UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number: 0-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
---------------------
Maryland 52-1494660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(410) 467-5005
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sale price of $25.25 per share as of February 24, 1997, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $174.0 million.
As of February 25, 1997, there were 6,911,880 shares of Class A Common Stock,
$.01 par value, 27,850,581 shares of Class B Common Stock, $.01 par value and
1,138,318 shares of Series B Preferred Stock, $.01 par value, of the Registrant
issued and outstanding.
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PART I
The matters discussed in this Form 10-K include forward-looking statements.
Such statements are subject to a number of risks and uncertainties, such as the
impact of changes in national and regional economies, successful integration of
acquired television and radio stations (including achievement of synergies and
cost reductions), pricing fluctuations in local and national advertising and
volatility in programming costs. Additional risk factors regarding the Company
are set forth in the Company's registration statement on Form S-3 filed with the
Securities and Exchange Commission on November 7, 1996 (as amended).
ITEM 1. BUSINESS
The Company is a diversified broadcasting company that owns or provides
programming services to more television stations than any other commercial
broadcasting group in the United States. The Company currently owns or provides
programming services to 28 television stations and has agreed to acquire one
additional television station. The Company believes it is also one of the top 20
radio groups in the United States, when measured by the total number of radio
stations owned, programmed or with which the Company has Joint Sales Agreements
("JSAs"). (For a description of JSAs see - Federal Regulation of Television and
Radio Broadcasting - Ownership Matters - Radio - Local Marketing Agreements.)
The Company owns or provides programming services to 23 radio stations, has
pending acquisitions of two radio stations (with both of which it has JSAs), has
a JSA with one additional radio station and has options to acquire an additional
seven radio stations.
The 28 television stations the Company owns or programs pursuant to Local
Marketing Agreements ("LMAs") are located in 20 geographically diverse markets,
with 23 of the stations in the top 51 television Designated Market Areas
("DMAs") in the United States. (For a description of LMAs see - Federal
Regulation of Television and Radio Broadcasting - Ownership Matters - Local
Marketing Agreements. A DMA is one of 211 generally-recognized television market
areas.) The Company's television station group is diverse in network affiliation
with ten stations affiliated with Fox, 11 with UPN, two with ABC, two with
Warner Brothers and one with CBS. Two stations operate as Independents.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
album/progressive rock and adult contemporary. Of the 26 stations owned,
programmed or with which the Company has a JSA, 12 broadcast on the AM band and
14 on the FM band. The Company owns or programs from two to seven stations in
all but one of the radio markets it serves.
The Company has undergone rapid and significant growth over the course of the
last six years. Beginning with the acquisition of WPGH in Pittsburgh in 1991,
the Company has increased the number of television stations it owns or programs
from three to 28. From 1991 to 1996, net broadcast revenues and operating cash
flow increased from $39.7 million to $346.5 million, and from $15.5 million to
$180.3 million. Pro forma for the acquisitions described below, 1996 net
broadcasting revenue and operating cash flow would have been $445.0 million and
$206.5 million, respectively.
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TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET(C) RANK(D) FCC LICENSE
- ----------------------- -------- ---------- ----------- --------- ------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pittsburgh,
Pennsylvania......... 19 WPGH O&O 53 FOX 6 4 8/1/99
WPTT LMA 22 UPN 5 8/1/99
St. Louis, Missouri ... 20 KDNL LMA(e) 30 ABC 7 5 2/1/98
Sacramento,
California........... 21 KOVR LMA(e) 13 CBS 8 3 2/1/99
Baltimore, Maryland ... 23 WBFF O&O 45 FOX 5 4 10/1/01
WNUV LMA 54 UPN 5 10/1/01
Indianapolis, Indiana.. 25 WTTV LMA(e) 4 UPN 8 4 8/1/97
WTTK LMA(e)(f) 29 UPN 4 8/1/97
Cincinnati, Ohio....... 29 WSTR O&O 64 UPN 5 5 10/1/97
Raleigh-Durham,
North Carolina....... 30 WLFL O&O 22 FOX 7 3 12/1/01
WRDC LMA 28 UPN 5 12/1/01
Milwaukee, Wisconsin .. 31 WCGV O&O 24 UPN 6 4 12/1/97
WVTV LMA 18 WB 5 12/1/97
Kansas City, Missouri . 32 KSMO O&O 62 UPN 7 5 2/1/98
Columbus, Ohio......... 34 WTTE O&O 28 FOX 5 4 10/1/97
Asheville, North
Carolina and
Greenville/
Spartanburg/Anderson,
South Carolina....... 35 WFBC LMA(g) 40 IND(i) 6 5 12/1/01
WLOS LMA(e) 13 ABC 6 3 12/0/01
San Antonio, Texas .... 37 KABB LMA(e) 29 FOX 7 4 8/1/98
KRRT LMA(h) 35 UPN 6 8/1/98
Norfolk, Virginia...... 40 WTVZ O&O 33 FOX 6 4 10/1/01
Oklahoma City,
Oklahoma............. 43 KOCB O&O 34 UPN 7 5 6/1/98
Birmingham, Alabama ... 51 WTTO O&O 21 WB 5 4 4/1/97
WABM LMA 68 UPN 5 4/1/97
Flint/Saginaw/Bay
City, Michigan....... 60 WSMH O&O 66 FOX 5 4 10/1/97
Las Vegas, Nevada...... 64 KUPN Pending 21 UPN 8 5 10/1/98
Lexington, Kentucky ... 68 WDKY O&O 56 FOX 5 4 8/1/97
Des Moines, Iowa....... 72 KDSM LMA(e) 17 FOX 4 4 2/1/98
Peoria/Bloomington,
Illinois............. 109 WYZZ O&O 43 FOX 4 4 12/1/97
Tuscaloosa, Alabama ... 187 WDBB LMA 17 IND(i) 2 2 4/1/97
</TABLE>
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(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company, "LMA" refers to
stations to which the Company provides programming services pursuant to an
LMA and "Pending" refers to stations the Company has agreed to acquire.
(c) Represents the number of television stations designed by Nielsen as "local"
to the DMA, excluding public television stations and stations which do not
meet the minimum Nielsen reporting standards (weekly cumulative audience of
at least 2.5%) for the Sunday- Saturday, 6:00 a.m. to 2:00 a.m. time period.
(Footnotes continued on following page)
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(d) The rank of each station in its market is based upon the November 1996
Nielsen estimates of the percentage of persons tuned to each station in the
market from 6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) Non-License Assets (as defined herein) acquired from River City
Broadcasting, L.P. and its controlled entities and option exercised to
acquire License Assets (as defined herein). Will become owned and operated
upon FCC approval of transfer of License Assets and closing of acquisition
of License Assets.
(f) WTTK currently simulcasts all of the programming aired on WTTV and the
station rank applies to the combined viewership of these stations.
(g) Non-License Assets acquired from River City. License Assets to be acquired
by Glencairn, Ltd., subject to the Company's LMA, upon FCC approval of
transfer of License Assets.
(h) River City provided programming to this station pursuant to an LMA. The
Company acquired River City's rights under the LMA from River City and the
Non-License Assets from the owners of this station. The License Assets are
to be transferred to Glencairn upon FCC approval of transfer of assets.
(i) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, UPN or Warner Brothers.
OPERATING STRATEGY
The Company's television operating strategy includes the following key
elements.
ATTRACTING VIEWERSHIP
Popular Programming. The Company believes that an important factor in
attracting viewership to its stations is their network affiliations with Fox,
UPN, ABC, CBS and WB. These affiliations enable the Company to attract viewers
by virtue of the quality first-run original programming provided by these
networks and the networks' promotion of such programming. The Company also seeks
to obtain, at attractive prices, popular syndicated programming that is
complementary to the station's network affiliation. Examples of popular
syndicated programming obtained by the Company for broadcast on its Fox, WB and
UPN affiliates and independent stations are "Mad About You," "Frasier," "The
Simpsons," "Home Improvement" and "Seinfeld." In addition to network
programming, the Company's ABC and CBS affiliates broadcast news magazine, talk
show, and game show programming such as "Hard Copy," "Entertainment Tonight,"
"Regis and Kathie Lee," "Wheel of Fortune" and "Jeopardy."
Children's Programming. The Company seeks to be a leader in children's
programming in each of its respective DMAs. The Company's nationally recognized
"Kids Club" was the forerunner and model for the Fox network-wide marketing
efforts promoting children's programming. Sinclair carries the Fox Children's
Network ("FCN") and UPN's childrens' programming, both of which include
significant amounts of animated programming throughout the week. In those
markets where the Company owns or programs ABC or CBS affiliates, the Company
broadcasts those networks' animated programming during weekends. In addition to
this animated programming, the Company broadcasts other forms of children's
programming, which may be produced by the Company or by an affiliated network.
Counter-Programming. The Company's programming strategy on its Fox, UPN and
Independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
programming on competing stations. The Company believes that implementation of
this strategy enables its stations to achieve competitive rankings in households
in the 18-49 and 25-54 demographics and to offer greater diversity of
programming in each of its DMAs.
Local News. The Company believes that the production and broadcasting of
local news can be an important link to the community and an aid to the station's
efforts to expand its viewership. In addition, local news programming can
provide access to advertising sources targeted specifically to local news. The
Company carefully assesses the anticipated benefits and costs of producing local
news prior to introduction at a Company station because a significant investment
in capital equipment is required and substantial operating expenses are incurred
in introducing, developing and producing local news programming. The Company
currently provides local news programming at WBFF in Baltimore, WLFL in
Raleigh/Durham, KDNL in St. Louis, KABB in San Antonio, KOVR in Sacramento, WPGH
in Pittsburgh and WLOS in Asheville. The Company also broadcasts news programs
on WDKY in Lexington, which are produced in part by the Company and in part
through the purchase of production services from an independent third party and
on
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WTTV in Indianapolis, which are produced by a third party in exchange for a
limited number of advertising spots. River City Broadcasting, L.P. and its
controlled entities (collectively, "River City") provide the Company news
production services with respect to the production of news programming and on
air talent on WTTE. Pursuant to an agreement, River City provides certain
services to the Company in return for a fee equal to approximately $416,000 per
year. The possible introduction of local news at the other Company stations is
reviewed periodically. The Company's policy is to institute local news
programming at a specific station only if the expected benefits of local news
programming at the station are believed to exceed the associated costs after an
appropriate start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's independent and UPN affiliated stations generally face fewer
restrictions on broadcasting live local sporting events than do their
competitors that are affiliates of the major networks and Fox since affiliates
of the major networks are subject to prohibitions against preemptions of network
programming. The Company has been able to acquire the local television broadcast
rights for certain sporting events, such as NBA basketball, Major League
Baseball, NFL football, NHL hockey, ACC basketball, Big Ten football and
basketball, and SEC football. The Company seeks to expand its sports
broadcasting in DMAs as profitable opportunities arise. In addition, the
Company's stations that are affiliated with Fox broadcast certain Major League
Baseball games, NFL football games and NHL hockey games.
INNOVATIVE LOCAL SALES AND MARKETING
The Company believes that it is able to attract new advertisers to its
stations and increase its share of existing customers' advertising budgets by
creating a sense of partnership with those advertisers. The Company develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to advertisers. These campaigns often involve the sponsorship by
advertisers of local promotional events that capitalize on the station's local
identity and programming franchises. For example, several of the Company's
stations stage local Kids Fairs which allow station advertisers to reinforce
their on-air advertising with their target audience. Through its strong local
sales and marketing focus, the Company seeks to capture an increasing share of
its revenues from local sources, which are generally more stable than national
advertising.
CONTROL OF OPERATING AND PROGRAMMING COSTS
By employing a disciplined approach to managing programming acquisition and
other costs, the Company has been able to achieve operating margins that the
Company believes are among the highest in the television broadcast industry. The
Company has sought in the past and will continue to seek to acquire quality
programming for prices at or below prices paid in the past. As an owner or
provider of programming services to 28 stations in 20 DMAs reaching
approximately 14% of U.S. television households, the Company believes that it is
able to negotiate favorable terms for the acquisition of programming. Moreover,
the Company emphasizes control of each of its stations' programming and
operating costs through program-specific profit analysis, detailed budgeting,
tight control over staffing levels and detailed long-term planning models.
ATTRACT AND RETAIN HIGH QUALITY MANAGEMENT
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to general
managers, sales managers and other station managers is based on their achieving
certain operating results. The Company also provides its corporate and station
managers with deferred compensation plans offering options to acquire Class A
Common Stock.
COMMUNITY INVOLVEMENT
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employees to become
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active members of their communities and to promote involvement in community and
charitable affairs. The Company believes that active community involvement by
its stations provides its stations with increased exposure in their respective
DMAs and ultimately increases viewership and advertising support.
ESTABLISH LMAS
- --------------
The Company believes that it can attain significant growth in operating cash
flow through the utilization of LMAs. By expanding its presence in a market in
which it owns a station, the Company can improve its competitive position with
respect to a demographic sector. In addition, by providing programming services
to an additional station in a market, the Company is able to realize significant
economies of scale in marketing, programming, overhead and capital expenditures.
The Company provides programming services pursuant to an LMA to an additional
station in seven of its 20 television markets.
PROGRAMMING AND AFFILIATIONS
The Company continually reviews its existing programming inventory and seeks
to purchase the most profitable and cost-effective syndicated programs available
for each time period. In developing its selection of syndicated programming, the
Company balances the cost of available syndicated programs with their potential
to increase advertising revenue and the risk of their reduced popularity during
the term of the program contract. The Company seeks to purchase only those
programs with contractual periods that permit programming flexibility and which
complement a station's overall programming strategy and counter-programming
strategy. Programs that can perform successfully in more than one time period
are more attractive due to the long lead time and multi-year commitments
inherent in program purchasing.
Twenty-six of the 28 television stations owned or provided programming
services by the Company operate as affiliates of Fox (ten stations), UPN (eleven
stations), ABC (two stations), WB (two stations) and CBS (one station). The
networks produce and distribute programming in exchange for each station's
commitment to air the programming at specified times and for commercial
announcement time during the programming. In addition, networks other than Fox
and UPN pay each affiliated station a fee for each network-sponsored program
broadcast by the stations.
On August 21, 1996, the Company entered into an agreement with Fox (the "Fox
Agreement") which, among other things, provides that the affiliation agreements
between Fox and eight stations owned or provided programming services by the
Company (except as noted below) would be amended to have new five-year terms
commencing on the date of the Fox Agreement. Fox has the option to extend the
affiliation agreements for an additional five-year term and must extend all of
the affiliation agreements if it extends any (except that Fox may selectively
renew affiliation agreements if any station has breached its affiliation
agreement). The Fox Agreement also provides that the Company will have the right
to purchase, for fair market value, any station Fox acquires in a market
currently served by a Company owned Fox affiliate (other than the Norfolk and
Raleigh-Durham markets) if Fox determines to terminate the affiliation agreement
with the Company's station in that market and operate the station acquired by
Fox as a Fox affiliate. The agreement confirmed that the affiliation agreement
for WTTO (Birmingham, Alabama) would terminate on September 1, 1996, and that
affiliation agreements for WTVZ (Norfolk, Virginia) and WLFL (Raleigh, North
Carolina) will terminate August 31, 1998. The Fox Agreement also includes
provisions limiting the ability of the Company to preempt Fox programming except
where it has existing programming conflicts or where the Company preempts to
serve a public purpose.
The Company's affiliation agreement with ABC for WLOS in Asheville has a term
which expires in September 1998 but which automatically renews for two-year
periods unless either party elects to terminate on six months notice, and its
affiliation agreement with CBS for KOVR in Sacramento has a 10-year term
expiring in 2005. Each of the Company's UPN affiliation agreements is for three
years, and expires in January 1998.
Each of the affiliation agreements relating to stations involved in the
Company's acquisition, agreed to on April 10, 1996, of certain assets of River
City ( the "River City Acquisition") (other than River City's Fox affiliates) is
terminable by the network upon transfer of the License Assets (as defined
herein) of the station. In addition, KDNL (St. Louis) is being operated as an
ABC
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affiliate pursuant to terms negotiated with ABC, but no affiliation agreement
has been signed and ABC is not paying affiliation fees, and WLOS (Asheville) is
being operated pursuant to terms negotiated with ABC to replace an existing
agreement, but the new agreement has not been signed and ABC is paying the lower
affiliation fees called for under the old agreement.
RADIO BROADCASTING
The following table sets forth certain information regarding the radio
stations (i) programmed by the Company, (ii) with which the Company has JSAs,
(iii) or which the Company has an option to acquire. Except as indicated, the
Company owns the Non-License Assets (as defined herein) of the following
stations, and the Company programs these stations pursuant to an LMA with River
City.
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(A) REVENUE(B) FORMAT TARGET(C) TARGET(D) LICENSE
- ---------------- ------------ ------------------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Los Angeles 2
KBLA-AM (e) Korean NA N/A 12/1/97
St. Louis 17
KPNT-FM Alternative Rock Adults 18-34 4 2/1/04
WVRV-FM Modern Adult
Contemporary Adults 18-34 7 12/1/03
New Orleans 38
WLMG-FM Adult Contemporary Women 25-54 2 6/1/03
KMEZ-FM Urban Oldies Women 25-54 6 6/1/03
WWL-AM News/Talk/Sports Adults 35-64 1 6/1/03
WSMB-AM Talk/Sports Adults 35-64 19 6/1/03
Buffalo 40
WMJQ-FM Adult Contemporary Women 25-54 2 6/1/98
WKSE-FM Contemporary Hit Radio Women 18-49 1 6/1/98
WBEN-AM News/Talk/Sports Adults 35-64 1 6/1/98
WWKB-AM Country Adults 35-64 16 6/1/98
WGR-AM(f)(g) Sports Adults 25-54 10 6/1/98
WWWS-AM(f)(g) Urban Oldies Women 25-54 12 6/1/98
Memphis 43
WRVR-FM Soft Adult Contemporary Women 25-54 3 8/1/03
WJCE-AM Urban Oldies Women 25-54 11 8/1/03
WOGY-FM Country Adults 25-54 10 8/1/03
Nashville 44
WLAC-FM Adult Contemporary Women 25-54 6 8/1/03
WJZC-FM Smooth Jazz Women 25-54 9 8/1/03
WLAC-AM News/Talk/Sports Adults 35-64 11 8/1/03
Greenville/
Spartanburg 59
WFBC-FM (h) Contemporary Hit Radio Women 18-49 6 12/1/02
WORD-AM (h) News/Talk Adults 35-64 9 12/1/02
WFBC-AM (h) News/Talk Adults 35-64 9 12/1/02
WSPA-AM(h) Full Service/Talk Adults 35-64 15 12/1/02
WSPA-FM(h) Soft Adult Contemporary Women 25-54 2 12/1/02
WOLI-FM(h)(i) Oldies Adults 25-54 9 12/1/02
WOLT-FM(h)(j) Oldies Adults 25-54 10 12/1/02
Wilkes-Barre/
Scranton 61
WKRZ-FM Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM Country Adults 25-54 3 8/1/98
WILK-AM (k) News/Talk/Sports Adults 35-64 6 8/1/98
WGBI-AM(k) News/Talk/Sports Adults 35-64 31 8/1/98
WWSH-FM(f Soft Hits Women 25-54 7 8/1/98
WILP-AM(l) News/Talk/Sports Adults 35-64 31 8/1/98
WWFH-FM(m) Soft Hits Women 25-54 17 8/1/98
</TABLE>
(Footnotes on following page)
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(a) Actual city of license may differ from the geographic market served.
(b) Ranking of the principal radio market served by the station among all U.S.
radio markets by 1995 aggregate gross radio broadcast revenue according to
1996 Broadcasting & Cable Yearbook.
(c) Due to variations that may exist within programming formats, the primary
demographic target of stations with the same programming format may be
different.
(d) ll information concerning ratings and audience listening information is
derived from the Fall 1996 Arbitron Metro Area Ratings Survey (the "Fall
1996 Arbitron"). Arbitron is the generally accepted industry source for
statistical information concerning audience ratings. Due to the nature of
listener surveys, other radio ratings services may report different
rankings; however, the Company does not believe that any radio ratings
service other than Arbitron is accorded significant weight in the radio
broadcast industry. "Station Rank in Primary Demographic Target" is the
ranking of the station among all radio stations in its market that are
ranked in its target demographic group and is based on the station's average
persons share in the primary demographic target in the applicable Metro
Survey Area. Source: Average Quarter Hour Estimates, Monday through Sunday,
6:00 a.m. to midnight, Fall 1996 Arbitron.
(e) Programming is provided to this station by a third party pursuant to an LMA.
(f) The Company sells advertising time on these stations pursuant to a JSA.
(g) The Company has agreed to acquire these stations, subject to FCC approval of
the transfer of the related licenses.
(h) The Company has an option to acquire Keymarket of South Carolina, Inc.,
which owns and operates WFBC-AM, WORD-AM and WFBC-FM, has an option to
acquire and provides programming services pursuant to an LMA to WSPA-AM and
WSPA-FM, and provides sales services pursuant to a JSA and has an option to
acquire WOLI-FM and WOLT-FM.
(i) WOLI-FM was formerly WXWX-FM.
(j) WOLT-FM was formerly WXWZ-FM.
(k) WILK-AM and WGBI-AM simulcast their programming.
(l) WILP-AM was formerly WXPX-AM.
(m) WWFH-FM was formerly WQEQ-FM.
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Radio Operating Strategy
The Company's radio strategy is to operate a cluster of radio stations in
each of a variety of geographic markets throughout the country. In each
geographic market, the Company employs broadly diversified programming formats
to appeal to a variety of demographic groups within the market. The Company
seeks to strengthen the identity of each of its stations through its programming
and promotional efforts, and emphasizes that identity to a far greater degree
than the identity of any local radio personality.
The Company believes that its strategy of appealing to diverse demographic
groups in a variety of geographic markets allows it to reach a larger share of
the overall advertising market while realizing economies of scale and avoiding
dependence on one demographic or geographic market. The Company realizes
economies of scale by combining sales and marketing forces, back office
operations and general management in each geographic market. At the same time,
the geographic diversity of its portfolio of radio stations helps lessen the
potential impact of economic downturns in specific markets and the diversity of
target audiences served helps lessen the impact of changes in listening
preferences. In addition, the geographic and demographic diversity allows the
Company to avoid dependence on any one or any small group of advertisers.
The Company's group of radio stations includes the top billing station group
in two markets and one of the top three billing station groups in each of its
markets other than Los Angeles, St. Louis and Nashville. Through ownership or
LMAs, the group also includes duopolies in six of its seven markets and, upon
exercise of options to acquire stations in the Greenville/Spartanburg market,
the Company will have duopolies in seven of its eight markets.
Depending on the programming format of a particular station, there are a
predetermined number of advertisements broadcast each hour. The Company
determines the optimum number of advertisements available for sale during each
hour without jeopardizing listening levels (and the resulting ratings). Although
there may be shifts from time to time in the number of advertisements available
for sale during a particular time of day, the total number of advertisements
available for sale on a particular station normally does not vary significantly.
Any change in net radio broadcasting revenue, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments made to ensure that the station effectively uses advertising
time available for sale, an increase in the number of commercials sold or a
combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in each
of its radio markets. The Company's principal goal in its sales efforts is to
develop long-standing customer relationships through frequent direct contacts,
which the Company believes provides it with a competitive advantage.
Additionally, in some radio markets, duopolies permit the Company to offer
creative advertising packages to local, regional and national advertisers. Each
radio station programmed by the Company also engages a national independent
sales representative to assist it in obtaining national advertising revenues.
These representatives obtain advertising through national advertising agencies
and receive a commission from the radio station based on its gross revenue from
the advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act") was
signed into law. The 1996 Act represents the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934 (as
amended, the "Communicatons Act"). The 1996 Act relaxes the broadcast ownership
rules and simplifies the process for renewal of broadcast station licenses.
The Company believes that the enactment of the 1996 Act presents a unique
opportunity to build a larger and more diversified broadcasting company.
Additionally, the Company expects that the opportunity to act as one of the
consolidators of the industry will enable the Company to gain additional
influence with program suppliers, television networks, other vendors, and
alternative delivery media. The Company also believes that the additions to its
management team as a result of the River City Acquisition will give it
additional resources to take advantage of these developments.
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In implementing its acquisition strategy, the Company seeks to identify and
pursue favorable station or group acquisition opportunities primarily in the
15th to 75th largest DMAs and Metro Survey Areas as defined by the audience
measuring service Arbitron ("MSAs"). In assessing potential acquisitions, the
Company examines opportunities to improve revenue share, audience share and/or
cost control. Additional factors considered by the Company in a potential
acquisition include geographic location, demographic characteristics and
competitive dynamics of the market.
In furtherance of its acquisition strategy, the Company routinely reviews,
and conducts investigations of, potential television and radio station
acquisitions. When the Company believes a favorable opportunity exists, the
Company seeks to enter into discussions with the owners of such stations
regarding the possibility of an acquisition by the Company. At any given time,
the Company may be in discussions with one or more such station owners.
Since the 1996 Act became effective, the Company has acquired, obtained
options to acquire or has acquired the right to program or provide sales
services to 16 television and 33 radio stations for an aggregate consideration
of approximately $1.3 billion. Certain terms of these acquisitions are described
below.
River City Acquisition. On May 31, 1996, pursuant to the Amended and Restated
Asset Purchase Agreement, the Company acquired all of the Non-License Assets of
River City other than the assets relating to WSYX-TV in Columbus, Ohio.
Simultaneously, the Company entered into a 10-year LMA with River City with
respect to all of River City's License Assets (with the exception of the License
Assets relating to WSYX) and was granted: (i) a 10-year option (the "License
Assets Option") to acquire River City's License Assets (with the exception of
the License Assets relating to WSYX); and (ii) a three-year option to acquire
the assets relating to WSYX-TV (both the License and Non-License Assets,
collectively the "Columbus Option"). The exercise price for the License Assets
Option is $20 million and the Company is required to pay an extension fee with
respect to the License Assets Option as follows: (1) 8% of $20 million for the
first year following the closing of the River City Acquisition; (2) 15% of $20
million for the second year following such closing; and (3) 25% of $20 million
for each following year. The Non-License Assets acquired from River City relate
to eight television stations and 21 radio stations owned and operated by River
City. In addition, the Company acquired from another party the Non-License
Assets relating to one additional television station (KRRT) to which River City
provided programming pursuant to an LMA. The Company assigned its option to
acquire the License Assets of one television station (WFBC) to Glencairn, and
Glencairn also acquired the option to acquire the License Assets of KRRT. The
Company also acquired River City's rights under LMAs with respect to KRRT and
four radio stations to which River City provided programming or sales services.
The Company has exercised the License Assets Option and has acquired the License
Assets of all but the two radio stations in the St. Louis market. Acquisition of
the remaining License Assets is now subject to FCC approval of transfer of such
License Assets. There can be no assurance that this approval will be obtained.
Applications for transfer of the License Assets were filed in July and August
1996, except application for transfer of the License Assets relating to WTTV and
WTTK which was filed in November 1996. The applications with respect to the two
radio stations in the St. Louis market are pending, and require a special waiver
because of the Company's pending acquisition of a television station (KDNL) in
the market.
The Company paid an aggregate of approximately $1.0 billion for the
Non-License Assets and the License Assets Option consisting of $847.6 million in
cash and 1,150,000 shares of Series A Convertible Preferred Stock of the Company
and 1,382,435 stock options. The Series A Convertible Preferred Stock has been
exchanged for 1,150,000 shares of Series B Convertible Preferred Stock of the
Company, which at issuance had an aggregate liquidation value of $115 million,
and are convertible at any time, at the option of the holders, into an aggregate
of 4,181,818 shares of Class A Common Stock of the Company (which had a market
value on May 31, 1996 of approximately $125.1 million). The exercise price for
the Columbus Option is approximately $130 million plus the amount of
indebtedness secured by the WSYX assets on the date of exercise (not to exceed
the amount outstanding on the date of closing of $105 million) and the Company
is required to pay an extension fee with respect to the Columbus Option as
follows: (1) 8% of $130 million for the first year following the closing of the
River City Acquisition; (2) 15% of $130 million for the second year following
the closing; and (3) 25% of $130 million for each
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following year. The extension fee accrues beginning on the date of closing, and
is payable (beginning December 31, 1996) at the end of each calendar quarter
until such time as the option is exercised or River City sells WSYX to a third
party. The Company paid the extension fee due December 31, 1996. Pursuant to the
LMAs with River City and the owner of KRRT, the Company is required to provide
at least 166 hours per week of programming to each television and radio station
and, subject to certain exceptions, River City and the owner of KRRT are
required to broadcast all programming provided by the Company. The Company is
required to pay River City and the owner of KRRT monthly fees under the LMAs in
an amount sufficient to cover specified expenses of operating the stations,
which are currently approximately $134,000 per month for all River City
television and radio stations the Company programs (including KRRT). The Company
has the right to sell advertising time on the stations during the hours
programmed by the Company.
The Company and River City filed notification under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with respect to
the Company's acquisition of all River City assets prior to closing the
acquisition. After the United States Justice Department ("DOJ") indicated that
it would request additional information regarding the antitrust implications of
the acquisition of WSYX by the Company in light of the Company's ownership of
WTTE, the Company and River City agreed to submit separate notifications with
respect to the WSYX assets and the other River City assets. The DOJ then granted
early termination of the waiting period with respect to the transfer of the
River City assets other than WSYX, permitting the acquisition of those assets to
proceed. The Company and River City agreed to notify the DOJ 30 days before
entering into an LMA or similar agreement with respect to WSYX and agreed not to
enter into such an agreement until 20 days after substantially complying with
any request for information from DOJ regarding the transaction. The Company is
in the process of preparing a submission to the DOJ regarding the competitive
effects of entering into an LMA arrangement in Columbus. The Company has agreed
to sell the License Assets of WTTE to Glencairn and to enter into an LMA with
Glencairn to provide programming services to WTTE, but the Company does not
believe that this transaction will be completed unless the Company acquires
WSYX.
In the River City Acquisition, the Company also acquired an option held by
River City to purchase either (i) all of the assets of Keymarket of South
Carolina, Inc. ("KSC") for the forgiveness of debt held by the Company in an
aggregate principal amount of approximately $7.4 million as of August 22, 1996,
plus payment of approximately $1,000,000 less certain adjustments or (ii) all of
the stock of KSC for $1,000,000 less certain adjustments. KSC owns and operates
three radio stations in the Greenville/Spartanburg, South Carolina MSA (WFBC-FM,
WFBC-AM and WORD-AM). The options to acquire the assets and stock of KSC expire
on December 31, 1997. KSC also holds an option to acquire from Spartan
Radiocasting, Inc. certain assets relating to two additional stations (WSPA-AM
and WSPA-FM) in the Greenville/Spartanburg MSA and which KSC currently programs
pursuant to an LMA. KSC's option to acquire these assets is exercisable for
$5.15 million and expires in January 2000, subject to extension to the extent
the applicable LMA is extended beyond that date. KSC also has an option to
acquire assets of Palm Broadcasting Company, L.P., which owns two additional
stations in the Greenville/Spartanburg MSA (WOLI-FM and WOLT-FM) in an amount
equal to the outstanding debt of Palm Broadcasting Company, L.P. to the Company,
which was approximately $3.0 million as of June 30, 1996. This option expires in
April 2001. KSC has a JSA with Palm Broadcasting Company, L.P., but does not
provide programming for WOLI or WOLT.
Superior Acquisition. On May 8, 1996, the Company acquired WDKY-TV
(Lexington, Kentucky) and KOCB-TV (Oklahoma City, Oklahoma) by acquiring the
stock of Superior Communications, Inc. for approximately $63.5 million.
Flint Acquisition. On February 27, 1996 the Company acquired the assets of
WSMH-TV (Flint, Michigan) for approximately $35.8 million by exercising options
granted in 1995.
Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) and on August 1, 1996, it acquired
the assets of WSTR-TV (Cincinnati, Ohio) for approximately $34.2 million.
Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) for approximately $21.2
million.
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1997 ACQUISITIONS
Since the end of 1996, the Company has entered into agreements to acquire one
television station and two radio stations, and has completed the acquisition of
two radio stations. On January 30, 1997, the Company entered into an agreement
to acquire the assets of KUPN-TV, the UPN affiliate in Las Vegas, Nevada, for
$87.0 million. The Company also entered into an agreement on January 29, 1997 to
acquire the assets of WGR-AM and WWWS-AM in Buffalo, New York for $1.5 million.
The Company's acquisition of these stations is subject to FCC approval of
applications to assign the licenses of these stations. The Company currently
sells the commercial air time of WGR-AM and WWWS-AM pursuant to a JSA. On
January 31, 1997, the Company completed the acquisition of the assets of WWSH-FM
and WILP-AM, each in Wilkes-Barre, Pennsylvania, for aggregate consideration of
approximately $773,000.
LOCAL MARKETING AGREEMENTS
The Company generally enters into LMAs and similar arrangements with stations
located in markets in which the Company already owns and operates a station, and
in connection with acquisitions, pending regulatory approval of transfer of
License Assets. Under the terms of the LMAs the Company makes specified periodic
payments to the owner-operator in exchange for the grant to the Company of the
right to program and sell advertising on a specified portion of the station's
inventory of broadcast time. Nevertheless, as the holder of the FCC license, the
owner-operator retains full control and responsibility for the operation of the
station, including control over all programming broadcast on the station.
The Company currently has LMA arrangements with stations in five markets in
which it owns a television station: Pittsburgh, Pennsylvania (WPTT), Baltimore,
Maryland (WNUV), Raleigh/Durham, North Carolina (WRDC), Milwaukee, Wisconsin
(WVTV) and Birmingham, Alabama (WABM). The Company also has LMA arrangements in
two markets (San Antonio and Asheville/Greenville/Spartanburg) in which the
Company will own a station upon completion of the acquisition of License Assets
from River City. In addition, the Company has an LMA arrangement with a station
in the Tuscaloosa, Alabama market (WDBB), which is adjacent to Birmingham. In
each of these markets, other than Pittsburgh and Tuscaloosa, the LMA arrangement
is (or will be after transfer of License Assets from River City) with Glencairn
and the Company owns the Non-License Assets (as defined below) of the stations.
The Company owns the assets of one radio station (KBLA-AM in Los Angeles) which
an independent third party programs pursuant to an LMA.
The Company believes that it is able to increase its revenues and improve its
margins by providing programming services to stations in selected DMAs and MSAs
where the Company already owns a station. In certain instances, single station
operators and stations operated by smaller ownership groups do not have the
management expertise or the operating efficiencies available to the Company as a
multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In cases where the Company enters into LMA arrangements in connection with a
station whose acquisition by the Company is pending FCC approval, the Company
(i) obtains an option to acquire the station assets essential for broadcasting a
television or radio signal in compliance with regulatory guidelines, generally
consisting of the FCC license, transmitter, transmission lines, technical
equipment, call letters and trademarks, and certain furniture, fixtures and
equipment (the "License Assets") and (ii) acquires the remaining assets (the
"Non-License Assets") at the time it enters into the option. Following
acquisition of the Non-License Assets, the License Assets continue to be owned
by the owner-operator and holder of the FCC license, which enters into an LMA
with the Company. After FCC approval for transfer of the License Assets is
obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
In connection with the River City Acquisition, the Company entered into an
LMA in the form of time brokerage agreements ("TBAs") with River City and the
owner of KRRT with respect to each of the nine television (including KDSM-TV)
and 21 radio stations with respect to which the Company
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acquired Non-License Assets. The TBAs are for a ten-year term, which corresponds
with the term of the option the Company holds to acquire the related River City
License Assets. Pursuant to the TBA, the Company pays River City and the owner
of KRRT fees in return for which the Company acquires all of the inventory of
broadcast time of the stations and the right to sell 100% of each station's
inventory of advertising time. The Company has filed applications with respect
to the transfer of the License Assets of seven of the nine television stations
and the 21 radio stations with respect to which the Company acquired Non-License
Assets in the River City Acquisition. Such applications have been granted with
respect to 19 of the 21 radio stations, and the Company has acquired the license
assets of each of the 19 radio stations. Upon grant of FCC approval of the
transfer of License Assets with respect to the remaining stations, the Company
intends to acquire the License Assets, and thereafter the LMAs will terminate
and the Company will operate the stations. With respect to the remaining two
television stations, Glencairn has applied for transfer of the License Assets of
these stations, and the Company intends to program these stations under LMAs
with Glencairn upon FCC approval of the transfer of the License Assets to
Glencairn. Petitions to deny or informal objections have been filed against
these applications by third parties.
In addition to its LMAs, the Company sells commercial air time for (but does
not provide programming to) three radio stations pursuant to JSAs in MSAs in
which it has interests in other radio stations. Under the Company's JSAs, the
Company has obtained the right, for a fee paid to the owner and operator of the
station, to sell substantially all of the commercial advertising on the station.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the FCC, which acts under authority granted by
the Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the Communications
Act, the recently-enacted 1996 Act and specific FCC regulations and policies.
Reference should be made to the Communications Act, FCC rules and the public
notices and rulings of the FCC for further information concerning the nature and
extent of federal regulation of broadcast stations.
License Grant and Renewal. Television stations operate pursuant to
broadcasting licenses that formerly were granted by the FCC for maximum terms of
five years, and radio stations operate pursuant to broadcasting licenses that
formerly were granted by the FCC for maximum terms of seven years. The 1996 Act
authorizes the FCC to grant all broadcast licenses (both television and radio)
for maximum terms of eight years, and the FCC has issued an order directing its
staff to implement this statutory change.
Television and radio station licenses are subject to renewal upon application
to the FCC. During certain periods when renewal applications are pending,
competing applicants may file for the radio or television frequency being used
by the renewal applicant. During the same periods, petitions to deny license
renewal applications may be filed by interested parties, including members of
the public. Prior to the 1996 Act, the FCC was generally required to hold
hearings on renewal applications if a competing application against a renewal
application was filed, if the FCC was unable to determine that renewal of a
license would serve the public interest, convenience and necessity, or if a
petition to deny raised a "substantial and material question of fact" as to
whether the grant of the renewal application would be prima facie consistent
with the public interest, convenience and necessity.
The 1996 Act does not prohibit either the filing of petitions to deny license
renewals or the filing of competing applications. Under the 1996 Act, the FCC is
still required to hold hearings on renewal applications if it is unable to
determine that renewal of a license would serve the public interest, convenience
or necessity, or if a petition to deny raises a "substantial and material
question of fact" as to whether the grant of the renewal application would be
prima facie inconsistent with the public interest,
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convenience and necessity. Pursuant to the 1996 Act, however, the FCC is
prohibited from considering competing applications for a renewal applicant's
frequency, and is required to grant the renewal application, if the FCC finds
(i) that the station has served the public interest, convenience and necessity;
(ii) that there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC; and (iii) there have
been no other violations by the licensee of the Communications Act or the rules
and regulations of the FCC that, when taken together, would constitute a pattern
of abuse.
All of the stations that the Company (i) owns and operates; (ii) intends to
acquire pursuant to the River City Acquisition and other acquisitions; (iii)
currently provides programming services to pursuant to an LMA or (iv) currently
sells commercial air time pursuant to a JSA, are presently operating under
regular licenses, which expire as to each station on the dates set forth under
"Television Broadcasting" and "Radio Broadcasting," above. Although renewal of
license is granted in the vast majority of cases even when petitions to deny are
filed, there can be no assurance that the licenses of such stations will be
renewed.
OWNERSHIP MATTERS
General
The Communications Act prohibits the assignment of a broadcast license or the
transfer of control of a broadcast licensee without the prior approval of the
FCC. In determining whether to permit the assignment or transfer, or the grant
or renewal of, a broadcast license, the FCC considers a number of factors
pertaining to the licensee, including compliance with various rules limiting
common ownership of media properties, the "character" of the licensee and those
persons holding "attributable" interests therein, and compliance with the
Communications Act's limitations on Alien (as defined herein) ownership.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application involves
the assignment of the license or a "substantial change" in ownership or control
(i.e., the transfer of more than 50% of the voting stock), the application must
be placed on public notice for a period of approximately 30 days during which
petitions to deny the application may be filed by interested parties, including
members of the public. If an assignment application does not involve new
parties, or if a transfer application does not involve a "substantial change" in
ownership or control, it is a "pro forma" application. The "pro forma"
application is nevertheless subject to having informal objections filed against
it. If the FCC grants an assignment or transfer application, interested parties
have approximately 30 days from public notice of the grant to seek
reconsideration of that grant. Generally, parties that do not file initial
petitions to deny or informal objections against the application face a high
hurdle in seeking reconsideration of the grant. The FCC normally has
approximately an additional 10 days to set aside such grant on its own motion.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer to any party other than the assignee or transferee specified in the
application.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has a pending rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by, among other things, (i) raising the attribution stock
benchmark from 5% to 10%; (ii) raising the attribution stock benchmark for
passive investors from 10% to 20%; (iii) restricting the availability of the
single majority shareholder exemption; and (iv) attributing certain interests
such as non-voting stock, debt and certain holdings by limited liability
corporations in certain circumstances. More recently, the FCC has solicited
comment on proposed rules that would (i) treat an
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otherwise nonattributable equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark; (ii) treat a licensee of a
television station which, under an LMA, brokers more than 15% of the time on
another television station serving the same market, as having an attributable
interest in the brokered station; and (iii) in certain circumstances, treat the
licensee of a broadcast station that sells advertising time on another station
in the same market pursuant to a JSA as having an attributable interest in the
station whose advertising is being sold.
The Controlling Stockholders hold attributable interests in two entities
owning media properties, namely: Channel 63, Inc., licensee of WIIB-TV, a UHF
television station in Bloomington, Indiana, and Bay Television, Inc., licensee
of WTTA-TV, a UHF television station in St. Petersburg, Florida. All of the
issued and outstanding shares of Channel 63, Inc. are owned by the Controlling
Stockholders. All the issued and outstanding shares of Bay Television, Inc. are
owned by the Controlling Stockholders (75%) and Robert L. Simmons (25%), a
former stockholder of the Company. The Controlling Stockholders have agreed to
divest their attributable interests in Channel 63, Inc. and the Company believes
that, after doing so, such holdings will not materially restrict its ability to
acquire or program additional broadcast stations.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under this
policy, the FCC may consider significant equity interests combined with an
attributable interest in a media outlet in the same market, joint ventures, and
common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests, but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial relationships such as
debt, when combined with multiple business interrelationships such as LMAs and
JSAs, raise concerns under the cross-interest policy. Moreover, in its most
recent proposals in its ongoing attribution rulemaking proceeding, the FCC has
proposed treating television LMAs, JSAs, and debt or equity interests as
attributable interests in certain circumstances without regard to the
cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. As a
result of these provisions, the licenses granted to subsidiaries of the Company
by the FCC could be rescinded if, among other restrictions imposed by the FCC,
more than 25% of the Company's stock were owned or voted by Aliens. The Company
and the subsidiaries are domestic corporations, and the Controlling Stockholders
are all United States citizens. The Amended and Restated Articles of
Incorporation of the Company (the "Amended Certificate") contains limitations on
Alien ownership and control that are substantially similar to those contained in
the Communications Act. Pursuant to the Amended Certificate, the Company has the
right to repurchase Alien-owned shares at their fair market value to the extent
necessary, in the judgment of the Board of Directors, to comply with the Alien
ownership restrictions.
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TELEVISION
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National Ownership Rule. Prior to the 1996 Act, FCC rules generally
prohibited an individual or entity from having an attributable interest in more
than 12 television stations nationwide, or in television stations reaching more
than 25% of the national television viewing audience. Pursuant to the 1996 Act,
the FCC has modified its rules to eliminate any limitation on the number of
television stations an individual or entity may own nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching more than 35% of the national television viewing
audience. Historically, VHF stations have shared a larger portion of the market
than UHF stations. Therefore, only half of the households in the market area of
any UHF station are included when calculating whether an entity or individual
owns television stations reaching more than 35% of the national television
viewing audience. All but three of the stations owned and operated by the
Company, or to which the Company provides programming services, are UHF.
Duopoly Rule. On a local level, the television "duopoly" rule generally
prohibits a single individual or entity from having an attributable interest in
two or more television stations with overlapping Grade B service areas. While
the 1996 Act has not eliminated the TV duopoly rule, it does direct the FCC to
initiate a rulemaking proceeding to determine whether to retain, modify, or
eliminate the rule. The FCC has pending a rulemaking proceeding in which it has
proposed to modify the television duopoly rule to permit the common ownership of
television stations in different DMAs, so long as the Grade A signal contours of
the stations do not overlap. Pending resolution of its rulemaking proceeding,
the FCC has adopted an interim waiver policy that permits the common ownership
of television stations in different DMAs with no overlapping Grade A signal
contours, conditioned on the final outcome of the rulemaking proceeding. The FCC
has also sought comment on whether common ownership of two television stations
in a market should be permitted (i) where one or more of the commonly owned
stations is UHF, (ii) where one of the stations is in bankruptcy or has been off
the air for a substantial period of time and (iii) where the commonly owned
stations have very small audience or advertising shares, are located in a very
large market, and/or a specified number of independently owned media voices
would remain after the acquisition.
Local Marketing Agreements. Over the past few years, a number of television
stations, including certain of the Company's stations, have entered into what
have commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed television
stations agree to enter into cooperative arrangements of varying sorts, subject
to compliance with the requirements of antitrust laws and with the FCC's rules
and policies. Under these types of arrangements, separately-owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately-owned television stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question. Over the past few years, the staff of the FCC's Mass Media
Bureau has held that LMAs are not contrary to the Communications Act, provided
that the licensee of the station which is being substantially programmed by
another entity maintains complete responsibility for and control over
programming and operations of its broadcast station and assures compliance with
applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules.
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The 1996 Act provides that nothing therein "shall be construed to prohibit
the origination, continuation, or renewal of any television local marketing
agreement that is in compliance with the regulations of the [FCC]." The
legislative history of the 1996 Act reflects that this provision was intended to
grandfather television LMAs that were in existence upon enactment of the 1996
Act, and to allow television LMAs consistent with the FCC's rules subsequent to
enactment of the 1996 Act. In its pending rulemaking proceeding regarding the
television duopoly rule, the FCC has proposed to adopt a grandfathering policy
providing that, in the event that television LMAs become attributable interests,
LMAs that are in compliance with existing FCC rules and policies and were
entered into before November 5, 1996, would be permitted to continue in force
until the original term of the LMA expires. Under the FCC's proposal, television
LMAs that are entered into or renewed after November 5, 1996 would have to be
terminated if LMAs are made attributable interests and the LMA in question
resulted in a violation of the television multiple ownership rules. The
Company's LMAs with television stations WPTT in Pittsburgh, Pennsylvania, WNUV
in Baltimore, Maryland, WVTV in Milwaukee, Wisconsin, WRDC in Raleigh/Durham,
North Carolina, WABM in Birmingham, Alabama, and WDBB in Tuscaloosa, Alabama,
were in existence on both the date of enactment of the 1996 Act and November 5,
1996. The Company's LMAs with television stations KDNL in St. Louis, Missouri,
KOVR in Sacramento, California, WTTV and WTTK in Indianapolis, Indiana, WLOS in
Asheville, North Carolina, WFBC in Greenville-Spartanburg, South Carolina, KABB
in San Antonio, Texas, and KDSM in Des Moines, Iowa, were entered into
subsequent to the date of enactment of the 1996 Act but prior to November 5,
1996. The Company's LMA with television station KRRT in Kerrville, Texas was in
existence on the date of enactment of the 1996 Act, but was assumed by the
Company subsequent to that date but prior to November 5, 1996.
The TV duopoly rule currently prevents the Company from acquiring the
licenses of television stations with which it has LMAs in those markets where
the Company owns a television station. As a result, if the FCC were to decide
that the provider of programming services under a television LMA should be
treated as having an attributable interest in the brokered station, and if it
did not relax its television duopoly rule, the Company could be required to
modify or terminate those of its LMAs that were not in existence on the date of
enactment of the 1996 Act or on November 5, 1996. Furthermore, if the FCC adopts
its present proposal with respect to the grandfathering of television LMAs, the
Company could be required to terminate even those LMAs that were in effect prior
to the date of enactment of the 1996 Act or prior to November 5, 1996, after the
initial term of the LMA or upon assignment of the LMA. In such an event, the
Company could be required to pay termination penalties under certain of such
LMAs. Further, if the FCC were to find, in connection with any of the Company's
LMAs, that the owners/licensees of the stations with which the Company has LMAs
failed to maintain control over their operations as required by FCC rules and
policies, the licensee of the LMA station and/or the Company could be fined or
set for hearing, the outcome of which could be a monetary forfeiture or, under
certain circumstances, loss of the applicable FCC license. The Company is unable
to predict the ultimate outcome of possible changes to these FCC rules and the
impact such FCC rules may have on its broadcasting operations.
On June 1, 1995, the Chief of the FCC's Mass Media Bureau released a Public
Notice concerning the processing of television assignment and transfer
applications proposing LMAs. Due to the pendency of the ongoing rulemaking
proceeding concerning attribution of ownership, the Mass Media Bureau has placed
certain restrictions on the types of television assignment and transfer
applications involving LMAs that it will approve during the pendency of the
rulemaking. Specifically, the Mass Media Bureau has stated that it will not
approve arrangements where a time broker seeks to finance a station acquisition
and hold an option to purchase the station in the future. The Company believes
that none of the Company's LMAs or TBAs fall within the ambit of this Public
Notice.
RADIO
National Ownership Rule. Prior to the 1996 Act, the FCC's rules limited an
individual or entity from holding attributable interests in more than 20 AM and
20 FM radio stations nationwide. Pursuant to the 1996 Act, the FCC has modified
its rules to eliminate any limitation on the number of radio stations a single
individual or entity may own nationwide.
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Local Ownership Rule. Prior to the 1996 Act, the FCC's rules generally
permitted an individual or entity to hold attributable interests in no more than
four radio stations in a local market (no more than two of which could be in the
same service (AM or FM)), and then only if the aggregate audience share of the
commonly owned stations did not exceed 25%. In markets with fewer than 15
commercial radio stations, an individual or entity could hold an attributable
interest in no more than three radio stations in the market (no more than two of
which could be in the same service), and then only if the number of the commonly
owned stations did not exceed 50% of the total number of commercial radio
stations in the market.
Pursuant to the 1996 Act, the limits on the number of radio stations one
entity may own locally have been increased as follows: (i) in a market with 45
or more commercial radio stations, an entity may own up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than four of
which are in the same service; (iii) in a market with between 15 and 29
(inclusive) commercial radio stations, an entity may own up to six commercial
radio stations, not more than four of which are in the same service; and (iv) in
a market with 14 or fewer commercial radio stations, an entity may own up to
five commercial radio stations, not more than three of which are in the same
service, except that an entity may not own more than 50% of the stations in such
market. These numerical limits apply regardless of the aggregate audience share
of the stations sought to be commonly owned. FCC ownership rules continue to
permit an entity to own one FM and one AM station in a local market regardless
of market size. Irrespective of FCC rules governing radio ownership, however,
the Department of Justice and the Federal Trade Commission have the authority to
determine, and in certain recent radio transactions not involving the Company
have determined, that a particular transaction presents antitrust concerns.
Local Marketing Agreements. As in television, a number of radio stations have
entered into LMAs. The Company has entered into LMAs with certain radio stations
in connection with the River City Acquisition.
The FCC's multiple ownership rules specifically permit radio station LMAs to
be entered into and implemented, so long as the licensee of the station which is
being programmed under the LMA maintains complete responsibility for and control
over programming and operations of its broadcast station and assures compliance
with applicable FCC rules and policies. For the purposes of the multiple
ownership rules, in general, a radio station being programmed pursuant to an LMA
by an entity is not considered an attributable ownership interest of that entity
unless that entity already owns a radio station in the same market. However, a
licensee that owns a radio station in a market, and brokers more than 15% of the
time on another station serving the same market, is considered to have an
attributable ownership interest in the brokered station for purposes of the
FCC's multiple ownership rules. As a result, in a market in which the Company
owns a radio station, the Company would not be permitted to enter into an LMA
with another local radio station which it could not own under the local
ownership rules, unless the Company's programming constituted 15% or less of the
other local station's programming time on a weekly basis. The FCC's rules also
prohibit a broadcast licensee from simulcasting more than 25% of its programming
on another station in the same broadcast service (i.e., AM-AM or FM-FM) through
a time brokerage or LMA arrangement where the brokered and brokering stations
serve substantially the same area.
Joint Sales Agreements. Over the past few years, a number of radio (and
television) stations have entered into cooperative arrangements commonly known
as joint sales agreements, or JSAs. While these agreements may take varying
forms, under the typical JSA, a station licensee obtains, for a fee, the right
to sell substantially all of the commercial advertising on a separately-owned
and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming. In connection with the River City Acquisition, the
Company has assumed River City's rights under JSAs with three radio stations.
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The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.
OTHER OWNERSHIP MATTERS
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There remain in place after the 1996 Act a number of additional
cross-ownership rules and prohibitions pertaining to licensees of television and
radio stations. FCC rules, the Communications Act, or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, a daily newspaper, or a cable television system
that is located in or serves the same market area.
Antitrust Regulation.The Department of Justice and the Federal Trade
Commission have recently increased their scrutiny of the television and radio
industry, and have indicated their intention to review matters related to the
concentration of ownership within markets (including LMAs and JSAs) even when
the ownership or LMA or JSA in question is permitted under the laws administered
by the FCC or by FCC rules and regulations.
Radio/Television Cross-Ownership Rule. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally prohibits a single
individual or entity from having an attributable interest in a television
station and a radio station serving the same market. However, in each of the 25
largest local markets in the United States, provided that there are at least 30
separately owned stations in the particular market, the FCC has traditionally
employed a policy that presumptively allows waivers of the one to a market rule
to permit the common ownership of one AM, one FM and one TV station in the
market. The 1996 Act directs the FCC to extend this policy to each of the top 50
markets. Moreover, the FCC has pending a rulemaking proceeding in which it has
solicited comment on whether the one to a market rule should be eliminated
altogether.
However, the FCC does not apply its presumptive waiver policy in cases
involving the common ownership of one television station, and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider waivers of the rule in such instances on a case-by-case
basis, considering (i) the public service benefits that will arise from the
joint operation of the facilities such as economies of scale, cost savings and
programming and service benefits; (ii) the types of facilities involved; (iii)
the number of media outlets owned by the applicant in the relevant market; (iv)
the financial difficulties of the stations involved; and (v) the nature of the
relevant market in light of the level of competition and diversity after joint
operation is implemented. The FCC has stated that it expects that any such
waivers that are granted will be conditioned on the outcome of the rulemaking
proceeding. The Company has applied for such a waiver with respect to ownership
of a television station and radio stations in the St. Louis market, and there
can be no assurance that this waiver will be granted.
In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the following options for modifying the rule in the event
it is not eliminated: (i) extending the presumptive waiver policy to any
television market in which a specified number of independently owned voices
would remain after common ownership of a television station and one or more
radio stations is effectuated; (ii) extending the presumptive waiver policy to
entities that seek to own more than one FM and/or one AM radio station; (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated; and (iv) modifying the five-factor case-by-case
test for waivers.
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates a
previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that
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serve the same local market, the 1996 Act leaves the current FCC rule in place.
The legislative history of the Act indicates that the repeal of the statutory
ban should not prejudge the outcome of any FCC review of the rule.
Broadcast Network/Cable Cross-Ownership Rule. The 1996 Act directs the FCC to
eliminate its rules which formerly prohibited the common ownership of a
broadcast network and a cable system, subject to the provision that the FCC
revise its rules as necessary to ensure carriage, channel positioning, and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. In March 1996, the FCC issued an
order implementing this legislative change.
Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC's rules prohibit the
common ownership of a radio or television broadcast station and a daily
newspaper in the same market. The 1996 Act does not eliminate or modify this
prohibition. In October 1996, however, the FCC initiated a rulemaking proceeding
to determine whether it should liberalize its waiver policy with respect to
cross-ownership of a daily newspaper and one or more radio stations in the same
market.
Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
prohibited from merging with each other or with another network television
entity such as UPN or Warner Brothers.
Expansion of the Company's broadcast operations on both a local and national
level will continue to be subject to the FCC's ownership rules and any changes
the FCC or Congress may adopt. Concomitantly, any further relaxation of the
FCC's ownership rules may increase the level of competition in one or more of
the markets in which the Company's stations are located, more specifically to
the extent that any of the Company's competitors may have greater resources and
thereby be in a superior position to take advantage of such changes.
MUST-CARRY/RETRANSMISSION CONSENT
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
Area of Dominant Influence, in general as defined by the Arbitron 1991-92
Television Market Guide. These must-carry rights are not absolute, and their
exercise is dependent on variables such as (i) the number of activated channels
on a cable system; (ii) the location and size of a cable system; and (iii) the
amount of programming on a broadcast station that duplicates the programming of
another broadcast station carried by the cable system. Therefore, under certain
circumstances, a cable system may decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. In October 1996, the Company elected must-carry or
retransmission consent with respect to each of its markets based on its
evaluation of the respective markets and the position of the Company's station
within the market. The Company's stations continue to be carried on all
pertinent cable systems, and the Company does not believe that its election has
resulted in the shifting of its stations to less desirable cable channel
locations. Certain of the Company's stations affiliated with Fox are required to
elect retransmission consent, because Fox's retransmission consent negotiations
on behalf of the Company resulted in agreements which extend into 1998.
Therefore, the Company will need to negotiate retransmission consent agreements
for these Fox-affiliated stations to attain carriage on those relevant cable
systems for the balance of this triennial period (i.e., through December 31,
1999). For subsequent elections beginning with the election to be made by
October 1, 1999, the must-carry market will be the station's DMA, in general as
defined by the Nielsen DMA Market and Demographic Rank Report of the prior year.
The must-carry rules have been subject to judicial scrutiny. In April 1993,
the United States District Court for the District of Columbia summarily upheld
the constitutionality of the legislative must-carry provisions under a First
Amendment challenge. However, in June 1994, the Supreme Court remanded the case
to the lower court with instructions to test the constitutionality of the
must-carry rules under an
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"intermediate scrutiny" standard. In a decision issued in December 1995, a
closely divided three-judge District Court panel ruled that the record showed
that there was substantial evidence before Congress from which it could draw the
reasonable inferences that (1) the must-carry rules were necessary to protect
the local broadcast industry; and (2) the burdens on cable systems with rapidly
increasing channel capacity would be quite small. Accordingly, the District
Court panel ruled that Congress had not violated the First Amendment in enacting
the "must-carry" provisions. The case is once again on appeal to the Supreme
Court, which heard oral arguments in October 1996. The Company cannot predict
the final outcome of the Supreme Court case or how it may affect the Company's
cable contracts.
SYNDICATED EXCLUSIVITY/TERRITORIAL EXCLUSIVITY
The FCC has imposed syndicated exclusivity rules and expanded existing
network nonduplication rules. The syndicated exclusivity rules allow local
broadcast television stations to demand that cable operators black out
syndicated non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called "superstations," which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network television affiliates to
require that cable operators black out duplicating network programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations affiliated with a network, a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market. This is not in violation of the FCC's syndicated exclusivity rules.
However, the carriage of two network stations on the same cable system could
result in a decline of viewership adversely affecting the revenues of the
Company owned or programmed station.
RESTRICTIONS ON BROADCAST ADVERTISING
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states restrict the advertising
of alcoholic beverages. Congressional committees have recently examined
legislation proposals which may eliminate or severely restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations, as well as the revenues of other stations which carry beer and wine
advertising.
The FCC has imposed commercial time limitations in children's television
programming pursuant to legislation. In television programs designed for viewing
by children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. In granting
renewal of the license for WBFF-TV, the FCC imposed a fine of $10,000 on the
Company alleging that the station had exceeded these limitations.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things, (i) stations must provide "reasonable access" for
the purchase of time by legally qualified candidates for federal office; (ii)
stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement, and daypart.
PROGRAMMING AND OPERATION
General. The Communications Act requires broadcasters to serve the "public
interest." The FCC gradually has relaxed or eliminated many of the more
formalized procedures it had developed in the past to promote the broadcast of
certain types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to community issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
renewal applications of a licensee, although such complaints may be filed at any
time and
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generally may be considered by the FCC at any time. Stations also must pay
regulatory and application fees, and follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
obscene and indecent broadcasts, and technical operations, including limits on
radiofrequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application. Failure to observe these or
other rules and policies can result in the imposition of various sanctions,
including monetary forfeitures, or the grant of a "short" (i.e., less than the
full) renewal term or, for particularly egregious violations, the denial of a
license renewal application or the revocation of a license.
Children's Television Programming. Pursuant to legislation enacted in 1991,
all television stations have been required to broadcast some television
programming designed to meet the educational and informational needs of children
16 years of age and under. In August 1996, the FCC adopted new rules setting
forth more stringent children's programming requirements. Specifically, as of
September 1, 1997, television stations will be required to broadcast a minimum
of three hours per week of "core" children's educational programming, which the
FCC defines as programming that (i) has serving the educational and
informational needs of children 16 years of age and under as a significant
purpose; (ii) is regularly scheduled, weekly and at least 30 minutes in
duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00 p.m.
Furthermore, since January 2, 1997, "core" children's educational programs, in
order to qualify as such, are required to be identified as educational and
informational programs over the air at the time they are broadcast, and are
required to be identified in the children's programming reports required to be
placed in stations' public inspection files. Additionally, since January 2,
1997, television stations are required to identify and provide information
concerning "core" children's programming to publishers of program guides and
listings.
Television Violence. The 1996 Act contains a number of provisions relating to
television violence. First, pursuant to the 1996 Act, the television industry
has developed a ratings system, and the FCC has recently solicited public
comment on that system. Furthermore, the 1996 Act provides that all television
sets larger than 13 inches that are manufactured one year after enactment of the
1996 Act must include the so-called "V-chip," a computer chip that allows
blocking of rated programming. In addition, the 1996 Act requires that all
television license renewal applications filed after May 1, 1995 contain
summaries of written comments and suggestions received by the station from the
public regarding violent programming.
Closed Captioning. The 1996 Act directs the FCC to adopt rules requiring
closed captioning of all broadcast television programming, except where
captioning would be "economically burdensome." The FCC has recently instituted a
rulemaking proceeding to implement such rules.
PROPOSED CHANGES
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations, result in the loss of
audience share and advertising revenues for the Company's broadcast stations,
and affect the ability of the Company to acquire additional broadcast stations
or finance such acquisitions. In addition to the changes and proposed changes
noted above, such matters include, for example, the license renewal process,
spectrum use fees, political advertising rates, potential restrictions on the
advertising of certain products (beer, wine and hard liquor, for example), and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry, such as direct radio
and television broadcast satellite service, the continued establishment of
wireless cable systems and low power television stations, digital television and
radio technologies, and the advent of telephone company participation in the
provision of video programming service.
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OTHER CONSIDERATIONS
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal employment opportunity,
and other matters affecting the Company's business and operations.
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities, substances
or waste that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous substances. As a result, it is possible that the Company could
become subject to environmental liabilities in the future in connection with
these facilities under applicable environmental laws and regulations. Although
the Company believes that it is in substantial compliance with such
environmental requirements, and has not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The Company's television and radio stations compete for audience share and
advertising revenue with other television and radio stations in their respective
DMAs, as well as with other advertising media, such as newspapers, magazines,
outdoor advertising, transit advertising, yellow page directories, direct mail
and local cable and wireless cable systems. Some competitors are part of larger
organizations with substantially greater financial, technical and other
resources than the Company.
Television Competition. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. The Company's
television stations are located in highly competitive DMAs. In addition, certain
of the Company's DMAs are overlapped by both over-the-air and cable carriage of
stations in adjacent DMAs, which tends to spread viewership and advertising
expenditures over a larger number of television stations.
Broadcast television stations compete for advertising revenues primarily with
other broadcast television stations, radio stations and cable system operators
serving the same market. Major Network programming generally achieves higher
household audience levels than Fox, UPN and WB programming and syndicated
programming aired by independent stations. This can be attributed to a
combination of factors, including the Major Networks' efforts to reach a broader
audience, generally better signal carriage available when broadcasting over VHF
channels 2 through 13 versus broadcasting over UHF channels 14 through 69 and
the higher number of hours of Major Network programming being broadcast weekly.
However, greater amounts of advertising time are available for sale during Fox,
UPN and WB programming and non-network syndicated programming, and as a result
the Company believes that the Company's programming typically achieves a share
of television market advertising revenues greater than its share of the market's
audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of the Company's prime time programming is supplied by Fox and to a
lesser extent UPN, WB, ABC and CBS. In those periods, the Company's affiliated
stations are totally dependent upon the performance of the networks'
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programs in attracting viewers. Non-network time periods are programmed by the
station primarily with syndicated programs purchased for cash, cash and barter,
or barter-only, and also through self-produced news, public affairs and other
entertainment programming.
Television advertising rates are based upon factors which include the size of
the DMA in which the station operates, a program's popularity among the viewers
that an advertiser wishes to attract, the number of advertisers competing for
the available time, the demographic makeup of the DMA served by the station, the
availability of alternative advertising media in the DMA (including radio and
cable), the aggressiveness and knowledge of sales forces in the DMA and
development of projects, features and programs that tie advertiser messages to
programming. The Company believes that its sales and programming strategies
allow it to compete effectively for advertising within its DMAs.
Other factors that are material to a television station's competitive
position include signal coverage, local program acceptance, network affiliation,
audience characteristics and assigned broadcast frequency. Historically, the
Company's UHF broadcast stations have suffered a competitive disadvantage in
comparison to stations with VHF broadcast frequencies. This historic
disadvantage has gradually declined through (i) carriage on cable systems, (ii)
improvement in television receivers, (iii) improvement in television
transmitters, (iv) wider use of all channel antennae, (v) increased availability
of programming, and (vi) the development of new networks such as Fox, UPN and
WB.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of Federal
regulatory bodies, including the FCC, any of which could possibly have a
material effect on a television station's operations and profits. There are
sources of video service other than conventional television stations, the most
common being cable television, which can increase competition for a broadcast
television station by bringing into its market distant broadcasting signals not
otherwise available to the station's audience, serving as a distribution system
for national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling advertising time to local advertisers.
Other principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television ("DBS") entertainment services and
multichannel multipoint distribution services ("MMDS"). Moreover, technology
advances and regulatory changes affecting programming delivery through fiber
optic telephone lines and video compression could lower entry barriers for new
video channels and encourage the development of increasingly specialized "niche"
programming. The 1996 Act permits telephone companies to provide video
distribution services via radio communication, on a common carrier basis, as
"cable systems" or as "open video systems," each pursuant to different
regulatory schemes. The Company is unable to predict the effect that
technological and regulatory changes will have on the broadcast television
industry and on the future profitability and value of a particular broadcast
television station.
The FCC authorizes DBS services throughout the United States. Currently, two
FCC permitees, DirecTV and United States Satellite Broadcasting, provide
subscription DBS services via high-power communications satellites and small
dish receivers, and other companies provide direct-to-home video service using
lower powered satellites and larger receivers. Additional companies are expected
to commence direct-to-home operations in the near future. DBS and MMDS, as well
as other new technologies, will further increase competition in the delivery of
video programming.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
The Company is exploring ways in which it might take advantage of new
technology, including the delivery of additional content and services via the
broadcast spectrum. There can be no assurance that any such efforts will result
in the development of technology or services that are commercially successful.
The Company also competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Company's stations compete for exclusive access to
those programs against in-market broadcast station competitors for syndicated
products. Cable systems generally do not compete with local stations for
programming, al
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though various national cable networks from time to time have acquired programs
that would have otherwise been offered to local television stations. Public
broadcasting stations generally compete with commercial broadcasters for viewers
but not for advertising dollars.
Historically, the cost of programming had increased because of an increase in
the number of new Independent stations and a shortage of quality programming.
However, the Company believes that over the past five years program prices have
stabilized and, in some instances, have declined as a result of recent increases
in the supply of programming and the failure of some Independent stations.
The Company believes it competes favorably against other television stations
because of its management skill and experience, the ability of the Company
historically to generate revenue share greater than its audience share, the
network affiliations and its local program acceptance. In addition, the Company
believes that it benefits from the operation of multiple broadcast properties,
affording it certain nonquantifiable economies of scale and competitive
advantages in the purchase of programming.
Radio Competition. Radio broadcasting is a highly competitive business, and
each of the radio stations operated by the Company competes for audience share
and advertising revenue directly with other radio stations in its geographic
market, as well as with other media, including television, cable television,
newspapers, magazines, direct mail and billboard advertising. The audience
ratings and advertising revenue of each of such stations are subject to change,
and any adverse change in a particular market could have a material adverse
effect on the revenue of such radio stations located in that market. There can
be no assurance that any one of the Company's radio stations will be able to
maintain or increase its current audience ratings and radio advertising revenue
market share.
The Company will attempt to improve each radio station's competitive position
with promotional campaigns designed to enhance and reinforce its identities with
the listening public. Extensive market research is conducted in order to
identify specific demographic groups and design a programming format for those
groups. The Company seeks to build a strong listener base composed of specific
demographic groups in each market, and thereby attract advertisers seeking to
reach these listeners. Aside from building its stations' identities and
targeting its programming at specific demographic groups, management believes
that the Company also obtains a competitive advantage by operating duopolies or
multiple stations in the nation's larger mid-size markets.
The radio broadcasting industry is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and by digital audio broadcasting
("DAB"). DAB may provide a medium for the delivery by satellite or terrestrial
means of multiple new audio programming formats to local and national audiences.
Historically, the radio broadcasting industry has grown in terms of total
revenues despite the introduction of new technologies for the delivery of
entertainment and information, such as television broadcasting, cable
television, audio tapes and compact disks. There can be no assurance, however,
that the development or introduction in the future of any new media technology
will not have an adverse effect on the radio broadcast industry.
EMPLOYEES
As of December 31, 1996, the Company had approximately 2,359 employees. With
the exception of certain of the employees of KOVR-TV, KDNL-TV, WBEN-AM and
WWL-AM, none of the employees are represented by labor unions under any
collective bargaining agreement. No significant labor problems have been
experienced by the Company, and the Company considers its overall labor
relations to be good.
ITEM 2. PROPERTIES
Generally, each of the Company's stations has facilities consisting of
offices, studios and tower sites. Transmitter and tower sites are located to
provide maximum signal coverage of the stations' markets. The following table
generally describes the Company's principal owned and leased real property in
each of its markets of operation:
25
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
TELEVISION PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ---------------------- -------------------------------------------------- ---------------------------- ----------------
<S> <C> <C> <C>
Pittsburgh Market Station Site for WPTT Owned 30,000
Station Site for WPGH Leased (expires 10/01/2028) 25,500
Space on WPGH Tower Site Leased (expires 02/23/2039) On site of station
Baltimore Market Old WBFF Studio Leased (month to month) 2,000
WBFF Studio and Company Offices Leased (expires 09/01/2011) 39,000
WBFF Parking Lot Leased (month to month) N/A
Space on Main WBFF Tower for Antenna Leased (expires 04/01/2007) N/A
Space on Main WBFF Tower for Transmission Disks Leased (expires 04/01/2011) N/A
Space on Main WBFF Tower for Receivers Leased (expires 04/01/2012) N/A
Space on Backup WBFF Tower for Antenna Leased (expires 03/15/2000) N/A
Milwaukee Market WVTV Studio Site Owned 37,800
WVTV Transmitter Site Land Leased (expires 01/30/2030) N/A
WVTV Transmitter Site Building Owned 6,200
WCGV Studio Site Owned 22,296
WCGV Studio & Transmitter Site Leased (expires 12/31/2029) N/A
Raleigh/Durham Mkt WLFL/WRDC Studio Site Leased (expires 07/29/2021) 26,600
WLFL Tower Site Land Leased (expires 12/31/2018) 1,800
Columbus Market WTTE Studio Site Leased (expires 12/31/2002) 14,400
WTTE Office Space Leased (expires 06/01/2003) 4,500
WTTE Tower Site Leased (month to month) 1,000
Norfolk Market WTVZ Studio Site Leased (expires 07/31/2009) 15,000
Space on WHRD Tower Leased (expires 09/30/97)
Birmingham Market WTTO Tower and Old WTTO Studio Owned 9,500
WTTO Studio Site Leased (expires 1/31/2016) 9,750
WABM Studio Site Leased (expires 1/31/2016) 9,750
Flint/Saginaw/Bay
City Market WSMH Studio & Office Site Owned 13,800
WSMH Sales Office Site Leased (month to month) 525
WSMH Transmitter Site Leased (expires 11/13/2004)
Tuscaloosa Market WDBB Studio & Office Site Leased (month to month) 4,605
WDBB Transmitter Site Leased (month to month) 678
Kansas City Market KSMO Studio & Office Site Leased (expires 02/28/2011) 10,867
KSMO Transmitter Site Leased (expires 07/12/2013) 1,250
Cincinnati Market WSTR Studio & Office Site Owned 14,800
WSTR Transmitter Site Owned 6,600
W66AQ Translator Leased (month to month) N/A
Peoria Market WYZZ Studio & Office Site Owned 6,000
WYZZ Transmitter Site -- real property only Leased (expires 12/01/2001) 600
WYZZ Transmitter Site -- tower, transmitter, Owned N/A
building, & equipment
Oklahoma City
Market KOCB Studio & Office Site Owned 12,000
KOCB Transmitter Site Owned Included above
Lexington Market WDKY Studio & Office Site Leased (expires 12/31/2010) 12,000
WDKY Transmitter Site Owned 2,900
26
<PAGE>
APPROXIMATE
TELEVISION PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ---------------------- -------------------------------------------------- ---------------------------- ----------------
<S> <C> <C> <C>
Indianapolis Market WTTV/WTTK Studio & Office Site (building) Owned 19,900
WTTV/WTTK Studio & Office Site (lot) Owned 18.5 acres
WTTV Transmitter Site Owned 2,730
WTTK Transmitter Site Owned 800
Bloomington microwave site Leased (expires 07/05/2077) 216
Sacramento Market KOVR Studio & Office Site Owned 42,600
KOVR Stockton Office Site Leased (expires 03/31/1999) 1,000
KOVR Transmitter Site 50% Ownership N/A
KOVR Back-up Transmitter Site 1/3 Ownership N/A
Mt. Oso Microwave Site Leased (month to month) N/A
Volmer Peak Microwave Site Leased (expires 06/30/2000) N/A
Downtown Sacramento Microwave Site Leased (expires 05/31/1999) N/A
Elverta Microwave Site Leased (expires 07/31/1999) N/A
San Antonio Market KABB/KRRT Studio & Office Site Owned by KABB 22,460
KABB/KRRT Transmitter building/tower Owned 1200/1200
KABB/KRRT Transmitter land Leased (expires 06/30/2007) 35.562 acres
Asheville/Spartanburg WFBC/WLOS Studio & Office Site Owned by WLOS 28,000
Market WLOS Transmitter tower, building, land Leased (expires 12/31/2001) N/A
WFBC Transmitter Site Owned by WFBC 45.6 acres
WFBC/WAXA studio Owned 6,000
St. Louis Market KDNL Studio & Office (Lot) Owned 53,550
KDNL Studio & Office (building) Owned 41,372
KDNL Transmitter Site (2 buildings) Owned 1,600 & 1,330
Des Moines Market KDSM Studio & Office Site Leased (expired) 13,000
KDSM Transmitter building/tower Owned 2,000
KDSM Transmitter land Leased (expires 11/08/2034) 40 Acres
APPROXIMATE
RADIO PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ----------------------- ------------------------------------------ --------------------------- ----------------
Buffalo Market WWKB/WKSE Studio & Office Site Leased (expires 09/30/1998) 5,000
WWKB/WKSE Office Site Leased (expires 09/30/1998) 5,200
WBEN/WMJQ Studio & Office Site Leased (expires 12/31/1998) 7,750
WBEN Transmitter Site Owned 1,024
WWKB Transmitter Site Owned 2,600
WMJQ Transmitter Site Leased (expires 12/31/1998) 825
WKSE Transmitter Site Owned 6,722
Memphis Market WJCE/WRVR/WOGY Studio & Office Site Leased (expires 12/02/98) 10,000
WJCE Transmitter Site Leased (expires 03/27/2035) 2,262
WRVR Transmitter Site Leased (expires 12/31/2003) 169
WOGY Transmitter Site (on 4.5 acres) Owned 340
New Orleans Market WWL/WSMB/WLMG/KMEZ Leased (expires 08/31/2002) 11,553
Studio & Office Site
WWL Transmitter Site Owned 64.62 acres
WSMB Transmitter Site Owned 3,600
WLMG Transmitter Site Leased (expires 10/27/2014) N/A
KMEZ Transmitter Site Leased (expires 03/14/2001) N/A
Nashville/Russellville WLAC-AM/WLAC-FM/WJZC/Road Gang/IRN Leased (expires 06/30/1999) 18,800
Market Studio & Office Site
WLAC-AM Transmitter Site Owned 27.69 acres
WLAC-FM Transmitter Site 1/3 Owned (3-way ownership) 18.12 acres
WJZC Transmitter Site (land) Leased (expires 09/27/2019) 400
WJZC Transmitter Site (tower & building) Owned 1,324
27
<PAGE>
APPROXIMATE
RADIO PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ----------------------- ------------------------------------------ --------------------------- ----------------
<S> <C> <C> <C>
Wilkes Barre/Scranton WILK/WGBI/WGGY/WKRZ Leased (expires 12/31/1998) 14,000
Market Studio & Office Site
WILK Transmitter Site Leased (expires 08/31/1999) 1,000
WGBI Transmitter Site Leased (expires 02/28/2000) 1,000
WGGY Transmitter Site Leased (expires 02/28/2000) 300
WKRZ Transmitter Site (bldg) Owned 4,052
St. Louis Market KPNT/WVRV Studio & Office Site Owned 1,753
KPNT Transmitter Site Owned 7450
WVRV Transmitter Site Owned 7,278
WVRV back up building Owned 240
Los Angeles Market KBLA Studio & Office Site-building Owned 6,000
KBLA Transmitter Site - land Owned 3 acres
</TABLE>
================
(a) Lease expiration dates assume exercise of all renewal options of the
lessee.
The Company believes that all of its properties, both owned and leased, are
generally in good operating condition, subject to normal wear and tear, and are
suitable and adequate for the Company's current business operations.
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of 1996.
28
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Effective June 13, 1995, the common stock of the Company was listed for
trading on the Nasdaq stock market under the symbol SBGI. The following table
sets forth for the periods indicated the high and low sales prices on the Nasdaq
stock market.
1995 High Low
----- -------- ---------
Second Quarter (from June 13)....... $29.00 $ 23.500
Third Quarter....................... 31.00 27.375
Fourth Quarter...................... 27.75 16.250
1996 High Low
---- -------- ---------
First Quarter....................... $26.50 $16.875
Second Quarter...................... 43.50 25.500
Third Quarter....................... 46.50 36.125
Fourth Quarter...................... 43.75 23.000
As of February 25, 1997, there were approximately 55 stockholders of record
of the common stock of the Company. This number does not include beneficial
owners holding shares through nominee names. Based on information available to
it, the Company believes it has more than 1,500 beneficial owners of its Class A
Common Stock.
The Company generally has not paid a dividend on its common stock and does
not expect to pay dividends on its common stock in the foreseeable future. The
Bank Credit Agreement and certain subordinated debt of the Company generally
prohibit the Company from paying dividends on its common stock. Under the
indentures governing the Company's 10% Senior Subordinated Notes due 2003 and
the Company's 10% Senior Subordinated Notes due 2005 (the "Indentures"), the
Company is not permitted to pay dividends on its common stock unless certain
specified conditions are satisfied, including that (i) no event of default then
exists under the Indentures or certain other specified agreements relating to
indebtedness of the Company and (ii) the Company, after taking account of the
dividend, is in compliance with certain net cash flow requirements contained in
the Indentures. In addition, under certain senior unsecured debt of the Company,
the payment of dividends is not permissible during a default thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended December 31,
1992, 1993, 1994, 1995 and 1996 have been derived from the Company's audited
Consolidated Financial Statements. The Consolidated Financial Statements for the
years ended December 31, 1994, 1995 and 1996 are included elsewhere in this Form
10-K.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere in this Form 10-K.
29
<PAGE>
STATEMENT OF OPERATIONS DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues (a)..................... $ 61,081 $ 69,532 $118,611 $187,934 $ 346,459
Barter revenues................................ 8,805 6,892 10,743 18,200 32,029
---------- ----------- ------------ ---------- ------------
Total revenues................................. 69,886 76,424 129,354 206,134 378,488
Operating expenses, excluding depreciation and
amortization and special bonuses paid to
executive officers........................... 32,993 32,295 50,545 80,446 167,765
Depreciation and amortization (b).............. 30,943 22,486 55,587 80,410 121,081
Amortization of deferred compensation ......... -- -- -- -- 739
Special bonuses paid to executive officers .... -- 10,000 3,638 -- --
---------- ----------- ------------ ---------- ------------
Broadcast operating income..................... 5,950 11,643 19,584 45,278 88,903
Interest and amortization of debt discount
expense..................................... 12,997 12,852 25,418 39,253 84,314
Interest and other income...................... 1,207 2,131 2,447 4,163 3,478
---------- ----------- ------------ ---------- ------------
Income (loss) before provision (benefit) for
income taxes and extraordinary items......... $ (5,840) $ 922 $ (3,387) $ 10,188 $ 8,067
========== =========== ============ ========== ============
Net income (loss).............................. $ (4,651) $ (7,945) $ (2,740) $ 76 $ 1,131
========== =========== ============ ========== ============
Other Data:
Broadcast cash flow (c)....................... $ 28,019 $ 37,498 $ 67,519 $111,124 $ 189,216
Broadcast cash flow margin (d)................ 45.9% 53.9% 56.9% 59.1% 54.6%
Operating cash flow (e)....................... $ 26,466 $ 35,406 $ 64,547 $105,750 $ 180,272
Operating cash flow margin (d)................ 43.3% 50.9% 54.4% 56.3% 52.0%
After tax cash flow (f)....................... $ 15,865 $ 23,725 $ 42,223 $ 65,460 $ 92,500
After tax cash flow margin (d)................ 26.0% 34.1% 35.6% 34.8% 26.7%
Program contract payments..................... $ 10,427 $ 8,723 $ 14,262 $ 19,938 $ 30,451
Capital expenditures.......................... 426 528 2,352 1,702 12,609
Corporate expense............................. 1,553 2,092 2,972 5,374 8,944
Per Share Data:
After tax cash flow per share (g)............. 0.55 0.82 1.46 2.03 2.47
Net income (loss) per share before
extraordinary items.......................... (0.16) -- (0.09) 0.15 0.03
Net income (loss) per common share............ (0.16) (0.27) (0.09) -- 0.03
Balance Sheet Data:
Cash and cash equivalents..................... 1,823 18,036 2,446 112,450 2,341
Total assets.................................. 140,366 242,917 399,328 605,272 1,707,297
Total debt (h) ............................... 110,659 224,646 346,270 418,171 1,288,147
Total stockholders' equity (deficit).......... (3,127) (11,024) (13,723) 96,374 237,253
</TABLE>
(a) Net broadcast revenues are defined as broadcast revenues net of agency
commissions.
(b) Depreciation and amortization includes amortization of program contract
costs and net realizable value adjustments, depreciation and amortization of
property and equipment, and amortization of acquired intangible broadcasting
assets and other assets including amortization of deferred financing costs
and costs related to excess syndicated programming.
(c) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, special bonuses paid to executive officers, depreciation
and amortization (including film amortization and amortization of deferred
compensation and excess syndicated programming), less cash payments for
program rights. Cash program payments represent cash payments made for
current programs payable and do not necessarily correspond to program usage.
Special bonuses paid to executive officers are
30
<PAGE>
considered non-recurring. The Company has presented broadcast cash flow
data, which the Company believes are comparable to the data provided by
other companies in the industry, because such data are commonly used as a
measure of performance for broadcast companies. However, broadcast cash flow
does not purport to represent cash provided by operating activities as
reflected in the Company's consolidated statements of cash flows, is not a
measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
(d) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Operating cash flow margin" is defined as operating
cash flow divided by net broadcast revenues. "After tax cash flow margin" is
defined as after tax cash flow divided by net broadcast revenues.
(e) "Operating cash flow" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast
companies. Operating cash flow does not purport to represent cash provided
by operating activities as reflected in the Company's consolidated
statements of cash flows, is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(f) "After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization and
amortization of deferred compensation and excess syndicated programming)
plus special bonuses paid to executive officers, less program contract
payments. After tax cash flow is presented here not as a measure of
operating results and does not purport to represent cash provided by
operating activities. After tax cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(g) "After tax cash flow per share" is defined as after tax cash flow divided by
weighted average common and common equivalent shares outstanding.
(h) "Total debt" is defined as long-term debt, net of unamortized discount, and
capital lease obligations, including current portion thereof. In 1992 total
debt included warrants outstanding which were redeemable outside the control
of the Company. The warrants were purchased by the Company for $10.4 million
in 1993. Total debt as of December 31, 1993 included $100.0 million in
principal amount of the Company's 10% Senior Subordinated Notes due 2003
(the "1993 Notes"), the proceeds of which were held in escrow to provide a
source of financing for acquisitions that were subsequently consummated in
1994 utilizing borrowings under the Bank Credit Agreement. $100 million of
the 1993 Notes was redeemed from the escrow in the first quarter of 1994.
31
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
- ------------
As of December 31, 1996, the Company owned and operated or programmed 28
television stations in twenty geographically diverse markets and 21 radio
stations in seven geographically diverse markets in the United States. Thirteen
of the television stations are owned and 15 are provided programming services by
the Company through LMAs. The LMA arrangements for seven of these stations
acquired in the River City acquisition will be terminated after FCC approval for
transfer of these stations' License Assets is obtained. The Company owns 21
radio stations, provides programming services to two radio stations pursuant to
LMAs, has pending acquisitions of two radio stations (with both of which it has
JSAs), has a JSA with one additional radio station and has options to acquire an
additional seven radio stations. The LMA arrangements for two remaining radio
stations acquired in the River City Acquisition will be terminated and the
License Assets will be transferred after FCC approval is obtained, which
approval requires a waiver of FCC cross-ownership rules. In January 1997, the
Company entered into a purchase agreement to acquire the License and Non-License
Assets of KUPN, a television station in Las Vegas, Nevada for approximately
$87.0 million. The Company anticipates the consummation of the agreement upon
FCC approval in 1997.
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from television network compensation.
The Company's primary operating expenses involved in owning, operating or
programming the television and radio stations are syndicated program rights
fees, commissions on revenues, employee salaries, news-gathering and promotion.
Amortization and depreciation of costs associated with the acquisition of the
stations and interest carrying charges are significant factors in determining
the Company's overall profitability.
Set forth below are the principal types of broadcast revenues received by the
Company's stations for the periods indicated and the percentage contribution of
each type to the Company's total gross broadcast revenues:
BROADCAST REVENUES
------------------
(DOLLARS IN THOUSANDS)
----------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Local/regional
advertising............. $ 67,881 48.6% $104,299 47.5% $199,029 49.4%
National advertising ..... 69,374 49.6% 113,678 51.7% 191,449 47.6%
Network compensation ..... 302 0.2% 442 0.2% 3,907 1.0%
Political advertising .... 1,593 1.1% 197 0.1% 6,972 1.7%
Production................ 696 0.5% 1,115 0.5% 1,142 0.3%
---------- -------- ---------- -------- ---------- --------
Broadcast revenues........ 139,846 100.0% 219,731 100.0% 402,499 100.0%
====== ====== ======
Less: agency commissions . (21,235) (31,797) (56,040)
---------- ---------- ----------
Broadcast revenues, net .. 118,611 187,934 346,459
Barter revenues........... 10,743 18,200 32,029
---------- ---------- ----------
Total revenues............ $129,354 $206,134 $378,488
========== ========== ==========
</TABLE>
The Company's primary types of programming and their approximate percentages
of 1996 net broadcast revenues were network programming (14.1%), children's
programming (7.4%) and other syndicated programming (56.7%). Similarly, the
Company's three largest categories of advertising and their approximate
percentages of 1996 net broadcast revenues were automotive (17.4%), fast food
advertising (9.2%) and movies (5.5%). No other advertising category accounted
for more than 5% of the Company's net broadcast revenues in 1996. No individual
advertiser accounted for more than 5% of any of the Company's individual
station's net broadcast revenues in 1996.
32
<PAGE>
The following table sets forth certain operating data of the Company for the
years ended December 31, 1994, 1995 and 1996:
OPERATING DATA
--------------
(DOLLARS IN THOUSANDS)
----------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net broadcast revenues......................................... $118,611 $187,934 $346,459
Barter revenues................................................ 10,743 18,200 32,029
---------- ---------- ----------
Total revenues................................................. 129,354 206,134 378,488
---------- ---------- ----------
Operating expenses, excluding depreciation and amortization
and special bonuses paid to executive officers................. 50,545 80,446 167,765
Depreciation and amortization.................................. 55,587 80,410 118,038
Amortization of deferred compensation.......................... -- -- 739
Amortization of excess syndicated programming.................. -- -- 3,043
Special bonuses to executive officers.......................... 3,638 -- --
---------- ---------- ----------
Broadcast operating income..................................... $ 19,584 $ 45,278 $ 88,903
========== ========== ==========
BROADCAST CASH FLOW (BCF) DATA:
Television BCF (a)............................................. $ 67,519 $111,124 $175,212
Radio BCF (a).................................................. -- -- 14,004
---------- ---------- ----------
Consolidated BCF (a)........................................... $ 67,519 $111,124 $189,216
========== ========== ==========
Television BCF margin.......................................... 56.9% 59.1% 56.7%
Radio BCF margin............................................... -- -- 37.3%
Consolidated BCF margin........................................ 56.9% 59.1% 54.6%
OTHER DATA:
Operating cash flow (b)........................................ $ 64,547 $105,750 $180,272
Operating cash flow margin..................................... 54.4% 56.3% 52.0%
After tax cash flow (c)........................................ $ 42,223 $ 65,460 $ 92,500
After tax cash flow per share (d).............................. $ 1.46 $ 2.03 $ 2.47
Program contract payments...................................... $ 14,262 $ 19,938 $ 30,451
Corporate expense.............................................. $ 2,972 $ 5,374 $ 8,944
</TABLE>
- ----------
(a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, special bonuses paid to executive officers, depreciation
and amortization (including film amortization and amortization of deferred
compensation and excess syndicated programming), less cash payments for
program contract rights. Cash program payments represent cash payments made
for current program payables and do not necessarily correspond to program
usage. Special bonuses to executive officers are considered non-recurring
expenses. The company has presented broadcast cash flow data, which the
Company believes are comparable to the data provided by other companies in
the industry, because such data are commonly used as a measure of
performance for broadcast companies. However, broadcast cash flow does not
purport to represent cash provided by operating activities as reflected in
the Company's consolidated statements of cash flows, is not a measure of
financial performance under generally accepted accounting principles and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
(b) "Operating cash flow" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast
companies. Operating cash flow does not purport to represent cash provided
by operating activities as reflected in the Company's consolidated
statements of cash flows, is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(c) "After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization and
amortization of deferred compensation and excess syndicated programming),
plus special bonuses paid to executive officers less program contract
payments. After tax cash flow is presented here not as a measure of
operating results and does not purport to represent cash provided by
operating activities. After tax cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(d) "After tax cash flow per share" is defined as after tax cash flow divided by
weighted average common and common equivalent shares outstanding.
33
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------
Total revenues increased to $378.5 million for the year ended December 31,
1996 from $206.1 million for the year ended December 31, 1995, or 83.6%.
Excluding the effects of non-cash barter transactions, net broadcast revenues
for the year ended December 31, 1996 increased by 84.4% over the year ended
December 31, 1995. The increase in broadcast revenues was primarily the result
of acquisitions and LMA transactions consummated by the Company in 1995 and 1996
(collectively, the "Acquisitions"). For stations owned, operated or programmed
throughout 1995 and 1996, television broadcast revenue grew 2.1% for the year
ended December 31, 1996 when compared to the year ended December 31, 1995. For
stations owned, operated or programmed throughout 1994 and 1995, television
broadcast revenue grew 12.8% for the year ended December 31, 1995 when compared
to the year ended December 31, 1994. The decrease in 1996 revenue growth as
compared to 1995 revenue growth primarily resulted from the loss in 1996 of the
Fox affiliation at WTTO in the Birmingham market, the loss of the NBC
affiliation at WRDC in the Raleigh market and decreases in ratings at WCGV and
WNUV in the Milwaukee and Baltimore markets, respectively.
Operating expenses excluding depreciation, amortization of intangible assets
and amortization of deferred compensation and excess syndicated programming
costs increased to $167.8 million for the year ended December 31, 1996 from
$80.4 million for the year ended December 31, 1995 or 108.7%. The increase in
expenses for the year ended December 31, 1996 as compared to the year ended
December 31, 1995 was largely attributable to operating costs associated with
the Acquisitions, an increase in LMA fees resulting from LMA transactions and an
increase in corporate overhead expenses.
Broadcast operating income increased to $88.9 million for the year ended
December 31, 1996, from $45.3 million for the year ended December 31, 1995, or
96.2%. The increase in broadcast operating income for the year ended December
31, 1996 as compared to the year ended December 31, 1995 was primarily
attributable to the Acquisitions.
Interest expense increased to $84.3 million for the year ended December 31,
1996 from $39.3 million for the year ended December 31, 1995, or 114.5%. The
increase in interest expense for the year ended December 31, 1996 was primarily
related to senior bank indebtedness incurred by the Company to finance the River
City Acquisition and other acquisitions.
Interest and other income decreased to $3.5 million for the year ended
December 31, 1996 from $4.2 million for the year ended December 31, 1995, or
16.7%. The decrease for the year ended December 31, 1996 was primarily due to
lower cash balances and related interest income resulting from cash payments
made in February 1996 when the Company made a $34.4 million payment relating to
the WSMH acquisition and April 1996 when the company made a $60 million down
payment relating to the River City acquisition. The decrease in interest income
was offset by an increase in other income resulting from the Acquisitions.
For the reasons described above, net income for the year ended December 31,
1996 was $1.1 million or $0.03 per share compared to net income of $5.0 million
or $0.15 per share for the year ended December 31, 1995 before the extraordinary
loss on early extinguishment of debt.
Broadcast cash flow increased to $189.2 million for the year ended December
31, 1996 from $111.1 million for the year ended December 31, 1995, or 70.3%. The
increase in broadcast cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from the Acquisitions.
For stations owned, operated or programmed throughout 1995 and 1996, broadcast
cash flow grew 1.3% for the year ended December 31, 1996 when compared to the
year ended December 31, 1995. For stations owned, operated or programmed
throughout 1994 and 1995, broadcast cash flow grew 23.7% for the year ended
December 31, 1995 when compared to the year ended December 31, 1994. The
decrease in 1996 broadcast cash flow growth as compared to 1995 broadcast cash
flow growth primarily resulted from the loss in 1996 of the Fox affiliation at
WTTO in the Birmingham market, the loss of the NBC affiliation at WRDC in the
Raleigh market and decreases in ratings at WCGV and WNUV in the Milwaukee and
Baltimore markets, respectively. The Company's broadcast
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cash flow margin decreased to 54.6% for the year ended December 31, 1996 from
59.1% for the year ended December 31, 1995. Excluding the effect of radio
station broadcast cash flow, television station broadcast cash flow margin
decreased to 56.7% for the year ended December 31, 1996 as compared to 59.1% for
the year ended December 31, 1995. The decrease in broadcast cash flow margins
for the year ended December 31, 1996 as compared to the year ended December 31,
1995 primarily resulted from the lower margins of the acquired radio
broadcasting assets and lower margins of certain of the acquired television
stations. For stations owned, operated or programmed throughout 1996 and 1995,
broadcast cash flow margins were unchanged when comparing the years ended
December 31, 1996 and 1995. The Company believes that margins of certain of the
acquired stations will improve as operating and programming synergies are
implemented.
Operating cash flow increased to $180.3 million for the year ended December
31, 1996 from $105.8 million for the year ended December 31, 1995, or 70.4%. The
increase in operating cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 resulted from the Acquisitions. The
Company's operating cash flow margin decreased to 52.0% for the year ended
December 31, 1996 from 56.3% for the year ended December 31, 1995. The decrease
in operating cash flow margins for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from higher operating
costs at certain of the acquired stations. The Company has begun to implement
and will continue to implement operating and programming synergies throughout
the businesses acquired in and prior to 1996. The Company believes that the
benefits of the implementation of these methods will result in improvement in
broadcast cash flow and operating cash flow margins in future periods.
After tax cash flow increased to $92.5 million for the year ended December
31, 1996 from $65.5 million for the year ended December 31, 1995, or 41.2%. The
increase in after tax cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from the Acquisitions
offset by interest expense on the debt incurred to consummate the Acquisitions.
After tax cash flow per share increased to $2.47 for the year ended December 31,
1996 from $2.03 for the year ended December 31, 1995.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenues increased to $206.1 million for the year ended December 31,
1995, from $129.4 million for the year ended December 31, 1994, or 59.3%. This
increase includes revenues from the acquisitions of WTVZ and WLFL and the
entering into LMA agreements with WABM and WDBB (the "1995 Acquisitions"). This
increase also includes the first full year of revenues from the acquisition of
WCGV and WTTO and the entering into LMA agreements with WNUV, WVTV and FSFA (the
"1994 Acquisitions"). Excluding the effect of non-cash barter transactions, net
broadcast revenues increased to $187.9 million for the year ended December 31,
1995 from $118.6 million for the year ended December 31, 1994, or 58.4%.
These increases in net broadcast revenues were primarily a result of the 1994
and 1995 Acquisitions and LMA transactions consummated by the Company, as well
as television broadcast revenue growth in each of the Company's markets. WPGH,
the Pittsburgh Fox affiliate, achieved in excess of 14% net broadcast revenue
growth for the year ended December 31, 1995 as compared to the year ended
December 31, 1994. This increase was primarily attributable to a new metered
rating service that began in May 1995 which significantly improved WPGH's market
rating. WBFF, the Fox affiliate in Baltimore and WCGV, the former Fox affiliate,
now UPN affiliate in Milwaukee, both achieved in excess of 10% net broadcast
revenue growth as these stations began to realize the advantages of having an
LMA in these markets.
Operating expenses excluding depreciation and amortization and special
bonuses paid to executive officers increased to $80.4 million for the year ended
December 31, 1995 from $50.5 million for the year ended December 31, 1994. These
increases in expenses were primarily attributable to increases in operating
expenses relating to the 1994 and 1995 Acquisitions, including the payment of
LMA fees which increased to approximately $5.6 million for the year ended
December 31, 1995 as compared to $1.1 million for the year ended December 31,
1994. Corporate overhead expenses increased 80.8% for the
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year ended December 31, 1995 as compared to the year ended December 31, 1994.
This increase was primarily due to expenses associated with being a public
company (i.e. directors and officers insurance, travel expenses and professional
fees) and executive bonus accruals for bonuses which were paid based on
achieving in excess of 20% growth percentages in pro forma broadcast cash flow
for the year 1995 compared to 1994.
Broadcast operating income increased to $45.3 million for the year ended
December 31, 1995 from $19.6 million for the year ended December 31, 1994, or
131.1%. This increase in broadcast operating income was primarily a result of
the 1994 and 1995 Acquisitions and an increase in television broadcast revenues
in each of the Company's markets, partially offset by increased amortization
expenses related to the Acquisitions.
Interest expense increased to $39.3 million for the year ended December 31,
1995 from $25.4 million for the year ended December 31, 1994, or 54.7%. The
major component of this increase in interest expense was increased borrowings
under the Company's existiong bank credit facility, which is governed by an
agreement with Chase Manhattan Bank, as Agent (the "Bank Credit Agreement") to
finance the 1994 and 1995 Acquisitions. During August 1995, the Company issued
$300 million of senior subordinated notes and used a portion of the net proceeds
to repay outstanding indebtedness under the Bank Credit Agreement and the
remainder provided an increase to the Company's cash balances of approximately
$91.4 million. The interest expense related to these notes was approximately
$10.0 million in 1995. This increase was partially offset by the application of
the net proceeds of an offering of Class A Common Stock to reduce a portion of
the indebtedness under the Bank Credit Agreement during June 1995. Interest
expense was also reduced as a result of the application of net cash flow from
operating activities to further decrease borrowings under the Bank Credit
Agreement.
Interest and other income increased to $4.2 million for the year ended
December 31, 1995 from $2.4 million for the year ended December 31, 1994, or
75.0%. This increase in interest income primarily resulted from an increase in
cash balances that remained from the proceeds of Senior Subordinated Notes
issued in August 1995. Income (loss) before benefit (provision) for income taxes
and extraordinary item increased to income of $10.2 million for the year ended
December 31, 1995 from a loss of $3.4 million for the year ended December 31,
1994.
Net income available to common shareholders improved to income of $76,000 for
the year ended December 31, 1995 from a loss of $2.7 million for the year ended
December 31, 1994. In August 1995, the Company consummated the sale of $300
million of Senior Subordinated Notes generating net proceeds to the Company of
$293.2 million. The net proceeds of this offering were utilized to repay
outstanding indebtedness under the Bank Credit Agreement of $201.8 million with
the remainder being retained for general corporate purposes including potential
future acquisitions. In conjunction with the early retirement of the
indebtedness under the Bank Credit Agreement, the Company recorded an
extraordinary loss of $4.9 million net of a tax benefit of $3.4 million, related
to the write off of deferred financing costs under the Bank Credit Agreement.
Broadcast cash flow increased to $111.1 million for the year ended December
31, 1995 from $67.5 million for the year ended December 31, 1994, or 64.6%. This
increase in broadcast cash flow was primarily due to the 1994 and 1995
Acquisitions, growth in market revenues and a reduction in program payments as a
percentage of net broadcast revenues to 10.6% for the year ended December 31,
1995 from 12.0% for the year ended December 31, 1994.
Operating cash flow increased to $105.8 million for the year ended December
31, 1995 from $64.6 million for the year ended December 31, 1994, or 63.8%,
consistent with the growth in broadcast cash flow. After tax cash flow increased
to $65.5 million for the year ended December 31, 1995 from $42.2 million for the
year ended December 31, 1994, or 55.2%.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $2.3 million in cash balances, and
current liabilities were in excess of current assets by approximately $5.9
million. The Company's decrease in cash to $2.3 million at December 31, 1996
from $112.5 million at December 31, 1995 primarily resulted from cash payments
made relating to the 1996 Acquisitions and repayments of bank debt. As of
February 25, 1997,
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approximately $27.5 million was available for borrowing under the Bank Credit
Agreement. The Company is obligated to pay approximately $82.0 million to
complete the acquisition of KUPN and expects to make this payment from
borrowings under the Bank Credit Agreement and/or from proceeds of an offering
of securities. See "Item l. Business -- 1997 Acquisitions."
Net cash flows from operating activities increased to $69.0 million for the
year ended December 31, 1996 from $55.9 million for the year ended December 31,
1995. The Company made income tax payments of $6.8 million for the year ended
December 31, 1996 as compared to $7.9 million for the year ended December 31,
1995. This decrease was due to anticipated tax benefits generated by the 1996
Acquisitions. The Company made interest payments on outstanding indebtedness of
$82.8 million during the year ended December 31, 1996 as compared to $24.8
million for the year ended December 31, 1995. Additional interest payments for
the year ended December 31, 1996 as compared to the year ended December 31, 1995
primarily related to additional interest costs associated with the Company's
public debt offering in August 1995 and indebtedness incurred to finance the
1996 Acquisitions. Program rights payments increased to $30.5 million for the
year ended December 31, 1996 from $19.9 million for the year ended December 31,
1995, primarily as a result of the 1996 Acquisitions.
Net cash flows used in investing activities increased to $1.0 billion for the
year ended December 31, 1996 from $119.2 million for the year ended December 31,
1995. During February 1996, the Company purchased the License and Non-License
Assets of WSMH for $35.4 million at which time the balance due to the seller of
$34.4 million was paid from existing cash balances. In January 1996, the Company
made a cash payment of $1.0 million relating to the acquisition of the License
and Non-License Assets of WYZZ. In July 1996, the Company consummated the
acquisition for a purchase price of approximately $21.1 million. In May 1996,
the Company purchased the outstanding stock of Superior and made cash payments
totaling $63.5 million relating to the transaction. Also in May 1996, the
Company acquired certain Non-License assets of River City and KRRT and made
related cash payments totaling $818.1 million and $29.5 million, respectively.
In September 1996, the Company exercised its options to acquire certain FCC
licenses relating to the River City Acquisition for a cash payment of $6.9
million. In July 1996, the Company purchased the License and Non-License Assets
of KSMO and made net cash payments totaling $10.0 million. In August 1996, the
Company purchased the License and Non-License Assets of WSTR and made net cash
payments totaling $8.7 million. In December 1996, the Company made purchase
option extension payments of $7.0 million relating to WSYX. The Company made
payments for property and equipment of $12.6 million for the year ended December
31, 1996. Approximately $7.0 million of these payments related to the purchase
of property and equipment for the development of local news programming at WPGH
in Pittsburgh, Pennsylvania.
Net cash flows from financing activities increased to $832.8 million for the
year ended December 31, 1996 from $173.3 million for the year ended December 31,
1995. In May 1996, the Company utilized available indebtedness of $63.0 million
for the acquisition of Superior and simultaneously repaid indebtedness of $25.0
million. Also in May 1996, the Company utilized available indebtedness of $835.0
for the acquisition of the Non-License Assets of River City and KRRT and
simultaneously repaid indebtedness of $36.0 million. In September 1996, the
Company exercised its options to acquire certain FCC licenses relating to the
River City Acquisition for a cash payment of $6.9 million by utilizing
indebtedness under the Bank Credit Agreement. In July 1996, the Company utilized
available indebtedness under its Bank Credit Agreement totaling $30.6 million
for the acquisitions of WYZZ and KSMO. In August 1996, the Company utilized
available indebtedness totaling $9.9 million for the acquisition of WSTR. In
December 1996, the Company made purchase option extension payments of $7.0
million relating to WSYX utilizing indebtedness under the Bank Credit Agreement.
The Company also made a $20.0 million payment of debt acquisition costs relating
to the financing required to consummate the River City and KRRT acquisitions. In
the fourth quarter of 1996, the Company negotiated the prepayment of syndicated
program contract liabilities relating to excess syndicated programming assets
and made cash payments of $15.1 million utilizing indebtedness under its Bank
Credit Agreement of $10.0 million with the remainder being paid from existing
cash balances.
The Company anticipates that funds from operations, existing cash balances
and availability of the revolving credit facility under the Bank Credit
Agreement will be sufficient to meet its working capital, capital expenditures
and debt service requirements for the foreseeable future. However, to the extent
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such funds are not sufficient, the Company may need to incur additional
indebtedness, refinance existing indebtedness or raise funds from the sale of
additional equity. The Bank Credit Agreement and the indentures (the "Existing
Indentures") relating to the Company's 10% Senior Subordinated Notes and 10%
Senior Subordniated Notes due 2003 (the "1995 Notes) would restrict the
incurrence of additional indebtedness and the use of proceeds of an equity
issuance. In 1996, the Company filed a registration statement with the
Securities and Exchange Commission with respect to the sale by the Company of
5,750,000 shares of Class A Common Stock. The Company has not yet made such an
offering but continues to intend to make such an offering at such time as it
believes market conditions warrant, but there can be no assurance as to the
timing of such an offering or whether such an offering will in fact occur.
INCOME TAXES
- ------------
The Company's income tax provision increased to $6.9 million for the year
ended December 31, 1996 from $5.2 million for the year ended December 31, 1995.
The Company's effective tax rate increased to 86% for the year ended December
31, 1996 from 51% for the year ended December 31, 1995. The increase for the
year ended December 31, 1996 as compared to the year ended December 31, 1995
primarily related to certain financial reporting and income tax differences
attributable to certain 1995 and 1996 Acquisitions, and state franchise taxes
which are independent of pre-tax income. Management believes that as pre-tax
income increases in future years, the Company's effective tax rate will
decrease. See Note 9 to the Company's Consolidated Financial Statements.
The net deferred tax asset decreased to $782,000 as of December 31, 1996 from
$21.0 million at December 31, 1995. The decrease in the Company's net deferred
tax asset as of December 31, 1996 as compared to December 31, 1995 is primarily
due to the Company recording deferred tax liabilities of $18.1 million relating
to the acquisition of all of the outstanding stock of Superior Communications,
Inc. (Superior) in May 1996, adjustments related to certain 1995 acquisitions,
and resulting differences between the book and tax basis of the underlying
assets.
A $1.8 million net tax provision and a $647,000 tax benefit was recognized
for the years ended December 31, 1995 and December 31, 1994, respectively. The
provision for the year ended December 31, 1995 was comprised of $5.2 million
provision relating to the Company's income before provision for income taxes and
extraordinary item offset by a $3.4 million income tax benefit relating to the
extraordinary loss on early extinguishment of debt. The $5.2 million tax
provision reflects a 51% effective tax rate for the year ended December 31,
1995, which is higher than the statutory rate primarily due to the
non-deductibility of goodwill relating to the repurchase of Common Stock in
1990. The income tax benefit for the year ended December 31, 1994 was 19.1% of
the Company's loss before income taxes, which is lower than the benefit
calculated at statutory rates primarily due to non-deductible goodwill
amortization. After giving effect to these changes the Company had net deferred
tax assets of $21.0 million at December 31, 1995 and $12.5 million at December
31, 1994, respectively.
SEASONALITY
- -----------
The Company's results usually are subject to seasonal fluctuations, which
result in fourth quarter broadcast operating income usually being greater than
first, second and third quarter broadcast operating income. This seasonality is
primarily attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership during this period.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information relating to the Company's executive
officers, directors, certain key employees and persons expected to become
executive officers, directors or key employees.
NAME AGE TITLE
- --------------------- ----- ---------------------------------------------------
David D. Smith....... 46 President, Chief Executive Officer, Director and
Chairman of the Board
Frederick G. Smith .. 47 Vice President and Director
J. Duncan Smith...... 43 Vice President, Secretary and Director
Robert E. Smith...... 33 Vice President, Treasurer and Director
David B. Amy......... 44 Chief Financial Officer
Barry Drake.......... 45 Chief Operating Officer, SCI Radio
Alan B. Frank........ 46 Regional Director, SCI
Michael Granados .... 42 Regional Director, SCI
Steven M. Marks...... 40 Regional Director, SCI
John T. Quigley...... 53 Regional Director, SCI
Frank Quitoni........ 52 Regional Director, SCI
M. William Butler ... 44 Vice President/Group Program Director, SCI
Michael Draman....... 48 Vice President/TV Sales and Marketing, SCI
Stephen A. Eisenberg. 55 Vice President/Director of National Sales, SCI
Delbert R. Parks,III. 44 Director of Operations and Engineering, SCI
Robert E. Quicksilver 41 General Counsel, SCI
Thomas E. Severson .. 33 Corporate Controller
Michael E. Sileck ... 36 Vice President/Finance, SCI
Robin A. Smith....... 40 Chief Financial Officer, SCI Radio
Patrick J. Talamantes 32 Director of Corporate Finance
William E. Brock .... 66 Director
Lawrence E. McCanna . 53 Director
Basil A. Thomas...... 81 Director
In addition to the foregoing, the following persons have agreed to serve as
executive officers and/or directors of the Company as soon as permissible under
the rules of the FCC and applicable laws.
NAME AGE TITLE
- -------------------- ----- ---------------------------------------------
Barry Baker......... 44 Executive Vice President of the Company,
Chief Executive Officer of SCI and Director
Kerby Confer........ 56 Chief Executive Officer, SCI Radio
Roy F. Coppedge, III 48 Director
In connection with the River City Acquisition, the Company agreed to increase
the size of the Board of Directors from seven members to nine to accommodate the
prospective appointment of each of Barry Baker and Roy F. Coppedge, III or such
other designee as Boston Ventures may select. Mr. Baker and Mr. Confer currently
serve as consultants to the Company.
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Members of the Board of Directors are elected for one-year terms and until
their successors are duly elected and qualified. Executive officers are
appointed by the Board of Directors annually to serve for one year-terms and
until their successors are duly appointed and qualified.
David D. Smith has served as President, Chief Executive Officer and Chairman
of the Board since September 1990. Prior to that, he served as General Manager
of WPTT from 1984, and assumed the financial and engineering responsibility for
the Company, including the construction of WTTE in 1984. In 1980, Mr. Smith
founded Comark Television, Inc., which applied for and was granted the permit
for WPXT-TV in Portland, Maine and which purchased WDSI-TV in Chattanooga,
Tennessee. WPXT-TV was sold one year after construction and WDSI-TV was sold two
years after its acquisition. From 1978 to 1986, Mr. Smith co-founded and served
as an officer and director of Comark Communications, Inc., a company engaged in
the manufacture of high power transmitters for UHF television stations. His
television career began with WBFF in Baltimore, where he helped in the
construction of the station and was in charge of technical maintenance until
1978. David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith
are brothers.
Frederick G. Smith has served as Vice President of the Company since 1990 and
as a Director since 1986. Prior to joining the Company in 1990, Mr. Smith was an
oral and maxillofacial surgeon engaged in private practice and was employed by
Frederick G. Smith, M.S., D.D.S., P.A., a professional corporation of which Mr.
Smith was the sole officer, director and stockholder.
J. Duncan Smith has served as Vice President, Secretary and a Director of the
Company since 1988. Prior to that, he worked for Comark Communications, Inc.
installing UHF transmitters. In addition, he also worked extensively on the
construction of WPTT in Pittsburgh, WTTE in Columbus, WIIB in Bloomington and
WTTA in St. Petersburg, as well as on the renovation of the new studio, offices
and news facility for WBFF in Baltimore.
Robert E. Smith has served as Vice President, Secretary and a Director of the
Company since 1988. Prior to that, he served as Program Director at WBFF from
1986 to 1988. Prior to that, he assisted in the construction of WTTE and also
worked for Comark Communications, Inc. installing UHF transmitters.
David B. Amy has served as Chief Financial Officer ("CFO") since October of
1994 and prior to his appointment as CFO served as the Controller of the Company
beginning in 1986. Before that, he served as the Business Manager for WPTT.
Prior to joining the Company in 1984, Mr. Amy was an accounting manager of Penn
Athletic Products Company in Pittsburgh, Pennsylvania. Mr. Amy received an MBA
degree from the University of Pittsburgh in 1981.
Barry Drake has served as Chief Operating Officer of SCI Radio since
completion of the River City Acquisition. Prior to that time, he was Chief
Operating Officer--Keymarket Radio Division of River City since July 1995. Prior
to that time, he was President and Chief Operating Officer of Keymarket since
1988. From 1985 through 1988, Mr. Drake performed the duties of the President of
each of the Keymarket broadcasting entities, with responsibility for three
stations located in Houston, St. Louis and Detroit.
Alan B. Frank has served as Regional Director for the Company since May 1994.
As Regional Director, Mr. Frank is responsible for the Pittsburgh, Milwaukee,
Kansas City and Raleigh-Durham markets. Prior to his appointment to Regional
Director, Mr. Frank served as General Manager of WPGH beginning in September
1991.
Michael Granados has served as a Regional Director of the Company since July
1996. As a Regional Director, Mr. Granados is responsible for the San Antonio,
Des Moines, Peoria and, upon completion of the KUPN acquisition, Las Vegas
markets. Prior to July 1996, Mr. Granados has served in various positions with
the Company and, before the River City Acquisition, with River City. He served
as the General Sales Manager of KABB from 1989 to 1993, the Station Manager and
Director of Sales of WTTV from 1993 to 1994 and the General Manager of WTTV
prior to his appointment as Regional Director in 1996.
Steven M. Marks has served as Regional Director for the Company since October
1994. As Regional Director, Mr. Marks is responsible for the Baltimore, Norfolk,
Flint and Birmingham markets. Prior to his appointment as Regional Director, Mr.
Marks served as General Manager for WBFF since July 1991. From 1986 until
joining WBFF in 1991, Mr. Marks served as General Manager at WTTE. Prior to that
time, he was national sales manager for WFLX-TV in West Palm Beach, Florida.
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John T. Quigley has served as a Regional Director of the Company since June
1996. As Regional Director, Mr. Quigley is responsible for the Columbus,
Cincinnati, and Oklahoma City markets. Prior to that time, Mr. Quigley served as
general manager of WTTE since July 1985. Prior to joining WTTE, Mr. Quigley
served in broadcast management positions at WCPO-TV in Cincinnati, Ohio and
WPTV-TV in West Palm Beach, Florida.
Frank Quitoni has served as a Regional Director since completion of the River
City Acquisition. As Regional Director, Mr. Quitoni is responsible for the St.
Louis, Sacramento, Indianapolis and Asheville/Greenville/Spartanburg markets.
Prior to joining the Company, he was Vice President of Operations for River City
since 1995. Mr. Quitoni had served as the Director of Operations and Engineering
for River City since 1994. Prior thereto Mr. Quitoni served as a consultant to
CBS beginning in 1989. Mr. Quitoni was the Director of Olympic Operations for
CBS Sports for the 1992 Winter Olympic Games and consulted with CBS for the 1994
Winter Olympic Games. Mr. Quitoni was awarded the Technical Achievement Emmy for
the 1992 and 1994 CBS Olympic broadcasts.
M. William Butler has served as Vice President/Group Program Director, SCI
since 1997. Prior to joining the Company, he served as Director of Programming
at KCAL, the Walt Disney Company station in Los Angeles, California. Before
that, he was Director of Marketing and Programming at WTXF in Philadelphia,
Pennsylvania and WLVI in Boston, Massachusetts. Mr. Butler attended the Graduate
Business School of the University of Cincinnati from 1975 to 1976.
Michael Draman has served as Vice President/TV Sales and Marketing, SCI since
1997. Prior to joining the Company, he served as Vice President of Revenue
Development for New World Television. Before that, he was Director of Sales and
Marketing for WSVN in Miami, Florida. Mr. Draman attended The American
University and The Harvard Business School and served with the U.S.
Marine Corps in Vietnam.
Stephen A. Eisenberg has served as Director of National Sales, SCI since
November 1996. Prior to joining the Company, he served as Vice
President/Director of Sales for Petry Television, with total national sales
responsibility for KTTV in Los Angeles, California, KCPQ-TV in Seattle,
Washington, WTNH-TV in New Haven, Connecticut, WKYC-TV in Cleveland, Ohio,
WBIR-TV in Knoxville, Tennessee, WKEF-TV in Dayton, Ohio and WTMJ-TV in
Milwaukee, Wisconsin. His career at Petry Television spanned 21 years. Mr.
Eisenberg received an MS degree in Journalism from Northwestern's Medill School
and a BA degree from Brooklyn College.
Delbert R. Parks III has served as Vice President of Operations and
Engineering since the completion of the River City Acquisition. Prior to that
time, he was Director of Operations and Engineering for WBFF and Sinclair since
1985, and has been with the Company for 25 years. He is responsible for
planning, organizing and implementing operational and engineering policies and
strategies as they relate to television and computer systems. Currently, he is
consolidating facilities for Sinclair's television stations and has just
completed a digital facility for Sinclair's news and technical operation in
Pittsburgh. Mr. Parks is also a Lieutenant Colonel in the Maryland Army National
Guard and commands the 1st Battalion, 175th Infantry (Light).
Robert E. Quicksilver has served as General Counsel, SCI since completion of
the River City Acquisition. Prior to that time he served as General Counsel of
River City since September 1994. Prior to joining River City, Mr. Quicksilver
was with the law firm of Rosenblum, Goldenhersh, Silverstein and Zafft, P.C. in
St. Louis, where he was a partner for six years. Mr. Quicksilver holds a B.A.
from Dartmouth College and a J.D. from the University of Michigan.
Thomas E. Severson has served as Corporate Controller since 1997. Before
that, Mr. Severson served as Assistant Controller of the Company since 1995.
Prior to joining the Company, Mr. Severson held positions in the audit
departments of KPMG Peat Marwick LLP and Deloitte & Touche LLP from 1991 to
1995. Mr. Severson is a graduate of the University of Baltimore and is a
Certified Public Accountant.
Michael E. Sileck has served as Vice President/Finance of SCI since
completion of the River City Acquisition. Prior to that time he served as the
Director of Finance for River City since 1993. Mr. Sileck joined River City in
July 1990 as Director of Finance and Business Affairs for KDNL-TV. Mr. Sileck is
41
<PAGE>
an active member of the Broadcast Cable Financial Management Association
("BCFM") and was a Director of BCFM from 1993 to 1996. Mr. Sileck, a Certified
Public Accountant, received a B.S. degree in Accounting from Wayne State
University and an M.B.A. in Finance from Oklahoma City University.
Robin A. Smith has served as Chief Financial Officer, SCI Radio since June
1996. Prior to joining the Company, she served as Vice President and Chief
Financial Officer of the Park Lane Group of Menlo Park, California, which owned
and operated small market radio stations. Before that, she served as Vice
President and Treasurer of Edens Broadcasting, Inc. in Phoenix, Arizona, which
owns and operates radio stations in major markets. Ms. Smith is a graduate of
Arizona State University and is a Certified Public Accountant.
Patrick Talamantes has served as Director of Corporate Finance since
completion of the River City Acquisition. Prior to that time he served as
Treasurer for River City since April 1995. From 1991 to 1995, he was a Vice
President with Chemical Bank, where he completed financings for clients in the
cable, broadcasting, publishing and entertainment industries. Mr. Talamantes
holds a B.A. degree from Stanford University and an M.B.A. from the Wharton
School at the University of Pennsylvania.
William E. Brock has served as a Director of the Company since July 1995. Mr.
Brock served as chairman of The Brock Group from 1989 until January 1994, and as
chairman emeritus from 1994 to 1996. Mr. Brock currently serves as chairman of
Intellectual Development Systems. Mr. Brock served as a United States Senator
from Tennessee from 1971 to 1977 and as a member of the U.S. House of
Representatives from 1962 to 1970. Mr. Brock served as a member of President
Reagan's cabinet from 1981 to 1987, as U.S. Trade Representative from 1981 to
1985 and as Secretary of Labor from 1985 to 1987. Mr. Brock was National
Chairman of the Republican Party from 1977 to 1981.
Lawrence E. McCanna has served as a Director of the Company since July 1995.
Mr. McCanna has been a partner of the accounting firm of Gross, Mendelsohn &
Associates, P.A., since 1972 and has served as its managing partner since 1982.
Mr. McCanna has served on various committees of the Maryland Association of
Certified Public Accountants and was chairman of the Management of the
Accounting Practice Committee. He is also a former member of the Management of
an Accounting Practice Committee of the American Institute of Certified Public
Accountants. Mr. McCanna is a member of the board of directors of Maryland
Special Olympics.
Basil A. Thomas has served as a Director of the Company since November 1993.
He is of counsel to the Baltimore law firm of Thomas & Libowitz, P.A. and has
been in the private practice of law since 1983. From 1961 to 1968, Judge Thomas
served as an Associate Judge on the Municipal Court of Baltimore City and, from
1968 to 1983, he served as an Associate Judge of the Supreme Bench of Baltimore
City. Judge Thomas is a trustee of the University of Baltimore and a member of
the American Bar Association and the Maryland State Bar Association. Judge
Thomas attended the College of William & Mary and received his L.L.B. from the
University of Baltimore. Judge Thomas is the father of Steven A. Thomas, a
senior attorney and founder of Thomas & Libowitz, counsel to the Company.
Barry Baker has been the Chief Executive Officer of River City since 1989,
and is the President of the corporate general partner of River City, Better
Communications, Inc. ("BCI"). The principal business of both River City and BCI
is television and radio broadcasting. In connection with the River City
Acquisition, the Company agreed to appoint Mr. Baker Executive Vice President of
the Company and to elect him as a Director at such time as he is eligible to
hold those positions under applicable FCC regulations. He currently serves as a
consultant to the Company.
Kerby Confer served as a member of the Board of Representatives and Chief
Executive Officer-- Keymarket Radio Division of River City since July 1995.
Prior thereto, Mr. Confer served as Chairman of the Board and Chief Executive
Officer of Keymarket since its founding in December 1981. Prior to engaging in
the acquisition of various radio stations in 1975, Mr. Confer held a number of
jobs in the broadcast business, including serving as Managing Partner of a radio
station in Annapolis, Maryland from 1969 to 1975. From 1966 to 1969, he hosted a
pop music television show on WBAL-TV (Baltimore) and WDCA-TV (Washington, D.C.).
Prior thereto, Mr. Confer served as program director or producer/director for
radio and television stations owned by Susquehanna Broadcasting and Plough
Broadcasting Company, Inc. Mr. Confer currently provides services to the Company
and is expected to become Chief Executive Officer of SCI Radio at such time as
he is eligible to hold this position under applicable FCC regulations.
42
<PAGE>
Roy F. Coppedge, III is a general partner of the general partner of each of
the Boston Ventures partnerships, limited partnerships primarily involved in the
business of investments. Mr. Coppedge is a director of Continental Cablevision,
Inc., and American Media, Inc. and a member of the Board of Representatives of
Falcon Holding Group, L.P. In connection with the River City Acquisition, the
Company agreed to elect Mr. Coppedge as a Director at such time as he is
eligible to hold that position under applicable FCC regulations.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation by the Company for services rendered in all capacities
during the years ended December 31, 1994, 1995 and 1996 by the Chief Executive
Officer and the four other executive officers of the Company as to whom the
total annual salary and bonus exceeded $100,000 (the "Named Executive Officers")
in 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
SECURITIES ALL OTHER
NAME AND UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS GRANTED (#) (A)
------ ---------- ----------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
David D. Smith,
President and Chief Executive
Officer.............................. 1996 $767,308 $ 317,913 -- $ 6,748
1995 450,000 343,213 -- 4,592
1994 317,913 1,300,000 -- 3,841
Frederick G. Smith,
Vice President....................... 1996 260,000 233,054 -- 6,704
1995 260,000 258,354 -- 20,361
1994 233,054 900,000 -- 18,960
J. Duncan Smith,
Secretary............................ 1996 270,000 243,485 -- 18,494
1995 270,000 268,354 -- 21,467
1994 243,485 900,000 -- 16,418
Robert E. Smith,
Treasurer............................ 1996 250,000 233,054 -- 6,300
1995 250,000 258,354 -- 4,592
1994 233,054 900,000 -- 13,238
David B. Amy,
Chief Financial Officer.............. 1996 173,582 20,000 25,000 7,766
1995 132,310 31,000 7,500 7,868
1994 122,400 20,000 -- 5,011
</TABLE>
(a) All other compensation consists of income deemed received for personal use
of Company-leased automobiles, the Company's 401 (k) contribution, life
insurance and long-term disability coverage.
In addition to the foregoing, Mr. Barry Baker and Mr. Kerby Confer have
agreed to serve as executive officers and/or directors of the Company as soon as
permissible under the rules of the FCC and applicable laws and received
consulting fees during the year ended December 31, 1996 of $527,976 and
$162,500, respectively.
43
<PAGE>
STOCK OPTIONS
The following table sets forth information concerning each grant of stock
options made during 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
VALUE OF
OPTIONS
NUMBER OF PERCENT OF AT DATE OF
SECURITIES TOTAL OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE BASED ON BLACK-
OPTIONS EMPLOYEES IN PRICE EXPIRATION SCHOLES OPTION
NAME GRANTED(#) FISCAL YEAR PER SHARE DATE PRICING MODEL
- ----------------- ------------ --------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
David D. Smith .. -- --% $ -- -- $ --
Frederick G.
Smith............ -- -- -- -- --
J. Duncan Smith . -- -- -- -- --
Robert E. Smith . -- -- -- -- --
David B. Amy..... 10,000 * 37.75 5/31/2006 160,419
15,000 * 30.11 5/31/2006 287,319
</TABLE>
* Less than one percent.
The following table shows the number of stock options exercised during 1996
and the 1996 year-end value of the stock options held by the Named Executive
Officers:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS "IN-THE-MONEY" OPTIONS
ACQUIRED VALUE AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(A)
---------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------- --------------- ---------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David D. Smith .. -- $ -- -- -- $ -- $ --
Frederick G.
Smith ............ -- -- -- -- -- --
J. Duncan Smith . -- -- -- -- -- --
Robert E. Smith . -- -- -- -- -- --
David B. Amy ..... -- -- 3,750 28,750 -- 37,500
</TABLE>
(a) An "In-the-Money" option is an option for which the option price of the
underlying stock is less than the market price at December 31, 1996, and all of
the value shown reflects stock price appreciation since the granting of the
option.
DIRECTOR COMPENSATION
Directors of the Company who also are employees of the Company serve without
additional compensation. Independent directors receive $15,000 annually. These
independent directors also receive $1,000 for each meeting of the Board of
Directors attended and $500 for each committee meeting attended. In addition,
the independent directors are reimbursed for any expenses incurred in connection
with their attendance at such meetings.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with David D. Smith,
President and Chief Executive Officer of the Company. David Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. The Company's
Compensation Committee has approved an increase in Mr. Smith's total
compensation to $1,200,000. Mr. Smith is also entitled to participate in the
Company's Executive Bonus Plan based upon the performance of the Company during
the year. The employment agreement provides that the Company may terminate Mr.
Smith's employment prior to expiration of the agreement's term as a result of
(i) a breach by Mr. Smith of any material covenant, promise or agreement
contained in the employment agreement; (ii) a dissolution or winding up of the
Company; (iii) the disability of Mr. Smith for more than 210 days in any twelve
month period (as determined under the employment agreement); or (iv) for cause,
which includes conviction of certain crimes, breach of a fiduciary duty to the
Company or the stockholders, or repeated failure to exercise or undertake his
duties as an officer of the Company (each, a "Termination Event").
44
<PAGE>
In June 1995, the Company entered into an employment agreement with Frederick
G. Smith, Vice President of the Company. Frederick Smith's employment agreement
has an initial term of three years and is renewable for additional one-year
terms, unless either party gives notice of termination not less than 60 days
prior to the expiration of the then current term. Under the agreement, Mr. Smith
receives a base salary of $260,000 and is also entitled to participate in the
Company's Executive Bonus Plan based upon the performance of the Company and Mr.
Smith during the year. The employment agreement provides that the Company may
terminate Mr. Smith's employment prior to expiration of the agreement's term as
a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with J. Duncan
Smith, Vice President and Secretary of the Company. J. Duncan Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. Under the agreement, Mr.
Smith receives a base salary of $270,000 and is also entitled to participate in
the Company's Executive Bonus Plan based upon the performance of the Company and
Mr. Smith during the year. The employment agreement provides that the Company
may terminate Mr. Smith's employment prior to expiration of the agreement's term
as a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with Robert E.
Smith, Vice President and Treasurer of the Company. Robert E. Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. Under the agreement, Mr.
Smith receives a base salary of $250,000 and is also entitled to participate in
the Company's Executive Bonus Plan based upon the performance of the Company and
Mr. Smith during the year. The employment agreement provides that the Company
may terminate Mr. Smith's employment prior to expiration of the agreement's term
as a result of a Termination Event.
In connection with the River City Acquisition, the Company entered into an
employment agreement (the "Baker Employment Agreement") with Barry Baker
pursuant to which Mr. Baker will become President and Chief Executive Officer of
SCI and Executive Vice President of the Company at such time as Mr. Baker is
able to hold those positions consistent with applicable FCC regulations. Until
such time as Mr. Baker is able to become an officer of the Company, he serves as
a consultant to the Company pursuant to a consulting agreement and receives
compensation that he would be entitled to as an officer under the Baker
Employment Agreement. While Mr. Baker acts as consultant to the Company he will
not direct employees of Sinclair in the operation of its television stations and
will not perform services relating to any shareholder, bank financing or
regulatory compliance matters with respect to the Company. In addition, Mr.
Baker will remain the Chief Executive Officer of River City and will devote a
substantial amount of his business time and energies to those services. Pursuant
to the Baker Employment Agreement, Mr. Baker receives a base salary of
approximately $1,056,000 per year, subject to annual increases of 7-1/2% January
1 each year beginning January 1, 1997. Mr. Baker is also entitled to receive a
bonus equal to 2% of the amount by which the Broadcast Cash Flow (as defined in
the Baker Employment Agreement) of SCI for a year exceeds the Broadcast Cash
Flow for the immediately preceding year. Pursuant to the Baker Employment
Agreement, Mr. Baker has received options to acquire 1,382,435 shares of the
Class A Common Stock (or 3.33% of the common equity of Sinclair determined on a
fully diluted basis). The option became exercisable with respect to 50% of the
shares upon closing of the River City Acquisition, and becomes exercisable with
respect to 25% of the shares on the first anniversary of the closing of the
River City Acquisition, and 25% on the second anniversary of the River City
Acquisition. The exercise price of the option is approximately $30.11 per share.
The term of the Baker Employment Agreement extends until May 31, 2001, and is
automatically extended to the third anniversary of any Change of Control (as
defined in the Baker Employment Agreement). If the Baker Employment Agreement is
terminated as a result of a Series B Trigger Event (as defined below), then Mr.
Baker shall be entitled to a termination payment equal to the amount that would
have been paid in base salary for the remainder of the term of the agreement
plus bonuses that would be paid for such period based on the average bonus paid
to Mr. Baker for the previous three years, and all options shall vest
immediately upon such termination. In addition, upon such a termination, Mr.
Baker shall have the option to purchase from the Company for the fair market
value thereof either (i) all broadcast operations of Sinclair in the St. Louis,
Missouri DMA or (at the option of Mr. Baker) the Asheville-Greenville-
45
<PAGE>
Spartanburg, South Carolina DMA or (ii) all of the Company's radio broadcast
operations. Mr. Baker shall also have the right following such a termination to
receive quarterly payments (which may be paid either in cash or, at the
Company's option, in additional shares of Class A Common Stock) equal to 5.00%
of the fair market value (on the date of each payment) of all stock options and
common stock issued pursuant to exercise of such stock options or pursuant to
payments of this obligation in shares and held by him at the time of such
payment (except that the first such payment shall be 3.75% of such value). The
fair market value of unexercised options for such purpose shall be equal to the
market price of underlying shares less the exercise price of the options.
Following termination of Mr. Baker's employment agreement, the Company shall
have the option to purchase the options and shares from Mr. Baker at their
market value. A "Series B Trigger Event" means the termination of Barry Baker's
employment with the Company prior to the expiration of the initial five-year
term of his employment agreement (i) by the Company for any reason other than
"for cause" (as defined in the Baker Employment Agreement) or (ii) by Barry
Baker under certain circumstances, including (a) on 60 days' prior written
notice given at any time within 180 days following a Change of Control (as
defined in the Baker Employment Agreement; (b) if Mr. Baker is not elected (and
continued) as a director of Sinclair or SCI, as President and Chief Executive
Officer of SCI or as Executive Vice President of Sinclair, or Mr. Baker shall be
removed from any such board or office; (c) upon a material breach by Sinclair or
SCI of the Baker Employment Agreement which is not cured; (d) if there shall be
a material diminution in Mr. Baker's authority or responsibility, or certain of
his economic benefits are materially reduced, or Mr. Baker shall be required to
work outside Baltimore; or (e) the effective date of his employment as
contemplated by clause (b) shall not have occurred by August 31, 1997. Mr. Baker
cannot be appointed to such positions with the Company or SCI until the Company
or SCI takes certain actions with respect to WTTV and WTTK in Indianapolis or
WTTE or WSYX in Columbus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Other than as follows, no Named Executive Officer is a director of a
corporation that has a director or executive officer who is also a director of
the Company. Each of David D. Smith, Frederick G. Smith, J. Duncan Smith and
Robert E. Smith (the "Controlling Stockholders", (all of whom are directors of
the Company and Named Executive Officers) is a director and/or executive officer
of each of various other corporations controlled by the Controlling
Stockholders.
During 1996, none of the Named Executive Officers participated in any
deliberations of the Company's Board of Directors or the Compensation Committee
relating to compensation of the Named Executive Officers.
The members of the Compensation Committee are Messrs. Thomas, Brock and
McCanna. Mr. Thomas is of counsel to the law firm of Thomas & Libowitz, and is
the father of Steven A. Thomas, a senior attorney and founder of Thomas &
Libowitz, P.A. During 1996, Thomas & Libowitz, P.A., billed the Company
approximately $900,000 in fees and expenses for legal services.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the date hereof the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by (i) all persons known by the Company to beneficially own more than 5%
of the Company's Common Stock, (ii) each director and each Named Executive
Officer who is a stockholder, and (iii) all directors and executive officers as
a group. Unless noted otherwise, the business address of each of the following
is 2000 West 41st Street, Baltimore, MD 21211:
<TABLE>
<CAPTION>
SHARES OF CLASS B SHARES OF SERIES B SHARES OF CLASS A PERCENT OF
COMMON STOCK PREFERRED STOCK COMMON STOCK TOTAL
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED VOTING
------------------ ------------------- ------------------
NAME NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT POWER (A)
--------- -------- -------- -------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
David D. Smith (b).............. 7,249,999 26.0% 7,259,999 51.2% 25.0%
Frederick G. Smith (b)(c) ...... 6,864,944 24.6% 6,868,944 49.8% 23.7%
J. Duncan Smith (b)(d).......... 6,999,994 25.1% 6,999,994 50.3% 24.2%
Robert E. Smith (b)(e).......... 6,735,644 24.2% 6,735,644 49.4% 23.3%
46
<PAGE>
SHARES OF CLASS B SHARES OF SERIES B SHARES OF CLASS A PERCENT OF
COMMON STOCK PREFERRED STOCK COMMON STOCK TOTAL
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED VOTING
------------------ ------------------- ------------------
NAME NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT POWER (A)
--------- -------- -------- -------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
David B. Amy (f)................ 34,700 * *
Basil A. Thomas................. 2,000 * *
Lawrence E. McCanna............. 300 * *
William E. Brock................ 2,500 * *
Barry Baker (g)(h).............. 72,016 6.3% 1,644,311 19.2% *
Putnam Investments, Inc......... 2,175,000 31.5% *
One Post Office Square
Boston, Massachusetts 02109
T. Rowe Price Associates,
Inc. (i)...................... 425,000 6.1% *
100 East Pratt Street
Baltimore, Maryland 21202.....
Better Communications, Inc.(h). 134,858 11.8% 490,883 6.6% *
1215 Cole Street
St. Louis, Missouri 63106
BancBoston Investments (h).... 150,335 13.2% 547,219 7.3% *
150 Royal Street
Canton, Massachusetts 02021
Pyramid Ventures, Inc. (h).... 152,995 13.4% 556,902 7.4% *
1215 Cole Street
St. Louis, Missouri 63106
Boston Ventures Limited
Partnership IV (h).............. 253,800 22.3% 923,832 11.8% *
21 Custom House Street
10th Floor
Boston, Massachusetts 02110
Boston Ventures Limited
Partnership IVA (h) ............ 142,745 12.5% 519,592 7.0% *
21 Custom House Street
10th Floor
Boston, Massachusetts 02110
All directors and executive
officers as a group (8
persons)........................ 27,850,581 100.0% -- -- 27,904,081 80.2% 96.2%
</TABLE>
47
<PAGE>
* Less than 1%
(a) Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share except for
votes relating to "going private" and certain other transactions. The Class A
Common Stock, the Class B Common Stock and the Series B Preferred Stock vote
together as a single class except as otherwise may be required by Maryland law
on all matters presented for a vote, with each share of Series B Preferred Stock
entitled to 3.64 votes on all such matters. Holders of Class B Common Stock may
at any time convert their shares into the same number of shares of Class A
Common Stock and holders of Series B Preferred Stock may at any time convert
each share of Series B Preferred Stock into 3.64 shares of Class A Common Stock.
(b) Shares of Class A Common Stock beneficially owned includes shares of
Class B Common Stock beneficially owned, each of which is convertible into one
share of Class A Common Stock.
(c) Includes 532,645 shares held in irrevocable trusts established by
Frederick G. Smith for the benefit of his children and as to which Mr. Smith has
the power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the shares.
(d) Includes 521,695 shares held in irrevocable trusts established by J.
Duncan Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such substitution,
Mr. Smith would have no power to vote or dispose of the shares.
(e) Includes 1,009,745 shares held in irrevocable trusts established by
Robert E. Smith for the benefit of his children and as to which Mr. Smith has
the power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the shares.
(f) Includes 32,500 shares of Class A Common Stock that may be acquired upon
exercise of options granted in 1995 and 1996 pursuant to the Incentive Stock
Option Plan and Long Term Incentive Plan.
(g) Consists of 1,382,435 shares of Class A Common Stock that may be acquired
upon exercise of options granted in 1996 pursuant to the Long Term Incentive
Plan.
(h) Shares of Class A Common Stock beneficially owned includes 3.64 shares
for each share of Series B Preferred Stock beneficially owned as each share of
Series B Preferred Stock is immediately convertible into approximately 3.64
shares of Class A Common Stock.
(i) These securities are owned by various individual and institutional
investors to which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment advisor with power to direct investments and/or sole voting power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial
owner of such securities; however, Price Associates expressly disclaims that it
is, in fact, beneficial owner of such securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since December 31, 1995, the Company has engaged in the following
transactions with persons who are, or are members of the immediate family of,
directors, persons expected to become a director, officers or beneficial owners
of 5% or more of the issued and outstanding Common Stock, or with entities in
which such persons or certain of their relatives have interests.
WPTT NOTE
In connection with the sale of WPTT in Pittsburgh by the Company to WPTT,
Inc., WPTT, Inc., issued to the Company a 15-year senior secured term note of
$6.0 million (the "WPTT Note"). The Company subsequently sold the WPTT Note to
the late Julian S. Smith and Carolyn C. Smith, the parents of the Controlling
Stockholders and both former stockholders of the Company, in exchange for the
payment of $50,000 and the issuance of a $6.6 million note, which bears interest
at 7.21% per annum and requires payments of interest only through September
2001. Monthly principal payments of $109,317 plus interest are payable with
respect to this note commencing in November 2001 and ending in September 2006,
at which time the remaining principal balance plus accrued interest, if any, is
due. During the year ended December 31, 1996, the Company received $473,000 in
interest payments on this note. At December 31, 1996, the balance on this note
was $6,559,000.
WIIB NOTE
In September 1990, the Company sold all the stock of Channel 63, Inc., the
owner of WIIB in Bloomington, Indiana, to the Controlling Stockholders for $1.5
million. The purchase price was delivered in the form of a note issued to the
Company which was refinanced in June 1992 (the "WIIB Note"). The WIIB Note bears
interest at 6.88% per annum, is payable in monthly principal and interest
payments of $16,000 until September 30, 2000, at which time a final payment of
approximately $431,000 is due. Principal and interest paid in 1996 on the WIIB
Note was $174,000. At December 31, 1996, $1.0 million in principal amount of the
WIIB Note remained outstanding.
48
<PAGE>
BAY CREDIT FACILITY
In connection with the capitalization of Bay Television, Inc., the Company
agreed on May 17, 1990 to loan the Controlling Stockholders up to $3.0 million
(the "Bay Credit Facility"). Each of the loans to the Controlling Stockholders
pursuant to the Bay Credit Facility is evidenced by an amended and restated
secured note totaling $2.6 million due December 31, 1999 accruing interest at a
fixed rate equal to 6.88%. Principal and interest are payable over six years
commencing on March 31, 1994, and are required to be repaid quarterly and
$480,000 was paid in 1996. $600,000 is payable in 1997, $660,000 is payable in
1998 and $718,000 is payable in 1999. As of December 31, 1996, approximately
$1.8 million in principal amount was outstanding under this note.
AFFILIATED LEASES
From 1987 to 1992, the Company entered into five lease transactions with CCI,
a corporation wholly owned by the Controlling Stockholders, to lease certain
facilities from CCI. Four of these leases are 10-year leases for rental space on
broadcast towers, two of which are capital leases having renewable terms of 10
years. The other lease is a month-to-month lease for a portion of studio and
office space at which certain satellite dishes are located. Aggregate annual
rental payments related to these leases were $498,000 in 1996. The aggregate
annual rental payments related to these leases are scheduled to be $454,000 in
1997 and $474,000 in 1998.
In January 1991, CTI entered into a 10-year capital lease with KIG, a
corporation wholly owned by the Controlling Stockholders, pursuant to which CTI
leases both an administrative facility and studios for station WBFF and the
Company's present corporate offices. Additionally, in June 1991, CTI entered
into a one-year renewable lease with KIG pursuant to which CTI leases parking
facilities at the administrative facility. Payments under these leases with KIG
were $559,300 in 1996. The aggregate annual rental payments related to the
administrative facility are scheduled to be $616,400 in 1997 and $636,400 in
1998. During 1996, the Company chartered airplanes owned by certain companies
controlled by the Controlling Stockholders and incurred expenses of
approximately $336,000 related to these charters.
TRANSACTIONS WITH GERSTELL
Gerstell LP, an entity wholly owned by the Controlling Stockholders, was
formed in April 1993 to acquire certain personal and real property interests of
the Company in Pennsylvania. In a transaction that was completed in September
1993, Gerstell LP acquired the WPGH office/studio, transmitter and tower site
for an aggregate purchase price of $2.2 million. The purchase price was financed
in part by a $2.1 million note from Gerstell LP bearing interest at 6.18% with
principal payments beginning on November 1, 1994 and a final maturity date of
October 1, 2013. Principal and interest paid in 1996 on the note was $188,000.
At December 31, 1996, $2.0 million in principal amount of the note remained
outstanding. Following the acquisition, Gerstell LP leased the office/studio,
transmitter and tower site to WPGH, Inc. (a subsidiary of the Company) for
$14,875 per month and $25,000 per month, respectively. The leases have terms of
seven years, with four seven-year renewal periods. Aggregate annual rental
payment related to these leases was $534,000 in 1996. Gerstell LP has arranged
for a $2.0 million loan (the "Gerstell Loan") from a bank lender to provide for
construction at the studio/transmitter site of an expansion to the existing
office building/television studio located there and for construction of a new
tower having an aggregate estimated cost of $1.5 million. The Company has
guaranteed the Gerstell Loan. As of December 31, 1996, $885,000 was outstanding
under the Gerstell Loan. The completed office building/television studio and the
new tower is leased from Gerstell LP by WPGH, Inc., a subsidiary of the Company.
The Company believes that the leases with Gerstell LP are on terms and
conditions customary in similar leases with independent third parties.
STOCK REDEMPTIONS
On September 30, 1990, the Company issued certain notes (the "Founders'
Notes") maturing on May 31, 2005, payable to the late Julian S. Smith and
Carolyn C. Smith, former majority owners of the Company and the parents of the
Controlling Stockholders. The Founders' Notes, which were issued in
49
<PAGE>
consideration for stock redemptions equal to 72.65% of the then outstanding
stock of the Company, have principal amounts of $7.5 million and $6.7 million,
respectively. The Founders' Notes include stated interest rates of 8.75%, which
were payable annually from October 1990 until October 1992, then payable monthly
commencing April 1993 to December 1996, and then semiannually thereafter until
maturity. The effective interest rate approximates 9.4%. The Founders' Notes are
secured by security interests in substantially all of the assets of the Company
and its Subsidiaries, and are personally guaranteed by the Controlling
Stockholders.
Principal and interest payments on the Founders' Note issued to the estate of
Julian S. Smith are payable, in various amounts, each April and October,
beginning October 1991 until October 2004, with a balloon payment due at
maturity in the amount of $5.0 million. Additionally, monthly interest payments
commenced on April 1993 and continued until December 1996. Principal and
interest paid in 1996 on this Founders' Note was $860,000 At December 31, 1996,
$6.0 million in principal amount of this Founders' Note remained outstanding.
Principal payments on the Founders' Note issued to Carolyn C. Smith are
payable, in various amounts, each April and October, beginning October 1991
until October 2002. Principal and interest paid in 1996 on this Founders' Note
was $1.1 million. At December 31, 1996, $4.5 million in principal amount of this
Founders' Note remained outstanding.
RELATIONSHIP WITH GLENCAIRN
Glencairn is a corporation owned by (i) Edwin L. Edwards, Sr. (3%), (ii)
Carolyn C. Smith, the mother of the Controlling Stockholders (7%), and (iii)
certain trusts established by Carolyn C. Smith for the benefit of her
grandchildren (the "Glencairn Trusts") (90%). The 90% equity interest in
Glencairn owned by the Glencairn Trusts is held through the ownership of
non-voting common stock. The 7% equity interest in Glencairn owned by Carolyn C.
Smith is held through the ownership of common stock that is generally
non-voting, except with respect to certain specified extraordinary corporate
matters as to which this 7% equity interest has the controlling vote. Edwin L.
Edwards, Sr. owns a 3% equity interest in Glencairn through ownership of all of
the issued and outstanding voting stock of Glencairn and is Chairman of the
Board, President and Chief Executive Officer of Glencairn.
There have been, and the Company expects that in the future there will be,
transactions between the Company and Glencairn. Glencairn is the owner-operator
and FCC licensee of WNUV in Baltimore, WVTV in Milwaukee, WRDC in Raleigh/Durham
and WABM in Birmingham. The Company has entered into LMAs with Glencairn
relating to WNUV, WVTV, WRDC and WABM pursuant to which the Company provides
programming to Glencairn for airing on WNUV, WVTV, WRDC and WABM, respectively,
during the hours of 6:00 a.m. to 2:00 a.m. each day and has the right to sell
advertising during this period, all in exchange for the payment by the Company
to Glencairn of monthly fees totaling $446,000.
In June 1995, the Company acquired options from certain stockholders of
Glencairn (the "Glencairn Options") which grant to the Company the right to
acquire, subject to applicable FCC rules and regulations, stock comprising up to
a 97% equity interest in Glencairn. Of the stock subject to the Glencairn
Options, a 90% equity interest is non-voting and the remaining 7% equity
interest is non-voting, except with respect to certain extraordinary matters as
to which this 7% equity interest has the controlling vote. Each Glencairn Option
was purchased by the Company for $1,000 ($5,000 in the aggregate) and is
exercisable only upon the Company's payment of an option exercise price
generally equal to the optionor's proportionate share of the aggregate
acquisition cost of all stations owned by Glencairn on the date of exercise
(plus interest at a rate of 10% from the respective acquisition date). The
Company estimates that the aggregate option exercise price for the Glencairn
Options, if currently exercised, would be approximately $9.7 million.
In connection with the River City Acquisition, the Company assigned to
Glencairn its option to purchase certain assets relating to WFBC, Anderson,
South Carolina, one of the River City stations. In addition, the Company has
agreed (subject to FCC approval) to sell to Glencairn for $2,000,000 the License
Assets of WTTE in Columbus, Ohio, which the Company currently owns. The Company
50
<PAGE>
has applied with the FCC to acquire the License Assets of a television station
from River City located in the same market as WFBC. In addition, the Company has
an option to acquire from River City the assets of WSYX, which is in the same
market as WTTE. See "Business--Broadcasting Acquisition Strategy." The Company
intends to enter into LMAs with Glencairn relating to WFBC and WTTE pursuant to
which the Company will supply programming to Glencairn, obtain the right to sell
advertising during the periods covered by the supplied programming and make
payments to Glencairn in amounts to be negotiated.
Also in connection with the River City Acquisition, Glencairn has been
granted an option to acquire from the current owner of the License Assets of
KRRT, Kerrville, Texas, which is in the same market as a station the Company
will acquire from River City. The Company will acquire the Non-License Assets of
KRRT, and is expected to enter into an LMA with Glencairn with respect to KRRT
pursuant to which the Company will supply programming to Glencairn, obtain the
right to sell advertising during the periods covered by the supplied programming
and make payments to Glencairn in amounts to be negotiated.
RIVER CITY TRANSACTIONS
Roy F. Coppedge, who will become a director of the Company upon satisfaction
of certain conditions, and Barry Baker, who will become a director and executive
officer of the Company as soon as permissible under the rules of the FCC and
applicable laws, each have a direct or indirect equity interest in River City
Partners, L.P. Therefore, Messrs. Coppedge and Baker have an interest in the
River City Acquisition, which is described above in "Business --Broadcasting
Acquisition Strategy." During 1996, the Company made LMA payments of $1.4
million to River City. In September 1996, the Company entered into a five-year
agreement with River City pursuant to which River City will provide to the
Company certain production services. Pursuant to this agreement, River City will
provide certain services to the Company in return for an annual fee of $416,000,
subject to certain adjustments on each anniversary date.
KEYMARKET OF SOUTH CAROLINA
Kerby Confer, who is expected to become an executive officer of the Company
as soon as permissible under the rules of the FCC and applicable laws, is the
owner of 100% of the common stock of Keymarket of South Carolina, Inc. ("KSC"),
and the Company has an option to acquire either (i) all of the assets of KSC for
forgiveness of debt in an aggregate principal amount of approximately $7.4
million, plus payment of approximately $1.0 million, less certain adjustments or
(ii) all of the stock of KSC for $1.0 million, less certain adjustments. In
addition, the Company leases two properties from Mr. Confer, pursuant to which
the Company paid Mr. Confer $144,000 in 1996. The Company is required to
purchase each of the properties during the term of the applicable lease for an
aggregate purchase price of approximately $1.75 million.
BEAVER DAM LIMITED LIABILITY COMPANY
In May 1996, the Company, along with the Controlling Stockholders, formed
Beaver Dam Limited Liability Company ("BDLLC"), of which the Company owns a 45%
interest. BDLLC was formed for the purpose of constructing and owning a building
which may be the site for the Company's corporate headquarters. The Company made
capital contributions to BDLLC in 1996 of approximately $380,000.
HERITAGE AUTOMATIVE GROUP
In January, 1997, David D. Smith, the Company's President and Chief Executive
Officer and one of the Controlling Shareholders, made a substantial investment
in, and became a member of the board of directors of, Summa Holdings, Ltd.
which, through wholly owned subsidiaries, owns the Heritage Automotive Group
("Heritage") and Allstate Leasing ("Allstate"). Mr. Smith is not an officer, nor
does he actively participate in the management, of Summa Holdings, Ltd.,
Heritage, or Allstate. Heritage owns
51
<PAGE>
and operates new and used car dealerships in the Baltimore metropolitan area.
Allstate owns and operates an automobile and equipment leasing business with
offices in the Baltimore, Richmond, Houston, and Atlanta metropolitan areas. The
Company sells Heritage and Allstate advertising time on WBFF and WNUV, the
television stations operated by the Company serving the Baltimore DMA. The
Company believes that the terms of the transactions between the Company and
Heritage and the Company and Allstate are and will be comparable to those
prevailing in similar transactions with or involving unaffiliated parties.
52
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
Index to Financial Statements
PAGE
-------
Index to Financial Statements...................................... F-1
Report of Arthur Andersen LLP, Independent Public Accountants ..... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 ...... F-3
Consolidated Statements of Operations for the Years Ended December
31, 1994, 1995 and 1996............................................ F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996............................. F-5
Consolidated Statements of Cash Flows for the Years Ended December
31, 1994, 1995 and 1996............................................ F-6,7
Notes to Consolidated Financial Statements......................... F-8
(a) (2) Index to Financial Statement Schedules
The financial statement schedules required by this item are submitted on
pages S-1 through S-3 of this Report.
PAGE
------
Index to Schedules........................................... S-1
Report of Arthur Andersen LLP, Independent Public
Accountants.................................................. S-2
Schedule II - Valuation and Qualifying Account............... S-3
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements of the notes
thereto.
53
<PAGE>
(a) (3) Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------
<S> <C>
3.1...........Amended and Restated Certificate of Incorporation (1)
3.2...........By-laws (2)
4.2...........Indenture, dated as of December 9, 1993, among Sinclair Broadcast Group, Inc., its wholly-owned
subsideries and First Union National Banks of North Carolina, as trustee. (2)
4.2...........Indenture, dated as of August 28, 1995, among Sinclair Broadcast Group, Inc., its wholly-owned
subsidiaries and the United States Trust Company of New York as trustee. (2
10.1..........Asset Purchase Agreement dated as of April 10, 1996 by and between River City Broadcasting, L.P. as
seller and Sinclair Broadcast Group, Inc. as buyer dated as of April 10, 1996. (3)
10.2..........Option Agreement, dated as of April 10, 1996, by and among River City Broadcasting, L.P., as sellers
and Sinclair Broadcast Group, Inc. dated as of April 10, 1996. (3)
10.3..........Modification Agreement , dated as of April 10, 1996,by and between River City Broadcast Group, L.P.
as seller, and Sinclair Broadcast Group, Inc. as buyer, with reference to Asset Purchase Agreement (3)
10.4..........Second Amended and Restated Credit Agreement, dated as of May 31, 1996, by and among Sinclair
Broadcast Group, Inc., Subsidiary Guarantors and The Chase Manhattan Bank (National
Association) as Agent. (1)
10.5..........Employment Agreement, dated as of April 10, 1996, with Barry Baker. (1)
10.6..........Indemnification Agreement, dated as of April 10, 1996, with Barry Baker. (1)
10.7..........Time Brokerage Agreement, dated as of May 31, 1996, by and among Sinclair Communications, Inc.,
River City Broadcasting, L.P. and River City License Partnership and Sinclair Broadcast Group, Inc. (1)
10.8..........Registration Rights Agreement, dated as of May 31, 1996, by and between Sinclair Broadcast
Group, Inc. and River City Broadcasting, L.P. (1)
10.9..........Time Brokerage Agreement, dated as of August 3, 1995, by and between River City Broadcasting,
L.P. and KRRT, Inc. and Assignment and Assumption Agreement dated as of May 31, 1996 by and
among KRRT, Inc., River City Broadcasting, L.P. and KABB, Inc. (as Assignee of Sinclair
Broadcast Group, Inc.). (1)
10.10.........Loan Agreement, dated as of July 7, 1995, by and between Keymarket of South Carolina, Inc. and
River City Broadcasting, L.P. and First Amendment to Loan Agreement dated as of May 24, 1996. (1)
10.11.........Option Agreement, dated as of July 7, 1995, by and among Keymarket of South Carolina, Kerby E.
Confer and River City Broadcasting, L.P. (1)
10.12.........Letter Agreement, dated August 20, 1996, between Sinclair Broadcast Group, Inc., River City
Broadcasting, L.P. and Fox Broadcasting Company. (4)
10.13.........Asset Purchase Agreement, dated January 31, 1997, by and between Channel 21, L.P. and KUPN, Inc.
10.14.........Promissory Note, dated as of May 17, 1990, in the principal amount of $3,000,000 among David D.
Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith (as makers) and Sinclair
Broadcast Group, Inc., Channel 63, Inc., Commercial Radio Institute, Inc., WTTE, Channel 28,
Inc. and Chesapeake Television, Inc. (as holders). (5)
10.15.........Term Note, dated as of September 30, 1990, in the principal amount of $7,515,000 between
Sinclair Broadcast Group, Inc. (as borrower) and Julian S. Smith (as lender). (6)
54
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.16.........Replacement Term Note dated as of September 30, 1990 in the principal amount of $6,700,000
between Sinclair Broadcast Group, Inc. (as borrower) and Carolyn C. Smith (as lender) (2)
10.17.........Note dated as of September 30, 1990 in the principal amount of $1,500,000 between Frederick G.
Smith, David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers and Sinclair
Broadcast Group, Inc. (as lender) (5)
10.18.........Amended and Restated Note dated as of June 30, 1992 in the principal amount of $1,458,489
between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers)
and Sinclair Broadcast Group, Inc. (as lender) (5)
10.19.........Term Note dated August 1, 1992 in the principal amount of $900,000 between Frederick G. Smith,
David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers) and Commercial Radio
Institute, Inc. (as lender) (5)
10.20.........Management Agreement dated as of January 6, 1992 between Keyser Communications, Inc. and WPGH,Inc. (5)
10.21.........Promissory Note dated as of December 28, 1986 in the principal amount of $6,421,483.53 between
Sinclair Broadcast Group, Inc. (as maker) and Frederick H. Himes, B. Stanley Resnick and
Edward A. Johnston (as representatives for the holders) (5)
10.22.........Term Note dated as of March 1, 1993 in the principal amount of $6,559,000 between Julian S.
Smith and Carolyn C. Smith (as makers-borrowers) and Commercial Radio Institute, Inc. (as
holder-lender) (5)
10.23.........Restatement of Stock Redemption Agreement by and among Sinclair Broadcast Group, Inc. and
Chesapeake Television, Inc., et al. dated June 19, 1990 (5)
10.24.........Corporate Guaranty Agreement dated as of September 30, 1990 by Chesapeake Television, Inc.,
Commercial Radio, Inc., Channel 63, Inc. and WTTE, Channel 28, Inc. (as guarantors) to Julian
S. Smith and Carolyn C. Smith (as lenders) (5)
10.25.........Security Agreement dated as of September 30, 1990 among Sinclair Broadcast Group, Inc.,
Chesapeake Television, Inc., Commercial Radio Institute, Inc., WTTE, Channel 28, Inc. and
Channel 63, Inc. (as borrowers and subsidiaries of the borrower) and Julian S. Smith and
Carolyn C. Smith (as lenders) (5)
10.26.........Assignment of Leases dated as of September 22, 1993 between WPGH, Inc. (as assignee) and
Commercial Radio Institute, Inc. (as assignor) (5)
10.27.........Assignment of Leases dated as of September 22, 1993 between Commercial Radio Institute, Inc.
(as assignor) and Gerstell Development Limited Partnership (as assignee) (5)
10.28.........Assignment of Leases dated as of September 22, 1993 between Commercial Radio Institute, Inc.
(as assignor) and Gerstell Development Limited Partnership (as assignee) (5)
10.29.........Term Note dated as of September 22, 1993, in the principal amount of $1,900,000 between Gerstell
Development Limited Partnership (as maker-borrower) and Sinclair Broadcast Group, Inc. (as holder-lender) (5)
10.30.........Lease dated as of September 23, 1993, between Gerstell Development Limited Partnership and
WPGH, Inc. (2)
10.31.........Lease Agreement dated as of September 23, 1993 between Gerstell Development Limited
Partnership and WPGH, Inc. (2)
10.32.........Lease dated January 1, 1991 between Keyser Investment Group, Inc. and Chesapeake Television, Inc. (5)
10.33.........Lease Agreement dated as of April 2, 1987 between Cunningham Communications, Inc. and
Chesapeake Television, Inc. as amended on September 23, 1993 (5)
55
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ ------------
10.34.........Lease Agreement dated as of April 1, 1992 between Cunningham Communications, Inc. and
Chesapeake Television, Inc. as amended on September 23, 1993 (5)
10.35.........Lease Agreement dated as of June 1, 1991 between Cunningham Communications, Inc. and
Chesapeake Television, Inc. as amended on September 23, 1993 (5)
10.36.........Lease Agreement dated March 8, 1979 between 525 Properties Limited
and B&F Broadcasting, Inc., as amended on April 30, 1979 and
September 18, 1986, and as assigned on September 22, 1986 by
B&F Broadcasting, Inc. to HR Broadcasting Corporation of Milwaukee, Inc. (2)
10.37.........Incentive Stock Option Plan for Designated Participants (2)
11............Computation of Earnings Per Share
12............Computation of Ratio of Earnings to Fixed Charges
21............Subsidiaries of the Company
23............Consent of Independent Public Accountants
27............Financial Data Schedule
</TABLE>
===========================
(1) Incorporated by reference from the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1996
(2) Incorporated by reference from Registration Statement on Form S-1, No.
33-90682
(3) Incorporated by reference from the Company's Report on Form 10-Q for the
quarterly period ended March 31, 1996
(4) Incorporated by reference from the Company's Report on Form 10-Q for the
quarterly period ended September 30, 1996.
(5) Incorporated by reference from the Company's Registration Statement on
Form S-1, No. 33-69482
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1996.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 14 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereto duly authorized on February
25, 1997.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ David B. Amy
----------------------------------
David B. Amy
Chief Financial Officer
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant in the
capacities indicated on February 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ David D. Smith President, Chief Executive Officer, Director,
- ------------------------- Chairman and Principal Executive Officer
David D. Smith
/s/ Frederick G. Smith Vice President, Assistant Secretary and Director
- -------------------------
Frederick G. Smith
/s/ J. Duncan Smith Vice President, Secretary and Director
- -------------------------
J. Duncan Smith
/s/ Robert E. Smith Vice President, Treasurer and Director
- -------------------------
Robert E. Smith
/s/ Basil A. Thomas Director
- -------------------------
Basil A. Thomas
/s/ Lawrence E. McCanna Director
- -------------------------
Lawrence E. McCanna
/s/ William E. Brock Director
- -------------------------
William E. Brock
</TABLE>
57
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994
1995 and 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996................................................................................ F-6, F-7
Notes to Consolidated Financial Statements .......................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sinclair
Broadcast Group, Inc. (a Maryland corporation) and Subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1994, 1995
and 1996. 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 Sinclair Broadcast Group, Inc.
and Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1994, 1995 and
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 7, 1997
F-2
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1995 1996
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents of $108,720 and $-0-, respectively................... $112,450 $ 2,341
Accounts receivable, net of allowance for doubtful accounts of $1,066 and $2,472,
respectively......................................................................... 50,022 112,313
Current portion of program contract costs............................................. 18,036 44,526
Prepaid expenses and other current assets............................................. 1,972 3,704
Deferred barter costs................................................................. 1,268 3,641
Deferred tax assets .................................................................. 4,565 1,245
---------- ------------
Total current assets................................................................. 188,313 167,770
PROGRAM CONTRACT COSTS, less current portion........................................... 19,277 43,037
LOANS TO OFFICERS AND AFFILIATES....................................................... 11,900 11,426
PROPERTY AND EQUIPMENT, net............................................................ 42,797 154,333
NON-COMPETE AND CONSULTING AGREEMENTS, net of accumulated amortization of $34,000 and
$54,236, respectively................................................................. 30,379 10,193
DEFERRED TAX ASSET..................................................................... 16,462 --
OTHER ASSETS........................................................................... 27,355 64,235
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net of accumulated amortization of $49,746
and $85,155, respectively............................................................. 268,789 1,256,303
---------- ------------
Total Assets.......................................................................... $605,272 $1,707,297
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................................... $ 2,187 $ 11,886
Income taxes payable.................................................................. 3,944 730
Accrued liabilities................................................................... 20,720 35,030
Current portion of long-term liabilities-
Notes payable and commercial bank financing.......................................... 1,133 62,144
Capital leases payable............................................................... 524 44
Notes and capital leases payable to affiliates....................................... 1,867 1,774
Program contracts payable............................................................ 26,395 58,461
Deferred barter revenues.............................................................. 1,752 3,576
---------- ------------
Total current liabilities............................................................ 58,522 173,645
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing........................................... 400,644 1,212,000
Capital leases payable................................................................ 44 --
Notes and capital leases payable to affiliates........................................ 13,959 12,185
Program contracts payable............................................................. 30,942 56,194
Deferred tax liability................................................................ -- 463
Other long-term liabilities........................................................... 2,442 2,739
---------- ------------
Total liabilities.................................................................... 506,553 1,457,226
---------- ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES......................................... 2,345 3,880
---------- ------------
COMMITMENTS AND CONTINGENCIES
EQUITY PUT OPTIONS..................................................................... -- 8,938
---------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 and 10,000,000 shares authorized and -0-
and 1,138,318 issued and outstanding................................................. -- 11
Class A Common stock, $.01 par value, 35,000,000 and 100,000,000 shares authorized and
5,750,000 and 6,911,880 shares issued and outstanding, respectively.................. 58 70
Class B Common stock, $.01 par value, 35,000,000 shares authorized and 29,000,000 and
27,850,581 shares issued and outstanding............................................. 290 279
Additional paid-in capital............................................................ 116,089 231,170
Accumulated deficit................................................................... (20,063) (18,932)
Additional paid-in capital -- stock options........................................... -- 25,784
Deferred compensation................................................................. -- (1,129)
---------- ------------
Total stockholders' equity........................................................... 96,374 237,253
---------- ------------
Total Liabilities and Stockholders' Equity........................................... $605,272 $1,707,297
========== ============
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
F-3
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions of
$21,235, $31,797 and $56,040, respectively................... $118,611 $187,934 $346,459
Revenues realized from station barter arrangements............ 10,743 18,200 32,029
---------- ---------- ----------
Total revenues............................................... 129,354 206,134 378,488
---------- ---------- ----------
OPERATING EXPENSES:
Program and production........................................ 15,760 28,152 66,652
Selling, general and administrative........................... 25,578 36,174 75,924
Expenses realized from station barter arrangements............ 9,207 16,120 25,189
Amortization of program contract costs and net realizable
value adjustments............................................ 22,360 29,021 47,797
Amortization of deferred compensation......................... -- -- 739
Depreciation and amortization of property and equipment....... 3,841 5,400 11,711
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets....... 29,386 45,989 58,530
Special bonuses to executive officers......................... 3,638 -- --
Amortization of excess syndicated programming................. -- -- 3,043
---------- ---------- ----------
Total operating expenses..................................... 109,770 160,856 289,585
---------- ---------- ----------
Broadcast operating income................................... 19,584 45,278 88,903
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense............ (25,418) (39,253) (84,314)
Interest income............................................... 2,033 3,942 3,136
Other income ................................................. 414 221 342
---------- ---------- ----------
Income (loss) before provision (benefit) for income taxes and
extraordinary item.......................................... (3,387) 10,188 8,067
PROVISION (BENEFIT) FOR INCOME TAXES........................... (647) 5,200 6,936
---------- ---------- ----------
Net income (loss) before extraordinary item................... (2,740) 4,988 1,131
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related income
tax benefit of $3,357........................................ -- (4,912) --
---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS ............ $ (2,740) $ 76 $ 1,131
========== ========== ==========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE .......
Net income (loss) before extraordinary items.................. $ (.09) $ .15 $ .03
Extraordinary item ........................................... -- (.15) --
---------- ---------- ----------
Net income (loss) per common and common equivalent share ..... $ (.09) $ -- $ .03
========== ========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ................................ 29,000 32,205 37,381
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
RETAINED PAID-IN
SERIES A SERIES B CLASS A CLASS B ADDITIONAL EARNINGS CAPITAL-
PREFERRED PREFERRED COMMON COMMON PAID-IN (ACCUMULATED STOCK
STOCK STOCK STOCK STOCK CAPITAL DEFICIT) OPTIONS
--------- --------- ------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993..................... $ -- $ -- $ -- $ 290 $ 4,733 $(16,047) $ --
Realization of deferred gain.................. -- -- -- -- 41 -- --
Net loss...................................... -- -- -- -- -- (2,740) --
--------- --------- ------- ------- ---------- ----------- ----------
BALANCE, December 31, 1994..................... -- -- -- 290 4,774 (18,787) --
Issuance of common shares, net of related
expenses of $9,288........................... -- -- 58 -- 111,403 -- --
Non-cash distribution prior to KCI merger..... -- -- -- -- (109) (1,352) --
Realization of deferred gain.................. -- -- -- -- 21 -- --
Net income.................................... -- -- -- -- -- 76 --
--------- --------- ------- ------- ---------- ----------- ----------
BALANCE, December 31, 1995..................... -- -- 58 290 116,089 (20,063) --
Class B Common Stock converted into Class A
Common Stock................................. -- -- 11 (11) -- -- --
Issuance of Series A Preferred Stock.......... 12 -- -- -- 125,067 -- --
Series A Preferred Stock converted into Series
B Preferred Stock............................ (12) 12 -- -- -- -- --
Series B Preferred Stock converted into Class
A Common Stock............................... -- (1) 1 -- -- -- --
Repurchase of 30,000 shares of Class A Common
Stock........................................ -- -- -- -- (748) -- --
Stock option grants........................... -- -- -- -- -- -- 25,784
Income tax provision for deferred
compensation................................. -- -- -- -- (300) -- --
Equity put options............................ -- -- -- -- (8,938) -- --
Amortization of deferred compensation......... -- -- -- -- -- -- --
Net income.................................... -- -- -- -- -- 1,131 --
--------- --------- ------- ------- ---------- ----------- ----------
BALANCE, December 31, 1996..................... $ -- $ 11 $ 70 $ 279 $ 231,170 $(18,932) $25,784
========= ========= ======= ======= ========== =========== ==========
</TABLE>
TOTAL
DEFERRED STOCKHOLDERS'
COMPENSATION EQUITY
------------ ---------------
BALANCE, December 31, 1993..................... $ -- $(11,024)
Realization of deferred gain.................. -- 41
Net loss...................................... -- (2,740)
------------ -------------
BALANCE, December 31, 1994..................... -- (13,723)
Issuance of common shares, net of related
expenses of $9,288........................... -- 111,461
Non-cash distribution prior to KCI merger..... -- (1,461)
Realization of deferred gain.................. -- 21
Net income.................................... -- 76
------------ -------------
BALANCE, December 31, 1995..................... -- 96,374
Class B Common Stock converted into Class A
Common Stock................................. -- --
Issuance of Series A Preferred Stock.......... -- 125,079
Series A Preferred Stock converted into Series
B Preferred Stock............................ -- --
Series B Preferred Stock converted into Class
A Common Stock............................... -- --
Repurchase of 30,000 shares of Class A Common
Stock........................................ -- (748)
Stock option grants........................... (1,868) 23,916
Income tax provision for deferred
compensation................................. -- (300)
Equity put options............................ -- (8,938)
Amortization of deferred compensation......... 739 739
Net income.................................... -- 1,131
------------ -------------
BALANCE, December 31, 1996..................... $(1,129) $237,253
============ =============
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES PAGE 1 OF 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ (2,740) $ 76 $ 1,131
Adjustments to reconcile net income (loss) to net cash flows from
operating activities-
Extraordinary loss................................................. -- 8,269 --
Amortization of excess syndicated programming...................... -- -- 3,043
Gain on sales of assets............................................ -- (221) --
Depreciation and amortization of property and equipment............ 3,841 5,400 11,711
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ........... 29,386 45,989 58,530
Amortization of program contract costs and net realizable value
adjustments....................................................... 22,360 29,021 47,797
Amortization of deferred compensation.............................. -- -- 739
Deferred tax benefit............................................... (9,177) (5,089) 2,330
Realization of deferred gain....................................... (152) (42) --
Changes in assets and liabilities, net of effects of acquisitions
and dispositions-
Increase in accounts receivable, net............................... (19,726) (12,245) (41,310)
Increase in prepaid expenses and other current assets.............. (1,057) (273) (217)
(Increase) decrease in other assets and acquired intangible
broadcasting assets............................................... 910 (77) (328)
Increase in accounts payable and accrued liabilities............... 6,556 7,274 19,941
Increase (decrease) in income taxes payable........................ 5,481 (2,427) (3,214)
Net effect of change in deferred barter revenues and deferred
barter costs...................................................... 103 230 (908)
Increase in other long-term liabilities............................ -- -- 297
Decrease in minority interest...................................... -- (38) (121)
Payments on program contracts payable............................... (14,262) (19,938) (30,451)
Payments for consulting agreements.................................. (742) -- --
---------- ---------- ----------
Net cash flows from operating activities.......................... $ 20,781 $ 55,909 $ 68,970
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES PAGE 2 OF 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES........................ $ 20,781 $ 55,909 $ 68,970
----------- ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment......................... (2,352) (1,702) (12,609)
Payments for acquisition of television stations............... (160,795) (101,000) (74,593)
Payments related to the acquisition of the non-license assets
of River City Broadcasting................................... -- -- (818,083)
Prepaid local marketing agreement fee......................... (1,500) -- --
Payments for acquisition of certain other non-license assets.. -- (14,283) (29,532)
Payments for the purchase of outstanding stock of Superior
Communications Group, Inc.................................... -- -- (63,504)
Payments to exercise options to acquire certain FCC licenses.. -- -- (6,894)
Purchase option extension payments relating to WSYX........... -- -- (6,960)
Payments for purchase of investments.......................... (502) -- --
Payment for WSTR subordinated note............................ (4,800) -- --
Payments for consulting and non-compete agreements............ (59,970) (1,000) (50)
Payments for purchase options ................................ (17,500) (9,000) --
Payment to exercise purchase option........................... -- (1,000) --
Distributions (investments) in joint ventures................. -- 240 (380)
Proceeds from disposal of property and equipment.............. -- 3,330 --
Proceeds from assignment of license purchase options.......... -- 4,200 --
Payment for WPTT subordinated convertible debenture........... -- (1,000) --
Loans to officers and affiliates.............................. (50) (205) (854)
Repayments of loans to officers and affiliates................ 386 2,177 1,562
Payments for organization of new subsidiaries................. (198) -- --
Fees paid relating to subsequent acquisitions................. (2,500) -- --
----------- ----------- -------------
Net cash flows used in investing activities.................. (249,781) (119,243) (1,011,897)
----------- ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank financing..... 224,985 138,000 982,500
Repayments of notes payable, commercial bank financing and
capital leases............................................... (102,069) (362,928) (110,657)
Payments of costs related to debt offering.................... -- (824) --
Payments of costs related to financing........................ (7,083) (3,200) (20,009)
Payments for interest rate derivative agreements.............. (1,137) -- (851)
Repurchases of the Company's Class A Common Stock............. -- -- (748)
Prepayments of excess syndicated program contract liabilities. -- -- (15,116)
Payments for costs related to preferred stock offering not yet
consummated.................................................. -- -- (434)
Release of cash in escrow..................................... 100,000 -- --
Proceeds from debt offering, net of $6,000 underwriters'
discount..................................................... -- 294,000 --
Repayments of notes and capital leases to affiliates.......... (1,286) (3,171) (1,867)
Net proceeds from issuance of common shares................... -- 111,461 --
----------- ----------- -------------
Net cash flows from financing activities..................... 213,410 173,338 832,818
----------- ----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (15,590) 110,004 (110,109)
CASH AND CASH EQUIVALENTS, beginning of period ................. 18,036 2,446 112,450
----------- ----------- -------------
CASH AND CASH EQUIVALENTS, end of period........................ $ 2,446 $ 112,450 $ 2,341
=========== =========== =============
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................................. $ 27,102 $ 24,770 $ 82,814
=========== =========== =============
Income taxes paid.............................................. $ 4,921 $ 7,941 $ 6,837
=========== =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other
consolidated subsidiaries, which are collectively referred to hereafter as "the
Company, Companies or SBG." The Company owns and operates television and radio
stations throughout the United States. Additionally, included in the
accompanying consolidated financial statements are the results of operations of
certain television stations pursuant to local marketing agreements (LMAs) and
radio stations pursuant to joint sales agreements (JSAs).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all its wholly-owned and majority-owned subsidiaries. Minority interest
represents a minority owner's proportionate share of the equity in two of the
Company's subsidiaries. In addition, the Company uses the equity method of
accounting for 20% to 50% ownership investments. All significant intercompany
transactions and account balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from those estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
CASH EQUIVALENTS
Cash equivalents are stated at cost plus accrued interest, which approximates
fair value. Cash equivalents are highly liquid investment grade debt instruments
with an original maturity of three months or less and consist of time deposits
with a number of consumer banks with high credit ratings.
PROGRAMMING
The Companies have agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as an asset and a liability
when the license period begins and the program is available for its first
showing. The portion of the program contracts payable within one year is
reflected as a current liability in the accompanying consolidated balance
sheets.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value. Estimated net realizable values are based upon management's expectation
of future advertising revenues net of sales commissions to be generated by the
program material. Amortization of program contract costs is generally computed
under either a four year accelerated method or based on usage, whichever yields
the greater amortization for each program. Program contract costs, estimated by
management to be amortized in the succeeding year, are classified as current
assets. Payments of program contract liabilities are typically paid on a
scheduled basis and are not affected by adjustments for amortization or
estimated net realizable value.
On August 21, 1996, the Company entered into an agreement (the "Fox Agreement")
with Fox Broadcasting Company, Inc. ("Fox") which, among other things, provides
that affiliation agreements between Fox would be amended to have new five-year
terms commencing on the date of the Fox Agreement.
F-8
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Fox Agreement also provides that the Company will have the right to
purchase, for fair market value, any station Fox acquires in a market currently
served by a Company owned Fox affiliate if Fox determines to terminate the
affiliation agreement with the Company's station in that market and operate the
station acquired by Fox as a Fox affiliate.
In October 1996, WTTO did not renew its Fox affiliation and is now operated as a
WB affiliate. In addition, the Company has been notified by Fox of Fox's
intention to terminate WLFL's affiliation with Fox in the Raleigh-Durham market
and WTVZ's affiliation with Fox in the Norfolk market, effective August 31,
1998.
BARTER ARRANGEMENTS
Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming is excluded from these calculations.
The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used, consumed or
received. Deferred barter revenues are recognized as the related advertising is
aired.
OTHER ASSETS
Other assets as of December 31, 1995 and 1996 consist of the following (in
thousands):
1995 1996
--------- ---------
Unamortized debt acquisition costs. $ 9,049 $26,453
Investments in limited
partnerships..................... 2,435 3,039
Notes receivable................... 4,775 10,773
Purchase options................... 10,000 22,902
Offering costs..................... -- 434
Other.............................. 1,096 634
--------- ---------
$27,355 $64,235
========= =========
NON-COMPETE AND CONSULTING AGREEMENTS
The Company has entered into non-compete and consulting agreements with various
parties. These agreements range from two to three years. Amounts paid under
these agreements are amortized over the life of the agreement.
ACQUIRED INTANGIBLE BROADCASTING ASSETS
Acquired intangible broadcasting assets are being amortized over periods of 1 to
40 years. These amounts result from the acquisition of certain television and
radio station license and non-license assets (see Note 12). The Company monitors
the individual financial performance of each of the stations and continually
evaluates the realizability of intangible and tangible assets and the existence
of any impairment to its recoverability based on the projected undiscounted cash
flows of the respective stations.
F-9
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible assets, at cost, as of December 31, 1995 and 1996, consist of the
following (in thousands):
AMORTIZATION
PERIOD 1995 1996
--------------- ---------- ------------
Goodwill...................... 40 years $109,772 $ 676,219
Intangibles related to LMAs .. 15 years 103,437 120,787
Decaying advertiser base ..... 1 -- 15 years 38,424 93,896
FCC licenses.................. 25 years 44,564 370,533
Network affiliations.......... 1 -- 25 years 17,482 55,966
Other......................... 1 -- 40 years 4,856 24,057
---------- ------------
318,535 1,341,458
Less- Accumulated
amortization................ (49,746) (85,155)
---------- ------------
$268,789 $1,256,303
========== ============
ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31, 1995 and 1996
(in thousands):
1995 1996
--------- ---------
Compensation ................. $ 4,847 $10,850
Interest...................... 11,104 11,915
Other......................... 4,769 12,265
--------- ---------
$20,720 $35,030
========= =========
NON-CASH TRANSACTIONS
During 1994, 1995 and 1996 the Company entered into the following non-cash
transactions (in thousands):
1994 1995 1996
--------- --------- ---------
Purchase accounting adjustments related
to deferred taxes (Note 9).................. $ -- $ 3,400 $17,615
========= ========= =========
Program contract costs acquired............... $20,750 $26,918 $51,296
========= ========= =========
Distribution prior to KCI merger (Note 12).... $ -- $ 1,461 $ --
========= ========= =========
LOCAL MARKETING AGREEMENTS
The Company generally enters into LMAs, JSAs and similar arrangements with
stations located in markets in which the Company already owns and operates a
station, and in connection with acquisitions, pending regulatory approval of
transfer of License Assets. Under the terms of these agreements, the Company
makes specified periodic payments to the owner-operator in exchange for the
grant to the Company of the right to program and sell advertising on a specified
portion of the station's inventory of broadcast time. Nevertheless, as the
holder of the FCC license, the owner-operator retains full control and
responsibility for the operation of the station, including control over all
programming broadcast on the station.
Included in the accompanying consolidated statements of operations for the years
ended December 31, 1994, 1995 and 1996, are net revenues of $25.0 million, $49.5
million and $153.0 million (including $103.3 million relating to River City),
respectively, that relate to LMAs, JSAs and time brokerage agreements ("TBAs").
F-10
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the River City Acquisition, the Company entered into an LMA
in the form of TBAs with River City and the owner of KRRT with respect to each
of the nine television and 21 radio stations with respect to which the Company
acquired Non-License Assets. The TBAs are for a ten-year term, which corresponds
with the term of the option the Company holds to acquire the related River City
License Assets. The Company has filed applications with respect to the transfer
of the License Assets of seven of the nine television stations and the 21 radio
stations for which the Company acquired Non-License Assets in the River City
Acquisition. Such applications have been granted and the transfer of the License
Assets has been consummated with respect to 19 of the 21 radio stations. The
approval of the transfer of the two remaining radio licenses is subject to
waiver of FCC cross-ownership rules. Upon grant of FCC approval of the transfer
of License Assets with respect to these stations, the Company intends to acquire
the License Assets, and thereafter the LMAs will terminate and the Company will
own and operate the stations. With respect to the remaining two television
stations, Glencairn has applied for transfer of the License Assets of these
stations, and the Company intends to enter into LMAs with Glencairn Ltd.
("Glencairn", see Note 8) with respect to these stations upon FCC approval of
the transfer of the License Assets to Glencairn. Petitions to deny or informal
objections have been filed against certain of these applications by third
parties. Management believes the Company will ultimately prevail on these
petitions.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the following
estimated useful lives:
Buildings and improvements.............................. 10 -- 35 years
Station equipment....................................... 5 -- 10 years
Office furniture and equipment.......................... 5 -- 10 years
Leasehold improvements.................................. 10 -- 31 years
Automotive equipment.................................... 3 -- 5 years
Property and equipment and autos under capital leases .. Shorter of 10 years
or the lease term
Property and equipment consisted of the following as of December 31, 1995 and
1996 (in thousands):
1995 1996
---------- ----------
Land and improvements.......................... $ 1,768 $ 9,795
Buildings and improvements..................... 17,515 39,008
Station equipment.............................. 36,949 112,994
Office furniture and equipment................. 3,451 10,140
Leasehold improvements......................... 2,564 3,377
Automotive equipment........................... 677 3,280
Construction in progress....................... -- 6,923
---------- ----------
62,924 185,517
Less- Accumulated depreciation and
amortization.................................. (20,127) (31,184)
---------- ----------
$ 42,797 $154,333
========== ==========
F-11
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INTEREST RATE DERIVATIVE AGREEMENTS:
The Company entered into interest rate derivative agreements to reduce the
impact of changing interest rates on its floating rate debt, primarily relating
to the Bank Credit Agreement. In May 1996, the Company amended its Bank Credit
Agreement. The agreement requires the Company to enter into Interest Rate
Protection Agreements at rates not to exceed 9.5% per annum as to a notional
principal amount at least equal to 66 2/3 % of the Tranche A term loans
scheduled to be outstanding from time to time and 9.75% per annum as to a
notional principal amount of 66 2/3 % of the aggregate amount of Tranche B term
loans scheduled to be outstanding from time to time.
At December 31, 1996, the Company had several interest rate swap agreements
relating to the Bank Credit Agreement which expire from March 31, 1997 to June
30, 2000. The swap agreements set rates in the range of 5.84% to 7.00%. The
notional amounts related to these agreements were $955.0 million at December 31,
1996, and decrease to $50.0 million through the expiration dates. The Company
has no intentions of terminating these instruments prior to their expiration
dates unless it were to prepay a portion of its bank debt.
The floating interest rates are based upon the three month London Interbank
Offered Rate (LIBOR) rate, and the measurement and settlement is performed
quarterly. Settlements of these agreements are recorded as adjustments to
interest expense in the relevant periods. Premiums paid under these agreements
were approximately $1.1 million in 1994 and $851,000 in 1996 and are amortized
over the life of the agreements. The counterparties to these agreements are
major national financial institutions. The Company estimates the aggregate cost
to retire these instruments at December 31, 1996 to be $2.3 million.
4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
BANK CREDIT AGREEMENT
In connection with the 1994 Acquisitions (see Note 12), the Company entered into
a Bank Credit Agreement. The Bank Credit Agreement consisted of three classes:
Facility A Revolving Credit and Term Loan, Facility B Credit Loan and Facility C
Term Loan. In August 1995, the Company utilized the net proceeds from the Public
Debt Offering mentioned below to repay amounts outstanding under the Bank Credit
Agreement.
The weighted average interest rates during 1994 and as of December 31, 1994 were
7.48% and 8.56%, respectively, and during 1995 while amounts were outstanding
and as of August 28, 1995, when outstanding indebtedness relating to Bank Credit
Agreement were repaid, were 8.44% and 7.63%, respectively. Interest expense
relating to the Bank Credit Agreement was $9.4 million, $15.6 million and $-0-
for the years ended December 31, 1994, 1995 and 1996, respectively.
Simultaneously with the acquisition of the non-license assets of River City, the
aforementioned Bank Credit Agreement was amended and replaced with new terms as
outlined below.
BANK CREDIT AGREEMENT AS AMENDED
In order to finance the acquisition of the non-license assets of River City and
potential future acquisitions, the Company amended its Bank Credit Agreement on
May 31, 1996. The Bank Credit Agreement consists of three classes: Tranche A
Term Loan, Tranche B Term Loan and a Revolving Credit Commitment.
The Tranche A Term Loan is a term loan in a principal amount not to exceed $550
million and is scheduled to be paid in quarterly installments beginning December
31, 1996 through December 31, 2002. The Tranche B Term Loan is a term loan in a
principal amount not to exceed $200 million and is scheduled to be paid in
quarterly installments beginning December 31, 1996 through November 2003. The
Revolving Credit Commitment is a revolving credit facility in a principal amount
not to exceed $250 million and is scheduled to have reduced availability
quarterly beginning March 31, 1999 through
F-12
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
November 30, 2003. As of December 31, 1996, outstanding indebtedness under the
Tranche A Term Loan, Tranche B Term Loan and the Revolving Credit Commitment
were $520 million, $198.5 million and $155 million, respectively. The Company
incurred debt acquisition costs of approximately $20 million associated with
this indebtedness which are being amortized over the life of the debt.
The applicable interest rate for the Tranche A Term Loan and the Revolving
Credit Tranche is either LIBOR plus 1.25% to 2.5% or the base rate plus zero to
1.25%. The applicable interest rate for the Tranche A Term Loan and the
Revolving Credit Tranche is adjusted based on the ratio of total debt to four
quarters trailing earnings before interest, taxes, depreciation and
amortization. The applicable interest rate for Tranche B is either LIBOR plus
2.75% or the base rate plus 1.75%. The weighted average interest rates for
outstanding indebtedness relating to the current Bank Credit Agreement during
1996 and as of December 31, 1996, were 8.08% and 8.12%, respectively. Interest
expense relating to the Bank Credit Agreement was $40.4 million for the year
ended December 31, 1996.
The fair value of the Company's outstanding indebtedness under the Bank Credit
Agreement approximated its carrying value at December 31, 1996.
The Company is required to maintain certain debt covenants in connection with
the Bank Credit Agreement. As of December 31, 1996, the Company is in compliance
with all debt covenants.
PUBLIC DEBT OFFERING
In August 1995, the Company consummated the sale of $300.0 million of 10% Senior
Subordinated Notes (the Notes), due 2005, generating net proceeds to the Company
of $293.2 million. The net proceeds of this offering were utilized to repay
outstanding indebtedness under the then existing Bank Credit Agreement of $201.8
million with the remainder being retained and eventually utilized to make
payments related to certain acquisitions consummated during 1996. In conjunction
with the repayment of outstanding indebtedness under the Bank Credit Agreement,
the Company recorded an extraordinary loss of $4.9 million, net of a tax benefit
of $3.4 million.
Interest on the Notes is payable semiannually on March 30 and September 30 of
each year, commencing March 30, 1996. Interest expense for the year ended
December 31, 1995 and 1996, was $10.4 million and $30.0 million, respectively.
The notes are issued under an indenture among SBG, its subsidiaries (the
guarantors) and the trustee. Costs associated with the offering totaled $6.8
million, including an underwriting discount of $6.0 million and are being
amortized over the life of the debt.
The Company has the option to redeem the notes at any time on or after September
30, 2000. Redemption prices are as follows:
REDEMPTION PRICE
REDEMPTION DATE (AS A % OF PRINCIPAL AMOUNT)
------------------------------ --------------------------
On or after September 30, 2000... 105%
2001... 103%
2002... 102%
Furthermore, at any time on or prior to September 30, 1998, the Company may
redeem up to 25% of the original principal amount of the Notes with the net
proceeds of a public equity offering at 110% of the principal amount. The Notes
also may be redeemed by the holder at 101% of the principal amount upon
occurrence of a change of control, as defined in the Indenture.
Based upon the quoted market price, the fair value of the Notes as of December
31, 1996 is $306 million.
F-13
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the terms of the Indenture, the Notes are guaranteed by the Company and
substantially all of its subsidiaries (the guarantors). The guarantors are
wholly-owned, any non-guarantors are inconsequential to the consolidated
financial statements and the guarantees are full, unconditional, and joint and
several.
The Indenture contains covenants limiting indebtedness, transactions with
affiliates, liens, sales of assets, issuances of guarantees of, and pledges for,
indebtedness, transfer of assets, dividends, mergers and consolidations.
SENIOR SUBORDINATED NOTES
In December 1993, the Company raised $200.0 million through the issuance of 10%
senior subordinated notes (the 1993 Notes), due 2003. Subsequently, the Company
determined that a redemption of $100.0 million was required. This redemption and
a refund of $1.0 million of fees from the underwriters took place in the first
quarter of 1994. The remaining portion of the proceeds of the 1993 Notes was
used to repay a secured debt facility and for general corporate purposes.
Interest on the 1993 Notes is payable semiannually on June 15 and December 15 of
each year. Interest expense for the years ended December 31, 1994, 1995 and
1996, was $12.6 million, $10.0 million and $10.0 million, respectively. The 1993
Notes are issued under an Indenture among SBG, its subsidiaries (the guarantors)
and the trustee. Costs associated with the offering totaled $5.1 million,
including an underwriting discount of $4.0 million. These costs, less the $1.0
million refund related to the redemption, were capitalized and are being
amortized over the life of the debt.
The 1993 Notes may be redeemed by the holder at 101% of the principal amount
upon occurrence of a change of control, as defined in the Indenture. The Company
has the option to redeem the 1993 Notes any time after December 15, 1998.
Redemption prices are as follows:
REDEMPTION PRICE
REDEMPTION DATE (AS A % OF PRINCIPAL AMOUNT)
----------------------------- -----------------------------
On or after December 15, 1998......... 105%
1999......... 104%
2000......... 103%
2001......... 100%
Based upon the quoted market price, the fair value of the 1993 Notes as of
December 31, 1996, is $102 million.
Under the terms of the Indenture, the 1993 Notes are guaranteed by the Company
and substantially each of its subsidiaries (the guarantors). The guarantors are
wholly-owned, any non-guarantors are inconsequential to the consolidated
financial statements and the guarantees are full, unconditional, and joint and
several.
The Indenture contains covenants limiting indebtedness, transactions with
affiliates, liens, sales of assets, issuances of guarantees of, and pledges for,
indebtedness, transfer of assets, dividends, mergers and consolidations.
F-14
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY
Notes payable and commercial bank financing consisted of the following as of
December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
---------- ------------
<S> <C> <C>
Bank Credit Agreement, Tranche A Term Loan............................ $ -- $ 520,000
Bank Credit Agreement, Tranche B Term Loan............................ -- 198,500
Bank Credit Agreement, Revolving Credit Commitment.................... -- 155,000
Senior subordinated notes due 2003, interest at 10%................... 100,000 100,000
Senior subordinated notes due 2005, interest at 10%................... 300,000 300,000
Unsecured installment notes to former minority stockholders of CRI
and WBFF, interest at 18%............................................ 1,777 644
---------- ------------
401,777 1,274,144
Less: Current portion................................................. (1,133) (62,144)
---------- ------------
$400,644 $1,212,000
========== ============
</TABLE>
The Revolving Credit Commitment is a revolving credit facility in a principal
amount not to exceed $250 million and is scheduled to have reduced availability
quarterly beginning March 31, 1999 through November 30, 2003. Indebtedness under
Tranche A and Tranche B of the Bank Credit Agreement and notes payable as of
December 31, 1996, mature as follows (in thousands):
1997........................ $ 62,144
1998........................ 71,500
1999........................ 91,500
2000........................ 101,500
2001........................ 101,500
2002 and thereafter......... 691,000
------------
$ 1,119,144
============
Substantially all of the Company's assets have been pledged as security for
notes payable and commercial bank financing. In addition, the Class B
stockholders have pledged their stock in SBG to the commercial bank and have
delivered mortgages and security agreements as additional collateral. Further,
Cunningham Communications, Inc. (Cunningham), Keyser Investment Group, Inc.
(KIG) and Gerstell Development Limited Partnership (Gerstell), all businesses
that are owned and controlled by these Class B stockholders, were required to
guarantee obligations to the commercial bank.
In January 1997, the Company made the final payment of $644,000 repaying the
remaining indebtedness to the former minority stockholders.
F-15
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. NOTES AND CAPITAL LEASES PAYABLE TO AFFILIATES:
Notes and capital leases payable to affiliates consisted of the following as of
December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Subordinated installment notes payable to former majority owners, interest
at 8.75%, principal payments in varying amounts due annually beginning
October 1991, with a balloon payment due at maturity in May 2005 ............ $11,442 $10,448
Capital lease for building, interest at 17.5%................................ 1,500 1,372
Capital leases for broadcasting tower facilities, interest rates averaging
10%.......................................................................... 632 249
Capital leases for building and tower, interest at 8.25%..................... 2,252 1,890
--------- ---------
15,826 13,959
Less: Current portion........................................................ (1,867) (1,774)
--------- ---------
$13,959 $12,185
========= =========
</TABLE>
Notes and capital leases payable to affiliates, as of December 31, 1996, mature
as follows (in thousands):
1997.................................................... $ 2,856
1998.................................................... 2,654
1999.................................................... 2,666
2000.................................................... 2,540
2001.................................................... 1,920
2002 and thereafter..................................... 7,872
---------
Total minimum payments due.............................. 20,508
Less: Amount representing interest...................... (6,549)
---------
Present value of future notes and capital lease
payments................................................ $13,959
=========
6. PROGRAM CONTRACTS PAYABLE:
Future payments required under program contracts payable as of December 31,
1996, are as follows (in thousands):
1997....................................... $ 58,461
1998....................................... 33,216
1999....................................... 18,331
2000....................................... 3,665
2001....................................... 430
2002 and thereafter........................ 552
----------
114,655
Less: Current portion...................... (58,461)
----------
Long-term portion of program contracts
payable.................................... $ 56,194
==========
F-16
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Included in the current portion amounts are payments due in arrears of $10.9
million. In addition, the Companies have entered into noncancelable commitments
for future program rights aggregating $60.5 million as of December 31, 1996.
The Company has estimated the fair value of its program contract payables and
noncancelable commitments at approximately $51.3 million and $29.0 million,
respectively, as of December 31, 1995, and $102.7 million and $43.1 million,
respectively, at December 31, 1996, based on future cash flows discounted at the
Company's current borrowing rate.
7. PREPAYMENT OF SYNDICATED PROGRAM CONTRACT LIABILITIES:
In connection with the 1996 Acquisitions (see Note 12), the Company assumed
certain syndicated program contracts payable for which the underlying value of
the associated syndicated program assets was determined, by management, to be of
little or no value. The Company negotiated the prepayment of syndicated program
contracts payable for certain of the 1996 Acquisitions, as well as certain other
of the Company's subsidiaries. The Company made cash payments totaling $15.1
million relating to these syndicated program contracts payable. For subsidiaries
owned prior to 1996, the Company recognized related amortization of excess
syndicated programming of $3.0 million.
8. RELATED PARTY TRANSACTIONS:
During 1990, WBFF sold certain station equipment to an affiliate for $512,000.
The sale is accounted for on an installment basis since the affiliate is in the
start-up phase. The note is to be paid over five years and earns annual interest
at 11%. In connection with the start-up of this affiliate, certain SBG Class B
Stockholders issued a note allowing them to borrow up to $3.0 million from the
Company. This note was amended and restated June 1, 1994, to a term loan bearing
interest of 6.88% with quarterly principal payments beginning March 31, 1996
through December 31, 1999. As of December 31, 1995 and 1996, the balance
outstanding was approximately $2.0 and $1.8 million, respectively.
During 1990, SBG lent $1.5 million to certain Class B Stockholders pursuant to a
note. The note bears interest at 6.88% per annum and is payable in monthly
principal and interest payments through September 2000 with a balloon payment in
September 2000. As of December 31, 1995 and 1996, the balance outstanding was
approximately $1.1 million and $1.0 million respectively.
During the year ended December 31, 1993, the Company loaned Gerstell Development
Limited Partnership (a partnership owned by Class B Stockholders) $2.1 million.
The note bears interest at 6.18%, with principal payments beginning on November
1, 1994, and a final maturity date of October 1, 2013. As of December 31, 1995
and 1996, the balance outstanding was approximately $2.0 million. In addition,
Gerstell has arranged for a $2.0 million loan from a commercial bank, which is
guaranteed by the Company.
During 1993, SBG lent $6.6 million to a former majority owner pursuant to a
note. The note bears interest at 7.21% per annum and requires payments of
interest only through September 2001. Monthly principal and interest payments
with respect to this note commence in November 2001 and end in September 2006.
During 1994, the Company assigned its options to purchase the license assets of
WNUV and WVTV to Glencairn for $4.2 million which was paid in 1995, and sold the
license assets of WRDC to Glencairn for $2.0 million. Subsequently, Glencairn
exercised its options to purchase the licenses of WNUV and WVTV. Glencairn is a
corporation of which a former shareholder of SBG, who is also the holder of the
$6.6 million note described above, and trusts established by this shareholder
hold the majority of the equity interests in Glencairn. The Company has entered
into five-year LMA agreements (with five-year renewal options) with Glencairn
for the right to program and sell advertising. During 1995 and 1996, the Company
made payments of $5.6 million and $5.4 million, respectively, to Glencairn under
these LMA agreements.
F-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concurrently with the initial public offering (see Note 13), the Company
acquired options from certain stockholders of Glencairn that will grant the
Company the right to acquire, subject to applicable FCC rules and regulations,
up to 97% of the capital stock of Glencairn. The Glencairn options were
purchased by the Company for nominal consideration and will be exercisable only
upon payment of an aggregate price equal to Glencairn's cost for the underlying
stations, plus a 10% annual return.
During 1995 and 1996, the Company from time to time entered into charter
arrangements to lease airplanes owned by certain Class B Stockholders. During
1995 and 1996, the Company incurred expenses of approximately $489,000 and
$336,000 related to these arrangements, respectively.
In May 1996, the Company acquired certain assets from River City, obtained
options to acquire other assets from River City and entered into an LMA to
provide programming services to certain television and radio stations, of which
River City is the owner of the License Assets. Certain individuals who have
direct or indirect beneficial owners of equity interests in River City are
affiliates of the Company. During 1996, the Company made LMA payments of $1.4
million to River City.
In September 1996, the Company entered into a five-year agreement with River
City pursuant to which River City will provide to the Company certain production
services. Pursuant to this agreement, River City will provide certain services
to the Company in return for an annual fee of $416,000, subject to certain
adjustments on each anniversary date.
An individual who is an affiliate of the Company is the owner of 100% of the
common stock of Keymarket of South Carolina, Inc. ("KSC"), and the Company has
an option to acquire either (i) all of the assets of KSC for forgiveness of debt
in an aggregate principal amount of approximately $7.4 million, plus payment of
approximately $1.0 million, less certain adjustments or (ii) all of the stock of
KSC for $1.0 million, less certain adjustments. The Company is required to
purchase each of the properties during the term of the applicable lease for an
aggregate purchase price of approximately $1.75 million.
In May 1996, the Company, along with the Class B Stockholders, formed Beaver Dam
Limited Liability Company (BDLLC), of which the Company owns a 45% interest.
BDLLC was formed for the purpose of constructing and owning a building which may
be the site for the Company's corporate headquarters. The Company made capital
contributions of approximately $380,000.
Certain assets used by the Company's operating subsidiaries are leased from
Cunningham, KIG and Gerstell (entities owned by the Class B Stockholders). Lease
payments made to these entities were $1.2 million, $1.3 million, and $1.3
million for the years ended December 31, 1994, 1995 and 1996, respectively.
9. INCOME TAXES:
The Company files a consolidated federal income tax return and separate company
state tax returns. The provision (benefit) for income taxes consists of the
following as of December 31, 1994, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Provision (benefit) for income taxes before extraordinary
item........................................................ $ (647) $ 5,200 $6,936
Income tax effect of extraordinary item...................... -- (3,357) --
--------- --------- --------
$ (647) $ 1,843 $6,936
========= ========= ========
Current:
Federal..................................................... $ 7,090 $ 5,374 $ 127
State....................................................... 1,440 1,558 4,479
--------- --------- --------
8,530 6,932 4,606
--------- --------- --------
Deferred:
Federal .................................................... (7,650) (4,119) 2,065
State....................................................... (1,527) (970) 265
--------- --------- --------
(9,177) (5,089) 2,330
--------- --------- --------
$ (647) $ 1,843 $6,936
========= ========= ========
</TABLE>
F-18
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a reconciliation of federal income taxes at the applicable
statutory rate to the recorded provision (benefit):
<TABLE>
<CAPTION>
1994 1995 1996
--------- ------- -------
<S> <C> <C> <C>
Statutory federal income taxes.............. (34.0)% 34.0% 34.0%
Adjustments-
State income taxes, net of federal effect.. 1.8 1.7 8.1
State franchise taxes, net of federal
effect.................................... 0.8 1.1 10.8
Non-deductible goodwill amortization....... 14.1 11.9 25.2
Non-deductible expense items .............. 6.3 3.0 6.4
Income of pooled S corporation (Note 12) .. (7.6) -- --
Other...................................... (0.5) (0.7) 1.5
--------- ------- -------
Provision (benefit) for income taxes....... (19.1)% 51.0% 86.0%
========= ======= =======
</TABLE>
Temporary differences between the financial reporting carrying amounts and the
tax basis of assets and liabilities give rise to deferred taxes. The Company had
a net deferred tax asset of $21.0 million and $782,000 as of December 31, 1995
and 1996, respectively. The realization of deferred tax assets is contingent
upon the Company's ability to generate sufficient future taxable income to
realize the future tax benefits associated with the net deferred tax asset.
Management believes that deferred assets will be realized through future
operating results. This belief is based on taxable income for the year ended
December 31, 1996 and its projection of future years' results.
The Company has total available federal NOL's of approximately $15.0 million as
of December 31, 1996, which expire during various years from 2004 to 2011.
Certain NOL's are limited to use within a specific entity, and certain NOL's are
subject to annual limitations under Internal Revenue Code Section 382 and
similar state provisions.
Total deferred tax assets and deferred tax liabilities as of December 31, 1995
and 1996, including the effects of businesses acquired, 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 (in thousands):
1995 1996
--------- ---------
Deferred Tax Assets:
Accruals and reserves.......... $ 1,110 $ 2,195
Loss on disposal of fixed
assets........................ 619 --
Net operating losses........... 2,676 4,829
Program contracts.............. 4,575 2,734
Fixed assets and intangibles .. 14,500 --
Other.......................... 373 713
--------- ---------
$23,853 $10,471
========= =========
Deferred Tax Liabilities:
FCC license.................... $ 1,656 $ 2,613
Hedging instruments ........... -- 188
Fixed assets and intangibles... -- 4,430
Capital lease accounting....... 988 1,304
Affiliation agreement ......... -- 691
Investment in partnerships .... -- 209
Other.......................... 182 254
--------- ---------
$ 2,826 $ 9,689
========= =========
F-19
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1995, the Company made a $3.4 million deferred tax adjustment to decrease
its deferred tax asset and increase goodwill under the purchase accounting
guidelines of APB 16 and in accordance with SFAS 109 related to the opening
deferred tax asset balances of certain 1994 acquisitions. During 1996, the
Company made a $1.1 million deferred tax adjustment to decrease its deferred tax
asset and increase goodwill under the purchase accounting guidelines of APB 16
and in accordance with SFAS 109 related to the opening deferred tax asset
balances of certain 1995 acquisitions.
10. EMPLOYEE BENEFIT PLAN:
The Sinclair Broadcast Group, Inc. 401(k) profit sharing plan and trust (the SBG
Plan) covers eligible employees of the Company. Contributions made to the SBG
Plan include an employee elected salary reduction amount, company matching
contributions and a discretionary amount determined each year by the Board of
Directors. The Company's 401(k) expense for the years ended December 31, 1994,
1995 and 1996, was $274,000, $271,000 and $657,000, respectively. There were no
discretionary contributions during these periods.
11. CONTINGENCIES AND OTHER COMMITMENTS:
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 or results of operations.
OPERATING LEASES
The Company has entered into operating leases for certain property and equipment
under terms ranging from three to ten years. The rent expense under these
leases, as well as certain leases under month-to-month arrangements, for the
years ended December 31, 1994, 1995 and 1996, aggregated approximately $625,000,
$1.1 million and $3.1 million, respectively.
Future minimum payments under the leases are as follows (in thousands):
1997............... $ 3,672
1998............... 3,055
1999............... 2,244
2000............... 1,789
2001............... 1,206
2002 and
thereafter......... 5,430
---------
$17,396
=========
CERTAIN AFFILIATION AGREEMENTS
The Company generally operates its television stations under affiliation
agreements with Fox, ABC, UPN, WB and CBS. These agreements range in terms from
one to five years and in certain circumstances have renewable options. The
Company has the option to acquire the FCC licenses of certain stations being
operated as LMAs. The networks affiliated with these stations, other than Fox,
have the right to terminate the affiliations upon transfer of the license. In
addition, KDNL (St. Louis) is being operated as an ABC affiliate pursuant to
terms negotiated with ABC, but no affiliation agreement has been signed and ABC
is not paying affiliation fees, and WLOS (Asheville) is being operated pursuant
to
F-20
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
terms negotiated with ABC to replace an existing agreement, but the new
agreement has not been signed and ABC is paying the lower affiliation fees
called for under the old agreement. The Company has accrued ABC affiliation fees
for KDNL and WLOS based on the anticipated settlement.
12. ACQUISITIONS:
1994 ACQUISITIONS
In May 1994, the Company acquired WCGV and WTTO for an aggregate purchase price
of $60.0 million. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to the fair market value of
the assets purchased and the liabilities assumed. Based upon an independent
appraisal, $11.7 million was allocated to property and programming costs and
$29.9 million was allocated to acquired broadcasting assets. The excess of the
purchase price over the acquired assets of $18.4 million was allocated to other
intangible assets, and is being amortized over 40 years. The Company made an
additional investment of $56.0 million for covenants not-to-compete and
consulting agreements in these and the Company's current markets, which are
being amortized over the lives of the respective agreements.
Simultaneous with the acquisition of WCGV and WTTO, the Company acquired the
non-license assets of WNUV and WVTV for approximately $66.8 million and entered
into LMAs with the owner of the licenses of WNUV and WVTV. The acquisition was
accounted for under the purchase method of accounting whereby $14.8 million of
the purchase price was allocated to property and programming costs and $700,000
of the purchase price was allocated to deferred tax liabilities, with the
remainder being allocated to other intangible assets. The intangible assets are
being amortized over 15 years.
Simultaneous with the acquisitions of the non-license assets of WNUV and WVTV,
the Company acquired the options to purchase the license assets of these
stations for $8.0 million and intangible assets related to the LMAs for $9.5
million, for a total purchase price of $17.5 million. The Company subsequently
assigned the options to Glencairn for $4.2 million. The Company is amortizing
the difference between the total amount paid for the options by the Company and
the amount allocated to the value of the options over the estimated life of the
LMA, which is 15 years.
In August 1994, the Company acquired 100% of the non-voting stock representing a
98% ownership interest in F.S.F. Acquisition Corporation (FSFA), the corporate
parent of WRDC, for $34.0 million. The investment also includes a controlling
interest in a joint venture which owns the studio and office building and a
minority interest in a partnership that owns the TV broadcast tower. The joint
venture has been consolidated, with the other owners' share of equity shown as a
minority interest, while the partnership interest has been presented as an
investment and is included in other assets. The purchase was accounted for under
the purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $10.0 million, $7.0 million and $17.0 million,
respectively, based upon an independent appraisal. Intangible assets are being
amortized over periods of 10 to 15 years. Simultaneous with the purchase of the
nonvoting stock of FSFA, the Company acquired an option to acquire the voting
common stock of FSFA. Additionally, the Company entered into two year consulting
and non-compete agreements with the former owner of the voting common stock of
FSFA for $4.0 million.
1995 ACQUISITIONS AND DISPOSITIONS
In January and May 1995, the Company acquired the non-license and license
assets, respectively, of WTVZ in Norfolk, Virginia for a purchase price of $49.0
million. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and programming
assets, acquired intangible broadcasting assets and other intangible assets for
$1.4 million, $12.6 million and $35.0 million, respectively, based upon an
independent appraisal. Intangible assets are being amortized over 1 to 40 years.
F-21
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 1995, the Company acquired the license and non-license assets of the
Paramount Station Group of Raleigh/Durham, Inc. which owned and operated WLFL in
Raleigh-Durham, North Carolina for $55.5 million, plus the assumption of $3.7
million in liabilities. The acquisition was accounted for under the purchase
method of accounting whereby the purchase price was allocated to property and
programming assets, acquired intangible broadcasting assets and other intangible
assets for $8.6 million, $15.9 million and $34.7 million, respectively, based
upon an independent appraisal. Intangible assets are being amortized over
periods of 1 to 40 years.
On March 31, 1995, the Company exercised its option to acquire 100% of the
voting stock of FSFA for the exercise price of $100. FSFA was merged into WLFL,
Inc. and became a wholly-owned subsidiary of the Company. Simultaneously, the
Company sold the license assets of FSFA to Glencairn for $2.0 million, and
entered into a five-year LMA (with a five-year renewal option) with Glencairn
(see Note 8).
On May 5, 1995, Keyser Communications, Inc. (KCI), an affiliated entity
wholly-owned by the stockholders of the Company, was merged into the Company for
common stock. Certain assets and liabilities of KCI (other than programming
items, an LMA agreement and consulting agreements), were distributed to the KCI
shareholders immediately prior to the merger. The merger of KCI is being treated
as a reorganization and has been accounted for as a pooling of interests
transaction. Accordingly, the consolidated financial statements for all periods
presented have been restated to include the accounts of KCI.
Combined and separate results of the Company and KCI (through May 5, 1995,
merger date) during the period presented are as follows (in thousands):
<TABLE>
<CAPTION>
COMPANY KCI COMBINED
---------- --------- -----------
<S> <C> <C> <C>
Twelve months ended December 31, 1994:
Net broadcast revenues........................ $113,728 $4,883 $118,611
Income (loss) before provision for income
taxes........................................ (4,147) 760 (3,387)
Net income (loss)............................. (3,500) 760 (2,740)
Twelve months ended December 31, 1995:
Net broadcast revenues........................ $186,031 $1,903 $187,934
Income (loss) before provision for income
taxes........................................ 10,592 (404) 10,188
Net income (loss)............................. 480 (404) 76
</TABLE>
In July 1995, the Company acquired the non-license assets of WABM in Birmingham,
Alabama for a purchase price of $2.5 million. The acquisition was accounted for
under the purchase method of accounting whereby $1.1 million of the purchase
price was allocated to property and program assets, based upon an independent
appraisal. The excess of the purchase price over the acquired assets of
approximately $1.4 million was allocated to other intangible assets and is being
amortized over 15 years. Simultaneously with the purchase, the Company entered
into a five-year LMA agreement (with a five-year renewal option) with Glencairn.
In November 1995, the Company acquired the non-license assets of WDBB in
Tuscaloosa, Alabama for a purchase price of $400,000. In addition, the Company
made "Option Grant Payments" of $11.3 million to certain parties for options to
purchase the issued and outstanding stock of WDBB, Inc., which holds the license
assets of WDBB. The option agreement further provides for the payment of option
grant installments of $2.6 million over five years and a final option exercise
price of $100,000. The acquisition was accounted for under the purchase method
of accounting whereby $1.3 million was allocated to the property and program
assets based upon an independent appraisal. The total of Option Grant Payments
paid and grant installments accrued of $13.1 million was allocated to other
intangible assets and is being amortized over 15 years.
F-22
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1996 ACQUISITIONS
RIVER CITY ACQUISITION
In April 1996, the Company entered into an agreement to purchase certain
non-license assets of River City. In May 1996, the Company closed the
transaction for a purchase price of $967.1 million, providing as consideration
1,150,000 shares of Series A Convertible Preferred Stock with a fair market
value of $125.1 million, 1,382,435 stock options with a fair market value of
$23.9 million and cash payments totaling $818.1 million. The Company utilized
indebtedness under its Bank Credit Agreement to finance the transaction. The
acquisition was accounted for under the purchase method of accounting whereby
the purchase price was allocated to property and programming assets, acquired
intangible broadcasting assets and other intangible assets for $82.8 million,
$375.6 million and $508.7 million, respectively, based upon an independent
appraisal. Intangible assets are being amortized over 1 to 40 years.
Simultaneously, the Company entered into option agreements to purchase certain
license assets for an aggregate option exercise price of $20 million. In
September 1996, after receiving FCC approval for license transfer, the Company
made a cash payment of $6.9 million to acquire certain of the radio station FCC
licenses.
Also, simultaneously with the acquisition, the Company entered into an option
agreement to purchase the license and non-license assets of WSYX in Columbus,
Ohio, for the option purchase price of $130 million plus the amount of River
City indebtedness secured by the WSYX assets on the exercise date (not to exceed
the amount at the date of closing of $105 million). Pursuant to the WSYX option
agreement, the Company is required to make certain "Option Extension Fees", as
defined. These fees are required to begin quarterly beginning with December 31,
1996, through the earlier of the "Option Grant Date" or the expiration date of
June 30, 1999. The Option Extension Fees are calculated as 8% per annum of the
option purchase price through the first anniversary of the Option Grant Date,
15% per annum of the option purchase price through the second anniversary of the
Option Grant Date and 25% per annum of the option purchase price through the
expiration of the WSYX option agreement. On December 31, 1996, the Company made
an Option Extension Fee payment of $7.0 million which was recorded within Other
Assets in the accompanying balance sheets.
In conjunction with the River City acquisition, the Company entered into an
agreement to purchase the non-license assets of KRRT, Inc., a television station
in San Antonio, Texas, for a purchase price of $29.5 million. The acquisition
was accounted for under the purchase method of accounting whereby the purchase
price was allocated to property and programming assets, acquired intangible
broadcasting assets and other intangible assets for $3.8 million, $0.4 million
and $25.3 million, respectively, based upon an independent appraisal. Intangible
assets are being amortized over 1 to 15 years.
In connection with the River City acquisition, the Company consummated the
following transactions concurrent with or subsequent to the closing:
1.In June 1996, the Board of Directors of the Company adopted, upon
approval of the stockholders by proxy, an amendment to the Company's
amended and restated charter. This amendment increased the number of Class
A Common Stock shares authorized to be issued by the Company from
35,000,000 shares to 100,000,000 shares. The amendment also increased the
number of shares of preferred stock authorized from 5,000,000 shares to
10,000,000 shares.
2.Series A Preferred Stock -- As partial consideration for the acquisition
of the non-license assets of River City, the Company issued 1,150,000
shares of Series A Preferred Stock. In June 1996, the Board of Directors
of the Company adopted, upon approval of the stockholders by proxy, an
amendment to the Company's amended and restated charter at which time
Series A Preferred Stock was exchanged for and converted into Series B
Preferred Stock. The Company
F-23
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
recorded the issuance of Series A Preferred Stock based on the fair market
value at the date the River City acquisition was announced at the exchange
rate of 3.64 shares of Class A Common Stock for each share of Series A
Preferred Stock.
3.Series B Preferred Stock -- Shares of Series B Preferred Stock are
convertible at any time into shares of Class A Common Stock, with each
share of Series B Preferred Stock convertible into approximately 3.64
shares of Series A Common Stock. The Company may redeem shares of Series B
Preferred Stock only after the occurrence of certain events. If the
Company seeks to redeem shares of Series B Preferred Stock and the
stockholder elects to retain the shares, the shares will automatically be
converted into common stock on the proposed redemption date. All shares of
Series B Preferred stock remaining outstanding as of May 31, 2001, will
automatically convert into Class A Common Stock. Series B Preferred Stock
is entitled to 3.64 votes on all matters with respect to which Class A
Common Stock has a vote.
4. Stock Options and Awards:
Long-Term Incentive Plan-
In June 1996, the Board of Directors adopted, upon approval of the
stockholders by proxy, the 1996 Long-Term Incentive Plan of the Company
(the "LTIP"). The purpose of the LTIP is to reward key individuals for
making major contributions to the success of the Company and its
subsidiaries and to attract and retain the services of qualified and
capable employees. A total of 2,073,673 shares of Class A Common Stock is
reserved and available for awards under the plan. In connection with the
River City acquisition, 244,500 options were granted to certain employees
and 1,382,435 were granted to Barry Baker (see Executive Employment
Agreement below) under this plan with an exercise price of $30.11 per
share.
The Company recorded deferred compensation of $1.9 million as additional
paid-in capital at the stock option grant date. During the year ended
December 31, 1996, compensation expense of $739,000 was recorded relating
to the options issued under the LTIP. The remaining deferred compensation
of approximately $1.2 million will be recognized as expense on a
straight-line basis over the vesting period.
Incentive Stock Option Plan-
In June 1996, the Board of Directors adopted, upon approval of the
stockholders by proxy, certain amendments to the Company's Incentive Stock
Option Plan. The purpose of the amendments was (i) to increase the number
of shares of Class A Common Stock approved for issuance under the plan
from 400,000 to 500,000, (ii) to delegate to Barry Baker the authority to
grant certain options, (iii) to lengthen from two years to three the
period after date of grant before options become exercisable, (iv) and to
provide immediate termination and three-year ratable vesting of options in
certain circumstances. In connection with the River City acquisition, the
Company granted 287,000 options to key management employees at an exercise
price of $37.75, the fair market value at the date of grant.
5. Executive Employment Agreement
In connection with the acquisition of River City, the Company entered into
a five-year employment agreement (the "Baker Employment Agreement") with
Barry Baker, pursuant to which Mr. Baker will become President and Chief
Executive Officer of SCI and Executive Vice President of the Company, at
such time as Mr. Baker is able to hold those positions consistent with
applicable FCC regulations. Until such time as Mr. Baker is able to become
an officer of the Company, he serves as a consultant to the Company
pursuant to a consulting agreement and received compensation that he would
be entitled to as an officer under the Baker Employment Agreement. If the
Baker Employment Agreement is terminated by the Company other than for
F-24
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cause (as defined) or by Mr. Baker for good cause (constituting certain
occurrences specified in the agreement), Mr. Baker shall be entitled to
certain termination payments entitling him to his salary and bonuses which
would have been paid under the agreement, to purchase certain television
or radio assets acquired by the Company from River City at fair market
value, and all stock options held by Mr. Baker shall vest immediately.
OTHER ACQUISITIONS
In May 1995, the Company entered into option agreements to acquire all of the
license and non-license assets of WSMH-TV in Flint, Michigan (WSMH). In July
1995, the Company paid the $1.0 million option exercise price to exercise its
option and in February 1996, the Company consummated the acquisition for a
purchase price of $35.4 million. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $1.9 million, $6.0 million and $27.5 million,
respectively, based upon an independent appraisal. Intangible assets are being
amortized over 1 to 40 years.
In March 1996, the Company entered into an agreement to acquire the outstanding
stock of Superior Communications Group, Inc. (Superior) which owns the license
and non-license assets of television stations KOCB in Oklahoma City, Oklahoma
and WDKY in Lexington, Kentucky. In May 1996, the Company consummated the
acquisition for a purchase price of $63.5 million. The acquisition was accounted
for under the purchase method of accounting whereby the purchase price was
allocated to property and programming assets, acquired intangible broadcasting
assets and other intangible assets for $7.3 million, $20.4 million and $35.8
million, respectively, based upon an independent appraisal. Intangible assets
are being amortized over 1 to 40 years.
In January 1996, the Company entered into an agreement to acquire license and
non-license assets of television station WYZZ in Peoria, Illinois. In July 1996,
the Company consummated the acquisition for a purchase price of $21.1 million.
The acquisition was accounted for under the purchase method of accounting
whereby the purchase price was allocated to property and programming assets,
acquired intangible broadcasting assets and other intangible assets for $2.2
million, $4.3 million and $14.6 million, respectively, based upon an independent
appraisal. Intangible assets are being amortized over 1 to 40 years.
In July 1996, the Company entered into an agreement to acquire license and
non-license assets of television station KSMO in Kansas City, Missouri through
the exercise of its options described in Note 13 for a total purchase price of
$10.0 million. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and programming
assets and acquired intangible broadcasting assets for $4.6 million and $5.4
million, respectively, based upon an independent appraisal. Intangible assets
are being amortized over 1 to 25 years.
In August 1996, the Company acquired the license and non-license assets of
television station WSTR in Cincinnati, Ohio for a total purchase price of $8.7
million. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and programming
assets and acquired intangible broadcasting assets for $6.2 million and $2.5
million, respectively, based upon an independent appraisal. Intangible assets
are being amortized over 1 to 25 years.
F-25
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. INITIAL PUBLIC OFFERING:
In June 1995, the Company consummated an initial public offering of 5,750,000
shares of Class A Common Stock at an initial public offering price of $21.00 per
share realizing net proceeds of approximately $111.5 million. The net proceeds
to the Company from this offering were used to reduce long-term indebtedness.
The Company consummated the following transactions concurrent with or prior to
the offering:
1.The Company purchased the options to acquire the partnership interests of
KSMO in Kansas City, Missouri and WSTR in Cincinnati, Ohio ("Option
Stations") from the stockholders for an aggregate purchase price was $9.0
million. The stockholders also assigned to the Company their rights and
obligations under an option agreement among the stockholders and a
commercial bank which held secured debt of KSMO and WSTR.
2.The stockholders assigned the subordinated convertible debenture relating
to the sale of WPTT to the Company in exchange for $1.0 million, a portion
of which was used to retire the outstanding balance of a note due from the
controlling stockholders.
3.The Company acquired options from certain stockholders of Glencairn that
will grant the Company the right to acquire, subject to applicable FCC
rules and regulations, up to 97% of the capital stock of Glencairn.
4.The Board of Directors of the Company adopted Amended and Restated
Articles of Incorporation to authorize up to 35,000,000 shares of Class A
Common Stock, par value $.01 per share, 35,000,000 shares of Class B
Common Stock, par value $.01 per share and 5,000,000 shares of Preferred
Stock, par value $.01 per share; completed a reclassification and
conversion of its outstanding common stock into shares of Class B Common
Stock; and effected an approximately 49.1 for 1 stock split of the
Company's common stock (resulting in 29,000,000 shares of Class B Common
Stock outstanding). The reclassification, conversion and stock split have
been retroactively reflected in the accompanying consolidated balance
sheets and statements of stockholders' equity. In June 1996, the Company
amended its charter, increasing the number of shares of Class A Common
Stock authorized to be issued from 35,000,000 to 100,000,000 (see Note
12).
5.The Board of Directors of the Company adopted an Incentive Stock Option
Plan for Designated Participants (the Designated Participants Stock Option
Plan) pursuant to which options for shares of Class A Common Stock will be
granted to certain designated employees of the Company upon adoption.
6.On March 27, 1995, the Board of Directors of the Company adopted an
Incentive Stock Option Plan (the Stock Option Plan) pursuant to which
options for shares of Class A Common Stock may be granted to certain
designated classes of employees of the Company. The Stock Option Plan
provides that the maximum number of shares of Class A Common Stock
reserved for issuance under the Stock Option Plan is 500,000, as amended,
and that options to purchase Class A Common Stock may be granted under the
plan until the tenth anniversary of its adoption.
F-26
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Conti
nued)
14. STOCK-BASED COMPENSATION PLANS:
As permitted under SFAS 123, "Accounting for Stock-Based Compensation," the
Company measures compensation expense for its stock-based employee compensation
plans using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and provides pro
forma disclosures of net income and earnings per share as if the fair
value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense.
A summary of changes in outstanding stock options follows:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE EXERCISE
OPTIONS EXERCISE PRICE EXERCISABLE PRICE
----------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
Outstanding at end of
1994..................... -- $ -- -- $ --
1995 Activity:
Granted................. 68,000 21.00 -- $ --
----------- --------------- -------------- -----------
Outstanding at end of
1995..................... 68,000 21.00 -- --
1996 Activity:
Granted................. 1,904,785 31.50 736,218 --
Exercised............... -- -- -- --
Forfeited............... (3,750) 21.00 -- --
----------- --------------- -------------- -----------
Outstanding at end of
1996..................... 1,969,035 $31.16 736,218 $30.11
=========== =============== ============== ===========
</TABLE>
Additional information regarding stock options outstanding at December 31, 1996,
follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
REMAINING REMAINING WEIGHTED-
VESTING CONTRACTUAL AVERAGE
RANGE OF EXERCISE PERIOD LIFE EXERCISE
EXERCISE PRICES OUTSTANDING PRICE (IN YEARS) (IN YEARS) EXERCISABLE PRICE
- ---------------- -------------- ----------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$21.00.......... 64,250 $21.00 0.71 8.43 -- $ --
30.11.......... 1,562,435 30.11 1.53 9.41 736,218 30.11
37.75.......... 342,350 37.85 2.41 9.41 -- --
-------------- ----------- ------------ -------------- -------------- ------------
$21.00 to 37.75.... 1,969,035 $31.16 1.66 9.38 736,218 $ 30.11
============== =========== ============ ============== ============== ============
</TABLE>
Had compensation cost for the Company's 1995 and 1996 grants for stock-based
compensation plans been determined consistent with SFAS 123, the Company's net
income, net income applicable to common share before extraordinary items, and
net income per common share for 1995 and 1996 would approximate the pro forma
amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1995 1996
------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item ......... $4,988 $4,799 $1,131 $(1,639)
============= =========== ============= ============
Net income (loss) available to common shareholders .. $ 76 $ (113) $1,131 $(1,639)
============= =========== ============= ============
Net income (loss) per share before extraordinary
item............................................... $ .15 $ .15 $ .03 $ (.04)
============= =========== ============= ============
Net income (loss) per share.......................... $ -- $ -- $ .03 $ (.04)
============= =========== ============= ============
</TABLE>
F-27
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. EQUITY PUT AND CALL OPTIONS:
During December 1996, the Company entered into physically settled Put and Call
Options related to the Company's common stock. These option arrangements were
entered into for the purpose of hedging the dilution of the Company's common
stock upon the exercise of stock options granted. The Company entered into
250,000 call options for common stock and 320,600 put options for common stock,
with a strike price of $37.75 and $27.61 per common share, respectively. Upon
the exercise of Put and Call Options, sales and purchases will be recorded as a
component of stockholders' equity. Subsequent changes in the fair value of the
option contracts are not recognized. To the extent that the Company entered into
Put Options, the additional paid-in capital amounts have been adjusted
accordingly and amounts are reflected as Equity Put Options in the accompanying
balance sheets. All Equity Put and Call Options expire May 31, 1999.
16. REGISTRATION STATEMENTS:
In September 1996, the Company filed and in November 1996 obtained effectiveness
of a registration statement on Form S-3 with the Securities and Exchange
Commission with respect to the sale by certain selling stockholders of 5,564,253
shares of Class A Common Stock. These shares represent 4,181,818 shares of Class
A Common Stock issuable upon conversion of Series B Preferred Stock and
1,382,435 shares of Class A Common Stock issuable upon exercise of options held
by Barry Baker.
In September 1996, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission with respect to the sale of up to
5,750,000 shares of Class A Common Stock by the Company, and subsequently
amended the registration statement to increase the number of shares that may be
sold by the Company to 5,937,500 shares and to cover the sale of 1,250,000
shares by certain selling stockholders. On November 1, 1996, the Company
announced that it was withdrawing the offering and that it intended to
reconsider an offering in the future when market conditions are more favorable.
The Company also announced that it was considering purchasing outstanding shares
of its Class A Common Stock pursuant to previous authorization by the Board of
Directors.
17. FINANCIAL INFORMATION BY SEGMENT:
Prior to the River City Acquisition in May 1996, the Company did not own or
operate radio stations. As of December 31, 1996 the Company consisted of two
principal business segments -- television broadcasting and radio broadcasting.
The television segment included 13 television stations for which the Company is
the licensee and 15 stations which are operated under local marketing
agreements. These 28 stations operate in 20 different markets in the continental
United States.
The radio segment included 19 stations for which the Company is the licensee and
two stations operated under local marketing agreements. These 21 stations
operate in seven different markets. Substantially all revenues represent income
from unaffiliated companies.
<TABLE>
<CAPTION>
1996
(IN THOUSANDS)
TELEVISION RADIO CONSOLIDATED
------------ ---------- ---------------
<S> <C> <C> <C>
Total revenues......................................... $ 338,467 $ 40,021 $ 378,488
Station operating expenses............................. 142,231 25,534 167,765
Depreciation, program amortization and deferred
compensation.......................................... 56,420 3,827 60,247
Amortization of intangibles and other assets .......... 55,063 3,467 58,530
Amortization of excess syndicated programming ......... 3,043 -- 3,043
------------ ---------- ---------------
Station broadcast operating income..................... $ 81,710 $ 7,193 $ 88,903
============ ========== ===============
Total assets........................................... $1,400,521 $306,776 $1,707,297
============ ========== ===============
Capital expenditures................................... $ 12,335 $ 274 $ 12,609
============ ========== ===============
</TABLE>
F-28
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS:
The unaudited pro forma summary consolidated results of operations for the years
ended December 31, 1995 and 1996, assuming the 1995 and 1996 acquisitions had
been consummated on January 1, 1995, are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
1995 1996
------------ ------------
<S> <C> <C>
Revenues, net............................... $430,762 $481,073
============ ============
Net loss before extraordinary item.......... $(34,345) $(10,719)
============ ============
Net loss available to common shareholders .. $(39,257) $(10,719)
============ ============
Net loss per share before extraordinary
item....................................... $ (0.94) $ (0.27)
============ ============
Net loss per share.......................... $ (1.08) $ (0.27)
============ ============
</TABLE>
19. SUBSEQUENT EVENT:
In January 1997, the Company entered into a purchase agreement to acquire the
license and non-license assets of KUPN-TV, the UPN affiliate in Las Vegas,
Nevada, for a purchase price of $87 million. Upon entering into this agreement,
the Company made a cash deposit payment of $5 million. The Company plans to
consummate the transaction following FCC approval.
F-29
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
Schedule II -- Valuation and Qualifying Accounts ... S-3
All schedules except those listed above are omitted as not applicable or not
required or the required information is included in the consolidated financial
statements or in the notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets, statements of operations, changes in stockholders'
equity and cash flows of Sinclair Broadcast Group, Inc. and Subsidiaries
included in this Form 10K and have issued our report thereon dated February 7,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commissions rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 7, 1997
S-2
<PAGE>
SCHEDULE II
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------- ------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1994
Allowance for doubtful
accounts..................... $ 505 $ 445 $ -- $ 95 $ 855
1995
Allowance for doubtful
accounts..................... 855 978 -- 767 1,066
1996
Allowance for doubtful
accounts..................... 1,066 1,563 575((1)) 732 2,472
</TABLE>
- ----------
(1) Amount represents allowance for doubtful account balances purchased in
connection with the acquisition of certain television stations during 1996.
S-3
TABLE OF CONTENTS
-----------------------
PAGE
----
SECTION 1. CERTAIN DEFINITIONS...........................................1
1.1 Terms Defined in this Section.................................1
1.2 Terms Defined Elsewhere in this Agreement.....................7
1.3 Rules of Construction.........................................8
SECTION 2. PURCHASE AND SALE OF ASSETS; ASSET VALUE......................8
2.1 Purchase and Sale.............................................8
2.2 Excluded Assets...............................................9
2.3 Purchase Price Deposit and Escrow Agreement..................10
2.4 Purchase Price; Allocation...................................11
2.5 Prorations and Adjustments...................................11
2.6 Payment of Purchase Price and Prorations and
Adjustments........................................14
2.7 Assumption of Liabilities and Obligations....................15
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER.....................16
3.1 Organization and Authority of Seller.........................16
3.2 Authorization and Binding Obligation.........................17
3.3 Absence of Conflicting Agreements; Consents..................17
3.4 Governmental Licenses........................................18
3.5 Real Property................................................18
3.6 Tangible Personal Property...................................21
3.7 Assumed Contracts............................................21
3.8 Intangibles..................................................22
3.9 Financial Information........................................23
3.10 Taxes and Tax Returns........................................23
3.11 Insurance....................................................23
3.12 Reports......................................................23
3.13 Personnel....................................................24
3.14 Claims and Legal Actions.....................................24
3.15 Compliance with Laws.........................................25
3.16 Conduct of Business in Ordinary Course.......................25
3.17 Environmental................................................25
3.18 Brokers......................................................26
3.19 Transactions With Affiliates.................................26
3.20 Assets.......................................................27
3.21 Employee Benefits............................................27
<PAGE>
PAGE
----
3.22 Disclosure...................................................27
3.23 Knowledge....................................................28
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER......................28
4.1 Organization, Standing and Authority.........................28
4.2 Authorization and Binding Obligation.........................28
4.3 Absence of Conflicting Agreements and Required
Consents...........................................28
4.4 Buyer Qualifications.........................................29
4.5 Brokers......................................................29
4.6 Disclosure...................................................29
SECTION 5. OPERATIONS OF THE STATION PRIOR TO CLOSING...................29
5.1 Contracts....................................................29
5.2 Dispositions.................................................30
5.3 Encumbrances.................................................30
5.4 Access to Information........................................31
5.5 Insurance....................................................31
5.6 Compensation.................................................31
5.7 Financial Information........................................31
5.8 Transactions with Affiliates.................................32
5.9 Collective Bargaining........................................32
5.10 Maintenance of Assets........................................32
5.11 Operating Budget.............................................32
5.12 Incurrence of Additional Indebtedness........................32
SECTION 6. SPECIAL COVENANTS AND AGREEMENTS.............................32
6.1 FCC Consent..................................................32
6.2 HSR Act Filing...............................................33
6.3 Confidentiality..............................................34
6.4 Cooperation..................................................35
6.5 Control of the Station.......................................35
6.6 Accounts Receivable..........................................36
6.7 Access to Books and Records..................................38
6.8 Employee Matters.............................................38
6.9 Cure.........................................................40
6.10 Other Acquisitions...........................................40
6.11 Interruption of Broadcast Transmission.......................41
6.12 Ownership Interests in Seller................................42
6.13 Estoppel Certificate.........................................42
6.14 FCC Applications.............................................42
- ii -
<PAGE>
PAGE
----
6.15 Executed Copies of the Assumed Contracts.....................42
6.16 Representation Agreement.....................................42
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER
.............................................................44
7.1 Conditions to Obligations of Buyer...........................44
7.2 Conditions to Obligations of Seller..........................45
SECTION 8. CLOSING AND CLOSING DELIVERIES...............................46
8.1 Closing......................................................46
8.2 Deliveries by Seller.........................................47
8.3 Deliveries by Buyer..........................................49
SECTION 9. TERMINATION..................................................50
9.1 Termination of Agreement.....................................50
9.2 Procedure and Effect of Termination..........................50
9.3 Attorneys' Fees..............................................53
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; CERTAIN REMEDIES............................53
10.1 Survival.....................................................53
10.2 Indemnification by Seller....................................54
10.3 Indemnification by Buyer.....................................57
10.4 Procedure for Indemnification................................58
10.5 Investigation................................................60
SECTION 11. MISCELLANEOUS................................................60
11.1 Fees and Expenses............................................60
11.2 Notices......................................................60
11.3 Benefit and Binding Effect...................................61
11.4 Further Assurances...........................................62
11.5 GOVERNING LAW................................................62
11.6 Entire Agreement.............................................62
11.7 Waiver of Compliance; Consents...............................63
11.8 Counterparts.................................................63
11.9 Severability.................................................63
- iii -
<PAGE>
Exhibits
--------
Exhibit 1.1 Indemnification Fund Agreement
Exhibit 2.3(b) Escrow Agreement
Exhibit 8.2(f) Opinion of Counsel to Seller
Exhibit 8.2(i) Assignment and Assumption Agreement
Exhibit 8.2(k) Non-Competition Agreement
Exhibit 8.3(e) Opinion of Counsel to Buyer
Schedules
---------
Schedule 1.1 Definition of Broadcast Cash Flow
Schedule 2.2(g) Excluded Contracts
Schedule 2.2(j) Additional Excluded Assets
Schedule 3.3 Absence of Conflicting Agreements; Consents
Schedule 3.4 Governmental Licenses
Schedule 3.5 Real Property
Schedule 3.6 Tangible Personal Property
Schedule 3.7 Contracts
Schedule 3.7A Certain Agreements
Schedule 3.8 Intangibles
Schedule 3.9 Financial Statements
Schedule 3.10 Taxes and Tax Returns
Schedule 3.11 Insurance
Schedule 3.13 Personnel
Schedule 3.14 Claims and Legal Actions
Schedule 3.16 Conduct of Business in Ordinary Course
Schedule 3.17 Environmental
Schedule 3.19 Transactions with Affiliates
Schedule 3.21 Employee Benefits
Schedule 4.3 Absence of Conflicting Agreements; Consents
Schedule 5.6 Employee Raises
Schedule 8.2(k) Persons executing Non-Competition Agreements
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<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is dated as of January 31, 1997, by and
between Channel 21, L.P., a Nevada limited partnership ("Seller"), and KUPN,
Inc., a Maryland corporation("Buyer").
R E C I T A L S:
----------------
A. Seller owns and operates Television Station KUPN-TV, Las Vegas,
Nevada (the "Station").
B. Seller desires to sell, and Buyer desires to purchase, substantially
all of the assets of the Station, on the terms and conditions hereinafter set
forth.
A G R E E M E N T S:
--------------------
In consideration of the above recitals and of the mutual agreements and
covenants contained in this Agreement, the parties to this Agreement, intending
to be bound legally, agree as follows:
SECTION 1. CERTAIN DEFINITIONS
1.1 Terms Defined in this Section. The following terms, as used in
this Agreement, have the meanings set forth in this Section:
"Accounts Receivable" means the rights of Seller as of the Closing Date
to payment for the sale of advertising time and other goods and services by the
Station prior to the Closing Date.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
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"Assets" means the assets to be transferred or otherwise conveyed by
Seller to Buyer under this Agreement, as specified in Section .
"Assumed Contracts" means (a) all Contracts listed in Schedules 3.5,
3.7 and 3.7A and all Contracts of the type described in Sections 3.5 and 3.7
that are not required to be listed thereon pursuant to the exceptions set forth
in such Sections; (b) contracts entered into with advertisers for the sale of
advertising time or production services for cash in the ordinary course of
business; (c) any Contracts entered into by Seller between the date of this
Agreement and the Closing Date that Buyer agrees in writing to assume; and (d)
other contracts entered into by Seller between the date of this Agreement and
the Closing Date in compliance with Section 5.2; provided that Assumed Contracts
shall in no event include Excluded Contracts.
"Broadcast Cash Flow" has the meaning set forth in Schedule 1.1.
"Business Day" means any day other than a Saturday, Sunday, federal
holiday or day on which banking institutions in New York City are authorized or
obligated by law or executive order to be closed.
"Closing" means the consummation of the sale and acquisition of the
Assets, and assumption of the Assumed Liabilities, pursuant to this Agreement in
accordance with the provisions of Section .
"Closing Date" means the date on which the Closing occurs, as
determined pursuant to Section .
"Closing Date Estimated Accounts Receivable" means an amount equal to
the Seller's good faith estimate of Accounts Receivable as of the Closing Date,
which have been outstanding for no more than 120 days, as set forth in the
certificate of Seller delivered to Buyer five (5) days before the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Communications Act" means the Communications Act of 1934, as amended.
"Consents" means the consents, permits, or approvals of government
authorities and other third parties necessary to lawfully and validly transfer
the Assets to Buyer, to maintain the validity and effectiveness (and prevent any
default or violation of the terms thereof) of the Contracts and Licenses
(including, without limitation, the FCC Licenses) to be transferred to Buyer, or
otherwise to consummate the transactions contemplated by this Agreement.
"Contracts" means all contracts, leases, non-governmental licenses and
other agreements (including leases for personal or real property and employment
agreements), written or oral (including any amendments and other modifications
thereto) of Seller or to which Seller is a party or that are binding upon Seller
and that relate to or affect the Assets or the business or operations of the
Station, and (a) that are in effect on the date of this Agreement or (b) that
are entered into by Seller between the date of this Agreement and the Closing
Date, but excluding any Contracts that terminate between the date of this
Agreement and the Closing Date.
"Effective Time" means 12:01 a.m. Las Vegas, Nevada time, on the
Closing Date.
"Employee Plan" means any retirement, severance, medical, disability,
life insurance or any other employee benefit plan as defined in Section 3(3) of
ERISA to which either of the Seller or any entity related to Seller (under the
terms of Sections 414 (b) or (c) of the Code) contributes (or previously
contributed and with respect to which Seller could still have direct or
contingent liability) or which either of the Seller or any entity related to
Seller (under the terms of Sections 414 (b) or (c)of the Code) sponsors or
maintains (or previously sponsored or maintained and with respect to which
Seller could still have direct or contingent liability).
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person that, together with Seller, is,
would be, or was at any time treated as a single employer under Section 414 of
the Code or Section 4001 of ERISA.
"Escrow Agent" means First Union National Bank of North Carolina.
"Escrow Amount" means the sum of the Subsequent Escrow Deposits, and
all interest and earnings accrued thereon.
"FCC" means the Federal Communications Commission.
"FCC Consent" means actions by the FCC granting its consent to the
assignment of the FCC Licenses by the Seller to Buyer or, if the Buyer assigns
its rights as assignee of the FCC Licenses to the License Assignee pursuant to
Section 11.3 of this Agreement, the License Assignee as contemplated by this
Agreement.
"FCC Licenses" means those licenses, permits and authorizations issued
by the FCC to the Seller in connection with the business and operations of the
Station (together with any renewals, extensions, modifications or additions
thereto between the date of this Agreement and the Closing Date).
"Final Order" means an action or order by the FCC (a) that has not been
reversed, stayed, enjoined, set aside, annulled or suspended, and (b) with
respect to which (i) no requests have been filed for administrative or judicial
review, reconsideration, appeal or stay and the FCC has not initiated a review
of such action or order on its own motion and the periods provided by statute or
FCC regulations for filing any such requests and for the FCC to set aside the
action on its own motion have expired, or (ii) in the event of review,
reconsideration or appeal, the period provided by statute or FCC regulations for
further review, reconsideration or appeal has expired.
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnification Amount" means the sum of the current Indemnification
Deposit and all interest or earnings accrued thereon.
"Indemnification Deposit" means the Initial Deposit and the Additional
Indemnification Amount Deposit.
"Indemnification Fund Agreement" means the Indemnification Fund
Agreement among Buyer, Seller and First Union National Bank of North Carolina
("Indemnification Escrow Agent"), substantially in the form attached hereto as
Exhibit 1.1, in accordance with which the Indemnification Deposit will be
deposited with the Indemnification Escrow Agent in order to provide a fund for
the (a) payment of any claims for which Buyer may be entitled to indemnification
as provided in Section 10 hereof or (b) payment of any amounts pursuant to
Section 2.6(b)(2) hereof, if any.
"Initial Deposit" means Three Million Dollars ($3,000,000) less an
amount equal to the lesser of (a) One Million Five Hundred Thousand Dollars
($1,500,000) or (b) the Closing Date Estimated Accounts Receivable.
"Intangibles" means all copyrights, trademarks, trade names, service
marks, service names, licenses, patents, permits, jingles, proprietary
information, technical information and data, and other similar intangible or
intellectual property rights and interests (and any goodwill associated with the
Station or any of the foregoing) applied for, issued to, or owned by Seller or
under which Seller is licensed or franchised or in which Seller has any interest
and that are used or useful in the business and operations of the Station,
together with any additions thereto between the date of this Agreement and the
Closing Date.
"Lease" means the lease dated 1993 between Private Trust 204 and Frank
E. Scott, Trustee, and Lambert Television, Inc. and any amendments thereto.
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"License Assignee" means KUPN Licensee, Inc., a Maryland corporation,
which will be a wholly owned subsidiary of Buyer.
"Licenses" means all licenses, permits, construction permits and other
authorizations issued by the FCC (including, without limitation, the FCC
Licenses), the Federal Aviation Administration, or any other federal, state or
local governmental authorities to Seller, currently in effect or pending and
used or useful in connection with the conduct of the business or operations of
the Station, together with any additions thereto between the date of this
Agreement and the Closing Date.
"Management Arrangement" means any time brokerage agreement, local
marketing agreement or other arrangement providing for the provision of
management services, television programming or assets related to the provision
of television broadcasting in exchange for payments and/or the right to charge
others for the provision of advertising or other services or products with
respect to any broadcast television station, the Designated Market Area (as
defined by Nielsen Media Research("DMA")) of which is the same as the DMA of the
Station.
"Operating Budget" means the operating budget of the Station for fiscal
year 1997 previously furnished by Seller to Buyer.
"Option" means option to purchase the assets of or ownership interests
in any Person owning a broadcast television station, the DMA of which is the
same as the DMA of the Station.
"Permitted Liens" means (a) liens for taxes not yet due and payable;
(b) landlord's liens; (c) liens for property taxes not delinquent; (d) statutory
liens that were created in the ordinary course of business; (e) restrictions or
rights required to be granted to governmental authorities or otherwise imposed
by governmental authorities under applicable law; (f) zoning, building, or
similar restrictions relating to or affecting property; (g) all matters of
record as of the date hereof, and, including, without limitation, those matters
disclosed in Schedule 3.5 as "continuing" and including leasehold interests in
real property owned by others and operating leases for personal
<PAGE>
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property and leased interests in property leased to others; (h)(1) liens or
encumbrances on the Real Property, currently of record as of the date hereof and
(2) other liens or encumbrances on the Real Property, in either case that do not
materially affect the current use and enjoyment thereof in the operation of the
Assets; and (i) the Assumed Liabilities (as hereinafter defined).
Notwithstanding the foregoing, "Permitted Liens" shall not include Liens on
Assets that secure amounts owed by Seller or its partners to its creditors for
indebtedness for borrowed money which shall be discharged at or before Closing.
"Person" means an individual, corporation, association, partnership,
joint venture, trust, estate, limited liability company, limited liability
partnership, or other entity or organization.
"Purchase Price Deposit" means the amount paid by Buyer to Seller
pursuant to Section 2.3(a) of this Agreement, plus interest thereon, accrued on
such amount at a rate of interest equal to 7% per annum from the date of each
deposit of such amounts pursuant to Section 2.3 hereof until the Closing Date or
until the date of return of such amounts to Buyer, as the case may be; provided
that from and after the date of termination of this Agreement as a result of
which Buyer becomes entitled to a return of the Purchase Price Deposit, the
interest accruing thereon shall equal nine percent (9%) per annum; provided
further however, that Seller shall have the right by delivering the Purchase
Price Deposit (plus interest accrued thereon to the date of delivery) into an
escrow to be established pursuant to an escrow agreement substantially similar
to the Escrow Agreement attached hereto as Exhibit 2.3(b), in which event
interest on the Purchase Price Deposit at the rates specified above shall cease
to accrue and the amount in escrow (principal and interest) shall accrue
interest in accordance with the terms and provisions of such escrow agreement
and will be paid in accordance with the terms of this Agreement and such escrow
agreement; and provided, further, that Seller and Buyer shall negotiate in good
faith to establish any subsequent escrow agreement and, failing agreement,
<PAGE>
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Seller shall have the right to deposit such amount with a court of competent
jurisdiction and interest on the Purchase Price Deposit shall cease upon such
deposit.
"Real Property" means (a) all fee estates in real property, and all
buildings and other improvements thereon, owned, leased or held by Seller or its
General Partner that are used or useful in the business or operations of the
Station; and (b) leases of any real property under which Seller or its General
Partner is the lessor, together with any additions thereto between the date of
this Agreement and the Closing Date.
"Required Consents" means such Consents as listed in Schedule 3.3 that
are designated with a double asterisk.
"Tangible Personal Property" means all machinery, equipment, tools,
vehicles, furniture, office equipment, plant, inventory, spare parts and other
tangible personal property owned or held by Seller that is used or useful in the
conduct of the business or operations of the Station, together with any
additions thereto between the date of this Agreement and the Closing Date.
"Tax" means any federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, capital, transfer, employment, withholding or other
tax or governmental assessment, together with any interest, additions or
penalties with respect thereto and any interest in respect of such additions or
penalties.
"Tax Return" means any tax return, declaration of estimated tax, tax
report or other tax statement, or any other similar filing required to be
submitted by Seller relating to the Station to any governmental authority with
respect to any Tax.
1.2 Terms Defined Elsewhere in this Agreement. For purposes of
this Agreement, the following terms have the meanings set forth in the sections
indicated:
<PAGE>
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Term Section
- ---- -------
Additional Indemnification
Amount Deposit Section 6.6 (b)
Ancillary Documents Section 8.3
Assumed Employees Section 6.8 (a)
Assumed Liabilities Section 2.7
Buyer Preamble
Claimant Section 10.4 (a)
Collection Period Section 6.6 (a)
DOJ Section 6.2
Employees Section 3.13 (a)
Escrow Agreement Section 2.3 (b)
Estimated Purchase Price Section 2.4
Environmental Laws Section 3.17
Excluded Assets Section 2.2
Excluded Contracts Section 2.2 (g)
Financial Statements Section 3.9
FTC Section 6.2
General Partner Section 3.1(b)
Hazardous Substance Section 3.17
Indemnification Escrow Agent Section 1.1
Indemnifying Party Section 10.4 (a)
Liens Section 2.1
Purchase Price Section 2.4
Seller Preamble
Settled Claim Section 10.4 (b)
Station Recitals
Subsequent Escrow Deposits Section 2.3 (b) (1)
1.3 Rules of Construction. Except as specifically otherwise provided
in this Agreement in a particular instance, a reference to a Section, Schedule
or Exhibit is a reference to a Section of this Agreement or a Schedule or
Exhibit hereto, and the terms "hereof," "herein," and other like terms refer to
this Agreement as a whole, including the Schedules and Exhibits to this
Agreement, and not solely to any particular part of this Agreement. The
descriptive headings in this Agreement are inserted for convenience of reference
only and are not intended
<PAGE>
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to be part of or to affect the meaning or interpretation of this Agreement.
SECTION 2. PURCHASE AND SALE OF ASSETS; ASSET VALUE
2.1 Purchase and Sale. Subject to the terms and conditions set forth
in this Agreement, Seller hereby agrees to transfer, convey, assign and deliver
to Buyer on the Closing Date, and Buyer agrees to acquire, all of Seller's
right, title and interest in the tangible and intangible assets used or useful
in connection with the conduct of the business or operations of the Station,
together with any additions thereto between the date of this Agreement and the
Closing Date, but excluding assets disposed of between the date of this
Agreement and the Closing Date in the ordinary course of business in accordance
with the provisions of this Agreement and the assets described in Section 2.2,
free and clear of any claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, or encumbrances of any nature whatsoever
(collectively, "Liens") (except for Permitted Liens), including, without
limitation, the following:
(a) the Tangible Personal Property;
(b) the Real Property;
(c) the Licenses (subject to Buyer's right to have the FCC Licenses
assigned directly to the License Assignee);
(d) the Assumed Contracts;
(e) the Intangibles;
(f) all of Seller's proprietary information, technical information
and data, maps, computer discs and tapes, plans, diagrams, blueprints and
schematics, including filings with the FCC, relating to the business and
operations of the Station;
(g) all books and records of Seller relating solely to the business
or operations of the Station, including executed
<PAGE>
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copies of the Assumed Contracts, and all records required by the FCC to be kept
by the Station, other than account books of original entry and such files and
records that are maintained at the corporate offices of Seller's general partner
for tax and accounting purposes;
(h) all deposits and prepaid expenses of Seller with respect to items
that are prorated in favor of Seller pursuant to Section 2.5 below; and
(i) all other assets of Seller not constituting Excluded Assets.
2.2 Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, the Assets shall not include the following (collectively, the
"Excluded Assets"):
(a) 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, Treasury bills and marketable securities and other
securities of Seller;
(b) any contracts of insurance and insurance plans and the assets
thereof, promissory notes, amounts currently due from employees, bonds, letters
of credit, certificates of deposit, or other similar items, and any cash
surrender value in regard thereto;
(c) except as otherwise provided in Section 6.8, any pension,
profit-sharing, retirement, bonus, stock purchase, savings plans and trusts,
401(k) plans, health insurance plans (including any insurance contracts or
policies related thereto), and the assets thereof and any rights thereto, and
all other plans, agreements or understandings to provide employee benefits of
any kind for employees of Seller;
(d) Accounts Receivable and any other receivables of any nature
whatsoever due to Seller;
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(e) tangible personal property disposed of or consumed in the
ordinary course of operation of the Station by Seller between the date of this
Agreement and the Closing Date;
(f) claims of Seller with respect to transactions attributable to the
operations of the Station prior to the Closing Date, including, without
limitation, rights and interests of Seller in and to any claims for tax refunds
(including, but not limited to, federal, state or local franchise, income or
other taxes) and causes of action and claims of Seller under contracts and with
respect to other transactions with respect to events occurring prior to the
Closing Date and all claims for other refunds or return of monies relating to
the operations of the Station prior to the Closing Date;
(g) Contracts that are not Assumed Contracts, including those listed
in Schedule 2.2(g) (the "Excluded Contracts");
(h) Seller's partnership records and other books and records that
pertain to internal partnership matters of Seller and Seller's account books of
original entry with respect to the Station, and any other Assets, and all
original 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 and any other Assets prior to Closing;
(i) the deposits and prepaid expenses of Seller with respect to the
items that are not subject to adjustment under Section 2.5 hereof and with
respect to which Seller remains solely liable pursuant to Section 2.5 hereof;
and
(j) Seller's interests in the assets described in
Schedule 2.2(j).
Notwithstanding anything to the contrary set forth in this Agreement,
no representations, warranties or covenants are made with respect to the
Excluded Assets.
<PAGE>
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2.3 Purchase Price Deposit and Escrow Agreement.
-------------------------------------------
(a) Concurrently with the execution and delivery of this Agreement,
Buyer shall pay to Seller Five Million Dollars ($5,000,000) (the "Purchase Price
Deposit") by federal wire transfer of same-day funds pursuant to wire transfer
instructions which instructions have been delivered by Seller to Buyer prior to
the date hereof. The Purchase Price Deposit shall be credited against the amount
to be paid by Buyer to Seller at Closing as set forth in Section 2.6 hereof.
(b) Pursuant to the terms and conditions of the Escrow Agreement,
substantially in the form of Exhibit 2.3(b) attached hereto (the "Escrow
Agreement"), executed by and among Buyer, Seller and the Escrow Agent
concurrently with the execution and delivery of this Agreement:
(1) On the expiration of each full 45 day period after the date
of this Agreement, subject to Section 2.3(c) below, Buyer shall deposit with the
Escrow Agent by federal wire transfer of same-day funds Two Million Dollars
($2,000,000) (collectively, the "Subsequent Escrow Deposits"); and
(2) At the Closing, Buyer and Seller shall cause the Escrow Agent
to pay the Escrow Amount over to Seller as a credit against the amount to be
paid by Buyer to Seller at the Closing as set forth in Section 2.6 hereof.
(c) Notwithstanding anything in this Agreement to the contrary, the
aggregate of all amounts required to be paid or deposited pursuant to this
Section 2.3 shall not exceed Fifteen Million Dollars ($15,000,000). In the event
of a termination of this Agreement, the Purchase Price Deposit and the Escrow
Amount shall be paid in accordance with Section 9.2 hereof.
2.4 Purchase Price; Allocation. The purchase price for the Assets
shall be Eighty-seven Million Dollars ($87,000,000) (the "Estimated Purchase
Price"), which sum shall be subject to upward or downward adjustment, as the
case may be, on and after the
<PAGE>
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Closing Date pursuant to Section 2.5(a) below (the Estimated Purchase Price as
so adjusted, the "Purchase Price").
2.5 Prorations and Adjustments.
--------------------------
(a) Prorations and Adjustments. The Estimated Purchase Price shall be
increased or decreased as required to effectuate the proration of revenues and
expenses as provided for herein. All revenues and all expenses arising from the
operation of the Station, including tower rental, business and license fees,
utility charges, real and personal property taxes and assessments levied against
the Assets, property and equipment rentals, applicable copyright or other fees,
sales and service charges, taxes (except for taxes arising from the transfer of
the Assets under this Agreement), employee compensation, including wages,
salaries, accrued vacation pay, commissions, music license fees and similar
prepaid and deferred items, shall be prorated between Buyer and Seller in
accordance with the principle that Seller shall receive all revenues and shall
be responsible for all expenses, costs and liabilities allocable to the
operations of the Station in accordance with generally accepted accounting
principles consistently applied for the period prior to the Effective Time, and
Buyer shall receive all revenues and shall be responsible for all expenses,
costs and obligations allocable to the operations of the Station for the period
after the Effective Time in accordance with generally accepted accounting
principles consistently applied, subject to the following:
(1) There shall be no adjustment for, and Seller shall remain
solely liable with respect to, any Excluded Contracts and any other obligation
or liability not being assumed by Buyer in accordance with Section 2.7.
(2) No adjustment or proration shall be made in favor of Seller
or Buyer for the amount, if any, by which the value of the goods or services to
be received by the Station under its trade or barter agreements as of the
Effective Time exceeds, or is less than, the value of any advertising time
remaining to be run by the Station as of the Effective Time; provided, however,
that there shall be a decrease in the
<PAGE>
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Estimated Purchase Price if and to the extent that the aggregate value of such
advertising time exceeds the value of such goods or services by more than
$25,000.
(3) There shall also be no adjustment or proration for program
barter. There shall be no adjustment or proration of the payments due under the
film or programming license agreements except as expressly specified in this
Section 2.5(a)(3). Except as set forth herein for the month in which the Closing
occurs, Seller shall be responsible for filing and paying all film or
programming license fees due and payable as of the Effective Time; provided that
for the month in which the Closing occurs, such obligations for such month shall
be allocated on a pro-rata basis based on the day of the month in which the
Closing occurs. Deposits for film and programming agreements shall be fully
credited to the Seller; provided, however, that on the Closing Date, such credit
will be reduced on a pro-rated basis based on the length of the term that the
film or program was available to be aired on the Station prior to Closing and
the total length of the term that the film or program is available to air on the
Station.
(4) There shall be no adjustment or proration for sick days with
respect to which no cash payment is or may be due to any employee or severance
pay relating to any employee of Seller.
(b) Manner of Determining Prorations and Adjustments. The Purchase
Price, taking into account the adjustments and prorations pursuant to Section ,
will be determined in accordance with the following procedures:
(1) Seller shall prepare and deliver to Buyer not later than five
(5) Business Days before the Closing Date a preliminary settlement statement
which shall set forth Seller's good faith estimate of the Purchase Price and
adjustments or prorations to the Estimated Purchase Price under Section 2.5 (a).
The preliminary settlement statement shall contain all information reasonably
necessary to determine the adjustments or prorations to the Estimated Purchase
Price under Section 2.5 (a),
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including appropriate supporting documentation, to the extent such adjustments
or prorations can be determined or estimated as of the date of the preliminary
settlement statement. The adjustments and prorations to the Estimated Purchase
Price to be made at Closing shall be based upon such preliminary settlement
statement.
(2) Not later than ninety days after the Closing Date, Buyer will
deliver to Seller a statement setting forth Buyer's determination of the
Purchase Price and any changes to the adjustments and prorations to the
Estimated Purchase Price made at Closing pursuant to Section 2.5(a). Buyer's
statement (A) shall contain all information reasonably necessary to determine
the adjustments and prorations to the Estimated Purchase Price under Section ,
including appropriate supporting documentation, and such other information as
may be reasonably requested by Seller, and (B) shall be certified by an officer
of Buyer (after due inquiry by, but without personal liability to, such officer)
to be true and complete to Buyer's knowledge. Seller shall have the right to
visit the Station to verify and review such documentation upon providing
reasonable notice to Buyer. If Seller disputes the adjustments and prorations
determined by Buyer, it shall deliver to Buyer within sixty days after its
receipt of Buyer's statement a statement setting forth its determination of the
Purchase Price and the adjustments and prorations. If Seller notifies Buyer of
its acceptance of Buyer's statement, or if Seller fails to deliver its statement
within the sixty-day period specified in the preceding sentence, Buyer's
determination of the Purchase Price and the adjustments and prorations shall be
conclusive and binding on the parties as of the last day of the sixty-day
period.
(3) Buyer and Seller shall use good faith efforts to resolve any
dispute involving the determination of the Purchase Price and the adjustments
and prorations to the Estimated Purchase Price made in connection with the
Closing. If the parties are unable to resolve any dispute related to financial
or accounting matters within fifteen days following the delivery of Seller's
preliminary settlement statement pursuant to
<PAGE>
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Section 2.5 (b) (2) , Buyer and Seller shall jointly designate an independent
certified public accountant, who shall not have performed services for either
Buyer or Seller within the prior two (2) year period and who shall be
knowledgeable and experienced in the operation of television broadcasting
stations, to resolve such dispute. If the parties are unable to agree on the
designation of an independent certified public accountant, the selection of the
accountant to resolve such dispute shall be submitted to arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The accountant's resolution of such dispute shall be final and
binding on the parties, and a judgment may be entered thereon in any court of
competent jurisdiction. Any fees of this accountant and, if necessary, for
arbitration to pick such accountant shall be split equally between the parties.
To the extent that any dispute involving the Purchase Price and the adjustments
and prorations made to the Estimated Purchase Price in connection with the
Closing relates to matters of construction or interpretation of this Agreement
or is otherwise not related to financial or accounting matters within the
competence of the accountant, such dispute shall not be resolved by the
accountant, but shall be resolved by mutual agreement of the parties or pursuant
to the order of a court of competent jurisdiction.
2.6 Payment of Purchase Price and Prorations and Adjustments. The
Purchase Price shall be paid by Buyer to Seller as follows:
(a) Payments At Closing. At the Closing, the Estimated Purchase
Price, as adjusted pursuant to Section 2.5(b)(1) (the "Preliminary Purchase
Price"), shall be paid as follows:
(1) Buyer shall pay or cause to be paid to Seller an amount equal
to the Preliminary Purchase Price less the sum of (A) the Purchase Price
Deposit, (B) the Escrow Amount and (C) the Initial Deposit;
<PAGE>
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(2) Buyer shall pay or cause to be paid to the Indemnification
Escrow Agent the Initial Deposit to be held pursuant to the Indemnification Fund
Agreement; and
(3) At the Closing, Buyer and Seller shall cause the Escrow Agent
to pay the Escrow Amount over to Seller as a credit against the Preliminary
Purchase Price.
Each of the foregoing amounts shall be paid by federal wire transfer of same-day
funds pursuant to wire transfer instructions which instructions shall be
delivered by Buyer, Seller and the Indemnification Escrow Agent, as appropriate,
to the other parties hereto at least two Business Days prior to the Closing
Date.
(b) Payments to Reflect Prorations and Adjustments.
----------------------------------------------
(1) If the Purchase Price as finally determined pursuant to
Section 2.5(b)(2) (the "Final Purchase Price") exceeds the Preliminary Purchase
Price, Buyer shall pay to Seller, by federal wire transfer of same-day funds
within five Business Days after the date on which the Final Purchase Price is
determined pursuant to Section 2.5(b)(2), the difference between the Final
Purchase Price and the Preliminary Purchase Price.
(2) If the Final Purchase Price is less than the Preliminary
Purchase Price, Seller shall pay to Buyer, by federal wire transfer of same-day
funds, within five (5) Business Days after the date on which the Final Purchase
Price is determined pursuant to Section 2.5(b)(2), the difference between the
Preliminary Purchase Price and the Purchase Price.
2.7 Assumption of Liabilities and Obligations. As of the Closing
Date, Buyer shall assume and undertake to pay, discharge and perform only the
following obligations, duties and liabilities: (a) any obligation or liability
of Seller arising out of or related to the ownership and operation of the
Station and the Assets(including the Licenses and the Assumed Contracts) to the
extent that either (1) the obligations and liabilities relate to the period from
and after the Effective Time or (2) the
<PAGE>
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Purchase Price was reduced pursuant to Section 2.5 (a) as a result of the
proration or adjustment of such obligations and liabilities; (b) any liability
or obligation to any former employee of Seller who has been hired by Buyer,
attributable to any period of time on or after the Closing Date or as provided
in Section 6.8; (c) any liability or obligation arising out of any litigation,
proceeding or claim by any person or entity relating to the business or
operations of the Station or any of the Assets with respect to any events or
circumstances that are attributable to the period on or after the Closing Date;
(d) any severance or other liability arising out of the termination of any
employee's employment with or by Buyer on or after the Closing Date; (e) any
duty, obligation or liability relating to any pension, 401(k) or other similar
plan, agreement or arrangement provided by Buyer to any employee or former
employee of Seller on or after the Closing Date; and (f) all state and local
sales or use taxes (or their equivalent) and transfer taxes or recording fees
payable as a consequence of the sale of the Assets hereunder, but subject to
Seller's obligations under Section 11.1 hereof (all of the foregoing, together
with other liabilities or obligations expressly assumed by Buyer hereunder,
including, without limitation, the Assumed Contracts, are referred to herein
collectively as the "Assumed Liabilities"). Buyer shall not be required to
assume any of the following: (i) any obligations or liabilities under any
Excluded Contract, (ii) any obligations or liabilities under the Assumed
Contracts relating to the period prior to the Effective Time, except insofar as
a proration or adjustment therefor is made in favor of Buyer under Section ,
(iii) liabilities relating to indebtedness of Seller for borrowed money, (iv)
liabilities for claims or litigation involving the Station relating to events
occurring prior to the Effective Time or (v) except as otherwise provided in
this Agreement, obligations or liabilities relating to employees not
specifically assumed hereunder.
<PAGE>
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Organization and Authority of Seller.
------------------------------------
(a) Seller is a limited partnership duly formed, validly existing and
in good standing under the laws of the State of Nevada. Seller is qualified to
conduct business and is in good standing in each jurisdiction where the nature
of its business or ownership of its properties requires such qualification,
except where the failure to be so qualified or in good standing would not have a
material adverse effect on the business or operations of the Station. Seller has
the requisite partnership power and authority to own and operate the Assets
owned and operated by it, to carry on the business of the Station now being
conducted by it, and to execute, deliver and perform this Agreement and the
Ancillary Documents according to their respective terms.
(b) The general partner of Seller (the "General Partner") is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Nevada. The General Partner is qualified to conduct
business and in good standing in each jurisdiction where the nature of its
business or ownership of its properties requires such qualification, except
where the failure to be so qualified or in good standing would not have a
material adverse effect on the business or operations of the Station. The
General Partner has the requisite corporate power to serve as general partner of
Seller and to execute and deliver this Agreement and the Ancillary Documents on
behalf of Seller.
3.2 Authorization and Binding Obligation.
-------------------------------------
(a) The execution, delivery and performance of this Agreement and the
Ancillary Documents, and the consummation of the transactions contemplated
hereby and thereby, by Seller have been duly and validly authorized by all
necessary partnership action on the part of Seller. This Agreement and the
Ancillary
<PAGE>
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Documents executed by Seller have been duly executed and delivered by Seller and
constitute its legal, valid and binding obligations, enforceable against it in
accordance with their respective terms, except as the enforceability of this
Agreement and the Ancillary Documents may be affected by bankruptcy, insolvency,
or similar laws affecting creditors' rights generally and by judicial discretion
in the enforcement of equitable remedies.
(b) The execution and delivery of this Agreement and the Ancillary
Documents by the General Partner have been duly and validly authorized by all
necessary corporate action on the part of the General Partner.
3.3 Absence of Conflicting Agreements; Consents. The execution and
delivery of this Agreement by the General Partner on behalf of Seller, and the
performance of the transactions contemplated herein by Seller, will not require
any consent, approval, authorization or other action by, or filing with or
notification to, any Person or governmental authority, except as follows: (a)
filings, waivers and approvals required under the HSR Act, (b) the FCC Consent,
(c) filings with respect to real estate, sales and other transfer taxes, and (d)
certain of the Assumed Contracts may be assigned only with the consent of third
parties, as specified in Schedule 3.3. Subject to obtaining the Consents, the
execution and delivery of this Agreement and the Ancillary Documents by the
General Partner on behalf of Seller and performance by Seller of this Agreement
and the Ancillary Documents (with or without the giving of notice, the lapse of
time, or both): (a) do not require the consent of any third party; (b) do not
conflict with, violate or result in a breach of any provision of the Articles of
Incorporation and Bylaws of the General Partner or the Agreement of Limited
Partnership of Seller, as the case may be; (c) do not conflict in any material
respect with, result in a material breach of, or constitute a material default
under, any applicable law, ordinance, rule or regulation applicable to the
General Partner or Seller or any Assumed Contract; or (d) do not conflict with,
result in a breach of or constitute a default under any judgment, order,
injunction
<PAGE>
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or decree of any court or governmental authority applicable specifically to the
General Partner, Seller or the Station.
3.4 Governmental Licenses. Schedule 3.4 is a complete list as of the
date of this Agreement of all FCC Licenses and all material other Licenses,
which constitute all FCC authorizations and all material other governmental
authorizations which are required or necessary for the lawful conduct of the
business and operations of the Station as currently conducted. Schedule 3.4 also
includes a complete list of all applications for FCC Licenses with respect to
the business and operations of the Station pending at the FCC as of the date
hereof (the "FCC Applications"). Each License is in effect, and the Seller is
the legal holder thereof. Except as set forth in Schedule 3.4, the conduct of
the business and operations of the Station is in accordance with the Licenses in
all material respects. Except as set forth in Schedule 3.4, and except for those
conditions or restrictions appearing on the face of the FCC Licenses or other
Licenses, none of the FCC Licenses or other Licenses is subject to any
restriction or condition which would limit the operation of the Station as
currently operated. Except as set forth on Schedule 3.7, Seller is not a party
to any agreement with any community group, governmental authority or other third
party restricting programming, employment practices or other aspects of the
business or operations of the Station. Seller has delivered to Buyer true,
correct and complete copies of the Licenses and FCC Applications listed in
Schedule 3.4 (including any and all amendments and other modifications thereto).
The FCC Licenses listed in Schedule 3.4 are currently in effect and are not
subject to any Liens, other than Permitted Liens. No license renewal
applications are pending with respect to any of the FCC Licenses. As of the date
hereof, Seller has no reason to believe that the FCC would not renew the FCC
Licenses in the ordinary course for a full license term without any adverse
conditions, upon the timely filing of appropriate applications and payment of
the required filing fees. As of the date hereof, Seller has no reason to believe
that the FCC would not grant the FCC Applications in the ordinary course without
any adverse conditions, except for conditions pertaining to the FCC's
implementation of digital television.
<PAGE>
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3.5 Real Property.
-------------
(a) Schedule 3.5 contains an accurate description as of the date of
this Agreement of all Real Property.
(b) Except as described in Schedule 3.5, Seller has good and
marketable fee simple title (to the knowledge of Seller, insurable at standard
rates by a reputable national title insurer) to all fee estates included in the
Real Property and good title to all other Real Property, in each case free and
clear of all Liens, except for Permitted Liens. The Real Property constitutes
all real property interests of any nature whatsoever used in the conduct of the
business and operations of the Station as now conducted. Seller has delivered to
Buyer true, correct and complete copies (to the extent possessed by Seller) of
all deeds, by which Seller or its General Partner has received a fee interest in
any of the Real Property; leases, by which Seller is the lessee or lessor of any
of the Real Property; title insurance policies, which Seller has received with
respect to any of the Real Property; surveys, which Seller has received with
respect to any of the Real Property; and inspection reports or other instruments
or reports, including, without limitation, any phase I or phase II environmental
reports or other similar environmental reports, surveys or assessments, which
Seller has contracted for or received with respect to any of the Real Property
(including any and all amendments and other modifications of such instruments).
All of the Real Property owned in fee has full practical and insurable legal
access to public roads or streets and has all zoning, utilities and services
necessary for the proper and lawful conduct and operation of the Station as now
conducted, except where the absence thereof would not have a material adverse
effect on the business or operations of the Station or impose a material
monetary liability on Buyer to correct. To the knowledge of Seller, all towers,
earth receiving dishes and facilities, and other installations, equipment and
facilities utilized in connection with the Station (including any related
buildings and guy anchors) are maintained, placed and located in accordance with
the provisions of all applicable laws, rules, regulations,
<PAGE>
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deeds, easements, restrictions, leases, licenses and permits or other
arrangements and are located entirely on the Real Property owned or leased by
Seller or its General Partner, except to the extent that any failure to so
maintain, place or locate such equipment would not have a material adverse
effect on the business or operations of the Station or impose a material
monetary liability on Buyer to correct.
(c) Seller or its General Partner, as the case may be, has a valid
leasehold interest in all leasehold Real Property listed as leased by Seller in
Schedule 3.5. Schedule 3.5 lists all leases and subleases pursuant to which any
of the leasehold Real Property included in the Assets is leased by Seller or its
General Partner, as the case may be. To the knowledge of Seller, so long as
Seller or its General Partner, as the case may be, fulfills its obligations
under the lease therefor, Seller or its General Partner, as the case may be, has
enforceable rights to nondisturbance and peaceful and quiet enjoyment. Except as
set forth in Schedule 3.5, Seller or its General Partner, as the case may be, is
in compliance in all material respects with all of the provisions of such leases
and subleases and is not in default thereunder in any material respect, and to
the knowledge of Seller, no other party to any such lease or sublease is in
default thereunder in any material respect. Each such leasehold interests (i) is
valid, subsisting and in full force and effect; and (ii) is not subject to any
Liens, except for Permitted Liens. The rental set forth in each of the leases
and subleases listed in Schedule 3.5 is the actual rental currently being paid
by Seller, there are no separate agreements or understandings with respect to
same and Seller is current on such rental obligations. Seller currently has the
full right to exercise any renewal options contained in any of the leases listed
in Schedule 3.5 that are being conveyed pursuant to this Agreement, on the terms
and conditions contained therein and, upon due exercise, currently would be
entitled to enjoy the use of each leased Real Property premises for the full
term of such renewal options. To the knowledge of Seller, the leased Real
Property premises are occupied under a valid and current occupancy permit or the
like to the extent required by law and assuming all requisite consents are
received; there are no facts known to Seller which would
<PAGE>
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prevent any leased Real Property premises from being occupied after the Closing
in substantially the same manner as before.
(d) Except as set forth in Schedule 3.5, all Real Property (i) is in
good condition and repair in accordance with normal and customary industry
practices (ordinary wear and tear excepted), (ii) is available for immediate use
in the conduct of the business or operations of the Station, and (iii) complies
with all applicable building or zoning codes and the regulations of any
governmental authority having jurisdiction, except where such non-compliance
would not have a material adverse effect upon the operations of the Station. As
of the date hereof, there are no condemnation proceedings or eminent domain
proceedings, lawsuits or legal proceedings of any kind pending or, to the
knowledge of Seller, threatened, in connection with any Real Property. The Real
Property and the present use and condition thereof do not violate any applicable
deed restrictions or other covenants, restrictions, agreements, existing site
plan approvals, or any zoning or subdivision regulations or urban redevelopment
plans applicable to the Real Property as modified by any duly issued variances
where such violation would have a material adverse affect on the business or
operations of the Station, and no permits, licenses or certificates pertaining
to the ownership or operation of the Real Property, other than those which are
transferable with the Real Property, are required by any governmental agency
having jurisdiction over the Real Property or their operation, other than such
permits, licenses or certificates, the failure of which to obtain would not have
a material adverse affect on the business or operations of the Station. All
improvements made by or constructed for Seller and, to Seller's knowledge with
respect to improvements used by Seller but not made by it or constructed for it,
on the Real Property, were constructed in compliance with all applicable
Federal, state or other statutes, laws, ordinances, regulations, rules, codes,
orders or requirements (including, but not limited to, any building, zoning or
environmental laws or codes) affecting such premises, except for any
noncompliance which would not have a material adverse affect on the business or
operations of the Station. Seller has paid, or shall have paid prior to Closing,
all amounts owning by Seller to any architect, contractor,
<PAGE>
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subcontractor or materialman for labor or materials performed, rendered or
supplied to or in connection with any Real Property if such amounts would
otherwise constitute a materialman's, mechanics or other similar lien upon the
property. Schedule 3.5 sets forth a true and complete list of all construction,
architect, engineering and other agreements, if any, relating to uncompleted
construction projects entered into by Seller in connection with any Real
Property. Seller has heretofore delivered to Buyer true, correct and complete
copies of such construction agreements.
3.6 Tangible Personal Property. Schedule 3.6 lists as of the date
hereof all items of Tangible Personal Property included in the Assets owned by
Seller and having a fair market value in excess of $5,000. Except as described
in Schedule 3.6, Seller owns and has good title to the Tangible Personal
Property listed thereon and none of the Tangible Personal Property included in
the Assets is subject to any Liens, except for Permitted Liens. Except as set
forth in Schedule 3.6, the material items of Tangible Personal Property are in
good operating condition and repair (given the age of such property and the use
to which such property is put and ordinary wear and tear excepted).
3.7 Assumed Contracts. Schedules 3.5, and 3.7 include a complete
list as of the date of this Agreement of all Assumed Contracts except (a)
contracts with advertisers for production or the sale of advertising time on the
Station for cash that may be canceled by Seller on not more than ninety days'
notice, (b) trade or barter advertising agreements entered into in the ordinary
course of business, (c) employment contracts terminable at will, (d)
miscellaneous service contracts terminable on not more than thirty (30) days'
notice, and (e) other Contracts entered into in the ordinary course of business
with not more than 12 months remaining on their terms, not involving liabilities
exceeding Ten Thousand Dollars ($10,000) per year per Contract and One Hundred
Thousand Dollars ($100,000) per year in the aggregate for all such Contracts.
Seller has delivered or made available to Buyer true and correct copies of all
written Assumed Contracts and accurate descriptions of all oral Assumed
Contracts listed in Schedules 3.5, and 3.7 (including any and all
<PAGE>
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amendments and other modifications thereto). As of the date hereof, without
material exception, each of the Assumed Contracts listed in Schedules 3.5, and
3.7, is in full force and effect and constitutes the legal, valid, binding and
legally enforceable obligation of the Seller (and, to the knowledge of Seller,
of the other parties thereto). Except as set forth in Schedule 3.7, there is
not, under any of the Assumed Contracts, any existing default, event of default
or other event which, with or without due notice or lapse of time or both, would
constitute a default or event of default by Seller or, to the knowledge of
Seller, any other party thereto. Schedule 3.7 describes all outstanding
commitments or proposals by Seller to make capital expenditures related to the
Station (whether or not yet begun or in progress), which have been approved by
Seller or the management of the Station and which will or are expected to
require payments to third parties. Schedule 3.7A describes all types of
Contracts which, if in existence on the Closing Date, Buyer shall have the
right, by written notice delivered prior to Closing (or, if this Agreement is
terminated as a result of the willful and intentional breach by Seller of its
obligations hereunder, promptly following such termination), to have assigned to
it (or its assigns) either on the Closing Date (or, in the event of termination
in the circumstances referred to in the preceding parenthetical, promptly
following such termination), subject to Buyer complying with the provisions of
Section 6.17 hereof.
3.8 Intangibles. Schedule 3.8 is a complete list as of the date of
this Agreement of all material Intangibles (exclusive of Licenses listed in
Schedule 3.4). Seller has provided or made available to Buyer copies of all
documents establishing or evidencing the Intangibles listed in Schedule 3.8.
Except as disclosed in Schedule 3.8, Seller owns and has good title to all the
Intangibles listed therein and none of the Intangibles is subject to any Liens,
except for Permitted Liens. Except as disclosed in Schedule 3.8, Seller is not
obligated pursuant to any Contract to make any payments by way of royalties,
fees or otherwise with respect to any of the Intangibles. Other than with
respect to matters generally affecting the television broadcasting industry and
not particular to Seller, except as set forth in Schedule 3.8, Seller has not
received any notice or
<PAGE>
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demand alleging that Seller is infringing any trademarks, trade names, service
marks, service names, copyrights or similar intellectual property rights owned
by any other Person.
3.9 Financial Information
---------------------
(a) Seller has furnished Buyer with true and complete copies of the
financial statements described in Schedule 3.9 (collectively, together with the
1996 Audited Financials, as defined in Section 5.4, the "Financial Statements").
Except as set forth in Schedule 3.9, the Financial Statements have been prepared
in accordance with generally accepted accounting principles consistently
applied, and present fairly in all material respects the financial condition of
Seller as at their respective dates and the results of operations for the
periods then ended, except that the unaudited financial statements do not
include footnotes or customary year-end adjustments.
(b) Broadcast Cash Flow for the twelve month period ended December
31, 1996 was in excess of Four Million Dollars ($4,000,000).
3.10 Taxes and Tax Returns. Except as set forth in Schedule 3.10 and
except where the failure to file, pay or accrue any Taxes does not result in a
lien on the Assets or in the imposition of transferee or other liability on
Buyer for the payment of Taxes, (a) all Tax Returns have been filed with the
appropriate governmental agencies in all jurisdictions in which such Tax Returns
are required to be filed, and (b) all Taxes shown on such Tax Returns have been
properly accrued or paid to the extent such Taxes have become due. Seller is not
a party to any Tax allocation or sharing agreement. Seller has not received
written notice of any dispute or claim concerning any Tax liability of Seller
from any governmental authority. Seller has not waived any statute of
limitations in respect of income Taxes or agreed to any extension of time with
respect to an income Tax assessment or deficiency.
3.11 Insurance. Schedule 3.11 is a true and complete list of all
insurance policies of Seller. All policies of insurance
<PAGE>
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listed in Schedule 3.11 are in full force and effect as of the date of this
Agreement and Seller is not in default in any material respect thereunder.
3.12 Reports. All material returns, reports and statements that the
Station is currently required to file with the FCC or any governmental agency
have been filed, and all reporting requirements of the FCC and other
governmental authorities having jurisdiction thereof have been complied with by
Seller in all material respects. All of such reports, returns and statements are
complete and correct in all material respects as filed. All material documents
required by the FCC to be deposited by Seller in Seller's public file (as
defined in the rules and regulations of the FCC) during the period of operation
of the Station by Seller have been deposited therein.
3.13 Personnel.
---------
(a) Schedule 3.13 contains a true and complete list as of the date of
this Agreement of all employees of Seller engaged in the business and operations
of the Station (collectively, the "Employees"), and Seller has provided Buyer
with a description of all compensation arrangements affecting them. Except (a)
for oral employment contracts terminable at will, or (b) as described in
Schedule 3.13, Seller has no written or oral contracts of employment with any
employee of the Station. Except as set forth in Schedule 3.13, Seller is not a
party to or subject to any collective bargaining agreements with respect to the
Station, and no labor union or other collective bargaining unit represents or,
to Seller's knowledge of Seller, claims to represent any of the employees of the
Station. Seller has made available to Buyer copies of all employee handbooks and
employee rules and regulations, if any.
(b) Except as set forth in Schedule 3.13, as of the date hereof,
Seller is not a party to any collective bargaining agreement. Seller is in
compliance with respect to the operations of the Station with all applicable
laws, rules and regulations relating to the employment of labor including,
without limitation, those related to wages, hours, collective
<PAGE>
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bargaining, occupational safety, discrimination and the payment of social
security and other payroll-related taxes, except for any noncompliance by Seller
that would not have a material adverse effect on the business or operations of
the Station. Except as set forth in Schedule 3.13, as of the date hereof, to
Sellers knowledge, there are no organizing campaigns, strikes, unfair labor
practice charges, arbitrations, lawsuits or other labor disputes, disturbances
or other controversies or proceedings pending or threatened, involving Seller or
the employees of the Station or any labor union or other collective bargaining
unit claiming to represent any of the employees of the Station or seeking to
organize the employees of the Station.
3.14 Claims and Legal Actions. Except as disclosed in Schedule 3.14
and for any FCC rulemaking proceedings generally affecting the television
broadcasting industry and not particular to Seller, as of the date hereof, there
is no claim, legal action, counterclaim, suit, arbitration, or other legal,
administrative, or tax proceeding, nor any order, decree, or judgment, in
progress or pending, or, to the knowledge of Seller, threatened, against Seller,
the Assets, or the business or operations of the Station which seeks to enjoin,
prohibit or otherwise question the validity of any action taken or to be taken
by Seller pursuant to or in connection with this Agreement or which would be
reasonably expected, in any material respect, to adversely affect the business
or operations of the Station. Except as set forth in Schedule 3.14, as of the
date hereof, neither Seller nor the Station nor any of the Assets is subject to
any judgment, writ, order, injunction, award or decree by any court, arbitrator
or governmental authority, including any administrative agency.
3.15 Compliance with Laws. Seller is in compliance with the Licenses
and all federal, state and local laws, rules, regulations and ordinances
applicable or relating to the ownership and operation of the Station, except for
any noncompliance by Seller that would not have a material adverse effect on the
business or operations of the Station.
<PAGE>
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3.16 Conduct of Business in Ordinary Course. Except as set forth in
Schedule 3.16, from the date of the most recent financial statements described
in Schedule 3.9 through the date of this Agreement, Seller has conducted the
business and operations of the Station in the ordinary course consistent with
past practice in all material respects and has not (a) made any material
increase in compensation payable or to become payable to any of the Employees of
Seller other than in the ordinary course of business, or any material change in
personnel policies, insurance benefits or other compensation arrangements
affecting the Employees of Seller, (b) made any sale, assignment, lease or other
transfer of any of Seller's properties, other than obsolete assets no longer
usable in the operation of the Station, or other assets sold or disposed of in
the normal course of business with suitable replacements being obtained
therefor, (c) incurred material loss of, or material injury to, any of the
Assets as the result of any fire, explosion, flood, windstorm, earthquake, labor
trouble, riot, accident, act of God or public enemy or armed forces, or other
casualty, (d) mortgaged, pledged or subjected to any lien any of its Assets,
other than Permitted Liens, (e) made any material change in any method of
accounting or accounting practice, (f) incurred any material obligations or
liabilities, except in the ordinary course of business, (g) waived or released
any right of value or modified in any material respect any material Contract or
(h) entered into any agreement to do any of the foregoing.
3.17 Environmental. Except as stated in Schedule 3.17 or where such
matters would not have a material adverse effect on the business or operations
of the Station, Seller is not subject to any (a) "Superfund" evaluation; or (b)
any investigation or proceeding of any governmental authority evaluating whether
any remedial action is necessary to respond to release of any chemicals,
materials, substances or wastes that are now or hereafter become defined as, or
included in the definition of, "hazardous wastes," "hazardous substances,"
"extremely hazardous substances," "toxic substances," "toxic" or "hazardous
pollutants," "hazardous" or "toxic materials," "contaminants," "pollutants," or
words of similar import under the Resource Conservation and Recovery Act of
1980, as amended, the
<PAGE>
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Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, the Hazardous Materials Transportation Act, as amended, the Clean
Air Act, as amended, the Clean Water Act, as amended, the Toxic Substances
Control Act, as amended, the Safe Drinking Water Act, as amended, the Oil
Pollution Act, as amended, and their state or local counterparts or equivalents;
or (c) requirement to remove asbestos material or polychlorinated biphenyls
based on Seller's present use of the applicable property. To the knowledge of
Seller, none of the Real Property used by Seller in the operations of the
Station contains any underground or aboveground tanks. Except as stated in
Schedule 3.17, Seller is in compliance with all applicable federal, state and
local environmental laws and regulations, except for any noncompliance by Seller
which would not have a material adverse effect on the business or operations of
the Station. Except as stated in Schedule 3.17 or where such matters would not
have a material adverse effect on the business or operations of the Station, the
Real Property owned by Seller in fee simple contains no condition or substance
which under the aforesaid environmental laws and regulations thereunder, as
interpreted as of this date by judicial and regulatory authorities, could
reasonably be expected to result in recovery by any person of material remedial
or removal costs, expenses or damages, or expenditures by Buyer for abatement or
remedial actions.
3.18 Brokers. Except for the fees payable to Merrill Lynch, which fees
shall be paid by Seller, neither Seller nor any person or entity acting on its
behalf has incurred any liability for any finders' or brokers' fees or
commissions in connection with the transactions contemplated by this Agreement.
3.19 Transactions With Affiliates. Except as set forth in Schedule
3.19, Seller is not now, and since January 1, 1996, has not been a party,
directly or indirectly, to any contract, lease, arrangement or transaction which
is material to the business or operations of the Station, whether for the
purchase, lease or sale of property, for the rendition of services or otherwise,
with any affiliate of Seller, or any officer, director, employee, proprietor,
partner or shareholder of Seller and no such person has any interest in or right
to any of the Assets. The terms and
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conditions of the transactions involving Seller and any affiliate of Seller
which are identified in Schedule 3.19 are described briefly therein.
3.20 Assets. Except for the Excluded Assets, the Assets include all of
the assets or property necessary for the lawful conduct of the business of the
Station as currently operated.
3.21 Employee Benefits. Schedule 3.21 lists all Employee Plans, and
copies of such Employee Plans, together with any trusts related thereto, have
previously been provided to Buyer. All Employee Plans are in material compliance
with their terms and with all applicable provisions of ERISA and the Code.
Neither Seller nor any ERISA Affiliate maintains, contributes to, or is
obligated to contribute to, nor has Seller nor any ERISA Affiliate ever
maintained, contributed to, been obligated to contribute to or had any direct,
indirect or contingent liability with respect to, any employee benefit plan
subject to Title IV of ERISA (including any multiemployer plan as defined in
Section 4001(a)(3) of the Code) or Section 412 of the Code. Seller has not
engaged in any non-exempt prohibited transaction (as defined in Code Section
4975 or ERISA Section 406) involving any Employee Plan which would subject
Seller to any material penalty or tax imposed under Code Section 4975 or ERISA
Section 502(i). Seller has not made a complete or partial withdrawal, within the
meaning of ERISA Section 4201, from any multiemployer plan which has resulted
in, or is reasonably expected to result in, any material withdrawal liability.
Seller has not engaged in any transaction described in ERISA Section 4069 within
the past five years. Seller is not aware of the existence of any governmental
audit or examination of any Employee Plan or of any facts which would lead
Seller to believe that any such audit or examination is pending or threatened.
There exists no action, suit or claim (other than routine claims for benefits)
with respect to any Employee Plan pending or, to the knowledge of Seller,
threatened, against any Employee Plan. Except as required by ERISA Sections 601
et seq. and Code Section 4980B, Seller does not sponsor, maintain or contribute
to any Employee Plan which provides medical coverage to retirees or other former
employees of Seller. Neither Seller nor any ERISA Affiliate nor any fiduciary of
any Employee Plan
<PAGE>
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has engaged in any transaction or conduct that could, directly or indirectly,
result in any material liability of Seller pursuant to Sections 408, 502(c) or
502(i) of ERISA or Sections 4975, 4976 or 4980B of the Code.
3.22 Disclosure. No representation or warranty of Seller contained
herein contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make such representations and warranties, in
light of the circumstances under which they were made, not misleading.
3.23 Knowledge. Where the term "to Sellers knowledge" (or similar
term) is used herein, it shall mean Seller's knowledge based upon inquiry of
appropriate Station personnel.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Seller as follows:
4.1 Organization, Standing and Authority. Buyer is (and License
Assignee will be upon assignment hereunder a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland and, on
the Closing Date, will be duly qualified to conduct business in each
jurisdiction in which such qualification is necessary for Buyer to own the
Assets and operate the Station. Buyer has (and License Assignee will have upon
assignment hereunder) the requisite corporate power and authority to (a)
execute, deliver and perform this Agreement and the documents contemplated
hereby according to their respective terms, and (b) own the Assets.
4.2 Authorization and Binding Obligation. The execution, delivery
and performance of this Agreement and the Ancillary Documents, and the
consummation of the transactions contemplated hereby and thereby, by Buyer have
been (and will be by License Assignee upon assignment hereunder) duly and
validly authorized by all necessary corporate action on the part of Buyer and
License Assignee. This Agreement and the Ancillary Documents executed by Buyer
have been (and will be by License Assignee upon assignment hereunder) duly
executed and delivered by Buyer and
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constitute its legal, valid and binding obligations, enforceable against Buyer
in accordance with their respective terms, except as the enforceability of this
Agreement and the Ancillary Documents may be affected by bankruptcy, insolvency
or similar laws affecting creditors' rights generally and by judicial discretion
in the enforcement of equitable remedies.
4.3 Absence of Conflicting Agreements and Required Consents. Except
as set forth in Schedule 4.3, for applicable requirements of the HSR Act and
subject to the receipt of the FCC Consent, the execution, delivery and
performance by Buyer (and/or License Assignee) of this Agreement and the
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (a) do not require the consent of any third party; (b) will
not conflict with the Articles of Incorporation or Bylaws of Buyer (and/or
License Assignee); and (c) will not conflict in any material respect with,
result in a material breach of, or constitute a material default under, any
applicable law, judgment, order, ordinance, injunction, decree, rule,
regulation, or ruling of any court or governmental authority applicable to Buyer
(and/or License Assignee) or any material contract or agreement to which Buyer
(and/or License Assignee) is a party or by which Buyer may be bound.
4.4 Buyer Qualifications. Buyer is (and License Assignee will be)
legally, financially and otherwise qualified to be the licensee of, acquire, own
and operate the Station under the Communications Act, and the rules, regulations
and policies of the FCC. Buyer knows of no fact that would, under existing law
and the existing rules, regulations, policies and procedures of the FCC (a)
disqualify Buyer or the License Assignee as an assignee of the FCC Licenses or
as the owner and operator of the Station or (b) cause the FCC to fail to approve
in a timely fashion the application for the FCC Consent. No waiver of any FCC
rule or policy is necessary to be obtained for the grant of the applications for
the assignment of the FCC Licenses to Buyer or the License Assignee, nor will
processing pursuant to any exception or rule of general applicability be
requested or required in connection with the consummation of the transactions
contemplated by this Agreement.
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4.5 Brokers. Neither Buyer, License Assignee nor any person or
entity acting on its behalf has incurred any liability for any finders' or
brokers' fees or commissions in connection with the transactions contemplated by
this Agreement.
4.6 Disclosure. No representation or warranty of Buyer (or License
Assignee) contained in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make such
representations and warranties, in light of the circumstances under which they
were made, not misleading.
SECTION 5. OPERATIONS OF THE STATION PRIOR TO CLOSING
Between the date of this Agreement and the Closing Date, Seller shall
operate the Station in the ordinary course of business and, to the extent not
inconsistent therewith, consistent with past practice (in either case, except
where such conduct would conflict with the following covenants or with Seller's
other obligations under this Agreement). Notwithstanding the foregoing, without
the prior written consent of Buyer:
5.1 Contracts. Seller shall not enter into or renew any contract or
commitment relating to the Station or the Assets, or incur any obligation that
will be binding on Buyer after Closing, except in the ordinary course of
business; provided that (i) except for time sales contracts for cash at
prevailing rates for a term not exceeding six months, Seller shall not enter
into time sales agreements that will be binding on Buyer after Closing; (ii)
subject to the provisions of Section 6.17 hereof, Seller may enter into
Contracts of the type referred to therein; and (iii) Seller shall not enter
into, modify, amend, renew or change any Contract with respect to programming
for the Station for any period after the Closing Date without the prior approval
of Buyer, which approval shall be deemed given if Buyer does not specifically
advise Seller of its disapproval thereof within two Business Days of Sellers
request for any such approval;
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provided, however, that, without Buyer's consent, Seller shall have the right to
enter into, modify, amend, renew or change Contracts relating to programming
that do not involve expenditures in the aggregate of more than $150,000 and
shall have the right to renew agreements for sports programming on substantially
the same terms of such agreements as presently in existence and, provided,
further, if Buyer does not provide the approval described above, Seller shall
have the right to enter into, modify, amend, renew or change any Contract with
respect to programming for the Station as long as Seller shall pay the Buyer at
Closing (by set-off against Buyer's payment of the amount due Seller pursuant to
Section 2.6(a)(1)), the difference, if any, between (a) the present value, using
a discount rate of eight percent (8%) per annum (the "Present Value"), of the
payments required to be made on behalf of the Station pursuant to any such
Contract after the Closing Date, minus (b) the Present Value of the payments
which would have been made on behalf of the Station pursuant to any such
Contract after the Closing Date if Buyer had been the owner of the Station at
the time such Contract was entered into, modified, amended, renewed or changed,
as estimated in good faith by Buyer and evidenced in a certificate to such
effect executed by two (2) officers of Buyer and delivered to Seller at Closing.
5.2 Dispositions. Seller shall not sell, assign, lease or otherwise
transfer or dispose of any of the Assets, except at fair market value, in
connection with the acquisition of replacement property of equivalent kind and
use. Notwithstanding the foregoing or anything else contained in this Agreement,
the expiration by their terms of contracts prior to the Closing shall not be
deemed to be a violation of this Agreement.
5.3 Encumbrances. Seller shall not create, assume or permit to exist
any Liens upon the Assets, except for Permitted Liens and liens that will be
discharged prior to or on the Closing Date.
5.4 Access to Information. Seller shall give Buyer and its employees
and other authorized representatives during normal business hours and with
reasonable prior notice, access to the
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Assets and to all other books, records and documents of Seller relating to the
Station for the purpose of audit and inspection, including, without limitation,
conducting of any surveys and environmental assessments of Real Property
included in the Assets, and will furnish or cause to be furnished to Buyer or
its authorized representatives, upon reasonable notice, all information with
respect to the business and operation of the Station that Buyer may reasonably
request; provided, that the foregoing do not unreasonably disrupt the business
of the Seller. Not later than March 15, 1997, Seller shall deliver to Buyer its
final, audited financial statements for calendar year 1996 (the "1996 Audited
Financials") and will provide Buyer with a copy within one Business Day after
Seller's receipt of the final 1996 Audited Financials. Seller will use its
commercially reasonable efforts to obtain the consent of its auditors to permit
inclusion of the 1996 Audited Financials in applicable securities filings of
Sinclair Broadcast Group, Inc. ("SBGI"), provided that any expenses of obtaining
such consent shall be borne by Buyer. If Buyer requests, and at Buyer's expense,
it shall have the immediate right, without causing unreasonable disruption to
the business of the Station, to have the access provided for in the first
sentence hereof to conduct an audit of the Station's financial information, and,
subject to the foregoing, Seller shall cooperate with Buyer's reasonable
requests in connection with such audit, including, without limitation, giving
all reasonable consents thereto as long as any expenses thereof are borne by
Buyer.
5.5 Insurance. Seller shall maintain the existing insurance policies
on the Assets or other policies providing substantially similar coverages.
5.6 Compensation. Except as set forth in Schedule 5.6, Seller will
not permit any increases in the compensation of any of the employees of the
Station, except in the ordinary course of business (involving increases of not
more than five percent (5%) per annum) or as required by law or existing
contract or agreement, in which case any such contracts and agreements shall be
assumed by Buyer and treated as Assumed Liabilities hereunder; provided,
however, that Seller may pay bonuses to any of its
<PAGE>
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employees, consistent with past practice or, if not consistent with past
practice, only so long as such bonuses do not create a binding obligation upon
Buyer after the Closing Date.
5.7 Financial Information. Seller shall furnish Buyer within thirty
days after the end of each month ending between the date of this Agreement and
the Closing Date an unaudited statement of income and expense for such month and
such other financial information prepared by Seller, as Buyer may reasonably
request, prepared in accordance with generally accepted accounting principles
(except for the absence of footnotes) consistently applied.
5.8 Transactions with Affiliates. Seller shall not enter into any
transaction with any Affiliate of Seller that will be binding upon Buyer, the
Assets or the Station following the Closing Date.
5.9 Collective Bargaining. Except as required by applicable law,
Seller shall not enter into any collective bargaining agreement covering any
employees, through negotiations or otherwise, or make any commitment or incur
any liability to any labor organization with respect to any employees.
5.10 Maintenance of Assets. Seller shall use all commercially
reasonable efforts to maintain the Assets or replacements thereof in good
operating condition and adequate repair (given the age of such Assets and the
use to which such Assets are put and ordinary wear and tear excepted).
5.11 Operating Budget. Seller shall, in connection with the
operation of the Station, make expenditures materially consistent with the
estimates of expenses set forth in the Operating Budget to the extent reasonably
within the control of Seller and, including, without limitation, that Seller
shall make expenditures in respect of promotional, programming and engineering
activities for the Station (and employee expenditures related to such
activities) for any period covered by the Operating Budget equal to at least 95%
of the amounts therefor set forth therein.
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5.12 Incurrence of Additional Indebtedness. Seller shall not increase
its principal amount of indebtedness for borrowed money (which shall not include
any amounts owed to the former owners of the Station under non-competition or
consulting agreements) above $7,000,000.
SECTION 6. SPECIAL COVENANTS AND AGREEMENTS
6.1 FCC Consent.
-----------
(a) The purchase and sale of the Assets as contemplated by this
Agreement is subject to the FCC Consent.
(b) Seller and Buyer shall prepare and, within ten (10) days after
the date of this Agreement, file with the FCC appropriate applications for the
FCC Consent. The parties shall thereafter prosecute each application with
commercially reasonable diligence and otherwise use their commercially
reasonable efforts to obtain the grants of the applications as expeditiously as
practicable. Each party will promptly provide to the other party a copy of any
pleading, order or other document served on it relating to such applications
(but no party shall have any obligation to take any steps to satisfy
complainants, if any, which steps would substantially impair or diminish rights
under the FCC Licenses or otherwise impose an unreasonable burden on a party).
Buyer is and will be (and License Assignee upon assignment hereunder will be)
legally, financially and otherwise qualified to be the licensee of, acquire, own
and operate the Station under the Communications Act, and the rules, regulations
and policies of the FCC, and Buyer shall take or cause to be taken all actions
necessary or appropriate to be taken by Buyer (or its Affiliates, including
License Assignee) to permit the FCC to approve in a timely fashion the
assignment to Buyer of the FCC Licenses for the Station. Each party agrees to
comply with any condition imposed on it by the FCC Consent, except that no party
shall be required to comply with a condition if compliance with the condition
would have a material adverse effect upon it. Buyer and Seller shall oppose any
petitions to deny or other objections filed with
<PAGE>
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respect to the applications for any FCC Consent and any requests for
reconsideration or review of any FCC Consent.
(c) If the Closing shall not have occurred for any reason within the
original effective period of the FCC Consent, and neither party shall have
terminated this Agreement under Section 9, the parties shall jointly request an
extension of the effective period of such FCC Consent. No extension of the
effective period of the FCC Consent shall limit the exercise by either party of
its right to terminate the Agreement under Section 9.
6.2 HSR Act Filing. Seller and Buyer agree to (a) file or cause
to be filed with the U.S. Department of Justice ("DOJ") and Federal Trade
Commission ("FTC") within ten (10) Business Days of the date of this Agreement
all filings, if any, that are required in connection with the transactions
contemplated hereby under the HSR Act; (b) submit to the other party, prior to
filing, their respective HSR Act filings to be made hereunder and to discuss
with the other any comments the reviewing party may have; (c) cooperate with
each other in connection with such HSR Act filings, which cooperation shall
include furnishing the other with any information or documents that may be
reasonably required in connection with such filings; (d) promptly file, after
any request by the FTC or DOJ and after appropriate negotiation with the FTC or
DOJ of the scope of such request, any information or documents requested by the
FTC or DOJ; and (e) furnish each other with any correspondence from or to, and
notify each other of any other communications with, the FTC or DOJ that relates
to the transactions contemplated hereunder and, to the extent practicable, to
permit each other to participate in any conferences with the FTC or DOJ.
6.3 Confidentiality.
---------------
(a) Each party will not use or disclose to third parties (except as
may be necessary for the consummation of the transactions contemplated hereby,
or as required by law, including, without limitation, in connection with legal
proceedings relating to this Agreement and the transactions
<PAGE>
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contemplated hereby, or otherwise pursuant to subpoena or the request of a
governmental authority, and then only with prior notice to the other parties
hereto, including delivery of a copy of the subpoena or request, if applicable)
this Agreement or any information (including, without limitation, financial
information and information regarding program contracts and revenue) received
from the other parties hereto or their agents in the course of investigating,
negotiating and performing the transactions contemplated by this Agreement;
provided, however, that each party may disclose such information to such party's
officers, directors, employees, lenders, advisors, attorneys and accountants who
need to know such information in connection with the consummation of the
transactions contemplated by this Agreement and who are informed by such party
of the confidential nature of such information. Nothing shall be deemed to be
confidential information to a party that: (1) is already in such party's
possession, provided that such information is not known by such party to be
subject to another confidentiality agreement with or other obligation of secrecy
to, the other party hereto or another party, or (2) becomes generally available
to the public other than as a result of a disclosure by such party or its
officers, directors, employees, lenders, advisors, attorneys or accountants, or
(3) becomes available to such party on a non- confidential basis from a source
other than the other party hereto or its advisors, provided that such source is
not known by such party to be bound by a confidentiality agreement with or other
obligation of secrecy to the other party hereto or another party. In the event
this Agreement is terminated and the purchase and sale contemplated hereby
abandoned, Buyer will return to Seller all copies of documents, work papers and
other written confidential material obtained by Buyer in connection with the
transactions contemplated hereby. If this Agreement is terminated, each party
will return to the other party all information (including all documents, work
papers and other written confidential material) obtained by such party from any
other party in connection with the transactions contemplated by this Agreement.
(b) No party shall publish any press release or make any other public
announcement concerning this Agreement and the
<PAGE>
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Ancillary Documents or the transactions contemplated hereby or thereby without
the prior written consent of each other party, which shall not be withheld
unreasonably; provided, however, that nothing contained in this Agreement shall
prevent any party, after notification to each other party, from taking any
action required by law or from making any filings with governmental authorities
that, in its judgment, may be required or advisable in connection with the
execution and delivery of this Agreement or the Ancillary Documents or the
consummation of the transactions contemplated hereby or thereby.
6.4 Cooperation. Buyer and Seller shall cooperate fully with
each other and their respective counsel and accountants in connection with any
actions required to be taken as part of their respective obligations under this
Agreement, and Buyer and Seller shall execute such other documents as may be
necessary or desirable to the implementation and consummation of this Agreement
necessary or desirable to obtain the Consents, and otherwise use their
commercially reasonable efforts to consummate the transactions contemplated
hereby and to fulfill their obligations under this Agreement. Buyer and Seller
shall each diligently make and cooperate with the other in making all
commercially reasonable efforts to obtain or cause to be obtained prior to the
Closing Date all Consents. Buyer agrees to use all commercially reasonable
efforts to assist Seller in obtaining such Consents, and to take all
commercially reasonable actions necessary or desirable to obtain such Consents,
including, without limitation, executing such assumption instruments and other
documents as may reasonably be required in connection with obtaining the
Consents; provided, however, that Buyer shall not be required to accept or honor
changes, modifications or additions to Contracts required by the party from whom
consent is sought if such changes, modifications or additions would make such
contract materially more onerous upon or materially more burdensome to Buyer
than the existing terms of such Contract; and provided further, without imposing
any obligations on Seller, if Seller provides Buyer with a payment that, as
reasonably agreed to in good faith by Buyer and Seller, would cover such
changes, modifications or additions, Buyer shall accept such changes,
modifications or additions.
<PAGE>
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6.5 Control of the Station. Prior to Closing, Buyer shall not,
directly or indirectly, control, supervise or direct, or attempt to control,
supervise or direct, the operations of the Station; those operations, including
complete control and supervision of all of the Station's programs, employees and
policies, shall be the sole responsibility of Seller.
6.6 Accounts Receivable.
-------------------
(a) At the Closing, Seller will designate Buyer as its agent solely
for the purposes of collecting the Accounts Receivable. Buyer will collect the
Accounts Receivable during the period beginning on the Closing Date and ending
on the 180th day after the Closing Date (the "Collection Period") with the same
care and diligence Buyer uses with respect to its own accounts receivable and
hold all such Accounts Receivable in trust for Seller until remitted by Buyer to
the Indemnification Escrow Agent or the Collections Account pursuant hereto.
Buyer shall not make any referral or compromise of any of the Accounts
Receivable to a collection agency or attorney for collection and shall not
settle or adjust the amount of any of the Accounts Receivable without the
written approval of Seller. If, during the Collection Period, Buyer receives
monies from an account debtor of Buyer that is also an account debtor of Seller
with respect to any Accounts Receivable, Buyer shall credit the sums received to
the oldest account due, except where an account is disputed by the account
debtor as properly due, and the account debtor has so notified Buyer in writing,
in which case, payments received shall be applied in accordance with the account
debtor's instructions; provided that upon resolution of such dispute if any
amounts in dispute are received by Buyer, Buyer shall remit such amounts to the
Indemnification Escrow Agent in accordance with the Indemnification Fund
Agreement up to the amount of the Additional Indemnification Amount Deposit and,
thereafter, to the Collections Account.
(b) On the ninetieth (90th) day after the Closing Date and on or
before the fifth Business Day after the end of each full fifteen (15) day period
thereafter during the Collection
<PAGE>
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Period, Buyer shall deliver to Seller a list of the amounts collected by Buyer
before the end of such period with respect to the Accounts Receivable. On or
before the fifth Business Day after the end of the Collection Period, Buyer
shall deliver to Seller a list of all of the Accounts Receivable that remain
uncollected.
(c) Seller shall establish and maintain during the Collection Period
(and for as long after the Collection Period as Seller deems appropriate) a bank
account (the "Collections Account") at a commercial bank in Las Vegas, Nevada,
as notified in writing by Seller to Buyer for the deposit of collections of the
Accounts Receivable in accordance with this Section 6.6. Seller shall have sole
disbursement authority over the Collections Account. On the ninetieth (90th) day
after the Closing Date (or if such day is not a Business Day, on the next
succeeding Business Day), Buyer shall (i) deposit with the Indemnification
Escrow Agent pursuant to the Indemnification Fund Agreement all amounts
collected with respect to any Accounts Receivable, not to exceed the lesser of
(A) One Million Five Hundred Thousand Dollars ($1,500,000) or (B) the amount of
the Closing Date Estimated Accounts Receivable (the Additional Indemnification
Amount Deposit) and (ii) deposit in the Collections Account any other Accounts
Receivable collected by Seller as of such date. On and after the ninetieth
(90th) day after the Closing Date until the expiration of the Collections
Period, within five (5) Business Days of the end of each full fifteen (15) day
period, Buyer shall deposit all amounts collected with respect to the Accounts
Receivable with the Indemnification Escrow Agent pursuant to the Indemnification
Fund Agreement until the total of all amounts deposited pursuant to the previous
sentence and this sentence equals the Additional Indemnification Amount Deposit
and, thereafter, in the Collections Account. Seller shall be entitled to dispose
of all amounts deposited in the Collections Account from time to time as it
chooses, in its sole discretion, and Buyer and the Indemnification Escrow Agent
shall have no rights therein.
(d) After the expiration of the Collection Period, Buyer shall have
no further obligation hereunder other than (1)
<PAGE>
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so long as Seller continues to maintain the Collections Account, to deposit in
such account any payments with respect to any of the Accounts Receivable that
Buyer subsequently receives, and (2) thereafter, to remit directly to Seller any
payments with respect to any of the Accounts Receivable that Buyer subsequently
receives.
(e) Any Accounts Receivable remaining uncollected 180 days after the
Closing Date shall be transferred to Seller, together with all files concerning
the collection or attempt to collect such Accounts Receivable hereunder, and
Buyer shall thereafter have no further responsibility with respect thereto.
(f) Buyer shall have no right to set-off any amounts collected for
Accounts Receivable against any amounts owed to Buyer by Seller; provided that
this Section 6.6(f) shall not be deemed to limit the right of Buyer to make
claims against the Indemnification Amount in accordance with, and subject to,
the terms and conditions of this Agreement.
6.7 Access to Books and Records. Seller shall provide Buyer
access and the right to copy for a period of seven years from the Closing Date
any books and records relating to the Assets but not included in the Assets.
Buyer shall provide Seller access and the right to copy for a period of seven
years after the Closing Date any books and records relating to the Assets that
are included in the Assets.
6.8 Employee Matters. The following provisions shall apply
exclusively for the sole benefit of the parties to this Agreement and not for
the benefit of any other Person, including any employee of Seller:
(a) Effective as of the Closing Date, Buyer shall offer employment to
each employee of Seller who is employed at the Station immediately prior to the
Closing Date (collectively, the "Assumed Employees"). Except as otherwise
provided in this Section 6.8, the Buyer shall offer employment to the Assumed
Employees on terms and conditions that are substantially similar in the
aggregate to the terms and conditions of employment of
<PAGE>
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employees of SBGI and its affiliates as of the Closing Date. Seller acknowledges
that Buyer is not assuming any employment agreements to which Seller or any of
its Affiliates is a party. To the fullest extent permitted by applicable law,
each Assumed Employee shall receive credit for past service with Seller, to the
extent credited by the Seller as of the Closing Date, for all purposes under
Buyer's benefits plans; provided, however, that Buyer shall not be required to
provide any Assumed Employee with credit for service with the Seller for
purposes of benefit accrual under any defined benefit pension plan sponsored or
maintained by Buyer. Notwithstanding the foregoing, subject to Buyer's
liabilities and obligations pursuant to any of the Assumed Contracts, nothing in
this Section 6.8 is intended to guarantee employment for any Assumed Employees
for any minimum period of time after the Closing Date.
(b) Buyer shall offer and provide and shall assume full
responsibility and liability for offering and providing "Continuation Coverage"
to any "Qualified Beneficiary" who is covered by a "Group Health Plan" sponsored
or contributed to by Seller or any entity required to be combined with Seller
(within the meaning of Sections 414(b) or (c) of the Code) and who has
experienced a "Qualifying Event" or is receiving "Continuation Coverage" on or
prior to the Closing Date. Buyer shall offer and provide such coverage without
regard to any limitation on Seller's obligation to provide such coverage by
reason of Seller's termination of any Group Health Plan on or after the Closing
Date. "Continuation Coverage," "Qualified Beneficiary," "Qualifying Event" and
"Group Health Plan" all shall have the meanings given such terms under Section
4980B of the Code and Section 601 et seq. of ERISA.
(c) Buyer shall offer health plan coverage to all Assumed Employees
under the terms and conditions generally applicable to Buyer's or its
Affiliates' employees as of the Closing Date. For purposes of providing such
coverage, Buyer shall waive all preexisting condition limitations for all
Assumed Employees covered by Seller's group health plan as of the Closing Date
(to the extent permitted under Buyer's group health plan) and shall provide such
health care coverage effective as of the
<PAGE>
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Closing Date without the application of any eligibility period for coverage. In
addition, Buyer shall credit all employee payments toward deductible and
co-payment obligations limits under Seller's health care plans for the plan year
which includes the Closing Date as if such payments had been made for similar
purposes under Buyer's health care plans during the plan year which includes the
Closing Date, with respect to the Assumed Employees.
(d) Buyer shall grant Assumed Employees credit for and shall assume
and be responsible for any liabilities with respect to accrued sick and personal
leave and earned vacation time (which vacation time shall be subject to
proration and adjustment as provided for in Section 2.5(a) above) by any Assumed
Employees as of the Closing Date.
(e) Buyer agrees that Seller may inform its employees that Buyer has
agreed that the Assumed Employees will be offered employment and the terms and
conditions relating to such employment as provided in this Section 6.8;
provided, however, that Buyer shall have the right to approve any written
statement to be made by Seller in connection therewith prior to the rendering or
transmittal of any such statement.
(f) Seller shall be responsible for and shall pay all amounts owed to
(i) any employees who have not become Assumed Employees and (ii) any Assumed
Employees for services performed prior to the Closing, except in respect of
Assumed Employees for accrued sick leave and for accrued vacation pay (with
respect to which no cash payment is or may be due to any employee).
Notwithstanding the foregoing, however, after the Closing, Buyer shall be solely
responsible for wages, benefits and any employment related claims brought by any
Assumed Employee against Buyer or Seller by reason of Buyer's acts or omissions
in connection with such employment or the termination thereof, to the extent any
such liability or claims is attributable to a period commencing after the
Closing Date.
(g) At Buyer's request, Seller shall use all commercially reasonable
efforts to obtain the assignment to Buyer
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of the Employment Agreement dated December 21, 1993, by and between Las Vegas
Channel 21, Inc. and Martin S. Sokoler (the "Employment Agreement") and all of
the assigning party's rights and obligations thereunder to the extent permitted
by the terms thereof, and Buyer shall accept such assignment and assume such
obligations. Notwithstanding the foregoing, Seller shall, and shall cause its
general partner to, at Buyer's request and in consultation with Buyer, use all
commercially reasonable efforts to obtain from Mr. Sokoler, pursuant to the
Employment Agreement, an executed non-competition agreement, to be substantially
on the same terms as the form of non-competition agreement attached hereto as
Exhibit 8.2(k), provided that the term of such non- competition agreement shall
not be longer than six months from the date of Mr. Sokoler's termination of
employment, if any. Seller shall, and shall cause its general partner to,
cooperate with Buyer, if requested by Buyer, in attempting to enforce the
applicable provisions of the Employment Agreement relating to such
non-competition agreement; provided that such enforcement shall be at the
expense of Buyer.
6.9 Cure. For all purposes under this Agreement, the existence
or occurrence of any events or circumstances that constitutes or causes a breach
of a representation or warranty of Buyer or Seller (including, without
limitation, under the information disclosed in the Schedules hereto) on the date
such representation or warranty is made shall be deemed not to constitute a
breach of such representation or warranty if such event or circumstance is cured
in all material respects on or prior to the Closing Date. Without limiting the
foregoing, Buyer or Seller shall promptly notify the other party hereto of the
existence or occurrence of any events or circumstances that would cause any of
the conditions to the notifying party's obligations at Closing hereunder set
forth in Section 7.1 or 7.2, as the case may be (collectively, the "Conditions
Precedent"), to not be fulfilled and such other party shall have the right to
cure such event or circumstance on or prior to the Closing Date.
6.10 Other Acquisitions. Without limiting any other provisions
of this Agreement, prior to the Closing, without the prior written consent of
Seller, neither SBGI, Buyer nor any of
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their respective Affiliates or any party acting, directly or indirectly, by or
on behalf of any of them (the "Buyer Parties") shall acquire or enter into an
agreement to acquire a television station in the Las Vegas DMA or enter into a
Management Arrangement or Option. Buyer shall promptly notify Seller in writing
of any violation of this Section 6.10.
6.11 Interruption of Broadcast Transmission.
--------------------------------------
(a) In the event of any loss, damage or impairment, confiscation or
condemnation of any of the Assets prior to the completion of the Closing that
interferes with the normal operation of the Station, Seller shall notify Buyer
of same in writing immediately, specifying with particularity the loss, damage
or impairment, confiscation or condemnation incurred, the cause thereof, if
known or reasonably ascertainable, and the insurance coverage. Seller shall
apply the proceeds of any insurance policy, judgment or award with respect
thereto and take such other commercially reasonable actions, as determined in
its sole discretion, as are necessary to repair, replace or restore such Assets
to their prior condition as soon as possible after such loss, damages or
impairment, confiscation or condemnation.
(b) If before the Closing Date, due to damage or destruction of the
Assets the regular broadcast transmission of the Station in the normal and usual
manner is interrupted for a period of 12 continuous hours or more, Seller shall
give prompt written notice thereof to Buyer. If on the Closing Date, due to
damages or destruction of the Assets the regular broadcast transmission of the
Station in the normal and usual manner is interrupted such that the regular
broadcast signal of such Station (including its effective radiated power) is
diminished in any material respect, then (i) Seller shall immediately give
written notice thereof to Buyer; and (ii) either, and both of, Seller or Buyer
shall have the right, by giving prompt written notice to the other, to postpone
the Closing Date for a period of up to 90 days.
(c) In the event the Station's normal and usual transmission has not
been resumed by the Closing Date as
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postponed pursuant to section (b) above, either Buyer or Seller may pursuant to
Section 9.1(e), terminate this Agreement by written notice to the other party.
Notwithstanding the foregoing, however, Buyer may, at its option, proceed to
close this Agreement and complete the restoration and replacement of any damaged
Assets after the Closing Date, in which event Seller shall deliver or assign to
Buyer all insurance or other proceeds received in connection therewith to the
extent such proceeds are received by or payable to Seller and have not therefore
been used in or committed to the restoration or replacement of the Assets, but
Seller shall have no other liability or obligation to Buyer in connection
therewith.
(d) If before the Closing Date, due to damage or destruction of the
Assets the regular broadcast transmission of the Station in the normal and usual
manner is interrupted for a period of seven (7) continuous days or more, Seller
shall give prompt written notice thereof (the "Interruption Notice") to Buyer.
Upon receipt of the Interruption Notice, Buyer shall have the right, in its sole
and absolute discretion, by giving prompt written notice thereof to Seller
within two (2) Business Days of the date of the Interruption Notice, to
terminate this Agreement with the effect specified in Section 9.2(b)(1) hereof.
(e) Until the Closing Date, Seller will maintain the existing
insurance policies listed in Schedule 3.11 on the Station and the Assets.
6.12 Ownership Interests in Seller. Buyer acknowledges and agrees
that the limited partners (collectively, the "Limited Partners") and General
Partner of Seller shall have the right to transfer their respective limited and
general partnership interests in Seller, and that the equity owners of the
Limited Partners and the General Partner shall have the right to transfer their
respective equity ownership interests therein, to charitable remainder trusts;
provided, however, that as a result of any such transfers, the consummation of
the transactions
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contemplated by this Agreement is not adversely affected, the parties hereto
specifically acknowledging and agreeing that an immaterial delay to the
consummation of the transactions contemplated by this Agreement resulting from
amendments to the parties' applications for the FCC Consent as a result of any
such transfers shall not be deemed a violation or breach of this Section 6.12.
6.13 Estoppel Certificate. Seller shall use reasonable efforts
to deliver to Buyer at the Closing an estoppel certificate from the landlord
under the Lease, certifying a copy of the Lease and stating that all rental
payments due thereunder are current and, to the knowledge of such landlord,
there are no defaults under such Lease.
6.14 FCC Applications. Between the date of this Agreement and the
Closing Date, Seller shall use commercially reasonable diligence to prosecute
each of the FCC Applications.
6.15 Executed Copies of the Assumed Contracts. Seller shall use
its reasonable efforts to obtain fully executed counterparts of each of the
Assumed Contracts of which it does not have a fully executed counterpart, as
requested by Buyer, and, upon the request of Buyer, promptly deliver copies
thereof to Buyer.
6.16 Representation Agreement. Within three (3) days of the date
on which Seller receives a written request (the "Termination Request") from
Buyer to give a Termination Notice, as defined in that certain Representation
Agreement dated June 27, 1994 by and between Seltel, Inc. and Channel 21, L.P.
(the "Seltel Agreement"), Seller shall give such Termination Notice. Such
Termination Request shall not be given by Buyer earlier than the eleventh (11th)
day after the date of this Agreement. Notwithstanding anything in this Agreement
to the contrary, if the termination pursuant to such Termination Notice is
effective on or before the Closing Date or if the Closing hereunder does not
occur for any reason, Seller shall use commercially reasonable efforts to enter
into a representation agreement with respect to the Station(the "Successor
Representation Agreement") with a representation firm (the "Successor
Representation Firm"), such Agreement to be subject to the consent of Buyer,
such consent not to be unreasonably withheld, and Buyer shall pay to
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Seller, promptly upon request therefor, an amount equal to the difference
between (A) the payments due by Seller pursuant to Section 5.2(a)(ii) and (iii)
of the Seltel Agreement, minus (B) the amounts, if any, which the Successor
Representation Firm undertakes to pay in connection with the Successor
Representation Agreement. Notwithstanding the foregoing and anything in this
Agreement to the contrary, if the termination pursuant to such Termination
Notice is effective after the Closing Date, any payments due under Section
5.2(a)(ii) or (iii) of the Seltel Agreement shall be paid by Buyer and Buyer
shall have no claim against Seller for such payments. Notwithstanding anything
to the contrary contained in this Agreement, payments due under Section
5.1(a)(i) of the Seltel Agreement shall be prorated between Seller and Buyer
based upon their respective period of ownership before the Termination Date and
Calculation Date (as defined in the Seltel Agreement) such that Seller is
responsible for National Spot Advertising (as defined in the Seltel Agreement)
broadcast on the Station before the Closing Date and Buyer shall be responsible
for National Spot Advertising broadcast on the Station on and after the Closing
Date.
6.17 Certain Contracts. Neither Seller nor any of its Affiliates
nor any party acting, directly or indirectly, by or on behalf of any of them
(the "Seller Parties") will enter into any Contract of the type specified on
Schedule 3.7A unless such Contract provides for the assignment, transfer or
conveyance thereof to Buyer (or its assigns) upon the Closing or the termination
of this Agreement as a result of a willful and intentional breach by Seller of
its obligations hereunder. Promptly upon any of the Seller Parties entering into
any Contract of the type specified on Schedule 3.7A, Seller will provide Buyer
with written notice thereof. Following any written request of Buyer delivered in
accordance with Section 3.7A, either at Closing or promptly following
termination of this Agreement as a result of a willful and intentional breach by
Seller of its obligations hereunder, Seller will assign, or cause to be
assigned, to Buyer (or its assigns) all rights and obligations of the Seller
Parties arising in connection with any Contract of the type specified in
Schedule 3.7A; provided that pursuant to documentation reasonably satisfactory
to the Seller
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Parties: (i) SBGI will (or will cause its assigns to) reimburse the assigning
party for its out-of-pocket disbursements in connection with such Contract,
including all amounts paid by any Seller Party to any party with whom it entered
into such Contract in consideration for entering into such Contract; and (ii)
SBGI will (or will cause its assigns to) indemnify and hold harmless each Seller
Party and any party with whom any Seller Party entered into such Contract, in
respect of the failure or alleged failure of Buyer (or its assigns) to comply
with its obligations under any such Contract following assignment to Buyer (or
its assigns).
SECTION 7. CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER
---------------------------------------------
7.1 Conditions to Obligations of Buyer. All obligations of Buyer
at the Closing hereunder are subject, at Buyer's option, to the fulfillment
prior to or at the Closing Date of each of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Seller contained in this Agreement shall be true and correct at
and as of the Closing Date as though made at and as of that time, except (1) to
the extent any such representation or warranty is expressly stated only as of a
specified earlier date or dates, in which case such representation and warranty
shall be true, as of such earlier specified date or dates (subject to clause 3
below), (2) for changes which are permitted or contemplated pursuant to this
Agreement or (3) to the extent that the failure of the representations and
warranties of Seller contained in this Agreement to be true and correct at and
as of the Closing Date as though made at and as of that time, or, with respect
to representations and warranties stated only as of a specified earlier date or
dates, to be true and correct as of such earlier specified date or dates, would
in either case not result in losses, liabilities or damages to Buyer in excess
of $1,500,000.
(b) Covenants and Conditions. Seller shall have performed and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement
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to be performed or complied with by it prior to or on the Closing Date.
(c) Required Consents. All Required Consents shall have been obtained
and delivered to Buyer.
(d) FCC Consent. The FCC Consent shall have been granted and shall
have become a Final Order.
(e) HSR Act. The waiting period under the HSR Act shall have expired
or terminated without adverse action by DOJ or the FTC to prevent the Closing
and there shall not be pending any action or request for information instituted
by the FTC or the DOJ under the HSR Act.
(f) Legal Proceedings. No injunction, restraining order or decree of
any nature of any court or governmental authority of competent jurisdiction
shall be in effect which restrains or prohibits Buyer from consummating the
transactions contemplated by this Agreement.
(g) Deliveries. Seller shall have made or stand willing to make all
the deliveries to Buyer described in Section 8.2.
7.2 Conditions to Obligations of Seller. All obligations of Seller at
the Closing hereunder are subject, at Seller's option, to the fulfillment prior
to or at the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement, considered in the aggregate,
shall be true and correct in all material respects at and as of the Closing Date
as though made at and as of that time, except (1) to the extent any such
representation or warranty is expressly stated only as of a specified earlier
date or dates, in which case such representation and warranty shall be true and
accurate in all material respects as of such earlier specified date or dates or
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(2) for changes are permitted or contemplated pursuant to this Agreement.
(b) Covenants and Conditions. Buyer shall have performed and complied
in all material respects with all covenants, agreements and conditions required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(c) Required Consents. All Required Consents shall have been
obtained.
(d) FCC Consent. The FCC Consent shall have been granted.
(e) HSR Act. The waiting period under the HSR Act shall have expired
or terminated without adverse action by DOJ or the FTC to prevent the Closing
and there shall not be pending any action or request for information instituted
by the FTC or the DOJ under the HSR Act.
(f) Legal Proceedings. No injunction, restraining order or decree of
any nature of any court or governmental authority of competent jurisdiction
shall be in effect which restrains or prohibits Seller from consummating the
transactions contemplated by this Agreement.
(g) Deliveries. Buyer shall have made or stand willing to make all
the deliveries described in Section 8.3.
SECTION 8. CLOSING AND CLOSING DELIVERIES
8.1 Closing.
-------
(a) Closing Date.
(1) Subject to (i) the satisfaction or, to the extent permissible
by law, waiver (by the party for whose benefit the closing condition is imposed)
on the date scheduled for Closing of the closing conditions described in Article
7 hereof
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and (ii) the provisions of Article 9 hereof, the parties hereto shall be
obligated to consummate the transactions contemplated hereby at the Closing of
this Agreement, which shall take place at 10:00 a.m., Washington, D.C. time on
the date specified by Seller to Buyer, which is not less than ten (10) nor more
than fifteen (15) days following the date the FCC Consent becomes a Final Order;
provided, however, if the date the FCC Consent becomes a Final Order is prior to
June 30, 1997, Buyer may elect that the Closing be postponed until July 1, 1997
by written notice given to Seller within 10 days of the date the FCC Consent
becomes a Final Order. If any date specified for the Closing is not a Business
Day, the Closing shall take place on the next Business Day.
(2) Notwithstanding the foregoing, if on the date otherwise
scheduled for the Closing pursuant to the preceding paragraph, the conditions
precedent set forth in Sections 7.1(c), 7.1(e), 7.1(f), 7.2(c), 7.2(e) or 7.2(f)
hereof have not been satisfied, the party for whose benefit such conditions have
been imposed may elect to postpone the Closing, and the Closing shall thereafter
take place on a date specified by prior written notice from such party, which
date shall be not less than ten (10) days nor more than fifteen (15) days after
the satisfaction or waiver of such conditions precedent. The parties shall seek
extensions of any FCC Consent that may be required for any such postponement of
the Closing.
(3) Notwithstanding the foregoing, if, on the date otherwise
scheduled for Closing pursuant to Section 8.1(a)(1) or (2), the circumstances
set forth in Section 6.11 are applicable, the Closing Date shall be postponed to
the date specified in such Section. The parties shall seek extensions of any FCC
Consent that may be required for any such postponement of Closing.
(4) In no event shall the Closing hereunder occur later than
February 2, 1998, except as provided above in Section 8.1(a)(3) and in Section
9.1.
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(b) Closing Place. The Closing shall be held at the offices of Dow,
Lohnes & Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite 800,
Washington, D.C. 20036, or any other place that is agreed upon by Buyer and
Seller.
8.2 Deliveries by Seller. Prior to or on the Closing Date, Seller
shall deliver to Buyer the following documents (collectively, the "Seller's
Ancillary Documents"), in form and substance reasonably satisfactory to Buyer
and its counsel:
(a) Conveyancing Documents. Duly executed general warranty deeds
(subject, however, to any limitations on representations of Seller and
indemnification obligations of Seller set forth in this Agreement), bills of
sale and assignments conveying the Assets to the Buyer;
(b) Officer's Certificate. A certificate, dated as of the Closing
Date, executed by an officer of the General Partner of Seller, certifying, after
due inquiry, but without personal liability, to the fulfillment of the
conditions set forth in Sections 7.1(a) and 7.1(b);
(c) Secretary's Certificate. A certificate, dated as of the Closing
Date, executed by the Secretary of the General Partner of Seller, certifying
that the resolutions, as attached to such certificate, were duly adopted by the
Board of Directors and shareholders (if required) of the General Partner of
Seller, authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby and that such resolutions
remain in full force and effect;
(d) Consents. A copy of any instrument evidencing any Consent
received;
(e) Releases. Any mortgage discharges or releases of liens that are
necessary in order for the Assets to be free and clear of all liens, mortgages
or security interests, other than the Permitted Liens or a pay-off letter from
Seller's senior lenders providing for, and obligating such Lenders to provide,
such discharges and releases upon payment by Seller of the
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obligations owed to such lenders with the proceeds of the Estimated Purchase
Price on the Closing Date;
(f) Opinion of Counsel. An opinion of Dow, Lohnes & Albertson, PLLC,
dated the Closing Date, substantially in the form of Exhibit 8.2(f) hereto;
(g) Good Standing Certificates. Certificates as to the formation and
good standing of Seller and the General Partner issued by the Secretary of State
of the State of Nevada and certificates issued by the appropriate governmental
authorities in each jurisdiction in which Seller and the General Partner are
qualified to do business, dated not more than ten (10) days before the Closing
Date;
(h) Indemnification Fund Agreement and Escrow Agreement. The
Indemnification Fund Agreement and Escrow Agreement, each duly executed by
Seller;
(i) Assignment and Assumption Agreement. The Assignment and
Assumption Agreement, substantially in the form of Exhibit 8.2(i) hereto (the
Assignment and Assumption Agreement), duly executed by Seller;
(j) Officer's Certificate. A certificate, dated as of the Closing
Date, executed by an officer of the General Partner of Seller, certifying, after
due inquiry, but without personal liability, that neither Seller nor the Station
nor any of the Assets is subject to any judgment, writ, order, injunction, award
or decree by any court, arbitrator or governmental authority, including any
administrative agency, specifically applicable thereto, that would have a
material adverse effect on the business or operations of the Station; and
(k) Non-Competition Agreements. Non-Competition Agreements,
substantially in the form of Exhibit 8.2(k) hereto, duly executed by each of the
Persons listed in Schedule 8.2(k) hereto.
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8.3 Deliveries by Buyer. Prior to or on the Closing Date, Buyer
shall deliver to Seller the following documents (collectively, the "Buyer's
Ancillary Documents" and, together with the Seller's Ancillary Documents, the
"Ancillary Documents"), in form and substance reasonably satisfactory to Seller
and its counsel:
(a) Closing Payment. The payments described in Section 2.6(a);
(b) Officer's Certificate. A certificate, dated as of the Closing
Date, executed on behalf of Buyer by an officer of Buyer, certifying, after due
inquiry, but without personal liability, to the fulfillment of the conditions
set forth in Sections 7.2(a) and 7.2(b);
(c) Secretary's Certificate. A certificate, dated as of the Closing
Date, executed by Secretary of Buyer, certifying that the resolutions, as
attached to such certificate, were duly adopted by Board of Directors and
shareholders (if required) of the Buyer, authorizing and approving the execution
of this Agreement and the consummation of the transactions contemplated hereby
and that such resolutions remain in full force and effect;
(d) Assignment and Assumption Agreement. The Assignment and
Assumption Agreement, duly executed by Buyer;
(e) Opinion of Counsel. An opinion of Buyer's counsel, dated the
Closing Date, substantially in the form of Exhibit 8.3(e) hereto;
(f) Good Standing Certificate. A certificate as to the existence and
good standing of Buyer issued by the Secretary of State of the State of
organization of Buyer, dated not more than ten (10) days before the Closing
Date, and certificates issued by the appropriate governmental authority as to
the qualification of Buyer to do business in each jurisdiction in which such
qualification is necessary for Buyer to own the Assets and operate the Station;
and
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(g) Indemnification Fund Agreement and Escrow Agreement. The
Indemnification Fund Agreement and Escrow Agreement, each duly executed by
Buyer.
SECTION 9. TERMINATION
9.1 Termination of Agreement. This Agreement may be terminated:
(a) at any time by mutual written consent of Buyer and Seller;
(b) by either Buyer or Seller, if the terminating party is not in
default or breach in any material respect of its obligations under this
Agreement, if the Closing hereunder has not taken place on or before February 2,
1998, except where Closing has been postponed pursuant to the provisions of
Sections 6.11(b) or 8.1(a)(3), in which case the applicable date shall be upon
the expiration of the 90 day period referred to in Sections 6.11(b) or
8.1(a)(3);
(c) by Seller, if Seller is not in default or breach in any material
respect of its obligations under this Agreement, if all the conditions in
Section 7.2 have not been satisfied or waived by the date scheduled for the
Closing pursuant to Section 8.1 (as such date may be postponed pursuant to
Sections 6.11 or 8.1);
(d) by Buyer, if Buyer is not in default or breach in any material
respect of its obligations under this Agreement, if all the conditions set forth
in Section 7.1 have not been satisfied or waived by the date scheduled for the
Closing pursuant to Section 8.1 (as such date may be postponed pursuant to
Sections 6.11 or 8.1);
(e) by Buyer or Seller, pursuant to Section 6.11; or
(f) by Seller, if Buyer should fail for any reason to make any
payment required pursuant to Section 2.3 hereof at the
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times and in the amounts specified therein or violate or breach the provisions
of Section 6.10 hereof.
Notwithstanding anything in this Section 9.1 to the contrary, if
on February 2, 1998 (or any extended date as provided in Section 8.1(a)(3)), the
Closing has not occurred solely because any required notice period for Closing
has not lapsed, such date shall be extended until the lapse of such period.
9.2 Procedure and Effect of Termination.
-----------------------------------
(a) In the event of termination of this Agreement by either or both
of Buyer and/or Seller pursuant to Sections 6.11(d) or 9.1 hereof, prompt
written notice thereof shall forthwith be given to the other party and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned without further action by any of the parties hereto, but subject to
and without limiting any of the rights of the parties specified herein in the
event a party is in default or breach in any material respect of its obligations
under this Agreement. If this Agreement is terminated as provided herein:
(1) None of the parties hereto nor any of their respective
partners, directors, officers, shareholders, employees, agents, or Affiliates
including any shareholder, director, officer, employee, agent or Affiliate of
the General Partner of the Seller) shall have any liability or further
obligation to the other party or any of their partners, directors, officers,
shareholders, employees, agents or Affiliates pursuant to this Agreement with
respect to which termination has occurred, except for Seller and/or Buyer, as
the case may be (but not including Seller's or Buyer's partners, directors,
officers, shareholders, employees, agents, or Affiliates (or any shareholder,
director, officer, employee, agent or Affiliate of the General Partner of the
Seller)), as stated in Sections 3.18, 4.5, 6.4, 6.16, 9.2(b) and 11.1 hereof;
and
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(2) All filings, applications and other submissions relating to
the transactions contemplated hereby as to which termination has occurred shall,
to the extent practicable, be withdrawn from the agency or other Person to which
made.
(b) (1) If this Agreement is terminated pursuant to Sections 9.1 and
Seller shall be in breach in a material respect of any of its representations,
warranties, covenants, agreements or obligations set forth in this Agreement,
then and in that event, the Purchase Price Deposit and the Escrow Amount shall
be returned to Buyer and Buyer shall have the right to pursue all remedies
available hereunder or at law or equity, including, without limitation, the
right to seek specific performance and/or monetary damages. In recognition of
the unique character of the property to be sold hereunder and the damages which
Buyer will suffer in the event of a breach by Seller, Seller hereby waives any
defense that Buyer has an adequate remedy at law for the breach of this
Agreement by Seller;
(2) If this Agreement is terminated pursuant to Section 9.1 and
Buyer shall be in breach in a material respect of its representations,
warranties, covenants, agreements or obligations set forth in this Agreement,
then and in that event, Seller shall have the right to retain the Purchase Price
Deposit and receive payment of the Escrow Amount from the Escrow Agent as
liquidated damages and as the exclusive remedy of Seller as a consequence of
Buyer's default (which aggregate amount the parties agree is a reasonable
estimate of the damages that will be suffered by Seller as a result of the
default by Buyer and does not constitute a penalty, the parties hereby
acknowledging the inconvenience and nonfeasibility of otherwise obtaining an
adequate remedy);
(3) Notwithstanding anything in this Agreement to the contrary,
if this Agreement is terminated pursuant to Section 9.1(f) by Seller, then and
in that event, Seller shall have the right to retain the Purchase Price Deposit
and receive payment of the Escrow Amount from the Escrow Agent as liquidated
damages and as the exclusive remedy of Seller as a consequence
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of Buyer's failure to make the payments required under Section 2.3 hereof at the
times and in the amounts specified therein or violation or breach of the
provisions of Section 6.10 hereof (which aggregate amount the parties agree is a
reasonable estimate of the damages that will be suffered by Seller as a result
of Buyer's failure and does not constitute a penalty, the parties hereby
acknowledging the inconvenience and nonfeasibility of otherwise obtaining an
adequate remedy);
(4) Notwithstanding anything in this Agreement to the contrary,
if this Agreement is terminated pursuant to Section 9.1(a) or (e), then and in
that event, the Purchase Price Deposit and the Escrow Amount shall be returned
to Buyer and except in the case of termination under Section 9.1(e), where
Seller shall be in breach in a material respect of its representations,
warranties, covenants or agreements or obligations set forth in this Agreement,
Buyer shall have no further rights, whether at law or equity, as a result of
such a termination of this Agreement.
(5) Without limiting the generality of the foregoing, or any
applicable law, neither Buyer nor Seller may rely on the failure of any
condition precedent set forth in Article 7 to be satisfied as a ground for
termination of this Agreement by such party if such failure was caused by such
party's failure to act in good faith, or a breach of or failure to perform its
representations, warranties, covenants or other obligations in accordance with
the terms hereof; and
(6) Notwithstanding the provisions of Sections 9.2(b) (2), (3)
and (4) above, or anything else contained herein to the contrary, Seller shall
have all rights, available at law or equity, including, without limitation, the
right to seek specific performance and/or monetary damages for a breach of the
provisions of Section 6.10 hereof by any Buyer Party in addition to its right to
retain the Purchase Price Deposit and receive payment of the Escrow Amount. In
addition, without limiting the foregoing, in the event of a breach of the
provisions of Section 6.10, upon the written request of Seller following the
termination of this Agreement (other than as a result of a
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willful and intentional breach by Seller of its obligations hereunder), SBGI and
Buyer will assign (or cause to be assigned) to Seller (or its assigns) all
rights and obligations of the Buyer Parties arising in connection with such
agreement to acquire, Management Arrangement or Option referred to in Section
6.10 (collectively, "Acquisition Agreements"), provided that pursuant to
documentation reasonably satisfactory to the Buyer Parties: (i) Seller will (or
will cause its assigns to) reimburse the assigning party for its out-of-pocket
disbursements in connection with any such Acquisition Agreement, including all
amounts paid by any Buyer Party to any person with which it entered into such
Acquisition Agreement in consideration for entering in such Acquisition
Agreement; and (ii) Seller will (or will cause its assigns to) indemnify and
hold harmless each Buyer Party, and any party with which any Buyer Party has
entered into such Acquisition Agreement, in respect of the failure or alleged
failure of Seller (or its assigns) to comply with its obligations under any such
Acquisition Agreement following assignment to Seller (or its assigns). In
recognition of the unique character of the agreements set forth in Section 6.10
and the damages Seller may suffer in the event of such a breach, Buyer and SBGI
hereby waive the defense that there is an adequate remedy at law.
9.3 Attorneys' Fees. In the event of a default by either party
that results in a lawsuit or other proceeding for any remedy available under
this Agreement, the prevailing party shall be entitled to reimbursement from the
other party of its reasonable legal fees and expenses (whether incurred in
arbitration, at trial, or on appeal).
SECTION 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; CERTAIN REMEDIES
10.1 Survival. The representations and warranties of Buyer and
Seller contained herein shall survive the Closing for a period of one year after
the Closing Date and shall terminate on such date, except to the extent that any
claims for indemnification in respect of a breach of any such
<PAGE>
- 66 -
representation or warranty is made on or before such date, in which case such
representation or warranty (but not any others) shall survive until the
resolution of such claim. Buyer's obligation to pay, perform or discharge the
Assumed Liabilities shall survive until such Assumed Liabilities have been paid,
performed or discharged in full. Any claim for indemnification in respect of a
covenant or agreement of Buyer or Seller hereunder to be performed before the
Closing shall be made before the expiration of one year after the Closing Date.
The covenants and agreements of Seller contained herein and to be performed to
any extent after the Closing Date shall survive the Closing for a period of one
year after the Closing Date and shall terminate on such date and any claims for
indemnification in respect of a breach of such covenants to be performed in any
respect after the Closing Date must be made on or before such date. The
covenants and agreements of Buyer contained herein to be performed in any
respect after the Closing Date shall survive the Closing Date until fully
discharged and performed.
10.2 Indemnification by Seller.
-------------------------
(a) After the Closing, Seller hereby agrees to indemnify and hold
Buyer harmless against and with respect to, and shall reimburse Buyer for:
(1) Any and all losses, liabilities or damages resulting from any
breach of any representation or warranty made pursuant to, or any failure by
Seller to perform any covenant of Seller set forth, in this Agreement, in the
Ancillary Documents or in any certificate, document or instrument delivered to
Buyer hereunder or thereunder;
(2) Any failure by Seller to pay, perform or discharge any and
all liabilities of Seller not assumed by Buyer pursuant to the terms hereof;
(3) Any litigation, proceeding or claim by any third party
arising from the business or operations of the Assets or the Station by Seller
prior to the Closing Date, except to the extent arising from obligations or
liabilities
<PAGE>
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that have been expressly assumed by Buyer pursuant to this Agreement or the
Ancillary Documents;
(4) Any failure by Seller to comply with any applicable bulk
sales law; and
(5) Any and all reasonable out-of-pocket costs and expenses,
including reasonable legal fees and expenses, incident to any action, suit,
proceeding, claim, demand, assessment or judgment incident to the foregoing or
reasonably incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnity.
(b) Seller's obligation to indemnify Buyer pursuant to
Section 10.2(a) shall be subject to all of the following limitations:
(1) No indemnification shall be required to be made by Seller as
the Indemnifying Party under Section 10.2(a) until the aggregate amount of all
Settled Claims of Buyer as Claimant exceeds Fifty Thousand Dollars ($50,000), at
which time indemnification shall be made by Seller as the Indemnifying Party
under Section 10.2(a) for all Settled Claims of Buyer as Claimant; provided,
however, that such limitation shall not apply to claims made by Buyer (i) with
respect to adjustments to the Purchase Price or (ii) based on Seller's fraud.
(2) Buyer shall be entitled to indemnification only for those
damages arising with respect to any claim as to which Buyer has given the Seller
written notice within the appropriate time period set forth in Section 10.1
hereof for such claim; provided, however, that the obligation to provide
indemnification pursuant to Section 10.2 shall survive with respect to any such
claim until resolution thereof.
(3) All of Buyer's damages sought to be recovered under
Section 10.2(a) hereof shall be net of (i) any insurance proceeds received by
Buyer as Claimant, with respect to the events giving rise to such damages, and
(ii) any tax
<PAGE>
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benefits finally received by or accruing to Buyer in connection with such
events.
(4) Notwithstanding anything contained in this Agreement or
applicable law to the contrary, Buyer agrees that the payment of any claim made
by Buyer for indemnification hereunder, for whatever reason (other than claims
pursuant to Section 2.6(b)(2) hereof), shall be limited to, and shall only be
made from, the Indemnification Amount in accordance with the Indemnification
Fund Agreement and, except for claims against the Indemnification Amount, Buyer
waives and releases, and shall have no recourse against, Seller as a result of
the breach of any representation, warranty, covenant or agreement of Seller
contained herein, or otherwise arising out of or in connection with the
transactions contemplated hereby or the operation of the Station; provided,
however, that nothing herein shall be deemed to limit any rights or remedies
that Buyer may have for Seller's fraud. On the twelve month anniversary of the
Closing, if no claim for indemnification is pending, the balance then remaining
of the Indemnification Amount shall be paid by the Indemnification Escrow Agent
to Seller by way of certified or bank check. If on the twelve month anniversary
of the Closing Buyer has any indemnification claims pending, an amount
sufficient to satisfy such claims shall be retained by the Indemnification
Escrow Agent and the remaining balance shall be remitted by the Indemnification
Escrow Agent to Seller.
(5) Following the Closing, the sole and exclusive remedy for
Buyer for any claim (whether such claim is framed in tort, contract or
otherwise) arising out of a breach of any representation, warranty, covenant or
other agreement contained herein or in the Ancillary Documents or otherwise
arising out of or in connection with the transactions contemplated by this
Agreement or the operation of the Station shall be a claim for indemnification
pursuant to this Section 10; provided, however, that nothing herein shall be
deemed to limit any rights or remedies that Buyer may have for Seller's fraud.
<PAGE>
- 69 -
(6) Anything in this Agreement or any applicable law to the
contrary notwithstanding, it is understood and agreed by Buyer that, other than
with respect to Seller (but not including any partner, director, officer,
employee, agent or Affiliate of Seller (including any shareholder, director,
officer, employee, agent or Affiliate of the General Partner of the Seller)) as
expressly provided for in Section 10.2(b)), no partner, director, officer,
employee, agent or Affiliate of Seller (including any shareholder, director,
officer, employee, agent or Affiliate of the General Partner of the Seller)
shall have (i) any personal liability to Buyer as a result of the breach of any
representation, warranty, covenant or agreement of Seller contained herein, in
the Ancillary Documents or otherwise arising out of or in connection with the
transactions contemplated hereby or thereby or the operations of the Station or
(ii) any personal obligation to indemnify Buyer for any of Buyer's claims
pursuant to Section 10.2(a) and Buyer waives and releases and shall have no
recourse against any of such parties described in this Section 10.2(b)(6) as a
result of the breach of any representation, warranty, covenant or agreement of
Seller contained herein or otherwise arising out of or in connection with the
transactions contemplated hereby or thereby or the operations of the Station;
provided, however, that nothing herein shall be deemed to limit any rights or
remedies that Buyer may have for Seller's fraud.
10.3 Indemnification by Buyer.
------------------------
(a) After the Closing, Buyer hereby agrees to indemnify and hold
Seller harmless against and with respect to, and shall reimburse Seller for:
(1) Any and all losses, liabilities or damages resulting from any
breach of any representation or warranty made pursuant to, or any failure by
Buyer or License Assignee to perform any covenant of Buyer or License Assignee
set forth, in this Agreement, in the Ancillary Documents or in any certificate,
document or instrument delivered to Seller hereunder or thereunder;
<PAGE>
- 70 -
(2) Any failure by Buyer or License Assignee to pay, perform or
discharge any and all Assumed Liabilities or any other liabilities of, or
assumed by, Buyer or License Assignee pursuant to this Agreement or the
Ancillary Documents;
(3) Any litigation, proceeding or claim arising from the business
or operations of the Assets and the Station on or after the Closing Date; and
(4) Any and all reasonable out-of-pocket costs and expenses,
including reasonable legal fees and expenses, incident to any action, suit,
proceeding, claim, demand, assessment or judgment incident to the foregoing or
reasonably incurred in investigating or attempting to avoid the same or to
oppose the imposition thereof, or in enforcing this indemnity.
(b) Buyer's obligation to indemnify Seller pursuant to Section 10.3(a)
shall be subject to all of the following limitations:
(1) Seller shall be entitled to indemnification only for those
damages arising with respect to any claim as to which Seller has given Buyer
written notice within the appropriate time period set forth in Section 10.1
hereof for such claim; provided, however, that the obligation to provide
indemnification under this Section 10.3 shall survive with respect to any such
claim until resolution thereof.
(2) All of Seller's damages sought to be recovered under
Section 10.3(a) hereof shall be net of (i) any insurance proceeds received by
Seller as Claimant, with respect to the events giving rise to such damages, and
(ii) any tax benefits finally received by or accruing to Seller in connection
with such events.
(3) Anything in this Agreement or any applicable law to the
contrary notwithstanding, it is understood and agreed by Seller that, other than
with respect to Buyer (but not including any shareholder, director, officer,
employee, agent or Affiliate of Buyer) as expressly provided for in
<PAGE>
-71-
Section 10.3(b), no shareholder, director, officer, employee, agent or Affiliate
of Buyer shall have (i) any personal liability to Seller as a result of the
breach of any representation, warranty, covenant or agreement of Buyer contained
herein, in the Ancillary Documents or otherwise or (ii) personal obligation to
indemnify Seller for any of Seller's claims pursuant to Section 10.3(a) and
Seller waives and releases and shall have no recourse against any of such
parties described in this Section 10.3(b)(3) as a result of the breach of any
representation, warranty, covenant or agreement of Buyer contained herein or
otherwise arising out of or in connection with the transactions contemplated
hereby or thereby or the operations of the Station; provided, however, that
nothing herein shall be deemed to limit any rights or remedies that Seller may
have for Buyer's fraud.
10.4 Procedure for Indemnification. The procedure for indemnification
shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall
promptly give notice to the party from which indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought by a
third party, specifying in reasonable detail the factual basis for the claim,
the amount thereof, estimated in good faith, and the method of computation of
such claim, all with reasonable particularity and containing a reference to the
provisions of this Agreement in respect of which such indemnification claim
shall have occurred. If the claim relates to an action, suit, or proceeding
filed by a third party against Claimant, such notice shall be given by Claimant
within five Business Days after written notice of such action, suit, or
proceeding was given to Claimant.
(b) With respect to claims solely between the parties, following
receipt of notice from the Claimant of a claim, the Indemnifying Party shall
have thirty days to make such investigation of the claim as the Indemnifying
Party deems necessary or desirable. For the purposes of such investigation, the
Claimant agrees to make available to the Indemnifying Party and its authorized
representatives the information relied upon
<PAGE>
-72-
by the Claimant to substantiate the claim. If the Claimant and the Indemnifying
Party agree at or prior to the expiration of such thirty-day period (or any
mutually agreed upon extension thereof) to the validity and amount of such
claim, the Indemnifying Party shall immediately pay to the Claimant the full
amount of the claim, subject to the terms hereof (including Sections 10.2(b) and
10.3(b)) and the terms of, and procedures set forth in, the Indemnification Fund
Agreement. If the Claimant and the Indemnifying Party do not agree within such
thirty-day period (or any mutually agreed upon extension thereof), the Claimant
may seek appropriate remedies at law or equity, as applicable, subject to the
limitations of Sections 10.2(b) and 10.3(b). Any claim for indemnity pursuant to
this Article 10 with respect to which (i) the Claimant and the Indemnifying
Party agree as to its validity and amount, (2) a final judgment, order or award
of a court of competent jurisdiction deciding such claim has been rendered, as
evidenced by a certified copy of such judgment, provided that such judgment is
not appealable or the time for taking an appeal has expired or (3) the
Indemnifying Party has not given written notice to the Claimant disputing such
claim in whole or in part within thirty days of receiving notice thereof, is
referred to as a "Settled Claim."
(c) With respect to any claim by a third party as to which the
Claimant is entitled to indemnification under this Agreement, the Indemnifying
Party shall have the right at its own expense, to participate in or assume
control of the defense of such claim, and the Claimant shall cooperate fully
with the Indemnifying Party, subject to reimbursement for actual out-of- pocket
expenses incurred by the Claimant as the result of a request by the Indemnifying
Party. If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
elect to assume control or otherwise participate in the defense of any
third-party claim, then the Claimant may defend through counsel of its own
choosing and (so long as it gives the Indemnifying Party at least fifteen (15)
days' prior written notice of the terms of any proposed settlement thereof
<PAGE>
-73-
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 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 Claimant, which
consent will not be unreasonably withheld or delayed.
(d) If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as practicable.
(e) Subject to the limitations set forth herein and without
expanding the total liability of Buyer or Seller hereunder, the indemnification
rights provided in Section 10.2 and Section10.3 shall extend to the members,
partners, shareholders, officers, directors, employees, agents and Affiliates of
any Claimant, although for the purpose of the procedures set forth in this
Section 10.4, any indemnification claims by such parties shall be made by and
through the Claimant.
10.5 Investigation. Any knowledge of Buyer and any investigation made
at any time or on behalf of Buyer shall not diminish in any respect whatsoever
Buyer's right to rely on any representations, warranties, covenants and
agreements made by or on behalf of Seller pursuant to this Agreement or in any
certificate delivered hereto.
SECTION 11. MISCELLANEOUS
11.1 Fees and Expenses. Except as otherwise provided in this Agreement,
each party shall pay its own expenses incurred in connection with the
authorization, preparation, execution, and performance of this Agreement and the
Ancillary Documents, including all fees and expenses of counsel, accountants,
agents, and representatives, and each party shall be responsible for all fees or
commissions payable to any finder, broker, advisor, or
<PAGE>
-74-
similar Person retained by or on behalf of such party; provided, however, that
all transfer taxes, recordation taxes, sales taxes and document stamps in
connection with the transactions contemplated by this Agreement shall be paid
one-half by Buyer and one-half by Seller and all other filing fees (including
all FCC and HSR Act filing fees), and other charges levied by any governmental
entity in connection with the transactions contemplated by this Agreement shall
be paid one-half by Buyer and one-half by Seller. Buyer hereby waives compliance
with the provisions of any applicable bulk transfer laws.
11.2 Notices. All notices, demands and requests required or permitted
to be given under the provisions of this Agreement shall be (i) in writing,
(ii) sent by facsimile (with receipt personally confirmed by telephone),
delivered by personal delivery, or sent by commercial delivery service or
certified mail, return receipt requested, (iii) deemed to have been given on the
date telecopied with receipt confirmed, the date of personal delivery, or the
date set forth in the records of the delivery service or on the return receipt,
and (iv) addressed as follows:
To Buyer: KUPN, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attention: David D. Smith
Telecopy: (410) 467-5043
Telephone: (410) 662-1008
with copies Sinclair Communications, Inc.
(which shall 2000 W. 41st Street
not constitute Baltimore, Maryland 21211
notice) to: Attention: General Counsel
Telecopy: (410) 662-4707
Telephone: (410) 662-1422
<PAGE>
- 75 -
Thomas & Libowitz, P.A.
USF& G Tower, Suite 1100
100 Light Street
Baltimore, Maryland 21202
Attention: Steven A. Thomas
Telecopy: (410) 752-2046
Telephone: (410) 752-2468
To Seller: 1999 Avenue of the Stars
Suite 500
Los Angeles, California 90067
Attention: Mr. David Goldhill and
Robert Finkelstein, Esq.
Telecopy: (310) 553-3928
Telephone: (310) 551-4098 or 4093
with a copy Dow, Lohnes & Albertson, PLLC
(which shall 1200 New Hampshire Avenue, N.W.
not constitute Suite 800
notice) to: Washington, DC 20036-6802
Attention: John T. Byrnes, Esq.
Telecopy: (202) 776-2222
Telephone: (202) 776-2518
or to any other or additional persons and addresses as the parties may from time
to time designate in a writing delivered in accordance with this Section 11.2.
11.3 Benefit and Binding Effect. No party hereto may assign this
Agreement without the prior written consent of the other party hereto; provided,
however, that Buyer shall be entitled, without Seller's consent, so long as the
representations, warranties and covenants of Buyer and License Assignee set
forth in this Agreement will be true and correct in all material respects upon
and following such assignment, to assign its rights to receive the FCC Licenses
hereunder (and to perform all obligations in connection thereunder) to the
License Assignee prior to the date of filing the applications for FCC Consent
specified in Section 6.1 hereof, and its rights to indemnification pursuant to
Section 10.2 of this Agreement to
<PAGE>
-76-
its Lenders; provided that no assignment shall relieve Buyer of any of its
obligations hereunder and, if requested by Seller, will execute such
documentation as reasonably requested by Seller in connection with such
assignment and assumption. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
11.4 Further Assurances. Subject to the terms and conditions of this
Agreement, from time to time prior to, at and after the Closing Date, each party
hereto will use commercially reasonable efforts to take, or cause to be taken,
all such actions and to do or cause to be done, all things, necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the purchase and sale contemplated by this Agreement and the consummation of the
other transactions contemplated hereby, including executing and delivering such
documents as the other party being advised by counsel shall reasonably request
in connection with the consummation of this Agreement and the consummation of
the other transactions contemplated hereby, 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.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF MARYLAND (WITHOUT REGARD TO THE CHOICE
OF LAW PROVISIONS THEREOF).
11.6 Entire Agreement. This Agreement, the Schedules hereto, and all
documents, certificates and other documents to be delivered by the parties
pursuant hereto (including, without limitation, the Ancillary Documents),
collectively represent the entire understanding and agreement between Buyer and
Seller with respect to the subject matter of this Agreement. This Agreement
supersedes all prior negotiations between the parties and cannot be amended,
supplemented or changed, except by an agreement in writing that makes specific
reference to this Agreement and that is signed by Buyer and Seller. Buyer
acknowledges and agrees that Seller shall not be liable for, or bound in any
manner by,
<PAGE>
-77-
and Buyer has not relied upon, any express or implied, oral or written
information, warranty, guaranty, promise, statement, inducement, presentation or
opinion (whether of, by or on behalf of Seller, any broker or finder, or any
officer, employee, agent or representative of any of the foregoing, or any other
person) pertaining to the transactions contemplated hereby, the Seller, the
Station, the Assets, or any part of any of the foregoing (including, without
limitation, the physical condition of the Station or any of the Assets, or the
uses which can be made of the same or the value thereof), except as is expressly
set forth herein and the representations and warranties in the certificate
delivered by Seller pursuant to Section 8.2(b). Seller acknowledges and agrees
that Buyer shall not be liable for, or bound in any manner by and Buyer has not
relied upon, any express or implied, oral or written information, warranty,
guaranty, promise, statement, inducement, presentation or opinion (whether of,
by or on behalf of Buyer, any broker or finder, or any officer, employee, agent
or representative of any of the foregoing, or any other person) pertaining to
the transactions contemplated hereby or the Buyer, except as is expressly set
forth in this Agreement and the representations and warranties in the
certificate delivered by Buyer pursuant to Section 8.3(b).
11.7 Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any obligation,
representation, warranty, covenant, agreement, or condition herein may be waived
by the party entitled to the benefits thereof only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, representation, warranty, covenant,
agreement, or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 11.7.
<PAGE>
-78-
11.8 Counterparts. This Agreement may be signed in counterparts with
the same effect as if the signature on each counterpart were upon the same
instrument.
11.9 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law so long as
the economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid or unenforceable, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the greatest
extent possible.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
officers of Buyer and Seller as of the date first written above.
Buyer:
KUPN, INC.
By: _____________________________
Name:
Title:
Seller:
CHANNEL 21, L.P., a Nevada Limited
Partnership
By: Las Vegas Channel 21, Inc., a
Nevada corporation,
General Partner
By: _____________________________
Name:
Title:
The undersigned hereby executes
this Agreement only for purposes
of Sections 6.10 , 6.17 and
9.2(b)(6), and agrees that it
shall be bound by the provisions
of such Sections.
SINCLAIR BROADCAST GROUP, INC.
By: _____________________________
Name:
Title:
<PAGE>
Schedule 1.1
------------
"Broadcast Cashflow" means, for any period, the difference between (a) the
sum of operating revenue and revenue from production, network compensation and
other income, but not including barter revenue, minus (b) the sum of payments
made or accrued in respect of national agency commissions, local agency
commissions, rep fees, operating expenses and film payments, but not including
barter expenses.
<PAGE>
Schedule 3.7A
-------------
Any agreement relating to the acquisition of any television station, the
DMA of which is the same as the DMA of the Station, any Management Arrangement
or any Option entered into on or after the date of this Agreement by any of the
Seller Parties.
<PAGE>
Schedule 3.7A
-------------
Any agreement relating to the acquisition of any television station, the
DMA of which is the same as the DMA of the Station, any Management Arrangement
or any Option entered into on or after the date of this Agreement by any of the
Seller Parties.
<PAGE>
Exhibit 1.1
-----------
[Subject to comments of the Indemnification Escrow Agent]
INDEMNIFICATION FUND AGREEMENT
------------------------------
This INDEMNIFICATION FUND AGREEMENT (this "Agreement") is dated ______,
1997, by and among KUPN, INC., a Maryland corporation ("Buyer"), CHANNEL 21,
L.P., a Nevada limited partnership ("Seller"), and FIRST UNION NATIONAL BANK OF
NORTH CAROLINA ("Indemnification Escrow Agent").
R E C I T A L S:
----------------
A. Seller and Buyer entered into an Asset Purchase Agreement dated as of
January ___, 1997 (the "Purchase Agreement"), pursuant to which Seller has
agreed to sell, transfer and deliver to Buyer certain assets used in the
operation of Television Station KUPN-TV, Las Vegas, Nevada.
B. Pursuant to Section 2.6 of the Purchase Agreement, Buyer and Seller have
agreed that up to Three Million Dollars ($3,000,000) (the "Indemnification
Deposit") shall be deposited in escrow with the Indemnification Escrow Agent as
set forth in Section 1.1 below in order to provide a fund for the payment of any
claims giving rise to indemnification under Section 10.2 of the Purchase
Agreement. Capitalized terms used, but not defined herein, have the meanings
ascribed to such terms in the Purchase Agreement.
A G R E E M E N T S:
--------------------
In consideration of the above recitals and of the covenants and agreements
contained herein, Buyer, Seller and Escrow Agent agree as follows:
<PAGE>
-2-
SECTION 12 : INDEMNIFICATION FUND
12.1 Delivery. The Indemnification Deposit will be made with the
Indemnification Escrow Agent as follows: (a) simultaneously with the Closing (as
defined in the Purchase Agreement) provided for in Section 8.1 of the Purchase
Agreement (the "Closing"), Buyer is delivering to the Indemnification Escrow
Agent, by wire transfer of immediately available funds or by other means
mutually acceptable to the parties, the Initial Deposit; (b) on the ninetieth
(90th) day after the Closing Date (or if such day is not a Business Day, on the
next succeeding Business Day), Buyer shall deposit with the Indemnification
Escrow Agent, by wire transfer of immediately available funds or by other means
mutually acceptable to the parties, all amounts collected with respect to any
Accounts Receivable, not to exceed the lesser of (i) One Million Five Hundred
Thousand Dollars ($1,500,000) or (ii) the amount of the Closing Date Estimated
Accounts Receivable (the "Additional Indemnification Amount Deposit"); and (c)
on and after the ninetieth (90th) day after the Closing Date until the
expiration of the Collections Period, within five (5) Business Days of the end
of each full fifteen (15) day period, Buyer shall deposit all amounts collected
with respect to the Accounts Receivable with the Indemnification Escrow Agent
until the total of all amounts deposited pursuant to Sections 1.1(b) and (c)
equals the Additional Indemnification Amount Deposit. The Indemnification
Deposit shall be held by the Indemnification Escrow Agent pursuant to the terms
of this Agreement. The "Initial Deposit" is an amount equal to Three Million
Dollars ($3,000,000) minus an amount equal to the lesser of (a) One Million Five
Hundred Thousand Dollars ($1,500,000) or (b) the Closing Date Estimated Accounts
Receivable. The "Closing Date Estimated Accounts Receivable" is an amount equal
to the Seller's good faith estimate of Accounts Receivable as of the Closing
Date, which have been outstanding for no more than 120 days, as set forth in the
certificate of Seller delivered to Buyer five (5) days before the Closing Date.
The "Indemnification Deposit" is the aggregate of the Initial Deposit and the
Additional Indemnification Amount Deposit. The Indemnification Deposit, and all
interest and earnings thereon,
<PAGE>
-3-
shall be referred to collectively herein as the "Indemnification Fund" or the
"Indemnification Amount."
12.2 Receipt. At Closing, the Indemnification Escrow Agent shall
acknowledge receipt of the Initial Deposit. The Indemnification Escrow Agent
shall also send to Buyer and Seller acknowledgment of receipt of the Additional
Indemnification Amount Deposit. The Indemnification Escrow Agent agrees to hold
and disburse the Indemnification Fund in accordance with the terms and
conditions of this Agreement and for the uses and purposes stated herein.
12.3 Investment and Income. Upon receipt of the Indemnification Deposit,
the Indemnification Escrow Agent shall, pending the disbursement thereof
pursuant to this Agreement, invest the Indemnification Fund in accordance with
Seller's instructions in (a) direct obligations of, or obligations fully
guaranteed by, the United States of America or any agency thereof, (b)
certificates of deposit issued by commercial banks having a combined capital,
surplus and undivided profits of not less than One Hundred Million Dollars
($100,000,000), (c) repurchase agreements collateralized by securities issued by
the United States of America or any agency thereof, or by any private
corporation the obligations of which are guaranteed by the full faith and credit
of the United States of America, (d) prime banker's acceptances, (e) money
market funds investing in any of the above, or (f) other investments of equal or
greater security and liquidity.
SECTION 13. : DISBURSEMENT OF INDEMNIFICATION FUND
The Indemnification Escrow Agent shall dispose of or distribute the
Indemnification Fund only in accordance with this Section 2.
13.1 Claims Procedure. The following procedure shall govern the application
of the Indemnification Fund to satisfy any claims by Buyer which may be brought
pursuant to Sections 2.6(b)(2) or 10.2 of the Purchase Agreement.
<PAGE>
-4-
(a) Buyer shall promptly give written notice to Seller and the
Indemnification Escrow Agent of all claims against the Indemnification Fund. The
written notice shall specify (i) in reasonable detail, the factual basis for
such claim, (ii) in good faith, the estimated amount of the Indemnification Fund
to be reserved against the claim, and (iii) that Buyer has given a copy of such
notice to the Seller.
(b) Following receipt of notice from Buyer of a claim, Seller shall
have thirty (30) days to make such investigation of the claim as Seller deems
necessary or desirable. For the purposes of such investigation, Buyer agrees to
make available to Seller and/or its authorized representative(s) the information
relied upon by Buyer to substantiate the claim. If Buyer and Seller agree at or
prior to the expiration of said thirty (30) day period (or any mutually agreed
upon extension thereof) to the validity and amount of such claim, they shall
promptly give the Indemnification Escrow Agent joint instructions in writing to
apply such portion of the Indemnification Fund agreed upon by Buyer as shall be
necessary to reimburse Buyer for such claim. If Buyer and Seller do not agree
within said period (or any mutually agreed upon extension thereof), the matter
shall be resolved as provided for in Paragraph 2.3 hereof, and the
Indemnification Escrow Agent shall continue to hold the Indemnification Fund
until it receives a Court Order (as hereinafter defined) or joint written
instructions in accordance therewith.
13.2 Release of Indemnification Fund. (a) On the twelve month anniversary
of the Closing Date, if no claim for indemnification is pending, the Escrow
Agent shall pay to Seller by way of certified or bank check the balance then
remaining of the Indemnification Fund. If, on the twelve month anniversary of
the Closing, Buyer has any indemnification claims pending, the Escrow Agent
shall retain an amount sufficient to satisfy such claims and remit the remaining
balance to Seller by certified or bank check.
<PAGE>
-5-
13.3 Dispute. In the event of any dispute among any of the parties to this
Agreement, the Indemnification Escrow Agent shall not comply with any such
claims or demands as long as such disagreements may continue, and in so
refusing, the Indemnification Escrow Agent shall make no delivery or other
disposition of any property then held by it under this Agreement until it has
received a final court order from a court of competent jurisdiction directing
disposition of such property (a "Court Order").
13.4 Disbursement of the Indemnification Fund In Accordance with Joint
Instructions. Notwithstanding the provisions of Sections 2.1 through 2.3 above,
the Indemnification Escrow Agent, upon receipt of written instructions signed by
both Buyer and Seller, shall disburse the Indemnification Fund, or a portion
thereof, in accordance with such instructions.
SECTION 14.: INDEMNIFICATION ESCROW AGENT
14.1 Appointment and Duties. Buyer and Seller hereby appoint
Indemnification Escrow Agent to serve hereunder and the Indemnification Escrow
Agent hereby accepts such appointment and agrees to perform all duties which are
expressly set forth in this Agreement.
14.2 Compensation. Compensation will be paid to the Indemnification Escrow
Agent one-half by Buyer and one-half by Seller as specified in Schedule A
annexed hereto.
14.3 Indemnification. Buyer and Seller will, at their expense, indemnify
the Indemnification Escrow Agent, hold it harmless from any and all claims,
regardless of nature, arising out of or because of this Agreement, and exonerate
the Indemnification Escrow Agent from any liability in connection with this
Agreement, except as such may arise because of the Indemnification Escrow
Agent's gross negligence or willful misconduct in performing its specified
duties as Indemnification Escrow Agent.
<PAGE>
-6-
14.4 Resignation. Indemnification Escrow Agent may resign at any time upon
giving the parties hereto thirty (30) days' prior written notice to that effect.
In such event, the successor shall be such person, firm or corporation as shall
be mutually selected by Buyer and Seller. It is understood and agreed that such
resignation shall not be effective until a successor agrees to act hereunder;
provided, however, if no successor is appointed and acting hereunder within
thirty (30) days after such notice is given, Indemnification Escrow Agent may
pay and deliver the Indemnification Fund into a court of competent jurisdiction.
SECTION 15.: LIABILITIES OF INDEMNIFICATION ESCROW AGENT
15.1 Limitations. The Indemnification Escrow Agent shall be liable only to
accept, hold and deliver the Indemnification Fund in accordance with the
provisions of this Agreement and amendments thereto; provided, however, that the
Indemnification Escrow Agent shall not incur any liability with respect to (a)
any action taken or omitted in good faith upon the advice of its counsel given
with respect to any questions relating to its duties and responsibilities as
Indemnification Escrow Agent under this Agreement, or (b) any action taken or
omitted in reliance upon any instrument which the Indemnification Escrow Agent
shall in good faith believe to be genuine (including the execution, the identity
or authority of any person executing such instrument, its validity and
effectiveness, and the truth and accuracy of any information contained therein),
to have been signed by a proper person or persons and to conform to the
provisions of this Agreement.
15.2 Collateral Agreements. The Indemnification Escrow Agent shall not be
bound in any way by any contract or agreement between other parties hereto,
whether or not it has knowledge of any such contract or agreement or of its
terms or conditions.
SECTION 16: TERMINATION
This Agreement shall be terminated (i) upon disbursement or
release of the entire or remaining Indemnification Fund by the
<PAGE>
-7-
Indemnification Escrow Agent, (ii) by written mutual consent signed by all
parties, or (iii) payment of the Indemnification Fund into a court of competent
jurisdiction in accordance with Section 3.4 hereof. This Agreement shall not be
otherwise terminated.
SECTION 17.: OTHER PROVISIONS
17.1 Notices. All notices, demands and requests required or permitted to
be given under the provisions of this Agreement shall be (a) in writing,
(b) sent by telecopy (with receipt personally confirmed by telephone), delivered
by personal delivery, or sent by commercial delivery service or certified mail,
return receipt requested, (c) deemed to have been given on the date telecopied
with receipt confirmed, the date of personal delivery, or the date set forth in
the records of the delivery service or on the return receipt, and (d) addressed
as follows:
To Buyer: KUPN, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attention: David D. Smith
Telecopy: (410) 467-5043
Telephone: (410) 662-1008
<PAGE>
-8-
with a copies Sinclair Communications, Inc.
(which shall 2000 W. 41st Street
not constitute Baltimore, Maryland 21211
notice) to: Attention: General Counsel
Telecopy: (410) 662-4707
Telephone: (410) 662-1422
and
Thomas & Libowitz, P.A.
USF&G Tower, Suite 1100
100 Light Street
Baltimore, Maryland 21202
Attention: Steven A. Thomas
Telecopy: (410) 752-2046
Telephone: (410) 752-2468
To Seller: Channel 21, L.P.
1999 Avenue of the Stars
Suite 500
Los Angeles, CA 90067
Attention: Mr. David Goldhill and
Robert Finkelstein, Esq.
Telecopy: (310) 553-3928
Telephone: (310) 551-4098 or 4093
with a copy Dow, Lohnes & Albertson PLLC
(which shall 1200 New Hampshire Avenue, N.W.
not constitute Suite 800
notice) to: Washington, DC 20036-6802
Attention: John T. Byrnes, Esq.
Telecopy: (202) 776-2222
Telephone: (202) 776-2518
To Indemnification Escrow Agent:
--------------------------------
______________________________
______________________________
______________________________
Attention: ___________________
<PAGE>
-9-
Telephone: ___________________
Telecopy: ___________________
17.2 Benefit and Assignment. The rights and obligations of each party
under this Agreement may not be assigned without the prior written consent of
all other parties, except to the same extent assignment of the rights and
obligations of the parties under the Purchase Agreement is permitted without
consent of the other parties. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
17.3 Entire Agreement; Amendment. This Agreement contains all the terms
agreed upon by the parties with respect to the subject matter hereof. This
Agreement may be amended or modified only by written agreement executed by Buyer
and Seller and if the amendment in any way affects the compensation, duties
and/or responsibilities of the Indemnification Escrow Agent, by a duly
authorized representative of the Indemnification Escrow Agent. No waiver of any
provision hereof or rights hereunder shall be binding upon a party unless
evidenced by a writing signed by such party.
17.4 Headings. The headings of the sections and subsections of this
Agreement are for ease of reference only and do not evidence the intentions of
the parties.
17.5 Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF MARYLAND
(WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF).
17.6 Counterparts. This Agreement may be signed upon any number of
counterparts with the same effect as if the signatures on all counterparts are
upon the same instrument.
17.7 Earnings. All income and earnings upon any of the Indemnification
Deposit or the Indemnification Amount shall be paid to the party or parties
receiving the principal portion of such funds pro rata based on the amount of
such funds received
<PAGE>
-10-
by such party or parties. All income and earnings upon the Indemnification
Deposit or the Indemnification Amount not distributed as of the end of any
taxable period shall be deemed for tax reporting purposes to have accrued for
the account of Seller.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
Buyer:
KUPN, INC.
By: _____________________________
Name:
Title:
Seller:
CHANNEL 21, L.P.
By: Las Vegas Channel 21, Inc., a Nevada
corporation, General Partner
By: _________________________________
Name:
Title:
Indemnification Escrow Agent:
-----------------------------
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: __________________________
Name:
Title:
<PAGE>
Schedule A
----------
Compensation
<PAGE>
Exhibit 2.3(b)
--------------
[Subject to comments of the Escrow Agent]
ESCROW AGREEMENT
----------------
This ESCROW AGREEMENT (this "Agreement") is dated January ___, 1997, by
and among KUPN, Inc., a Maryland corporation ("Buyer"), CHANNEL 21, L.P., a
Nevada limited partnership ("Seller"), and ___________________________
_________________________ ("Escrow Agent").
R E C I T A L S:
----------------
A. Seller and Buyer have entered into an Asset Purchase Agreement on the
date hereof (the "Purchase Agreement"), pursuant to which Seller has agreed to
sell, transfer and deliver to Buyer certain assets used in the operation of
Television Station KUPN-TV, Las Vegas, Nevada.
B. The Purchase Agreement provides that, concurrent with the execution of
the Purchase Agreement and to secure the obligations of Buyer to consummate the
transactions contemplated by the Purchase Agreement, Buyer is to execute and
deliver this Agreement and on the expiration of each full 45 day period after
the date of this Agreement, in accordance with the terms of this Agreement,
deposit with the Escrow Agent the Escrow Deposits (as hereinafter defined).
C. Capitalized terms used, but not defined herein, shall have the meanings
ascribed to such terms in the Purchase Agreement.
A G R E E M E N T S:
--------------------
In consideration of the above recitals and of the covenants and agreements
contained herein, Buyer, Seller and Escrow Agent agree as follows:
<PAGE>
SECTION 18.: ESCROW DEPOSIT
18.1 Delivery.
(a) On the expiration of each full 45 day period after the date hereof,
subject to Section 1.1(b) below, Buyer shall deposit with Escrow Agent by wire
transfer of immediately available funds or by other means mutually acceptable to
the parties, Two Million Dollars ($2,000,000) (each such amount being
hereinafter referred to as an "Escrow Deposit" and, collectively, as the "Escrow
Deposits"). The Escrow Deposits and all interest and earnings thereon
(collectively, the "Escrow Amount") shall be held by the Escrow Agent pursuant
to the terms of this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, the
aggregate of all amounts required to be deposited by Buyer pursuant to Section
1.1(a) of this Agreement and paid by Buyer pursuant to Section 2.3(a) of the
Purchase Agreement shall not exceed Fifteen Million Dollars ($15,000,000).
18.2 Receipt. The Escrow Agent shall acknowledge receipt of each Escrow
Deposit in writing and agrees to hold and disburse the Escrow Amount in
accordance with the terms and conditions of this Agreement and for the uses and
purposes stated herein.
18.3 Investment and Income. Upon receipt of each Escrow Deposit, the Escrow
Agent shall, pending the disbursement thereof pursuant to this Agreement, invest
the Escrow Amount in accordance with Buyer's instructions in (a) direct
obligations of, or obligations fully guaranteed by, the United States of America
or any agency thereof, (b) certificates of deposit issued by commercial banks
having a combined capital, surplus and undivided profits of not less than One
Hundred Million Dollars ($100,000,000), (c) repurchase agreements collateralized
by securities issued by the United States of America or any agency thereof, or
by any private corporation the obligations of which are guaranteed by the full
faith and credit of the United States of America, (d) prime banker's
acceptances, (e) money market funds investing in any of the above, or (f) other
investments of equal or greater security and liquidity.
<PAGE>
SECTION 19: DISBURSEMENT OF ESCROW AMOUNT
The Escrow Agent shall release the Escrow Amount only in accordance with
this Section 2.
19.1 Payment of Escrow Amount to Seller at Closing. At the Closing, and
simultaneously with the performance by Buyer and Seller of their respective
obligations under the Purchase Agreement, Buyer and Seller shall send to the
Escrow Agent telecopied written instructions executed by Buyer and Seller
("Joint Instructions") authorizing the Escrow Agent to deliver the Escrow Amount
to Seller as a credit against the Estimated Purchase Price payable under the
Purchase Agreement by Buyer in accordance with Section 2.6(a) thereof. The
Escrow Agent shall promptly comply with such Joint Instructions.
19.2 Entitlement of Seller to Liquidated Damages. In the event that Seller
shall give the Escrow Agent written notice stating that Seller is entitled to
the Escrow Amount in accordance with Section 9.2 of the Purchase Agreement and
that Seller has sent a copy of such written notice of such claim to Buyer, then
the Escrow Agent shall also promptly give Buyer a copy of such written notice.
At any time on or before the fifteenth (15th) day after the receipt by Buyer of
such notice from the Escrow Agent, Buyer may contest Seller's claim to the
Escrow Amount by written notice delivered to Seller and Escrow Agent setting
forth the grounds for such dispute. Promptly after the expiration of fifteen
(15) days from the date of Buyer's receipt of such notice from the Escrow Agent,
if the Escrow Agent shall not have, during such fifteen-day period, received
from Buyer written notice disputing Seller's claim to the Escrow Amount, the
Escrow Agent shall pay the Escrow Amount to Seller as partial liquidated damages
as a consequence of Buyer's default under the Purchase Agreement (which amount,
together with the Purchase Price Deposit which Seller may retain pursuant to
Section 9.2 of the Purchase Agreement) the parties agree is a reasonable
estimate of the damages that will be suffered by Seller as a result of such
default by Buyer and does not constitute a penalty, the parties hereby
acknowledging the inconvenience and nonfeasibility of otherwise obtaining an
adequate remedy). If Buyer shall give notice disputing Seller's claim to the
Escrow Amount, the Escrow Agent shall retain the Escrow Amount until the dispute
is resolved in accordance with
<PAGE>
Section 2.4 hereof. All notices to be given or permitted to be given under this
Section shall be given as provided in Section 6.1 of this Agreement.
19.3 Buyer's Rights to Return of the Escrow Amount. In the event that Buyer
shall give Escrow Agent written notice stating that Buyer is entitled to the
Escrow Amount in accordance with Section 9.2 of the Purchase Agreement and that
Buyer has sent a copy of such written notice to Seller, then the Escrow Agent
shall also promptly give Seller a copy of such written notice. At any time on or
before the fifteenth (15th) day after the receipt by Seller of such notice from
the Escrow Agent, Seller may contest Buyer's claim to the Escrow Amount by
written notice delivered to Buyer and the Escrow Agent setting forth the grounds
for such dispute. Promptly after the expiration of fifteen (15) days from the
date of Seller's receipt of such notice from the Escrow Agent, if the Escrow
Agent shall not have, during such fifteen-day period, received from Seller
written notice disputing Buyer's claim to the Escrow Amount, the Escrow Agent
shall return the Escrow Amount to Buyer and, in accordance with the Purchase
Agreement, Buyer shall have the right to pursue all remedies available under the
Asset Purchase Agreement or at law or equity, including, without limitation, the
right to seek specific performance and/or monetary damages. If Seller shall give
notice disputing Buyer's claim to the Escrow Amount, the Escrow Agent shall
retain the Escrow Amount until the dispute is resolved in accordance with
Section 2.4 hereof. All notices to be given or permitted to be given under this
Section shall be given as provided in Section 6.1 of this Agreement.
2.4 Dispute. In the event of any dispute among any of the parties to this
Agreement, including with respect to Seller's claim to the Escrow Amount or
Buyer's claim to the Escrow Amount, or the interpretation or administration of
this Agreement, the Escrow Agent shall not comply with any such claims or
demands from either Buyer or Seller as long as any such dispute may continue,
and in so refusing, the Escrow Agent shall make no delivery or other disposition
of the Escrow Amount and any other property then held by it under this Agreement
until it has received a final court order from a court of competent jurisdiction
directing disposition of such property.
<PAGE>
2.5 Disbursement Proceeds In Accordance with Joint Instructions.
Notwithstanding the provisions of Sections 2.1 through 2.4 above, the Escrow
Agent, upon receipt of Joint Instructions with respect to the delivery of the
Escrow Amount, shall deliver the Escrow Amount in accordance with such
instructions.
SECTION 20: ESCROW AGENT
20.1 Appointment and Duties. Buyer and Seller hereby appoint Escrow Agent
to serve hereunder and the Escrow Agent hereby accepts such appointment and
agrees to perform all duties which are expressly set forth in this Agreement.
20.2 Compensation. Compensation will be paid to the Escrow Agent one-half
by Buyer and one-half by Seller as specified on Schedule A annexed hereto.
20.3 Indemnification. Both Seller and Buyer will, at their expense,
indemnify the Escrow Agent, hold it harmless from any and all claims, regardless
of nature, arising out of or because of this Agreement, and exonerate the Escrow
Agent from any liability in connection with this Agreement, except as such may
arise because of the Escrow Agent's gross negligence or willful misconduct in
performing its specified duties as Escrow Agent.
20.4 Resignation. Escrow Agent may resign at any time upon giving the other
parties hereto thirty (30) days' prior written notice to that effect. In such
event, the successor shall be such person, firm or corporation as shall be
mutually selected by Buyer and Seller. It is understood and agreed that such
resignation shall not be effective until a successor agrees to act hereunder;
provided, however, if no successor is appointed and acting hereunder within
thirty (30) days after such notice is given, Escrow Agent may pay and deliver
the Escrow Amount into a court of competent jurisdiction.
<PAGE>
SECTION 21: LIABILITIES OF ESCROW AGENT
21.1 Limitations. The Escrow Agent shall be liable only to accept, hold and
deliver the Escrow Amount in accordance with the provisions of this Agreement
and amendments thereto; provided, however, that the Escrow Agent shall not incur
any liability with respect to (a) any action taken or omitted in good faith upon
the advice of its counsel given with respect to any questions relating to its
duties and responsibilities as Escrow Agent under this Agreement, or (b) any
action taken or omitted in reliance upon any instrument which the Escrow Agent
shall in good faith believe to be genuine (including the execution, the identity
or authority of any person executing such instrument, its validity and
effectiveness, and the truth and accuracy of any information contained therein),
to have been signed by a proper person or persons, and to conform to the
provisions of this Agreement.
21.2 Collateral Agreements. The Escrow Agent shall not be bound in any way
by any contract or agreement between other parties hereto, whether or not it has
knowledge of any such contract or agreement or of its terms or conditions.
SECTION 22: TERMINATION
This Agreement shall be terminated (a) upon disbursement or release of the
Escrow Amount by the Escrow Agent in accordance with the provisions hereof, (b)
by written mutual consent signed by all parties, or (c) upon delivery of the
Escrow Amount into a court of competent jurisdiction in accordance with Section
3.4 hereof. This Agreement shall not be otherwise terminated.
SECTION 23: OTHER PROVISIONS
23.1 Notices. All notices, demands and requests required or permitted to be
given under the provisions of this Agreement shall be (i) in writing, (ii) sent
by telecopy (with receipt personally confirmed by telephone), delivered by
personal delivery, or sent by commercial delivery service or certified mail,
return receipt requested, (iii) deemed to have been given on the date telecopied
with receipt confirmed, the date of personal delivery, or the date set forth in
the records of the
<PAGE>
delivery service or on the return receipt, and (iv) addressed as follows:
To Buyer: KUPN, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attention: David D. Smith
Telecopy: 410/467-5043
Telephone: 410/662-1008
with copies Sinclair Communications, Inc.
(which shall 2000 W. 41st Street
not constitute Baltimore, Maryland 21211
notice) to: Attention: General Counsel
Telecopy: 410/662-4707
Telephone: 410/662-1422
Thomas & Libowitz, P.A.
USF&G Tower, Suite 1100
100 Light Street
Baltimore, Maryland 21202
Attention: Steven A. Thomas
Telecopy: 410/752-2046
Telephone: 410/752-2468
To Seller: 1999 Avenue of the Stars
Suite 500
Los Angeles, CA 90067
Attention: M. David Goldhill and
Robert Finkelstein, Esq.
Telecopy: 310/553-3928
Telephone: 310/551-4098 or 4093
with a copy Dow, Lohnes & Albertson
(which shall 1200 New Hampshire Avenue, N.W.
not constitute Suite 800
notice) to: Washington, DC 20036-6802
Attention: John T. Byrnes, Jr., Esq.
Telecopy: (202) 776-2222
Telephone: (202) 776-2518
To Escrow Agent: __________________________________
<PAGE>
__________________________________
__________________________________
__________________________________
Attention: _______________________
Telecopy: _______________________
Telephone: _______________________
or to any other or additional persons and addresses as the parties may from time
to time designate in a writing delivered in accordance with this Section 6.1.
23.2 Benefit and Assignment. The rights and obligations of each party under
this Agreement may not be assigned without the prior written consent of all
other parties, except to the same extent assignment of the rights and
obligations of the parties under the Purchase Agreement is permitted without
consent of the other parties. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
23.3 Entire Agreement; Amendment. This Agreement contains all the terms
agreed upon by the parties with respect to the subject matter hereof. This
Agreement may be amended or modified only by written agreement executed by the
Seller and the Buyer and if the amendment in any way affects the compensation,
duties and/or responsibilities of the Escrow Agent, by a duly authorized
representative of the Escrow Agent. No waiver of any provision hereof or rights
hereunder shall be binding upon a party unless evidenced by a writing signed by
such party.
23.4 Headings. The headings of the sections and subsections of this
Agreement are for ease of reference only and do not evidence the intentions of
the parties.
23.5 Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF MARYLAND
(WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF).
23.6 Counterparts. This Agreement may be signed upon any number of
counterparts with the same effect as if the signatures on all counterparts are
upon the same instrument.
<PAGE>
23.7 Earnings. All income and earnings upon the Escrow Deposit or the
Escrow Amount shall be paid to the party receiving the principal portion of such
funds pro rata based on the amount of such funds received by such party or
parties. All income and earnings upon the Escrow Deposit or the Escrow Amount
not distributed as of the end of any taxable period shall be deemed for tax
reporting purposes to have accrued for the account of Buyer.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
Buyer:
------
KUPN, INC.
By: _____________________________
Name:
Title:
Seller:
-------
CHANNEL 21, L.P.
By: Las Vegas Channel 21, Inc., a Nevada
corporation, General Partner
By: __________________________________
Name:
Title:
Escrow Agent:
-------------
_________________________________
By: ____________________________
Name:
Title:
<PAGE>
Schedule A
----------
Compensation
<PAGE>
Exhibit 8.2(f)
--------------
[Closing Date]
KUPN, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Re: Asset Purchase Agreement, dated as of January ___,
1997, by and between Channel 21, L.P. and KUPN, Inc.
----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Channel 21, L.P., a Nevada limited partnership
(the "Seller"), in connection with the transactions contemplated by that certain
Asset Purchase Agreement, dated as of January ___, 1997 (the "Asset Purchase
Agreement"), by and between Seller and KUPN, Inc., a Maryland corporation
("Buyer"). This opinion is being delivered to you pursuant to Section 8.2(f) of
the Asset Purchase Agreement. All capitalized terms used herein but not
otherwise defined in this opinion shall have the meanings ascribed thereto in
the Asset Purchase Agreement.
In rendering this opinion, we have reviewed:
24. the publicly available files in the Washington, D.C. public reference
office of the FCC pertaining to the Station on [date to be completed upon
delivery of opinion based upon date of search],
25. the Asset Purchase Agreement,
26. the Assignment and Assumption Agreement and the Indemnification Fund
Agreement (collectively, the "Related Agreements"),
<PAGE>
KUPN, Inc.
[Closing Date]
Page 25
27. the Agreement of Limited Partnership and Certificate of Limited
Partnership of Seller (collectively, the "Seller Partnership Agreement"),
28. the records of certain proceedings and actions of Seller and its
partners, in the forms certified to us by an officer of the general partner of
Seller as being true, correct and complete and to be in effect (without
rescission, modification or amendment) on the date of this opinion, and
29. the agreements to which Seller is a party that are listed on Schedule
__________ to the Asset Purchase Agreement and those additional agreements to
which Seller is a party that Seller has certified to us are material to the
operation of Seller's business or the transactions contemplated by the Asset
Purchase Agreement, each in the form certified to us by Seller to be true and
complete on the date of this opinion (the "Seller Agreements").
We have not reviewed the records of any court.
In our examination of documents and records, we have assumed, without
investigation, (i) that the FCC's publicly available files were complete and
accurately maintained and indexed at the time of their examination by us and
that there have been no changes in such files since the date of our examination,
(ii) the genuineness of all signatures, (iii) the legal capacity of natural
persons, (iv) the authenticity of all documents submitted to us as originals,
and (v) the conformity with originals of all documents submitted to us as
telecopied, certified, photostatic or reproduced copies and the authenticity of
all such documents. We have also assumed, but not independently verified, that
the Asset Purchase Agreement, the Related Agreements and all other documents
executed by a party other than Seller were duly and validly authorized, executed
and delivered by such party, that such party has the requisite power and
authority to execute, deliver and perform such agreements
<PAGE>
KUPN, Inc.
[Closing Date]
Page 26
and other documents, and that such agreements and other documents are legal,
valid and binding obligations of such party and are enforceable against such
party in accordance with their respective terms.
With respect to questions of fact, we have relied, without independent
inquiry or verification by us, solely upon (a) the representations and
warranties set forth in the Asset Purchase Agreement, (b) written and oral
representations of officers of the general partner of Seller and (c)
certificates of public officials, and we do not opine in any respect as to the
accuracy of any such facts. We have conducted no independent investigation
whatsoever of any factual matter. Certain of the opinions given herein are
qualified by the phrases "to our knowledge," "known to us" or similar phrases.
In each case, such knowledge refers only to the actual existing knowledge of
attorneys in our firm involved in representing Seller in the preparation of this
opinion with only such investigation as is specifically referred to in this
opinion, without any further investigation or inquiry. Such terms do not include
any knowledge of other attorneys within our firm or any constructive or imputed
notice of any matters or items of information. When a statement in this opinion
is made "to our knowledge," it means that none of the attorneys in our firm
involved in representing Seller in the preparation of this opinion has actual
existing knowledge that the statement is false; it does not mean that any of
such attorneys necessarily has actual existing knowledge of facts that would
suggest the statement is true.
This opinion is limited to the law of the District of Columbia and the
federal law of the United States of America, including, without limitation, the
Communications Act of 1934, as amended, and the rules, regulations and published
policies of the FCC, insofar as such laws apply (collectively, "Applicable
Law"), except that Applicable Law includes only laws and regulations that a
lawyer exercising customary professional diligence would reasonably recognize as
being directly
<PAGE>
KUPN, Inc.
[Closing Date]
Page 27
applicable to the transactions contemplated by the Transaction Documents and
excludes those set forth in Section 19 of the Legal Opinion Accord of the
American Bar Association Section of Business Law (1991). We advise you that we
are not admitted to practice law in the States of Maryland or Nevada, and we do
not purport to be experts in the laws of the States of Maryland or Nevada. Our
opinions are given as if the Asset Purchase Agreement and each of the Related
Agreements were governed by the laws of the District of Columbia. You recognize
that the express terms of such agreements provide that they are to be governed
by the law of the State of Maryland, which may be different from the law of the
District of Columbia in certain relevant respects. We express no opinion as to
choice of law or conflicts of law rules, or the laws of any states or
jurisdictions other than as specified above.
Statements in this opinion as to the legality, validity, binding effect and
enforceability of the Asset Purchase Agreement and the Related Agreements are
subject to limitations imposed by bankruptcy, insolvency, reorganization,
moratorium or similar laws and related court decisions of general applicability
relating to or affecting creditors' rights generally, and to the application of
general equitable principles.
In addition, without limitation of any of the foregoing, we express no
opinion herein as to (i) any provision of the Asset Purchase Agreement that
provides for indemnification to the extent such provision may be limited by
applicable law, (ii) any consents of third parties that may be required in
connection with the transfer and assignment of any of the Assets, or the effects
of the failure to have obtained any such consents that may be required, or (iii)
the right, title or interest of Seller in or to any of the Assets.
<PAGE>
KUPN, Inc.
[Closing Date]
Page 28
Based upon the foregoing, subject to the assumptions, limitations and
exceptions contained herein, we are of the opinion that:
1. Seller is a limited partnership duly formed, validly existing and in good
standing under the laws of the State of Nevada. Seller has the requisite
partnership power and authority to execute, deliver and perform the Asset
Purchase Agreement.
2. The execution, delivery and performance by Seller of the Asset Purchase
Agreement and the Related Agreements to which it is a party, and the
consummation by Seller, to the extent applicable, of the transactions
contemplated thereby, have been duly and validly authorized by all necessary
partnership action on the part of Seller.
3. The Asset Purchase Agreement and the Related Agreements to which Seller
is a party have been duly and validly executed and delivered by Seller, and the
Asset Purchase Agreement and each Related Agreement constitutes a legal, valid
and binding agreement of Seller (to the extent it is a party thereto),
enforceable against Seller (to the extent it is a party thereto) in accordance
with its terms.
The execution, delivery and performance by Seller of the Asset Purchase
Agreement and the Related Agreements and the
- ----------------------
The opinions expressed in paragraphs 1 and 2 may be given by Dow, Lohnes &
Albertson, relying on the opinions of Nevada counsel or counsel which organized
Seller (which may not be admitted to practice in Nevada), or directly by such
Nevada counsel or counsel which organized Seller. If Dow, Lohnes & Albertson
gives the opinions expressed in paragraphs 1 and 2 in reliance on other counsel,
the opinions of such other counsel shall specifically state that KUPN, Inc. may
rely on such opinions.
<PAGE>
KUPN, Inc.
[Closing Date]
Page 29
consummation by Seller of the transactions contemplated thereby, assuming all
necessary consents of third parties have been received in connection with such
execution, delivery and performance and consummation of the transaction
contemplated thereby, will not (a) conflict with or violate any provision of the
Seller Partnership Agreement; (b) conflict with or constitute a breach of or
default (or give rise to any right of termination, cancellation or acceleration)
under any of the Seller Agreements or (c) violate or conflict with any provision
of Applicable Law, or any judgment, order or ruling of governmental authority
known to us to be applicable to Seller or any of the Assets.
5. Seller holds the FCC licenses and authorizations issued by the FCC
listed on Exhibit A hereto (the "FCC Licenses"). The FCC Licenses listed on
Exhibit A are valid for the full term set forth in Exhibit A hereto, are
currently in effect and are not subject to any conditions, other than those set
forth on the FCC Licenses or that pertain to the FCC Licenses under generally
applicable rules or policies of the FCC.
6. The FCC has granted its consent (the "FCC Consent") to the assignment of
the FCC Licenses from Seller to Buyer. The FCC Consent is in effect and the time
periods specified by statute or FCC regulations for filing a request for
administrative or judicial review, reconsideration, appeal or stay of the FCC
Consent and for the FCC to set aside the FCC Consent on its own motion have
expired. To our knowledge, after our review only of the FCC publicly available
files as described above, the FCC Consent has not been reversed, stayed,
enjoined, set aside, annulled or suspended, no request for administrative or
judicial review, reconsideration, appeal or stay of the FCC Consent has been
filed, and the FCC has not initiated a review of or set aside the FCC Consent on
its own motion.
<PAGE>
KUPN, Inc.
[Closing Date]
Page 30
7. To our knowledge, after our review only of the FCC publicly available
files as described above, except as described on Exhibit B hereto, there is no
order, judgment, decree, notice of apparent liability or order of forfeiture
outstanding, and no petition, complaint, action, suit, notice of apparent
liability, order of forfeiture, investigation or other proceeding pending before
the FCC or threatened in writing by or before the FCC against Seller with
respect to the Station or any of the FCC Licenses (other than rule making
proceedings of general applicability to the television industry).
We express no opinion as to the effect of the violation of any law or
regulation that may be applicable to Seller as a result of the involvement of
parties other than Seller in the transactions contemplated by the Asset Purchase
Agreement because of the legal or regulatory status of such other parties or
because of any other facts specifically pertaining to any of them.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes that may thereafter be brought to our
attention. Our opinions are based on statutory provisions and judicial decisions
in effect at the date hereof, and we do not opine with respect to any law,
regulation, rule or governmental policy that may be enacted or adopted after the
date hereof nor assume any responsibility to advise you of future changes in our
opinions.
This letter is solely for your information in connection with the
consummation of the transactions contemplated by the Asset Purchase Agreement
and is not to be reproduced, quoted in whole or in part or otherwise referred to
in any of your financial statements or public releases, nor is it to be filed
with any governmental agency or relied upon by any other person or for any
purposes whatsoever without the prior written consent of a member of this firm;
provided, however, that Chase
<PAGE>
KUPN, Inc.
[Closing Date]
Page 31
Manhattan Bank (National Association) (individually and as agent) and such other
financial institutions that are providing financing to the Buyer in connection
with the acquisition of the Assets may rely on the foregoing opinions solely in
connection with such financing.
Very truly yours,
DOW, LOHNES & ALBERTSON, PLLC
By:_____________________________
_________________, Member
<PAGE>
EXHIBIT A
---------
FCC LICENSES
------------
[To be completed on the Closing Date]
<PAGE>
EXHIBIT B
---------
COMPLAINTS
----------
[To be completed on the Closing Date]
<PAGE>
Exhibit 8.2(i)
--------------
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made this
___ day of ____________, 1997, by and between Channel 21, L.P., a Nevada limited
partnership ("Seller"), and KUPN, Inc., a Maryland corporation ("Buyer").
R E C I T A L S:
----------------
A. Seller and Buyer have entered into an Asset Purchase Agreement, dated as
of January ___, 1997 (the "Purchase Agreement"), pursuant to which the Seller
has agreed, among other things, to transfer, convey, assign and deliver to Buyer
all of Seller's right, title and interest in and to the tangible and intangible
assets used or useful in connection with the conduct of the business or
operations of Television Station KUPN-TV, Las Vegas, Nevada (the "Station"),
other than the assets specifically excluded as provided in Section 2.2 of the
Purchase Agreement.
B. Section 2.7 of the Purchase Agreement provides that, as of the Closing
Date, Buyer shall assume and undertake to pay, discharge and perform certain
obligations and liabilities of Seller.
C. Sections 8.2(i) and 8.3(d) of the Purchase Agreement contemplate that
this Agreement is to be entered into and delivered at Closing.
D. All capitalized terms not otherwise defined herein and defined in the
Purchase Agreement shall have the meanings attributed thereto in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
agreements and covenants contained herein and in the Purchase Agreement, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby
<PAGE>
-35-
acknowledged, the parties hereto, intending legally to be bound, hereby agree as
follows:
1. Assignment of Assets. Seller does hereby sell, assign, transfer and
deliver to Buyer all of its right, title and interest in and to the tangible and
intangible assets used or useful in the conduct of the business or operations of
the Station, free and clear of any claims, liabilities, security interests,
mortgages, liens, pledges, conditions, charges or encumbrances of any nature
whatsoever (except for Permitted Liens), including, without limitation, the
following:
a. the Tangible Personal Property;
b. the Real Property;
c. the Licenses (subject to Buyer's right to have the FCC
Licenses assigned directly to the License Assignee);
d. the Assumed Contracts;
e. the Intangibles;
f. all of Seller's proprietary information, technical information
and data, maps, computer discs and tapes, plans, diagrams, blueprints and
schematics, including filings with the FCC, relating to the business and
operations of the Station;
g. all books and records of Seller relating solely to the
business or operations of the Station, including executed copies of the Assumed
Contracts, and all records required by the FCC to be kept by the Station, other
than account books of original entry and such files and records that are
maintained at the corporate offices of Seller's general partner for tax and
accounting purposes;
<PAGE>
-36-
h. all deposits and prepaid expenses of Seller with respect to
items that are prorated in favor of Seller pursuant to Section 2.5 of the
Purchase Agreement; and
i. all other assets of Seller not constituting Excluded Assets;
but excluding the Excluded Assets as defined in Section 2.2 of the Purchase
Agreement, and Buyer does hereby accept such assignment.
2. Assumption of Obligations. As of the Closing Date, Buyer shall assume,
pay, discharge and perform the following obligations, duties and liabilities:
(a) any obligation or liability of Seller arising out of or related to the
ownership and operation of the Station and the Assets (including the Licenses
and the Assumed Contracts) to the extent that either (1) the obligations and
liabilities relate to the period from and after the Effective Time or (2) the
Purchase Price was reduced pursuant to Section 2.5(a) of the Purchase Agreement
as a result of the proration or adjustment of such obligations and liabilities;
(b) any liability or obligation to any former employee of Seller who has been
hired by Buyer, attributable to any period of time on or after the Closing Date
or as provided in Section 6.8 of the Purchase Agreement; (c) any liability or
obligation arising out of any litigation, proceeding or claim by any person or
entity relating to the business or operations of the Station or any of the
Assets with respect to any events or circumstances that are attributable to the
period on or after the Closing Date; (d) any severance or other liability
arising out of the termination of any employee's employment with or by Buyer on
or after the Closing Date; (e) any duty, obligation or liability relating to any
pension, 401(k) or other similar plan, agreement or arrangement provided by
Buyer to any employee or former employee of Seller on or after the Closing Date;
and (f) all state and local sales or use taxes (or their equivalent) and
transfer taxes or recording fees payable as a consequence of the sale of the
Assets hereunder, but subject to Seller's obligations under Section 11.1 of the
Purchase Agreement.
<PAGE>
-37-
Buyer shall not assume any obligations or liabilities of Seller, including,
without limitation, any of the following that exist now or at the Closing or
that may arise in the future: (i) any obligations or liabilities under any
Excluded Contract, (ii) any obligations or liabilities under the Assumed
Contracts relating to the period prior to the Effective Time, except insofar as
a proration or adjustment therefor is made in favor of Buyer under
Section 2.5(a) of the Purchase Agreement, (iii) liabilities relating to
indebtedness of Seller for borrowed money, (iv) liabilities for claims or
litigation involving the Station relating to events occurring prior to the
Effective Time or (v) except as otherwise provided in the Purchase Agreement,
obligations or liabilities relating to employees not specifically assumed
thereunder.
3. Purchase Agreement. This Agreement is subject to and controlled by the
terms of the Purchase Agreement, including, without limitation, that it is
subject to all limitations on indemnification set forth in the Purchase
Agreement.
4. Further Assurances. Buyer and Seller shall execute and deliver from time
to time hereafter, upon reasonable request of such other party, all such further
documents and instruments, and shall do and perform all such acts as may be
necessary, to give full effect to the intent and meaning of this Agreement.
5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF MARYLAND (BUT NOT THE LAWS PERTAINING TO CHOICE OF LAW) AS TO ALL MATTERS,
INCLUDING, BUT NOT LIMITED TO, MATTERS OF VALIDITY, CONSTRUCTION, EFFECT,
PERFORMANCE AND REMEDIES.
<PAGE>
-38-
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the day and year first
written above.
SELLER:
CHANNEL 21, L.P., a Nevada limited
partnership
By: Las Vegas Channel 21, Inc., a
Nevada corporation, General
Partner
By: __________________________
Name:
Title:
BUYER:
KUPN, INC.
By: __________________________
Name:
Title:
-39-
<PAGE>
Exhibit 8.2(k)
--------------
NONCOMPETITION AGREEMENT
------------------------
THIS NONCOMPETITION AGREEMENT (this "Agreement") is made as of this ______
day of __________, 1997 by _______________________, ("Covenantor").
W I T N E S S E T H:
--------------------
WHEREAS, Channel 21, L.P., a Nevada limited partnership ("Seller"), and
KUPN, Inc., a Maryland corporation ("Buyer"), have entered into an Asset
Purchase Agreement, dated as of January 24, 1997 (the "Purchase Agreement")
pursuant to which Seller has agreed to sell and Buyer has agreed to purchase,
substantially all of the assets of Television Station KUPN-TV, Las Vegas, Nevada
(the "Station") on the terms set forth in the Purchase Agreement;
WHEREAS, Section 8.2(k) of the Purchase Agreement provides for the
execution and delivery of this Agreement by Covenantor, and Covenantor realizes
and acknowledges a benefit to [him] [her] as a result of the consummation of the
transactions contemplated by the Purchase Agreement; and
WHEREAS, capitalized terms used and not otherwise defined herein shall have
the respective meanings ascribed to them in the Purchase Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter set forth and as set forth in the Asset
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Covenantor hereto covenants
and agrees as follows:
<PAGE>
-40-
1. Covenant Not to Compete. Covenantor agrees that for a period of
two (2) years following the date hereof in the case of Clause (A) and one (1)
year in the case of Clause (B)(the "Restricted Period"), he will not, without
the express prior written consent of the Buyer (which consent may be given or
withheld in the sole discretion of Buyer), directly or indirectly, or otherwise
through any Affiliates: (A) either become or act as, a proprietor, partner,
officer, director, employee, stockholder (other than as a holder of not more
than five percent (5%) of any class of securities of any corporation or
partnership, which securities have been registered under Section 12 of the
Securities Exchange Act of 1934, as amended) of, joint venturer or investor in,
or agent for, or consultant to (whether for compensation or without
compensation), or otherwise render any services for any television station whose
principal broadcasting tower is located within a radius of 100 miles from the
main post office of the City of Las Vegas, (the "Geographic Area") or (B) hire
or solicit away, interfere with, attempt to engage in any of the foregoing or
assist any other person or entity in engaging or attempting to engage in any of
the foregoing with respect to, any employee of the Station or any Person who was
an employee of the Station as of the date hereof; provided that the restriction
in this Clause (B) shall only apply to those employees to whom Buyer offered
employment and shall not apply to any employee so long as Buyer consents
thereto, such consent not to be unreasonably withheld. The applicable Restricted
Period referred to in this Section 1 shall be tolled on a day-for-day basis for
each day during which Covenantor participates in any activity in violation of
this Section 1 so that Covenantor is restricted from engaging in the conduct
referred to in the Section 1 for the full applicable Restricted Period.
2. Consideration. In consideration of Covenantor's obligations under
this Agreement, Buyer shall pay Covenantor a fee of One Hundred Dollars
($100.00).
3. Reasonableness. Covenantor acknowledges that the restrictions set
forth in this Agreement are reasonably necessary to prevent the use and
disclosure of confidential
<PAGE>
-41-
information, and to otherwise protect the legitimate business interests of the
Station. Covenantor further acknowledges that the Station actively conducts
business in the Geographic Area and that all of the restrictions in this
Agreement are reasonable in all respects, including duration, geographic
territory and scope of activity restricted.
4. Injunctive Relief. Covenantor acknowledges that the breach, or
threatened breach, by Covenantor of the provisions of this Agreement shall cause
irreparable harm to the Buyer, which harm cannot be reasonably, adequately or
fully redressed by the payment of damages. Accordingly, Buyer shall be entitled,
in addition to any other right or remedy it may have at law or in equity, to an
injunction enjoining or restraining Covenantor from any breach or threatened
breach of this Agreement. Covenantor hereby waives the defense in any equitable
proceeding that there is an adequate remedy at law for any such breach. In the
event of any legal action between the parties arising out of or in relation to
this agreement, the prevailing party in such litigation shall be entitled to
recover, in addition to any other legal remedies, all of its costs and expenses,
including, without limitation, reasonable attorney's fees, from the
nonprevailing party regardless of whether such legal action is prosecuted to
completion.
5. Benefit and Assignment. No person or entity other than the Buyer and
its permitted assigns is or shall be entitled to bring any action to enforce any
provision of this Agreement against the Covenantor, and the covenants and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, Covenantor and Buyer and its permitted assigns.
None of the rights hereunder shall be assignable without prior written consent
of Covenantor, except that Buyer shall be permitted to assign its rights
hereunder to any acquiror of all or substantially all of the assets of the
Station.
6. Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all agreements and
<PAGE>
-42-
understandings, both written and oral, with respect to the subject matter
hereof.
7. Amendment. This Agreement may not be amended except by an instrument
in writing signed by or on behalf of the Covenantor and the Buyer.
8. Severability. If any part or any provision of this Agreement shall
be invalid or unenforceable under applicable law, said part or provisions shall
be ineffective to the extent of such invalidity or unenforceablity only, without
in any way affecting the remaining parts of such provisions or the remaining
provisions of this Agreement. The parties hereto agree that, if a court of
competent jurisdiction adjudges any provision of this Agreement to be invalid or
unenforceable, such court shall modify such provision so that it is enforceable
to the full extent permitted by applicable law.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
THE LAWS OF THE STATE OF NEVADA (BUT NOT THE PROVISIONS THEREOF RELATING TO
CONFLICTS OF LAW) AS TO ALL MATTERS INCLUDING BUT NOT LIMITED TO MATTERS OF
VALIDITY, CONSTRUCTION, EFFECT, PERFORMANCE AND REMEDIES.
10. No Waiver. No delay or omission by Buyer or Seller in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by Buyer or Seller on any one occasion is
effective only in that instance and will not be construed as a bar to or waiver
of any right on any other occasion. Any waiver must be in writing and signed by
the party granting the waiver.
11. Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be a part of or affect the
meaning or interpretation of this Agreement.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
-43-
IN WITNESS WHEREOF, Covenantor has executed this Agreement as of the
day and year first above written.
[COVENANTOR]
_____________________________
<PAGE>
Exhibit 8.3 (e)
---------------
[Closing Date]
Channel 21, L.P.
1999 Avenue of the Stars, Suite 500
Los Angeles, California 90067
Re: Asset Purchase Agreement, dated as of January
____, 1997, by and between Channel 21, L.P. and
KUPN, Inc.
Ladies and Gentlemen:
We have acted as counsel to KUPN, Inc., a Maryland corporation (the
"Buyer"), in connection with the transactions contemplated by that certain Asset
Purchase Agreement, dated as of January ____, 1997 (the "Asset Purchase
Agreement"), by and between Channel 21, L.P., a Nevada limited partnership (the
"Seller"), and Buyer. This opinion is being delivered to you pursuant to Section
8.3(e) of the Asset Purchase Agreement. All capitalized terms used herein but
not otherwise defined in this opinion shall have the meanings ascribed thereto
in the Asset Purchase Agreement.
In rendering this opinion, we have reviewed:
1. the Asset Purchase Agreement;
2. the Assignment and Assumption Agreement and the Indemnification Fund
Agreement (collectively, the "Related Agreements");
3. the Certificate of Incorporation and By-Laws of Buyer; and
4. the records of certain proceedings and actions of Buyer and its
shareholders, in the forms certified to us by an officer of the Buyer as being
true, correct and complete and to
-44-
<PAGE>
Channel 21, L.P.
[Closing Date]
Page 46
be in effect (without rescission, modification or amendment) on the date of this
opinion. We have not reviewed the records of any court.
In our examination of documents and records, we have assumed, without
investigation, (i) the genuineness of all signatures, (ii) the legal capacity of
natural persons, (iii) the authenticity of all documents submitted to us as
originals, and (iv) the conformity with originals of all documents submitted to
us as telecopied, certified, photostatic or reproduced copies and the
authenticity of all such documents. We have also assumed, but not independently
verified, that the Asset Purchase Agreement, the Related Agreements and all
other documents executed by a party other than Buyer or any of its subsidiaries
were duly and validly authorized, executed and delivered by such party, that
such party has the requisite power and authority to execute, deliver and perform
such agreements and other documents, and that such agreements and other
documents are legal, valid and binding obligations of such party and are
enforceable against such party in accordance with their respective terms.
With respect to questions of fact, we have relied, without independent
inquiry or verification by us, solely upon (a) the representations and
warranties set forth in the Asset Purchase Agreement, (b) written and oral
representations of officers of Buyer, and (c) certificates of public officials,
and we do not opine in any respect as to the accuracy of any such facts. We have
conducted no independent investigation whatsoever of any factual matter. Certain
of the opinions given herein are qualified by the phrases "best of our
knowledge," "to our knowledge," "known to us" or similar phrases. In each such
case, such knowledge refers only to the actual existing knowledge of attorneys
in our firm involved in representing Buyer in the preparation of this opinion
with only such investigation as is specifically referred to in this opinion,
without any further investigation or inquiry. Such terms do not include any
knowledge of other attorneys within our firm or any constructive or imputed
notice of any matters or items of
-45-
<PAGE>
Channel 21, L.P.
[Closing Date]
Page 47
information. When a statement in this opinion is made "to our knowledge," it
means that none of the attorneys in our firm involved in representing the Buyer
in the preparation of this opinion has actual existing knowledge that the
statement is false; it does not mean that any of such attorneys necessarily has
actual existing knowledge of facts that would suggest the statement as true.
This opinion is limited to the laws of the State of Maryland and the
federal law of the United States of America (collectively, "Applicable Law"),
except that Applicable Law includes only laws and regulations that a lawyer
exercising customary professional diligence would reasonably recognize as being
directly applicable to the transactions contemplated by the Asset Purchase
Agreement and the Related Agreements and excludes those set forth in Section 19
of the Legal Opinion Accord of the American Bar Association Section of Business
Law (1991). We express no opinion as to choice of law or conflicts of law rules
or the laws of any states or jurisdictions other than as specified above.
Statements in this opinion as to the legality, validity, binding effect and
enforceability of the Asset Purchase Agreement and the Related Agreements are
subject to limitations imposed by bankruptcy, insolvency, reorganization,
moratorium or similar laws and related court decisions of general applicability
relating to or affecting creditors' rights generally and to the application of
general equitable principles.
In addition, without limitation of any of the foregoing, we express no
opinion herein as to (i) any provision of the Asset Purchase Agreement that
provides for indemnification to the extent such provision may be limited by
applicable law, (ii) any consents of third parties that may be required in
connection with the transfer and assignment of any of the Assets or the effects
of the failure to have obtained any such consents that may be required, (iii)
federal or state securities or "Blue Sky" laws and bulk transfer or sales laws,
(iv) matters arising under
-46-
<PAGE>
Channel 21, L.P.
[Closing Date]
Page 48
the Communications Act of 1934, as amended, or the laws, rules, regulations or
policies of the Federal Communications Commission, or (v) antitrust laws.
Based upon the foregoing, subject to the assumptions, limitations and
exceptions contained herein, we are of the opinion that:
1. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. Buyer has the requisite
corporate power and authority to execute, deliver and perform the Asset Purchase
Agreement.
2. The execution, delivery and performance by Buyer of the Asset Purchase
Agreement and the Related Agreements and the consummation by Buyer of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Buyer.
3. The Asset Purchase Agreement and the Related Agreements have been duly
and validly executed and delivered by Buyer and each of the Asset Purchase
Agreement and each Related Agreement constitutes a legal, valid and binding
agreement of Buyer enforceable against Buyer in accordance with its terms.
We express no opinion as to the effect of the violation of any law or
regulation that may be applicable to the Buyer as a result of the involvement of
parties other than the Buyer in the transactions contemplated by the Asset
Purchase Agreement because of the legal or regulatory status of such other
parties or because of any other facts specifically pertaining to any of them.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes that may thereafter be brought to our
attention. Our opinions are based on statutory provisions and judicial decisions
in effect at the date hereof, and we do not opine with respect to any law,
regulation, rule or governmental policy that may be enacted or
-47-
<PAGE>
Channel 21, L.P.
[Closing Date]
Page 49
adopted after the date hereof nor assume any responsibility to advise you of
future changes in our opinions.
This letter is solely for your information in connection with the
consummation of the transactions contemplated by the Asset Purchase Agreement
and is not to be reproduced, quoted, in whole or in part, or otherwise referred
to in any of your financial statements or public releases, nor is it to be filed
with any governmental agency or relied upon by any other person or for any
purposes whatsoever without the prior written consent of a member of this firm.
Very truly yours,
THOMAS & LIBOWITZ, P.A.
By:_____________________________
-48-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1994 1995 1996
---------- --------- --------
Weighted-average number of common shares ........ 29,000 32,198 34,748
Dilutive effect of outstanding stock options .... -- 7 170
Dilutive effect of conversion of preferred
shares.......................................... -- -- 2,463
---------- --------- --------
Weighted-average number of common and common
equivalent shares outstanding................... 29,000 32,205 37,381
========== ========= ========
Net income (loss) before extraordinary item ..... $(2,740) $ 4,988 $ 1,131
========== ========= ========
Net income (loss) per common and common
equivalent share before extraordinary item...... $ (0.09) $ 0.15 $ 0.03
========== ========= ========
Net income (loss)................................ $(2,740) $ 76 $ 1,131
========== ========= ========
Net income (loss) per common and common
equivalent share................................ $ (0.09) $ -- $ 0.03
========== ========= ========
EXHIBIT 12
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before provision
(benefit) for income taxes and
extraordinary items................ $(5,840) $ 922 $(3,387) $10,188 $ 8,067
Fixed charges(a).................... 12,997 12,852 25,418 39,253 84,314
---------- -------- ---------- --------- --------
Earnings available for fixed
charges............................ 7,157 13,774 22,031 49,441 92,381
Fixed charges....................... 12,997 12,852 25,418 39,253 84,314
---------- -------- ---------- --------- --------
Ratio of earnings to fixed charges . -- 1.1 x -- 1.3 x 1.1 x
</TABLE>
- ----------
(a) Fixed charges consist of interest expense, which includes interest on all
debt and amortization of debt discount, and deferred financing costs.
EXHIBIT 21
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------------------------------------- ---------------------------
<S> <C>
Sinclair Communications, Inc..................... Maryland
Cresap Enterprises, Inc.......................... Maryland
Chesapeake Television, Inc....................... Maryland
Chesapeake Television Licensee, Inc.............. Delaware
WTTE Channel 28, Inc............................. Maryland
WTTE Channel 28 Licensee, Inc.................... Maryland
WPGH, Inc........................................ Maryland
WPGH Licensee, Inc............................... Maryland
WCGV, Inc........................................ Maryland
WCGV Licensee, Inc............................... Delaware
WLFL, Inc........................................ Maryland
WLFL Licensee, Inc............................... Delaware
FSF-TV, Inc...................................... North Carolina
WTVZ, Inc........................................ Maryland
WTVZ Licensee, Inc............................... Maryland
WTTO, Inc........................................ Maryland
WTTO Licensee, Inc............................... Delaware
WDBB, Inc........................................ Maryland
Tuscaloosa Broadcasting, Inc..................... Maryland
WSMH, Inc........................................ Maryland
WSMH Licensee, Inc............................... Delaware
KSMO, Inc........................................ Maryland
KSMO Licensee, Inc............................... Delaware
WSTR, Inc........................................ Maryland
WSTR Licensee, Inc............................... Maryland
Superior Communications of Oklahoma, Inc. ....... Oklahoma
Superior OK License Corp......................... Delaware
Superior Communications of Kentucky, Inc. ....... Delaware
Superior KY License Corp......................... Delaware
WYZZ, Inc........................................ Maryland
WYZZ Licensee, Inc............................... Delaware
SCI-Sacramento Licensee, Inc..................... Delaware
SCI-Indiana Licensee, Inc........................ Delaware
KDSM, Inc........................................ Maryland
KDSM Licensee, Inc............................... Delaware
KDNL Licensee, Inc............................... Delaware
WLOS Licensee, Inc............................... Delaware
KABB Licensee, Inc............................... Delaware
Sinclair Radio of Buffalo, Inc. ................. Maryland
Sinclair Radio of Buffalo Licensee, Inc. ........ Delaware
Sinclair Radio of Wilkes Barre, Inc. ............ Maryland
Sinclair Radio of Wilkes Barre Licensee, Inc. ... Delaware
Sinclair Radio of Nashville, Inc................. Maryland
Sinclair Radio of Nashville Licensee, Inc. ...... Delaware
Sinclair Radio of Memphis, Inc................... Maryland
Sinclair Radio of Memphis Licensee, Inc. ........ Delaware
<PAGE>
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------------------------------------- ---------------------------
Sinclair Radio of New Orleans, Inc. ............. Maryland
Sinclair Radio of New Orleans Licensee, Inc. .... Delaware
Sinclair Radio of Los Angeles, Inc. ............. Maryland
Sinclair Radio of Los Angeles Licensee, Inc. .... Delaware
Sinclair Radio of St. Louis, Inc................. Maryland
Sinclair Radio of St. Louis Licensee, Inc. ...... Delaware
</TABLE>
The Company has additional subsidiaries, which considered in the aggregate as a
single subsidiary, do not constitute a significant subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this form 10-K, into the Company's previously
filed Registration Statements (File No. 33-69482, File No. 33-94982 and File
No. 333-12255).
ARTHUR ANDERSEN LLP
Baltimore, Maryland
February 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS OF
SINCLAIR BROADCAST GROUP, INC. FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912752
<NAME> SINCLAIR BROADCAST GROUP
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,341
<SECURITIES> 0
<RECEIVABLES> 112,313
<ALLOWANCES> 2,472
<INVENTORY> 0
<CURRENT-ASSETS> 167,770
<PP&E> 154,333
<DEPRECIATION> 11,711
<TOTAL-ASSETS> 1,707,297
<CURRENT-LIABILITIES> 173,645
<BONDS> 400,000
0
11
<COMMON> 349
<OTHER-SE> 236,893
<TOTAL-LIABILITY-AND-EQUITY> 1,707,297
<SALES> 0
<TOTAL-REVENUES> 378,488
<CGS> 0
<TOTAL-COSTS> 289,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,314
<INCOME-PRETAX> 8,067
<INCOME-TAX> 6,936
<INCOME-CONTINUING> 1,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,131
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
