P. interest into
preferred and common stock of
Company, January 28, 1994 - - -
Equity contribution, January 28, 1994 - - 3,100,000
Conversion of stockholder note into
preferred and common stock of Company,
January 28, 1994 - - 172,713
Contribution of net assets by former
general partner including cash of
$17,052, January 28, 1994 - - 143,000
Vesting of 120.7 shares of common stock
from stock grant - - 16,053
Net loss (1,835,192) - (1,835,192)
--------------------------------------------------
Balance at December 31, 1994 (3,674,098) - 5,707,768
Purchase of 2,042.87 shares of preferred
stock and 1,021.435 of Class B
common stock by the Company - (2,874,500) (2,874,500)
Vesting of shares of common stock from
stock grant - - 20,157
Net loss (1,179,766) - (1,179,766)
--------------------------------------------------
Balance at December 31, 1995 $(4,853,864) $(2,874,500) $1,673,659
==================================================
</TABLE>
See accompanying notes.
-5-
<PAGE>
<TABLE>
<CAPTION>
Superior Communications Group, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994
---------------------------------------
<S> <C> <C>
Operating activities
Net loss $(1,179,766) $(1,835,192)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Barter program revenue (1,565,295) (1,310,618)
Deferred income (6,000) (6,000)
Stock grant expense 20,157 16,053
Provision for bad debts 50,000 99,750
Amortization--deferred film costs and barter programming 4,899,093 4,382,047
Depreciation and amortization 2,725,654 3,064,864
Loss on disposal of assets 193,415 36,769
Deferred taxes (515,342) (118,720)
Changes in operating assets and liabilities:
Accounts receivable (241,922) (744,505)
Prepaid expenses and other 58,709 (50,585)
Accounts payable 107,845 (323,086)
Accrued expenses (54,064) 290,929
---------------------------------------
Net cash provided by operating activities 4,492,484 3,501,706
Investing activities
Capital expenditures (558,385) (240,453)
Other assets 15,748 -
Intangible assets acquired - (873,369)
Acquisition of Oklahoma City Broadcasting Company,
less cash acquired - (10,696,379)
---------------------------------------
Net cash used in investing activities (542,637) (11,810,201)
Financing activities
Proceeds from long-term debt 25,500 14,200,000
Payments on long-term debt (2,995,118) (6,865,178)
Payments on film contract commitments (1,727,816) (1,545,099)
Net activity on related party liability (68,722) 37,557
Proceeds from capital contribution - 3,117,052
---------------------------------------
Net cash (used) provided by financing activities (4,766,156) 8,944,332
---------------------------------------
Net (decrease) increase in cash and cash equivalents (816,309) 635,837
Cash and cash equivalents at beginning of year 1,088,527 452,690
---------------------------------------
Cash and cash equivalents at end of year $ 272,218 $ 1,088,527
=======================================
</TABLE>
See accompanying notes.
-6-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. Significant Accounting Policies
Description of Business
The consolidated financial statements of Superior Communications Group, Inc.
(SCGI) include the accounts of SCGI and its wholly owned subsidiaries, Superior
Communications of Kentucky, Inc. (SCKI) and Superior Communications of Oklahoma,
Inc. (SCOI), which are collectively referred to as the Company. All intercompany
balances have been eliminated. The Company owns and operates television
broadcasting stations in Lexington, Kentucky and Oklahoma City, Oklahoma.
Organization
The Company, previously known as Superior Communications of Kentucky, L.P. (the
Partnership), was incorporated in its current form on January 28, 1994
concurrent with the acquisition of SCOI (Note 2). Effective on January 28, 1994,
the former partners of the Partnership exchanged all of their partnership
interests for shares of preferred and common stock of the newly formed parent
company, SCGI, under a Security Purchase and Exchange Agreement (Exchange
Agreement) and the Partnership was then dissolved. Additionally, the former
corporate general partner of the Partnership was also dissolved and the
shareholders of the general partner exchanged certain operating assets with the
Company for preferred and common stock. Furthermore, under the Exchange
Agreement, SCGI then contributed the operating assets of the former partnership
to the newly formed SCKI in exchange for all of the outstanding common stock of
SCKI.
Operations and Credit Risk
The Company's accounts receivable are from the sale of advertising, primarily to
businesses which are local to the broadcast area or to national advertising
agencies. The Company performs credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are due within
30 days. Credit losses have been within management's expectations. The carrying
amount reported in the balance sheet for accounts receivable approximates its
fair value.
Cash and Cash Equivalents
The Company considers all demand deposits and short-term investments purchased
with a maturity of 90 days or less to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates its
fair value.
-7-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Deferred Film Costs and Film Contract Commitments
The Company has contracts with various film distributors from which films are
licensed for television transmission over various contract periods (generally
one to five years) and for a specified number of broadcasts. Net deferred film
costs represent the lower of unamortized cost or estimated net realizable value
of the film contracts available for use. Deferred film costs are amortized on
the straight-line method over the contract periods. Film contract commitments
represent the total obligations due under these contracts, which are generally
payable in equal installments over periods that are 12 to 18 months shorter than
the lives of the contracts, and do not bear interest.
The portion of the deferred film cost to be amortized within one year and after
one year is reported in the balance sheet as current and other assets,
respectively, and the payments under the film contract commitments due within
one year and after one year are similarly classified as current and long-term
liabilities, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial reporting
purposes is based on the straight-line method over estimated useful lives
ranging from 5 to 12 years for equipment and 15 years for buildings. Costs of
repairs and maintenance are charged to expense as incurred.
Intangible Assets
Intangible assets as reflected in Note 3 are being amortized on a straight-line
basis over their useful lives ranging from one to fifteen years.
Barter Transactions
Revenue from barter transactions (advertising provided in exchange for
programming or goods and services) is recognized as income when advertisements
are broadcast, and goods or services received are capitalized or charged to
operations when received or used. Included in the statements of operations is
broadcasting net revenue from barter transactions of $1,940,989 and $1,593,330
during 1995 and 1994, respectively, and station operating costs and expenses
from barter transactions of $1,871,077 and $1,632,184, respectively. As of
December 31, 1995 and 1994, the Company has recorded accrued liabilities for
deferred barter revenue of $86,586 and $149,434, respectively.
-8-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Deferred Income
Deferred income relates to prepaid rental income for use of SCKI's tower
facility. The amount is being recognized on a straight-line basis through 2001
(term of agreement).
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
Deferred income taxes recorded on the Company's consolidated balance sheets
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified or
restated to conform to the current year presentation.
2. Acquisition of Station
On January 28, 1994, SBI, a newly formed corporation and wholly owned subsidiary
of the Company, purchased all of the outstanding stock of Oklahoma City
Broadcasting Company (OCBC) for $10,973,241. The acquisition was accounted for
as a purchase transaction with the purchase price being allocated to the assets
and liabilities acquired based upon their fair market values at the date of
acquisition. In connection with the transaction, SBI also entered into a
noncompete agreement with the seller of OCBC valued at $1,500,000, for which a
note payable was issued to the seller (Note 4). The cost of the noncompete
agreement is being amortized over the five-year term of the agreement. The
acquisition was financed from the issuance of stock for $3,100,000 and from bank
debt in the amount of $7,873,241. Concurrent with the acquisition, SBI and OCBC
merged, forming SCOI.
-9-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
3. Intangible Assets
The components of intangible assets consist of the following as of December 31,
1995 and 1994:
1995 1994
---------------------------------
Advertising contracts acquired $ - $ 441,075
Loan origination costs and other 617,410 624,064
Organization and syndication costs 1,634,828 1,634,828
Covenant not-to-compete 2,500,000 2,500,000
FCC license and FOX affiliation agreement 4,269,819 4,391,223
Goodwill 3,546,186 3,546,186
---------------------------------
12,568,243 13,137,376
Less accumulated amortization (3,789,997) (2,723,595)
---------------------------------
Intangible assets, net $ 8,778,246 $10,413,781
==================================
4. Long-Term Debt
Long-term debt at December 31, 1995 consists of bank and seller debt as follows:
Bank Debt
On January 28, 1994, the Company entered into a senior secured term loan
agreement and revolving credit agreement (collectively the Credit Agreement)
with a bank in the amount of $12,700,000 and $2,000,000, respectively. The term
loan is due in quarterly installments through January 2000, and the revolving
credit agreement is due January 2000. The outstanding balance on the revolving
credit agreement was $1,500,000 at December 31, 1994, and no amounts were
outstanding at December 31, 1995. The Credit Agreement provides for interest at
the bank's Base Rate (8.5% at December 31, 1995) plus 1.75%, and is secured by
the stock of SCGI and its subsidiaries. Covenants contained in the Credit
Agreement limit capital expenditures, define required levels of earnings and
cash flows and limit additional indebtedness and film contract commitments.
The proceeds of these loans were utilized by the Company to finance the
acquisition of SCOI, and to repay amounts owed to a former bank under a term
note payable of $5,260,589.
-10-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt (continued)
Bank Debt (continued)
On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common
stock and 2,042.87 shares of preferred stock of the Company for $2,874,500. The
repurchase was financed through an additional term loan with a bank for
$2,900,000. The term loan is due in quarterly installments of $290,000 beginning
October 1997 through January 2000, plus interest at the bank's Base Rate plus
1.75%. A mandatory prepayment per the terms of the loan agreement was required
in 1995 and was applied to this loan. The outstanding balance on this term loan
was $2,610,000 at December 31, 1995.
Seller Debt
In connection with the acquisition of OCBC, the Company also incurred
indebtedness to the former owner of OCBC for $1,500,000. The note is secured by
a lien on SCOI's assets and is subordinated to that of the bank debt. The seller
debt bears interest at a rate of 7.5% and is payable in annual installments of
$300,000, plus interest, beginning January 28, 1995. The outstanding balance on
this note was $1,200,000 at December 31, 1995.
The following is a schedule of aggregate maturities of long-term debt as of
December 31, 1995:
1996 $ 1,805,532
1997 2,820,973
1998 3,990,045
1999 4,322,500
2000 1,051,936
--------------
$13,990,986
==============
Fair Value
The carrying amounts of the Company's borrowings under its bank and seller debt
arrangements approximate their fair value. The fair values of the Company's debt
are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing arrangements.
-11-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. Film Contract Commitments
The Company has acquired certain film rights under long-term film contract
commitments. These commitments are generally payable in equal installments over
periods that are twelve to eighteen months shorter than the lives of the related
film rights and do not bear interest. Annual payments required under these
commitments are as follows:
1996 $1,824,891
1997 1,514,859
1998 978,063
1999 287,637
2000 2,661
---------------
$4,608,111
===============
The values of the film rights acquired under these contracts are included as net
deferred film costs in the accompanying consolidated balance sheet and have the
following balances at December 31, 1995:
Deferred film costs $11,202,089
Less accumulated amortization (6,042,271)
----------------
5,159,818
Less current portion (2,028,478)
----------------
Deferred film costs, net $ 3,131,340
================
As discussed in Note 1, the Company enters into contracts with various film
distributors which allow limited showings of films and syndicated programs. At
December 31, 1995, the Company has entered into contracts totaling approximately
$1,063,943 for which the license period and program availability for telecasting
begins after December 31, 1995. These contracts are not recorded in the
accompanying consolidated balance sheet.
6. Due to Related Parties
Amounts due to related parties consist of fees charged by shareholders of the
Company in connection with the acquisition of the Partnership (Note 1) in
November 1992 and includes accrued interest at 7.75%.
-12-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
1995 1994
-----------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 76,456 $ 56,178
Net operating loss carryforwards 351,981 181,081
Other - 23,200
-----------------------------------
Total deferred tax assets 428,437 260,459
Deferred tax liabilities:
Properties and broadcast rights 2,500,911 2,234,846
Intangible assets 1,311,433 1,924,862
-----------------------------------
Total deferred tax liabilities 3,812,344 4,159,708
-----------------------------------
Net deferred tax liabilities $3,383,907 $3,899,249
=====================================
Significant components of the provision for income tax expense (benefit) for the
year ended December 31 are as follows:
1995 1994
----------------------------------
Current:
State $ 54,581 $ 29,518
Deferred:
Federal (461,231) (127,337)
State (54,111) 8,617
----------------------------------
Total deferred (515,342) (118,720)
----------------------------------
$(460,761) $ (89,202)
===================================
The Company's effective income tax rates differ from federal statutory income
tax rates due primarily to the amortization of goodwill and state income taxes.
Additionally, in 1994 the Company recorded deferred income tax expense of
$507,673 upon the contribution of the partnership interests and general partner
operating assets (Note 1).
At December 31, 1995, the Company has federal and state net operating loss
carryforwards of $666,000 and $2,090,000, respectively, which begin to expire in
2009.
-13-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
8. Stockholders' Equity
As discussed in Note 1, the Company reorganized effective January 28, 1994 under
the terms of the Exchange Agreement. Pursuant to the terms of the agreement the
former owners of the Partnership were given 7,090.84 shares of preferred stock,
7,090.84 shares of Class B common stock and 1,750 shares of Class A common stock
of the Company. Also on January 28, 1994, certain stockholders contributed an
additional $3,100,000 in exchange for 3,100 shares each of preferred stock and
Class B common stock of the Company.
On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common
stock and 2,042.87 shares of preferred stock of the Company for $2,874,500.
The preferred stock, which has a stated liquidation preference of $1,000 a
share, has no voting rights. Dividends accumulate at 12% based upon the stock's
stated liquidation value and are payable at the discretion of the Board of
Directors and subject to restriction within the Credit Agreement. Unless all
accumulated dividends on the preferred stock have been paid, no dividend may be
paid, and no other distributions may be made upon the common stock of the
Company. Upon liquidation of the Company, any proceeds to be distributed are
first utilized to pay the preferred stockholders at an amount equal to $1,000
per share (liquidation preference) plus any accrued but unpaid dividends,
inception to date ($1,895,761 at December 31, 1995). If amounts remain available
for distribution in excess of the preferred liquidation, those amounts are to be
allocated 80% to the Class B common stockholders and 20% to the Class A common
stockholders. The Class A common stock is subject to restriction on sale,
transfer and also contain forfeiture provisions.
9. Stock Grants
The Company has granted 120.7 shares of Class A common stock to an officer of
the Company. The Class A common stock has significant restrictions including
forfeiture obligations if the officer were no longer an employee of the Company.
Pursuant to the terms of the stock grant agreement, all shares will vest upon
the completion of the sale of the Company's shares of outstanding stock as
discussed in Note 11. Accordingly, the Company recorded a charge to operations
of $20,157 in 1995 ($16,053 in 1994) to reflect the vesting of the remaining
stock granted.
-14-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
10. Operating Leases and Other Commitments
The Company has entered into various noncancelable lease arrangements for office
space rental, ratings and research services, broadcast accounting software and
other licensing agreements. Total expense charged to operations under these
agreements was approximately $283,000 in 1995. The minimum future payments under
these agreements are as follows:
1996 $ 252,088
1997 267,059
1998 281,039
1999 150,247
2000 139,323
--------------
$1,089,756
==============
11. Subsequent Event
On March 4, 1996, the shareholders of the Company entered into an agreement with
an unrelated entity to sell all of the Company's outstanding shares of preferred
and common stock. Pursuant to the terms of the stock purchase agreement, the
buyer will cause the Company to pay in full all of the outstanding debt of the
Company plus accrued interest and prepayment penalties. The balance of the
proceeds will be distributed to the selling shareholders.
12. Supplemental Cash Flow Disclosures
The Company entered into the following noncash transactions:
o As discussed in Note 4, on February 13, 1995, the Company paid
$2,874,500 for stock placed in treasury, which was financed through the
issuance of long-term debt.
o Deferred film costs in the amount of $2,548,375 and $1,820,606 were
recorded through the assumption of film contract commitments in the
same amounts during 1995 and 1994, respectively.
o The Company recorded a $1,500,000 noncompete agreement from the seller
of KOCB in exchange for the issuance of a note payable to the seller in
the same amount during 1994.
o The Company received $125,948 of net assets in exchange for stock in
connection with the January 28, 1994 restructuring.
-15-
<PAGE>
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
12. Supplemental Cash Flow Disclosures (continued)
Additionally, cash paid for interest and income taxes was as follows:
1995 1994
---------------------------------
Interest $1,523,785 $1,262,553
=================================
Income taxes $ 16,448 $ 50,000
=================================
-16-
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
FINANCIAL STATEMENTS AS OF AUGUST 3, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
AND AS OF DECEMBER 31, 1994 TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheets of Paramount Stations Group of
Kerville, Inc. (a Virginia corporation) as of August 3, 1995 and December 31,
1994, and the related statements of operations, stockholders' equity and cash
flows for the period from January 1, 1995 through August 3, 1995, and the year
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paramount Stations Group of
Kerville, Inc. as of August 3, 1995 and December 31, 1994, and the results of
its operations and its cash flows for the period from January 1, 1995 through
August 3, 1995, and the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Baltimore, Maryland,
April 26, 1996
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
BALANCE SHEETS
--------------
AS OF AUGUST 3, 1995 AND DECEMBER 31, 1994
------------------------------------------
<TABLE>
<CAPTION>
August 3, December 31,
1995 1994
------------- --------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 1,122 $ 400
Accounts receivable, net of allowance for doubtful
accounts of $190,610 and $148,755, respectively 2,543,148 2,961,824
Current portion of program contract costs 1,144,236 1,130,513
Deferred barter costs - 41,274
Other current assets 340,302 123,132
-------------- --------------
Total current assets 4,028,808 4,257,143
-------------- --------------
Property and equipment, net 825,967 986,880
Program contract costs, noncurrent portion 504,701 1,430,927
Due from affiliate 4,795,220 2,567,935
Goodwill, net 15,305,080 15,558,387
Other assets - 5,092
-------------- --------------
Total Assets $ 25,459,776 $ 24,806,364
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,869 $ 189,547
Accrued liabilities 48,308 385,512
Current portion of program contracts payable 1,202,739 1,961,803
Deferred barter revenues - 13,674
-------------- --------------
Total current liabilities 1,252,916 2,550,536
LONG-TERM LIABILITIES:
Program contracts payable, noncurrent portion 932,591 1,576,134
-------------- --------------
Total Liabilities 2,185,507 4,126,670
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, Class A, $1 par value; 1,000 shares
authorized, 800 shares issued and outstanding 800 800
Common stock, Class B, $1 par value; 8,800 shares
authorized; 7,040 issued and outstanding 7,040 7,040
Additional paid-in capital 16,954,952 15,879,113
Retained earnings 6,311,477 4,792,741
-------------- --------------
Total Stockholders' Equity 23,274,269 20,679,694
-------------- --------------
Total Liabilities and Stockholders' Equity $ 25,459,776 $ 24,806,364
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
----------------------------------------------------------
AND THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
<TABLE>
<CAPTION>
August 3, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES:
Advertising revenues, net of agency commissions
of $1,159,012 and $1,950,484, respectively $ 6,665,863 $ 11,499,302
Revenues realized from station barter arrangements 900,743 1,300,904
-------------- --------------
Total revenue 7,566,606 12,800,206
-------------- --------------
OPERATING EXPENSES:
Programming 288,704 427,316
Selling 1,459,894 2,700,025
Administration 497,671 1,003,846
Promotion 247,686 468,837
Engineering 296,677 571,813
Amortization of program contract rights 921,053 1,912,677
Depreciation of property and equipment 194,337 379,232
Amortization of intangible assets 253,307 426,495
Barter expense 875,950 1,255,799
-------------- --------------
Total operating expenses 5,035,279 9,146,040
-------------- --------------
Broadcast operating income 2,531,327 3,654,166
OTHER INCOME 63,248 2,884
-------------- --------------
Income before taxes 2,594,575 3,657,050
INCOME TAX PROVISION 1,075,839 1,541,215
-------------- --------------
Net income $ 1,518,736 $ 2,115,835
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 AND THE YEAR ENDED DECEMBER 31, 1994
Common Stock Common Stock
Class A Class B Additional Total
------------------- ----------------- Paid-In Retained Stockholders'
Shares Value Shares Value Capital Earnings Equity
------- ---------- ------- ------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 800 $ 800 7,040 $ 7,040 $ 14,337,898 $ 2,676,906 $ 17,022,644
Forgiveness of income taxes by Parent - - - - 1,541,215 - 1,541,215
Net income - - - - - 2,115,835 2,115,835
------ --------- ------ ------- ----------- ------------ -------------
BALANCE, December 31, 1994 800 800 7,040 7,040 15,879,113 4,792,741 20,679,694
Forgiveness of income taxes by Parent - - - - 1,075,839 - 1,075,839
Net income - - - - - 1,518,736 1,518,736
------ --------- ------ ------- ------------ ------------ -------------
BALANCE, August 3, 1995 800 $ 800 7,040 $ 7,040 $ 16,954,952 $ 6,311,477 $ 23,274,269
====== ========= ====== ======= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
----------------------------------------------------------
AND THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
<TABLE>
<CAPTION>
August 3, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,518,736 $ 2,115,835
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of program contract rights 921,053 1,912,677
Depreciation of property and equipment 194,337 379,232
Amortization of goodwill 253,307 426,495
Forgiveness of income tax expense by Parent 1,075,839 1,541,215
Changes in assets and liabilities:
Increase in due from affiliate (2,227,285) (2,567,935)
Decrease (increase) in accounts receivable 418,676 (567,548)
Decrease in deferred charges 41,274 32,141
(Increase) decrease in other current assets (217,170) 62,407
Decrease in other assets 5,092 -
(Decrease) increase in accounts payable (187,678) 119,639
Decrease in due to related parties - (1,553,444)
(Decrease) increase in accrued liabilities (337,204) 177,183
Decrease in deferred barter revenue (13,674) (50,660)
Film rights payments (1,411,157) (1,975,061)
-------------- --------------
Net cash provided by operating activities 34,146 52,176
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (33,424) (52,176)
-------------- --------------
Net increase in cash 722 -
CASH, beginning of year 400 400
-------------- --------------
CASH, end of year $ 1,122 $ 400
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Film contracts acquired $ 8,550 $ 981,351
============ ============
Film contract liability additions $ 8,550 $ 981,351
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AUGUST 3, 1995 AND DECEMBER 31, 1994
------------------------------------
1. ORGANIZATION:
------------
Paramount Stations Group of Kerville, Inc. (the Company) is a wholly-owned
subsidiary of Paramount Stations Group Holding Company, Inc. (the Parent). The
Company was organized under the laws of Virginia on August 21, 1984. The Company
is a television broadcaster serving the San Antonio, Texas area through station
KRRT on Channel 35. The Company was affiliated with UPN and FOX during 1995 and
1994, respectively.
During 1994, the Company entered into an agreement to sell substantially all of
its assets to KRRT, Inc. This sale was consummated on August 4, 1995.
Accordingly, the accompanying financial statements for 1995 are presented as of
August 3, 1995 (Note 9).
2. SUMMARY OF ACCOUNTING POLICIES:
------------------------------
Cash
- - ----
All cash from customers is deposited directly into a lock box held by the
Company's Parent (Note 4).
Revenue Recognition
- - -------------------
Revenue from the sale of air time to advertisers is recognized when the
advertisement is broadcast.
Program Contract Costs
- - ----------------------
The Company has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
three to seven years. Program contract costs are stated at the lower of
amortized cost or estimated net realizable value. Broadcast contract costs and
the related liabilities are recorded at the contract value when the license
period begins and the program is available for use. Program contract costs are
amortized using the greater of the straight-line by months over the contract
term or straight-line over the number of showings on an aggregate basis.
Program contract costs expected to be used in the succeeding year and program
contract rights due within one year are classified as current assets and current
liabilities, respectively.
Property and Equipment
- - ----------------------
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets on a straight-line basis. Major renewals and
betterments are capitalized and ordinary repairs and maintenance are charged to
expense in the period incurred.
-2-
<PAGE>
Goodwill
- - --------
In a series of transactions completed in 1991, the Company's Parent purchased
all of the outstanding stock of TVX, Inc., who owned and operated several
television stations, including the Company. Goodwill was allocated to each of
the stations based on specific identification and allocation of unidentified
goodwill based on cash flow multiples used to calculate the purchase price of
each station. Management monitors the financial performance of the station and
continually evaluates the realizability of goodwill and the existence of any
impairment to its recoverability.
Goodwill in the amount of $17,370,000 was allocated to the Company and is being
amortized over 40 years using the straight-line method. At August 3, 1995 and
December 31, 1994, accumulated amortization of goodwill aggregated $2,064,920
and $1,811,613, respectively.
Barter Transactions
- - -------------------
Certain program contract rights provide for the exchange of advertising air time
in lieu of cash payments for the programming. As the program is aired, equal
amounts of revenue and program amortization expense are recorded, at estimated
fair market value, in results of operations.
In addition, the Company provides advertising air time to certain customers in
exchange for merchandise or services. The estimated fair value of the
merchandise or services to be received is recorded as an asset, and the
corresponding obligation to broadcast advertising is recorded as deferred
revenue. Services and other assets are charged to expense as they are used or
consumed. Deferred revenue is recognized in operations as the related
advertising is broadcast.
3. INCOME TAXES:
-------------
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company adopted the new accounting and disclosure rules effective
December 31, 1994.
The provision for income taxes consists of the following:
August 3, December 31,
1995 1994
-------------- --------------
Federal $ 920,164 $ 1,318,150
State 155,675 223,065
-------------- --------------
$ 1,075,839 $ 1,541,215
============= =============
-3-
<PAGE>
The following is a reconciliation of the statutory federal income taxes to the
recorded provision:
August 3, December 31,
1995 1994
------------ -------------
Statutory federal income taxes $ 882,156 $ 1,243,397
Adjustments:
State tax, net of federal effect 102,745 147,223
Goodwill amortization 86,125 145,008
Others 4,813 5,587
------------- -------------
Provision for income taxes $ 1,075,839 $ 1,541,215
============ ============
The Company's Parent files a consolidated federal tax return, and separate state
tax returns for each of its subsidiaries. It is the Parent's policy not to
allocate income tax expense to its subsidiaries. The accompanying financial
statements have been prepared in accordance with the separate return method of
FASB 109, whereby the allocation of tax expense is based on what the
subsidiary's current and deferred tax expense would have been had the subsidiary
filed a federal income tax return outside its consolidated group. The difference
between the computed tax expense and the amounts paid to the Parent for taxes is
recorded as additional paid-in-capital. Under this method, the Company has no
deferred tax assets or liabilities because those amounts are considered paid to
or received from the Parent. The Company had no alternative minimum tax credit
carryforwards as of August 3, 1995.
The temporary differences between book basis and tax basis generated by the
Company and recorded on the Parent's financial statements are as follows:
<TABLE>
<CAPTION>
August 3, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
Program contract net realizable value adjustments $ 159,819 $ 12,428
Depreciation and amortization (33,318) 5,550
Bad debt reserves 16,362 24,047
-------------- --------------
$ 142,863 $ 42,025
============= =============
</TABLE>
4. RELATED PARTY TRANSACTIONS:
--------------------------
The Parent pays the income taxes of the Company. It is the Parent's policy not
to charge this expense to its subsidiaries. Therefore, the provision for income
tax expense is recorded as additional paid-in capital in the accompanying
balance sheets. The Parent also provides and receives short-term cash advances
to and from the Company through a central cash management system. No interest is
charged or received for these advances.
-4-
<PAGE>
5. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life August 3, December 31,
(Years) 1995 1994
------------- ---------------- ----------
<S> <C> <C> <C>
Studio equipment 5 $ 2,931,607 $ 2,898,183
Leasehold improvements 4-11 358,472 358,472
Furniture and fixtures 5 59,671 59,671
Autos and trucks 5 32,700 32,700
-------------- --------------
3,382,450 3,349,026
Less- Accumulated depreciation 2,556,483 2,362,146
-------------- --------------
$ 825,967 $ 986,880
</TABLE>
6. PROGRAM CONTRACTS:
-----------------
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of August 3, 1995 and
December 31, 1994:
August 3, December 31,
1995 1994
-------------- --------------
Aggregate cost $ 16,469,625 $ 16,461,076
Less- Accumulated amortization 14,820,688 13,899,636
-------------- --------------
1,648,937 2,561,440
Less- Current portion 1,144,236 1,130,513
-------------- --------------
$ 504,701 $ 1,430,927
============= =============
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,135,330 as of August 3, 1995. Future payments, by year, for
program contract rights payable as of August 3, 1995, are as follows:
1995 $ 580,830
1996 941,200
1997 459,900
1998 97,300
1999 30,500
Thereafter 25,600
-------------
$ 2,135,330
=============
The fair value of program contracts payable is the present value of the future
obligations based on the current rates available to the Company for debt of
similar maturity. The carrying amount and the fair value of program contracts
payable at August 3, 1995, were $2,135,300 and $1,521,665, respectively.
-5-
<PAGE>
7. RETIREMENT SAVINGS PLAN:
-----------------------
The Company participates in the Parent company's retirement savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees of the Company who meet minimum age or service requirements and allows
participants to defer a portion of their annual compensation on a pre-tax basis.
Contributions from the Company are made on a monthly basis in an amount equal to
50% of the participating employee contributions, to the extent such
contributions do not exceed 6% of the employees' eligible compensation during
the month.
8. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Broadcast rights acquired under license agreements are recorded as an asset and
a corresponding liability at the inception of the license period. In addition to
these rights payable at August 3, 1995, the Company had $1,060,900 of
commitments to acquire broadcast rights for which the license period has not
commenced and, accordingly, for which no liability has been recorded. Future
payments arising from such commitments outstanding at August 3, 1995, are as
follows:
1995 $ 29,400
1996 140,600
1997 214,200
1998 319,500
1999 273,200
Thereafter 84,000
-------------
$ 1,060,900
=============
The Company has entered into operating leases for building space and equipment.
Rental expense was $76,700 and $129,268 for the period from January 1, 1995
through August 3, 1995 and year ended December 31, 1994, respectively. As of
August 3, 1995, future minimum lease payments under these operating leases were
as follows:
1995 $ 43,569
1996 79,996
1997 9,000
1998 9,000
1999 9,000
Thereafter 491,250
-------------
$ 641,815
=============
The Company has also entered into several contracts for data processing
equipment and service. Rental expense was $36,425 and $61,341 for the period
from January 1, 1995 through August 3, 1995 and the year ended December 31,
1994, respectively. As of August 3, 1995, future minimum payments under these
contracts are as follows:
1995 $ 25,565
1996 61,248
1997 59,858
-------------
$ 146,671
=============
-6-
<PAGE>
Litigation
- - ----------
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Companies' financial position, results of operations or cash flows.
9. SALES AGREEMENT:
----------------
During 1994, the Company entered into an agreement with KRRT, Inc., to sell
virtually all tangible and intangible assets of the Company for $30,000,000.
This sale was completed on August 4, 1995.
-7-
<PAGE>
KRRT, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND
FOR THE PERIOD FROM JULY 25, 1995
THROUGH DECEMBER 31, 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheet of KRRT, Inc. (a Texas
corporation) as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the period from July 25, 1995 through
December 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KRRT, Inc. as of December 31,
1995, and the results of its operations and its cash flows for the period from
July 25, 1995 through December 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Baltimore, Maryland,
May 7, 1995
<PAGE>
KRRT, INC.
----------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1995
-----------------------
ASSETS
------
CURRENT ASSETS:
Cash $ 8,459
Short-term investments 500,000
Current portion of program contracts 1,451,959
Other receivable 61,666
------------
Total current assets 2,022,084
Property and equipment, net 5,367,799
Noncurrent portion of program contracts 869,006
FCC license, net of accumulated amortization of $397,075 23,427,401
Goodwill, net of accumulated amortization of $6,095 579,067
Other assets, net 648,359
------------
Total assets $ 32,913,716
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank overdraft $ 7,108
Accrued liabilities 2,833
LMA advance 132,990
Current portion of program contracts payable 1,451,959
Current portion of long-term debt 2,000,000
Accrued interest expense 152,578
------------
Total current liabilities 3,747,468
LONG-TERM LIABILITIES:
Noncurrent portion of program contracts 869,006
Note payable 500,000
Long-term debt, net of current portion 19,000,000
------------
Total liabilities 24,116,474
------------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000 shares authorized, issued
and outstanding -
Additional paid-in capital 10,001,000
Accumulated deficit (1,203,758)
------------
Total stockholders' equity 8,797,242
------------
Total liabilities and stockholders' equity $ 32,913,716
============
The accompanying notes are an integral part of this balance sheet.
<PAGE>
KRRT, INC.
----------
STATEMENT OF OPERATIONS
-----------------------
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
-----------------------------------------------------------
REVENUES $ 1,437,039
--------------
OPERATING EXPENSES:
Management fees 277,775
Rating services 193,100
Legal and professional fees 159,126
Depreciation expense 328,125
Amortization expense 492,811
Film amortization expenses 69,674
Miscellaneous expenses 251,748
--------------
Total operating expenses 1,772,359
--------------
Operating loss (335,320)
OTHER INCOME (EXPENSE):
Interest income 11,556
Interest expense (879,994)
--------------
Net loss before benefit for income taxes (1,203,758)
BENEFIT FOR INCOME TAXES -
--------------
Net loss $ (1,203,758)
==============
The accompanying notes are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
KRRT, INC.
----------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
-----------------------------------------------------------
Common Stock Additional Total
------------------------------------- Paid-In Accumulated Stockholders'
Shares Value Capital Deficit Equity
------ ----- ------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, July 25,
1995 - $ - $ - $ - $ -
Capital contributions 1,000 - 10,001,000 - 10,001,000
Net loss - - - (1,203,758) (1,203,758)
-------------- -------------- -------------- -------------- --------------
BALANCE, December 31,
1995 1,000 $ - $ 10,001,000 $ (1,203,758) $ 8,797,242
============== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
KRRT, INC.
----------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
-----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,203,758)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation expense 328,125
Amortization expense 492,811
Film amortization expense 69,674
Changes in assets and liabilities:
Increase in short-term investments (500,000)
Increase in other receivables (61,666)
Increase in bank overdraft 7,108
Increase in accrued liabilities 2,833
Increase in LMA advance 132,990
Increase in accrued interest expense 152,578
Program payments (69,674)
------------
Net cash used in operating activities (648,979)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets acquired, net of debt financing of $21,000,000 (9,843,562)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 500,000
Contributed capital 10,001,000
------------
Net cash flows provided by financing activities 10,501,000
------------
Net increase in cash 8,459
CASH, beginning of period -
------------
CASH, end of period $ 8,459
============
SUPPLEMENTAL CASHFLOW DISCLOSURE:
Cash paid for interest $ 727,416
============
The accompanying notes are an integral part of this statement.
<PAGE>
KRRT, INC.
----------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
1. ORGANIZATION
KRRT, Inc., a Texas corporation (the Company) was organized and incorporated on
July 25, 1995 and on August 4, 1995, purchased the license and non-license
assets of Paramount Stations Group of Kerville, Inc., the owner and operator of
television KRRT-TV, San Antonio, Texas. The Company is a wholly-owned subsidiary
of JJK Broadcasting, Inc. (the "Parent"). The Company simultaneously entered
into a local marketing agreement (LMA) with River City Broadcasting LP (River
City) (Note 2). The Company is a television broadcaster serving the San Antonio
area through station KRRT on Channel 35, a UPN affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- - -------------------
The Company's primary source of revenue is monthly fees received in accordance
with the LMA with River City. Under the terms of this agreement, the Company
receives monthly fees and is reimbursed for all operating expenses, scheduled
principal and interest payments on the long-term debt discussed in Note 8 and
scheduled program rights payments in exchange for the right to provide
programming and general advertising receivables.
Revenue is recorded as payments are scheduled to be received.
Short-Term Investments
- - ----------------------
Short-term investments represent repurchase agreements which mature within three
months. This investment is stated at cost plus accrued income which approximates
market value.
Property and Equipment
- - ----------------------
Property and equipment are stated at cost. The Company depreciates and amortizes
property and equipment over the estimated useful lives of the assets, generally
using the straight-line method over six to forty years.
Intangible Assets
- - -----------------
Intangible assets include value attributable to licenses issued by the Federal
Communications Commission (FCC) and goodwill representing the excess of the cost
over the fair market value of the assets purchased and the liabilities assumed.
These assets are amortized using the straight-line method over twenty-five years
and forty years, respectively. The Company monitors the financial performance
and continually evaluates the realizability of goodwill and the existence of any
impairment to its recoverability based on the projected future cash flows.
-2-
<PAGE>
Program Contract Rights
- - -----------------------
The station has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
one to seven years. An asset and liability are booked equal to the liability
assumed on the purchase date. The asset is recorded at its net realizable value
based on expected future revenues. Accordingly, given that the Company's future
revenues are based on program payments (Note 2), amortization is recorded in
amounts equal to program payments as they are scheduled to be made.
Use of Estimates
- - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue, expenses, gains
and losses during the reporting periods. Actual results could differ from these
estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995:
Studio equipment $ 2,416,651
Transmitting equipment 1,423,283
Office equipment 139,337
Furniture and fixtures 162,894
Vehicles 31,482
Buildings 111,574
Leasehold improvements 64,534
Towers 1,204,827
Tools and test equipment 69,828
Spare parts 71,514
--------------
5,695,924
Less: Accumulated depreciation and amortization (328,125)
---------------
Property and equipment, net $ 5,367,799
===============
4. ACQUISITION
In August 1995, the Company acquired substantially all of the assets of
Paramount Stations Group of Kerville, Inc. for $30 million. This acquisition was
accounted for as a purchase under Accounting Principles Board Opinion 16,
whereby the purchase price was allocated to property, FCC license and goodwill
for $5.7 million, $23.8 million and $.5 million, respectively, based upon an
independent appraisal.
-3-
<PAGE>
5. OTHER ASSETS
Other assets consist of the following at December 31, 1995:
Amortization
Period
------
Loan origination fee 5 years $ 420,000
Organization costs 5 years 318,000
--------------
738,000
Less: accumulated amortization (89,641)
--------------
Other assets, net $ 648,359
==============
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into operating leases for building space and equipment.
Rental expense was $76,913 for the period from July 25, 1995 through December
31, 1995. As of December 31, 1995, future minimum lease payments under these
operating leases were as follows:
1996 $ 133,864
1997 61,478
1998 45,000
1999 45,000
2000 45,000
Thereafter 482,250
--------------
$ 812,592
==============
The Company has also entered into several contracts for data processing
equipment and service. Rental expense was $240,030 for the period from July 25,
1995 through December 31, 1995. As of December 31, 1995, future minimum payments
under these contracts are as follows:
1996 $ 592,443
1997 581,929
--------------
$ 1,174,372
=============
Litigation
- - ----------
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position, results of operations or net cash flows.
7. INCOME TAXES
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
-4-
<PAGE>
The following is a reconciliation of the statutory federal income taxes to the
recorded provision:
December 31,
1995
-------------
Statutory federal income taxes $ (409,278)
Adjustments:
State income taxes, net of federal effect (40,706)
Valuation allowance 449,984
-------------
(Benefit) for income taxes $ -
=============
Temporary differences between the financial reporting carrying amounts and tax
basis of assets and liabilities give rise to deferred taxes. The principal
sources of temporary differences and their effects on the provision for deferred
income taxes are as follows:
December 31,
1995
-------------
Depreciation and amortization $ 126,154
Valuation allowance (126,154)
--------------
Deferred income tax provision $ -
=============
Total deferred tax assets and deferred tax liabilities as of December 31, 1995,
and the sources of the difference between financial accounting and tax bases of
the Company's assets and liabilities which give rise to the deferred tax assets
and deferred tax liabilities and the tax effects of each are as follows:
December 31,
1995
-------------
Deferred tax assets:
Depreciation and amortization $ 126,154
Valuation allowance (126,154)
--------------
$ -
=============
During the year ended December 31, 1995, the Company recorded a full valuation
allowance on the deferred tax assets to reduce the total to an amount that
management believes will ultimately be realized. Realization of deferred tax
assets is dependent upon sufficient future total income during the period that
temporary differences and carryforwards are expected to be available to reduce
taxable income.
8. LONG-TERM DEBT
In connection with the acquisition of the Station, KRRT, Inc. entered into a
Bank Credit Agreement with a principal of $21,000,000 and interest at LIBOR plus
2.5%. Payments are scheduled to begin
-5-
<PAGE>
on January 31, 1996. The debt is secured by all the assets of KRRT, Inc.,
including their rights under the LMA agreement and the assets of their Parent.
Annual maturities of long-term debt as of December 31, 1995, are as follows:
1996 $ 2,000,000
1997 4,000,000
1998 5,000,000
1999 5,800,000
2000 4,200,000
-------------
$ 21,000,000
=============
The carrying amount the Company's long-term debt approximates Fair value. The
Fair value was determined by reference to quoted values obtained from the
lender.
9. RELATED PARTY TRANSACTIONS
The Company's Parent receives a management fee equal to the portion of the LMA
fees designated as management fees for management services provided. During the
period from July 25, 1995 through December 31, 1995, the Company paid $277,775
to their Parent.
During 1995, the Parent contributed $10,001,000 to the Company to partially
finance the acquisition of the Station from Paramount Stations Group of
Kerville, Inc. (Note 4).
In connection with the financing of the acquisition, the Parent contributed
$500,000 to satisfy a covenant with the Bank of Montreal. This $500,000 is
recorded as a long-term note payable.
10. PROGRAM CONTRACTS
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of December 31, 1995:
December 31,
1995
-------------
Aggregate cost $ 2,390,639
Less- Accumulated amortization 69,674
-------------
2,320,965
Less- Current portion 1,451,959
-------------
$ 869,006
=============
-6-
<PAGE>
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,320,965 as of December 31, 1995, respectively. Future payments, by
year, for program contract rights payable as of December 31, 1995, are as
follows:
1996 $ 1,521,663
1997 525,399
1998 162,764
1999 77,007
Thereafter 34,132
-------------
$ 2,320,965
=============
The Fair value of film contracts payable is the present value of the future
obligations based on the current rates available to the Company for debt of
similar maturity. The carrying amount and fair value of program rights, payable
at December 31, 1995, were 2,320,965 and 1,653,975 respectively.
11. SUBSEQUENT EVENT
In April 1996, Sinclair Broadcast Group, Inc. (SBG) entered into an asset
purchase agreement with the Company whereby the Company has agreed to sell the
non-license assets for approximately $29.6 million. The Company estimates the
transaction will be consummated in May 1996.
-7-
<PAGE>
Kansas City TV 62
Limited Partnership
Financial Statements
December 31, 1995
<PAGE>
Report of Independent Accountants
March 22, 1996
To the Partners of Kansas City TV 62 Limited Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of Kansas City TV 62 Limited
Partnership at December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership'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.
Price Waterhouse LLP
<PAGE>
Kansas City TV 62 Limited Partnership
Balance Sheet
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 590 $ 978
Accounts receivable, less allowance for doubtful accounts
of $236 and $122 in 1995 and in 1994 3,953 3,052
Broadcast rights 3,380 2,864
Prepaid expenses 21 16
----- -----
Total current assets 7,944 6,910
Property and equipment - net 734 1,305
Broadcast rights 3,286 3,305
Goodwill and other intangible assets 3,817 4,027
----- -----
$ 15,781 $ 15,547
====== ======
Liabilities and Partners' Capital
Current liabilities:
Current portion of long-term debt $ 6,998 $ 338
Subordinated note payable to Seller 7,816 -
Accounts payable and accrued expenses 1,578 1,714
Interest payable 733 1,943
Due to related parties - 40
Broadcast rights payable 4,020 3,837
----- -----
Total current liabilities 21,145 7,872
Broadcast rights payable 3,107 3,569
Long-term debt - 9,273
Subordinated note payable to Seller 921 7,730
Partners' capital (9,392) (12,897)
Commitments and contingencies (Note 8) ------ ------
$ 15,781 $ 15,547
======== ========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
Kansas City TV 62 Limited Partnership
Statement of Operations
- - -------------------------------------------------------------------------------
Year ended
December 31,
1995 1994
(in thousands)
Revenues - net of agency and national
representative commissions $ 17,484 $ 14,052
Costs and expenses:
Programming, production and engineering 3,347 4,533
Amortization of broadcast rights 4,007 4,581
Sales, promotion and marketing 2,476 2,716
General and administrative 1,898 1,834
Depreciation and amortization 842 805
Interest expense, net 2,039 1,983
Other income (630) -
------------ ------------
Net income (loss) $ 3,505 $ (2,400)
=========== ===========
The accompanying notes are an integral part of
these financial statements.
<PAGE>
Kansas City TV 62 Limited Partnership
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
1995 1994
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,505 $ (2,400)
Adjustments to reconcile net income (loss) to net cash
provided (used) for operating activities:
Depreciation 632 595
Amortization of goodwill and other intangible assets 210 210
Amortization of broadcast rights, net of barter 1,206 2,122
Accretion of subordinated debt principal 210 197
Gain on forgiveness of debt (398) -
Increase in accounts receivable (901) (655)
Increase in prepaid expenses (5) (6)
Decrease in accounts payable and accrued expenses 262 (396)
(Decrease) increase in interest payable (413) 1,806
Decrease in due to related parties (40) (236)
Decrease in broadcast rights payable, net of barter (1,982) (1,745)
------------ ------------
Net cash provided (used) for operating activities 2,286 (508)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (61) (35)
------------ ------------
Cash flows from financing activities:
Repayment of long-term debt (2,613) -
Partner's contribution of capital - 1,400
------------ -----------
Net cash (used) provided by financing activities (2,613) 1,400
------------ ----------
Net (decrease) increase in cash (388) 857
Cash and cash equivalents at beginning of year 978 121
------------ ----------
Cash and cash equivalents at end of year $ 590 $ 978
============ ===========
Supplemental schedule of noncash activities:
Film contracts acquired $ 4,055 $ 2,834
=========== ===========
Film contract liability additions $ 4,055 $ 2,834
=========== ===========
Capitalized subordinated debt interest $ 797 $ 884
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
Kansas City TV 62 Limited Partnership
Statement of Changes in Partners' Capital
For the Years Ended December 31, 1995 and 1994
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
(in thousands)
<S> <C> <C> <C>
Balance at December 31, 1993 $ (11,897) - $ (11,897)
Capital contribution 1,400 - 1,400
Net loss for the year ended December 31, 1994 (2,400) - (2,400)
---------- --------- ----------
Balance at December 31, 1994 $ (12,897) $ - $ (12,897)
Net income for the year ended December 31, 1995 3,505 - 3,505
------------- --------- ---------
Balance at December 31, 1995 $ (9,392) $ - $ (9,392)
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
1. Organization
Kansas City TV 62 Limited Partnership (the "Partnership") is a joint
venture of ABRY Communications III, L.P., the general partner, and
Copley Place Capital Group, the limited partner. The Partnership was
organized under the laws of the State of Delaware on April 18, 1990. On
September 21, 1990 the Partnership acquired the business and certain
assets of Kansas City Television, Inc. (the "Seller"). The Partnership
is a television broadcaster serving the Kansas City area through
station KSMO on UHF Channel 62.
2. Summary of Significant Accounting Policies
Allocation of Partnership Results to Partners' Capital Accounts
Net losses of the Partnership are allocated among the capital accounts
of the partners based on their relative partnership interests until the
limited partner's capital has been exhausted. Thereafter, net losses
are allocated solely to the general partner. Net income is allocated in
proportion to previously allocated net losses in reverse chronological
order. Thereafter, net income is allocated to partners based on their
relative partnership interests, as defined in the agreement.
Broadcast Rights
Broadcast rights are stated at the lower of unamortized cost or
estimated net realizable value. Broadcast rights and the related
liabilities are recorded at the contract value when the license period
begins and the right is available for use. Broadcast rights are
amortized using the straight-line method over the number of showings or
license period. The net realizable value of broadcast rights for which
the Partnership is contractually committed is reviewed annually and
revisions to amortization rates or write-downs to net realizable value
may occur. The current portion of broadcast rights represents those
rights available for broadcast which will be amortized in the
succeeding year.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets on a straight-line basis. Major
renewals and betterments are capitalized and ordinary repairs and
maintenance are charged to expense in the period incurred.
Goodwill and Other Intangible Assets
Goodwill aggregating $4,144 is amortized over 40 years using the
straight-line method. Legal and accounting fees associated with the
acquisition of loans, aggregating $555 and organization of the
Partnership, aggregating $59 are capitalized and amortized over the
term of the related debt and five years, respectively. Other intangible
assets, aggregating $119 are amortized over their estimated useful
life. At December 31, 1995 and 1994, accumulated amortization
aggregated $1,060 and $850, respectively.
Barter Transactions
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
Revenue from barter transactions is recognized when advertisements are
broadcast and services or merchandise received are charged to expense
when received or used. Revenues arising from barter and trade
transactions aggregated $2,907 and $2,654 in 1995 and 1994,
respectively.
Income Taxes
The financial statements of the Partnership do not include any
provision for federal or state income taxes. All Partnership income,
losses, tax credits and deductions are allocated among the partners.
Each partner is responsible to report its distributed share of
Partnership results in its federal and state income tax returns.
Cash and Cash Equivalents
The Partnership considers all highly liquid investment instruments
purchased with a maturity of three months or less to be cash
equivalents. The Partnership invests its cash in money market funds and
in short-term government securities that are subject to minimal market
and credit risk. At December 31, 1995, the Partnership's cash
equivalents include $544 of money market funds.
Effective January 1, 1994, the Partnership adopted Statement of
Financial Accounting Standards No. 115 (FAS 115), "Accounting for
Certain Investments in Debt and Equity Securities". Under this
standard, the Partnership is required to classify its investments in
debt and equity securities into one or more of the following
categories: held-to-maturity, trading or available for sale. Adoption
of this standard had no impact on the Partnership's financial position
or results of operations at the date of adoption.
Concentration of Credit Risk
Financial instruments which potentially expose the Partnership to a
concentration of credit risk include cash, cash equivalents and
accounts receivable. A significant amount of the Partnership's cash and
cash equivalents are held by one financial institution at December 31,
1995. The Partnership does not believe that such deposits are subject
to any unusual credit risk beyond the normal credit risk associated
with operating its business. The Partnership maintains reserves for
potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations.
Risks and Uncertainties
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.
3. Related Party Transactions
2
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
Prior to 1995, ABRY Communications III, L.P., provided certain
administrative and support services to the Partnership for which it was
paid a management fee. Management fees charged to operations aggregated
$276 in 1994. No management fees were charged during 1995.
3
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31,
(years) 1995 1994
<S> <C> <C> <C>
Studio equipment 2-7 $ 1,855 $ 1,824
Transmission equipment 7-8 1,206 1,184
Vehicles, office equipment and
furniture 5-7 396 388
Leasehold improvements 8 297 297
------------ ------------
3,754 3,693
Less - accumulated depreciation and
amortization 3,020 2,388
------------ ------------
$ 734 $ 1,305
============ ============
5. Broadcast Rights
The Partnership purchases the right to broadcast programs through fixed
term license agreements. Broadcast rights consist of the following:
December 31,
1995 1994
Aggregate cost $ 16,564 $14,350
Less - accumulated amortization 9,898 8,181
------------ -----------
6,666 6,169
Less - current portion 3,380 2,864
------------ -----------
$ 3,286 $ 3,305
============ ===========
</TABLE>
4
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
Contractual obligations incurred in connection with the acquisition of
broadcast rights are $7,127 including $3,742 of barter obligations.
Future payments in connection with these contractual obligations are as
follows at December 31, 1995:
1996 $ 4,058
1997 1,776
1998 1,064
1999 169
2000 23
Thereafter 37
------------
$ 7,127
==========
The Partnership has estimated the fair value of these contractual
obligations at approximately $6,800 and $6,776 at December 31, 1995 and
1994, respectively, based on future cash flows discounted at the
Partnership's current borrowing rate.
6. Debt
Debt consists of the following:
December 31,
1995 1994
Term loan $ 1,455 $ 2,133
Revolving credit facility 5,543 7,478
---------- --------
6,998 9,611
Less - current portion 6,998 338
--------- --------
$ - $ 9,273
========= ========
The term loan and revolving credit facility (the "revolver") bear
interest, payable monthly, at the base rate, computed by taking the
higher of the Federal Funds rate plus 1% or prime, plus a computed
margin rate which ranges from 1.75% to 2.25%. The Partnership is
charged a fee for the average daily unused portion of the revolver
commitment at a rate of 1/2% per annum, payable quarterly. The
borrowings are secured by substantially all of the Partnership's
assets.
The credit agreement was amended on April 21, 1995. Under the terms of
the amended credit agreement, the principle amount of the term loan is
payable in quarterly installments of varying amounts commencing October
1, 1995. The revolver was increased to $8,500 and will be reduced on a
quarterly basis commencing April 1, 1997, until no credit facility is
available at October 1, 1998.
5
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
In addition to the scheduled principal and interest payments, the
lender may be entitled to contingent interest payable upon early
repayment of the term loan, a change in control of the Partnership or
upon the occurrence of certain other events as defined in the
agreement. The amount of contingent interest which will be due is
determined by a formula which considers appreciation in the value of
the Partnership. Based upon management's estimate of appreciation in
the value of the Partnership, no accrual for contingent interest has
been recorded at December 31, 1995 and 1994.
The subordinated note payable to Seller is subordinated to the
Partnership's term loan and revolver borrowings. The principal amount
of the subordinated note payable to Seller is payable in a lump sum on
September 21, 1998. Interest on the outstanding principal accrues at
the rate of 10% and is payable annually. For financial reporting
purposes, however, interest on the note accrues at an implicit rate of
14% per annum, and the note's original stated principal of $8 million
has been discounted to reflect this yield.
In January 1996, a third-party exercised its option to purchase the
station (Note 9). Accordingly, all long-term debt is classified as
current at December 31, 1995. In March 1996, certain subordinated note
holders agreed to extend the term of their notes through October 1999
and forgave interest for the five-year period then ended. Accordingly,
all subordinated debt, excluding the extended portion, is classified as
current at December 31, 1995.
In 1994, certain subordinated note holders forgave $680 of the
subordinated note, $157 of capitalized interest and $62 of accrued
interest. In consideration of the debt forgiveness, the Partnership and
a related party signed a network affiliation agreement with one note
holder and licensed certain programs from the other note holder. Under
the terms of the affiliation agreement, the Partnership and the related
party must broadcast network programming over the three-year term of
the network affiliation agreement. Under the terms of the license
agreement, the related party must broadcast certain programs over the
one-year term of the license agreement. Accordingly, the $899 gain on
the forgiveness of debt and related interest thereon was deferred and
is being amortized over the term of the affiliation and program license
agreements. The Partnership amortized $398 of the gain to income in
1995. The gain on forgiveness of debt is included in other income in
the statement of operations. The deferred gain is included in accounts
payable and accrued expenses at December 31, 1995 and 1994.
Interest payments of $2,301 were made during the year ended December
31, 1995. No interest payments were made during the year ended December
31, 1994.
6
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
7. Retirement Savings Plan
The Partnership has adopted a retirement savings plan under Section
401(K) of the Internal Revenue Code. This plan covers substantially all
employees of the Partnership and affiliated partnerships, who meet
minimum age and service requirements, and allows participants to defer
a portion of their annual compensation on a pre-tax basis. Partnership
contributions to the plan may be made at the discretion of the Board of
Directors. No Partnership contributions were authorized for the years
ended December 31, 1995 and 1994.
8. Commitments and Contingencies
Employment Agreements
As a result of the Partnership's execution of the Option Agreement
(Note 9) in 1994, the Partnership and the general partner, ABRY
Communications III, L.P., amended employment agreements which entitled
certain key employees to appreciation rights payable upon either a
change in control of the Partnership or the payment of certain partner
cash distributions. Previously, the employees vested in these rights at
the rate of 20% per year from the date the rights were granted, except
that they vested fully if they were employees of the Partnership at the
time the rights became payable. Amounts due to the employees in
connection with those rights were determined by a formula which
considers appreciation in the value of the Partnership. Under the
amendments, in the event that certain key employees meet certain
employment criteria, such employees will receive a payment in lieu of
the appreciation rights discussed above. An accrual for compensation
related to these rights for $162 was included in accrued expenses at
December 31, 1994. These obligations were satisfied during 1995 and,
accordingly, no accrual has been made related to these agreements at
December 31, 1995.
Broadcast License Agreements
Broadcast rights acquired under license agreements are recorded as an
asset and a corresponding liability at the inception of the license
period. In addition to these broadcast rights payable at December 31,
1995, the Partnership has $1,417 of commitments to acquire broadcast
rights for which the license period has not commenced and, accordingly,
for which no liability has been recorded. Future minimum payments
arising from such commitments outstanding at December 31, 1995, of
which $729 represents barter commitments, are as follows:
1996 $ 133
1997 356
1998 347
1999 187
2000 79
Thereafter 315
----------
$ 1,417
7
<PAGE>
Kansas City TV 62 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
Sports Rights Agreement
The Partnership broadcasts certain baseball games for the Kansas City
Royals Baseball Corporation (the "Royals"). Under the terms of the
broadcast agreement as amended during 1995, the Partnership is
obligated to pay broadcast fees and to provide advertising and
promotions to the Royals through October 1, 1998. In addition, the
Partnership is obligated to pay the Royals 75% of operating profits
less than $500 and 50% of operating profits exceeding $500, related to
such broadcasts. Future minimum annual broadcast fee payments under the
agreement, as amended, are as follows:
1996 $ 1,080
1997 1,080
1998 1,080
-----------
$ 3,240
Broadcast fees are payable quarterly on July 1, October 1, January 1
and April 1 of each year. In the event the Partnership terminates the
agreement before October 1, 1996 or 1997, the Partnership will be
required to pay the Royals a cancellation fee of $500 or $250,
respectively. The payment of all amounts due to the Royals under the
agreement have been guaranteed by the Partnership's general partner and
BVC Communications, III, Inc., the general partner of ABRY
Communications III, L.P. Charges to operations for such broadcast fees
aggregated $1,350 and $2,728 in 1995 and 1994, respectively.
Operating Leases
The Partnership leases its antenna site, studio and other operating
equipment under noncancellable operating lease arrangements expiring
through 2010. Charges to operations for such leases aggregated $154 and
$146 in 1995 and 1994, respectively. Future minimum lease payments
under these leases are as follows at December 31, 1995:
1996 $ 166
1997 160
1998 161
1999 124
2000 123
Thereafter 237
Total minimum lease payments $ 971
===========
During 1995, the antenna site was damaged and the Partnership received
an insurance settlement of $248 for the related business interruption.
The insurance settlement net of amounts relating to the repair of the
antenna, are included in other income in the statement of operations.
8
<PAGE>
Kansas City TV 62 Limited Partnership Notes to Financial Statements (in
thousands)
-----------------------------------------------------------------------
9. Option Agreement
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of
the station for an amount equal to the lesser of outstanding debt as of
the exercise date, including accrued interest thereon, or $9,000. The
acquiring entity will assume all other liabilities of the station. In
conjunction with the option agreement, the Partnership entered into an
agreement with the third-party whereby the Partnership would pay the
third-party a consulting fee of $250 per year as long as the option is
outstanding. Charges to operations related to this agreement were $250
in 1995 and $147 in 1994. The third-party exercised this option in
January 1996. Accordingly, all debt of the station is classified as
current at December 31, 1995, excluding debt for which an extension was
granted, in accordance with the Partnership's loan agreements (Note 6).
The transaction is subject to regulatory approval.
10
<PAGE>
Cincinnati TV 64
Limited Partnership
Financial Statements
December 31, 1995
<PAGE>
Report of Independent Accountants
March 22, 1996
To the Partners of Cincinnati TV 64 Limited Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of Cincinnati TV 64 Limited
Partnership at December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership'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.
Price Waterhouse LLP
<PAGE>
Cincinnati TV 64 Limited Partnership
Balance Sheet
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 641 $ 482
Accounts receivable, less allowance for doubtful
accounts of $86 and $64 in 1995 in 1994, respectively 3,091 2,773
Broadcast rights 4,461 3,461
Prepaid expenses 15 21
----------- ----------
Total current assets 8,208 6,737
Property and equipment - net 5,238 5,670
Broadcast rights 4,339 3,061
Goodwill and other intangible assets 1,746 1,823
----------- ----------
$ 19,531 $ 17,291
=========== ==========
Liabilities and Partners' Capital
Current liabilities:
Current portion of long-term debt $ 11,883 $ 700
Subordinated note payable to Seller 7,446 -
Accounts payable and accrued expenses 1,127 1,082
Interest payable 718 650
Broadcast rights payable 5,221 3,957
----------- ----------
Total current liabilities 26,395 6,389
Broadcast rights payable 4,262 3,221
Long-term debt - 14,083
Subordinated note payable to Seller - 7,089
Partners' capital (11,126) (13,491)
Commitments and contingencies (Note 8)
----------- ----------
$ 19,531 $ 17,291
=========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Cincinnati TV 64 Limited Partnership
Statement of Operations
- - --------------------------------------------------------------------------------
Year ended
December 31,
1995 1994
(in thousands)
Revenues - net of agency and national
representative commissions $ 15,529 $ 13,727
Costs and expenses:
Programming, production and engineering 1,002 954
Amortization of broadcast rights 4,971 5,416
Sales, promotion and marketing 2,394 2,813
General and administrative 1,629 2,059
Depreciation and amortization 662 841
Interest expense, net 2,506 2,375
----------- -----------
Net income (loss) $ 2,365 $ (731)
=========== ===========
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Cincinnati TV 64 Limited Partnership
Statement of Changes in Partners' Capital
For the Years Ended December 31, 1995 and 1994
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
(in thousands)
<S> <C> <C> <C>
Balance at December 31, 1993 $ (12,760) $ - $ (12,760)
Net loss for the year ended
December 31, 1994 (731) - (731)
---------- ------- ---------
Balance at December 31, 1994 (13,491) - (13,491)
Net income for the year ended
December 31, 1995 2,365 - 2,365
---------- ------- ---------
Balance at December 31, 1995 $ (11,126) $ - $ (11,126)
========== ======= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Cincinnati TV 64 Limited Partnership
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
1995 1994
(in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 2,365 $ (731)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 585 759
Amortization of goodwill and other intangible assets 77 82
Amortization of broadcast rights, net of barter 1,621 2,294
Loss on disposal of property and equipment 37 -
Accretion of subordinated debt principal 357 312
Deferred interest expense on subordinated note payable - 87
Increase in accounts receivable (318) (516)
(Increase) decrease in prepaid expenses 6 (6)
Increase (decrease) in accounts payable and accrued expenses 45 (80)
Increase in interest payable 68 650
Decrease in due to related parties - (72)
Decrease in broadcast rights payable, net of barter (1,594) (1,676)
---------- ----------
Net cash provided by operating activities 3,249 1,103
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (190) (18)
---------- ----------
Cash flows from financing activities:
Net repayments under revolving credit facility (2,200) (750)
Repayments of long-term debt (700) -
---------- ----------
Net cash used for financing activities (2,900) (750)
---------- ----------
Net increase in cash and cash equivalents 159 335
Cash and cash equivalents at beginning of year 482 147
---------- ----------
Cash and cash equivalents at end of year $ 641 $ 482
========== ==========
Supplemental schedule of noncash activities:
Film contracts acquired/obligations assumed $ 2,961 $ 2,026
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
1. Organization
Cincinnati TV 64 Limited Partnership (the "Partnership") is a joint
venture of ABRY Communications II, L.P., the general partner (Note 3),
and Copley Place Capital Group, the limited partner. The Partnership
was organized under the laws of the State of Delaware on August 1,
1989. The Partnership is a television broadcaster serving the
Cincinnati, Ohio area through station WSTR on UHF Channel 64.
2. Summary of Significant Accounting Policies
Allocation of Partnership Results to Partners' Capital Accounts
Net losses of the Partnership are allocated among the capital accounts
of the partners based on their relative partnership interests until the
limited partner's capital has been exhausted. Thereafter, net losses
are allocated solely to the general partner. Net income is allocated in
proportion to previously allocated net losses in reverse chronological
order. Thereafter, net income is allocated to partners based on their
relative partnership interests, as defined in the agreement.
Broadcast Rights
Broadcast rights are stated at the lower of unamortized cost or
estimated net realizable value. Broadcast rights and the related
liabilities are recorded at the contract value when the license period
begins and the right is available for use. Broadcast rights are
amortized using the straight-line method over the number of showings or
license period. The net realizable value of broadcast rights for which
the Partnership is contractually committed is reviewed annually and
revisions to amortization rates or write-downs to net realizable value
may occur. The current portion of broadcast rights represents those
rights available for broadcast which management estimates will be
amortized in the succeeding year.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets on a straight-line basis. Major
renewals and betterments are capitalized and ordinary repairs and
maintenance are charged to expense in the period incurred.
Goodwill and Other Intangible Assets
Goodwill aggregating $1,991 is amortized over 40 years using the
straight-line method. Legal and accounting fees associated with the
acquisition of loans aggregating $240 are capitalized and amortized
over the term of the related debt. Organization costs aggregating $28
were fully amortized at December 31, 1995. Accumulated amortization
aggregated $485 and $436 at December 31, 1995 and 1994, respectively.
Barter Transactions
Revenue from barter transactions is recognized when advertisements are
broadcast and services or merchandise received are charged to expense
when received or used. Revenues arising from barter and trade
transactions aggregated $3,578 and $3,410 in 1995 and 1994,
respectively.
1
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
Income Taxes
The financial statements of the Partnership do not include any
provision for federal or state income taxes. All Partnership income,
losses, tax credits and deductions are allocated among the partners.
Each partner is responsible to report its distributed share of
Partnership results in its federal and state income tax returns.
Cash and Cash Equivalents
The Partnership considers all highly liquid investment instruments
purchased with a maturity of three months or less to be cash
equivalents. The Partnership invests its excess cash in short-term
government securities that are subject to minimal market and credit
risk. At December 31, 1995 and 1994, the Partnership's cash equivalents
include $500 and $400, respectively, of short-term government
securities. These securities, which are classified as
available-for-sale, are recorded at market value, which approximates
cost.
Effective January 1, 1994, the Partnership adopted Statement of
Financial Accounting Standards No. 115, (FAS 115), "Accounting for
Certain Investments in Debt and Equity Securities". Under this
standard, the Partnership is required to classify its investments in
debt and equity securities into one or more of the following
categories: held-to-maturity, trading or available for sale. Adoption
of this standard had no impact on the Partnership's financial position
or results of operations at the date of adoption.
Concentration of Credit Risk
Financial instruments which potentially expose the Partnership to a
concentration of credit risk include cash, cash equivalents and
accounts receivable. A significant amount of the Partnership's cash and
cash equivalents are held by one financial institution at December 31,
1995. The Partnership does not believe that such deposits are subject
to any unusual credit risk beyond the normal credit risk associated
with operating its business. The Partnership maintains reserves for
potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations.
Risks and Uncertainties
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.
3. Related Party Transactions
Prior to 1995, ABRY Communications II, L.P. provided certain
administrative and support services to the Partnership for which it was
paid a management fee. Management fees charged to operations aggregated
$319 in 1994. No management fees were charged to the Partnership during
1995.
2
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
As of January 1995, the station became a network affiliate and licensed
certain programs in conjunction with the forgiveness of the
subordinated debt of a related party by the network and licensor. The
term of the affiliation agreement and the program licenses is three
years and one year, respectively. These financial statements do not
include any amounts relating to such transaction.
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31,
(years) 1995 1994
<S> <C> <C> <C>
Land and improvements - $ 261 $ 261
Buildings 30 1,719 1,719
Transmission tower 30 3,226 3,226
Transmission equipment 7-8 1,832 1,919
Studio equipment 5-7 1,079 1,005
Vehicles, office equipment and furniture 5-7 240 211
--------- ---------
8,357 8,341
Less - accumulated depreciation
and amortization 3,119 2,671
--------- ---------
$ 5,238 $ 5,670
========= =========
</TABLE>
5. Broadcast Rights
The Partnership purchases the right to broadcast programs through fixed
term license agreements. Broadcast rights consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Aggregate cost $ 15,370 $ 14,288
Less - accumulated amortization 6,570 7,766
--------- ---------
8,800 6,522
Less - current portion 4,461 3,461
--------- ---------
$ 4,339 $ 3,061
========= ==========
</TABLE>
3
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
Contractual obligations incurred in connection with the acquisition of
broadcast rights are $9,483 including $3,918 of barter obligations.
Future payments in connection with these contractual obligations are as
follows at December 31, 1995:
1996 $ 5,221
1997 2,502
1998 1,340
1999 381
Thereafter 39
--------
$ 9,483
========
The Partnership has estimated the fair value of these contractual
obligations at approximately $8,591 and $6,478 at December 31, 1995 and
1994, respectively, based on future cash flows discounted at the
Partnership's current borrowing rate.
6. Debt
Long-term debt consists of the following:
December 31,
1995 1994
Term loan $ 6,650 $ 6,850
Revolving credit facility 4,772 6,972
Supplemental loan 461 961
-------- --------
11,883 14,783
Less - current portion 11,883 700
-------- --------
$ - $ 14,083
======== ========
The principal amount of the term loan is payable in 36 monthly
installments of $17 which commenced January 1, 1995 and a final
installment in an amount equal to the then outstanding principal
balance is due January 1, 1998.
The Partnership may borrow up to $8,350 under a revolving credit
facility (the "revolver") through December 31, 1995; thereafter, the
credit facility and related borrowings are reduced on a monthly basis
until no credit facility is available at January 1, 1998.
The term loan, revolver and supplemental loan bear interest, payable
monthly, at the base rate, computed by taking the higher of the Federal
Funds rate plus 1% or Prime (as defined in the agreement), plus 2.5%.
4
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
The Partnership is charged a fee for the available revolving credit
commitment at a rate of 1/2% per annum, payable quarterly. The
borrowings are secured by substantially all of the Partnership's assets
and require the Partnership to comply with certain specified financial
ratios and provisions. At December 31, 1995, all long term debt is
classified as a current liability as a result of a third-party's
decision to exercise the option agreement (Note 9).
At December 31, 1995 and 1994, the current portion of long-term debt
includes principal of $750 and $500, respectively, due by April 1, 1996
and 1995 in accordance with the acceleration provisions of the loan
agreement. The accelerated principal payments were made by the
Partnership in April 1996 and January 1995, respectively.
In addition to the scheduled principal and interest payments, the
lender may be entitled to contingent interest, payable upon early
repayment of the loans, a change in control of the Partnership or upon
the occurrence of certain other events as defined in the agreement. The
amount of contingent interest which will be due is determined by a
formula which considers appreciation in the value of the Partnership.
Based upon management's estimate of appreciation in the value of the
Partnership, no accrual for contingent interest has been recorded at
December 31, 1995 and 1994.
The principal amount of the subordinated note payable to Seller is due
on January 1, 1998. Interest on the outstanding principal accrues at
the rate of 8.5% per annum. Interest accrued and unpaid through
December 31, 1993 is due and payable on January 1, 1998. Interest
accrued after December 31, 1993 is payable annually. For financial
reporting purposes, however, interest on the note accrues at an
implicit rate of 14.5% per annum and the note's original stated
principal of $6 million has been discounted to reflect this yield.
Accordingly, interest accrued through December 31, 1995 and 1994 of
$2,877 and $2,790, respectively, has been added to the discounted
principal amount of the note. In January 1996, a third-party exercised
its option to acquire the assets of the station (Note 9). Accordingly,
the note has been classified as a current liability at December 31,
1995.
Interest paid during the years ended December 31, 1995 and 1994 was
$1,603 and $1,348, respectively.
7. Retirement Savings Plan
The Partnership has adopted a retirement savings plan under Section
401(K) of the Internal Revenue Code. This plan covers substantially all
employees of the Partnership and affiliated partnerships who meet
minimum age and service requirements and allows participants to defer a
portion of their annual compensation on a pre-tax basis. Partnership
contributions to the plan may be made at the discretion of the Board of
Directors. No Partnership contributions were authorized for the years
ended December 31, 1995 and 1994.
5
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - --------------------------------------------------------------------------------
8. Commitments and Contingencies
Employment Agreement
As a result of the Partnership's execution of the Option Agreement
(Note 9) in 1994, the Partnership and the general partner, ABRY
Communications II, L.P., amended an employment agreement which entitled
certain key employees to appreciation rights payable upon either a
change in control of the Partnership or the payment of certain partner
cash distributions. Previously, the employees vested in these rights at
the rate of 20% per year from the date the rights were granted, except
that they vested fully at the time the rights became payable. Amounts
due to the employees in connection with those rights were determined by
a formula which considers appreciation in the value of the Partnership.
Under the amendment, such employees received payments in lieu of the
appreciation rights discussed above. Compensation expense of $862 was
recognized for compensation related to these rights during the year
ended December 31, 1994. An accrual for $700 for compensation related
to these rights which were paid in January 1995, was included in
accrued expenses at December 31, 1994.
Broadcast License Agreements
Broadcast rights acquired under license agreements are recorded as an
asset and a corresponding liability at the inception of the license
period. In addition to these broadcast rights payable at December 31,
1995, the Partnership has $7,769 of commitments to acquire broadcast
rights for which the license period has not commenced and, accordingly,
for which no liability has been recorded. Future minimum payments
arising from such commitments outstanding at December 31, 1995, of
which $4,232 represents barter commitments, are as follows:
1996 $ 903
1997 2,221
1998 1,918
1999 1,517
2000 1,210
---------
$ 7,769
=========
Programming
Under the terms of an agreement executed in September 1995 with a
third-party, the Partnership is committed to make available certain
time periods for broadcasting Cincinnati Reds baseball games during
each of the 1996-1998 major league baseball seasons, in exchange for a
fixed fee per game and other defined compensation. The agreement
expires in December 1998 or the earliest date after April 1, 1996 on
which the third-party no longer has the rights to telecast such
baseball games. In 1995, the Partnership generated revenue of $25
related to this agreement.
6
<PAGE>
Cincinnati TV 64 Limited Partnership
Notes to Financial Statements (in thousands)
- - -------------------------------------------------------------------------------
Operating Leases
The Partnership assumed a noncancellable operating lease under which
property at its transmission antenna site is leased through 1998.
Charges to operations for this lease aggregated $68 in 1995 and $71 in
1994. As of December 31, 1995, annual minimum lease payments under the
property lease are $61 through 1997.
9. Option Agreement
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of
the station for an amount equal to the lesser of the outstanding debt
as of the exercise date, including accrued interest thereon, or
$11,000. The acquiring entity will assume all other liabilities of the
station. In conjunction with the option agreement, the Partnership
entered into an agreement with the third-party whereby the Partnership
would pay the third-party a consulting fee of $250 per year as long as
the option is outstanding. Charges to operations related to this
agreement were $250 in 1995 and $127 in 1994.
The third-party exercised this option in January 1996. The transaction
is subject to regulatory approval. As a result of the exercise of this
option, all debt of the station is classified as current at December
31, 1995, in accordance with the Partnership's loan agreements (Note
6).
7
<PAGE>
RIVER CITY BROADCASTING
(RIVER CITY BROADCASTING, L.P.
AND ITS MAJORITY-OWNED BUSINESSES)
Consolidated Financial Statements
and Schedules
December 31, 1994 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
----------------------------
The Partners
River City Broadcasting, L.P.:
We have audited the accompanying consolidated balance sheets of River City
Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and
1995, and the related consolidated statements of operations, partners' capital
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of River City
Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information included in
Schedules 1 and 2 is presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position,
results of operations, and cash flows of the individual broadcast properties.
The consolidating information has been subjected to the auditing procedures
applied in the audits of the consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
KPMG Peat Marwick LLP
February 23, 1996
<PAGE>
RIVER CITY BROADCASTING
Consolidated Balance Sheets
December 31, 1994 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets 1994 1995
------ ---- ----
Current assets:
Cash and cash equivalents $ 2,444,738 $ 3,009,949
Receivables, less allowance for doubtful
accounts of approximately $751,000 in 1994
and $1,011,000 in 1995 38,380,927 55,700,972
Current portion of program rights 18,721,662 23,275,767
Prepaid and other current assets 3,364,193 4,456,352
---------- ----------
Total current assets 62,911,520 86,443,040
Property and equipment, net 83,518,363 96,269,944
Program rights, less current portion 19,255,197 19,650,217
Intangible assets, net 239,689,766 350,878,357
Other noncurrent assets 11,301,757 20,588,525
----------- -----------
Total assets $ 416,676,603 $ 573,830,083
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Current installments of long-term debt $ - $ 38,587,000
Current installments of program rights payable 26,178,686 30,071,545
Accrued expenses 7,376,801 12,462,416
Accounts payable 862,162 6,924,246
Distributions payable 2,274,613 -
---------- -----------
Total current liabilities 36,692,262 88,045,207
Long-term debt, less current installments 309,550,000 404,413,000
Program rights payable, less current installments 17,136,852 27,579,601
Deferred compensation 5,260,477 5,516,833
---------- ----------
Total liabilities 368,639,591 525,554,641
Commitments and contingencies
Partners' capital; 19,386 general partner units and 126,047
and 148,651 limited partner units outstanding at
December 31, 1994 and 1995, respectively 48,037,012 48,275,442
----------- ----------
Total liabilities an
partners' capital $ 416,676,603 $ 573,830,083
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RIVER CITY BROADCASTING
Consolidated Statements of Operations
Years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1993 1994 1995
---- ---- ----
Net operating revenues:
Local time sales $ 34,377,284 $ 52,867,854 $ 107,591,097
National time sales 28,718,245 42,950,399 69,945,187
Other revenues 3,119,122 4,567,058 10,653,860
---------- ---------- -----------
Total operating revenues 66,214,651 100,385,311 188,190,144
---------- ----------- -----------
Operating costs:
Station operating expenses 15,857,926 26,516,623 62,040,690
Selling expenses 10,889,632 11,977,659 25,973,660
Program amortization expense 18,799,127 16,479,271 33,452,252
Corporate expenses 1,872,983 2,498,181 4,482,364
Depreciation 6,287,274 8,259,487 11,523,526
Amortization of intangible assets 6,094,026 11,228,316 27,649,173
---------- ----------- -----------
Total operating costs 59,800,968 76,959,537 165,121,665
---------- ----------- -----------
Operating income 6,413,683 23,425,774 23,068,479
---------- ----------- -----------
Other income (expense):
Interest expense (5,341,346) (11,033,149) (33,087,633)
Amortization of deferred financing
costs and debt discount (1,573,262) (1,066,296) (1,434,904)
Interest income 177,656 333,673 1,715,104
Other (45,227) 21,720 (22,616)
-------- ------- --------
(6,782,179) (11,744,052) (32,830,049)
---------- ----------- -----------
Income (loss) before
extraordinary item (368,496) 11,681,722 (9,761,570)
Extraordinary item - early extin-
guishment of debt (6,841,084) (3,348,506) -
---------- ----------- -----------
Net earnings (loss) $ (7,209,580) $ 8,333,216 $ (9,761,570)
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RIVER CITY BROADCASTING
Consolidated Statements of Partners' Capital (Deficit)
Years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
General Limited
partner partners Total
------- -------- ------
<S> <C> <C> <C>
Balance at December 31, 1992 $ (6,936,635) $ - $ (6,936,635)
Partners' capital contributions - 76,500,000 76,500,000
Conversion of equity debentures - 8,191,527 8,191,527
Redemption of partners' capital (12,986,107) (15,580,796) (28,566,903)
Net loss (973,697) (6,235,883) (7,209,580)
--------- ---------- ----------
Balance at December 31, 1993 (20,896,439) 62,874,848 41,978,409
Distributions - (2,274,613) (2,274,613)
Net earnings 8,333,216 - 8,333,216
---------- ---------- ----------
Balance at December 31, 1994 (12,563,223) 60,600,235 48,037,012
Issuance of limited partner interest - 10,000,000 10,000,000
Net loss - (9,761,570) (9,761,570)
---------- ---------- ----------
Balance at December 31, 1995 $(12,563,223) $ 60,838,665 $ 48,275,442
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RIVER CITY BROADCASTING
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1994, and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (7,209,580) $ 8,333,216 $ (9,761,570)
Extraordinary item (note 12) 6,841,084 2,164,006 -
Interest expense on conversion of debenture
to equity 101,327 - -
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Program amortization expense 18,799,127 16,479,271 33,452,252
Depreciation 6,287,274 8,259,487 11,523,526
Loss on disposition of property and
equipment 47,416 - 193,249
Amortization of deferred financing
costs and debt discount 1,573,262 1,066,296 1,434,904
Amortization of intangible assets 6,094,026 11,228,316 27,649,173
Retirement of program rights payable (15,773,065) (13,892,127) (24,065,769)
Change in assets and liabilities, net
of effects from purchase of broad-
cast properties:
Increase in receivables, net (1,816,872) (7,940,420) (17,320,045)
Increase in prepaid and other current
assets (133,109) (472,744) (763,768)
Increase in other noncurrent assets (247,492) (921,957) (9,286,768)
Increase (decrease) in accounts payable
and accrued expenses (1,087,119) (644,978) 11,147,699
Increase in deferred compensation 1,161,000 3,236,477 256,356
---------- ---------- --------
Net cash provided by operating
activities 14,637,279 26,894,843 24,459,239
---------- ----------- -----------
Cash flows from investing activities,
net of effects from purchase of broad-
cast properties:
Costs to acquire broadcast properties - (175,397,321) (137,884,857)
Additions to property and equipment 1,080,171) (5,304,587) (11,286,967)
Additions to intangible assets (1,329,361) (2,210,655) (2,682,454)
Funding of local marketing agreement - (11,000,000) -
-------- ------------ ------------
Net cash used in investing
activities 2,409,532) (193,912,563) (151,854,278)
----------- ----------- -----------
Cash flows from financing activities:
Retirement of long-term debt (58,554,497) (138,360,116) (1,550,000)
Proceeds from term loan - 120,000,000 110,000,000
Net borrowings under revolving loan commitment - 188,000,000 25,000,000
Redemption of partnership interest (28,566,903) - -
Proceeds from partners' capital
contributions 76,500,000 - -
Distributions paid - - (2,274,613)
Additions to deferred financing fees (165,174) (4,450,344) (3,215,137)
--------- ----------- -----------
Net cash provided by (used in)
financing activities (10,786,574) 165,189,540 127,960,250
---------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,441,173 (1,828,180) 565,211
Cash and cash equivalents, beginning of year 2,831,745 4,272,918 2,444,738
---------- ---------- ----------
Cash and cash equivalents, end of year $ 4,272,918 $ 2,444,738 $ 3,009,949
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
(1) Business Description
--------------------
River City Broadcasting, L.P. (River City Broadcasting or the
Partnership) is a limited partnership formed to purchase and operate
broadcast properties and related activities. River City Broadcasting
has acquired nine broadcast television stations and 24 radio stations.
The Partnership also operates one television station and three radio
stations under local marketing agreements (LMAs). River City
Broadcasting is managed by its general partner subject to terms and
conditions specified in the Second Amended and Restated Agreement of
Limited Partnership (Limited Partnership Agreement).
On September 3, 1993, River City Broadcasting entered into a
Reorganization Agreement, whereby additional equity funding was
injected into the Partnership, and certain partners' interests were
redeemed (the Recapitalization).
(2) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
----------------------------
The accompanying consolidated financial statements include the accounts
of River City Broadcasting and its majority-owned businesses.
Management's Use of Estimates
-----------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
Program Rights
--------------
Program rights and related liabilities are recorded at cost when the film
is available for broadcasting. Agreements define the lives of the
rights and frequently the number of showings. The cost of program
rights is charged against earnings using straight-line and accelerated
methods.
Program rights, representing the cost of those rights available for
broadcasting and expected to be broadcast in the succeeding fiscal
year, are shown as a current asset. Program rights payable are
classified as current based on those payments of the various contracts
contractually due within the succeeding fiscal year.
Program rights are stated at the lower of cost or estimated net
realizable value.
(Continued)
<PAGE>
2
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
Property and Equipment
----------------------
Property and equipment is recorded at cost. Maintenance and repairs are
charged against earnings, while improvements which extend useful lives
are capitalized.
Depreciation expense is computed using primarily the straight-line method
over the estimated useful lives of the related assets.
Intangible Assets
-----------------
Intangible assets consist principally of network affiliation agreements,
broadcasting licenses, covenants not to compete, deferred financing
costs, and going-concern values. Amortization expense is computed on a
straight-line basis over the estimated lives of the assets, which
generally range from 5-20 years.
The Partnership assesses the recoverability of these intangible assets by
determining whether the amortization of the remaining balances over
their remaining lives can be recovered through projected undiscounted
future results. The amount of impairment, if any, is measured based on
projected discounted future results using a discount rate reflecting
the Company's average cost of funds. The methodology that management
used to project results of operations forward was based on the
historical trend line of actual results.
Interest Rate Risk Management
-----------------------------
The Partnership uses a combination of financial instruments as part of
its program to manage interest rate risk on its floating rate debt.
Such investments are considered hedges and, accordingly, changes in
their market value, representing the cost to close the Partnership's
position in these financial instruments, are not reflected in the
consolidated financial statements (see note 7).
Deferred Compensation
---------------------
River City Broadcasting has entered into deferred compensation agreements
with members of management at certain of the broadcast properties.
Deferred compensation expense is recorded over the period of employee
service based on terms as contained in the respective agreements.
In addition to the deferred compensation agreements described above, the
Partnership has granted Phantom Warrant Units to certain key members
of management. These Phantom Warrant Units were granted pursuant to a
Phantom Unit Plan (the Plan). Under Plan provisions, the Phantom
Warrant Unit holders will receive performance compensation based on
the appreciation in value of the Partnership. This compensation is
recognized as incurred based on a six-year vesting period.
Warrant Units
-------------
Concurrently with the Recapitalization, warrant units were issued to two
key members of management, who are also the sole shareholders of the
general partner of River City Broadcasting. These warrant units
provide for, among other things as described in the Limited
Partnership Agreement, participation in Partnership profits and losses
and equity appreciation on a basis substantially similar to a 10%
partnership interest.
(Continued)
<PAGE>
3
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
Income Taxes and Distributions for Taxes
----------------------------------------
No income tax provision has been included in the consolidated financial
statements since profit and loss in the Partnership and the related
tax attributes are deemed to be distributed to, and to be reportable
by, the partners of the Partnership on their respective income tax
returns. Accordingly, based on the tax attributes to be passed through
to the partners, the Partnership records a distribution payable
calculated pursuant to the Limited Partnership Agreement for amounts
expected to be distributed to the partners for their estimated tax
liability.
Limited Partnership Agreement
-----------------------------
The allocation of Partnership profits and losses, cash distributions,
voting rights, certain equity preference and appreciation rights, and
other matters are defined in the Limited Partnership Agreement. These
items, except voting rights, are principally determined based on the
tax basis of the respective partners.
Revenues
--------
Broadcasting revenues are derived principally from the sale of program
time and spot announcements to local, regional, and national
advertisers. Advertising revenue is recognized in the period during
which the program time and spot announcements are broadcast.
Barter Transaction
------------------
Barter transactions are recorded at the estimated fair values of the
products and services received. Barter revenues are recognized when
commercials are broadcast. The assets or services received in exchange
for broadcast time are recorded when received or used.
Consolidated Statements of Cash Flows
-------------------------------------
For purposes of the consolidated statements of cash flows, the
Partnership considers all cash investments with an original maturity
of three months or less to be cash equivalents.
Reclassification
----------------
Certain 1993 and 1994 balances have been reclassified to conform with the
1995 presentation.
(3) Acquisition of Broadcast Properties
-----------------------------------
In September 1994, the Partnership acquired certain assets and assumed
certain liabilities of Continental Broadcasting Ltd. (Continental) for
total cash consideration of approximately $175,397,000. In connection
with the acquisition, River City Broadcasting assumed $120,000,000 of
senior subordinated notes and related accrued interest. Broadcast
properties acquired include WSYX-TV (Columbus, Ohio), KOVR-TV
(Sacramento, California), and WLOS-TV/WFBC-TV (formerly WAXA-TV)
(Asheville, North Carolina, and Anderson, South Carolina).
(Continued)
<PAGE>
4
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
This acquisition is a purchase transaction and, accordingly, the assets
acquired and liabilities assumed have been recorded at their estimated
fair values as of the acquisition date, as determined by independent
appraisal. The allocation of the purchase price is summarized as
follows:
Intangible assets $ 221,995,342
Property and equipment 62,285,634
Accounts receivable 13,313,252
Program rights 10,471,346
Prepaid and other current assets 164,898
Program rights payable (7,752,322)
Accounts payable and accrued expenses (2,672,495)
----------
Total purchase price 297,805,655
Assumption of debt, plus related
accrued interest (122,408,334)
-------------
$ 175,397,321
=============
In July 1995, the Partnership acquired certain assets of Keymarket
Communication and affiliated companies (Keymarket), as defined in the
underlying Asset Purchase Agreement, for total cash consideration of
approximately $131,000,000 and $10,000,000 of limited partner units.
Broadcast properties acquired consist of 19 radio stations within the
Los Angeles, California, Nashville, Tennessee, New Orleans, Louisiana,
Memphis, Tennessee, Buffalo, New York and Wilkes-Barre/Scranton,
Pennsylvania markets. Additionally, the Partnership acquired the
rights to operate three radio stations under LMAs.
In October 1995, the Partnership acquired a 60% interest in Twin Peaks
Radio (Twin Peaks) through its acquisition of Sandia Peak
Broadcasters, Inc. As discussed in note 17, the Partnership acquired
the remaining 40% interest in Twin Peaks in January 1996. Twin Peaks
is a partnership which owns and operates three radio stations in the
Albuquerque, New Mexico area. Total cash consideration paid in 1995
amounted to approximately $3,200,000.
In November 1995, the Partnership acquired certain assets of WVRV-FM in
St. Louis, Missouri, for cash consideration of approximately
$3,600,000. River City Broadcasting previously operated this station
under an LMA.
The 1995 acquisitions are purchase transactions and, accordingly, the
assets acquired and liabilities assumed have been recorded at their
estimated fair values as of the acquisition date, as determined by
independent appraisal. The allocation of the purchase price is
summarized as follows:
Intangible assets $ 134,375,077
Property and equipment 13,181,389
Prepaid and other current
assets 328,391
---------
Total purchase price 147,884,857
Issuance of limited partner units (10,000,000)
-----------
$ 137,884,857
==============
(Continued)
<PAGE>
5
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
The following unaudited supplemental pro forma information presents
revenues, income (loss) before extraordinary item, and net earnings
(loss) as though River City Broadcasting had consummated the 1995
acquisitions on January 1, 1994 (1994) and January 1, 1995 (1995):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Revenues $ 148,492,000 $ 213,749,000
=========== ===========
Loss before extraordinary item $ (22,907,000) $ (17,232,000)
=========== ===========
Net loss $ (26,255,000) $ (17,232,000)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
(4) Intangible Assets
-----------------
A summary of intangible assets follows:
Asset
lives in
1994 1995 years
---- ---- -----
<S> <C> <C> <C>
Network affiliation agreements, net
of amortization of approximately
$3,077,000 and $9,724,000 in 1994
and 1995, respectively $ 143,950,815 $ 137,813,988 20
Broadcasting licenses, net of amortiza-
tion of approximately $1,506,000 and
$4,605,000 in 1994 and 1995, respec-
tively 47,529,039 114,567,600 20
Deferred financing costs, net of amor-
tization of approximately $382,000
and $1,817,000 in 1994 and 1995,
respectively 4,068,376 7,052,734 8
Covenants not to compete, net of amor-
tization of approximately $5,900,000
and $11,410,000 in 1994 and 1995,
respectively 18,100,004 12,669,639 5
Going-concern value, net of amortiza-
tion of approximately $636,000 and
$1,168,000 in 1994 and 1995, respec-
tively 5,554,642 8,502,935 20
Other intangible assets, net of amorti-
zation of approximately $16,754,000
and $27,118,000 in 1994 and 1995,
respectively 20,072,564 70,271,461 2-20
----------- ----------- ====
$ 239,275,440 $ 350,878,357
=========== ===========
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
(5) Property and Equipment
----------------------
A summary of property and equipment follows:
Lives
1994 1995 in years
---- ---- --------
<S> <C> <C> <C>
Land $ 7,129,861 $ 11,622,969 -
Buildings and improvements 21,284,574 25,150,610 31.5
Equipment, furniture, and fixtures 79,261,457 96,668,728 5-15
====
Construction in progress 3,550,525 1,436,638
---------- ----------
111,226,417 134,878,945
Less accumulated depreciation 27,708,054 38,609,001
----------- -----------
$ 83,518,363 $ 96,269,944
=========== ===========
(6) Long-Term Debt
A summary of long-term debt follows:
1994 1995
---- ----
Revolving Credit and Term Loan Agreements
-----------------------------------------$ 308,000,000 $ 443,000,000
Senior subordinated notes 1,550,000 -
---------- -------------
309,550,000 443,000,000
Less current installments - 38,587,000
----------- -----------
$ 309,550,000 $ 404,413,000
=========== ===========
</TABLE>
Upon the acquisition of the Continental broadcast properties in 1994, the
Partnership assumed $120,000,000 of 10-5/8% senior subordinated notes.
Interest is payable semiannually on January 1 and July 1 of each year.
Pursuant to terms of the underlying indenture, subsequent to their
assumption, River City Broadcasting offered to redeem the underlying
notes from the holders at 101% of the principal amount thereof. In
connection with this offer, $118,450,000 of the outstanding notes were
redeemed in 1994. A put premium of $1,184,500 was charged to expense
in 1994. The balance of the senior subordinated notes was redeemed in
1995.
Concurrent with the acquisition of the Continental broadcast properties
in 1994, the Partnership entered into a Senior Credit Facility
providing a $120,000,000 term loan commitment and a revolving loan
commitment of $230,000,000. In December 1994, the Partnership
exercised the $120,000,000 term loan commitment in connection with the
redemption of the senior subordinated notes described above.
In April 1995 the Partnership amended the Senior Credit Facility (Amended
Senior Credit Facility). The Amended Senior Credit Facility provided
for an additional term loan commitment of $110,000,000. In July 1995,
the Partnership exercised the $110,000,000 term loan commitment in
connection with the Keymarket acquisition.
(Continued)
<PAGE>
7
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
At December 31, 1995 the Partnership had outstanding borrowings of
$213,000,000 under the revolving loan commitment. The revolving loan
commitment of $230,000,000 is reduced as follows: $9,200,000 each
quarter beginning December 31, 1995 through December 31, 1999;
$10,750,000 each quarter through December 31, 2000; and $15,300,000
each quarter through June 30, 2001. The term loan is payable in
increasing quarterly installments through December 2002. Accelerated
principal payments are required upon the Partnership meeting certain
financial objectives or upon the occurrence of certain other events as
defined in the Amended Senior Credit Facility. Borrowings are secured
by substantially all of the Partnership's assets and by a lien on all
limited partner interests. The Amended Senior Credit Facility includes
certain covenants which, among other things, require the Partnership
to meet certain financial performance goals and maintain certain
financial ratios, limit capital expenditures, and limit the incurrence
of additional indebtedness.
Under terms of the Amended Senior Credit Facility, the Partnership has
the option to elect from various interest rate options. The Amended
Senior Credit Facility also includes a provision whereby the interest
rate is adjusted each quarter based on River City Broadcasting's
financial performance. Substantially all amounts borrowed under the
Amended Senior Credit Facility accrue interest based on the LIBOR
rate. At December 31, 1995, the Company's effective borrowing rate
under this agreement, including the effect of interest rate risk
management activities, was 8.7%. The Amended Senior Credit Facility
requires the Partnership to pay unused commitment fees (term and
revolver) at 3/8 of 1%, payable quarterly.
Theaggregate maturities of long-term debt reflect scheduled principal
payments due under the term loan commitment and the required principal
reductions on the revolving loan commitment and are as follows:
Year ending December 31:
1996 $ 38,587,000
1997 46,387,000
1998 51,175,000
1999 55,963,000
2000 73,663,000
Thereafter 177,225,000
-----------
$ 443,000,000
===========
(7) Interest Rate Risk Management
-----------------------------
The Partnership uses a combination of financial instruments, including
interest rate swaps, interest rate caps, interest rate collars, and
forward rate agreements, as part of its program to manage the floating
interest rate risk of its debt portfolio and related overall cost of
borrowing. These financial instruments, which are for nontrading
purposes, allow the Partnership to maintain a target range of fixed
rate debt. The Amended Senior Credit Facility requires the Partnership
to hedge 50% of its floating rate risk through December 1997.
Interest rate swaps involve the exchange of floating rate for fixed rate
interest payments to effectively convert floating rate debt to fixed
rate debt. The interest rate swap agreement is for a term of
approximately three years and matures December 1997.
(Continued)
<PAGE>
8
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
The Partnership purchased interest rate caps to convert floating rate
debt to a fixed rate if such rates rise above 9.5%. The cost of the
interest rate caps totaled approximately $613,000 and is being
amortized over the term of the agreements, generally three years. The
unamortized balance is approximately $408,000 at December 31, 1995.
Interest rate cap agreements mature in December 1997 and January 1998.
Interest rate collars involve the conversion of floating rate debt to a
fixed rate if such rates exceed 9.5% or fall below a specified floor
rate (generally 4.0%-4.2%). Such agreements mature in December 1997.
Forward rate agreements are short-term contracts (generally 3-6 months)
which allow the Partnership to lock in its effective LIBOR rates over
short-term periods. Such agreements mature January 1996 through April
1996.
The following financial instruments were held at December 31, 1995:
Notional Fair
amounts value
-------- -----
Interest rate swap $ 50,000,000 $(2,103,000)
Interest rate caps 105,000,000 12,000
Interest rate collars 70,000,000 (91,000)
Forward rate agreements 411,000,000 (304,000)
=========== =========
Estimated fair values shown above only represent the value of the hedge
or swap component of these transactions, and thus are not indicative
of the Partnership's overall hedged position. As fully hedged
transactions, the estimated fair values of the interest rate financial
instruments do not affect income and are not recorded in the
consolidated financial statements, but rather only represent the
amount which would be required to close the Partnership's position in
the financial instruments at December 31, 1995.
(8) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
Cash and Cash Equivalents, Receivables, and Payables - The carrying
amount approximates fair value because of the short-term maturity
of these instruments.
Long-Term Investment - The Partnership holds a 16% interest in a
partnership for which there are no quoted market prices. A
reasonable estimate of fair value could not be made. The
investment is carried at its cost of $1,654,000 in the
consolidated balance sheet.
Long-Term Debt - The fair value of the Partnership's debt is estimated
based on the current rates offered to the Partnership for debt of
the same remaining maturities. The carrying amount approximates
fair value because of the variable interest rate attached to the
debt.
(Continued)
<PAGE>
9
RIVER CITY BROADCASTIN
Notes to Consolidated Financial Statements
Program Rights Payable - The fair value of film contracts payable is
the present value of the future obligations based on the current
rates available to the Partnership for debt of similar maturity.
The carrying amount and fair value of program rights payable at
December 31, 1995 were $56,223,000 and $48,494,000, respectively.
(9) Local Marketing Agreement
In August 1995 the Partnership entered into a five-year LMA with KRRT,
Inc. (Licensee). In a related transaction, the Partnership loaned
$10,000,000 to the Licensee. The related note bears interest at 8%.
Pursuant to the LMA, KRRT-TV of Kerrville, Texas (the brokered
station) will air programming provided by River City Broadcasting in
exchange for specified compensation. Such compensation is principally
based on certain station operating costs of the brokered station,
including debt service. River City Broadcasting will retain all
advertising revenues derived from programming for which it has
provided. The LMA is cancellable by the Licensee or River City
Broadcasting.
(10) Equity Debentures
In connection with the purchase of KDSM-TV and the first amendment of the
Limited Partnership Agreement, River City Broadcasting issued two
debentures totaling $2,500,000. These debentures were issued in
consideration of, among other things, consent granted by a certain
partner allowing River City Broadcasting to complete certain
transactions as contained in the respective debenture agreements.
Amounts due under the debenture agreements were to be satisfied
through equity distributions made in accordance with terms of the
Limited Partnership Agreement. Accordingly, for financial reporting
purposes, the debentures were treated as equity preference items and
the related principal and accrued interest were not reflected (as
liabilities or as equity) in the consolidated financial statements of
River City Broadcasting. Concurrent with the Recapitalization, these
debentures were satisfied through an equity distribution to the
partner.
(11) Supplemental Cash Flow and Other Financial Information
Cash paid for interest totaled approximately $6,106,000, $11,523,000,
and $29,249,000 for the years ended December 31, 1993, 1994, and 1995,
respectively.
River City Broadcasting purchased program rights, on an installment
basis, amounting to approximately $16,285,000, $15,749,000, and
$38,401,000 in 1993, 1994, and 1995, respectively. Amounts reflected
as retirements of program rights payable represent amounts actually
paid to vendors under various program rights agreements.
In connection with the Keymarket acquisition, the Partnership granted
$10,000,000 of limited partner units to the Keymarket seller.
Cash overdrafts amounting to approximately $3,959,000 were included in
accounts payable at December 31, 1995.
Based on certain events, including network affiliation changes at certain
broadcast properties, management performed a review of program rights
to determine projected usage and revenue streams. Based on this
review, the Partnership wrote off certain programming and recognized a
charge of approximately $7,100,000 to operations for the year ended
December 31, 1995.
Pursuant to the deferred compensation agreements and Phantom Warrant
Units described in note 2, the Partnership recognized approximately
$1,161,000, $3,236,000, and $1,143,000 of deferred compensation
expense in 1993, 1994, and 1995, respectively.
At December 31, 1994, the Partnership recorded a distribution payable of
$2,274,613 in anticipation of income taxes due by the partners as
described in note 2. In accordance with the Limited Partnership
Agreement this distribution was paid in 1995.
In 1993, River City Broadcasting retired a $1,000,000 subordinated
debenture for $8,191,527. This amount includes accrued interest of
$350,443 of which $101,327
(Continued)
<PAGE>
10
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
represents 1993 interest expense. The debenture contained a contingent
interest provision, determined based on certain equity like features,
which was triggered concurrent with the Recapitalization. Retirement
of this debenture was effected through its conversion to a limited
partnership interest and a charge to interest expense of $7,191,527
(see note 16).
(12) Extraordinary Items
-------------------
Concurrently with the Recapitalization in 1993, the Partnership
redeemed, through conversion to equity, the $1,000,000 1989
subordinated debenture for $8,191,527, including accrued interest of
$350,443. This redemption was treated as an early extinguishment of
debt for financial reporting purposes.
As described in note 7, the Partnership redeemed $118,450,000 of the
outstanding Continental notes with a put premium of $1,184,500.
Additionally, in connection with the extinguishment of its prior
Amended Senior Credit Facility, the Partnership expensed approximately
$2,164,000 of related deferred financing fees. These items were
treated as an early extinguishment of debt for financial reporting
purposes.
(13) Related Party Transactions
--------------------------
Prior to the Recapitalization, the general partner received a management
fee from each station primarily based on the individual station's
revenues. Subsequent to the Recapitalization, the general partner no
longer received management fees. Pursuant to the Recapitalization,
corporate expenses are allocated to each station to cover the
salaries and expenses of senior management. Such allocation is based
upon certain financial information and management's estimate of
actual time spent. Management believes the allocation is reasonable
and approximates what the expenses would have been on a stand-alone
basis. In 1993, management fees totaling approximately $1,220,000
were paid to a general partner whose interest was redeemed concurrent
with the Recapitalization. Beginning in 1994, costs associated with
certain members of senior management were allocated to corporate
expenses. Previously, these costs were included in station operating
expenses. Total management fees and expenses, including corporate
expenses, for the years ended December 31, 1993, 1994, and 1995
amounted to approximately $1,873,000, $2,498,000 and $4,482,000,
respectively.
(Continued)
<PAGE>
11
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
(14) Employee Benefits
-----------------
River City Broadcasting maintains a qualified profit-sharing plan with a
trustee, which includes a thrift provision qualifying under Section
401(k) of the Internal Revenue Code, covering substantially all
employees. The provision allows the participants to contribute up to
12% of their compensation in the plan year, subject to statutory
limitations. River City Broadcasting contributed approximately
$121,000, $215,000, and $388,000 for the years ended December 31,
1993, 1994, and 1995, respectively, to the Plan.
In 1994, River City Broadcasting began contributing to a multi-employer
plan on behalf of certain union employees. Contributions to the plan
totaled approximately $20,000 and $31,000 for the years ended
December 31, 1994 and 1995, respectively.
(15) Commitments and Contingencies
-----------------------------
In conjunction with River City Broadcasting's commitment to obtain new
programming, the Partnership has purchased approximately $34,579,000
of future program rights, including $14,089,000 of sports rights, of
which approximately $4,047,000 will become payable in 1996. These
rights are generally for a period ranging from one to four years.
Program rights and related obligations in the accompanying
consolidated financial statements do not include these future
commitments.
The Partnership loaned approximately $6,200,000 to Keymarket of South
Carolina (KSC), a Company owned by a member of Keymarket management.
The loan bears interest at the applicable federal rate, is secured by
all of the assets of KSC, and is payable upon demand by the
Partnership. KSC owns three radio stations and operates two additional
radio stations under an LMA. River City Broadcasting holds an option
to acquire KSC for consideration totaling the amount of the loans
outstanding, including accrued interest, plus $1,000,000.
The Partnership has capitalized approximately $1,400,000 of fees
associated with a bond offering filed with the SEC in 1995. In the
event the offering is aborted, the Partnership will recognize a charge
to operations of $1,400,000. If the offering is consummated, these
fees will be amortized over the life of the bonds.
River City Broadcasting is involved in certain litigation matters arising
in the normal course of business. In the opinion of management, these
matters are not significant and will not have a material adverse
effect on the Partnership's financial position.
(16) Subsequent Event
----------------
In January 1996, the Partnership acquired the remaining 40% partnership
interest in Twin Peaks Radio which owned and operated three radio
stations in the Albuquerque, New Mexico area.
(Continued)
<PAGE>
Schedule 1
----------
<PAGE>
Schedule 2
----------
<PAGE>
<TABLE>
<CAPTION>
RIVER CITY BROADCASTING
Supplementary Information - Consolidating Balance Sheet
December 31, 1995
WTTV-TV/
Assets KDNL-TV KABB-TV KDSM-TV WTTK-TV KOVR-TV
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equiva-
lents $ 136,987 663,728 61,963 257,698 276,919
Receivables, net 9,446,816 6,475,645 1,971,162 7,524,596 5,333,369
Current portion of
program rights 5,048,222 4,990,635 990,783 7,557,344 2,270,161
Prepaid and other
current assets 2,762,779 404,158 177,762 115,647 101,716
---------- -------- -------- -------- --------
Total current
assets 17,394,804 12,534,166 3,201,670 15,455,285 7,982,165
Property and equipment,
net 13,398,013 6,071,055 1,628,463 6,306,885 25,573,822
Program rights, less
current portion 3,804,258 3,727,993 805,856 9,598,582 458,149
Intangible assets, net 13,834,974 330,825 2,979,140 4,981,976 53,061,805
Other noncurrent assets 18,862,013 114,830 - 577,465 1,034,217
Intracompany receivable
(payable) 419,533,197 6,829,155 (5,474,147) (6,508,035) (81,859,044)
----------- ---------- --------- ---------- ----------
Total assets $ 486,827,259 29,608,024 3,140,982 30,412,158 6,251,114
=========== ========== ========= ========== ==========
WLOS-TV/ KPNT-FM/
Assets WSYX-TV WFBC-TV WVRV-FM KEYMARKET Consolidated
------ ------- ------- ------- ------- -------
Current assets:
Cash and cash equiva-
lents 150,287 167,249 418 1,294,700 3,009,949
Receivables, net 6,767,482 4,861,239 1,094,329 12,226,334 55,700,972
Current portion of
program rights 1,432,430 986,192 - - 23,275,767
Prepaid and other
current assets 302,959 399,386 18,945 173,000 4,456,352
---------- -------- -------- -------- --------
Total current
assets 8,653,158 6,414,066 1,113,692 13,694,034 86,443,040
Property and equipment,
net 15,504,051 15,949,746 2,081,073 9,756,836 96,269,944
Program rights, less
current portion 917,035 338,344 - - 19,650,217
Intangible assets, net 113,401,363 33,195,000 4,375,786 124,717,488 350,878,357
Other noncurrent assets - - - - 20,588,525
Intracompany receivable
(payable) (128,728,876) (48,106,061) (11,616,036) (144,070,153) -
----------- ---------- ---------- ----------- ----------
Total assets $ 9,746,731 7,791,095 (4,045,485) 4,098,205 573,830,083
========== ========== ========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Liabilities and
Partners' Capital (Deficit)
Current liabilities:
Current installments of
long-term debt 38,587,000 - - - -
Current installments of
Program rights payable 6,152,592 4,610,141 1,322,747 10,670,157 2,992,716
Accrued expenses 5,881,279 849,425 534,880 912,655 987,257
Accounts payable 3,907,463 573,611 372,024 306,187 13,758
---------- -------- -------- -------- -------
Total current
liabilities 54,528,334 6,033,177 2,229,651 11,888,999 3,993,731
Long-term debt, less
current installments 404,413,000 - - - -
Program rights payable,
less current install-
ments 7,655,070 6,095,348 1,339,883 9,919,146 1,104,898 1,173,874
Deferred compensation 5,459,000 - - - 57,833
---------- --- --- --- -------
Total liabilities 472,055,404 12,128,525 3,569,534 21,808,145 5,156,462
Partners' capital (deficit) 14,771,855 17,479,499 (428,552) 8,604,013 1,094,652
----------- ---------- --------- ---------- ----------
Total liabilities
and partners'
capital
(deficit) $ 486,827,259 29,608,024 3,140,982 30,412,158 6,251,114
=========== ========== ========= ========== ==========
Liabilities and
Partners' Capital (Deficit)
Current liabilities:
Current installments of
long-term debt - - - - 38,587,000
Current installments of
Program rights payable 1,726,769 1,343,423 - 1,253,000 30,071,545
Accrued expenses 515,993 980,540 422,952 1,377,435 12,462,416
Accounts payable 282,022 52,453 1,207 1,415,521 6,924,246
-------- ------- ------ ---------- ----------
Total current
liabilities 2,524,784 2,376,416 424,159 4,045,956 88,045,207
Long-term debt, less
current installments - - - - 404,413,000
Program rights payable,
less current install-
ments 7,655,070 291,382 - - 27,579,601
Deferred compensation - - - - 5,516,833
--- --- --- --- ----------
Total liabilities 3,698,658 2,667,798 424,159 4,045,956 525,554,641
Partners' capital (deficit) 6,048,073 5,123,297 (4,469,644) 52,249 48,275,442
---------- ---------- ---------- ------- -----------
Total liabilities
and partners'
capital
(deficit) $ 9,746,731 7,791,095 (4,045,485) 4,098,205 573,830,083
========== ========== ========== ========== ===========
<FN>
Note: Financing for the Partnership's acquisitions and working capital needs,
the acquisition of Twin Peaks, and Partnership distributions are included
in KDNL-TV.
</FN>
</TABLE>
See accompanying independent auditors' report.
<PAGE>
<TABLE>
<CAPTION>
RIVER CITY BROADCASTING
Supplementary Information - Consolidating Schedule of Operations
Year ended December 31, 1995
WTTV-TV/
KDNL-TV KABB-TV KDSM-TV WTTK-TV KOVR-TV WSYX-TV
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues:
Local time sales $ 15,219,598 9,291,868 4,327,637 14,617,850 10,941,996 15,378,536
National time sales 10,572,978 10,260,740 2,844,380 10,481,144 12,358,279 12,067,694
Other revenues 1,438,516 1,544,350 306,137 924,624 2,045,354 1,320,056
---------- ---------- -------- -------- ---------- ----------
Total operating
revenues 27,231,092 21,096,958 7,478,154 26,023,618 25,345,629 28,766,286
---------- ---------- --------- ---------- ---------- ----------
Operating costs:
Station operating expenses 9,043,580 6,355,009 1,972,370 4,927,980 11,095,313 8,133,543
Selling expenses 3,654,498 2,993,809 1,516,619 3,038,069 2,945,963 2,452,770
Program amortization
expense 7,571,430 3,979,706 1,504,520 8,385,108 5,386,975 2,623,583
Corporate expenses 649,508 500,000 - 550,000 400,000 700,000
Depreciation 633,464 713,700 897,220 2,283,646 2,680,064 2,107,422
Amortization of intangi-
ble assets 1,010,731 97,507 936,720 2,239,389 3,771,848 9,779,555
---------- ------- -------- ---------- ---------- ----------
Total operating
costs 22,563,211 14,639,731 6,827,449 21,424,192 26,280,163 25,796,873
---------- ---------- --------- ---------- ---------- ----------
Operating income
(loss) 4,667,881 6,457,227 650,705 4,599,426 (934,534) 2,969,413
---------- ---------- -------- ---------- --------- ----------
Other income (expense):
Interest expense (32,986,956) - - (100,677) - -
Amortization of de-
ferred financing
costs and debt
discount (1,434,904) - - - - -
Interest income 1,697,599 3,965 - - - -
Other - - 12,041 (98,111) 170,633 (56,771) (50,408
---------- --- ------- -------- -------- -------- --------
(32,724,261) 3,965 12,041 (198,788) 170,633 (56,771
---------- ------ ------- --------- -------- --------
Net earnings
(loss) $(28,056,380) 6,461,192 662,746 4,400,638 (763,901) 2,912,642
========== ========== ======== ========== ========= ==========
WLOS-TV/ KPNT-FM/
WFBC-TV WVRV-FM KEYMARKET Consolidated
------- ------- --------- ------------
Net operating revenues:
Local time sales 9,350,343 4,334,425 24,128,844 107,591,097
National time sales 8,407,648 322,655 2,629,669 69,945,187
Other revenues 1,566,790 363,859 1,144,174 10,653,860
---------- -------- ---------- -----------
Total operating
revenues 19,324,781 5,020,939 27,902,687 188,190,144
---------- --------- ---------- -----------
Operating costs:
Station operating expenses 6,808,280 2,313,721 11,390,894 62,040,690
Selling expenses 2,310,355 1,407,484 5,654,093 25,973,660
Program amortization
expense 1,600,930 - 2,400,000 33,452,252
Corporate expenses 400,000 204,333 1,078,523 4,482,364
Depreciation 1,930,747 (91,281) 368,544 11,523,526
Amortization of intangi-
ble assets 2,463,069 378,430 6,971,924 27,649,173
---------- -------- ---------- -----------
Total operating
costs 15,513,381 4,212,687 27,863,978 165,121,665
---------- --------- ---------- -----------
Operating income
(loss) 3,811,400 808,252 38,709 23,068,479
---------- -------- ------- -----------
Other income (expense):
Interest expense - - - (33,087,633)
Amortization of de-
ferred financing
costs and debt
discount - - - (1,434,904)
Interest income - - 13,540 1,715,104
Other - - - (22,616)
---------- --- --- --------
(50,408) - 13,540 (32,830,049)
-------- --- ------- -----------
Net earnings
(loss) 3,760,992 808,252 52,249 (9,761,570)
========== ======== ======= ===========
<FN>
Note: Interest expense related to the financing of the Partnership's
acquisitions and working capital needs, organization costs of the
Partnerships, the acquisition of Twin Peaks, and deferred compensation
expense are included in KDNL-TV.
</FN>
</TABLE>
See accompanying independent auditors' report.
<PAGE>
INDEX TO EXHIBITS
EXHIBITS DESCRIPTION
10.70 Asset Purchase Agreement dated April 10, 1996 is by and
between KRRP, and Inc. and Sinclair Broadcast Group, Inc.
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT is dated as of April ____, 1996, and is
by and between KRRT, Inc., a corporation duly organized under the law of the
State of Texas ("Seller"), and Sinclair Broadcast Group, Inc., a corporation
duly organized under the laws of the State of Maryland ("Buyer").
RECITALS
--------
WHEREAS, Seller owns certain assets used in connection with the
business and operation of KRRT-TV, Channel 35, in Kerrville, Texas (the
"Station").
WHEREAS, Seller desires to sell, assign, and transfer certain assets
useful in connection with the operation of the Station described in more detail
below, and Buyer desires to acquire these certain assets described in more
detail below, all on the terms and conditions described herein.
NOW, THEREFORE, IN CONSIDERATION OF the foregoing and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
---------
TRANSFER OF ASSETS
------------------
1.1. Transfer of Assets. Upon and subject to the terms and conditions
stated in this Agreement, on the Closing Date (as defined in Section 2.3 hereof)
Seller shall convey, transfer, and deliver to Buyer and Buyer shall acquire from
Seller certain of the assets and properties of Seller, real and personal,
tangible and intangible, which are owned and used by Seller in connection with
the business and operations of the Station, including, without limitation,
rights under contracts and leases, real and personal property, plant and
equipment, inventories, intangibles, but excluding the Excluded Assets described
in Section 1.2 hereof. The rights, assets, property, and business of Seller with
respect to the Station to be transferred to Buyer pursuant to this Section 1.1
are hereinafter referred to as the "Station Assets."
The Station Assets include the following:
(a) Tangible Personal Property. All equipment, vehicles,
furniture, fixtures, office materials and supplies, spare parts and other
tangible personal property of every kind and description owned as of the date of
this Agreement by Seller and used in connection with the business and operations
of the Station, including, without
<PAGE>
limitation, those shown on Schedule 1.1(a) to this Agreement, and any additions,
improvements, replacements, and alterations thereto made between the date of
this Agreement and the Closing Date, but excluding all such property which is
consumed, retired, or disposed of by Seller in the ordinary course of its
business between the date of this Agreement and the Closing Date or as otherwise
permitted by this Agreement.
(b) Real Property. All real property owned (the "Real
Property"), and all buildings, structures, and improvements thereon (the "Real
Property Improvements") used in the business and operations of the Station and
all other leaseholds and other interests in real property (the "Leasehold
Interests") listed and so designed on Schedule 1.1(b) to this Agreement.
(c) Agreements for Sale of Time. All orders and agreements now
existing or entered into in the Station's ordinary course of business between
the date hereof and the Closing Date for the sale of advertising time on the
Station to the extent unperformed as of the Closing Date.
(d) Program Contracts. All program licenses and contracts
listed on Schedule 1.1(d) under which Seller is authorized to broadcast film
product or programs on the Station, other than the Excluded Contracts (as
defined in Section 1.2(j)), together with all program licenses and contracts
that will have been entered into in the ordinary course of business of the
Station and which have been reviewed with and accepted by the Buyer between the
date of this Agreement and the Closing Date and the making of which by Seller
are permitted by this Agreement, to the extent existing as of the Closing Date
(collectively, the "Program Contracts").
(e) Other Contracts. All contracts relating to the Station to
which Seller is a party, including trade or barter arrangements, (in addition to
and not included in those set forth in Sections 1.1(b), 1.1(c) and 1.1(d)
hereof) (collectively, "Other Contracts"), including all agreements, equipment
leases, and other leases listed on Schedule 1.1(e) to this Agreement, together
with all such contracts that will have been entered into in the ordinary course
of business of the Station between the date of this Agreement and the Closing
Date and the making of which by Seller is permitted by this Agreement, to the
extent existing as of the Closing Date. As used in this Agreement, "Contract"
means any agreement, lease, arrangement, commitment, or understanding, written
or oral, expressed or implied, to which the Station, or Seller with respect to
the Station, is a party or is bound.
(f) Trademarks, etc. All trademarks, service marks, patents,
trade names, jingles, slogans, and logotypes (other than those set forth in
Section 1.2(a) "Trademarks, etc.") owned and used by Seller in connection with
the business and
2
<PAGE>
operations of the Station as of the date hereof listed on Schedule 1.1(f) to
this Agreement ("Trademarks, etc.") as well as any others acquired by Seller in
connection with operation of the Station between the date hereof and the Closing
Date.
(g) Programming Copyrights. All program and programming
materials and elements of whatever form or nature owned by Seller and used
solely in connection with the business and operations of the Station as of the
date hereof, whether recorded on tape or any other substance or intended for
live performance, and whether completed or in production, and all related common
law and statutory copyrights owned by or licensed to Seller and used in
connection with the business and operations of the Station, together with all
such programs, materials, elements, and copyrights acquired between the date
hereof and the Closing Date as set forth on Schedule 1.1(g) to this Agreement
(collectively, the "Programming Copyrights").
(h) Files and Records. All files and other records of Seller
relating solely to the business and operations of the Station prior to the
Closing, other than account books of original entry and other than duplicate
copies of such files and records, if any, that are maintained at the corporate
offices of Seller for tax and accounting purposes.
(i) Goodwill. All of Seller's goodwill in and going concern
value associated with the Station Assets.
(j) Prepaid Items. All deposits and prepaid expenses (which
shall be prorated as provided in Section 2.2 below).
(k) Financial Statements, Books, and Records. Copies of all
financial statements (whether internal, compilation, reviewed, or audited),
including all books, records, accounts, checks, payment records, tax records
(including payroll, unemployment, real estate, and other tax records), and other
such similar books and records of Seller with respect to the Station for three
(3) fiscal years immediately preceding the date hereof and all interim periods
following the date hereof through and including the Closing.
(l) Network Affiliation Agreements. Any and all of the
Station's network affiliation agreements, including, but not limited to,
Seller's affiliation agreement with the United Paramount Network ("UPN") listed
on Schedule 1.1(e) to this Agreement.
(m) News Materials. All news files, archives, tapes, and other
materials stored or used by Seller relating to the news operation, if any, of
the Station, including, but not limited to, any raw film footage and other
similar materials, existing as of the
3
<PAGE>
date of this Agreement and through the Closing Date, except for such materials
that may be disposed of or consumed in the ordinary course of business.
1.2. Excluded Assets. There shall be excluded from the Station Assets
and retained by Seller, to the extent in existence on the Closing Date, the
following assets (the "Excluded Assets"):
(a) Trademarks, etc. Seller's rights to use the call letters
KRRT-TV in any related names and phrases as designed as such on Schedule 1.2(a)
("Excluded Trademarks, Etc.")
(b) Cash. All cash, cash equivalents, and cash items of any
kind whatsoever, certificates of deposit, money market instruments, bank
balances, and rights in and to bank accounts, marketable and other securities of
Seller.
(c) Personal Property Disposed Of. All tangible personal
property disposed of or consumed in the ordinary course of the business of the
Station between the date of this Agreement and the Closing Date.
(d) Insurance. All contracts of insurance and all insurance
plans and the assets thereof.
(e) Claims. Any and all claims of Seller with respect to
transactions occurring prior to the Closing Date, including, without limitation,
claims for tax refunds and claims of Seller under contracts with respect to
events occurring prior to the Closing Date.
(f) Name. Any right to use the names "JJK Broadcasting, Inc.,"
KRRT, Inc.," "KRRT Licensee Corp.," or any logo or variation thereof.
(g) Pension Assets, Etc. Pension, profit sharing, retirement,
bonus, stock purchase, savings plans and trusts, 401(k) plans, health insurance
plans, and the assets thereof, and all other plans, agreements, or
understandings to provide employee benefits of any kind for employees of Seller.
(h) Certain Contracts. The agreements listed on Schedule
1.2(h) hereof (the "Excluded Contracts") and any contract which is not capable
of being transferred or assigned without the approval or consent of any party
thereto or any third party if such approval or consent has not been obtained,
subject, however, to Sections 1.3 and 8.6 hereof.
4
<PAGE>
(i) Certain Books and Records. Seller's account books of
original entry with respect to the Station, and all original books, records,
accounts, checks, payment records, tax records (including payroll, unemployment,
real estate, and other tax records), and other similar books, records, and
information of Seller relating to Seller's operation of the business of the
Station prior to Closing, with the proviso that Buyer shall be allowed to
maintain copies of all such records and/or upon a written request for same shall
be allowed further access to all excluded records at all reasonable times.
(j) FCC Licenses and Licensee Equipment. All FCC station
licenses issued with respect to the Station and all applications, including
renewal applications, filed with the FCC with respect to the Station, and all
antennae, transmitters, engineering equipment, etc. which are necessary and
required by the FCC or otherwise and as listed on Schedule 1.2(j) hereof for the
proper, legal, and effective operation of the Station as a broadcast facility.
(k) Receivables. All notes and accounts receivable and other
receivables of Seller relating to or arising out of the operation of the Station
prior to Closing.
1.3. Liabilities. The Station Assets shall be sold and conveyed to
Buyer free and clear of all liens, security interests, and encumbrances except
(a) those disclosed on Schedules 1.3 and 3.6 hereto as "continuing" and the
leases listed on Schedules 1.1(b) and 1.1(e); (b) liens or encumbrances on the
real property included in the Station Assets that do not materially affect the
value or the current use and enjoyment thereof in the operation of the Station
Assets; and (c) the Assumed Liabilities (as hereinafter defined) and the other
obligations and liabilities of Buyer assumed hereunder (all of the foregoing are
sometimes referred to collectively herein as "Permitted Encumbrances"). Buyer
agrees that on the Closing Date Buyer shall assume, undertake, and agree to pay,
satisfy, perform, and discharge only those liabilities and obligations of Seller
which have not yet accrued but which arise on or after the Closing Date under
the contracts assigned pursuant to Sections 1.1(b), (c), (d), and (e) and any
contracts that are entered into after the date hereof as permitted by this
Agreement (all of the foregoing are referred to herein collectively as the
"Assumed Liabilities").
If any required approval of or consent to the transfer and assignment
of any contract included in the Station Assets is not obtained, Buyer shall
assume and shall pay, satisfy, perform, and discharge Seller's liabilities and
obligations which arise thereunder on and after the Closing Date unless Buyer's
enjoyment of the rights and benefits under any such contract is expressly
terminated by the other party thereto by affirmative action within twelve (12)
months after the Closing Date because of such failure to obtain approval or
consent and not because of any other default or nonperformance by Buyer or of a
failure of Buyer to comply with the provisions of Section 6.5 below. The
liabilities
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and obligations assumed pursuant to the immediately preceding sentence shall
also constitute "Assumed Liabilities" for purposes of this Agreement.
Buyer shall not assume or be liable for (a) any liability or obligation
arising out of the business or operations of the Station or the Station Assets
prior to the Closing Date (except for the Assumed Liabilities and other
obligations and liabilities specifically assumed by Buyer hereunder); (b) any
liability or obligation under any contracts not specifically assumed by Buyer
hereunder; (c) any liability or obligation of Seller for any federal, state, or
local income or other taxes (subject, in the case of real estate taxes, to the
proration provided for in Section 2.2 hereof); (d) any liability or obligation
with respect to the Excluded Contracts; (e) any liability or obligation to any
employee or former employee of Seller or the Station attributable to any period
of time prior to the Closing Date; (f) any liability or obligation of Seller
arising out of any litigation, proceeding, or claim by any person or entity
relating to the business or operations of the Station or the Station Assets by
Seller prior to the Closing Date, whether or not such litigation, proceeding, or
claim is pending, threatened, or asserted before, on, or after the Closing Date;
(g) any severance or other liability arising out of the termination of any
employee's employment with or by Seller; (h) any duty, obligation, or liability
relating to any pension, 401(k) or other similar plan, agreement, or arrangement
provided by Seller to employees of Seller, and none of such plans shall be
assumed by Buyer; or (i) any liability or obligation of Seller to Bank of
Montreal or River City Broadcasting, L.P. The foregoing paragraph shall act
exclusively for the benefit of the parties to this Agreement and not for the
benefit of any other person or entity.
To the extent, if any, Seller makes payment to Buyer as a result of any
proration and adjustment pursuant to Section 2.2 hereof, Buyer shall then assume
and shall be obligated to pay the obligations and liabilities for which
adjustment was made pursuant to Section 2.2.
Seller shall not be liable for (a) any liability or obligation arising
out of the business or operations of the Station by Buyer on or after the
Closing Date; (b) any Assumed Liabilities or other liabilities and obligations
assumed by the Buyer under this Agreement; (c) any liability or obligation of
Buyer for any federal, state, or local income or other taxes; (d) any liability
or obligation incurred or assumed by Buyer with respect to any Station Assets;
(e) any liability or obligation to any employee or former employee of Buyer
attributable to any period of time on or after the Closing Date; (f) any
liability or obligation of Buyer arising out of any litigation, proceeding, or
claim by any person or entity relating to the business or operation of the
Station Assets by Buyer on or after the Closing Date; or (g) any duty,
obligation, or liability relating to any pension, 401(k) or other similar plan,
agreement, or arrangement provided by Buyer to employees of Buyer.
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ARTICLE 2
---------
PURCHASE/CLOSING
----------------
2.1. Purchase Price.
--------------
(a) In consideration of Seller's performance of this Agreement
and the transfer and delivery of the Station Assets to Buyer at the Closing,
Buyer will pay to Seller the purchase price which shall be calculated as set
forth on Schedule 2.1 to this Agreement (the "Purchase Price"), plus or minus
the amount of any adjustments made pursuant to Section 2.2 below, and Buyer will
assume the Assumed Liabilities and the other obligations and liabilities to be
assumed by Buyer hereunder. The Purchase Price shall be paid by Buyer to Seller
on the Closing Date by wire transfer of immediately available funds to such bank
accounts as are designated by Seller on or prior to the Closing Date.
(b) Buyer and Seller agree to allocate the Purchase Price
among the Station Assets based on an appraisal of a recognized appraisal firm
selected by Buyer which is reasonably acceptable to Seller, whose fee shall be
paid by Buyer. Subject to the immediately preceding sentence, Buyer and Seller
agree to file returns and reports (including income tax returns) on the basis of
such allocations provided that they are reasonable. Buyer shall provide Seller
with a copy of such appraisal as soon as available but, in no event, not later
than April 15, 1996.
2.2. Adjustments.
-----------
(a) Operation of the Station and the income, expenses, and
liabilities attributable thereto through 11:59 p.m. on the day preceding the
Closing Date (the "Adjustment Date") shall be for the account of Seller and,
thereafter, for the account of Buyer, and shall be prorated accordingly. Items
including, but not limited to, power and utilities charges, ad valorem property
taxes upon the basis of the most recent assessment available, rents, and similar
prepared and deferred items, shall be prorated between Seller and Buyer, the
proration to be made as of the Adjustment Date. All special assessments and
similar charges or liens imposed against the Real Property, Leasehold Interests,
or Real Property Improvements in respect of any period of time through the
Adjustment Date, whether payable in installments or otherwise, shall be the
responsibility of Seller, and amounts payable with respect to such special
assessments, charges, or liens in respect of any period of time after the
Adjustment Date shall be the responsibility of Buyer and shall be adjusted as
required hereunder.
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All trade, barter, or similar arrangements for the sale of
advertising time other than for cash (with the exception of film or program
barter agreements and radio barter agreements) ("Trades") shall be prorated as
of the Adjustment Date. If, on the Closing Date, the aggregate value of the
Station's performance obligations on or after the Closing Date under all such
Trades, less the aggregate value of the goods, services, or other items to be
received thereunder on or after the Closing Date, exceeds $50,000.00, then Buyer
shall receive a credit against the Purchase Price for the amount of such excess
and, if on the Closing Date, aggregate value of the goods, services, or other
items to be received under all Trades exceeds the Station's performance
obligations on or after the Closing Date by more than $50,000.00, then the
Purchase Price shall be increased by the amount of such excess. Trades shall be
valued in accordance with the valuation method currently used by Seller and
approved by Buyer. There shall be no other proration or adjustment with respect
to Trades, and there shall be no proration or adjustment with respect to any
film or program barter agreements, radio barter agreements, or program contracts
all of which shall be assumed by Buyer as part of the Assumed Liabilities.
(b) On the Closing Date, to the extent practicable, the
adjustments provided in Section 2.2(a) shall be made on the basis of the then
most recently available financial statements and other information of the
Station (the "Preliminary Adjustments"). Within forty five (45) days after the
Closing Date, Buyer shall prepare a closing balance sheet (the "Closing Balance
Sheet") as of the close of business on the Adjustment Date and submit it to
Seller for review. Within seventy five (75) days after the Closing Date, final
adjustments pursuant to Section 2.2 shall be determined, and any required refund
or payment shall be made on the basis of the Closing Balance Sheet. Upon
acceptance, payment hereunder will be remitted within five (5) days thereafter.
If any dispute arises over the amount to be refunded or paid, such refund or
payment shall nonetheless be made to the extent such amount is not in dispute.
If any such dispute cannot be resolved by the parties or their
respective independent public accountants within ninety (90) days after the
Closing Date, the disputed matters shall be referred to a mutually satisfactory
independent public accounting firm of national stature which has not been
employed by any party hereto for the two (2) years preceding the date of such
referral; such firm to be selected by Seller's and Buyer's respective
independent public accountants. The determination of such firm shall be
conclusive and binding on each party. One half of the fees of such firm shall be
paid by Seller, and one half shall be paid by Buyer.
2.3. The Closing. The closing of the transactions provided for in this
Agreement (the "Closing") shall be held in the offices of Thomas & Libowitz,
P.A., USF&G Tower, Suite 1100, 100 Light Street, Baltimore, Maryland 21202, or
such other location as Buyer may select at 10:00 a.m. on a date (the "Closing
Date") as shall be set by Buyer upon
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five (5) days previous notice to Seller, which is not later than December 31,
1996 (the "Termination Date").
2.4. Deliveries at Closing. All actions at the Closing shall be deemed
to occur simultaneously, and no document or payment shall be deemed to be
delivered or made until all documents and payments are delivered or made to the
reasonable satisfaction of Buyer, Seller, and their respective counsel;
provided, however, the execution, delivery, or assignment of the Time Brokerage
Agreement, more fully described below, will be deemed to occur immediately after
the Closing of this Agreement.
(a) Deliveries by Seller. At the Closing, Seller shall deliver
to Buyer such instruments of conveyance and other customary documentation as
shall in form and substance be reasonably satisfactory to Buyer and its counsel,
including, without limitation, the following:
(i) Consents to the assignment from Seller to Buyer of the
Leasehold Interests;
(ii) one or more bills of sale conveying the personal
property included in the Station Assets;
(iii) any mortgage discharges or releases of liens that
are necessary in order to transfer the Station Assets as contemplated by Section
1.3;
(iv) certificates of Seller as required by Section 8.1(c);
(v) a certified copy of the resolutions or proceedings of
the Seller authorizing the transactions contemplated by this Agreement;
(vi) a certificate as to the existence and good standing
of Seller issued by the Clerk of the State Corporation Commission of the State
of Texas (the "SCC") dated shortly before the Closing Date;
(vii) a receipt for the Purchase Price;
(viii) the opinions of counsel required by Section 8.3;
(ix) all consents received by Seller through the Closing
Date to the assignment to or assumption by Buyer of the Program Contracts, the
other contracts and the other licenses, contracts, and leases included in the
Station Assets;
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(x) the Time Brokerage Agreement contemplated by Sections
7.6 and 8.7;
(xi) the Leases or Subleases contemplated by Sections 7.5
and 8.6;
(xii) such other documents as Buyer shall reasonably
request; and
(xiii) a list of all cable television systems which carry
the Station's signal as of a date that is not prior to the seventh (7th) day
prior to the Closing Date, which list will be certified by officer or similar
representative of the Seller as not being materially inaccurate to the best of
Seller's knowledge, information and belief.
(b) Deliveries by Buyer. At the Closing, Buyer shall deliver
to Seller the Purchase Price and such instruments of assumption and other
customary documentation as shall in form and substance be reasonably
satisfactory to Seller and its counsel, including, without limitation, the
following:
(i) the Purchase Price which shall be delivered in the
manner set forth in Section 2.1(a);
(ii) an assumption of liabilities agreement pursuant to
which Buyer will assume the Assumed Liabilities;
(iii) a certificate of Buyer as required by Section
7.1(c);
(iv) a certified copy of the resolutions or proceedings of
Buyer authorizing the transactions contemplated by this Agreement; and
(v) a certificate as to the existence and good standing of
Buyer issued by the Maryland Department of Assessment and Taxation shortly
before the Closing Date and certificate of the SCC of Buyer's qualification to
do business in the State of Texas.
(vi) the opinion of counsel required by Section 7.3;
(vii) the Leases or Subleases contemplated by Sections 7.5
and 8.6;
(viii) the Time Brokerage Agreement contemplated by
Sections 7.6 and 8.7;
(ix) such other documents as Seller shall reasonably
request.
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2.5. Effect of Laws or Proceedings. The parties hereto acknowledge and
agree that, notwithstanding anything in this Agreement or any other documents
related hereto to the contrary (including, without limitation, any
representations or warranties made by Seller, covenants of the Seller made
herein, any condition precedent to the obligations of Buyer set forth in this
Agreement, or any provisions relating to indemnification to be made by Seller
hereunder), matters relating to, in connection with or resulting or arising
from: (a) the effect, for purposes of any laws, statutes, ordinances, rules,
regulations, orders or other actions, whenever promulgated or enacted, including
any communications or communications-related laws, statutes, ordinances, rules,
regulations, orders or other actions, whenever promulgated or enacted, and any
licenses, permits or authorizations issued by any governmental authority
(including, without limitation, the FCC) (collectively, "Laws") or any contract
or agreement to be conveyed to or assumed, directly or indirectly, by Buyer
pursuant hereto (collectively, "Conveyed Contracts"), of (1) the transfer of the
Station Assets to Buyer and the retention by Seller of the Excluded Assets; (2)
the execution, delivery and performance of the Time Brokerage Agreement; or (3)
the consummation of the other transactions contemplated hereby; (b) any conflict
with, violation of, or breach or default under, or termination of any Laws or
Conveyed Contracts as a result of the consummation of any of the transactions
contemplated hereby (including, without limitation, the Time Brokerage
Agreement; or (c) any claims, actions, suits or other proceedings of any nature
whatsoever ("Proceedings"), by any person or entity (including, without
limitation, any governmental entity) by or before any court, administrative
agency or otherwise, alleging a conflict, violation of, breach or default under,
termination of, or other inconsistency with Laws or Conveyed Contracts as a
result of the consummation of any of the transactions contemplated hereby,
including, without limitation, the Time Brokerage Agreement shall not:
(i) cause or constitute, directly or indirectly, a breach
by Seller of any of its representations, warranties, covenants or agreements set
forth in this Agreement or any other document related hereto (and such
representations, warranties, covenants and agreements shall hereby be deemed to
be modified appropriately to reflect and permit the impact and existence of such
Laws, Conveyed Contracts and Proceedings and to permit any action by Seller to
comply with or attempt in good faith to comply with such Laws, Conveyed
Contracts and Proceedings);
(ii) otherwise cause or constitute, directly or
indirectly, a default or breach by Seller under this Agreement or any other
documents related hereto;
(iii) result in the failure of any condition precedent to
the obligations of Buyer under this Agreement or any other document related
hereto to be satisfied;
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(iv) otherwise excuse Buyer's performance of its
obligations under this Agreement or any other document related hereto; or
(v) give rise to any claim for indemnification or other
compensation by Buyer or any adjustment of the Purchase Price;
provided that the foregoing clauses (i) through (v) shall not apply to (1) any
claim brought by a shareholder of Seller, JJK Broadcasting, Inc., or KRRT
License Corp., or any claim brought by any officer, director, agent or Affiliate
of Seller; (2) any breach by Seller of its covenants set forth in this
Agreement; or (3) any action instituted by the Federal Trade Commission or the
Department of Justice under the HSR Act, in each case which shall be governed by
other applicable provisions of this Agreement. For purposes of this Section 2.5,
"Affiliate" means with respect to a party, any Person, directly or indirectly,
controlling or controlled by such party, or any Person under direct or indirect
common control with party (as such terms are interpreted from time to time
pursuant to the Securities Act of 1933, as amended). For purposes of this
Section 2.5, "Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other organizations, whether or not legal entities, and governments
and agencies with political subdivisions thereof.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer as follows:
3.1. Organization. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Texas. Seller has
the requisite power and authority to carry on the business of the Station now
being conducted by it, to own and operate the Station Assets owned and operated
by it, and to enter into and consummate the transactions contemplated by this
Agreement.
3.2. Corporate Action. All corporate actions and proceedings necessary
to be taken by or on the part of Seller in connection with the execution and
delivery of this Agreement and the consummation of transactions contemplated
hereby and necessary to make the same effective have been duly and validly
taken. This Agreement has been duly and validly authorized, executed, and
delivered by Seller and constitutes its valid and
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binding agreement, enforceable in accordance with and subject to its terms,
except as limited by laws affecting the enforcement of creditors' rights or
contractual obligations generally.
3.3. Financials. Seller has delivered to Buyer a copy of its unaudited
balance sheet of KRRT, Inc. as of September 30, 1995 and its statement of Income
and Retained Earnings for the three (3) months ended September 30, 1995 and
related Statement of Cash Flows for the period ending September 30, 1995 (the
"Financial Statements").
The Financial Statements are, in all material respects, (a) in
agreement with the books and records regularly maintained by Seller with respect
to the Station, and (b) prepared in the usual and ordinary course of business
and fairly reflect the financial condition and operations of the Station
(except, to the extent not applied on a consistent basis in all material
respects, as noted thereon and except with respect to the 1996 Internal
Financial Statements the absence of notes thereto) throughout the year or period
involved, and the 1995 Financial Statements present, and the 1996 Internal
Financial Statements will present fairly in all material respects the financial
position of the Station as at the respective dates of the balance sheet and the
results of its operations and its cash flow for the year or period then ended.
The 1996 Internal Financial Statements are, and the 1996 Quarterly
Internal Financial Statements (defined below) to be delivered pursuant to
Section 5.3(a) hereof will be, in all material respects, in agreement with the
books and records regularly maintained by Seller with respect to the Station.
December 31, 1995 is sometimes referred to herein as the "Balance Sheet
Date."
3.4. Business Since the Balance Sheet Date. From the Balance Sheet Date
to the date of this Agreement, there has been no material adverse change in the
Station's financial condition, business, or assets taken as a whole (provided
that the foregoing shall exclude any material adverse change attributable to
facts affecting the television industry generally or to general economic
conditions or governmental or legislative laws, rules, or regulations or actions
taken by Buyer, or any affiliate of Buyer), and the business of the Station has
in all material respects been conducted in the ordinary course of business and
in the same manner as it was before the Balance Sheet Date.
3.5. Condition of Assets. The material tangible assets included in the
Station Assets, and the Leasehold Interests are being maintained in accordance
with general industry practices in good operating condition and repair, wear and
tear in ordinary usage excepted.
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3.6. Title, Etc.
----------
(a) Seller does not own any Real Property in connection with
the operation of the Station. Seller is not in material default under any of the
Leasehold Interests.
Seller has not received any notice and has no knowledge of any
pending, threatened, or contemplated condemnation proceeding affecting the
Leasehold Interests listed on Schedule 1.1(b) or any part thereof or of any sale
or other disposition of the Leasehold Interests, or any portion thereof in lieu
of condemnation.
Except as set forth on Schedule 3.6, Seller has good and
marketable title to the tangible assets and personal property included in the
Station Assets, and all such assets and personal property will on the Closing
Date be free and clear of all security interests, mortgages, pledges, liens,
encumbrances, or charges of any nature whatsoever except for Permitted
Encumbrances.
3.7. Trademarks, Etc. Seller possesses adequate rights, licenses, or
other authority to use all trademarks, and trade names necessary to conduct the
business of the Station as presently conducted or presently proposed to be
conducted by Seller. Seller has not received any notice with respect to any
alleged infringement or unlawful or improper use of any copyright, trademark,
trade name, or other intangible property right owned or alleged to be owned by
others and used in connection with the Station. Seller represents and warrants
that all trademarks listed on Schedule 1.1(f) hereto have not been registered.
3.8. Insurance. The Station and the Station Assets are, as of the date
of this Agreement, adequately insured by Seller against loss or damage by fire
and other hazards and risks of the character usually insured against by persons
operating similar properties and businesses under policies issued by insurers of
recognized responsibility.
3.9. Contracts. Schedules 1.1(b), 1.1(c), 1.1(d), 1.1(e), and 3.10 to
this Agreement contain a complete list of the following, as to which the Station
or Seller with respect to the Station Assets is a party, as of the date of this
Agreement:
(a) any television network affiliation agreements;
(b) contracts evidencing time sales to advertisers or advertising
agencies which are "trade" or "barter" transactions which require the furnishing
of advertising time on the Station at any time after the Closing Date;
(c) sales agency or advertising representation contracts which are
not
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terminable by Seller without penalty upon notice of thirty (30) days or less;
(d) licenses or agreements under which Seller is authorized to
broadcast on the Station filmed or taped programming supplied by others;
(e) leases of personal property which have a term, including
renewal options exercisable by any party thereto, ending more than one year
after the date of this Agreement and/or which involve annual payments of more
than $5,000.00;
(f) contracts not made in the ordinary and usual course of
business; and
(g) any other contracts which are material to the business and
operation of the Station Assets.
Seller represents and warrants that all information regarding the
contracts listed on Schedule 1.1(d) is correct and accurate including, without
limitation, the contract price, number of exhibitions licensed or available, the
amount of license fees paid or amount of unpaid license fees, any information
concerning additional episodes licensed thereunder and the fees therefor, or any
other information regarding such contracts set forth on Schedule 1.1(d).
3.10. Litigation. Except as set forth on Schedule 3.10 hereto: (i)
Seller, with respect to the Station, has not been operating under or subject to
or in default with respect to any order, writ, injunction, or decree of any
court or federal, state, municipal, or other governmental department,
commission, board, agency, or instrumentality which has had or could reasonably
be expected to have a material adverse effect on the operations of the Station;
(ii) there is no litigation pending by or against, or to Seller's actual
knowledge (after inquiry of the Station's management) threatened against, Seller
related to or affecting any of the Station Assets which materially interferes or
could reasonably be expected to interfere materially with the operations of the
Station or with Seller's ability to transfer the Station Assets to Buyer. There
are no attachments, executions, or assignments for the benefit of creditors or
voluntary or involuntary proceedings in bankruptcy pending against or
contemplated by Seller, and no such actions have been threatened against Seller.
There is no litigation or proceeding pending or, to the best of Seller's
knowledge, threatened against or affecting Seller that would affect Seller's
ability to carry out the transactions contemplated by this Agreement.
3.11. Compliance with Laws. Seller, with respect to the Station, is to
its knowledge, in compliance in all material respects with all applicable laws,
regulations, and orders, and the present uses by Seller of the Station Assets do
not, to Seller's actual
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knowledge (after inquiry of the Station's management), violate any such laws,
regulations, or orders in any material respect.
3.12. No Defaults. Except as set forth on Schedule 3.12, on the Closing
Date, neither the execution and delivery by Seller of this Agreement, nor the
consummation by Seller of the transactions contemplated hereby would constitute
or, with the giving of notice or the passage of time or both, would constitute a
violation of or would conflict with or result in any breach of or any default
under, any of the terms, conditions, or provisions of any law or regulation to
which Seller is subject, or of Seller's articles of incorporation or bylaws, or
of any material contract, agreement, or instrument to which Seller is a party or
by which Seller is bound, except to the extent any necessary consents to
assignment of the program contracts and consents to assignment of the leases and
other contracts included in the Station Assets are required and have not been
obtained.
3.13. Brokers. There is no broker or finder or other person who would
have any valid claim against any of the parties to this Agreement for a
commission or brokerage in connection with this Agreement or the transactions
contemplated hereby as a result of any agreement or understanding of or action
taken by Seller.
3.14. Information Regarding Certain Cable Matters. Schedule 3.14 hereto
sets forth the following information regarding certain cable matters with regard
to the Station:
(a) a list of all cable systems which, to Seller's knowledge,
carry the Station's signal;
(b) a list of all cable systems, if any, located within the
Station's respective television market[s], as defined in Section 76.55 (e) of
the rules of the FCC (each, a "Market Cable System") to which Seller has
provided a must-carry notice in accordance with provisions of the Cable
Television Consumer Protection and Competition Act of 1992, and the rules and
regulations of the FCC (collectively the "Cable Act Requirements"), and a list
of market cable systems to which Seller has not provided any must-carry or
retransmission consent notice, in each case as the date of this agreement;
(c) a list of all Market Cable Systems, if any, to which Seller
has provided or does provide a retransmission consent notice in accordance with
the Cable Act Requirements on or prior to the date of this agreement;
(d) a list of all retransmission consent and/or copyright
indemnification agreements, if any, entered into by Seller with respect to the
Station in effect on the date of this Agreement;
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(e) a list of all retransmission consent and/or copyright
indemnification agreements described in Section 3.14 (d), if any, which are not
freely assignable by Seller to Buyer in connection with the sale of the Station
Assets;
(f) a list of all retransmission consent notices referred to in
Section 3.14 (c), if any, which were not delivered to the Market Cable System in
question on or before June 17, 1993;
(g) a list of all cable market systems, if any, which are carrying
Station's signal on the date of this Agreement and have notified Seller on or
prior to the Date of this Agreement of such cable systems intention to delete
the Station from carriage or to change the Station's channel position on such
cable system, pursuant to any agreement furnished pursuant to this Section 3.14
(g);
(h) copies of all notices, if any, received by Seller on or prior
to the date of this Agreement from any Market Cable System alleging that the
Station does not deliver an adequate signal level as defined in Section 76.55
(c) (3) of the rules of the FCC, to such market cable system's principal head
(other than any such notice as to which such failure has been remedied or been
determined not to exist), and all further correspondence between the Station and
any such market cable system relating to such notice;
(i) a list of all Petitions for Special Relief to include
additional communities in the Station's television market, as defined in Section
76.55 (e) of the rules of the FCC, if any, filed by Seller with respect to the
Station on or prior to the date of this agreement; and
(j) copies of any and all Petitions for Special Relief requesting
the deletion of any communities from the Station's television market, if any,
which are pending as of the date of this agreement.
ARTICLE 4
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REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
4.1. Incorporation. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Maryland, and has
the corporate power and authority to enter into and consummate the transactions
contemplated by this Agreement and is qualified (or will be qualified as of the
Closing Date) to do business in the State of Texas.
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4.2. Corporate Action. All corporate actions and proceedings necessary
to be taken by or on the part of Buyer in connection with the execution and
delivery of this Agreement and the consummation of transactions contemplated
hereby and necessary to make the same effective have been duly and validly
taken. This Agreement has been duly and validly authorized, executed, and
delivered by Buyer, and constitutes its valid and binding agreement, enforceable
in accordance with and subject to its terms, except as limited by laws affecting
the enforcement of creditors' rights or contractual obligations generally.
4.3. No Defaults. Neither the execution and delivery by Buyer of this
Agreement, nor the consummation by Buyer of the transactions contemplated
hereby, will constitute or, with the giving of notice or the passage of time or
both, would constitute a violation of or would conflict with or result in any
breach of or default under any of the terms, conditions, or provisions of any
judgment, law, or regulation, or Buyer's certificate of incorporation or bylaws,
or any contract, agreement, or instrument to which Buyer is a party or by which
it is bound.
4.4. Brokers. There is no broker or finder or other person who would
have any valid claim against any of the parties to this Agreement for a
commission or brokerage in connection with this Agreement or the transactions
contemplated hereby as a result of any agreement or understanding of or action
taken by Buyer.
4.5. Litigation. There is no litigation, proceeding, or investigation
of any nature pending or, to the best of Buyer's knowledge, threatened against
or affecting it that would affect Buyer's ability fully to carry out the
transactions contemplated by this Agreement. There are no attachments,
executions, or assignments for the benefit of creditors or voluntary or
involuntary proceedings in bankruptcy pending against or contemplated by Buyer,
and no such actions have been threatened against Buyer.
ARTICLE 5
---------
COVENANTS OF SELLER PENDING AND AFTER THE CLOSING DATE
------------------------------------------------------
Seller covenants and agrees (that from the date hereof to and including
the Closing Date and thereafter where so indicated) as follows:
5.1. Maintenance of Business. Seller shall through the Closing Date,
with respect to the Station Assets, continue to carry on its business and
operations and keep its books of account, records, and files in the ordinary and
usual course of business. Seller shall from this date forward and at all times
thereafter continue to operate the Station in all material respects in
accordance with the terms of the FCC Authorizations
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and in compliance in all material respects with all applicable laws and FCC
rules and regulations. Seller will promptly execute any necessary applications
for renewal of the FCC Authorizations.
Through the Closing Date, Seller shall comply in all respects with the
terms and conditions of the Time Brokerage Agreement between Seller and River
City Broadcasting, L.P. dated August 3, 1995, as amended from time to time.
Seller will maintain in full force and effect through the Closing Date
adequate property damage, liability, and other insurance with respect to the
Station Assets.
Nothing contained in this Agreement shall give Buyer any right from
this date forward or at any time thereafter to control the programming,
operations, or any other matter relating to the Station, and Seller shall have
complete control of the programming, operations, and all other matters relating
to the Station subject to the effect of the Time Brokerage Agreement referred to
in Sections 7.6 and 8.7 hereof.
Prior to the Closing Date, except as otherwise permitted by the last
paragraph of this Section 5.1, Seller will not without the prior written consent
of Buyer (to the extent the following restrictions are permitted by the FCC and
all applicable law):
(a) sell, lease, transfer, or agree to sell, lease, or transfer
any Station Assets which are material to the operation of the Station,
considered as a whole or which have individually or in the aggregate a value in
excess of $10,000.00 without replacement thereof with a substantially equivalent
asset of substantially equivalent kind, condition, and value;
(b) enter into any contracts under which Seller is authorized to
broadcast programming on the Station; or
(c) apply to the FCC for any construction permit that would
materially restrict the Station's present operations or make any material change
in the Leasehold Interests.
Notwithstanding anything in this Agreement to the contrary, Seller
shall be entitled to renew or extend the term of any contract listed on
Schedules 1.1(b), 1.1(d), and 1.1(e) which, by its terms, expires or will expire
prior to January 3, 1995 and, in connection therewith, agrees not to increase
the amounts payable thereunder during any such renewal term except in accordance
with the Station's usual practices.
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<PAGE>
5.2. Organization/Goodwill. Seller shall from this date forward and at
all times thereafter use all reasonable efforts to preserve the business
organization of the Station and preserve the goodwill of the Station's
suppliers, customers, and others having business relations with it.
5.3. Reports; Access to Facilities, Files, and Records.
(a) Seller will, within fifteen (15) days after completion (and
receipt of the auditors report), provide to Buyer (i) a copy of the unaudited
balance sheet of the Station as of December 31, 1995 and the related statements
of operations and cash flows for the year then ended (the "1995 Financial
Statements"), and (ii) copies of the internally prepared unaudited balance sheet
of the Station and the related statement of operations (the "1996 Quarterly
Internal Financial Statements") for the first fiscal quarter (and subsequent
fiscal quarters, if any) during calendar year 1996 occurring prior to the
Closing Date.
(b) Seller will, within fifteen (15) days after completion,
provide to Buyer, for informational purposes only (and without making any
representation or warranty with respect thereto), copies of the Station's (i)
quarterly and year-to-date broadcast cash flow, and (ii) monthly balance sheet
and operating statement which, in each case, are prepared internally for
management purposes in the ordinary course between the date hereof and the
Closing Date.
(c) At the request of Buyer, Seller shall from time to time give
or cause to be given to the officers, employees, accountants, counsel, and
representatives of Buyer (i) access, upon reasonable prior notice, during normal
business hours to all facilities, property, accounts, books, deeds, title
papers, insurance policies, licenses, agreements, contracts, commitments,
records, equipment, machinery, fixtures, furniture, vehicles, accounts payable
and receivable, and inventories related to the Station, and (ii) all such other
information concerning the affairs of the Station as Buyer may reasonably
request provided that the foregoing does not disrupt or interfere with the
business and operations of the Station.
5.4. Consents. Seller shall use reasonable efforts (without being
required to make any payment not specifically required by the terms of any
licenses, leases, and other contracts) to obtain or cause to be obtained prior
to the Closing Date consents to the assignment to or assumption by Buyer of all
licenses, leases, and other contracts included in the Station Assets that
require the consent of any third party by reason of the transactions provided
for in this Agreement. If any necessary consent or approval is not obtained
prior to the Closing Date, then Seller shall cooperate with Buyer in any
reasonable arrangement deemed necessary or desirable by Buyer to provide to
Buyer,
20
<PAGE>
after the Closing Date, the benefits under such contracts, including enforcement
for the benefit of Buyer of any and all rights of Seller against third parties.
5.5. Notice of Proceedings. Seller shall promptly notify Buyer in
writing upon becoming aware of any order or decree or any complaint praying for
an order or decree restraining or enjoining the consummation of this Agreement
or the transactions contemplated hereunder, or upon receiving any notice from
any governmental department, court, agency, or commission of its intention to
institute an investigation into or institute a suit or proceeding to restrain or
enjoin the consummation of this Agreement or such transactions, or to nullify or
render ineffective this Agreement or such transactions if consumed.
5.6. Confidential Information. Seller shall not use or disclose to
third parties (except as may be required by law and then only with prior notice
to Buyer) any confidential information received from Buyer or its agents in the
course of investigating, negotiating, and completing the transactions
contemplated by this Agreement. Nothing shall be deemed to be confidential
information that: (a) is known to Seller at the time of its disclosure to it;
(b) becomes publicly known or available other than through disclosure by Seller;
(c) is rightfully received by Seller from a third party; or (d) is independently
developed by Seller.
5.7. Consummation of Agreement. Seller shall use its best efforts to
fulfill and perform all conditions and obligations on its part to be fulfilled
and performed under this Agreement and to cause the transactions contemplated by
this Agreement to be fully carried out.
5.8. Notice of Certain Developments. Seller shall give prompt written
notice to Buyer (a) if the Station Assets shall have suffered damage on account
of fire, explosion, or other cause of any nature which is sufficient to prevent
operation of Station for more than twenty-four (24) hours, and (b) if the
regular broadcast transmission of Station in the normal and usual manner in
which it heretofore has been operating is interrupted for a period of
twenty-four (24) hours or more.
5.9. Hart-Scott-Rodino. As soon as possible after the date hereof, but
in no event later than five (5) business days after the date hereof, Seller
shall prepare and file all documents with the Federal Trade Commission and the
United States Department of Justice, as is required to comply with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("Hart-Scott-Rodino Act"),
and shall promptly furnish all materials thereafter requested by any of the
regulatory agencies having jurisdiction over such filings.
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<PAGE>
5.10. Updated Information. Seller agrees to provide to Buyer on or
shortly prior to the Closing Date a list of any additional leases or contracts
which would have been required to be listed on Schedules 1.1(b),(d), or (e)
hereto pursuant to Article 3 hereof if such leases or contracts existed on the
date of this Agreement, or are entered into subsequent to the date of this
Agreement.
ARTICLE 6
---------
COVENANTS OF BUYER PENDING THE CLOSING DATE
-------------------------------------------
Buyer covenants and agrees that from the date hereof to and including
the Closing Date:
6.1. Confidential Information. Buyer shall not use for its or any third
party's benefit and shall not disclose to third parties (except as may be
required by law and then with prior notice to Seller) any confidential
information (including, without limitation, financial information and
information regarding program contracts and revenue) received from Seller or
their agents in the course of investigating, negotiating, and performing the
transactions contemplated by this Agreement. Nothing shall be deemed to be
confidential information that: (a) is known to Buyer at the time of its
disclosure to it; (b) becomes publicly known or available other than through
disclosure by Buyer; (c) is rightfully received by Buyer from a third party; or
(d) is independently developed by Buyer.
6.2. Consummation of Agreement. Buyer shall use its best efforts to
fulfill and perform all conditions and obligations on its part to be fulfilled
and performed under this Agreement and to cause the transactions contemplated by
this Agreement to be fully carried out. Buyer agrees to cooperate with Seller in
connection with obtaining consents to the assignment to or assumption by Buyer
of licenses, leases, and other contracts included in the Station Assets, and to
execute such assumption instruments as may be required in connection with
obtaining such consents.
6.3. Notice of Proceedings. Buyer will promptly notify Seller in
writing upon becoming aware of any order or decree or any complaint praying for
an order or decree restraining or enjoining the consummation of this Agreement
or the transactions contemplated hereunder, or upon receiving any notice from
any governmental department, court, agency, or commission of its intention to
institute an investigation into or institute a suit or proceeding to restrain or
enjoin the consummation of this Agreement or such transactions, or to nullify or
render ineffective this Agreement or such transactions if consummated.
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<PAGE>
6.4. Hart-Scott-Rodino. As soon as possible after the date hereof, but
in no event later than five (5) business days after the date hereof, Buyer shall
prepare and file all documents with the Federal Trade Commission and the United
States Department of Justice as is required to comply with the Hart-Scott-Rodino
Act, and shall promptly furnish all materials thereafter requested by any of the
regulatory agencies having jurisdiction over such filings.
6.5. Assignments. Buyer covenants and agrees that it shall provide, on
request, to a Distributor financial or other information the Distributor may
reasonably request which information is necessary in order for the Distributor
to consent to the assignment of any Program Contract or other Contract to Buyer.
In the event a Distributor refuses to consent to the assignment of any such
contract(s) to Buyer solely because of Buyer's financial circumstances, Buyer
agrees to increase the Purchase Price by an amount equal to the unpaid balance
due on such contract(s) as of the Closing Date, provided however, that: (i)
Buyer receives the economic benefit of such contract(s), (ii) any increase in
the Purchase Price paid hereunder is used by Seller solely to payoff any unpaid
balance due under such contract(s), and (iii) Buyer shall not be required to
make any payment(s) hereunder in excess of the unpaid balance due on such
contract(s) or more frequently than required by the schedule of payments
contained in such contract(s).
ARTICLE 7
---------
CONDITIONS TO THE OBLIGATIONS OF SELLER
---------------------------------------
The obligations of Seller under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or at the
Closing Date:
7.1. Representations, Warranties, Covenants.
--------------------------------------
(a) each of the representations and warranties of Buyer
contained in this Agreement shall have been true and accurate in all material
respects as of the date when made and shall be deemed to be made again on and as
of the Closing Date and shall then be true and accurate in all material respects
except to the extent changes are permitted or contemplated pursuant to this
Agreement;
(b) Buyer shall have performed and complied in all material
respects with each and every covenant and agreement required by this Agreement
to be performed or complied with by it prior to or at the Closing Date; and
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<PAGE>
(c) Buyer shall have delivered to Seller a certificate of an
officer of Buyer dated the Closing Date certifying to the fulfillment of the
conditions set forth in Sections 7.1(a) and 7.1(b).
7.2. Proceedings.
----------
(a) As of the Closing Date, no action or proceeding shall have
been instituted before any court or governmental body to restrain or prohibit,
or to obtain substantial damages in respect of, the consummation of this
Agreement that, in the reasonable opinion of Seller, may reasonably be expected
to result in a preliminary or permanent injunction against such consummation or,
if the transactions contemplated hereby were consummated, an order to nullify or
render ineffective this Agreement or such transactions or the recovery against
Seller of substantial damages; and (b) as of the Closing Date, none of the
parties to this Agreement shall have received written notice from any
governmental body of (i) its intention to institute any action or proceeding to
restrain or enjoin or nullify this Agreement or the transactions contemplated
hereby, or to commence any investigation (other than a routine letter of
inquiry, including a routine Civil Investigative Demand) into the consummation
of this Agreement, or (ii) the actual commencement of such an investigation.
7.3. Opinion of Counsel. Seller shall have received an opinion of
Buyer's counsel dated the Closing Date, in the form[s] attached to this
Agreement as Schedule 7.3.
7.4. Hart-Scott-Rodino. The waiting period under the Hart-Scott-Rodino
Act shall have expired, and there shall not be outstanding any order of a court
restraining the transactions contemplated hereby.
7.5. Leases/Subleases. The Seller shall have received from Buyer
certain leases (the "Leases") or subleases (the "Subleases") for the Leasehold
Interests fully executed by the Buyer which will enable the Seller to continue
to operate the Station consistent with: (i) previous operating expenses and
practices, (ii) its FCC Authorizations, and (iii) all FCC rules, regulations and
procedures. The Leases and/or Subleases to be delivered hereunder and which are
contemplated hereby shall be reasonably acceptable to Seller and shall be
consistent in all material terms with the material terms of the existing leases
for the Leasehold Interests.
7.6. Time-Brokerage Agreement. The Seller shall have received from
Buyer a time brokerage agreement for the Station in the form of Schedule 7.6
hereto (the "Time Brokerage Agreement") fully executed by Buyer which agreement
shall be, in all material
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<PAGE>
respects, consistent with the rules, regulations and policies of the FCC and
reasonably acceptable to Seller.
7.7. Other Instruments. Buyer shall have delivered to Seller such
instruments, documents, and certificates as are contemplated by Section 2.4 (b)
hereof.
ARTICLE 8
---------
CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
The obligations of Buyer under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or at the
Closing Date.
8.1. Representations, Warranties, Covenants.
--------------------------------------
(a) Each of the representations and warranties of Seller contained
in this Agreement shall have been true and accurate in all material respects as
of the date when made and shall be deemed to be made again on and as of the
Closing Date and shall then be true and accurate in all material respects except
to the extent changes are permitted or contemplated pursuant to this Agreement.
(b) Seller shall have performed and complied in all material
respects with each and every covenant and agreement required by this Agreement
to be performed or complied with by it prior to or at the Closing Date, other
than delivery to Buyer of the instruments conveying the Station Assets to Buyer.
(c) Seller shall have delivered to Buyer a certificate of an
officer of Seller dated the Closing Date certifying to the fulfillment of the
conditions set forth in Sections 8.1(a) and 8.1(b).
8.2. Proceedings.
-----------
(a) As of the Closing Date, no action or proceeding shall have
been instituted before any court or governmental body to restrain, or prohibit
or to obtain substantial damages in respect of, the consummation of this
Agreement that, in the reasonable opinion of Buyer, may reasonably be expected
to result in a preliminary or permanent injunction against such consummation or,
if the transactions contemplated hereby were consummated, an order to nullify or
render ineffective this Agreement or such transactions or the recovery against
Seller of substantial damages; and (b) as of the Closing Date, none of the
parties to this Agreement shall have received written notice from any
governmental body of (i) its intention to institute any action or proceeding to
25
<PAGE>
restrain or enjoin or nullify this Agreement or the transactions contemplated
hereby, or to commence any investigation (other than a routine letter of
inquiry, including a routine Civil Investigative Demand) into the consummation
of this Agreement, or (ii) the actual commencement of such an investigation.
8.3. Opinion of Counsel. Buyer shall have received an opinion of
Seller's counsel dated the Closing Date in the form[s] attached to this
Agreement as Schedule 8.3.
8.4. Damage to the Assets. The Station Assets shall not have suffered
damage on account of fire, explosion, or other similar cause of any nature that
is sufficient to prevent operation of the Station or the transmission of its
normal and usual signal for a period of at least ten (10) consecutive days;
provided if, after Seller has duly notified Buyer of such event or damage,
Buyer, within five (5) days thereafter, does not notify Seller that Buyer is
terminating this Agreement pursuant to Section 10.1(b)(iii) hereof, then Buyer
shall be deemed to have waived this condition of Closing.
8.5. Hart-Scott-Rodino. The waiting period under the Hart-Scott-Rodino
Act shall have expired, and there shall not be outstanding any order of a court
restraining the transaction contemplated hereby.
8.6. Leases/ Subleases. Buyer shall have received from the Seller fully
executed by Seller Leases and/or Subleases referred to in Section 7.5 hereof.
8.7. Time Brokerage Agreement. The Buyer shall have received from the
Seller the Time Brokerage Agreement, fully executed by Seller which agreement
shall be, in all material respects, consistent with the rules, regulations and
policies of the FCC and reasonably acceptable to Buyer.
8.8. Other Instruments. Seller shall have delivered to Buyer such
instruments, documents, and certificates as are contemplated by Section 2.4(a)
hereof.
ARTICLE 9
---------
INDEMNIFICATION
---------------
9.1. Survival. All statements of any party contained in this Agreement
(including the Schedules hereto) or in any certificate delivered by it pursuant
to this Agreement shall be deemed to be representations and warranties made
pursuant to this Agreement. The representations, warranties, covenants, and
agreements of Seller and Buyer contained in or made pursuant to this Agreement
shall be deemed to have been made on the Closing Date, shall survive the Closing
Date, and shall remain operative and in full force and
26
<PAGE>
effect for a period of one (1) year after the Closing Date regardless of any
investigation or statement as to the results thereof made by or on behalf of any
party; provided, however, that: (i) Buyer's obligation to pay, perform, and
discharge the Assumed Liabilities shall survive until such Assumed Liabilities
have been paid, performed, or discharged in full; (ii) Seller's obligations with
respect to all obligations and liabilities not assumed by Buyer pursuant to this
Agreement shall survive until such obligations and liabilities have been paid,
performed, or discharged in full; (iii) the covenants and agreements contained
in this Article 9 shall continue in full force and effect until fully
discharged; (iv) the representations and warranties contained in Sections 3.13
and 4.4 (Brokers) shall continue in full force and effect in perpetuity; and (v)
any covenants or agreements contained herein or made pursuant hereto which by
their terms are to be performed after the Closing shall survive until fully
performed and discharged in full.
9.2. Indemnification of Buyer. Seller agrees that, after the Closing,
it shall indemnify and hold Buyer harmless from and against any and all damages,
claims, losses, expenses, costs, obligations, and liabilities including, without
limiting the generality of the foregoing, liabilities for reasonable attorneys'
fees and expenses ("Loss and Expense") suffered directly or indirectly by Buyer
by reason of or arising out of (i) any material breach of representation or
warranty made by Seller pursuant to this Agreement; (ii) any material failure by
Seller to perform or fulfill any of their covenants or agreements set forth in
this Agreement; (iii) any failure by Seller to pay, perform, or discharge any
liabilities or obligations not specifically assumed by Buyer pursuant to this
Agreement; or (iv) any litigation, proceeding, or claim by any third party
arising from the business or operations of the Station Assets by Seller prior to
the Closing Date, except to the extent arising from obligations or liabilities
of or assumed by Buyer pursuant to this Agreement.
9.3. Indemnification of Seller. Buyer agrees that, after the Closing,
it shall indemnify and hold Seller harmless from and against any and all Loss
and Expense suffered directly or indirectly by Seller by reason of or arising
out of (i) any material breach of representation or warranty made by Buyer
pursuant to this Agreement; (ii) any material failure by Buyer to perform or
fulfill any of its covenants or agreements set forth in this Agreement; (iii)
any failure by Buyer to pay, perform, or discharge any Assumed Liabilities or
any other obligations or liabilities of or assumed by Buyer under this
Agreement; or (iv) any litigation proceeding or claim by any third party arising
from the use of the Station Assets on or after the Closing Date.
9.4. Limitation of Liability. Notwithstanding Sections 9.1, 9.2, and
9.3 hereof, after the Closing, Seller shall not indemnify or otherwise be liable
to Buyer, and Buyer shall not indemnify or otherwise be liable to Seller unless
the aggregate amount of Buyer's or Seller's, as applicable, Loss and Expense
exceeds $30,000.00, in which event
27
<PAGE>
the indemnified party shall be entitled to recover its aggregate Loss and
Expense inclusive of such $30,000.00 threshold; provided, however, that the
foregoing limitation shall not be applicable to the obligations of either party
under Section 2.2 or to the obligation of Buyer to pay and discharge any Assumed
Liabilities or any other obligations or liabilities of Buyer under this
Agreement or the obligation of Seller to pay and discharge liabilities to third
parties not assumed by Buyer hereunder. Notwithstanding any provision contained
herein, in no event shall Seller be liable for any amount, which, when combined
with other amounts for which Seller previously has been liable under Section 9.2
hereof is in excess of $1,260,000.00, and subject to such other limitations as
the parties may otherwise agree in writing.
9.5. Bulk Sales Indemnity. Buyer hereby waives compliance with the
provisions of any applicable bulk transfer laws, and Seller covenants to pay and
discharge when due all debts, obligations, and liabilities incurred prior to the
Closing Date relating to the Station Assets except the Assumed Liabilities and
other obligations assumed by Buyer under this Agreement. Seller further agrees
to indemnify and hold Buyer harmless from and indemnify Buyer against any and
all Loss and Expense, including, without limitation, any claims made by
creditors, with respect to non-compliance with any bulk transfer law, except to
the extent that such claims result from the Assumed Liabilities and other
obligations or liabilities to be paid or discharged by Buyer as provided in this
Agreement and/or Buyer's failure to pay the same when due.
9.6. Notice of Claims. If Buyer or Seller believes that it has suffered
or incurred any Loss and Expense, such party shall notify the other promptly in
writing and, in any event, within the applicable time period specified in
Section 9.1, describing such Loss and Expense, the amount thereof, if known, and
the method of computation of such Loss and Expense, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such Loss and Expense shall have occurred. If any action at law
or suit in equity is instituted by a third party with respect to which any of
the parties intends to claim any liability or expense as Loss and Expense under
this Article 9, such party shall promptly notify the indemnifying party of such
action or suit.
9.7. Defense of Third Party Claims. The indemnifying party under this
Article 9 shall have the right to conduct and control through counsel of its own
choosing any third party claim, action, or suit, but the indemnified party may,
at its election, participate in the defense of any such claim, action, or suit
at its sole cost and expense provided that, if the indemnifying party shall fail
to defend any such claim, action, or suit, then the indemnified party may defend
through counsel of its own choosing such claim, action, or suit, and (so long as
it gives the indemnifying party at least fifteen (15) days' notice of the terms
of the proposed settlement thereof and permits the indemnifying party to then
undertake the defense thereof) settle such claim, action, or suit, and to
recover from the indemnifying party the amount of such settlement or of any
judgment
28
<PAGE>
and the costs and expenses of such defense. The indemnifying party shall not
compromise or settle any third party claim, action, or suit without the prior
written consent of the indemnified party, which consent will not be unreasonably
withheld or delayed.
ARTICLE 10
----------
TERMINATION/MISCELLANEOUS
-------------------------
10.1. Termination of Agreement. This Agreement may be terminated at any
time on or prior to the Closing Date as follows:
(a) By Seller:
---------
(i) if Buyer fails to comply with Section 6.4 hereof within
five (5) days after Seller notifies Buyer that Buyer has not complied with such
Section; provided that, in the case termination is based on Buyer's failure to
comply with Section 6.4, Seller shall have complied with Section 5.9; or
(ii) if any of the conditions provided in Article 7 hereof
have not been met by the time required and have not been waived provided that
the failure to meet such conditions is not due to Seller's breach of the
Agreement; or
(b) By Buyer:
--------
(i) if Seller fails to comply with Section 5.9 hereof within
five (5) days after Buyer notifies Seller that Seller has not complied with such
Section; provided that, in the case termination is based on Seller's failure to
comply with Section 5.9, Buyer shall have complied with Section 6.4; or
(ii) if any of the conditions provided in Article 8 hereof
have not been met by the time required and have not been waived provided that
the failure to meet such conditions is not due to Buyer's breach of the
Agreement; or
(iii) no later than five (5) business days after Seller has
notified Buyer pursuant to Section 8.4 of the occurrence of any damage or event
as described in Section 8.4; or
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<PAGE>
(c) By Either Buyer or Seller as follows:
(i) by mutual consent of all parties; or
(ii) if the Closing shall not have been completed by the
Termination Date.
No party hereto shall have any liability to any other for costs,
expenses, damages, loss of anticipated profits, or otherwise as a result of a
termination pursuant to this Section 10.1.
The parties hereto agree that time is of the essence with respect to
the provisions of this Section 10.1.
10.2. Escrow Deposit.
(a) Simultaneous with the execution and delivery of this
Agreement, Buyer and Seller are entering into an escrow agreement (the "Escrow
Agreement") with Thomas & Libowitz, P.A., as escrow agent (the "Escrow Agent"),
substantially in the form of Schedule 10.2 hereto; and in connection therewith,
Buyer is depositing Ten Thousand Dollars ($10,000.00) (the "Escrow Deposit")
with the Escrow Agent by check or by wire transfer of immediately available
funds, and any interest earned thereon will be held and disbursed pursuant to
the Escrow Agreement. Each of Seller and Buyer agree to give notice to the
Escrow Agent only in accordance with the Escrow Agreement and this Section 10.2.
(b) The full amount of the Escrow Deposit, together with all
interest earned thereon, shall be payable to Seller if: (i) the Agreement is
terminated by Seller pursuant to Section 10.1(a); or (ii) the Agreement is
terminated by either party pursuant to Section 10.1(c)(ii).
(c) The full amount of the Escrow Deposit, together with all
interest earned thereon, shall be payable to Buyer if: (i) the Agreement is
terminated by Buyer pursuant to Section 10.1(b).
(d) The full amount of the Escrow Deposit, together with any
interest earned thereon, shall be payable pursuant to the joint instructions of
Buyer and Seller in the event that this Agreement is terminated by Buyer and
Seller pursuant to Section 10.1(c)(i).
30
<PAGE>
(e) Seller's sole and exclusive remedy for any termination of this
Agreement or any failure of performance or compliance by Buyer with any covenant
or agreement contained in this Agreement prior to the Closing shall be its right
to receive the Escrow Deposit and interest earned thereon as provided in this
Section 10.2. Buyer's remedies for any wrongful failure of performance or
compliance by Seller with any covenant, warranty, or agreement contained in this
Agreement shall include, but not be limited to (i) its right to payment of the
Escrow Deposit and any interest earned thereon as provided in this Agreement,
(ii) its right to seek specific enforcement of this Agreement against Seller,
(iii) its right to seek actual, incidental and consequential damages from
Seller, and (iv) its right to receive payment of all costs and fees, including
reasonable attorneys' fees, incurred in connection with any action brought to
enforce its rights under (i) through (iii) in the event such action results in a
resolution favorable to Buyer.
10.3. Expenses. Each party hereto shall bear all of its expenses
incurred in connection with the transactions contemplated by this Agreement,
including, without limitation, accounting and legal fees incurred in connection
herewith provided that Seller and Buyer each shall pay one-half (1/2) of the
Hart-Scott-Rodino Act filing fee, and any sales or transfer taxes arising from
transfer of the Station Assets, including, without limitation, any transfer tax
payable in connection with the transfer to Buyer of the Leasehold Interests.
10.4. Assignments. This Agreement shall not be assigned by any party
hereto without the prior written consent of the other party, except that Buyer
may assign its rights and interests hereunder to: (i) a wholly-owned subsidiary
of Buyer, or (ii) a wholly-owned subsidiary of a subsidiary of Buyer, or parent
of any such subsidiary; provided that any such assignment shall not relieve
Buyer of any of its obligations or liabilities hereunder. Any attempt to assign
this Agreement without any required consent shall be void. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
10.5. Further Assurances. From time to time prior to, at, and after the
Closing Date, each party hereto will execute all such instruments and take all
such actions as the other party being advised by counsel shall reasonably
request in connection with carrying out and effectuating the intent and purpose
hereof, and all transactions and things contemplated by this Agreement,
including, without limitation, the execution and delivery of any and all
confirmatory and other instruments, in addition to those to be delivered on the
Closing Date, and any and all actions which may reasonably be necessary to
complete the transactions contemplated hereby.
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10.6. Notices. All notices, demands, and other communications which may
or are required to be given hereunder or with respect hereto shall be in
writing, shall be delivered personally or sent by nationally recognized
overnight delivery service, charges prepaid, or by registered or certified mail,
return-receipt requested, and shall be deemed to have been given or made when
personally delivered, the next business day after delivery to such overnight
delivery service, five (5) days after deposited in the mail, first class postage
prepaid, addressed as follows:
(a) If to Seller: KRRT, Inc.
Station WJET-TV
8455 Peach Street
Erie, Pennsylvania 16509
Attn: Myron Jones
With Copy to: Reddy, Begley & McCormick
1001 22nd Street, N.W.
Washington, D.C. 20037
Attn: Dennis Begley, Esquire
or to such other address as Seller may from time to time designate.
(b) If to Buyer: Sinclair Broadcast Group, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: Mr. David D. Smith
With Copy to: Steven A. Thomas, Esquire
Thomas & Libowitz, P.A.
USF&G Tower, Suite 1100
100 Light Street
Baltimore, Maryland 21202-1053
or to such other address as Buyer may from time to time designate.
10.7. Captions. The captions of Articles and Sections of this
Agreement are for convenience only, and shall not control or affect the meaning
or construction of any of the provisions of this Agreement.
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10.8. Law Governing. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED,
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF MARYLAND WITHOUT REFERENCE TO ITS
PRINCIPLES OF CONFLICT OF LAWS, EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE
UNITED STATES GOVERNS THE TRANSACTIONS CONTEMPLATED HEREBY.
10.9. Consent to Jurisdiction, Etc. IN THE EVENT OF ANY ACTION OR
PROCEEDING WITH RESPECT TO ANY MATTER PERTAINING TO THIS AGREEMENT, THE PARTIES
HERETO HEREBY WAIVE THE RIGHT TO A TRIAL BY JURY. THE PARTIES HERETO HEREBY
IRREVOCABLY CONSENT TO THE JURISDICTION OF ANY STATE CIRCUIT COURT LOCATED IN
BALTIMORE COUNTY, MARYLAND AND OF ANY FEDERAL COURT LOCATED IN THE DISTRICT OF
MARYLAND (NORTHERN DIVISION) IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT. THE PARTIES HERETO HEREBY WAIVE PERSONAL
SERVICE OF ANY PROCESS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING AND
AGREE THAT THE SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL
ADDRESSED TO OR BY PERSONAL DELIVERY TO THE OTHER PARTY AT SUCH OTHER PARTY'S
ADDRESS SET FORTH PURSUANT TO PARAGRAPH 10.6 HEREOF. IN THE ALTERNATIVE, IN ITS
DISCRETION, ANY OF THE PARTIES HERETO MAY EFFECT SERVICE UPON ANY OTHER PARTY IN
ANY OTHER FORM OR MANNER PERMITTED BY LAW.
10.10. Waiver of Provisions. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision of this Agreement
shall in no manner affect the right at a later date to enforce the same. No
waiver by any party of any condition or the breach of any provision, term,
covenant, representation, or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation, or warranty of
this Agreement.
10.11. Counterparts. This Agreement may be executed in two (2) or more
counterparts, and all counterparts so executed shall constitute one (1)
agreement binding on all of the parties hereto, notwithstanding that all the
parties are not signatory to the same counterpart.
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10.12. Entire Agreement/Amendments. This Agreement (including the
Schedules hereto), constitutes the entire Agreement among the parties pertaining
to the subject matter hereof and supersedes any and all prior and
contemporaneous agreements, understandings, negotiations, and discussions,
whether oral or written, between them relating to the subject matter hereof. No
amendment or waiver of any provision of this Agreement shall be binding unless
executed in writing by the party to be bound thereby.
10.13. Access to Books and Records. Buyer shall preserve for at least
three (3) years after the Closing Date all books and records included in the
Station Assets. At the request of Seller, Buyer agrees from time to time to give
to the officers, employees, accountants, and counsel of Seller access, upon
reasonable prior notice during normal business hours, to the property, accounts,
books, contracts, records, accounts payable and receivable, records of employees
of Seller and other information concerning the affairs of the Station and to the
employees of Buyer as Seller may reasonably request in connection with an audit
by Seller of the Station as of the Closing Date and Seller's preparation of tax
returns and reports. At the request of Buyer, Seller agrees from time to time to
give the officers, employees, accountants, and counsel of Buyer access, upon
reasonable prior notice during normal business hours, to the books, records, and
files retained by Seller with respect to the business and operation of the
Station by Seller as Buyer may reasonably request in connection with an audit of
the Station. Each of Buyer and Seller shall be permitted at their own expense to
make extracts from or copies of the foregoing books, records, and files of the
other party.
10.14. Public Announcements. Prior to the Closing Date, neither Seller
nor Buyer shall, except by mutual agreement, make any press release or other
public announcement concerning the transactions contemplated by this Agreement,
except as may be required by any law, rule, or regulation (including, without
limitation, filings and reports required to be made with or pursuant to the
rules of the Securities and Exchange Commission) or any by existing contract,
license, or agreement to which it is a party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized officers, all as of the day and year first
above written.
WITNESS/ATTEST: BUYER:
SINCLAIR BROADCAST GROUP, INC.
/s/Melissa Johnson By: (SEAL)
- - ------------------ ---------------------------
Title:
---------------------------
SELLER:
KRRT-TV, INC.
By: (SEAL)
- - ------------------- ---------------------------
Secretary Title:
---------------------------
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