As filed with the Securities and Exchange Commission July 9, 1997
REGISTRATION NOS. 333-26427 AND 333-26427-02
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C>
SINCLAIR BROADCAST GROUP, INC. KDSM, INC. SINCLAIR CAPITAL
(EXACT NAME OF REGISTRANT AS (Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter) specified in its charter)
------------ ------------ ------------
MARYLAND MARYLAND DELAWARE
(State or other jurisdiction (State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization) of incorporation or organization)
------------ ------------ ------------
52-1494660 52-1975792 52-2026076
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
------------ ------------ ------------
4833 4833 6159
(Primary Standard Industrial (Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number) Classification Code Number)
</TABLE>
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2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(410) 467-5005
(Address, including ZIP Code, and telephone number, including area
code, of registrants' principal executive offices)
----------------
DAVID D. SMITH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SINCLAIR BROADCAST GROUP, INC.
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(410) 467-5005
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
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Copies to:
George P. Stamas, Esq. Steven A. Thomas, Esq.
Wilmer, Cutler & Pickering Thomas & Libowitz, P.A.
2445 M Street, N.W. 100 Light Street - Suite 1100
Washington, D.C. 20037 Baltimore, MD 21202
(202) 663-6000 (410) 752-2468
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation
of a holding company and there is compliance with General Instruction G, check
the following box. [ ]
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED JULY 9, 1997
PROSPECTUS
OFFER FOR ALL OUTSTANDING
11 5/8% HIGH YIELD TRUST OFFERED PREFERRED SECURITIES
(LIQUIDATION AMOUNT $100 PER PREFERRED SECURITY)
IN EXCHANGE FOR
11 5/8% HIGH YIELD TRUST OFFERED PREFERRED SECURITIES
(LIQUIDATION AMOUNT $100 PER PREFERRED SECURITY)
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
of
Sinclair Capital
guaranteed to the extent set forth herein by
[GRAPHIC OMITTED]
The Exchange Offer and Withdrawal Rights will
expire at 5:00 p.m., New York City time,
on _______ __, 1997, unless extended.
----------
Sinclair Capital (the "Trust") hereby offers to exchange up to $200,000,000
aggregate liquidation amount of the Trust's 11 5/8 High Yield Trust Offered
Preferred Securities (the "New Preferred Securities") for a like aggregate
liquidation amount of the Trust's outstanding 11 5/8 High Yield Trust Offered
Preferred Securities (the "Old Preferred Securities"), of which $200,000,000 is
outstanding. The New Preferred Securities have terms that are substantially
identical to the terms of the Old Preferred Securities but have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement (as defined herein), of which this Prospectus
constitutes a part. The offer is made upon the terms and subject to the
conditions set forth in this Prospectus (such Prospectus, as it may be amended
or supplemented from time to time, the "Prospectus") and in the accompanying
Consent and Letter of Transmittal (which together constitute the "Exchange
Offer"). The Trust is a special purpose statutory business trust, which was
created under the laws of the State of Delaware and which is governed by an
amended and restated trust agreement (the "Trust Agreement"). The common
securities of the Trust are held by KDSM, Inc., a Maryland corporation (together
with is subsidiaries, "KDSM, Inc.") which is a wholly-owned subsidiary of
Sinclair Broadcast Group, Inc. (the "Company").
In connection with the Exchange Offer (i) KDSM, Inc. is exchanging
all of its 11 5/8% Senior Debentures due 2009 (the "Old KDSM Senior
Debentures"), of which $206,200,000 aggregate principal amount is outstanding
and held by the Trust, for a like principal amount of its 11 5/8% Senior
Debentures due 2009 (the "New KDSM Senior Debentures"), which New KDSM Senior
Debentures have been registered under the Securities Act; (ii) Sinclair
Broadcast Group, Inc., a Maryland corporation ("Sinclair" or the "Company") is
exchanging all of
(Continued on Page ii)
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SEE "RISK FACTORS" BEGINNING ON PAGE 29 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY HOLDERS WHO TENDER OLD PREFERRED SECURITIES IN THE EXCHANGE
OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is July , 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
(Continued From Cover Page)
its 12 5/8% Series C Preferred Stock, par value $.01 per share, (the "Old Parent
Preferred"), of which 2,062,000 shares having an aggregate liquidation amount of
$206,200,000 are outstanding and held by KDSM, Inc., for a like number of shares
having a like aggregate liquidation amount of its 12 5/8% Series C Preferred
Stock, par value $.01 per share (the "New Parent Preferred"), which New Parent
Preferred has been registered under the Securities Act; and (iii) the Company is
exchanging its guarantees (described herein) with respect to the Old Preferred
Securities and the Old KDSM Senior Debentures (the "Old Parent Guarantee" and
the "Old Parent Debenture Guarantee," respectively) for like guarantees
(described herein) with respect to the New Preferred Securities and the New KDSM
Senior Debentures (the "New Parent Guarantee" and the "New Parent Debenture
Guarantee," respectively). The New Parent Guarantee and the New Parent Debenture
Guarantee have been registered under the Securities Act.
This Prospectus, when accompanied by an appropriate prospectus supplement,
also relates to the resale of Preferred Securities by certain holders who may
have the right pursuant to the Registration Rights Agreement to require the
Company and the Trust to register the resale of the Preferred Securities because
such holders are not eligible to rely on the registration of the New Preferred
Securities to resell the New Preferred Securities or because such holders are
not eligible to exchange their Old Preferred Securities for New Preferred
Securities. Holders of Preferred Securities who seek to resell their Preferred
Securities pursuant to this Prospectus, if any, will be identified in a
prospectus supplement and will be required to deliver this Prospectus and a
prospectus supplement in connection with any such resale.
The Old Preferred Securities, the Old KDSM Senior Debentures, the Old
Parent Preferred, the Old Parent Guarantee and the Old Parent Debenture
Guarantee are collectively referred to herein as the "Old Securities." The New
Preferred Securities, the New KDSM Senior Debentures, the New Parent Preferred,
the New Parent Guarantee and the New Parent Debenture Guarantee are collectively
referred to herein as the "New Securities." In addition, as the context may
require, unless expressly stated otherwise, (i) "Preferred Securities" means the
Old Preferred Securities and the New Preferred Securities, (ii) "KDSM Senior
Debentures" means the Old KDSM Senior Debentures and the New KDSM Senior
Debentures, (iii) "Parent Preferred" means the Old Parent Preferred and the New
Parent Preferred, (iv) "Parent Guarantee" means the New Parent Guarantee and the
Old Parent Guarantee, and (v) "Parent Debenture Guarantee" means the New Parent
Debenture Guarantee and the Old Parent Debenture Guarantee.
The terms of the New Securities will be identical in all material respects
to the respective terms of the Old Securities, except that (i) the New
Securities will have been registered under the Securities Act and therefore will
not be subject to certain restrictions on transfer applicable to the Old
Securities and (ii) the New Preferred Securities, the New KDSM Senior Debentures
and the New Parent Preferred will not be subject to an increase in interest
payments or other distributions thereon as a consequence of a failure to take
certain actions in connection with their registration under the Securities Act.
The New Preferred Securities are being offered for exchange in order to
satisfy certain obligations of the Company, the Trust and KDSM under the
Registration Rights Agreement dated March 5, 1997 (the "Registration Rights
Agreement") among the Company, the Trust, KDSM, Inc. and the Initial Purchasers
(as defined herein). In the event the Exchange Offer is consummated, any Old
Preferred Securities which remain outstanding after consummation of the Exchange
Offer and the New Preferred Securities issued in the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of outstanding liquidation amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement.
In connection with the Exchange Offer, holders of Preferred Securities are
being asked to approve a technical amendment to the Articles Supplementary to
the Sinclair Amended and Restated Certificate of Incorporation (the "Amended
Certificate") which specify the terms of the Parent Preferred (the "Parent
Preferred Articles Supplementary") to clarify the ability of Sinclair to issue
the New Parent
-ii-
<PAGE>
Preferred in connection with the Exchange Offer. Submission of Preferred
Securities for exchange pursuant to the Consent and Letter of Transmittal will,
unless the holder indicates otherwise, constitute consent to this amendment.
The Preferred Securities represent preferred undivided beneficial interests
in the assets of the Trust. KDSM, Inc. is the owner of the common securities
(the "Common Securities" and, together with the Preferred Securities, the
"Issuer Securities") representing undivided beneficial interests in the assets
of the Trust. First Union National Bank of Maryland is the Property Trustee (the
"Property Trustee") and First Union Bank of Delaware is the Delaware Trustee
(the "Delaware Trustee") of the Trust. KDSM, Inc. is an indirect wholly-owned
subsidiary of Sinclair. The Trust exists for the sole purpose of issuing for
cash the Issuer Securities and using the proceeds therefrom to purchase the KDSM
Senior Debentures and engaging in only those activities necessary or incidental
thereto. The ability of the Trust to make distributions and pay other amounts on
the Preferred Securities is and will be solely dependent upon KDSM, Inc. making
interest and other payments on the KDSM Senior Debentures as and when required.
Such payments on the KDSM Senior Debentures, if made in accordance with the
terms of the indenture under which the KDSM Senior Debentures were issued (the
"KDSM Senior Debenture Indenture"), will provide funds sufficient to enable the
Trust to make distributions and pay other amounts on the Preferred Securities.
KDSM, Inc. owns the License Assets (as defined herein) and the Non-License
Assets (as defined herein) used in the operations of television station KDSM in
Des Moines, Iowa. KDSM, Inc. used the proceeds of the issuance of the Old KDSM
Senior Debentures to purchase the Old Parent Preferred which has an aggregate
stated Liquidation Amount (as defined herein) equal to the aggregate stated
Liquidation Value (as defined herein) of the Old Preferred Securities and Common
Securities, collectively. KDSM, Inc.'s obligations under the New KDSM Senior
Debentures will be secured by a first priority pledge of KDSM Inc.'s interest in
the New Parent Preferred pursuant to a pledge and security agreement by and
between KDSM, Inc. and the Trust (the "Pledge Agreement"). The New Parent
Preferred will have dividend payment and redemption provisions that correspond
to the distribution payment and redemption provisions of the New Preferred
Securities and the interest payment and redemption provisions of the New KDSM
Senior Debentures, except that the dividend rate on the New Parent Preferred
will be one percentage point higher than the distribution rate on the New
Preferred Securities and the interest rate on the New KDSM Senior Debentures.
Accordingly, the Trust's ability to make payments on the New Preferred
Securities will be substantially dependent on the ability of Sinclair to make
dividend and other payments on the New Parent Preferred as well as on the
operating performance of KDSM-TV. In certain circumstances, KDSM, Inc. may
transfer all or substantially all of its assets (without regard to the New
Parent Preferred or the Common Securities owned by KDSM, Inc.) including KDSM-TV
and the assets related thereto in exchange for other assets used in the business
of operating one or more television or radio broadcasting stations or assets
related thereto, and having a fair market value equal to the greater of (a) $50
million and (b) 90% of the fair market value of KDSM-TV on the date of transfer.
See "Relationship Among the New Preferred Securities, the New KDSM Senior
Debentures, the New Parent Preferred and the New Parent Guarantee" and "Risk
Factors-Ability of KDSM, Inc. to Transfer KDSM-TV." Sinclair's ability to make
dividend and other payments on capital stock (including the New Parent
Preferred) is restricted in certain circumstances by the terms of the Bank
Credit Agreement (as defined in Certain Definitions) and certain outstanding
senior subordinated notes of Sinclair (the "Existing Notes"). Sinclair currently
is limited in its ability to redeem capital stock (including the Parent
Preferred) by the terms of the Bank Credit Agreement and the Existing Notes. The
holders of the Preferred Securities will have a preference, with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the holders of the Common Securities issued by the Trust. The Preferred
Securities and Common Securities will represent 97% and 3%, respectively, of the
total capital of the Trust. See "Description of the New Preferred
Securities-Subordination of Common Securities" and "-Liquidation Distribution
Upon Dissolution."
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions payable quarterly in arrears on March 15, June 15, September 15
and December 15 of each year at the rate of 11 5/8%
iii
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per annum of the Liquidation Value of $100 per Preferred Security. Distributions
on the Old Preferred Securities accrue from March 12, 1997, the issue date. The
first distribution payment date with respect to the Old Preferred Securities was
June 15, 1997. Holders of the New Preferred Securities will be entitled to
receive cumulative cash distributions from the most recent distribution date on
the Old Preferred Securities surrendered in exchange for such New Preferred
Securities. The Trust's ability to make such payments will be dependent on its
receiving interest payments from KDSM, Inc. on the New KDSM Senior Debentures,
and KDSM, Inc.'s ability to make interest payments will be substantially
dependent upon KDSM, Inc. receiving dividends from Sinclair on the New Parent
Preferred. The failure to pay interest on the New KDSM Senior Debentures (beyond
a 30-day grace period) will be an Event of Default thereunder. However, Sinclair
will have the right, at any time and from time to time, to defer dividend
payments on the New Parent Preferred for up to three consecutive quarters by
extending the dividend payment period thereon (each an "Extension Period");
provided that Sinclair will be required to pay all dividends due and owing on
the New Parent Preferred at least once every four quarters and must pay all
dividends due and owing on the New Parent Preferred on March 15, 2009.
Similarly, KDSM, Inc. will have the right, at any time and from time to time, to
defer interest payments on the New KDSM Senior Debentures for (i) up to three
consecutive quarters by extending the interest payment period thereon for any
period for which it does not receive dividends on the New Parent Preferred and
(ii) one quarter even if KDSM, Inc. receives dividends on the New Parent
Preferred; provided that KDSM, Inc. will be required to pay all interest due and
owing on the New KDSM Senior Debentures at least once every four quarters and
must pay all interest due and owing on the maturity date of the New KDSM Senior
Debentures. If interest payments on the New KDSM Senior Debentures are so
deferred, distributions on the New Preferred Securities will also be deferred
for the same deferral period. In order to exercise such deferral rights, the
Trust, KDSM, Inc. and Sinclair must issue a press release at least ten business
days prior to the record date for such payments. During an Extension Period, (i)
the dividends on the New Parent Preferred will continue to accumulate and will
accrue additional dividends at a rate of 12 5/8% compounded quarterly, (ii) the
interest payments on the New KDSM Senior Debentures will continue to accrue and
interest will accrue on any deferred interest at a rate of 11 5/8% compounded
quarterly, and (iii) the distributions on the New Preferred Securities will
continue to accumulate and will accrue additional distributions at a rate of 11
5/8% compounded quarterly. See "Description of the New KDSM Senior
Debentures-Option to Extend Interest Payment Period."
Pursuant to the New Parent Guarantee, Sinclair will irrevocably guarantee
on a junior subordinated basis to the limited extent set forth in the New Parent
Guarantee the payment of distributions out of funds legally available and held
by the Trust and payments on dissolution, winding-up or termination of the Trust
or the redemption of New Preferred Securities, as set forth below. See
"Description of the New Parent Guarantee." If KDSM, Inc. fails to make interest
payments on the New KDSM Senior Debentures held by the Trust, the Trust will not
have sufficient funds to pay distributions on the New Preferred Securities. The
New Parent Guarantee will not cover payment of distributions when the Trust does
not have sufficient funds legally available to pay such distributions. If
payment under the KDSM Senior Debentures is not made as required, the remedy of
a holder of New Preferred Securities will be to seek to cause the Trustees (as
defined herein) under the Trust to enforce the rights of the Trust under the New
KDSM Senior Debentures held by the Trust and under the Pledge Agreement.
Sinclair's obligations under the New Parent Guarantee will be subordinated and
junior in right of payment to all other liabilities of Sinclair except any
liabilities that may be made pari passu with or subordinate to the New Parent
Guarantee expressly by their terms.
The New Preferred Securities must be redeemed upon, and to the extent of,
repayment of the New KDSM Senior Debentures held by the Trust at maturity or the
earlier redemption of the New KDSM Senior Debentures for any reason, at the
Liquidation Value of $100 per New Preferred Security plus accumulated and unpaid
distributions to the Redemption Date (as defined herein), whether or not earned
or declared, to the date of payment; provided that, if the New KDSM Senior
Debentures are redeemed at a price in excess of their principal amount, the New
Preferred Securities will be redeemed at the same higher percentage of their
Liquidation Value. KDSM, Inc. will have the option (i) at any time on or after
March 15, 2002, to redeem the New KDSM Senior Debentures, in whole or in part in
cash at the redemption prices set forth herein, and (ii) at any time on or prior
to March 15, 2000, to redeem up to 33 1/3% of the aggregate principal amount of
the New KDSM Senior Debentures, with the proceeds of one or more redemptions of
the New
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Parent Preferred held by KDSM, Inc. (which New Parent Preferred would be
simultaneously redeemed from the proceeds of one or more Public Equity Offerings
(as defined herein) of Sinclair), at a cash redemption price of 111.625% of the
principal amount thereof, plus accrued interest to the date of redemption;
provided that after any such redemption at least 66 2/3% of the aggregate
principal amount of the New KDSM Senior Debentures originally issued in respect
of the New Preferred Securities remains outstanding. In either case (i) or (ii),
KDSM, Inc. will obtain the funds to make such redemption as a result of Sinclair
redeeming New Parent Preferred held by KDSM, Inc. Under the terms of the Parent
Preferred Articles Supplementary, Sinclair will have the option to redeem the
New Parent Preferred in the same circumstances and at the same redemption prices
(expressed as a percentage of Liquidation Amount) as KDSM, Inc. will have the
option to redeem the New KDSM Senior Debentures as described above.
In addition, KDSM, Inc. will have the option (i) upon a Tax Event or an
Investment Company Act Event (each as defined herein), to redeem in whole or in
part the New KDSM Senior Debentures for cash at a redemption price of 105.813%
in the case of a Tax Event, and 101% in the case of an Investment Company Act
Event, in each case of the aggregate principal amount of the New KDSM Senior
Debentures redeemed, plus all accrued and unpaid interest and to require
Sinclair to redeem the New Parent Preferred for cash pursuant to the terms
thereof at the same redemption prices; provided that at the time of redemption
in the case of a Tax Event triggered by an amendment, clarification or change,
such amendment, clarification or change remains in effect or (ii) upon a Tax
Event, as the holder of all of the Common Securities of the Trust, to cause the
dissolution of the Trust with each holder of New Preferred Securities receiving
New KDSM Senior Debentures in a principal amount equal to the Liquidation Value
of their New Preferred Securities. If KDSM, Inc. exercises the option in clause
(i) above, KDSM, Inc. will use the cash proceeds from the redemption of the New
Parent Preferred to redeem the New KDSM Senior Debentures held by the Trust at a
price that is a percentage above their principal amount equal to the same
percentage above the Liquidation Amount, if any, for which Sinclair redeems the
New Parent Preferred. The Trust will then promptly redeem New Preferred
Securities with the proceeds it receives from KDSM, Inc. If KDSM, Inc. exercises
the option in clause (ii) above, (a) pursuant to the KDSM Senior Debenture
Indenture, Sinclair has agreed to the New Parent Debenture Guarantee, under
which, effective at the time of such distribution, Sinclair will fully and
unconditionally guarantee the payment of the New KDSM Senior Debentures on a
junior subordinated basis; provided that Sinclair confirms the effectiveness of
the New Parent Debenture Guarantee at the time of distribution, which it may not
do if the New Parent Debenture Guarantee is not then permitted under the terms
of the Bank Credit Agreement or the Existing Notes and (b) the Trust may not be
dissolved unless the New Parent Debenture Guarantee is effective. In addition,
KDSM, Inc. must deliver a tax opinion to the Trust to the effect that the
dissolution of the Trust and the distribution of the New KDSM Senior Debentures
will not be a taxable event for United States federal income tax purposes to the
holders of the New Preferred Securities. Sinclair is currently prohibited from
taking any of the prospective actions referred to above by the Bank Credit
Agreement and the Existing Notes and therefore KDSM, Inc. would not currently be
able to dissolve the Trust upon a Tax Event.
Upon a Change of Control (as defined in the relevant governing document) of
Sinclair, each holder of New Preferred Securities will have the right to require
the Trust to redeem all or a portion of such holder's New Preferred Securities
from the proceeds of a redemption by KDSM, Inc. of New KDSM Senior Debentures
held by the Trust at a cash redemption price equal to 101% of such New Preferred
Securities' Liquidation Value, plus accrued and unpaid distributions, if any, to
the date of redemption. Under the terms of the New Parent Preferred, upon a
Change of Control of Sinclair, Sinclair will be required to redeem sufficient
shares of New Parent Preferred to enable KDSM, Inc. to redeem the appropriate
aggregate principal amount of New KDSM Senior Debentures held by the Trust.
Notwithstanding the foregoing, the holders of the New Preferred Securities, the
New KDSM Senior Debentures and the New Parent Preferred will not have the right
to require the issuers of such securities to redeem, repay or repurchase, as the
case may be, such securities upon a Change of Control under any circumstances
unless all of the Existing Notes and all indebtedness under the Bank Credit
Agreement are repaid, redeemed or repurchased, all of the commitments and
letters of credit issued under the Bank Credit Agreement are terminated and all
interest rate protection agreements entered into between Sinclair and any
lenders under the Bank Credit Agreement are terminated at the time of such
Change of Control, or the holders of such instruments have consented to a Change
of Control Offer (as defined in the relevant governing document),
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in which case the date on which all Existing Notes and all indebtedness under
the Bank Credit Agreement are so repaid, redeemed or repurchased and such
commitments, letters of credit and interest rate protection agreements are
terminated or the holders of such instruments have consented to a Change of
Control Offer shall be deemed to be the date on which such Change of Control
shall have occurred. If Sinclair does not make and consummate a Change of
Control Offer upon a Change of Control, the holders of the Preferred Securities
will have the right to elect two directors to the board of directors of Sinclair
pursuant to the Pledge Agreement and the Trust Agreement.
The holders of the Preferred Securities will not have any voting rights in
ordinary circumstances. However, the affirmative vote of the holders of a
majority in aggregate Liquidation Value of outstanding Preferred Securities
(100% of the holders in certain circumstances) will be required to approve (i)
an amendment to the Trust Agreement, (ii) any proposed action that would
adversely affect the powers or preferences of the Preferred Securities or cause
the dissolution of the Trust, (iii) any amendment to the KDSM Senior Debenture
Indenture that would adversely affect the holders of the Preferred Securities,
(iv) any waiver of an Event of Default under the KDSM Senior Debenture Indenture
or the Pledge Agreement, (v) any issuance by the Trust of any additional Equity
Interests (as defined in Certain Definitions) or the incurrence by the Trust of
any Indebtedness (as defined in Certain Definitions) and (vi) pursuant to the
Pledge Agreement, any action that may be taken by KDSM, Inc. as the holder of
the New Parent Preferred. In addition, upon an Event of Default under the Trust
Agreement, the holders of a majority of the Liquidation Value of the Preferred
Securities will have the right to elect new trustees of the Trust. Upon a Voting
Rights Triggering Event (as defined herein) under the New Parent Preferred,
KDSM, Inc. will have the right to elect two directors to the board of directors
of Sinclair. Pursuant to the Pledge Agreement and the Trust Agreement, the
nominees of the holders of a majority of the Liquidation Value of outstanding
Preferred Securities will be elected to such directorships. See "Risk
Factors-Limited Voting Rights; Remedies Upon Default Under New Parent Preferred
and New KDSM Senior Debentures."
In the event of the dissolution of the Trust, the holders of the New
Preferred Securities will be entitled to receive for each New Preferred Security
a liquidation preference of $100 (the "Liquidation Value"), plus accrued and
unpaid distributions thereon, whether or not earned or declared, to the date of
payment subject to certain limitations, unless in connection with such
dissolution upon a Tax Event, New KDSM Senior Debentures are distributed to the
holders of New Preferred Securities in which case each holder of the New
Preferred Securities will receive New KDSM Senior Debentures having a principal
amount equal to the Liquidation Value of such holder's New Preferred Securities.
If the dissolution of the Trust occurs as a result of a redemption of New KDSM
Senior Debentures for cash at a price equal to a percentage over their principal
amount, the Trust will redeem the New Preferred Securities at a price that is
the same percentage amount above the Liquidation Value of the New Preferred
Securities. See "Description of the New Preferred Securities-Liquidation
Distribution Upon Dissolution."
The Old Parent Preferred was issued to KDSM, Inc. in exchange for the
proceeds received by KDSM, Inc. from the issuance of the Old KDSM Senior
Debentures. The Old Parent Preferred had, and the New Parent Preferred will have
a maturity date of March 15, 2009. Dividends on the New Parent Preferred will be
payable quarterly at a rate of 12 5/8% per annum (one percentage point higher
than the interest rate on the New KDSM Senior Debentures and the distribution
rate on the New Preferred Securities). As described above, Sinclair will have
the right to defer dividend payments on the New Parent Preferred for up to three
consecutive quarters subject to the requirement that it pay all dividends due
and owing thereon at least once every four quarters and must pay all dividends
due and owing on the New Parent Preferred on March 15, 2009. For a description
of the terms of the New Parent Preferred, see "Description of the New Parent
Preferred."
The New KDSM Senior Debentures will be senior indebtedness of KDSM, Inc.
The KDSM Senior Debenture Indenture limits the amount of indebtedness that KDSM,
Inc. may incur. See "Description of the New KDSM Senior Debentures-Certain
Covenants-Limitation on Indebtedness." As of the date on which the Exchange
Offer is consummated (the "Exchange Date") KDSM, Inc. will have no long-term
Indebtedness for borrowed money other than the KDSM Senior Debentures. The New
Parent Guarantee will be subordinated and junior in right of payment to all
liabilities of Sinclair except any liabilities that may be
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made pari passu with or subordinate to the New Parent Guarantee expressly by
their terms. The New Parent Debenture Guarantee, if made effective, will be
subordinated and junior in right of payment to all Senior Indebtedness (as
defined herein) of Sinclair. The New Parent Preferred will rank, with respect to
dividend rights and rights upon liquidation, dissolution or winding-up of
Sinclair (i) junior to all indebtedness of Sinclair and its subsidiaries, (ii)
senior to all common stock of Sinclair and (iii) senior to Sinclair's Series B
Convertible Preferred Stock ($111.5 million liquidation value as of the date
hereof), except that the Series B Convertible Preferred Stock will in certain
circumstances rank pari passu with the Parent Preferred in respect of dividends
and rights upon liquidation, dissolution and winding-up. See "Description of
Capital Stock-Preferred Stock-Series B Convertible Preferred Stock." As of July
3, 1997, Sinclair had approximately $1.2 billion of indebtedness outstanding,
all of which is senior to or structurally senior to the New Parent Guarantee and
the New Parent Debenture Guarantee, if effective. See "Description of the New
Parent Guarantee-Status of the New Parent Guarantee" and "Description of the New
Parent Debenture Guarantee-Subordination of New Parent Debenture Guarantee."
The Trust is making the Exchange Offer with respect to the New Preferred
Securities in reliance on the position of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the "Staff") as
set forth in certain interpretive letters addressed to third parties in other
transactions. However, the Trust has not sought its own interpretive letter and
there can be no assurance that the Staff would make a similar determination with
respect to the Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the Staff, and subject to the two
immediately following sentences, the Trust believes that New Preferred
Securities issued pursuant to this Exchange Offer in exchange for Old Preferred
Securities and any other New Securities distributed to holders of new Preferred
Securities in respect thereof may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Securities. However, any holder of Old Preferred Securities who is an
"affiliate" of the Company, KDSM, Inc. or the Trust or who intends to
participate in the Exchange Offer for the purpose of distributing New
Securities, or any broker-dealer who purchased Old Preferred Securities from the
Trust to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or
any other available exemption under the Securities Act, (a) will not be able to
rely on the interpretations of the Staff set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Preferred Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Preferred Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Preferred
Securities acquired for its own account as a result of market-making or other
trading activities and exchanges such Old Preferred Securities for New Preferred
Securities, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Preferred Securities or any other New Securities received in respect thereof.
Each holder of Old Preferred Securities who wishes to exchange Old
Preferred Securities for New Preferred Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company, KDSM,
Inc. or the Trust, (ii) any New Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Securities and (iv) if such holder is
not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such New
Securities. In addition, the Company, KDSM, Inc. and the Trust may require such
holder, as a condition to such holder's eligibility to participate in the
Exchange Offer, to furnish to the Company, KDSM, Inc. and the Trust (or an agent
thereof), in writing, information as to the number of "beneficial owners"
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) on behalf of whom such holder holds the Old Preferred Securities to be
exchanged in the Exchange Offer. Each broker-dealer that receives New Preferred
Securities for its own account
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pursuant to the Exchange Offer must acknowledge that it acquired the Old
Preferred Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Preferred Securities (and any other New Securities received
in respect thereof). The Consent and Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the positions taken by the Staff in the interpretive letters
referred to above, the Company, KDSM, Inc. and the Trust believe that
broker-dealers who acquired Old Preferred Securities for their own accounts, as
a result of market-making activities or other trading activities ("Participating
Broker- Dealers") may fulfill their prospectus delivery requirements with
respect to the New Preferred Securities received upon exchange of such Old
Preferred Securities (and any other New Securities received in respect thereof)
(other than Old Preferred Securities which represent an unsold allotment from
the original sale of the Old Preferred Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Securities. Accordingly, this Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of New Securities received in exchange for Old Preferred Securities
where such Old Preferred Securities were acquired by such Participating
Broker-Dealer for its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Company, KDSM, Inc. and the Trust have agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New
Securities for a period ending 180 days after the Registration Statement of
which this Prospectus constitutes a part is declared effective. See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of the
Company, KDSM, Inc. or the Trust may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer-Resales of New Preferred Securities."
In that regard, each Participating Broker-Dealer who surrenders Old
Preferred Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Consent and Letter of Transmittal, that, upon
receipt of notice from the Company, KDSM, Inc. or the Trust of the occurrence of
any event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of New
Securities pursuant to this Prospectus until the Company, KDSM, Inc. or the
Trust has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such Participating Broker-Dealer or the Company, KDSM, Inc. or the Trust has
given notice that the sale of the New Securities may be resumed, as the case may
be.
Prior to the Exchange Offer, there has been no public market for the Old
Preferred Securities. The New Preferred Securities will be a new issue of
securities for which there currently is no market. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Preferred
Securities. None of the Company, KDSM, Inc. or the Trust currently intends to
apply for listing of the New Preferred Securities on any securities exchange or
for quotation through the Nasdaq Stock Market.
Any Old Preferred Securities not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the same rights and
will be subject to the same limitations applicable thereto under the Amended and
Restated Trust Agreement (except for those rights that terminate upon
consummation of the Exchange Offer). Following consummation of the Exchange
Offer, the holders of Old Preferred Securities will continue to be subject to
all of the existing restrictions upon transfer
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thereof and neither the Company nor KDSM, Inc. nor the Trust will have any
further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Preferred Securities held by them. To the extent that Old Preferred Securities
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Preferred Securities could be adversely affected. See "Risk
Factors-Consequences of a Failure to Exchange Old Preferred Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD PREFERRED SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR OLD PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER.
Old Preferred Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, on_____________, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by the Trust (in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended). Tenders of Old Preferred
Securities may be withdrawn at any time on or prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum liquidation amount of Old
Preferred Securities being tendered for exchange. However, the Exchange Offer is
subject to certain events and conditions which may be waived by the Trust and to
the terms and provisions of the Registration Rights Agreement. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange Offer-Fees
and Expenses." Each New Preferred Security will pay cumulative distributions
from the most recent distribution date on the Old Preferred Securities
surrendered in exchange for such New Preferred Securities or, if no
distributions have been paid on such Old Preferred Securities, from March 12,
1997. Holders of the Old Preferred Securities whose Old Preferred Securities are
accepted for exchange will not receive accumulated distributions on such Old
Preferred Securities for any period from and after the last distribution date on
such Old Preferred Securities prior to the original issue date of the New
Preferred Securities or, if no such distributions have been paid, will not
receive any accumulated distributions on such Old Preferred Securities, and will
be deemed to have waived the right to receive any distributions on such Old
Preferred Securities. This Prospectus, together with the Consent and Letter of
Transmittal, is being sent to all registered holders of Old Preferred Securities
as of July __, 1997.
Neither the Company, KDSM, Inc. nor the Trust will receive any cash
proceeds from the issuance of the New Preferred Securities offered hereby. No
dealer-manager is being used in connection with this Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR KDSM,
INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE AFFAIRS OF THE COMPANY OR
THE TRUST SINCE THE DATE HEREOF.
----------------
AVAILABLE INFORMATION
The Company is, and after consummation of the Exchange Offer, KDSM, Inc.
and the Trust will be, subject to the information requirements of the Exchange
Act, and in accordance therewith files (or will
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file) reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: 5 Park Place, Room 1228, New York,
New York 10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60621.
Copies of such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. at prescribed rates. Such
reports and other information can also be reviewed through the Commission's
Electronic Data Gathering, Analysis, and Retrieval System ("EDGAR") which is
publicly available though the Commission's World Wide Web site
(http://www.sec.gov). In addition, the Company's Class A Common Stock is listed
on the Nasdaq Stock Market's National Market System, and material filed by the
Company can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not believe such financial
statements would be material to holders of the Preferred Securities because (i)
all of the voting securities of the Trust are owned directly or indirectly by
the Company and KDSM, Inc. which are or will be reporting companies under the
Exchange Act, (ii) the Trust has no independent operations but exists for the
sole purposes of issuing securities representing undivided beneficial interests
in its assets, investing the proceeds thereof in the KDSM Senior Debentures and
engaging in only those activities necessary or incidental thereto, and (iii) the
obligations of the Trust under the Preferred Securities are guaranteed by the
Company to the extent described herein. See "Relationship Among the New
Preferred Securities, the New KDSM Senior Debentures, the New Parent Preferred
and the New Parent Guarantee."
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company, the Trust and KDSM, Inc.
with the Commission under the Securities Act. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and reference is hereby made to the Registration Statement and to
the exhibits relating thereto for further information with respect to the
Company, KDSM, Inc., the Trust and the New Securities. Any statements contained
herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated by reference in this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996 (as amended), together with the report of Arthur Andersen
LLP, independent certified public accountants;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997; and
(c) The Company's Current Reports on Form 8-K and Form 8-K/A filed May 10,
1996, May 13, 1996, May 17, 1996, May 29, 1996, August 30, 1996,
September 5, 1996, February 25, 1997, June 27, 1997 and July 2, 1997.
All documents filed by the Company pursuant to Sections 13(a) and (c), 14,
or 15(d) of the Exchange Act after the date hereof and prior to the termination
of the offering of the securities offered hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which
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also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any or all of the foregoing
documents described above which have been or may be incorporated by reference in
this Prospectus other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such request should
be directed to:
Patrick J. Talamantes
Sinclair Broadcast Group, Inc.
2000 W. 41st Street
Baltimore, MD 21211
The New Preferred Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee.
See "Description of the New Preferred Securities-Book-Entry Securities; The
Depository Trust Company; Delivery and Form."
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SUMMARY
The following summary should be read in conjunction with the more detailed
information, financial statements and notes thereto appearing elsewhere in this
Prospectus. Unless the context otherwise indicates or unless specifically
defined otherwise, as used herein, the "Company" or "Sinclair" means Sinclair
Broadcast Group, Inc. and its direct and indirect wholly-owned subsidiaries
(collectively, the "Subsidiaries"), "KDSM, Inc." means KDSM, Inc. and its direct
and indirect wholly owned subsidiaries and the "Trust" means Sinclair Capital.
As the context may require, unless expressly stated otherwise, (i) "Preferred
Securities" means the Old Preferred Securities (as defined herein) together with
the New Preferred Securities (as defined herein), (ii) "KDSM Senior Debentures"
means the Old KDSM Senior Debentures (as defined herein) together with the New
KDSM Senior Debentures (as defined herein), (iii) "Parent Preferred" means the
Old Parent Preferred (as defined herein) together with the New Parent Preferred
(as defined herein), (iv) "Parent Guarantee" means the New Parent Guarantee (as
defined herein) together with the Old Parent Guarantee (as defined herein), and
(v) "Parent Debenture Guarantee" means the New Parent Debenture Guarantee (as
defined herein) together with the Old Parent Debenture Guarantee (as defined
herein). Capitalized terms used in this Prospectus have the meaning set forth in
"Certain Definitions" and in the "Glossary of Defined Terms."
SINCLAIR
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 29 television stations. 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"). The Company owns or provides programming services to
25 radio stations, has a pending acquisition of one radio station, has a JSA
with one additional radio station (which station the Company has also agreed to
acquire) and has options to acquire an additional seven radio stations.
The 29 television stations the Company owns or programs pursuant to local
marketing agreements (each an "LMA" (as defined herein)) are located in 21
geographically diverse markets. Twenty three of the stations are located in the
top 51 of the 211 generally recognized television market areas in the United
States (such generally recognized market areas are referred to as "Designated
Market Areas" or "DMAs"). The Company's television station group is diverse in
network affiliation with ten stations affiliated with Fox, 12 with UPN, two with
ABC, two with WB 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,
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 29. From 1991 to 1996, net broadcast revenues increased
from $39.7 million to $346.5 million, representing a compound annual growth rate
of 54%, while operating cash flow increased from $15.5 million to $180.3
million, representing a compound annual growth rate of 63%. Pro forma for the
1996 Acquisitions (as defined below), 1996 net broadcasting revenue and
operating cash flow would have been $445.0 million and $206.5 million,
respectively.
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KDSM, INC.
KDSM, Inc. is an indirect wholly owned subsidiary of Sinclair. KDSM, Inc.
owns all of the License and Non-License Assets related to the operation of
television station KDSM in Des Moines, Iowa. See "Risk Factors-Multiple
Ownership Rules and Effect on LMAs," "LMAs-Rights of Preemption and
Termination" and "Ability of KDSM, Inc. to Transfer KDSM-TV."
KDSM, Inc. and its predecessor had combined net broadcast revenues of $8.2
million and combined broadcast cash flow of $3.7 million in 1996. The Company
has received a third-party appraisal valuing KDSM, Inc.'s assets (other than the
Parent Preferred and the Common Securities) at $50.2 million as of February 18,
1997.
1996 ACQUISITIONS
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 "Communications Act"). The Company believes that the enactment of
the 1996 Act, which relaxes the broadcast ownership rules, presents a unique
opportunity to build a larger and more diversified broadcasting company.
Accordingly, the Company has acted to capitalize on the opportunities provided
by the 1996 Act. During 1996, the Company acquired, obtained options to acquire,
or obtained the right to program 16 television and 33 radio stations for an
aggregate consideration of approximately $1.2 billion. These acquisitions (the
"1996 Acquisitions") are described below, and are included in the pro forma
consolidated financial data incorporated by reference in this Prospectus.
o River City Acquisition. On April 10, 1996, the Company agreed to acquire
certain assets of River City Broadcasting, L.P. (together with its
controlled entities, "River City"), a major television and radio
broadcasting company headquartered in St. Louis, Missouri (the "River City
Acquisition"). On May 31, 1996, the Company acquired the Non-License
Assets of nine television stations (one of which was owned by another
party and programmed by River City pursuant to an LMA), including KDSM-TV,
and 21 radio stations. Concurrently, the Company acquired (i) an option to
purchase the License Assets of eight of the television stations and all 21
radio stations owned by River City for an exercise price of $20 million,
(ii) River City's rights under an LMA with respect to one television and
one radio station (which radio station the Company has since acquired),
(iii) River City's rights under JSAs with respect to three radio stations
(two of which the Company has since acquired), and (iv) River City's
rights to acquire eight additional radio stations (one of which the
Company has subsequently exercised). The Company has since acquired the
License Assets of all of the radio stations and three of the television
stations. On May 31, 1996, the Company also entered into an LMA with River
City to program the eight television stations and 21 radio stations that
were the subject of the option pending acquisition of the License Assets.
The Company paid an aggregate of $847.6 million in cash, issued 1,150,000
shares of Series B Convertible Preferred Stock (as defined herein) and
1,382,435 stock options to acquire the Non-License Assets, the options for
the License Assets and the rights described above. The Company also
obtained an option to purchase from River City the assets of WSYX-TV in
Columbus, Ohio, for an exercise price of approximately $235 million. See
"Business of Sinclair-Broadcasting Acquisition Strategy" in Sinclair's
Form 8-K dated June 27, 1997, which is incorporated by reference herein.
o 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 Group Inc. (the "Superior
Acquisition") for approximately $63.5 million.
o Flint Acquisition. On February 27, 1996, the Company acquired the assets
of WSMH-TV (Flint, Michigan) (the "Flint Acquisition") for approximately
$35.8 million by exercising options acquired in May 1995.
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o Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) ("KSMO") and on August 1,
1996, it acquired the assets of WSTR-TV (Cincinnati, Ohio) ("WSTR" and,
together with KSMO, the "Cincinnati/Kansas City Acquisitions") for
approximately $34.2 million.
o Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) (the "Peoria/Bloomington
Acquisition" or "WYZZ") for approximately $21.2 million.
1997 ACQUISITIONS
Since the end of 1996, the Company has acquired four television stations
and six 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 approximately $87.0 million. The FCC approved this acquisition and
the Company consummated the transaction on May 30, 1997. 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 approximately $1.5 million. The Company's
acquisition of WGR-AM and WWWS-AM was consummated on April 18, 1997. On January
31, 1997, the Company completed the acquisition of the assets of WWFH-FM and
WILP-AM, each in Wilkes-Barre, Pennsylvania, for aggregate consideration of
approximately $773,000. On April 22, 1997, the Company consummated its
acquisition of the License Assets of KOVR-TV in Sacramento, California and
KDSM-TV in Des Moines, Iowa. On May 16, 1997, the Company consummated its
acquisition of the License Assets of KDNL-TV, KPNT-FM and WVRV-FM in St. Louis,
Missouri. The Company acquired the options to do so in the River City
Acquisition. On March 12, 1997, the Company entered into an agreement to acquire
the assets of radio station WKRF-FM in the Wilkes-Barre/Scranton, Pennsylvania
market. In April 1997, the Company entered into an agreement to acquire the
assets of radio station WWSH-FM, also in the Wilkes-Barre/ Scranton,
Pennsylvania market.
The Company continues to evaluate potential radio and television
acquisitions focusing primarily on stations located in the 15th to the 75th
largest DMAs or MSAs. In assessing potential acquisitions, the Company examines
opportunities to improve revenue share, audience share and/or cost control.
RECENT DEVELOPMENTS REGARDING SINCLAIR
Amendment of Bank Credit Agreement. On May 20, 1997, the Company entered
into an amendment of its Bank Credit Agreement, increasing the amount of the
Company's credit line thereunder from $250 million to $400 million and
increasing the maximum available term loan from up to $750 million to up to $1
billion, and decreasing the interest rate payable in many circumstances. The
material terms of the Bank Credit Agreement as amended are described under
"Description of Indebtedness - Bank Credit Agreement."
Issuance of 1997 Notes. On July 2, 1997, the Company issued $200 million
principal amount of 9% Senior Subordinated Notes due July 15, 2007 in a private
offering. Of the net proceeds of the 1997 Notes of approximately $195.3 million,
$160.0 million was used to repay all amounts outstanding under its revolving
credit facility under the Bank Credit Agreement (which amount may be
reborrowed). The remaining proceeds of the issuance were retained by the Company
and will be used for general corporate purposes including acquisitions or the
repurchase of shares of Class A Common Stock. The Company entered into a
Registration Rights Agreement in connection with the issuance of the 1997 Notes
pursuant to which the Company is required to exchange the 1997 Notes for notes
identical in all respects that have been issued pursuant to a registration
statement filed pursuant to the Securities Act of 1933, as amended, or incur
additional interest on the 1997 Notes until such exchange is completed. The
material terms of the 1997 Notes are described under "Description of
Indebtedness - Description of Existing Notes Under Existing Indentures."
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Current Acquisition Activity. In furtherance of its acquisition strategy,
Sinclair routinely reviews and conducts investigations of potential television
and radio station acquisitions. Sinclair is currently in the process of
exploring various acquisition opportunities including having submitted a bid in
excess of $500 million for certain broadcasting stations. Although Sinclair is
engaged in negotiations regarding this bid and other potential transactions,
Sinclair has not entered into any definitive acquisition agreements or letters
of intent with respect to any prospective acquisition. There can be no assurance
that any such transaction will be consummated. The completion of any such
transactions could result in the incurrence by Sinclair of substantial
additional indebtedness.
OPERATING STRATEGY
The Company's operating strategy is to (i) attract audience share through
the acquisition and broadcasting of popular programming, children's television
programming, counter-programming, local news programming in selected DMAs, and
popular sporting events in selected DMAs; (ii) increase its share of market
revenues through innovative sales and marketing efforts; (iii) aggressively
control programming and other operating costs; (iv) attract and retain high
quality management; (v) involve its stations extensively in their communities;
and (vi) establish additional television LMAs and increase the size of its radio
clusters.
The Company's LMA arrangements in markets where it already owns a
television station are a major factor in enabling the Company to increase its
revenues and improve operating margins. These LMAs have also helped the Company
to manage its programming inventory effectively and increase the Company's
broadcast revenues in those markets. In addition, the Company believes that its
LMA arrangements have assisted certain television and radio stations whose
operations may have been marginally profitable to continue to air popular
programming and contribute to programming diversity in their respective
television DMAs and radio MSAs.
CORPORATE HISTORY
The Company is the successor to businesses founded by the late Julian S.
Smith, the father of the Company's current majority stockholders. These
predecessor businesses began broadcasting on their first television station in
1971 when construction of WBFF in Baltimore was completed. Subsequently, the
predecessor businesses were expanded through the construction of stations in
additional markets and, in 1986, were acquired by the Company. The Company was
formed by certain stockholders, including the Company's current majority
stockholders, David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E.
Smith (collectively, the "Controlling Stockholders"), and their parents.
The Company is a Maryland corporation that was formed in 1986. The
Company's principal offices are located at 2000 West 41st Street, Baltimore,
Maryland 21211, and its telephone number is (410) 467-5005.
4
<PAGE>
TELEVISION BROADCASTING PROPERTIES
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
MARKET
MARKET RANK(a) STATIONS STATUS(b) CHANNEL AFFILIATION
- ------------------------------------ --------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
PITTSBURGH, PENNSYLVANIA ......... 19 WPGH O&O 53 FOX
WPTT LMA 22 UPN
ST. LOUIS, MISSOURI ............... 20 KDNL O&O 30 ABC
SACRAMENTO, CALIFORNIA ............ 21 KOVR O&O 13 CBS
Baltimore, Maryland ............... 23 WBFF O&O 45 FOX
WNUV LMA 54 UPN
INDIANAPOLIS, INDIANA ............ 25 WTTV LMA (d) 4 UPN
WT- LMA (d) 29 UPN
TK(c)
CINCINNATI, OHIO .................. 29 WSTR O&O 64 UPN
RALEIGH-DURHAM, NORTH CAROLINA . 30 WLFL O&O 22 FOX
WRDC LMA 28 UPN
MILWAUKEE, WISCONSIN ............... 31 WCGV O&O 24 UPN
WVTV LMA 18 WB
KANSAS CITY, MISSOURI ............ 32 KSMO O&O 62 UPN
COLUMBUS, OHIO ..................... 34 WTTE O&O 28 FOX
ASHEVILLE, NORTH CAROLINA AND
GREENVILLE/SPARTANBURG/
ANDERSON, SOUTH CAROLINA ......... 35 WLOS LMA (d) 13 ABC
WFBC LMA (e) 40 IND(g)
SAN ANTONIO, TEXAS ............... 37 KABB LMA (d) 29 FOX
KRRT LMA (f) 35 UPN
NORFOLK, VIRGINIA .................. 40 WTVZ O&O 33 FOX
OKLAHOMA CITY, OKLAHOMA ............ 43 KOCB O&O 34 UPN
BIRMINGHAM, ALABAMA ............... 51 WTTO O&O 21 WB
WABM LMA 68 UPN
FLINT/SAGINAW/BAY CITY, MICHIGAN. 60 WSMH O&O 66 FOX
LAS VEGAS, NEVADA .................. 64 KUPN O&O 21 UPN
LEXINGTON, KENTUCKY ............... 68 WDKY O&O 56 FOX
DES MOINES, IOWA .................. 72 KDSM O&O 17 FOX
PEORIA/BLOOMINGTON, ILLINOIS ...... 109 WYZZ O&O 43 FOX
TUSCALOOSA, ALABAMA ............... 187 WDBB LMA 17 IND(g)
</TABLE>
- ----------
(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. See
"Business of Sinclair-1997 Acquisitions" in Sinclair's Form 8-K dated June
27, 1997, which is incorporated herein by reference.
(c) WTTK currently simulcasts all of the programming aired on WTTV.
5
<PAGE>
(d) Non-License Assets acquired from River City and option exercised to acquire
License Assets. Will become owned and operated subject to FCC approval of
transfer of License Assets and closing of acquisition of License Assets.
(e) 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.
(f) 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 owner of this station. The License Assets are to
be acquired by Glencairn Ltd., subject to the Company's LMA, upon FCC
approval of transfer of License Assets.
(g) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, UPN or WB.
6
<PAGE>
THE EXCHANGE OFFER
STRUCTURAL OVERVIEW OF ISSUERS AND SECURITIES
[GRAPHIC OMITTED]
1. SINCLAIR CAPITAL. Sinclair Capital (the "Trust") is a special purpose
statutory business trust created under the laws of the State of Delaware for
the sole purposes of (i) issuing the Preferred Securities and the Common
Securities; (ii) using the proceeds of the sale of the Preferred Securities
and Common Securities to purchase the KDSM Senior Debentures; and (iii)
generally engaging in only those activities necessary or incidental thereto.
The Trust issued $200,000,000 aggregate liquidation value of the Preferred
Securities for aggregate consideration of $200,000,000 on March 12, 1997 (the
"Old Securities Offering"). The Trust has no subsidiaries and has no assets
other than the KDSM Senior Debentures. In the opinion of counsel to the
Company, the Trust will not be taxed as a corporation for federal income tax
purposes. KDSM, Inc. has agreed to pay all expenses of the Trust.
2. KDSM, INC., a Maryland corporation and an indirect wholly-owned subsidiary of
Sinclair, is the owner of the Common Securities of the Trust, which represent
3% of the total capital of the Trust. KDSM, Inc. issued the Old KDSM Senior
Debentures to the Trust for cash and used the proceeds therefrom to purchase
the Old Parent Preferred of Sinclair. The assets of KDSM, Inc. currently
consist of the License Assets and Non-License Assets used in the operation of
KDSM-TV Des
7
<PAGE>
Moines, Iowa. The License Assets used in the operation of KDSM-TV are owned
by KDSM Licensee, Inc., a wholly owned subsidiary of KDSM, Inc. The Company
has received a third-party appraisal valuing KDSM, Inc.'s assets (other than
the Parent Preferred and the Common Securities) at $50.2 million as of
February 18, 1997. See "Risk Factors-Ability of KDSM, Inc. to Transfer
KDSM-TV."
3. SINCLAIR BROADCAST GROUP, INC. Sinclair issued the Old Parent Preferred to
KDSM, Inc. in exchange for the proceeds of the sale by KDSM, Inc. to the
Trust of the Old KDSM Senior Debentures. Sinclair also provided the Old
Parent Guarantee of the Old Preferred Securities (and will provide the New
Parent Guarantee of the New Preferred Securities) pursuant to which it
guarantees on an unsecured and junior subordinated basis the payment of (i)
any accrued and unpaid distributions on the Preferred Securities that have
been theretofore properly declared out of legally available funds in
accordance with the terms of the Trust Agreement as in effect on March 12,
1997, the date on which the Old Preferred Securities were issued ("the Issue
Date"), (ii) the Redemption Price (as defined herein) payable with respect to
any Preferred Securities called for redemption by the Trust out of funds
legally available therefor in accordance with the terms of the Trust
Agreement as in effect on the Issue Date and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than
in connection with a redemption of all of the Preferred Securities), the
lesser of (a) the aggregate Liquidation Value, plus accrued and unpaid
distributions, and (b) the fair market value of assets of the Trust legally
available for distribution to holders of the Preferred Securities in
liquidation of the Trust. The Trust Agreement provides that distributions on
the Preferred Securities are not properly declarable, and funds are not
legally available for redemption of Preferred Securities, unless the Trust
has cash sufficient to pay such distributions or make such redemption, as the
case may be.
The principal executive offices of the Trust, KDSM, Inc. and Sinclair are
located at 2000 W. 41st Street, Baltimore, Maryland 21211 (Phone 410-467-5005).
I-THE EXCHANGE OFFER
THE EXCHANGE OFFER ...... Up to $200,000,000 aggregate liquidation value of
New Preferred Securities are being offered in
exchange for a like aggregate liquidation value of
Old Preferred Securities (the "Exchange Offer"). The
Trust will issue, promptly after the Expiration
Date, $1,000 liquidation value of New Preferred
Securities in exchange for each $1,000 liquidation
value of outstanding Old Preferred Securities
tendered and accepted in connection with the
Exchange Offer. The Trust is making the Exchange
Offer in order to satisfy obligations under the
Registration Rights Agreement relating to the Old
Preferred Securities. For a description of the
procedures for tendering Old Preferred Securities,
see "The Exchange Offer-Procedures for Tendering Old
Preferred Securities." In connection with the
Exchange Offer, KDSM, Inc. is exchanging the Old
KDSM Senior Debentures held by the Trust for New
KDSM Senior Debentures and the Company is exchanging
the Old Parent Preferred held by KDSM, Inc., the Old
Parent Guarantee and the Old Parent Debenture
Guarantee for New Parent Preferred, the New Parent
Guarantee and the New Parent Debenture Guarantee.
EXPIRATION DATE ......... 5:00 p.m., New York City time, on __________, 1997
(such time on such date being hereinafter called the
"Expiration Date") unless the Exchange Offer is
extended by the Trust (in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended). See
"The Exchange Offer-Expiration Date; Extensions;
Amendments."
CONDITIONS TO THE EXCHANGE
OFFER .................. The Exchange Offer is subject to certain conditions,
which may
8
<PAGE>
be waived by the Trust in its sole discretion. The
Exchange Offer is not conditioned upon any minimum
liquidation value of Old Preferred Securities being
tendered. See "The Exchange Offer- Conditions to the
Exchange Offer." The Trust reserves the right in its
sole and absolute discretion, subject to applicable
law, at any time and from time to time, (i) to delay
the acceptance of the Old Preferred Securities for
exchange, (ii) to terminate the Exchange Offer if
certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date of
the Exchange Offer and retain all Old Preferred
Securities tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old
Preferred Securities to withdraw their tendered Old
Preferred Securities, or (iv) to waive any condition
or otherwise amend the terms of the Exchange Offer
in any respect. See "The Exchange Offer-Expiration
Date; Extensions; Amendments."
WITHDRAWAL RIGHTS ...... Tenders of Old Preferred Securities may be withdrawn
at any time on or prior to the Expiration Date by
delivering a written notice of such withdrawal to
First Union National Bank of Maryland (the "Exchange
Agent") in conformity with certain procedures set
forth below under "The Exchange Offer-Withdrawal
Rights."
PROCEDURES FOR TENDERING OLD
PREFERRED SECURITIES ... Tendering holders of Old Preferred Securities must
complete and sign a Consent and Letter of
Transmittal in accordance with the instructions
contained therein and forward the same by mail,
facsimile or hand delivery, together with any other
required documents, to the Exchange Agent, together
with the Old Preferred Securities to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Preferred Securities.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect tenders
by book-entry transfer. Holders of Old Preferred
Securities registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee are urged to contact such person promptly if
they wish to tender Old Preferred Securities
pursuant to the Exchange Offer. See "The Exchange
Offer-Procedures for Tendering Old Preferred
Securities." Letters of Transmittal and certificates
representing Old Preferred Securities should not be
sent to the Company, KDSM, Inc. or the Trust. Such
documents should only be sent to the Exchange Agent.
Questions regarding how to tender and requests for
information should be directed to the Exchange
Agent. See "The Exchange Offer-Exchange Agent."
RESALES OF NEW PREFERRED
SECURITIES............... The Trust is making the Exchange Offer in reliance
on the position of the staff (the "Staff") of the
Division of Corporation Finance of the Securities
and Exchange Commission (the "Commission") as set
forth in certain interpretive letters addressed to
third parties in other transactions. However, the
Trust has not sought its own interpretive letter and
there can be no assurance that the Staff would make
a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the
Staff, and subject to the two immediately following
sentences, the Trust believes that New Preferred
Securities issued pursuant to this Exchange Offer in
exchange for Old Preferred Securities (and any other
New Securities distributed to holders of New
Preferred Securities
9
<PAGE>
in respect thereof) may be offered for resale,
resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without
further compliance with the registration and
prospectus delivery requirements of the Securities
Act, provided that such New Preferred Securities (or
any other New Securities received in respect
thereof) are acquired in the ordinary course of such
holder's business and that such holder is not
participating, and has no arrangement or
understanding with any person to participate, in a
distribution (within the meaning of the Securities
Act) of such New Preferred Securities (or any other
New Securities received in respect thereof).
However, any holder of Old Preferred Securities who
is an "affiliate" of the Company, KDSM, Inc. or the
Trust or who intends to participate in the Exchange
Offer for the purpose of distributing the New
Preferred Securities (or any other New Securities
received in respect thereof), or any broker-dealer
who purchased the Old Preferred Securities from the
Trust to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of
the Staff set forth in the above-mentioned
interpretive letters, (b) will not be permitted or
entitled to tender such Old Preferred Securities in
the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with any sale or
other transfer of such Old Preferred Securities
unless such sale is made pursuant to an exemption
from such requirements. In addition, as described
below, if any broker-dealer holds Old Preferred
Securities acquired for its own account as a result
of market-making or other trading activities and
exchanges such Old Preferred Securities for New
Preferred Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of
such New Preferred Securities (or any other New
Securities received in respect thereof).
Each holder of Old Preferred Securities who wishes
to exchange Old Preferred Securities for New
Preferred Securities in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Company, KDSM, Inc. or the Trust,
(ii) any New Preferred Securities to be received by
it are being acquired in the ordinary course of its
business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such New Preferred Securities (or any other
New Securities received in respect thereof), and
(iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the
Securities Act) of such New Preferred Securities (or
any other New Securities received in respect
thereof).
Each broker-dealer that receives New Preferred
Securities for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the
Old Preferred Securities for its own account as the
result of market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of such
New Preferred Securities (or any other New
Securities received in respect thereof). The Consent
and Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the
Securities Act. Based on the
10
<PAGE>
position taken by the Staff in the interpretive
letters referred to above, the Trust believes that
broker-dealers who acquired Old Preferred Securities
for their own accounts as a result of market-making
activities or other trading activities
("Participating Broker-Dealers") may fulfill their
prospectus delivery requirements with respect to the
New Preferred Securities received upon exchange of
such Old Preferred Securities (or any other New
Securities received in respect thereof) (other than
Old Preferred Securities which represent an unsold
allotment from the original sale of the Old
Preferred Securities) with a prospectus meeting the
requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as
it contains a description of the plan of
distribution with respect to the resale of such New
Securities. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of New Preferred Securities received in
exchange for Old Preferred Securities (or any other
New Securities received in respect of such New
Preferred Securities) where such Old Preferred
Securities were acquired by such Participating
Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject
to certain provisions set forth in the Registration
Rights Agreement and to the limitations described
below under "The Exchange Offer-Resale of New
Preferred Securities," the Company, KDSM, Inc. and
the Trust have agreed that this Prospectus, as it
may be amended or supplemented from time to time,
may be used by a Participating Broker- Dealer in
connection with resales of such New Preferred
Securities for a period ending 180 days after the
Registration Statement of which this Prospectus
constitutes a part is declared effective. See "Plan
of Distribution." Any Participating Broker-Dealer
who is an "affiliate" of the Company, KDSM, Inc. or
the Trust may not rely on such interpretive letters
and must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. See "The
Exchange Offer- Resales of New Securities."
EXCHANGE AGENT ......... The exchange agent with respect to the Exchange
Offer is First Union National Bank of Maryland. The
addresses, and telephone and facsimile numbers of
the Exchange Agent are set forth in "The Exchange
Offer-Exchange Agent" and in the Consent and Letter
of Transmittal.
USE OF PROCEEDS ......... None of the Company, the Trust or KDSM, Inc. will
receive any cash proceeds from the issuance of the
New Preferred Securities offered hereby. See "Use of
Proceeds."
CERTAIN UNITED STATES
FEDERAL IN COME TAX
CONSEQUENCES ............. Holders of Old Preferred Securities should review
the information set forth under "Certain United
States Federal Income Tax Consequences" prior to
tendering Old Preferred Securities in the Exchange
Offer.
11
<PAGE>
AMENDMENT OF THE PARENT
PREFERRED ARTICLES
SUPPLEMENTARY ........... In connection with the Exchange Offer, the Company
is proposing to make a technical amendment to the
Parent Preferred Articles Supplementary to clarify
the ability of Sinclair to issue the New Parent
Preferred in connection with the Exchange Offer. The
consent of the holders of a majority in aggregate
liquidation value of the Preferred Securities will
be required to effect the amendment. See "The
Exchange Offer-Amendment of Parent Preferred
Articles Supplementary."
II-NEW PARENT PREFERRED
SECURITY.................. Sinclair issued 2,062,000 shares of its 12 5/8%
Series C Preferred Stock, par value $.01 per share
(the "Old Parent Preferred"), to KDSM, Inc. in
exchange for the proceeds received by KDSM, Inc.
from the issuance of the Old KDSM Senior Debentures.
The Old Parent Preferred is governed by Articles
Supplementary (the "Parent Preferred Articles
Supplementary") to the Amended and restated Articles
of Incorporation of Sinclair (the "Amended
Certificate"). In connection with the Exchange
Offer, Sinclair will offer to exchange the 2,062,000
shares of Old Parent Preferred for a like amount of
newly issued shares of Series C Preferred Stock that
have been registered under the Securities Act (the
"New Parent Preferred"). The New Parent Preferred
will have terms that are identical in all material
respects to those of the Old Parent Preferred,
except that the New Parent Preferred will not
contain terms with respect to transfer restrictions
or provide for Penalty Amounts (as defined herein)
for future periods.
MATURITY.................. The New Parent Preferred will have a maturity date
of March 15, 2009 and will be mandatorily redeemable
on its maturity date. Sinclair currently is limited
in its ability to redeem capital stock (including
the New Parent Preferred) by the terms of the Bank
Credit Agreement (as defined in Certain Definitions)
and the Existing Notes (as defined herein).
RANKING .................. The New Parent Preferred will rank junior in right
of payment to all indebtedness of Sinclair and its
subsidiaries. The New Parent Preferred will, with
respect to dividend rights and rights upon
liquidation, winding-up and dissolution of Sinclair,
rank senior to Sinclair's common stock and
Sinclair's Series B Convertible Preferred Stock
($111.5 million liquidation value outstanding as of
the date hereof) (the "Series B Convertible
Preferred Stock") which was issued in connection
with the River City Acquisition, except that upon
the termination of Barry Baker's employment (i) by
Sinclair prior to May 31, 2001, for any reason other
than "for cause," or (ii) by Mr. Baker under certain
circumstances described under "Description of
Capital Stock-Preferred Stock-Series B Convertible
Preferred Stock," then the New Parent Preferred will
rank pari passu with the Series B Convertible
Preferred Stock in respect of dividend rights and
rights upon liquidation, dissolution and winding-up
of Sinclair. In connection with the River City
Acquisition, Sinclair agreed to appoint Mr. Baker
Executive Vice President of Sinclair at such time as
Mr. Baker is able to hold that position under
applicable rules and policies of the FCC. He
currently serves as a consultant to Sinclair. See
"Management" in Sinclair's Annual Report on Form
10-K incorporated herein by reference.
12
<PAGE>
DIVIDENDS ............... Dividends on the Parent Preferred are payable
quarterly at a rate per annum of 12 5/8% of the
stated Liquidation Amount of $100 per share of
Parent Preferred. Such dividend rate is one
percentage point higher than the interest rate on
the KDSM Senior Debentures and the distribution rate
on the Preferred Securities. Dividends on the Parent
Preferred are payable in arrears on March 15, June
15, September 15 and December 15 of each year (each
a "Dividend Payment Date") to the holders of record
on the March 1, June 1, September 1 and December 1
next preceding each Dividend Payment Date. The first
Dividend Payment Date with respect to the Old Parent
Preferred was June 15, 1997. Dividends on the Old
Parent Preferred cumulate from March 12, 1997 (the
"Issue Date"). Dividends on the New Parent Preferred
will cumulate from the most recent Dividend Payment
Date on the Old Parent Preferred surrendered in
exchange for such New Parent Preferred.
DEFERRAL PROVISIONS...... Sinclair will have the right, at any time and from
time to time, to defer dividend payments for up to
three consecutive quarters (each a "Dividend
Extension Period"); provided that Sinclair will be
required to pay all dividends due and owing on the
New Parent Preferred at least once every four
quarters and must pay all dividends due and owing on
the New Parent Preferred on March 15, 2009.
Quarterly distributions on the New Preferred
Securities will be deferred by the Trust during any
such Dividend Extension Period (but will continue to
accumulate and compound quarterly, and Additional
Amounts (as defined under "Description of the New
Preferred Securities-Distributions") generally
intended to provide quarterly compounding on
distribution arrearages will also accumulate during
any such Dividend Extension Period). The remedy for
the holders of the New Parent Preferred upon a
failure by Sinclair to pay all dividends due and
owing thereon at least once every four quarters (or
for any other breaches under the New Parent
Preferred) will be the right to elect two directors
to Sinclair's board of directors. See "- Voting
Rights" and "Risk Factors-Restrictions Imposed by
Terms of Indebtedness."
LIQUIDATION PREFERENCE... $100 per share of New Parent Preferred (the
"Liquidation Amount") (subject to increase in the
case of certain redemptions), plus an amount equal
to any accumulated and unpaid dividends (whether or
not earned or declared) to the date of payment.
VOTING RIGHTS............ Holders of the New Parent Preferred will not have
any voting rights in ordinary circumstances.
However, the vote of the holders of a majority in
aggregate Liquidation Amount of outstanding Parent
Preferred (100% in certain circumstances) will be
required to approve any amendment to the Amended
Certificate that would adversely affect the powers,
preferences or special rights of the holders of the
Parent Preferred or cause the liquidation,
dissolution or winding-up of Sinclair. The vote of
the holders of a majority in aggregate Liquidation
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<PAGE>
Amount of outstanding Parent Preferred will be
required to approve any amendment to the Parent
Preferred Articles Supplementary if such amendment
would adversely affect the powers, preferences or
special rights of such holders. In addition, the
approval of the holders of a majority in aggregate
Liquidation Amount of outstanding Parent Preferred
will be required to approve the issuance of any
preferred stock by Sinclair which is senior to the
Parent Preferred in right of payment. In addition,
upon a Voting Rights Triggering Event (as defined
herein), the holders of a majority in aggregate
Liquidation Amount of the outstanding Parent
Preferred will have the right to elect two directors
to the board of directors of Sinclair. KDSM, Inc.
agreed in the Pledge Agreement (as defined herein)
not to take or consent to any actions or waive any
rights under the Parent Preferred or elect any such
directors without the approval of the holders of the
majority in principal amount of the KDSM Senior
Debentures, which, while the Trust holds the KDSM
Senior Debentures, will not, pursuant to the Pledge
Agreement, be provided without the approval of the
holders of a majority in aggregate Liquidation Value
of the outstanding Preferred Securities (100% in
certain circumstances). See "Description of the New
Preferred Securities-Voting Rights" and "Description
of the New KDSM Senior Debentures-Events of
Default."
COVENANTS ............... The Parent Preferred Articles Supplementary contain
certain covenants, including, but not limited to,
covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation on
sale of assets; (v) limitation on unrestricted
subsidiaries; (vi) restrictions on mergers,
consolidations and the transfer of all or
substantially all of the assets of the Company to
another person; (vii) provision of financial
statements; and (viii) limitation on the issuance of
senior preferred stock. Violation of any of these
covenants (after a grace period in certain
circumstances) will be a Voting Rights Triggering
Event. See "Description of the New Preferred
Securities-Voting Rights."
CHANGE OF CONTROL ...... Upon a Change of Control of Sinclair, Sinclair will
be required to make an offer (a "Change of Control
Offer") to redeem all or a portion of the shares of
New Parent Preferred at 101% of such shares'
aggregate Liquidation Amount, plus accrued and
unpaid dividends, if any, to the date of redemption.
As described under "-New Preferred Securities-Change
of Control," upon a Change of Control of Sinclair,
the holders of the Preferred Securities will have
the right to require the Trust to redeem all or a
portion of the Preferred Securities from the
proceeds of a redemption by KDSM, Inc. of New KDSM
Senior Debentures held by the Trust at a cash
purchase price of 101% of their Liquidation Value
plus accrued and unpaid interest, if any, to the
date of redemption. KDSM, Inc. will obtain the funds
necessary to make such redemption by requiring
Sinclair to redeem a sufficient number of shares of
New Parent Preferred held by KDSM, Inc. pursuant to
the provision described in the first sentence of
this paragraph. Notwithstanding the foregoing, the
holders of the New Preferred Securities, the New
KDSM Senior Debentures and the New Parent Preferred
will not have the right to require the issuers of
such securities to redeem, repay or repurchase, as
the case may be, such securities upon a Change of
Control under any circumstances unless all of the
Existing Notes and all indebtedness under the Bank
Credit Agreement are repaid, redeemed or
repurchased, all of the commitments and letters of
credit issued under the Bank Credit Agreement are
terminated and all interest rate protection
agreements entered into between Sinclair and any
lenders under the Bank Credit Agreement are
terminated at the time of such Change of Control or
the holders of such instruments have consented to a
Change of Control Offer, in
14
<PAGE>
which case the date on which all Existing Notes and
all indebtedness under the Bank Credit Agreement are
so repaid, redeemed or repurchased and said
commitments, letters of credit and interest rate
protection agreements are terminated or the holders
of such instruments have consented to such Change of
Control Offer shall be deemed to be the date on
which such Change of Control shall have occurred. If
Sinclair does not make and consummate a Change of
Control Offer upon a Change of Control, the holders
of the Preferred Securities will have the right to
elect two directors to the board of directors of
Sinclair pursuant to the Pledge Agreement and the
Trust Agreement.
REDEMPTION RIGHTS ...... As described below under "-New Preferred Securities-
Redemption," Sinclair shall have the right to redeem
the New Parent Preferred in certain circumstances.
III-NEW KDSM SENIOR DEBENTURES
SECURITY.................. KDSM, Inc. issued approximately $206.2 million
principal amount of 11 5/8% KDSM Senior Debentures
due 2009 (the "Old KDSM Senior Debentures") to the
Trust. $200 million of such Old KDSM Senior
Debentures were issued in respect of the proceeds of
the Old Preferred Securities and $6.2 million were
issued in respect of the proceeds of the Common
Securities. In connection with the Exchange Offer,
KDSM, Inc. will offer to exchange the $206.2 million
principal amount of Old KDSM Senior Debentures for a
like principal amount of 11 5/8% Senior Debentures
due 2009 that have been registered under the
Securities Act (the "New KDSM Senior Debentures").
The New KDSM Senior Debentures will have terms that
are identical in all material respects to those of
the Old KDSM Senior Debentures, except that the New
KDSM Senior Debentures will not contain terms with
respect to transfer restrictions or provide for
Penalty Amounts for future periods.
MATURITY.................. The New KDSM Senior Debentures will mature on March
15, 2009.
Interest.................. The KDSM Senior Debentures bear interest at the rate
of 11 5/8% per annum payable quarterly in arrears
on March 15, June 15, September 15 and December 15
of each year (each, an "Interest Payment Date") to
the Person in whose name each KDSM Senior Debenture
is registered as of the March 1, June 1, September 1
and December 1 next preceding each such Interest
Payment Date. Interest on the Old KDSM Senior
Debentures accrues from March 12, 1997, the date of
original issuance. The first Interest Payment Date
with respect to the Old KDSM Senior Debentures was
June 15, 1997. Interest on the New KDSM Senior
Debentures will accrue from the most recent Interest
Payment Date of the Old KDSM Senior Debentures
surrendered in exchange for such New KDSM Senior
Debentures. It is anticipated that the New KDSM
Senior Debentures will be held in the name of the
Trust and will be held by the Property Trustee for
the benefit of the holders of the New Preferred
Securities.
DEFERRAL.................. KDSM, Inc. has the right, at any time and from time
to time, to defer any interest payments on the New
KDSM Senior Debentures
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for (i) up to three consecutive quarters for any
period for which it does not receive dividends on
the New Parent Preferred and (ii) one quarter even
if KDSM, Inc. receives dividends on the New Parent
Preferred (each an "Interest Extension Period");
provided that KDSM, Inc. will be required to pay all
interest due and payable on the New KDSM Senior
Debentures at least once every four quarters and
must pay all interest due and owing on the maturity
date of the New KDSM Senior Debentures. Sinclair may
elect to defer dividend payments from time to time
on the New Parent Preferred for up to three
consecutive quarters; provided that Sinclair shall
be required to pay all dividends due and owing on
the New Parent Preferred at least once every four
quarters and must pay all dividends due and owing on
the New Parent Preferred on March 15, 2009. Upon the
termination of any Interest Extension Period and the
payment of all amounts then due, KDSM, Inc. may
select a new Interest Extension Period, subject to
the terms of the preceding sentences. No interest
shall be due and payable during an Interest
Extension Period until the end of such period. If
KDSM, Inc. defers an interest payment or otherwise
fails to make an interest payment, KDSM, Inc. will
be prohibited from paying dividends or distributions
on its capital stock or other securities and making
any other restricted payments until quarterly
interest payments are resumed and all accumulated
and unpaid interest (including any interest payable
to effect quarterly compounding) on the New KDSM
Senior Debentures is paid in full.
SECURITY INTEREST ...... The New KDSM Senior Debentures will be secured by a
first priority security interest in the New Parent
Preferred pursuant to a pledge and security
agreement between KDSM, Inc. and the Trust (the
"Pledge Agreement").
RANKING .................. The payment of the principal of and interest on the
New KDSM Senior Debentures will rank pari passu in
right of payment with the Old KDSM Senior Debentures
and all senior indebtedness of KDSM, Inc. and senior
to all junior indebtedness of KDSM, Inc. As of
December 31, 1996 on a pro forma basis, KDSM, Inc.
would have had no long-term indebtedness outstanding
other than the KDSM Senior Debentures.
COVENANTS ............... The indenture under which the New KDSM Senior
Debentures will be issued (the "KDSM Senior
Debenture Indenture") contains covenants: (a)
limiting restricted payments; (b) limiting
indebtedness; (c) requiring KDSM, Inc. to own 100%
of the Common Securities and Sinclair to own,
directly or indirectly, 100% of the equity interests
in KDSM, Inc.; (d) limiting dissolution of the
Trust; (e) requiring KDSM, Inc. to use reasonable
efforts to cause the Trust to remain a business
trust and not be classified as a corporation for tax
purposes; (f) requiring KDSM, Inc. to promptly
redeem the New KDSM Senior Debentures from the
proceeds of any redemption of the New Parent
Preferred and to promptly make interest payments on
the New KDSM Senior Debentures if Sinclair makes
dividend payments on the New Parent Preferred except
that KDSM, Inc. is permitted to defer interest
payments for one quarter even if KDSM, Inc. receives
dividends on the New Parent Preferred; (g) limiting
liens; (h) limiting mergers, consolidation and sales
of assets; (i) limiting transactions with
affiliates; (j) limiting sales of assets other than
for fair market value; (k) providing for financial
statements; (l) requiring that
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upon the acceptance by the holders of the Preferred
Securities of a Change of Control Offer for the
Preferred Securities, KDSM, Inc. will request
redemption of the same percentage of shares of the
Parent Preferred as the percentage of KDSM Senior
Debentures which the Trust requires to be redeemed
upon such event; (m) prohibiting KDSM, Inc. from
selling, offering to sell, granting any option with
respect to, pledging or incurring any lien or
encumbrance with respect to the New Parent
Preferred; and (n) limiting guarantees by
subsidiaries. See "Description of New KDSM Senior
Debentures-Certain Covenants." Pursuant to the
Pledge Agreement, KDSM, Inc. will be prohibited from
providing any consents or taking any actions under
the New Parent Preferred without the consent of the
Trust which will require the approval of the holders
of a majority in aggregate Liquidation Value of the
outstanding Preferred Securities (100% in certain
circumstances) and will be required to elect the
nominees of the holders of a majority in Liquidation
Value of the Preferred Securities to Sinclair's
board of directors if it has that right because of a
Voting Rights Triggering Event under the New Parent
Preferred.
RIGHTS UPON A TAX EVENT OR
INVESTMENT COMPANY
ACT EVENT .............. KDSM, Inc. will have the option (a) upon a Tax Event
or an Investment Company Act Event (each as defined
below), to redeem in whole or in part, the New KDSM
Senior Debentures for cash at a redemption price of
105.813% in the case of a Tax Event and 101% in the
case of an Investment Company Act Event, in each
case of the aggregate principal amount of the New
KDSM Senior Debentures redeemed, plus all accrued
and unpaid interest, and to require Sinclair to
redeem the New Parent Preferred for cash pursuant to
the terms thereof at the same redemption prices;
provided that at the time of redemption in the case
of a Tax Event triggered by an amendment,
clarification or change, such amendment,
clarification or change remains in effect or (b)
upon a Tax Event, as the holder of all of the Common
Securities of the Trust, to cause the Trust to be
dissolved with each holder of New Preferred
Securities receiving New KDSM Senior Debentures in a
principal amount equal to the Liquidation Value of
their New Preferred Securities. If KDSM, Inc.
exercises the option in clause (a) above, KDSM, Inc.
will use the cash proceeds from the redemption of
the New Parent Preferred to redeem New KDSM Senior
Debentures held by the Trust at a price that is a
percentage above their principal amount equal to the
same percentage above the Liquidation Amount, if
any, for which Sinclair redeems the New Parent
Preferred. The Trust would then promptly redeem New
Preferred Securities with the proceeds it received
from KDSM, Inc. If KDSM, Inc. exercises the option
in clause (b) above, (i) pursuant to the KDSM Senior
Debenture Indenture, Sinclair has agreed, effective
at the time of such distribution, to fully and
unconditionally guarantee (with respect to the New
KDSM Senior Debentures, the "New Parent Debenture
Guarantee") the payment of the New KDSM Senior
Debentures on a junior subordinated basis provided
that Sinclair confirms the effectiveness of the New
Parent Debenture Guarantee at the time of
distribution, which it may not do if the New Parent
Debenture Guarantee is not then permitted under the
terms of the Bank Credit Agreement or the Existing
Notes, (ii) the Trust may not be dissolved unless
the New Parent Debenture Guarantee is effective
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<PAGE>
and (iii) KDSM, Inc. must deliver a tax opinion to
the Trust to the effect that the dissolution of the
Trust and the distribution of the New KDSM Senior
Debentures will not be a taxable event for United
States federal income tax purposes to the holders of
the Preferred Securities. Sinclair is currently
prohibited from taking any of the prospective
actions referred to above by the Bank Credit
Agreement and the Existing Notes.
A "Tax Event" means the receipt by the Trust of an
opinion of counsel to the Trust experienced in such
matters to the effect that, as a result of (i) any
amendment to, clarification of, or change (including
any announced prospective change) in the laws or
treaties (or any regulations thereunder) of the
United States or any political subdivision or taxing
authority thereof or therein affecting taxation,
(ii) any judicial decision, official administrative
pronouncement, ruling, regulatory procedure, notice
or announcement (including any notice or
announcement of intent to adopt such procedures or
regulations) ("Administrative Action") or (iii) any
amendment to, clarification of, or change in the
official position or the interpretation of such
Administrative Action or judicial decision or any
interpretation or pronouncement that provides for a
position with respect to such Administrative Action
or judicial decision that differs from the
theretofore generally accepted position, in each
case, by any legislative body, court, governmental
authority or regulatory body, irrespective of the
manner in which such amendment, clarification or
change is made known, which amendment,
clarification, or change is effective or such
pronouncement or decision is announced on or after
the first date of the issuance of the Old Preferred
Securities, there is more than an insubstantial risk
that (a) the Trust is, or will be, subject to United
States federal income tax with respect to the
interest received on the KDSM Senior Debentures, (b)
interest payable by KDSM, Inc. on the KDSM Senior
Debentures is not, or will not be, fully deductible
for United States federal income tax purposes, or
(c) the Trust is, or will be, subject to more than a
de minimis amount of other taxes, duties, or other
governmental charges. See "Description of New
Preferred Securities-Redemption Upon a Tax Event or
an Investment Company Act Event."
"Investment Company Act Event" means the receipt by
the Trust or KDSM, Inc. of an opinion of nationally
recognized independent counsel experienced in
practice under the Investment Company Act of 1940,
as amended (the "1940 Act"), to the effect that as a
result of the occurrence of a change in law or
regulation or a change in official interpretation or
application of law or regulation by any legislative
body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust or
KDSM, Inc. is or will be considered an "investment
company" which is required to be registered under
the 1940 Act, which Change in 1940 Act Law becomes
effective on or after the Issue Date.
ABILITY OF KDSM, INC. TO
TRANSFER KDSM-TV......... Under certain circumstances, KDSM, Inc. is permitted
to transfer all or substantially all of its assets
(without regard to the Parent Preferred or the
Common Securities owned by KDSM, Inc.) including
KDSM-TV and the assets related thereto, in exchange
for assets used in the business of operating one or
more television or radio broadcasting stations or
assets related thereto, without the
18
<PAGE>
transferee of such assets from KDSM, Inc. becoming
obligated under the New KDSM Senior Debentures, so
long as the fair market value of the assets received
by KDSM, Inc. is equal to the greater of (i) $50
million or (ii) 90% of the fair market value of the
assets transferred by KDSM, Inc. See "Risk
Factors-Ability of KDSM, Inc. to Transfer KDSM-TV."
REDEMPTION RIGHTS ........ As described below under "-New Preferred
Securities-Redemption" and "-Change of Control,"
KDSM, Inc. will have additional rights to redeem the
New KDSM Senior Debentures and may be required to
redeem the New KDSM Senior Debentures in certain
circumstances.
IV-SECURITIES ISSUED BY THE TRUST
SECURITIES OFFERED ... On March 12, 1997, the Trust issued $200 million
aggregate principal amount of 11 5/8% High Yield
Trust Offered Preferred Securities (the "Old
Preferred Securities"). Pursuant to the Exchange
Offer, the Trust is offering to exchange up to $200
million aggregate principal amount of its 11 5/8%
High Yield Trust Offered Preferred Securities that
have been registered under the Securities Act (the
"New Preferred Securities"). The terms of the New
Preferred Securities will be identical in all
material respects to those of the Old Preferred
Securities, except that the New Preferred Securities
will not contain terms with respect to transfer
restrictions and will not provide for penalty
amounts for future periods.
MATURITY.................. March 15, 2009.
DISTRIBUTIONS ............ Distributions on the Preferred Securities are
entitled to a preference fixed at a rate per annum
of 11 5/8% of the stated Liquidation Value of $100
per Preferred Security. Distributions on the Old
Preferred Securities cumulate from the Issue Date.
Holders of the New Preferred Securities will be
entitled to receive cumulative cash distributions
from the most recent distribution date on the Old
Preferred Securities surrendered in exchange for
such New Preferred Securities. Subject to the
distribution deferral provisions described in
"Deferral Provisions" below, distributions on the
Preferred Securities are payable quarterly in
arrears on March 15, June 15, September 15 and
December 15 of each year (each a "Distribution
Payment Date") to the holders of record on the March
1, June 1, September 1 and December 1 next preceding
such Distribution Payment Date. Distributions that
are in arrears (whether or not properly deferred)
accrue additional distributions at a rate per annum
of 11 5/8%, compounded quarterly. The First
Distribution Payment Date with respect to the Old
Preferred Securities was June 15, 1997.
Interest payments from KDSM, Inc. on the New KDSM
Senior Debentures, if made in accordance with the
terms of the KDSM Senior Debenture Indenture, will
provide sufficient funds to enable the Trust to make
distributions and pay other amounts on the New
Preferred Securities. The ability of KDSM, Inc. to
make interest payments on the New KDSM Senior
Debentures will be substantially dependent on its
receipt of dividend payments on the New Parent
Preferred and its ability to generate cash flow and
earnings from its operations (which at closing will
consist of the operations of KDSM-TV in Des Moines,
Iowa, but KDSM, Inc. may transfer KDSM-TV for other
assets used in the business of
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<PAGE>
television or radio broadcasting or in businesses
reasonably related thereto in certain
circumstances). See "Description of the New
Preferred Securities-Distributions," "Description of
the New Parent Preferred," "Relationship Among the
New Preferred Securities, the New KDSM Senior
Debentures, the New Parent Preferred and the New
Parent Debenture Guarantee" and "Risk
Factors-Ability of KDSM, Inc. to Transfer KDSM-TV."
The holders of the Preferred Securities will have a
preference with respect to cash distributions and
amounts payable on liquidation, redemption or
otherwise over the holders of the Common Securities.
See "Risk Factors Restrictions Imposed by Terms of
Indebtedness," "Description of the New Preferred
Securities-Subordination of Common Securities" and
"-Liquidation Distribution Upon Dissolution."
DEFERRAL PROVISIONS...... Distributions on the New Preferred Securities may be
deferred to the extent payment of interest on the
New KDSM Senior Debentures is properly deferred.
Sinclair will have the right, at any time and from
time to time, to defer dividend payments on the New
Parent Preferred for up to three consecutive
quarters (each a "Distribution Extension Period");
provided that Sinclair will be required to pay all
dividends due and owing on the New Parent Preferred
at least once every four quarters and must pay all
dividends due and owing on the New Parent Preferred
on March 15, 2009. Similarly, KDSM, Inc. will have
the right, at any time and from time to time, to
defer interest payments on the New KDSM Senior
Debentures for up to (i) three consecutive quarters
by extending the interest payment period thereon for
any period for which it does not receive dividends
on the New Parent Preferred and (ii) one quarter
even if KDSM, Inc. receives dividends on the New
Parent Preferred; provided that KDSM, Inc. will be
required to pay all interest due and owing on the
New KDSM Senior Debentures at least once every four
quarters and must pay all interest due and owing on
the maturity date of the New KDSM Senior Debentures.
Quarterly distributions on the New Preferred
Securities will be deferred by the Trust during any
such Interest Extension Period (but will continue to
accumulate and compound quarterly, and Additional
Amounts intended to provide quarterly compounding on
distribution arrearages will also accumulate during
any such period).
LIQUIDATION PREFERENCE... $100 per New Preferred Security (the "Liquidation
Value"), plus an amount equal to any accumulated and
unpaid distributions (whether or not earned or
declared) to the date of payment. See "-Redemption"
and "Description of the New Preferred
Securities-Subordination of Common Securities" and
"-Liquidation Distribution Upon Dissolution."
REDEMPTION ............... The New Preferred Securities will be subject to
mandatory redemption at maturity. The New Preferred
Securities also must be redeemed upon, and to the
extent of, repayment of the New KDSM Senior
Debentures held by the Trust at maturity or their
earlier redemption for any reason, at the
Liquidation Value of $100 per New Preferred Security
plus accumulated and unpaid distributions to the
Redemption Date, whether or not earned or declared,
provided that, if the New KDSM Senior Debentures are
redeemed at a price in excess of their principal
amount, the New Preferred Securities will be
redeemed at a price that is the same higher
percentage of their Liquidation Value. See
"Description of
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<PAGE>
the New Preferred Securities-Optional Redemption."
The proceeds from any repayment of the New KDSM
Senior Debentures will be applied first to the
redemption of the Preferred Securities and any
remaining amounts will be applied to the redemption
of the Common Securities. KDSM, Inc. will have the
option (a) at any time on or after March 15, 2002 to
redeem the New KDSM Senior Debentures, in whole or
in part, in cash at the redemption prices set forth
herein and (b) at any time on or prior to March 15,
2000 to redeem, in whole or in part, up to 33 1/3%
of the aggregate principal amount of the New KDSM
Senior Debentures, with the proceeds of one or more
redemptions of the New Parent Preferred by Sinclair
(which New Parent Preferred would be simultaneously
redeemed from the proceeds of one or more Public
Equity Offerings of Sinclair), at a cash redemption
price of 111.625% of the principal amount thereof,
plus accrued interest to the date of redemption;
provided that after any such redemption at least
66 2/3% of the aggregate principal amount of the
New KDSM Senior Debentures originally issued in
respect of the Preferred Securities remain
outstanding and that such redemption be made within
180 days of each such Public Equity Offering of
Sinclair. Under the terms of the New Parent
Preferred Articles Supplementary, Sinclair will have
the option to redeem the New Parent Preferred in the
same circumstances and at the same redemption prices
(expressed as a percentage of Liquidation Amount) as
KDSM, Inc. will have the option to redeem the New
KDSM Senior Debentures as described above.
RIGHTS UPON A TAX EVENT
OR INVESTMENT COMPANY
ACT EVENT............... KDSM, Inc. will have the option (a) upon a Tax Event
or an Investment Company Act Event, to redeem the
New KDSM Senior Debentures for cash at the
redemption price of 105.813% in the case of a Tax
Event, and 101% in the case of an Investment Company
Act Event, in each case of the aggregate principal
amount of the New KDSM Debentures redeemed, plus all
accrued and unpaid interest, and to require Sinclair
to redeem the New Parent Preferred for cash pursuant
to the terms thereof at the same redemption price;
provided that at the time of redemption in the case
of a Tax Event triggered by an amendment,
clarification or change, such amendment,
clarification or change remains in effect or (b)
upon a Tax Event, as the holder of all the Common
Securities of the Trust, to cause the Trust to be
dissolved with each holder of New Preferred
Securities receiving New KDSM Senior Debentures in a
principal amount equal to the Liquidation Value of
their New Preferred Securities. If KDSM, Inc.
exercises the option in clause (a) above, KDSM, Inc.
will use the cash proceeds from the redemption of
the New Parent Preferred to redeem New KDSM Senior
Debentures held by the Trust at a price that is a
percentage above their principal amount equal to the
same percentage amount above the Liquidation Amount,
if any, for which Sinclair redeems the New Parent
Preferred. The Trust would then promptly redeem New
Preferred Securities with proceeds it received from
KDSM, Inc. If KDSM, Inc. exercises the option in
clause (b) above, (i) pursuant to the KDSM Senior
Debenture Indenture, Sinclair has agreed, effective
at the time of such distribution, to fully and
unconditionally guarantee the payment of the New
KDSM Senior Debentures on a junior subordinated
basis pursuant to the New Parent Debenture
Guarantee; provided that Sinclair confirms the
effectiveness of the New Parent Debenture
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<PAGE>
Guarantee at the time of distribution which it may
not do if such guarantee is not then permitted under
the terms of the Bank Credit Agreement or the
Existing Notes and (ii) the Trust may not be
dissolved unless the New Parent Debenture Guarantee
is effective. Sinclair is currently prohibited from
taking any of the prospective actions referred to
above by the Bank Credit Agreement and the Existing
Notes. KDSM, Inc. will also be required to deliver a
tax opinion to the Trust to the effect that the
dissolution of the Trust and the distribution of the
New KDSM Senior Debentures will not be a taxable
event for United States federal income tax purposes
to the holders of the Preferred Securities. See
"Risk Factors-Restrictions Imposed by Terms of
Indebtedness."
CHANGE OF CONTROL ...... Upon a Change of Control of Sinclair, each holder of
New Preferred Securities will have the right to
require the Trust to redeem all or a portion of such
holder's New Preferred Securities from the proceeds
of a redemption by KDSM, Inc. of New KDSM Senior
Debentures held by the Trust at a cash purchase
price equal to 101% of such New Preferred
Securities' Liquidation Value, plus accrued and
unpaid distributions, if any, to the date of
redemption. Under the terms of the New Parent
Preferred, upon a Change of Control of Sinclair,
Sinclair will be required to redeem sufficient
shares of New Parent Preferred to enable KDSM, Inc.
to redeem the appropriate aggregate principal amount
of New KDSM Senior Debentures held by the Trust.
Notwithstanding the foregoing, the holders of the
New Preferred Securities, the New KDSM Senior
Debentures and the New Parent Preferred will not
have the right to require the issuers of such
securities to redeem, repay or repurchase, as the
case may be, such securities upon a Change of
Control under any circumstances unless all of the
Existing Notes and all indebtedness under the Bank
Credit Agreement are repaid, redeemed or
repurchased, all of the commitments and letters of
credit issued under the Bank Credit Agreement are
terminated and all interest rate protection
agreements entered into between Sinclair and any
lenders under the Bank Credit Agreement are
terminated as a result of such Change of Control, or
the holders of such instruments have consented to a
Change of Control Offer in which case the date on
which all Existing Notes and all indebtedness under
the Bank Credit Agreement are so repaid, redeemed or
repurchased and said commitments, letters of credit
and interest rate protection agreements are
terminated or the holders of such instruments have
consented to a Change of Control Offer shall be
deemed to be the date on which such Change of
Control shall have occurred. If Sinclair does not
make and consummate a Change of Control Offer upon a
Change of Control, the holders of the Preferred
Securities will have the right to elect two
directors to the board of directors of Sinclair
pursuant to the Pledge Agreement.
VOTING RIGHTS............ Holders of the New Preferred Securities will not
have any voting rights in ordinary circumstances.
However, the affirmative vote of the holders of a
majority in aggregate Liquidation Value of
outstanding Preferred Securities (100% of the
holders in certain circumstances) will be required
to approve any amendment to the Trust Agreement or
any proposed action by the Trustees thereunder that
would adversely affect the powers, preferences or
special
22
<PAGE>
rights of the holders of the Preferred Securities or
cause the dissolution, winding-up or termination of
the Trust (other than pursuant to the Trust
Agreement). In addition, pursuant to the Trust
Agreement, the approval of the holders of a majority
in aggregate Liquidation Value of outstanding
Preferred Securities (100% of the holders in certain
circumstances) will be required to approve (i) any
amendment to the KDSM Senior Debenture Indenture
that would adversely affect the holders of the
Preferred Securities, (ii) any waiver of an Event of
Default (as defined in the relevant governing
document) under the KDSM Senior Debenture Indenture
or the Pledge Agreement or KDSM, Inc.'s obligation
to comply with any covenant thereunder, (iii) any
issuance by the Trust of any additional equity
interests or the incurrence by the Trust of any
indebtedness, and (iv) pursuant to the Pledge
Agreement, any action requiring approval of the
holders of the Parent Preferred. In addition, the
holders of a majority in aggregate Liquidation Value
of the Preferred Securities may have the right to
cause the liquidation of the Trust in the event of
the bankruptcy, liquidation, insolvency or
dissolution of Sinclair or of one or more of its
subsidiaries that collectively own directly or
indirectly 50% or more of Sinclair's consolidated
assets as described under "-Dissolution of Trust
Upon Certain Events." In addition, upon an Event of
Default under the Preferred Securities, the holders
of a majority in aggregate Liquidation Value of the
Preferred Securities will have the right to elect
new trustees of the Trust. Furthermore, upon a
Voting Rights Triggering Event under the Parent
Preferred, KDSM, Inc., as holder of the Parent
Preferred, will have the right to elect two
directors to Sinclair's board of directors. Pursuant
to the Pledge Agreement, KDSM, Inc. will agree that
it will elect the nominees of the Trust; the Trust
will agree to elect the nominees of the holders of a
majority in aggregate Liquidation Value of
outstanding Preferred Securities to such
directorships. If an Event of Default under the KDSM
Senior Debenture Indenture has occurred and shall be
continuing, the holders of at least 25% in aggregate
Liquidation Value of outstanding Preferred
Securities shall have the right to direct the
Trustees under the Trust to declare the principal of
and interest on the KDSM Senior Debentures
immediately due and payable. See "Description of the
New Preferred Securities-Voting Rights" and
"Description of the New KDSM Senior
Debentures-Events of Default."
DISSOLUTION OF TRUST UPON
CERTAIN EVENTS ......... In the event that Sinclair (or one or more of its
subsidiaries that collectively own directly or
indirectly 50% or more of Sinclair's consolidated
assets) becomes bankrupt or insolvent or is
dissolved or liquidated, the Trust, at the option of
the holders of a majority in Liquidation Value of
the Preferred Securities, may be dissolved and
liquidated and the holders of the New Preferred
Securities and the Common Securities may receive
portions of the New KDSM Senior Debentures in
exchange therefor to the extent such assets are
legally available for distribution to holders of New
Preferred Securities (together with any Additional
Amounts, if applicable), after satisfaction of
liabilities to creditors of the Trust, if any. Under
current bankruptcy laws, the holders of the New
Preferred Securities may not be able to exercise
this right to dissolve the Trust. See "Description
of the New Preferred Securities-Liquidation
Distribution Upon Dissolution."
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<PAGE>
COMMON SECURITIES ...... On March 12, 1997, the Trust issued approximately
$6.2 million of Common Securities to KDSM, Inc. in
exchange for cash. The Common Securities represent
approximately 3% of the equity of the Trust.
V-NEW PARENT GUARANTEE
TERMS OF NEW PARENT
GUARANTEE ............... Sinclair has agreed to unconditionally guarantee
(the "Old Parent Guarantee"), on a junior
subordinated basis, the payment in full under the
Preferred Securities of (i) any accrued and unpaid
distributions on the Preferred Securities that have
been theretofore properly declared on the Preferred
Securities from funds of the Trust legally available
therefor in accordance with the Trust Agreement,
(ii) the Redemption Price payable with respect to
any Preferred Securities called for redemption by
the Trust, from funds legally available therefor in
accordance with the terms of the Trust Agreement and
(iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than
in connection with a redemption of all of the
Preferred Securities), the payment of an amount if,
when, and to the extent holders of the Preferred
Securities are lawfully entitled to payment thereof
from the Trust equal to the lesser of (a) the full
liquidation preference plus accumulated and unpaid
dividends to which the holders of the Preferred
Securities are lawfully entitled, and (b) the amount
of the Trust's legally available assets remaining
after satisfaction of all claims of other parties
which, as a matter of law, are prior to those of the
holders of the Preferred Securities. In connection
with the Exchange Offer, Sinclair will offer to
exchange the Old Parent Guarantee for a guarantee
that has been registered under the Securities Act
(the "New Parent Guarantee"). The terms of the New
Parent Guarantee will be identical to those of the
Old Parent Guarantee. The Trust Agreement provides
that distributions on the New Preferred Securities
are not properly declarable, and funds are not
legally available for redemption of the Preferred
Securities, unless the Trust has cash sufficient to
pay such distributions or make such redemption, as
the case may be. The New Parent Guarantee will not
run to the benefit of any creditors of the Trust.
The New Parent Guarantee will be unsecured and will
rank subordinate and junior in right of payment to
all liabilities of Sinclair (excluding liabilities
that are made pari passu with or subordinate to the
New Parent Guarantee expressly by their terms). The
New Parent Guarantee is a guarantee of payment with
respect to the New Preferred Securities in certain
limited circumstances and not of collection. See
"Risk Factors-Limited Rights Under the New Parent
Guarantee" and "Description of the New Parent
Guarantee-General" and "Status of the New Parent
Guarantee."
VI-OTHER INFORMATION
EXPENSE AGREEMENT ...... KDSM, Inc. has entered into an agreement (the
"Expense Agreement") pursuant to which it agreed to
pay all of the expenses of the Trust. Failure to pay
such expenses would be an Event of Default under the
KDSM Senior Debenture Indenture.
USE OF PROCEEDS......... Neither the Company, KDSM, Inc. nor the Trust will
receive
24
<PAGE>
any cash proceeds from the issuance of the New
Preferred Securities offered hereby. See "Use of
Proceeds."
FORM OF NEW PREFERRED
SECURITIES .......... The New Preferred Securities received by qualified
institutional buyers (as defined pursuant to Rule
144A under the Securities Act of 1933, as amended,
"QIBs") will be represented by a single permanent
global certificate in definitive registered form (a
"Global Security"), registered in the name of DTC or
its nominee. The New Preferred Securities purchased
by institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not QIBs ("Accredited
Investors") will be issued in registered
certificated form ("Certificated Securities").
Beneficial interests in the Global Securities will
be evidenced by, and transfers thereof will be
effected only through, records maintained by
participants in DTC. As described herein, certain
circumstances may arise where Certificated
Securities will be required to be issued to all
holders (such Certificated Securities with those
Certificated Securities held by Accredited Investors
collectively referred to as "Non-Global
Securities"). See "Description of the New Preferred
Securities-Book-Entry Securities; The Depository
Trust Company; Delivery and Form." If the New Parent
Preferred, New KDSM Senior Debentures or any New
Parent Debenture Guarantee are issued to the public
for any reason, the issuing entity will also seek to
have such securities represented by a certificate or
certificates registered in the name of DTC or its
nominee, if permissible under the rules of the DTC.
ABSENCE OF PUBLIC TRADING
MARKET .............. There is no public market for the New Preferred
Securities. The Trust has been advised by Smith
Barney Inc. and Chase Securities Inc. (together the
"Initial Purchasers") that the Initial Purchasers
intend to make a market in the New Preferred
Securities; however, they are under no obligation to
do so and may discontinue any market-making
activities at any time without notice. No assurance
can be given as to the liquidity of the trading
market for the New Preferred Securities or that an
active public market will develop. If an active
trading market does not develop or is not
maintained, the market price and liquidity of the
New Preferred Securities may be adversely affected.
In addition, there is no public market for the New
KDSM Senior Debentures, the New Parent Preferred or
the Parent Debenture Guarantee which may be issued
directly to the holders of the New Preferred
Securities in certain circumstances. No assurance
can be given as to the liquidity of the trading
market for any such securities if they are issued to
the holders of New Preferred Securities for any
reason. If an active public market does not develop
for such securities, the market price and liquidity
of such securities may be adversely affected. The
Company does not intend to apply to list the New
Preferred Securities on any national exchange.
25
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
SINCLAIR BROADCAST GROUP, INC.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The summary historical 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"). The Consolidated Financial Statements for the years ended December
31, 1994, 1995 and 1996 are incorporated herein by reference. The selected
historical consolidated financial data for the three months ended March 31, 1996
and 1997 and as of March 31, 1996 and 1997 are unaudited, but in the opinion of
management, such data have been prepared on the same basis as the Consolidated
Financial Statements incorporated herein by reference and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for those
periods. Results for the three months ended March 31, 1996 and 1997 are not
necessarily indicative of the results for a full year. Separate financial
information for the Trust is not provided since the Company believes it would
not be material to investors. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Sinclair" and Sinclair's Consolidated Financial
Statements in Sinclair's Annual Report on Form 10-K (as amended) for the period
ended December 31, 1996 and Sinclair's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- ----------------------
1992 1993 1994(A) 1995(A) 1996(A) 1996 1997
----------- ------------ ------------ ------------ -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
NET BROADCAST REVENUES(b) ............... $ 61,081 $ 69,532 $ 118,611 $ 187,934 $ 346,459 $ 44,176 $ 98,909
Barter revenues ........................ 8,805 6,892 10,743 18,200 32,029 3,593 9,315
--------- --------- --------- --------- ----------- -------- ----------
Total revenues ........................ 69,886 76,424 129,354 206,134 378,488 47,769 108,224
--------- --------- --------- --------- ----------- -------- ----------
Operating expenses, excluding depre-
ciation and amortization, deferred
compensation and special bonuses
paid to executive officers ............ 32,993 32,295 50,545 80,446 167,765 19,871 55,192
Depreciation and amortization(c) ...... 30,943 22,486 55,587 80,410 121,081 19,859 40,700
Amortization of deferred compensation ... - - - - 739 - 117
Special bonuses paid to executive of-
ficers ................................. - 10,000 3,638 - - - -
--------- --------- --------- --------- ----------- -------- ----------
Broadcast operating income ............ 5,950 11,643 19,584 45,278 88,903 8,039 12,215
--------- --------- --------- --------- ----------- -------- ----------
Interest and amortization of debt dis-
count expense .......................... 12,997 12,852 25,418 39,253 84,314 10,896 27,065
Interest and other income ............... 1,207 2,131 2,447 4,163 3,478 1,976 546
Subsidiary trust minority interest ex-
pense (d) .............................. - - - - - - 1,210
--------- --------- --------- --------- ----------- -------- ----------
Income (loss) before (provision) bene-
fit for income taxes and extraordi-
nary item .............................. $ (5,840) $ 922 $ (3,387) $ 10,188 $ 8,067 $ (881) $ (15,514)
========= ========= ========= ========= =========== ======== ==========
Net income (loss) available to common
shareholders ........................... $ (4,651) $ (7,945) $ (2,740) $ 76 $ 1,131 $ (458) $ (7,614)
========= ========= ========= ========= =========== ======== ==========
Earnings (loss) per common share:
Net income (loss) before extraordi-
nary item ............................. $ (0.16) $ - $ (0.09) $ 0.15 $ 0.03 $ (0.01) $ (0.22)
Extraordinary item ..................... - (0.27) - (0.15) - - -
--------- --------- --------- --------- ----------- -------- ----------
Net income (loss) per common share ..... $ (0.16) $ (0.27) $ (0.09) $ - $ 0.03 $ (0.01) $ (0.22)
========= ========= ========= ========= =========== ======== ==========
Weighted average shares out-
standing (in thousands) ............... 29,000 29,000 29,000 32,205 37,381 34,750 34,769
========= ========= ========= ========= =========== ======== ==========
<PAGE>
OTHER DATA:
Cash flows from operating activities(e).. $ 5,235 $ 11,230 $ 20,781 $ 55,909 $ 68,970 $ 26,439 $ 28,320
Cash flows from investing activities(e).. (1,051) 1,521 (249,781) (119,243) (1,011,897) (40,597) (13,902)
Cash flows from financing activities(e).. (3,741) 3,462 213,410 173,338 832,818 (872) 19,946
Broadcast cash flow(f) .................. $ 28,019 $ 37,498 $ 67,519 $ 111,124 $ 189,216 $ 22,800 $ 42,784
Broadcast cash flow margin(g) ......... 45.9 % 53.9 % 56.9 % 59.1 % 54.6 % 51.6 % 43.3 %
Adjusted EBITDA(h) ..................... $ 26,466 $ 35,406 $ 64,547 $ 105,750 $ 180,272 $ 21,465 $ 39,300
Adjusted EBITDA margin(g) ............... 43.3 % 50.9 % 54.4 % 56.3 % 52.0 % 48.6 % 39.7 %
After tax cash flow(i) .................. $ 15,865 $ 23,725 $ 42,223 $ 65,460 $ 92,500 12,968 $ 19,471
After tax cash flow margin(g) ......... 26.0 % 34.1 % 35.6 % 34.8 % 26.7 % 29.4 % 19.7 %
Program contract payments ............... $ 10,427 $ 8,723 $ 14,262 $ 19,938 $ 30,451 $ 6,433 $ 13,732
Capital expenditures .................. 426 528 2,352 1,702 12,609 1,272 2,244
Corporate overhead expense ............ 1,553 2,092 2,972 5,374 8,944 1,335 3,484
</TABLE>
(Continued on following page)
26
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, THREE MONTHS
----------------------------------------------------- ENDED
MARCH 31,
----------------
1992 1993 1994(A) 1995(A) 1996(A) 1996 1997
------- ------- --------- --------- --------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Adjusted EBITDA to interest expense ......... 2.0 x 2.8 x 2.5 x 2.7 x 2.1 x 2.0 x 1.5 x
Adjusted EBITDA to interest expense plus
subsidiary trust minority interest expense ... 2.0 x 2.8 x 2.5 x 2.7 x 2.1 x 2.0 x 1.4 x
Adjusted EBITDA less capital expenditures
to interest expense plus subsidiary trust mi-
nority interest expense ...................... 2.0 x 2.7 x 2.4 x 2.7 x 2.0 x 1.9 x 1.3 x
Net debt to Adjusted EBITDA(j) ............... 4.1 x 5.8 x 5.3 x 2.9 x 7.1 x 3.0 x 5.5 x
Net debt plus Company Obligated Mandato-
rily Redeemable Security of Subsidiary
Trust Holding Solely KDSM Senior Deben-
tures to Adjusted EBITDA ..................... 4.1 x 5.8 x 5.3 x 2.9 x 7.1 x 3.0 x 6.6 x
Ratio of:
Earnings to fixed charges(k) .................. - 1.1 x - 1.3 x 1.1 x - -
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------------------
1992 1993 1994(A) 1995(A) 1996(A) 1997
----------- ------------ ------------ ---------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 1,823 $ 18,036 $ 2,446 $112,450 $ 2,341 $ 36,705
Total assets .............................. 140,366 242,917 399,328 605,272 1,707,297 1,709,931
Total debt(l) .............................. 110,659 224,646 346,270 418,171 1,288,147 1,116,652
Company Obligated Mandatorily Re-
deemable Security of Subsidiary Trust
Holding Solely KDSM Senior Deben-
tures(m) .................................. - - - - - 200,000
Total stockholders' equity (deficit) ...... (3,127) (11,024) (13,723) 96,374 237,253 237,316
</TABLE>
NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(a) The Company made acquisitions in 1994, 1995 and 1996 as described in the
footnotes to the Consolidated Financial Statements incorporated herein by
reference. The statement of operations and other data presented for periods
preceding the dates of acquisitions do not include amounts for these
acquisitions and therefore are not comparable to subsequent periods.
Additionally, the years in which the specific acquisitions occurred may not
be comparable to subsequent periods depending on when during the year the
acquisition occurred.
(b) Net broadcast revenues are defined as broadcast revenues net of agency
commissions.
(c) 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.
(d) Subsidiary trust minority interest expense represent the distributions on
$200 million aggregate Liquidation Value of Preferred Securities at a
distribution rate of 11.625%.
(e) These items are financial statement disclosures in accordance with
Generally Accepted Accounting Principles and are also presented in the
Company's consolidated financial statements incorporated by reference
herein.
(f) "Broadcast cash flow" is defined as broadcast operating income plus
corporate overhead expense, 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 paid 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.
(notes continued on following page)
27
<PAGE>
(g) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Adjusted EBITDA margin" is defined as Adjusted
EBITDA divided by net broadcast revenues. "After tax cash flow margin" is
defined as after tax cash flow divided by net broadcast revenues.
(h) "Adjusted EBITDA" is defined as broadcast cash flow less corporate overhead
expense and is a commonly used measure of performance for broadcast
companies. Adjusted EBITDA 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.
(i) "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.
(j) Net debt is defined as total debt less cash and cash equivalents.
(k) Earnings were inadequate to cover fixed charges for the years ended
December 31, 1992 and 1994, and for the three months ended March 31, 1996
and 1997. Additional earnings of $5,840,000, $3,387,000, $881,000 and
$15,514,000 would have been required to cover fixed charges in 1992, 1994
and the three months ended March 31, 1996 and 1997, respectively.
(l) "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 1993 Notes (as defined herein), 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. Total debt does
not include the Preferred Securities.
(m) Company Obligated Mandatorily Redeemable Security of Subsidiary Trust
Holding Solely KDSM Senior Debentures represents $200 million aggregate
Liquidation Value of Preferred Securities which carry a mandatory
redemption feature after twelve years.
28
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of Old Preferred Securities should review carefully the following risks
concerning the New Preferred Securities, the Company and the broadcast industry
before purchasing the securities offered hereby.
SUBSTANTIAL LEVERAGE AND PREFERRED STOCK OUTSTANDING
The Company has consolidated indebtedness that is substantial in relation
to its total stockholders' equity. As of July 3, 1997, the Company had
outstanding long-term indebtedness (including current installments) of
approximately $1.2 billion. In addition, the New Parent Preferred, and any Old
Parent Preferred issued in connection with the Old Securities Offering that
remains outstanding after the Exchange Offer, which together will have an
aggregate Liquidation Amount of $200 million, must be redeemed by the Company in
2009. Furthermore, the portion of the Company's revolving credit facility under
the Bank Credit Agreement that was repaid from the proceeds of the Old
Securities Offering can be reborrowed, subject to certain conditions and
limitations included in the Bank Credit Agreement. The Company also had
outstanding 1,106,608 shares of Series B Convertible Preferred Stock with an
aggregate liquidation preference of $110.7 million as of June 20, 1997, which
will be junior to the New Parent Preferred when issued but may become pari passu
in some circumstances. See "Description of Capital Stock-Preferred Stock-Series
B Convertible Preferred Stock." The Company also has significant program
contracts payable and commitments for future programming. Moreover, subject to
the restrictions contained in its debt instruments and preferred stock, the
Company may incur additional debt and issue additional preferred stock in the
future.
The Company and its subsidiaries have and will continue to have significant
payments relating to the Bank Credit Agreement, its 10% Senior Subordinated
Notes due 2003 (the "1993 Notes"), the 10% Senior Subordinated Notes due 2005
(the "1995 Notes"), the 9% Senior Subordinated Notes due 2007 (the "1997 Notes,"
and, with the 1993 Notes and the 1995 Notes, the "Existing Notes"), and the
Parent Preferred, and a significant amount of the Company's cash flow will be
required to service these obligations. The Company, on a consolidated basis,
reported interest expense of $84.3 million for the year ended December 31, 1996.
After giving pro forma effect to the 1996 Acquisitions, the Old Securities
Offering and the issuance of the 1997 Notes as though they occurred on January
1, 1996, and the use of the net proceeds therefrom, the interest expense and
Subsidiary Trust Minority Interest Expense would have been $145.9 million. The
weighted average interest rates on the Company's indebtedness under the Bank
Credit Agreement during the year ended December 31, 1996 was 8.08%.
The $400 million revolving credit facility available to the Company under
the Bank Credit Agreement will be subject to reductions beginning March 31,
2000, and will mature on the last business day of December 2004. Payment of
portions of the $600 million term loan under the Bank Credit Agreement begins on
September 30, 1997 and the term loan must be fully repaid by December 31, 2004.
The 1993 Notes mature in 2003, the 1995 Notes mature in 2005 and the 1997 Notes
mature in 2007. The Parent Preferred must be redeemed in 2009. Required
repayment of indebtedness of the Company totaling approximately $1.2 billion
will occur at various dates through May 31, 2007.
The Company's current and future debt service obligations and obligations
to make distributions on and to redeem preferred stock could have adverse
consequences to holders of the New Preferred Securities, including the
following: (i) the Company's ability to obtain financing for future working
capital needs or additional acquisitions or other purposes may be limited; (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness and
payments related to the Preferred Securities, thereby reducing funds available
for operations; (iii) the Company may be vulnerable to changes in interest rates
under its credit facilities; and (iv) the Company may be more vulnerable to
adverse economic conditions than less leveraged competitors and, thus, may be
limited in its ability to withstand competitive pressures. If the Company is
unable to service or refinance its indebtedness or preferred stock, it may be
required to sell one or more of its stations to reduce debt service obligations.
The Company expects to be able to satisfy its future debt service and
dividend and other payment obligations and other commitments with cash flow
from operations. However, there can be no assurance that the future cash flow
of the Company will be sufficient to meet such obligations and commitments. If
29
<PAGE>
the Company is unable to generate sufficient cash flow from operations in the
future to service its indebtedness and to meet its other commitments, it may be
required to refinance all or a portion of its existing indebtedness or to obtain
additional financing. There can be no assurance that any such refinancing or
additional financing could be obtained on acceptable terms. If the Company is
unable to service or refinance its indebtedness, it may be required to sell one
or more of its stations to reduce debt service obligations.
SUBORDINATION OF NEW PARENT GUARANTEE, NEW PARENT DEBENTURE GUARANTEE AND NEW
PARENT PREFERRED
Sinclair's obligations under the New Parent Guarantee are, and its
obligations under the New Parent Debenture Guarantee, if effective, will be,
subordinated and junior in right of payment to all other liabilities of Sinclair
except any liabilities that may be made pari passu with or subordinate to the
New Parent Guarantee or New Parent Debenture Guarantee, as the case may be,
expressly by their terms. The New Parent Preferred, with respect to dividend
rights and rights on liquidation, winding-up and dissolution of Sinclair, ranks
(i) junior in right of payment to all indebtedness of Sinclair and its
Subsidiaries, (ii) senior in right of payment to all common stock of Sinclair
and (iii) senior to Sinclair's Series B Convertible Preferred Stock, except that
upon a "Series B Trigger Event" (as defined below), the New Parent Preferred
will rank pari passu with the Series B Convertible Preferred Stock in respect of
dividend rights and rights on distributions upon liquidation, dissolution and
winding-up of Sinclair. 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; (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 the positions described in
clause (b) above until the occurrence of certain events with respect to WIIB,
WTTV and WTTK in Indianapolis and WTTE and WSYX in Columbus as described under
"-Dependence on Key Personnel; Employment Agreements with Key Personnel." There
can be no assurance as to when or whether these events will occur, although the
Company believes Mr. Baker does not presently intend to terminate his employment
agreement if he is not appointed to the positions with Sinclair or SCI by August
31, 1997. In addition, upon a Series B Trigger Event, dividends on the Series B
Convertible Preferred Stock are required to be paid in cash or additional shares
of Series B Convertible Preferred Stock at a rate of $3.75 per share per quarter
for the first year and $5.00 per share per quarter thereafter.
As of July 3, 1997, Sinclair had approximately $1.2 billion of indebtedness
which would have been senior to the New Parent Preferred, the New Parent
Guarantee and the New Parent Debenture Guarantee, if effective. As a holding
company, substantially all of Sinclair's assets consist of the capital stock of
its subsidiaries. Except to the extent that Sinclair may itself be a creditor
with recognized claims against its subsidiaries, the claims of the holders of
the New Parent Preferred, the New Parent Guarantee or any New Parent Debenture
Guarantee are effectively subordinated to the claims of the direct creditors of
the subsidiaries of Sinclair. Subject to compliance with certain limitations in
Sinclair's debt instruments, Sinclair and its subsidiaries may incur additional
indebtedness. See "Description of the New Parent Guarantee-Status of the Parent
Guarantee."
COVENANT RESTRICTIONS ON DIVIDENDS AND REDEMPTION
Certain covenants under the Existing Indentures (as defined in "Certain
Definitions") and the Bank Credit Agreement restrict the amount of dividends and
redemptions that may be declared and paid by Sinclair on its capital stock,
including the New Parent Preferred. Although Sinclair presently believes it will
be able to pay dividends on the New Parent Preferred as required, there can be
no assurance that
30
<PAGE>
Sinclair will be permitted under such restrictions to declare dividends
throughout the term of the New Parent Preferred. Sinclair may make other
restricted payments or Sinclair's consolidated operating performance may
decline, either of which could limit Sinclair's ability to declare dividends. As
of December 31, 1996, on a pro forma basis assuming completion on January 1,
1996 of the 1996 Acquisitions, the Old Securities Offering (and application of
the proceeds of the Old Securities Offering as set forth in "Use of Proceeds")
and the issuance of the 1997 Notes, this limitation would have allowed the
Company to pay up to $44.5 million in dividends on capital stock for fiscal
1996. The Company must also satisfy other financial covenants to pay cash
dividends under the Bank Credit Agreement. See "Description of Indebtedness of
Sinclair" and "Description of Capital Stock of Sinclair-Preferred Stock-Series B
Convertible Preferred Stock."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Existing Indentures restrict, among other things, the Company's and its
Subsidiaries' (as defined in the Existing Indentures) ability to (i) incur
additional indebtedness, (ii) pay dividends, make certain other restricted
payments or consummate certain asset sales, (iii) enter into certain
transactions with affiliates, (iv) incur indebtedness that is subordinate in
priority and in right of payment to any senior debt and senior in right of
payment to the Existing Notes, (v) merge or consolidate with any other person,
or (vi) sell, assign, transfer, lease, convey, or otherwise dispose of all or
substantially all of the assets of the Company. In addition, the Bank Credit
Agreement contains certain other and more restrictive covenants, including
restrictions on redemption of capital stock, a limitation on the aggregate size
of future acquisitions undertaken without lender consent, a requirement that
certain conditions be satisfied prior to consummation of future acquisitions,
and a limitation on the amount of capital expenditures permitted by the Company
in future years without lender consent. The Bank Credit Agreement also requires
the Company to maintain specific financial ratios and to satisfy certain
financial condition tests. The Company's ability to meet these financial ratios
and financial condition tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. The breach of
any of these covenants could result in a default under the Bank Credit Agreement
and/or the Existing Indentures. In the event of a default under the Bank Credit
Agreement or the Existing Indentures, the lenders and the noteholders could seek
to declare all amounts outstanding under the Bank Credit Agreement and the
Existing Notes, together with accrued and unpaid interest, to be immediately due
and payable. If the Company were unable to repay those amounts, the lenders
under the Bank Credit Agreement could proceed against the collateral granted to
them to secure that indebtedness. If the indebtedness under the Bank Credit
Agreement or the Existing Notes were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, all of which rank
senior in right of payment to the Parent Preferred, the Parent Guarantee and the
Parent Debenture Guarantee, if effective. Substantially all of the assets of the
Company and its Subsidiaries (other than the assets of KDSM, Inc.) are pledged
as security under the Bank Credit Agreement. The Subsidiaries (with the
exception of Cresap Enterprises, Inc., KDSM, Inc. and KDSM Licensee, Inc.) also
guarantee the indebtedness under the Bank Credit Agreement and the Existing
Indentures.
In addition to a pledge of substantially all of the assets of the Company
and its Subsidiaries, the Company's obligations under the Bank Credit Agreement
are secured by mortgages on certain real property assets of certain non-Company
entities (the "Stockholder Affiliates") owned and controlled by the Controlling
Stockholders, including Cunningham Communications, Inc. ("CCI"), Gerstell
Development Corporation ("Gerstell"), Gerstell Development Limited Partnership
("Gerstell LP") and Keyser Investment Group, Inc. ("KIG"). If the Company were
to seek to replace the Bank Credit Agreement, there can be no assurance that the
assets of these Stockholder Affiliates would be available to provide additional
security under a new credit agreement, or that a new credit agreement could be
arranged on terms as favorable as the terms of the Bank Credit Agreement without
a pledge of such Stockholder Affiliates' assets.
CONFLICTS OF INTEREST
In addition to their respective interests in the Company, the Controlling
Stockholders have interests in various non-Company entities which are involved
in businesses related to the business of the Company, including, among others,
the operation of a television station in St. Petersburg, Florida since 1991 and
a
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television station in Bloomington, Indiana since 1990. In addition, the Company
leases certain real property and tower space from and engages in other
transactions with the Stockholder Affiliates, which are controlled by the
Controlling Stockholders. Although the Controlling Stockholders have agreed to
divest interests in the Bloomington station that are attributable to them under
applicable FCC regulations, the Controlling Stockholders and the Stockholder
Affiliates may continue to engage in the operation of the St. Petersburg,
Florida station and other already existing businesses. However, under Maryland
law, generally a corporate insider is precluded from acting on a business
opportunity in his or her individual capacity if that opportunity is one which
the corporation is financially able to undertake, is in the line of the
corporation's business and of practical advantage to the corporation, and is one
in which the corporation has an interest or reasonable expectancy. Accordingly,
the Controlling Stockholders generally are required to engage in new business
opportunities of the Company only through the Company unless a majority of the
Company's disinterested directors decide under the standards discussed above,
that it is not in the best interests of the Company to pursue such
opportunities. Non-Company activities of the Controlling Stockholders such as
those described above could, however, present conflicts of interest with the
Company in the allocation of management time and resources of the Controlling
Stockholders, a substantial majority of which is currently devoted to the
business of the Company.
In addition, there have been and will be transactions between the Company
and Glencairn Ltd. (with its subsidiaries, "Glencairn"), a corporation in which
relatives of the Controlling Stockholders beneficially own a majority of the
equity interests. Glencairn is the owner-operator and licensee of WRDC in
Raleigh/Durham, WVTV in Milwaukee, WNUV in Baltimore and WABM in Birmingham. The
Company currently provides programming services to each of these stations
pursuant to an LMA. Glencairn also has exercised an option to acquire the
License Assets of WFBC in Greenville/Spartanburg, South Carolina and has
exercised an option to acquire the License Assets of KRRT in San Antonio, Texas
from a third party. The Non-License Assets of WFBC and KRRT were acquired by the
Company in the River City Acquisition, and the Company currently provides
programming services to each station pursuant to an LMA. The Company has also
agreed to sell the License Assets relating to WTTE in Columbus, Ohio to
Glencairn and to enter into an LMA with Glencairn pursuant to which the Company
will provide programming services for this station after the acquisition of the
License Assets by Glencairn. See "Business of Sinclair-Broadcasting Acquisitions
Strategy" in Sinclair's Form 8-K dated June 27, 1997, which is incorporated by
reference herein. The FCC has approved this transaction. However, the Company
does not expect this transfer to occur unless the Company acquires the assets of
WSYX in Columbus, Ohio.
Two persons who are expected to become directors of the Company, Barry
Baker (who is also expected to become an executive officer of the Company) and
Roy F. Coppedge, III, have direct and indirect interests in River City, from
which the Company purchased certain assets in the River City Acquisition. In
addition, in connection with the River City Acquisition, the Company has entered
into various ongoing agreements with River City, including options to acquire
assets that were not acquired at the time of the initial closing of the River
City Acquisition, and LMAs relating to stations for which River City continues
to own License Assets. See "Business-Broadcasting Acquisition Strategy" in
Sinclair's Form 8-K dated June 27, 1997, which is incorporated by reference
herein. Messrs. Baker and Coppedge were not officers or directors of the Company
at the time these agreements were entered into, but, upon their expected
election to the board of directors of the Company and upon Mr. Baker's expected
appointment as an executive officer of the Company, they may have conflicts of
interest with respect to issues that arise under any continuing agreements and
any other agreements with River City.
The Bank Credit Agreement, the Existing Indentures and the Parent Preferred
provide that transactions between the Company and its affiliates must be no less
favorable to the Company than would be available in comparable transactions in
arm's-length dealings with an unrelated third party. Moreover, the Existing
Indentures provide that any such transactions involving aggregate payments in
excess of $1.0 million must be approved by a majority of the members of the
board of directors of the Company and the Company's independent directors (or,
in the event there is only one independent director, by such director), and, in
the case of any such transactions involving aggregate payments in excess of $5.0
million, the Company is required to obtain an opinion as to the fairness of the
transaction to the Company from a financial point of view issued by an
investment banking or appraisal firm of national standing.
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VOTING RIGHTS; CONTROL BY CONTROLLING STOCKHOLDERS; POTENTIAL ANTI-TAKEOVER
EFFECT OF DISPROPORTIONATE VOTING RIGHTS
The Company's Common Stock has been divided into two classes, each with
different voting rights. The Class A Common Stock entitles a holder to one vote
per share on all matters submitted to a vote of the stockholders, whereas the
Class B Common Stock, 100% of which is beneficially owned by the Controlling
Stockholders, entitles a holder to ten votes per share, except for "going
private" and certain other transactions for which the holder is entitled to one
vote per share. The Class A Common Stock, the Class B Common Stock and the
Series B Convertible Preferred Stock vote together as a single class (except as
otherwise may be required by Maryland law) on all matters submitted to a vote of
stockholders, with each share of Series B Convertible 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 Convertible Preferred Stock may at any time convert each
share of Series B Convertible Preferred Stock into 3.64 Shares of Class A Common
Stock. The holders of the New Parent Preferred generally do not have the right
to vote on matters presented to stockholders of Sinclair. See "Description of
the Parent Preferred-Voting Rights."
The Controlling Stockholders own in the aggregate 71.6% of the outstanding
capital stock (including the Series B Convertible Preferred Stock) of the
Company and control approximately 96.2% of all voting rights associated with the
Company's capital stock. As a result, any three of the Controlling Stockholders
will be able to elect a majority of the members of the board of directors of
Sinclair and, thus, will have the ability to maintain control over the
operations and business of the Company.
The Controlling Stockholders have entered into a stockholders' agreement
(the "Stockholders' Agreement") pursuant to which they have agreed, for a period
ending in 2005, to vote for each other as candidates for election to the board
of directors. In addition, in connection with the River City Acquisition, the
Controlling Stockholders and Barry Baker and Boston Ventures IV Limited
Partnership and Boston Ventures IVA Limited Partnership (collectively, "Boston
Ventures") have entered into a voting agreement (the "Voting Agreement")
pursuant to which the Controlling Stockholders have agreed to vote in favor of
certain specified matters including, but not limited to, the appointment of Mr.
Baker and Mr. Coppedge (or another designee of Boston Ventures) to the Company's
Board of Directors at such time as they are allowed to become directors pursuant
to FCC rules. Mr. Baker and Boston Ventures, in turn, have agreed to vote in
favor of the reappointment of each of the Controlling Stockholders to the
Company's board of directors. The Voting Agreement will remain in effect with
respect to Mr. Baker for as long as he is a director of the Company and will
remain in effect with respect to Mr. Coppedge (or another designee of Boston
Ventures) until the first to occur of (a) the later of (i) May 31, 2001 and (ii)
the expiration of the initial five-year term of Mr. Baker's employment agreement
and (b) such time as Boston Ventures no longer owns directly or indirectly
through its interest in River City at least 721,115 shares of Class A Common
Stock (including shares that may be obtained on conversion of Series B
Convertible Preferred Stock). See "Management-Employment Agreements" in
Sinclair's Annual Report on Form 10-K (as amended) for the year ended December
31, 1996 (the "1996 10-K") incorporated herein by reference.
The disproportionate voting rights of the Class B Common Stock relative to
the Class A Common Stock and the Stockholders' Agreement and Voting Agreement
may make the Company a less attractive target for a takeover than it otherwise
might be or render more difficult or discourage a merger proposal, tender offer
or other transaction involving an actual or potential change of control of the
Company.
DEPENDENCE UPON KEY PERSONNEL; EMPLOYMENT AGREEMENTS WITH KEY PERSONNEL
The Company believes that its success will continue to be dependent upon
its ability to attract and retain skilled managers and other personnel,
including its present officers, regional directors and general managers. The
loss of the services of any of the present officers, especially its President
and Chief Executive Officer, David D. Smith, or Barry Baker, who is currently a
consultant to the Company and is expected to become President and Chief
Executive Officer of Sinclair Communications, Inc. (a wholly owned subsidiary of
the Company that holds all of the broadcast operations of the Company, "SCI")
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and Executive Vice President and a director of the Company as soon as
permissible under FCC rules, may have a material adverse effect on the
operations of the Company. Each of the Controlling Stockholders has entered into
an employment agreement with the Company, each of which terminates June 12,
1998, unless renewed for an additional one year period according to its terms,
and Barry Baker has entered into an employment agreement that terminates in
2001. See "Management-Employment Agreements" in the 1996 10-K. The Company has
key-man life insurance for Mr. Baker, but does not currently maintain key
personnel life insurance on any of its executive officers.
Mr. Baker cannot be appointed as an executive officer or director of the
Company until such time as (i) either the Controlling Stockholders dispose of
their attributable interests (as defined by applicable FCC rules) in a
television station in the Indianapolis DMA or Mr. Baker no longer has an
attributable interest in WTTV or WTTK in Indianapolis; and (ii) either the
Company disposes of its attributable interest in WTTE in Columbus or Mr. Baker
no longer has an attributable interest in WSYX in Columbus. There can be no
assurance as to when or whether these events will occur. The failure of Mr.
Baker to become a director and officer of the Company on or before August 31,
1997, may allow Mr. Baker to terminate his employment agreement. See
"Subordination of New Parent Guarantee, New Parent Debenture Guarantee and New
Parent Preferred," above. The Company has no reason to believe Mr. Baker will
terminate his employment agreement in such event. However, if Mr. Baker did
terminate his employment agreement as a result of a Series B Trigger Event,
among other consequences, the Company could be required to pay cash or stock
dividends to Mr. Baker and the other holders of Series B Convertible Preferred
Stock and the Series B Convertible Preferred Stock would rank pari passu with
the Parent Preferred. See "Description of Capital Stock-Preferred Stock." In
addition, if Mr. Baker's employment agreement is terminated under certain
specified circumstances (including any event constituting a Series B Trigger
Event), Mr. Baker will have the right to purchase from the Company at fair
market value either (i) the Company's broadcast operations in either the St.
Louis market or the Asheville/Greenville/Spartanburg market or (ii) all of the
Company's radio operations, which may also have a material adverse effect on the
operations of the Company.
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH; FUTURE ACCESS TO CAPITAL
Since the beginning of 1992, the Company has experienced rapid and
substantial growth primarily through acquisitions and the development of LMA
arrangements. In 1996, the Company completed the River City Acquisition and
other acquisitions, which increased the number of television stations owned or
provided programming services by the Company from 13 to 29 and increased the
number of radio stations owned or provided programming or sales services from
none to 26 radio stations. There can be no assurance that the Company will be
able to continue to locate and complete acquisitions on the scale of the River
City Acquisition or in general. In addition, acquisitions in the television and
radio industry have come under increased scrutiny from the Department of Justice
and the Federal Trade Commission. See "Business of Sinclair-Federal Regulation
of Television and Radio Broadcasting" in Sinclair's Form 8-K dated June 27,
1997, which is incorporated by reference herein. Accordingly, there is no
assurance that the Company will be able to maintain its rate of growth or that
the Company will continue to be able to integrate and successfully manage such
expanded operations. Inherent in any future acquisitions are certain risks such
as increasing leverage and debt service requirements and combining company
cultures and facilities which could have a material adverse effect on the
Company's operating results, particularly during the period immediately
following such acquisitions. Additional debt or capital may be required in order
to complete future acquisitions, and there can be no assurance the Company will
be able to obtain such financing or raise the required capital.
DEPENDENCE ON ADVERTISING REVENUES; EFFECT OF LOCAL, REGIONAL AND NATIONAL
ECONOMIC CONDITIONS
The Company's operating results are primarily dependent on advertising
revenues which, in turn, depend on national and local economic conditions, the
relative popularity of the Company's programming, the demographic
characteristics of the Company's markets, the activities of competitors and
other factors which are outside the Company's control. Both the television and
radio industries are cyclical in nature, and the Company's revenues could be
adversely affected by a future local, regional or national recessionary
environment.
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RELIANCE ON TELEVISION PROGRAMMING
One of the Company's most significant operating cost components is
television programming. There can be no assurance that the Company will not be
exposed in the future to increased programming costs which may adversely affect
the Company's operating results. Acquisitions of program rights are usually made
two or three years in advance and may require multi-year commitments, making it
difficult to accurately predict how a program will perform. In some instances,
programs must be replaced before their costs have been fully amortized,
resulting in write-offs that increase station operating costs.
CERTAIN NETWORK AFFILIATION AGREEMENTS
All but two of the television stations owned or provided programming
services by the Company are affiliated with a network. Under the affiliation
agreements, the networks possess, under certain circumstances, the right to
terminate the agreement on prior written notice generally ranging between 15 and
45 days, depending on the agreement. Ten of the stations currently owned or
programmed by the Company are affiliated with Fox and 39.0% of the Company's
revenue in 1996 on a pro forma basis was from Fox affiliated stations. WVTV, a
station to which the Company provided programming services in Milwaukee,
Wisconsin pursuant to an LMA, WTTO, a station owned by the Company in
Birmingham, Alabama, and WDBB, a station to which the Company provides
programming services in Tuscaloosa, Alabama pursuant to an LMA, each of which
was previously affiliated with Fox, had their affiliation agreements with Fox
terminated by Fox in December 1994, September 1996 and September 1996,
respectively. WVTV and WTTO are now operated as WB affiliates. The affiliation
agreements with WB have not been finalized with respect to these stations and
there can be no assurance that the agreements will be finalized. 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. On August 20, 1996, the
Company entered into an agreement with Fox limiting Fox's rights to terminate
the Company's affiliation agreements with Fox in other markets, but there can be
no assurance that the Fox affiliation agreements will remain in place or that
Fox will continue to provide programming to affiliates on the same basis that
currently exists. See "Business of Sinclair-Television Broadcasting" in
Sinclair's Form 8-K dated June 27, 1997, which is incorporated by reference
herein. The Company's UPN affiliation agreements expire in January 1998. The
non-renewal or termination of affiliations with Fox or any other network could
have a material adverse effect on the Company's operations.
Each of the affiliation agreements relating to television stations involved
in the River City Acquisition (other than River City's ABC and Fox affiliates)
is terminable by the network upon transfer of the License Assets of the
stations. These stations are continuing to operate as network affiliates, but
there can be no assurance that the affiliation agreements will be continued, or
that they will be continued on terms favorable to the Company. If any
affiliation agreements are terminated, the affected station could lose market
share, may have difficulty obtaining alternative programming at an acceptable
cost, and may otherwise be adversely affected.
Twelve stations owned or programmed by the Company are affiliated with UPN,
a network that began broadcasting in January 1995. Two stations owned or
programmed by the Company are operated as affiliates with WB, a network that
began broadcasting in January 1995. There can be no assurance as to the future
success of UPN or WB programming or as to the continued operation of the UPN or
WB networks.
COMPETITION
The television and radio industries are highly competitive. Some of the
stations and other businesses with which the Company's stations compete are
subsidiaries of large, national or regional companies that may have greater
resources than the Company. Technological innovation and the resulting
proliferation of programming alternatives, such as cable television, wireless
cable, in home satellite-to-home distribution services, pay-per-view and home
video and entertainment systems have fractionalized television viewing audiences
and have subjected free over-the-air television broadcast stations to new types
of competition. The radio broadcasting industry is also subject to competition
from new media
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technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and by digital audio broadcasting
("DAB"). In April 1997, the FCC awarded two licenses for 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.
The Company's stations face strong competition for market share and
advertising revenues in their respective markets from other local free
over-the-air radio and television broadcast stations, cable television and
over-the-air wireless cable television as well as newspapers, periodicals and
other entertainment media. Some competitors are part of larger companies with
greater resources than the Company. In addition, the FCC has adopted rules which
permit telephone companies to provide video services to homes on a
common-carrier basis without owning or controlling the product being
distributed, and proposed legislation could relax or repeal the telephone-cable
cross-ownership prohibition for all systems. See "Business of
Sinclair-Competition" in Sinclair's Form 8-K dated June 27, 1997, which is
incorporated by reference herein.
In February 1996, the Telecommunications Act of 1996 (the "1996 Act") was
adopted by the Congress of the United States and signed into law by President
Clinton. The 1996 Act contains a number of sweeping reforms that are having an
impact on broadcasters, including the Company. While creating substantial
opportunities for the Company, the increased regulatory flexibility imposed by
the 1996 Act and the removal of previous station ownership limitations have
sharply increased the competition for and prices of stations. The 1996 Act also
frees telephone companies, cable companies and others from some of the
restrictions which have previously precluded them from involvement in the
provision of video services. The 1996 Act may also have other effects on the
competition the Company faces, either in individual markets or in making
acquisitions.
IMPACT OF NEW TECHNOLOGIES
The FCC has taken a number of steps to implement digital television ("DTV")
broadcasting service in the United States. In December 1996, the FCC adopted a
DTV broadcast standard and, in April 1997, made decisions in several pending
rulemaking proceedings that establish service rules and a plan for implementing
DTV. The FCC adopted a DTV Table of Allotments that provides all authorized
television stations with a second channel on which to broadcast a DTV signal.
The FCC has attempted to provide DTV coverage areas that are comparable to
stations' existing service areas. The FCC has ruled that television broadcast
licensees may use their digital channels for a wide variety of services such as
high-definition television, multiple standard definition television programming,
audio, data, and other types of communications, subject to the requirement that
each broadcaster provide at least one free video channel equal in quality to the
current technical standard.
Initially, DTV channels will be located in the range of channels from
channel 2 through channel 51. The FCC is requiring that affiliates of ABC, CBS,
Fox and NBC in the top 10 television markets begin digital broadcasting by May
1, 1999 (the stations affiliated with these networks in the top 10 markets have
voluntarily committed to begin digital broadcasting within 18 months), and that
affiliates of these networks in markets 11 through 30 begin digital broadcasting
by November 1999. The FCC's plan calls for the DTV transition period to end in
the year 2006, at which time the FCC expects that (i) DTV channels will be
clustered either in the range of channels 2 through 46 or channels 7 through 51;
and (ii) television broadcasters will have ceased broadcasting on their
non-digital channels, allowing that spectrum to be recovered by the government
for other uses. The FCC has stated that it will open a separate proceeding to
consider the recovery of television channels 60 through 69 and how those
frequencies will be used after they are eventually recovered from television
broadcasters. Additionally, the FCC will open a separate proceeding to consider
to what extent the cable must-carry requirements will apply to DTV signals.
Implementation of digital television will improve the technical quality of
television signals received by viewers. Under certain circumstances, however,
conversion to digital operation may reduce a station's geographic coverage area
or result in some increased interference. The FCC's DTV allotment plan may also
result in UHF stations having considerably less signal power within their
service areas than present VHF stations that move to DTV channels. The Company
has filed with the FCC a petition for recon-
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sideration of the FCC's DTV allotment plan because of its concerns with respect
to the relative DTV signal powers of VHF/UHF and UHF/UHF stations.
Implementation of digital television will also impose substantial additional
costs on television stations because of the need to replace equipment and
because some stations will need to operate at higher utility costs. The FCC is
also considering imposing new public interest requirements on television
licensees in exchange for their receipt of DTV channels. The Company cannot
predict what future actions the FCC might take with respect to DTV, nor can it
predict the effect of the FCC's present DTV implementation plan or such future
actions on the Company's business.
Further advances in technology may also increase competition for household
audiences and advertisers. The video compression techniques now under
development for use with current cable television channels or direct broadcast
satellites which do not carry local television signals (some of which commenced
operation in 1994) are expected to reduce the bandwidth which is required for
television signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new channels
and encourage the development of increasingly specialized "niche" programming.
This ability to reach a very defined audience may alter the competitive dynamics
for advertising expenditures. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations. See "Business of
Sinclair-Competition" in Sinclair's Form 8-K dated June 27, 1997, which is
incorporated by reference herein.
GOVERNMENTAL REGULATIONS; NECESSITY OF MAINTAINING FCC LICENSES
The broadcasting industry is subject to regulation by the FCC pursuant to
the Communications Act. Approval by the FCC is required for the issuance,
renewal and assignment of station operating licenses and the transfer of control
of station licensees. In particular, the Company's business will be dependent
upon its continuing to hold broadcast licenses from the FCC. While in the vast
majority of cases such licenses are renewed by the FCC, there can be no
assurance that the Company's licenses or the licenses owned by the
owner-operators of the stations with which the Company has LMAs will be renewed
at their expiration dates. A number of federal rules governing broadcasting have
changed significantly in recent years and additional changes may occur,
particularly with respect to the rules governing digital television multiple
ownership and attribution. The Company cannot predict the effect that these
regulatory changes may ultimately have on the Company's operations. Additional
information regarding governmental regulation is set forth under "Business of
Sinclair-Federal Regulation of Television and Radio Broadcasting" in Sinclair's
Form 8-K dated June 27, 1997, which is incorporated by reference herein.
MULTIPLE OWNERSHIP RULES AND EFFECT ON LMAS
On a national level, FCC rules and regulations generally prevent an entity
or individual from having an attributable interest in television stations that
reach in excess of 35% of all U.S. television households (for purposes of this
calculation, UHF stations are credited with only 50% of the television
households in their markets). The Company currently reaches approximately 9% of
U.S. television households using the FCC's method of calculation. On a local
level, the "duopoly" rules prohibit attributable interests in two or more
television stations with overlapping service areas. There are no national limits
on ownership of radio stations, but on a local level no entity or individual can
have an attributable interest in more than five to eight stations (depending on
the total number of stations in the market), with no more than three to five
stations (depending on the total allowed) broadcasting in the same band (AM or
FM). There are limitations on the extent to which programming can be simulcast
through LMA arrangements, and LMA arrangements may be counted in determining the
number of stations that a single entity may control. FCC rules also impose
limitations on the ownership of a television and radio station in the same
market, though such cross-ownership is permitted on a limited basis in larger
markets.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other entity. In the case of
corporations holding broadcast licenses, the interests of officers, directors
and those who, directly or indirectly, have the right to vote 5% or more of
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the corporation's voting stock (or 10% or more of such stock in the case of
insurance companies, certain regulated investment companies and bank trust
departments that are passive investors) are generally deemed to be attributable,
as are positions as an officer or director of a corporate parent of a broadcast
licensee. The FCC has proposed changes to these attribution rules. See "Business
of Sinclair-Federal Regulation of Television and Radio Broadcasting" in
Sinclair's Form 8-K dated June 27, 1997, which is incorporated by reference
herein.
The FCC has initiated rulemaking proceedings to consider proposals to
modify its television ownership restrictions, including ones that may permit the
ownership, in some circumstances, of two television stations with overlapping
service areas. The FCC is also considering in these proceedings whether to adopt
restrictions on television LMAs. The "duopoly" rules currently prevent the
Company from acquiring the FCC licenses of television stations with which it has
LMAs in those markets where the Company owns a television station. In addition,
if the FCC were to decide that the provider of programming services under an LMA
should be treated as the owner of the television station and if it did not relax
the duopoly rules, or if the FCC were to adopt restrictions on LMAs without
grandfathering existing arrangements, the Company could be required to modify or
terminate certain of its LMAs. In such an event, the Company could be required
to pay termination penalties under certain of its LMAs. 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. All of the Company's LMAs
were entered into prior to November 5, 1996, but six were entered into after
enactment of the 1996 Act. See "Business of Sinclair-Federal Regulation of
Television and Radio Broadcasting" in Sinclair's Form 8-K dated June 27, 1997,
which is incorporated by reference herein. The LMAs entered into after enactment
of the 1996 Act have terms expiring May 31, 2006. Further, if the FCC were to
find 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
could be set for hearing, the outcome of which could be a fine or, under certain
circumstances, loss of the applicable FCC license.
Petitions have been filed with the FCC to deny the application for
assignment of the license for WFBC in Anderson, South Carolina from River City
to Glencairn and the application for assignment of the license of WLOS in
Asheville, North Carolina from River City to the Company. The Company currently
provides programming to WFBC pursuant to its LMA with River City and intends to
provide programming to WFBC pursuant to an LMA with Glencairn after acquisition
of the License Assets of WFBC by Glencairn. The petitions claim that the
acquisition of the license of WFBC by Glencairn would violate the FCC's
cross-interest policy in light of the Company's LMA with and option to acquire
the License Assets of WLOS in Asheville, North Carolina and in light of the
equity interest in Glencairn held by relatives of the Controlling Stockholders.
In addition, an informal objection has been made to the application to assign
the license of KRRT in Kerrville, Texas to Glencairn and a petition has been
filed to deny the application to assign the license of KABB in San Antonio to
the Company. Although the specific nature of the objection to the application to
assign the license to Glencairn is unclear, the objection generally raises
questions concerning the cross-interest policy as it relates to LMAs between
Glencairn and Sinclair. See "Business of Sinclair-Federal Regulation of
Broadcasting-Ownership Matters" in Sinclair's Form 8-K dated June 27, 1997,
which is incorporated by reference herein. The petition to deny the KABB
application claims that the acquisition of the license of KABB by the Company
and the acquisition of the license of KRRT by Glencairn would violate the FCC's
cross- interest policy in light of the Company's LMA with KRRT and in light of
the equity interest in Glencairn held by relatives of the Controlling
Stockholders. Additionally, a petition has been filed to deny the
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application to assign WTTV and WTTK in the Indianapolis DMA from River City to
the Company. Although the petition to deny does not challenge the assignments of
WTTV and WTTK to the Company, it alleges that station WIIB in the Indianapolis
DMA should be deemed an attributable interest of the Controlling Stockholders
(resulting in a violation of the FCC's local television ownership restrictions
when coupled with the Company's acquisition of WTTV and WTTK) even though the
Controlling Stockholders have agreed to transfer their voting stock in WIIB to a
third party. The Company has asked the FCC to withhold action on the
applications for the Company to acquire WTTV and WTTK, and for the Controlling
Stockholders to transfer their voting stock in WIIB, pending the outcome of the
FCC's rulemaking proceeding concerning the cross-interest policy.
The Company is unable to predict (i) the ultimate outcome of possible
changes to the FCC's LMA and multiple ownership rules or the resolution of the
above-described petitions to deny or (ii) the impact such factors may have upon
the Company's broadcast operations. Grant of the petitions to deny could draw
into question the regulatory treatment of the Company's LMAs in markets other
than those directly affected. As a result of either regulatory changes or grant
of the petitions, the Company could be required to modify or terminate some or
all of its LMAs, resulting in termination penalties and/or divestitures of
broadcast properties. In addition, the Company's competitive position in certain
markets could be materially adversely affected. Thus, no assurance can be given
that the changes to the FCC rules or the resolution of these petitions to deny
will not have a material adverse effect upon the Company.
LMAS-RIGHTS OF PREEMPTION AND TERMINATION
All of the Company's LMAs allow, in accordance with FCC rules, regulations
and policies, preemptions of the Company's programming by the owner-operator and
FCC licensee of each station with which the Company has an LMA. In addition,
each LMA provides that under certain limited circumstances the arrangement may
be terminated by the FCC licensee. Accordingly, the Company cannot be assured
that it will be able to air all of the programming expected to be aired on those
stations with which it has an LMA or that the Company will receive the
anticipated advertising revenue from the sale of advertising spots in such
programming. Although the Company believes that the terms and conditions of each
of its LMAs should enable the Company to air its programming and utilize the
programming and other non-broadcast license assets acquired for use on the LMA
stations, there can be no assurance that early terminations of the arrangements
or unanticipated preemptions of all or a significant portion of the programming
by the owner-operator and FCC licensee of such stations will not occur. An early
termination of one of the Company's LMAs, or repeated and material preemptions
of programming thereunder, could adversely affect the Company's operations. In
addition, the Company's LMAs expire on various dates from March 27, 2000 to May
31, 2006, unless extended or earlier terminated. There can be no assurance that
the Company will be able to negotiate extensions of its arrangements on terms
satisfactory to the Company.
In certain of its LMAs, the Company has agreed to indemnify the FCC
licensee against certain claims (including trademark and copyright infringement,
libel or slander and claims relating to certain FCC proceedings or
investigations) that may arise against the FCC licensee as a result of the
arrangement.
NET LOSSES
The Company experienced net losses of $7.9 million and $2.7 million during
1993 and 1994, respectively, net income of $76,000 in 1995 and net income of
$1.1 million in 1996 (a net loss of $29.0 million in 1996 on a pro forma basis
reflecting the 1996 Acquisitions, the issuance of the 1997 Notes and the
Offering). The Company experienced a net loss of $7.6 million during the quarter
ended March 31, 1997. The losses include significant interest expense as well as
substantial non-cash expenses such as depreciation, amortization and deferred
compensation. Notwithstanding the slight net income in 1995 and 1996, the
Company expects to experience net losses in the future, principally as a result
of interest expense, amortization of programming and intangibles and
depreciation.
THE TRUST HAS NO INDEPENDENT BUSINESS OPERATIONS
The Trust has no independent business operations. Accordingly, the ability
of the Trust to pay amounts due on the New Preferred Securities is solely
dependent upon KDSM, Inc.'s making payments on the KDSM Senior Debentures as and
when required. The ability of KDSM, Inc. to make such
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payments is dependent on cash flow and earnings from its operations (which
consist of the operation of KDSM-TV in Des Moines, Iowa) and Sinclair's payment
of dividends on the Parent Preferred. If KDSM, Inc.'s business operations result
in net losses or negative cash flow, KDSM, Inc. may not be able to pay interest
on the KDSM Senior Debentures even if Sinclair makes payments on the Parent
Preferred because the dividend rate on the Parent Preferred is only one
percentage point higher than the interest rate on the KDSM Senior Debentures.
HIGH LEVERAGE OF KDSM, INC.
KDSM, Inc. has indebtedness (consisting of the KDSM Senior Debentures) that
is very substantial in relation to its total stockholder's equity. As of
December 31, 1996, and after giving pro forma effect to the Old Securities
Offering, KDSM, Inc. would have had outstanding long-term indebtedness of
approximately $200 million (consisting of KDSM Senior Debentures' and
stockholder's equity of $49.7 million. Under the KDSM Senior Debenture
Indenture, KDSM, Inc. will be able to incur additional indebtedness subject to
limitations contained therein. See "Description of the New KDSM Senior
Debentures-Certain Covenants- Limitation on Indebtedness." In addition, the
Company has received a third-party appraisal valuing KDSM, Inc.'s assets (other
than the Parent Preferred and the Common Securities) at $50.2 million.
Accordingly, it is unlikely that the value of the operating assets of KDSM, Inc.
will be sufficient to redeem the New KDSM Senior Debentures at maturity or to
make interest payments if Sinclair does not make the required payments on the
New Parent Preferred. Accordingly, if Sinclair does not redeem the New Parent
Preferred upon maturity in 2009, it is unlikely that KDSM, Inc. will be able to
redeem the New KDSM Senior Debentures at maturity. In addition, KDSM, Inc. will
rely in significant part on dividend payments on the Parent Preferred to fund
its interest payments under the KDSM Senior Debentures. If Sinclair elects not
to make such dividend payments, KDSM, Inc. may not be able to make such interest
payments and also properly fund its operations. Furthermore, the dividend rate
on the Parent Preferred is only one percentage point higher than the interest
rate on the KDSM Senior Debentures, and if KDSM, Inc.'s cash flow (other than
dividend payments on the Parent Preferred) is negative, then the dividend
payments may not be sufficient to cover the interest payments on the KDSM Senior
Debentures. As described under "-Tax Event, Investment Company Act Event," upon
the occurrence of a Tax Event, Sinclair will have the option to cause the
distribution of New KDSM Senior Debentures in exchange for New Preferred
Securities, which would be fully and unconditionally guaranteed by Sinclair on a
junior subordinated basis pursuant to the New Parent Debenture Guarantee. The
Bank Credit Agreement and the Existing Notes currently restrict Sinclair from
causing such a distribution.
RELIANCE ON TELEVISION OPERATIONS IN ONE MARKET
KDSM, Inc.'s only assets other than the Parent Preferred are the License
Assets and Non-License Assets used in the operation of television station
KDSM-TV in Des Moines, Iowa. KDSM, Inc.'s 1996 broadcast cash flow of $3.7
million was derived solely from its LMA with KDSM-TV. Accordingly, KDSM, Inc.'s
financial condition is highly dependent on the television industry, which can be
affected by the same risks referred to in this "Risk Factors" section, and on
the local economic conditions in Des Moines, Iowa. A recession in the Des
Moines, Iowa area could have a material adverse effect on the financial
condition of KDSM, Inc. and its ability to make payments on the KDSM Senior
Debentures.
ABILITY OF KDSM, INC. TO TRANSFER KDSM-TV
Pursuant to the KDSM Senior Debenture Indenture, KDSM, Inc. is permitted to
transfer the assets of KDSM-TV (the "KDSM Transferred Assets") whether or not
they constitute all or substantially all of its assets (without regard to the
Parent Preferred and the Common Securities), in exchange for properties or
assets that will be used in the business of operating one or more television or
radio broadcasting stations or assets related thereto (the "Received Assets")
without the transferee of such assets from KDSM, Inc. (the "Transferee")
becoming obligated under the New KDSM Senior Debentures, the KDSM Senior
Debenture Indenture or the Collateral Documents (as defined in "Certain
Definitions") provided that (i) KDSM, Inc. shall deliver to the Debenture
Trustee a written opinion from an investment banking firm of national standing
or other financial services firm experienced in such
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matters to the effect that the Fair Market Value of the Received Assets is equal
to at least the greater of (a) 90% of the Fair Market Value of the KDSM
Transferred Assets or (b) $50 million, (ii) both the Received Assets (if
considered as a separate entity) and KDSM, Inc. after such transaction on a pro
forma basis would have had positive Operating Cash Flow for at least its two
prior fiscal years and any three, six or nine month interim period on an actual
and pro forma basis, and (iii) there shall have been no material adverse change
in the Received Assets since the latter of the end of its last fiscal year or
any subsequent three, six or nine month interim period.
Although the Received Assets will have a Fair Market Value at least equal
to 90% of the Fair Market Value of the KDSM Transferred Assets based on a third
party market appraisal, there is no requirement that the cash flow or earnings
of KDSM, Inc. after such transaction be equal to or greater than the cash flow
or earnings of KDSM, Inc. prior to such transaction. In addition, although the
Received Assets are required to have a positive cash flow for the two prior
fiscal years, there can be no assurance that the Received Assets will have
positive cash flow after the transaction is completed. In addition, the
businesses underlying the Received Assets will likely be subject to the same
risks described in this "Risk Factors" section related to KDSM, Inc. and the
Company, and such risks may be significantly greater with respect to the
Received Assets. The Received Assets may also consist of radio broadcast
properties which may be subject to additional risks related to that business
including competitive risks of the radio industry and governmental regulations.
The Received Assets also may be subject to other significant business, legal and
other risks as to which KDSM, Inc. is not subject. See "Description of New KDSM
Senior Debentures-Certain Covenants of KDSM, Inc.-Merger, Consolidation and Sale
of Assets."
CLASSIFICATION AS DEBT; DEDUCTIBILITY OF INTEREST
Sinclair believes, based on the advice of its counsel, that the New KDSM
Senior Debentures will be treated as indebtedness for United States federal
income tax purposes, and that KDSM, Inc. will be able to deduct interest paid on
the New KDSM Senior Debentures. The IRS may, however, attempt to treat the New
KDSM Senior Debentures as equity rather than indebtedness for tax purposes. If
the IRS were successful in such an attempt, interest paid on the New KDSM Senior
Debentures would not be deductible, which would in turn give rise to a Tax
Event. Upon the occurrence of a Tax Event, KDSM, Inc. has the option to redeem
the New KDSM Senior Debentures for cash at a price of 105.813% of the aggregate
principal amount of the KDSM New Senior Debentures redeemed plus accrued but
unpaid interest or, in the circumstances described elsewhere in this Prospectus,
to cause the Trust to be dissolved with each holder of the New Preferred
Securities receiving its pro rata share of the New KDSM Senior Debentures held
by the Trust. See "-Tax Event; Investment Company Act Event."
WITHHOLDING TAX RISK FOR NON-U.S. HOLDERS
Classification of the New KDSM Senior Debentures as equity would result in
the imposition of a withholding tax on interest payments made by KDSM, Inc. to
the extent that such payments are allocable to Non-U.S. Holders (as defined in
"Certain Federal Income Tax Consequences-Consequences for Non-U.S. Holders") of
the New Preferred Securities. See "Certain Federal Income Tax
Consequences-Consequences for Non-U.S. Holders." In addition, IRS regulations
permit the IRS to recharacterize certain conduit financing transactions for
purposes of the United States federal withholding tax rules that apply to
Non-U.S. Holders of stock or securities. The Company believes, based on advice
of counsel, that these regulations should not apply to the New KDSM Senior
Debentures. If the IRS were successful in an attempt to apply such regulations
to the New KDSM Senior Debentures, interest on the New KDSM Senior Debentures
that would otherwise be exempt from United States federal withholding tax could
be treated as dividends subject to withholding tax at a 30 percent rate or such
lower rate as may be specified by an applicable income tax treaty. See "Certain
Federal Income Tax Consequences-Consequences for Non-U.S. Holders."
OPTION TO EXTEND DISTRIBUTION PAYMENT PERIODS
Sinclair has the right to defer the dividend payments on the New Parent
Preferred from time to time for up to three consecutive quarters. KDSM, Inc. has
a similar right to defer interest payments on the New KDSM Senior Debentures for
up to three consecutive quarters if Sinclair defers dividend
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payments on the New Parent Preferred and, in addition, also has the right to
defer such payments on the New KDSM Senior Debentures for one quarter even if
KDSM, Inc. receives dividends on the New Parent Preferred. During any such
Interest Extension Period, quarterly distributions on the New Preferred
Securities would be deferred by the Trust; provided, however, that additional
distributions would continue to accrue on such deferred distributions and would
compound quarterly. If the Trust, KDSM, Inc. and Sinclair exercise their
deferral rights or if the market for the New Preferred Securities perceives that
the Trust, KDSM, Inc. and Sinclair are likely to exercise such rights, then, the
market price of the New Preferred Securities may be materially adversely
affected. See "Description of the New Preferred Securities-Distributions" and
"Description of the New KDSM Senior Debentures-Option to Extend Interest Payment
Period."
LIMITED RIGHTS UNDER THE NEW PARENT GUARANTEE
The New Parent Guarantee does not guarantee payments under the New
Preferred Securities except to the extent the Trust has funds legally available
to make such payments. If KDSM, Inc. were to default on its obligations under
the KDSM Senior Debenture Indenture, the Trust would not be able to make
distributions or redeem the New Preferred Securities, and in such event holders
of the New Preferred Securities would not be able to rely upon the New Parent
Guarantee for payment of such amounts because Sinclair is not guaranteeing the
payment of amounts owing under the New Preferred Securities except to the extent
the Trust has legally available funds to make such payment. Instead, holders of
the New Preferred Securities would be required to rely on the enforcement by the
Property Trustee of its rights (i) as the registered holder of the New KDSM
Senior Debentures, against KDSM, Inc. pursuant to the terms of the KDSM Senior
Debenture Indenture and on their rights thereunder and (ii) under the Pledge
Agreement. Furthermore, if Sinclair is unable to make timely payments on the New
Parent Preferred there is a substantial likelihood that Sinclair would also be
unable to make timely payments under the New Parent Guarantee. See "Description
of the New Parent Guarantee-Status of the New Parent Guarantee."
TAX EVENT; INVESTMENT COMPANY ACT EVENT
The trust may redeem the New Preferred Securities prior to their stated
maturity if a Tax Event or an Investment Company Act Event occurs.
Alternatively, the Trust may be dissolved and the New KDSM Senior Debentures
distributed in exchange for New Preferred Securities if a Tax Event occurs. The
Bank Credit Agreement and the Existing Notes currently prohibit Sinclair or its
subsidiaries from exercising any of the options described above. See
"-Classification of Debt; Deductibility of Interest" and "Certain United States
Federal Income Tax Consequences-Distribution of the New KDSM Senior Debentures"
for a description of the consequences related to the distribution of the New
KDSM Senior Debentures.
LIMITED VOTING RIGHTS; REMEDIES UPON DEFAULT UNDER NEW PARENT PREFERRED AND NEW
KDSM SENIOR DEBENTURES
Holders of New Preferred Securities will have limited voting rights and,
except upon the occurrence of an Event of Default under the Trust Agreement,
will not be entitled to vote to appoint, remove or replace the Property Trustee
or the Administrative Trustees (both defined as described under "Description of
the New Preferred Securities") or to increase or decrease the number of
Administrative Trustees. If an Event of Default under the Trust Agreement has
occurred and is continuing, the Property Trustee or the Administrative Trustees
may be removed by the holders of a majority in aggregate Liquidation Value of
the outstanding Preferred Securities. If any proposed amendment to the Trust
Agreement provides for, or the Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the holders of the Preferred Securities, whether by way of amendment to the
Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination
of the Trust, other than pursuant to the Trust Agreement, then the holders of
outstanding Preferred Securities will be entitled to vote on such amendment or
proposal, and such amendment or proposal shall not be effective except with the
approval of the holders of at least a majority in aggregate Liquidation Value of
such outstanding Preferred Securities (100% of the holders in certain
circumstances).
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See "Description of the New Preferred Securities-Voting Rights." In addition,
pursuant to the Trust Agreement the holders of a majority in aggregate
Liquidation Value of the Preferred Securities (100% of the holders in certain
circumstances) are required to consent to (i) any amendment to the KDSM Senior
Debenture Indenture, (ii) any waiver of an Event of Default under the KDSM
Senior Debenture Indenture, (iii) the issuance by the Trust of any additional
Equity Interest (as defined in "Certain Definitions") or the incurrence by the
Trust of any Indebtedness (as defined in "Certain Definitions"), (iv) any
liquidation of the Trust in the event of the bankruptcy of Sinclair or its
subsidiaries which collectively own 50% or more of Sinclair's consolidated
assets, provided that under current bankruptcy law the holders of the Preferred
Securities may not be able to exercise this right and (v) (pursuant to the
Pledge Agreement) any action or waiver of any rights taken by KDSM, Inc. under
the Parent Preferred. In addition, the holders of a majority in aggregate
Liquidation Value of the Preferred Securities will have the right to cause the
Trust to be dissolved at the maturity of the Preferred Securities. However,
certain modifications may be made to the KDSM Senior Debenture Indenture without
the consent of the holders of the Preferred Securities. See "Description of the
New KDSM Senior Debentures-Modification of the KDSM Senior Debenture Indenture."
Upon the occurrence of a Voting Rights Triggering Event under the Parent
Preferred, KDSM, Inc., as the holder of the Parent Preferred, will be entitled
to elect two directors to Sinclair's board of directors. KDSM, Inc. will agree
(pursuant to the Pledge Agreement) that it will elect the nominees of the Trust
which pursuant to the Trust Agreement will nominate the holders of a majority of
the aggregate Liquidation Value of outstanding Preferred Securities to such
directorships. The holders of the Parent Preferred will have no other remedies
upon a Voting Rights Triggering Event under the Parent Preferred. Accordingly,
since the Trust's ability to make payments on the Preferred Securities is highly
dependent on Sinclair's making payments under the Parent Preferred, the ultimate
remedy for the holders of the Preferred Securities upon an Event of Default
under the Preferred Securities will be to elect two directors to the board of
directors of Sinclair and the exercise of the Trust's rights as a creditor of
KDSM, Inc.
Upon the occurrence of an Event of Default under the KDSM Senior Debenture
Indenture, the Trust will have remedies as a creditor of KDSM, Inc. As described
under "-High Leverage of KDSM, Inc.," it is unlikely that the assets of KDSM,
Inc. (other than the Parent Preferred) will be sufficient to satisfy the
obligations of KDSM, Inc. under the KDSM Senior Debenture Indenture. Moreover,
as described above, the ultimate remedy of the holders of the Preferred
Securities upon a Voting Rights Triggering Event under the Parent Preferred will
be to elect two directors to Sinclair's board of directors.
NEW PARENT DEBENTURE GUARANTEE
The terms of Sinclair's indebtedness currently restrict the incurrence of
additional indebtedness and it is likely that on the date that the Company would
seek to cause the New Parent Debenture Guarantee to be declared effective upon a
Tax Event, Sinclair would be subject to restrictions on additional indebtedness.
The New Parent Debenture Guarantee may not be declared effective if such
effectiveness would result in a violation of the terms of the Existing Notes or
the Bank Credit Agreement.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if a court were to find that at the
time of the effectiveness of the New Parent Debenture Guarantee (i) Sinclair was
insolvent or rendered insolvent by reason thereof, (ii) Sinclair was engaged, or
about to engage, in a business or transaction for which Sinclair's remaining
assets constitute unreasonably small capital, (iii) Sinclair intended to incur
or believed that it would incur debts beyond its ability to pay such debts as
they mature or (iv) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if in either case, after final
judgment, the judgment is unsatisfied), then the court could avoid the
effectiveness of the New Parent Debenture Guarantee in whole or in part as a
fraudulent conveyance or take other action detrimental to the holders of any New
Parent Debenture Guarantee. In such case, the holders could be required to
return the New Parent Debenture Guarantee to or for the benefit of existing or
future creditors of Sinclair. The measure of insolvency for purposes of the
foregoing will vary depending on the law of the jurisdiction which is being
applied. Generally, an entity would be
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considered insolvent if, at the time it incurs any obligation (i) the sum of its
debts, including contingent liabilities, was greater than the fair salable value
of its assets at a fair valuation, (ii) the present fair salable value of its
assets was less than the amount that would be required to pay its probable
liability on its existing debts and liabilities, including contingent
liabilities, as they become absolute and mature, or (iii) it is incurring debt
beyond its ability to pay as such debt matures.
ABSENCE OF PUBLIC TRADING MARKET
There is no public market for the New Preferred Securities. The Trust has
been advised by the Initial Purchasers that the Initial Purchasers intend to
make a market in the New Preferred Securities; however, they are under no
obligation to do so and may discontinue any market-making activities at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the New Preferred Securities or that an active public market will
develop. If any active trading market does not develop or is not maintained, the
market price and liquidity of the New Preferred Securities may be adversely
affected. In addition, there is no public market for the New KDSM Senior
Debentures, the New Parent Preferred or the New Parent Debenture Guarantee that
may be issued to the holders of New Preferred Securities in certain
circumstances. No assurance can be given as to the liquidity of the trading
market for any such securities if they are issued to the holders of New
Preferred Securities for any reason. If an active public market does not develop
for such securities, the market price and liquidity of such securities may be
adversely affected. The Company does not intend to apply to list the New
Preferred Securities on any national securities exchange.
TRADING CHARACTERISTICS OF THE NEW PREFERRED SECURITIES
If the New Preferred Securities trade, they are expected to trade at a
price that takes into account the value, if any, of accrued and unpaid
distributions; thus, purchasers will not pay for, and sellers will not receive,
any accrued and unpaid distributions with respect to their undivided interests
in the New KDSM Senior Debentures owned through the New Preferred Securities
that are not included in the trading price of the New Preferred Securities.
The New Preferred Securities are fixed-income securities. Neither the
stated value nor the Liquidation Value of the New Preferred Securities is
necessarily indicative of the price at which the New Preferred Securities will
actually trade at or after the time of the issuance, and the New Preferred
Securities may trade at prices below their stated value or Liquidation Value.
The market price can be expected to fluctuate with changes in the fixed income
markets and economic conditions, the financial condition and prospects of the
Company and other factors that generally influence the market prices of debt and
other fixed-income securities.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD PREFERRED SECURITIES
The Old Preferred Securities have not been registered under the Securities
Act or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Old Preferred
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Preferred
Securities that remain outstanding will not be entitled to any rights to have
such Old Preferred Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions as provided in the Registration Rights Agreement). See
"Description of the Old Securities." Neither the Company, KDSM nor the Trust
intends to register under the Securities Act any Old Preferred Securities that
remain outstanding after consummation of the Exchange Offer (subject to such
limited exceptions, if applicable).
To the extent that Old Preferred Securities are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Old Preferred
Securities could be adversely affected. In addition, although the Old Preferred
Securities have been designated for trading in the Private Offerings, Resale
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and Trading through Automatic Linkages ("PORTAL") market, to the extent that Old
Preferred Securities are tendered and accepted in connection with the Exchange
Offer, any trading market for Old Preferred Securities that remain outstanding
after the Exchange Offer could be adversely affected.
The New Preferred Securities and any Old Preferred Securities that remain
outstanding after consummation of the Exchange Offer will constitute a single
series of Preferred Securities under the Trust Agreement and, accordingly, will
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Amended and Restated Trust
Agreement. See "Description of the New Preferred Securities."
The Company, KDSM, Inc. and the Trust have agreed that cash penalty amounts
may be payable to the holders of the Old Preferred Securities if, among other
things, (i) the Registration Statement of which this Prospectus forms a part is
not filed with the Commission by May 11, 1997, (ii) the Commission does not
declare such Registration Statement effective by July 10, 1997 or (iii) the
Exchange Offer is not consummated by August 8, 1997. See "Description of The Old
Securities" and "The Exchange Offer."
EXCHANGE OFFER PROCEDURES
Issuance of the New Preferred Securities in exchange for Old Preferred
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Trust of such Old Preferred Securities, a properly completed and
duly executed Consent and Letter of Transmittal and all other required
documents. Therefore, holders of the Old Preferred Securities desiring to tender
such Old Preferred Securities in exchange for New Preferred Securities should
allow sufficient time to ensure timely delivery. The Trust is under no duty to
give notification of defects or irregularities with respect to the tenders of
Old Preferred Securities for exchange.
RATINGS
The Old Preferred Securities are rated b2 by Moody's and B by Standard &
Poor's. It is expected that the New Preferred Securities will be rated b2 by
Moody's and B by Standard & Poor's. There can be no assurance that any rating
will remain in effect for the New Preferred Securities for any given period of
time or that a rating will not be lowered or withdrawn by the assigning rating
agency if, in its judgment, circumstances so warrant. There can be no assurance
whether any other rating agency will rate the New Preferred Securities, or if
one does, what rating would be assigned by such rating agency. A security rating
is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organization.
FORWARD-LOOKING STATEMENTS
This Prospectus (including the documents or portions thereof incorporated
herein by reference) contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth under
"Summary" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation of KDSM-TV and KDSM, Inc," as well as within this
Prospectus generally and in the materials incorporated herein by reference. In
addition, when used in this Prospectus, the words "intends to," "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties. Actual results in the future could differ materially and
adversely from those described in the forward-looking statements as a result of
various important factors, including 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, volatility in programming costs,
the availability of suitable acquisitions on acceptable terms and the other risk
factors set forth above and the matters set forth in this Prospectus generally.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
45
<PAGE>
USE OF PROCEEDS
Neither the Company, KDSM, Inc. nor the Trust will receive any cash
proceeds from the issuance of the New Preferred Securities offered hereby. The
New Preferred Securities will be exchanged for Old Preferred Securities in like
Liquidation Values. Old Preferred Securities that are exchanged will be retired
and cancelled. The proceeds from the sale of the Old Preferred Securities were
used by the Trust to purchase $200 million of Old KDSM Senior Debentures issued
pursuant to the KDSM Senior Debenture Indenture. The proceeds from the sale of
the Old KDSM Senior Debentures were used by KDSM, Inc. to purchase the Old
Parent Preferred. The Company received approximately $194 million in net
proceeds from the sale of the Old Preferred Securities.
As required by the Bank Credit Agreement, a portion of the net proceeds of
the Old Securities Offering was used to reduce outstanding borrowings
thereunder, a portion of which may be reborrowed. As of July 3, 1997 (after
application of proceeds of the Old Securities Offering), the credit facilities
under the Bank Credit Agreement had an aggregate outstanding principal balance
of $600 million. Such amounts were borrowed to fund acquisitions and for general
corporate purposes. The Company used approximately $135 million of the net
proceeds of the Old Securities Offering to repay outstanding debt and utilized
the remaining proceeds, approximately $59 million, for general corporate
purposes including financing a portion of the acquisition of KUPN-TV. The
remainder of the funds for the acquisition of KUPN were provided by the
revolving credit facility under which the Company had no outstanding balance as
of July 3, 1997. The interest rate on the revolving credit facility was variable
and averaged 6.7% per year for the month ended May 31, 1997. See "Description of
Indebtedness."
DIVIDEND POLICY
The Company generally has not paid a cash dividend on its Common Stock and
does not expect to pay cash dividends on its Common Stock in the foreseeable
future. The Bank Credit Agreement, the Existing Indentures and agreements
governing other indebtedness of the Company generally prohibit the Company from
paying cash dividends on common stock and limit payment of dividends relating to
its capital stock. See "Risk Factors-Covenant Restrictions on Dividends and
Redemptions."
46
<PAGE>
HISTORICAL AND PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
The Company's consolidated ratios of earnings to fixed charges for each of
the periods indicated are set forth below:
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
------------ ---------- ------------ ---------- ------------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL
Income (loss) before provision (benefit)
for income taxes and extraordinary
items ................................. $ (5,840) $ 922 $ (3,387) $ 10,188 $ 8,067 $ (881) $(15,514)
Fixed charges(a) ........................ 12,997 12,852 25,418 39,253 84,314 10,896 28,275
--------- ------- --------- -------- ---------- ------- ------
Earnings available for fixed charges ..... 7,157 13,774 22,031 49,441 92,381 10,015 12,761
Fixed charges ............................ 12,997 12,852 25,418 39,253 84,314 10,896 28,275
--------- ------- --------- -------- ---------- ------- ------
Ratio of earnings to fixed charges (b).... - 1.1 x - 1.3 x 1.1 x - -
--------- ------- --------- -------- ---------- ------- ------
PRO FORMA(c)
Income (loss) before provision (benefit)
for income taxes and extraordinary
items ................................. $ (42,088) $(22,839)
Fixed charges(a) ........................ 145,912 35,356
---------- --------
Earnings available for fixed charges ..... 103,824 12,517
Fixed charges ............................ 145,912 35,356
---------- ---------
Ratio of earnings to fixed charges (d).... - -
---------- --------
</TABLE>
- ----------
(a) Fixed charges consist of interest expense, which includes interest on all
debt and amortization of debt discount, deferred financing costs and
subsidiary trust minority interest expense.
(b) Earnings were inadequate to cover fixed charges for the years ended
December 31, 1992 and 1994, and for the three months ended March 31, 1996
and 1997. Additional earnings of $5,840, $3,387, $881, and $15,514 would
have been required to cover fixed charges in the years ended 1992 and 1994,
and the three months ended March 31, 1996 and 1997, respectively.
(c) The pro forma information in this table reflects the pro forma effect of
the completion of the Old Securities Offering (and the application of the
net proceeds thereof as set forth in "Use of Proceeds"), the issuance of
the 1997 Notes and the 1996 Acquisitions as if such transactions had
occurred and the beginning of the periods presented.
(d) Earnings were inadequate to cover fixed charges for the pro forma year
ended December 31, 1996 and pro forma three months ended March 31, 1997.
Additional earnings of $42,088 and $22,839 would have been required to
cover fixed charges for the pro forma year ended December 31, 1996 and pro
forma three months ended March 31, 1997.
This information is not presented separately for KDSM, Inc. because KDSM,
Inc. had no outstanding debt (other than the KDSM Senior Debentures) between
1992 and the present.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of Sinclair and, accordingly, the accounts of the Trust will be included in the
consolidated financial statements of Sinclair. The New Preferred Securities will
be presented as a separate line item in the consolidated balance sheet of
47
<PAGE>
Sinclair under mandatorily redeemable preferred stock and appropriate
disclosures about the New Preferred Securities, the New Parent Preferred, the
New Parent Guarantee and the New KDSM Senior Debentures will be included in the
notes to the consolidated financial statements. See "Capitalization of
Sinclair." For financial reporting purposes, Sinclair will record dividends on
the New Preferred Securities as distributions made or to be made to outside
investors of the Trust.
In February 1997, the Financial Accounting Standard Board released SFAS 128
"Earnings per Share." The new statement is effective December 15, 1997 and early
adoption is not permitted. When adopted, SFAS 128 will require the restatement
of prior periods and disclosure of basic and diluted earnings per share and
related computations. At the present time, management believes that the adoption
of SFAS 128 will not materially affect the Company's consolidated financial
statements.
CAPITALIZATION OF SINCLAIR
The following table sets forth, as of March 31, 1997, the capitalization of
the Company and the capitalization of the Company as adjusted to reflect the
issuance of the 1997 Notes and the application of the net proceeds thereof. The
information set forth below should be read in conjunction with the Pro Forma
Consolidated Financial Data of the Company located elsewhere in this Prospectus
and the year-end and first quarter historical consolidated financial statements
of the Company incorporated herein by reference.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
(DOLLARS IN THOUSANDS)
ACTUAL ADJUSTED
------------- ------------
<S> <C> <C>
Cash and cash equivalents ................................................ $ 36,705 $ 128,830(a)
=========== ============
Current portion of long-term debt ....................................... $ 65,487 $ 65,487
=========== ============
Long-term debt:
Term loans ............................................................ $ 536,000 536,000
Revolving credit facility ............................................. 103,125 -
Notes and capital leases payable to affiliates ........................ 12,007 12,007
Capital leases ......................................................... 33 33
Senior subordinated notes ............................................. 400,000 600,000
----------- ------------
1,051,165 1,148,040
----------- ------------
Company Obligated Mandatorily Redeemable Security of Subsidiary Trust
Holding Solely KDSM Senior Debentures ................................. 200,000 200,000
----------- ------------
Stockholders' equity (deficit):
Preferred Stock, par value $.01 per share; 1,138,138 shares issued and
outstanding ............................................................ 11 11
Class A Common Stock, par value $.01 per share; 6,937,827 shares issued
and outstanding ...................................................... 70 70
Class B Common Stock, par value $.01 per share; 27,850,581 shares issued
and outstanding ...................................................... 279 279
Additional paid-in capital ............................................. 255,576 255,576
Accumulated deficit ................................................... (26,546) (26,546)
Additional paid-in capital-equity put options ........................... 8,938 8,938
Additional paid-in capital-deferred compensation ........................ (1,012) (1,012)
----------- ------------
Total stockholders' equity .......................................... 237,316 237,316
----------- ------------
Total capitalization ................................................ $ 1,488,481 1,585,356
=========== ============
Net debt to Adjusted EBITDA(b) .......................................... 5.5x 5.3x
Net debt plus Company Obligated Mandatorily Redeemable Security of
Subsidiary Trust Holding Solely KDSM Senior Debentures to Adjusted
EBITDA(b) ............................................................... 6.6x 6.3x
</TABLE>
- ----------
(a) Amount does not reflect the acquisition of KUPN-TV. KUPN-TV was acquired in
May 1997 for additional cash payments of $80.0 million
(b) Net debt is defined as total debt less cash and cash equivalents.
48
<PAGE>
CAPITALIZATION OF KDSM, INC.
The following table sets forth, as of March 31, 1997, the capitalization
of KDSM, Inc. The information set forth below should be read in conjunction
with the Pro Forma Financial Data of KDSM, Inc. located elsewhere in this
Prospectus and the Historical Financial Statements of KDSM, Inc. and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
-----------------------
<S> <C>
Cash and cash equivalents ................................................ $ 1
=========
Indebtedness ............................................................... $ -
---------
Company Obligated Mandatorily Redeemable Security of Subsidiary Trust Hold-
ing Solely KDSM Senior Debentures 200,000
---------
Stockholders' equity:
Common stock, par value $.01 per share, 100 shares issued and outstanding -
Additional paid-in capital ............................................. 48,819
Retained earnings ...................................................... 975
---------
Total stockholders' equity .......................................... 49,794
---------
Total capitalization ............................................. $249,794
=========
</TABLE>
49
<PAGE>
SELECTED FINANCIAL INFORMATION OF
KDSM-TV AND KDSM, INC.
The selected historical financial information for the years ended December
31, 1992 and 1993 has been derived from the Predecessor's unaudited financial
statements of KDSM-TV (the "Predecessor"). The selected financial information
for the years ended December 31, 1994 and 1995, and for the five months ended
May 31, 1996, has been derived from the Predecessor's audited financial
statements and the selected financial statements for the seven months ended
December 31, 1996 have been derived from KDSM, Inc.'s audited financial
statements. The selected historical financial information for the three months
ended March 31, 1996 and 1997 has been derived from the unaudited financial
statements of the Predecessor and KDSM, Inc., respectively, and are included
elsewhere herein. The combined historical financial statements for, and as of,
the year ended December 31, 1996 are unaudited, but in the opinion of
management, such financial statements have been prepared on the same basis as
the financial statements included elsewhere herein and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for that
period. The statement of operations for the five months ended May 31, 1996 and
seven months ended December 31, 1996 are required as a result of the acquisition
of the station's Non-License Assets of the Predecessor by KDSM, Inc.; thereby
establishing a new accounting basis beginning June 1, 1996. Accordingly, results
of operations for the periods prior to June 1, 1996 are not comparable to
results for subsequent periods.
The information on the following page should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of KDSM-TV and KDSM, Inc." and KDSM-TV's and KDSM, Inc.'s
Consolidated Financial Statements included elsewhere in this Prospectus.
50
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF
KDSM-TV (THE "PREDECESSOR") AND KDSM, INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
PREDECESSOR -------------
YEARS ENDED DECEMBER 31, FIVE MONTHS
ENDED
-------------------------------------------- MAY 31,
1992 1993 1994 1995 1996
----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(a) .......................................... $ 5,273 $ 6,172 $ 6,422 $ 7,172 $ 3,478
Barter revenues ................................................... - - 426 306 85
-------- ------- ------- -------- -------
Total revenues ...................................................... 5,273 6,172 6,848 7,478 3,563
-------- ------- ------- -------- -------
Operating expenses, excluding depreciation and amortization ......... 3,021 3,161 3,347 3,489 1,928
Depreciation and amortization(b) .................................... 3,261 2,963 2,979 3,338 1,017
-------- ------- ------- -------- -------
Broadcast operating income .......................................... (1,009) 48 522 651 618
-------- ------- ------- -------- -------
Subsidiary trust minority interest expense(c) ..................... - - - - -
Dividend income ................................................... - - - - -
Interest and other income .......................................... (7) (45) - 12 -
-------- ------- ------- -------- -------
Income (loss) before allocation of consolidated federal income taxes
and state taxes ................................................... $ (1,016) $ 3 $ 522 $ 663 $ 618
======== ======= ======= ======== =======
Net income (loss) ................................................... $ (1,016) $ 3 $ 522 $ 663 $ 618
======== ======= ======= ======== =======
OTHER DATA:
Cash flows from operating activities(d) ........................... N/A N/A 2,679 2,813 987
Cash flows from investing activities(d) ........................... N/A N/A (140) (121) (29)
Cash flows from financing activities(d) ........................... N/A N/A (2,512) (2,686) (989)
Broadcast cash flow(e) ............................................. $ 1,778 $ 2,233 $ 2,908 $ 2,922 $ 1,034
Broadcast cash flow margin(f) ....................................... 33.7% 36.2% 45.3% 40.7% 29.7%
Adjusted EBITDA(g) ................................................ $ 1,623 $ 2,056 $ 2,551 $ 2,772 $ 744
Adjusted EBITDA margin(f) .......................................... 30.8% 33.3% 39.7% 38.7% 21.4%
After tax cash flow(h) ............................................. $ 1,616 $ 2,011 $ 2,551 $ 2,784 $ 744
After tax cash flow margin(f) ....................................... 30.6% 32.6% 39.7% 38.8% 21.4%
Program contract payments .......................................... $ 629 $ 955 $ 950 $ 1,217 $ 891
Capital expenditures ................................................ 276 113 140 139 29
Corporate overhead expense .......................................... 155 177 357 150 290
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
-------------
FIVE MONTHS
PREDECESSOR ENDED
YEARS ENDED DECEMBER 31, MAY 31,
1992 1993 1994 1995 1996
-------- ------ ------ ------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......................................... $ 6 $ 28 $ 56 $ 62 $ 31
Total assets ...................................................... 13,010 11,466 9,688 8,344 7,260
Company Obligated Mandatorily Redeemable Security of Subsidiary
Trust Holding Solely KDSM Senior Debentures(i) .................. - - - - -
Total equity of partnership 1992 to 1995, total stockholders equity
1996 and 1997 ................................................... 10,642 9,058 7,069 5,046 5,664
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
(Predecessor) (Company)
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(a) .......................................... $ 4,740 $ 8,218 $ 2,012 $ 2,135
Barter revenues ................................................... 119 204 33 78
------- -------- ------- --------
Total revenues ...................................................... 4,859 8,422 2,045 2,213
------- -------- ------- --------
Operating expenses, excluding depreciation and amortization ......... 2,071 3,999 970 1,157
Depreciation and amortization(b) .................................... 1,599 2,616 818 733
------- -------- ------- --------
Broadcast operating income .......................................... 1,189 1,807 257 323
------- -------- ------- --------
Subsidiary trust minority interest expense(c) ..................... - - - (1,210)
Dividend income ................................................... - - - 1,355
Interest and other income .......................................... - - - -
------- -------- ------- --------
Income (loss) before allocation of consolidated federal income taxes
and state taxes ................................................... $ 1,189 $ 1,807 $ 257 $ 468
======= ======== ======= ========
Net income (loss) ................................................... $ 705 $ 1,323 $ 257 $ 270
======= ======== ======= ========
OTHER DATA:
Cash flows from operating activities(d) ........................... 659 1,646 1,018 581
Cash flows from investing activities(d) ........................... (161) (190) (16) (206)
Cash flows from financing activities(d) ........................... (496) (1,484) (969) 206
Broadcast cash flow(e) ............................................. $ 2,692 $ 3,726 $ 653 $ 631
Broadcast cash flow margin(f) ....................................... 56.8% 45.3% 32.5% 29.6%
Adjusted EBITDA(g) ................................................ $ 2,546 $ 3,290 $ 590 $ 542
Adjusted EBITDA margin(f) .......................................... 53.7% 40.0% 29.3% 25.4%
After tax cash flow(h) ............................................. $ 2,062 $ 2,806 $ 590 $ 489
After tax cash flow margin(f) ....................................... 43.5% 34.1% 29.3% 22.9%
Program contract payments .......................................... $ 242 $ 1,133 $ 485 $ 514
Capital expenditures ................................................ 161 190 (16) (30)
Corporate overhead expense .......................................... 146 436 63 89
</TABLE>
<TABLE>
<CAPTION>
KDSM, INC.
--------------
SEVEN MONTHS
ENDED COMBINED
DECEMBER 31, HISTORICAL AS OF MARCH 31
1996 1996 1997
-------------- ------------ ----------
(UNAUDITED) (UNAUDITED)
<C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......................................... $ 3 $ 3 $ 1
Total assets ...................................................... 40,674 40,674 253,597
Company Obligated Mandatorily Redeemable Security of Subsidiary
Trust Holding Solely KDSM Senior Debentures(i) .................. - - 200,000
Total equity of partnership 1992 to 1995, total stockholders equity
1996 and 1997 ................................................... 37,516 37,516 49,794
</TABLE>
(Footnotes on following page)
51
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL INFORMATION OF KDSM-TV AND KDSM, INC.
(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.
(c) Subsidiary trust minority interest expense represents the distributions on
$200 million aggregate Liquidation Value of Preferred Securities at a
distribution rate of 11.625%.
(d) These items are financial statement disclosures in accordance with
Generally Accepted Accounting Principles and are also presented in the
Company's financial statements herein.
(e) "Broadcast cash flow" is defined as broadcast operating income plus
corporate overhead expense, depreciation and amortization, including both
tangible and intangible assets and program rights, 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. KDSM, Inc. has presented broadcast cash flow data, which KDSM, Inc.
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 KDSM,
Inc.'s 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) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Adjusted EBITDA margin" is defined as Adjusted
EBITDA divided by net broadcast revenues. "After tax cash flow margin" is
defined as after tax cash flow divided by net broadcast revenues.
(g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate overhead
expense and is a commonly used measure of performance for broadcast
companies. Adjusted EBITDA does not purport to represent cash provided by
operating activities as reflected in KDSM, Inc.'s statements of cash flow,
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.
(h) "After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization),
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.
(i) Company Obligated Mandatorily Redeemable Security of Subsidiary Trust
Holding Solely KDSM Senior Debentures represents $200 million aggregate
Liquidation Value of Preferred Securities, which carry a mandatory
redemption feature after twelve years.
52
<PAGE>
PRO FORMA FINANCIAL INFORMATION OF KDSM-TV AND KDSM, INC.
The following pro forma consolidated financial data of the Predecessor and
KDSM, Inc. include the unaudited pro forma consolidated statements of operations
for the year ended December 31, 1996 and for the three months ended March 31,
1997 (the "KDSM, Inc. Pro Forma Consolidated Statements of Operations"). The
unaudited KDSM, Inc. Pro Forma Statements of Operations are adjusted to give
effect to the Old Securities Offering as if it occurred at the beginning of each
period presented. The pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable. The KDSM, Inc.
Pro Forma Consolidated Financial Data should be read in conjunction with the
financial statements of KDSM-TV, a Division of River City Broadcasting, a
limited partnership (the Predecessor) and KDSM, Inc. and Subsidiary (the
Company) for the five months ended May 31, 1996 and the seven months ended
December 31, 1996, the financial statements of KDSM-TV for the years ended
December 31, 1994 and 1995 and the unaudited consolidated financial statements
of KDSM, Inc. for the period ended March 31, 1997, each appearing elsewhere in
this Prospectus. The unaudited KDSM, Inc. Pro Forma Consolidated Financial Data
do not purport to represent what KDSM, Inc.'s results of operations or financial
position would have been had the Old Securities Offering occurred on the dates
specified or to project KDSM Inc.'s results of operations or financial position
for or at any future period or date.
53
<PAGE>
KDSM-TV AND KDSM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREDECESSOR KDSM, INC.
FIVE MONTHS SEVEN MONTHS
ENDED ENDED COMBINED OLD SECURITIES
MAY 31, DECEMBER 31, COMPANIES OFFERING AS
1996 1996 1996 ADJUSTMENTS ADJUSTED
------------- -------------- ----------------------- ------------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions .............................. $3,478 $ 4,740 $ 8,218 $ 8,218
Revenues realized from barter arrangements. 85 119 204 204
--------- -------- ------- ---------
Total revenues ........................... 3,563 4,859 8,422 8,422
--------- -------- ------- ---------
OPERATING EXPENSES:
Programming and production .................. 509 627 1,136 1,136
Selling, general and administrative ......... 1,321 1,316 2,637 2,637
Expenses realized from barter arrangements . 98 128 226 226
Amortization of program contract costs and
net realizable value adjustments ......... 507 864 1,371 1,371
Depreciation and amortization of property
and equipment .............................. 233 191 424 424
Amortization of acquired intangible broad-
cast assets and other assets 277 544 821 $ 500 (a) 1,321
--------- -------- ------- ------------- ---------
Total operating expenses .................. 2,945 3,670 6,615 500 7,115
--------- -------- ------- ------------- ---------
Broadcast operating income (loss) ......... 618 1,189 1,807 (500) 1,307
--------- -------- ------- ------------- ---------
OTHER INCOME (EXPENSE):
Dividend income ........................... - - - 26,033 (b) 26,033
Subsidiary trust minority interest expense - - - (23,250)(c) (23,250)
--------- -------- ------- ------------- ---------
Income before provision (benefit) for in-
come taxes 618 1,189 1,807 2,283 4,090
ALLOCATION OF CONSOLIDATED
FEDERAL INCOME TAXES ..................... - (412) (412) (913)(d) (1,325)
STATE INCOME TAXES ........................... - (72) (72) - (72)
--------- -------- ------- ------------- ---------
NET INCOME ................................. $ 618 $ 705 $ 1,323 $ 1,370 $ 2,693
========= ======== ======= ============= =========
</TABLE>
- ----------
(a) To record amortization expense relating to offering costs for one year ($6
million over 12 years).
(b) To record dividend income relating to $206.2 million of aggregate
Liquidation Amount of Parent Preferred, at a dividend rate of 12.625%.
(c) To record subsidiary trust minority interest expense relating to $200
million of aggregate Liquidation Value of Preferred Securities, at a
distribution rate of 11.625%.
(d) To record tax provision for offering adjustments at the applicable
statutory tax rates.
54
<PAGE>
KDSM-TV AND KDSM, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OLD SECURITIES
MARCH 31, OFFERING AS
1997 ADJUSTMENTS ADJUSTED
----------- --------------- ---------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ......... $ 2,135 $ 2,135
Revenues realized from barter arrangements ..................... 78 78
-------- --------
Total revenues ............................................. 2,213 2,213
-------- --------
OPERATING EXPENSES:
Programming and production .................................... 376 376
Selling, general and administrative ........................... 738 738
Expenses realized from barter arrangements ..................... 43 43
Amortization of program contract costs and net realizable value
adjustments ................................................... 394 394
Depreciation and amortization of property and equipment ...... 85 85
Amortization of acquired intangible broadcast assets and other
assets ...................................................... 254 $ 125 (a) 379
-------- ---------- --------
Total operating expenses .................................... 1,890 125 2,015
-------- ---------- --------
Broadcast operating income (loss) ........................... 323 (125) 198
-------- ---------- --------
OTHER INCOME (EXPENSE):
Dividend income ................................................ 1,355 5,153 (b) 6,508
Subsidiary trust minority interest expense .................. (1,210) (4,603)(c) (5,813)
-------- ---------- --------
Income before provision for income taxes ..................... 468 425 893
ALLOCATION OF CONSOLIDATED
FEDERAL INCOME TAXES .......................................... 142 170(d) 312
STATE INCOME TAXES ............................................. 56 - 56
-------- ---------- --------
NET INCOME ...................................................... $ 270 $ 255 $ 525
======== ========== ========
</TABLE>
- ----------
(a) To record amortization expense relating to offering costs for one quarter
($6 million over 12 years).
(b) To record dividend income relating to $206.2 million of aggregate
Liquidation Amount of Parent Preferred, at a dividend rate of 12.625%.
Dividends for one quarter ..................... $ 6,508
Dividends paid by the Company in the quarter... (1,355)
--------
Pro forma adjustment ........................ $ 5,153
========
(c) To record subsidiary trust minority interest expense relating to $200
million of aggregate Liquidation Value of Preferred Securities, at a
distribution rate of 11.625%.
Distributions for one quarter ..................... $ 5,813
Distributions made by the Company in the quarter... (1,210)
--------
Pro forma adjustment .............................. $ 4,603
========
(d) To record tax provision for offering adjustments at the applicable
statutory tax rates.
55
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF KDSM-TV AND KDSM, INC.
INTRODUCTION
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial Information of KDSM-TV and KDSM, Inc." and the
Financial Statements of KDSM-TV and KDSM, Inc. and related notes included
elsewhere herein. On May 31, 1996, KDSM, Inc. acquired the non-license assets of
KDSM-TV and as a result, a new accounting basis was established beginning June
1, 1996. For purposes of the following discussion and analysis with respect to
the years ended December 31, 1995 and 1996, the results of operations for the
five months ended May 31, 1996 and the seven months ended December 31, 1996 have
been combined. For purposes of the following discussion and analysis with
respect to the three months ended March 31, 1996 and 1997, the results of
operations for the three months ended March 31, 1996 are those of the
predecessor and the results of operations for the three months ended March 31,
1997 are those of KDSM, Inc.
The following table sets forth certain operating data for comparison of the
years ended December 31, 1994, 1995 and the combined historical unaudited 1996
and the three months ended March 31, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED COMBINED PREDECESSOR COMPANY
DECEMBER 31, HISTORICAL THREE MONTHS THREE MONTHS
----------------------- UNAUDITED ENDED ENDED
1994 1995 1996 MARCH 31, 1996 MARCH 31, 1997
---------- ---------- ------------ --------------- ---------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net Broadcast revenues ........................... $ 6,422 $ 7,172 $ 8,218 $ 2,012 $ 2,135
Barter revenues ................................. 426 306 204 33 78
------- ------- ------- ------- --------
Total revenues ................................. 6,848 7,478 8,422 2,045 2,213
------- ------- ------- ------- --------
Operating expenses, excluding depreciation and
amortization .................................... 3,347 3,489 3,999 970 1,157
Depreciation and amortization .................. 2,979 3,338 2,616 818 733
Broadcast operating income ..................... 522 651 1,807 257 323
Dividend income ................................. - - - - 1,355
Other Income .................................... - 12 - - -
Subsidiary trust minority interest expense ...... - - - - (1,210)
------- ------- ------- ------- --------
Net income before income taxes .................. 522 663 1,807 257 468
Income taxes .................................... - - 484 - (198)
------- ------- ------- ------- --------
Net income ....................................... $ 522 $ 663 $ 1,323 $ 257 $ 270
======= ======= ======= ======= ========
OTHER DATA:
Broadcast cash flow(a) ........................... $ 2,908 $ 2,922 $ 3,726 $ 653 $ 631
Broadcast cash flow margin ..................... 45.3% 40.7% 45.3% 32.5% 29.6%
Adjusted EBITDA(b) .............................. $ 2,551 $ 2,772 $ 3,290 $ 590 $ 542
Adjusted EBITDA margin ........................... 39.7% 38.7% 40.0% 29.3% 25.4%
Program contract payments ........................ $ 950 $ 1,217 $ 1,133 $ 485 $ 514
Capital expenditures ........................... 140 139 190 $ 16 $ 30
Corporate overhead .............................. 357 150 436 63 89
</TABLE>
- ----------
a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, depreciation and amortization (including film
amortization), 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. KDSM, Inc. has presented broadcast
cash flow data, which KDSM, Inc. believes is 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 KDSM, Inc. 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) "Adjusted EBITDA" is defined as broadcast cash flow less corporate expenses
and is a commonly used measure of performance for broadcast companies.
Adjusted EBITDA does not purport to represent cash provided by operating
activities as reflected in KDSM, Inc. 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.
56
<PAGE>
COMBINED PERIODS ENDED MARCH 31, 1996 AND 1997
Total revenues increased to $2.21 million for the three months ended March
31, 1997 from $2.05 million for the three months ended March 31, 1996, or 7.8%.
Excluding the effects of non-cash barter transactions, net broadcast revenues
for the three months ended March 31, 1997 increased by 6.1% over the three
months ended March 31, 1996. When comparing the three months ended March 31,
1996 and 1997, revenues from local advertisers increased approximately $106,800
or 9.0% and revenues from national advertisers decreased approximately $58,000
or 7.8%. Revenue growth from local advertisers primarily resulted from an
increase in market revenue growth combined with a slight increase in market
share. The decrease in revenue from national advertisers primarily resulted from
a decrease in revenue from children's programming and the absence of political
spending during the three months ending March 31, 1997. The remaining increase
in broadcast revenues primarily resulted from the timing of the Family Fair
event which was held by the station in April during 1996 and in February during
1997.
Operating expenses excluding depreciation and amortization of intangible
assets increased to $1.16 million for the three months ended March 31, 1997 from
$970,000 for the three months ended March 31, 1996 or 19.6%. This increase in
operating expenses for the three months ended March 31, 1997 as compared to the
three months ended March 31, 1996 was primarily related to the timing of the
Family Fair event, an increase in sales commissions relating to local
advertising revenues, and an increase in corporate management fees.
Broadcast operating income increased to $323,000 for the three months ended
March 31, 1997, from $257,000 for the three months ended March 31, 1996, or
25.7%. The increase in broadcast operating income for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996 was
primarily attributable to the timing of the Family Fair event.
Trust distributions of $1.2 million for the three months ended March 31,
1997 are related to the private placement of $200 million aggregate liquidation
value 11 5/8% High Yield Trust Offered Preferred Securities completed March 12,
1997. Trust distributions in future quarters will be higher because such
distributions will accrue for entire quarters as opposed to the partial quarter
in the most recent period.
Dividend income of $1.36 million for the three months ended March 31, 1997
is related to the Company's investment in 12 5/8% Series C Preferred Stock
issued by Sinclair , completed March 12, 1997. Dividend income in future
quarters will be higher because such income will accrue for entire quarters as
opposed to the partial quarter in the most recent period.
The income tax provision was $198,000 and KDSM, Inc.'s effective tax rate
was 42% for the three months ended March 31, 1997. There were no taxes for the
three months ended March 31, 1996 due to the Predecessor's difference in
structure. The Predecessor was a partnership and as such, the related tax
attributes were deemed to be distributed to, and to be reportable by, the
partners of the partnership.
Deferred state taxes increased to $129,000 as of March 31, 1997 from
$73,000 as of December 31, 1996. The increase in KDSM, Inc.'s deferred tax
liability as of March 31, 1997 as compared to December 31, 1996 is primarily due
to pre-tax income for the three months ended March 31, 1997. Federal income
taxes are allocated to KDSM, Inc. by Sinclair at the statutory rate, are
considered payable currently and are reflected as an adjustment to Due to Parent
in KDSM, Inc.'s balance sheet.
Net income for the three months ended March 31, 1997 was $270,000 compared
to net income of $257,000 for the three months ended March 31, 1996.
Broadcast cash flow decreased to $631,000 for the three months ended March
31, 1997 from $653,000 for the three months ended March 31, 1996, or 3.4%. KDSM,
Inc.'s broadcast cash flow margin decreased to 29.6% for the three months ended
March 31, 1997 from 32.5% for the three months ended March 31, 1996. Decrease in
broadcast cash flow margins for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996 primarily resulted from an
increase in operating expenses as noted above combined with the timing of the
Family Fair event which operates at lower margins.
57
<PAGE>
Adjusted EBITDA decreased to $542,000 for the three months ended March 31,
1997 from $590,000 for the three months ended March 31, 1996, or 8.1%. The
decrease in Adjusted EBITDA for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996 resulted from an increase in
operating expenses combined with an increase in corporate management fees. KDSM,
Inc.'s Adjusted EBITDA margin decreased to 25.4% for the three months ended
March 31, 1997 from 29.3% for the three months ended March 31, 1996. Decrease in
Adjusted EBITDA margins for the three months ended March 31, 1997 as compared to
the three months ended March 31, 1996 primarily resulted from an increase in
operating expenses combined with an increase in corporate management fees.
COMBINED PERIODS ENDED DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1995
Station broadcast revenue increased to $8.2 million for the combined
periods ended December 31, 1996 from $7.2 million for the year ended December
31, 1995, or 9.3%. The increase in broadcast revenues was primarily the result
of an increase in total advertising spending combined with an increase in the
station's market share of total advertising spending in the Des Moines market
place. The increase in market share resulted from an increase in ratings, which
KDSM, Inc. believes resulted from changes in programming.
Operating expenses excluding depreciation and amortization increased to
$4.0 million for the combined periods ended December 31, 1996 from $3.5 million
for the year ended December 31, 1995, or 14.3%. The increase in expenses for the
combined periods ended December 31, 1996 as compared to the year ended December
31, 1995 was primarily related to an increase in sales commission expense
resulting from the increase in revenues and an increase in expenses relating to
the promotion of the station in the local marketplace.
Broadcast operating income increased to $1.8 million for the combined
periods ended December 31, 1996, from $0.7 million for the year ended December
31, 1995, or 157.1%. The increase in broadcast operating income for the combined
periods ended December 31, 1996 as compared to the year ended December 31, 1995
was primarily the result of an increase in market revenue, improvements in
programming and decreases in depreciation and amortization expenses as a result
of the acquisition of the Non-License Assets of KDSM-TV by Sinclair on May 31,
1996.
Net income increased to $1.3 million for the combined periods ended
December 31, 1996 from $0.7 million for the year ended December 31, 1995, or
85.7%. The increase in net income for the combined periods ended December 31,
1996 as compared to the year ended December 31, 1995 was primarily the result of
an increase in market revenue, improvements in programming and decreases in
depreciation and amortization expenses as a result of the acquisition of the
Non-License Assets of KDSM-TV by Sinclair on May 31, 1996.
Broadcast cash flow increased to $3.7 million for the combined periods
ended December 31, 1996 from $2.9 million for the year ended December 31, 1995,
or 27.6%. The increase in broadcast cash flow for the combined periods ended
December 31, 1996 as compared to the year ended December 31, 1995 was primarily
the result of an increase in market revenue and improvements in programming.
Adjusted EBITDA increased to $3.3 million for the combined periods ended
December 31, 1996 from $2.8 million for the year ended December 31, 1995, or
17.9%. The increase in Adjusted EBITDA for the combined periods ended December
31, 1996 as compared to the year ended December 31, 1995 was primarily the
result of an increase in market revenue and improvements in programming.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
Total revenues increased to $7.5 million for the year ended December 31,
1995 from $6.8 million for the year ended December 31, 1994, or 10.3%. The
increase in broadcast revenues was primarily the result of growth in total
advertising spending combined with an increase in the station's market share of
total advertising spending in the Des Moines market place. The increase in
market share promotion resulted from an increase in ratings resulting from
improvements in programming.
Operating expenses excluding depreciation and amortization increased to
$3.5 million for the year ended December 31, 1995 from $3.3 million for the
year ended December 31, 1994, or 6.1%. The
58
<PAGE>
increase in expenses for the year ended December 31, 1995 as compared to the
year ended December 31, 1994 was primarily related to an increase in sales
commission expense resulting from the increase in revenues and an increase in
expenses relating to the promotion of the station in the local market place.
Broadcast operating income increased to $0.7 million for the year ended
December 31, 1995 from $0.5 million for the year ended December 31, 1994 or
24.7%. The increase in broadcast operating income for the year ended December
31, 1995, as compared to the year ended December 31, 1994 was primarily related
to growth in market revenue and improvements in programming.
Net income increased to $0.7 million for the year ended December 31, 1995
from $0.5 million for the year ended December 31, 1994, or 27.0%. The increase
in net income for the year ended December 31, 1995 as compared to the year ended
December 31, 1994 was primarily related to growth in market revenue and
improvements in programming.
Broadcast cash flow was unchanged when comparing the years ended December
31, 1995 and 1994 at $2.9 million. Adjusted EBITDA increased to $2.8 million for
the year ended December 31, 1995 from $2.6 million for the year ended December
31, 1994, or 7.7%. The increase in Adjusted EBITDA for the year ended December
31, 1995 as compared to the year ended December 31, 1994 was primarily related
to lower corporate expenses in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, KDSM, Inc. had cash balances of approximately $1,000
and working capital of approximately $910,000. KDSM, Inc.'s primary source of
liquidity is cash from operations which management believes to be sufficient to
meet operating cash requirements. Excess cash or cash requirements from
operations are deposited into or funded by Sinclair's centralized cash
management system utilized by all of its wholly owned subsidiaries.
In June 1997, KDSM, Inc. acquired its station premises and building from
the owner at a purchase price of approximately $560,000, financing the
acquisition through a capital contribution from Sinclair. Except for purchase of
the station building, KDSM, Inc. does not anticipate capital expenditures in the
coming year to exceed historical capital expenditures, which were approximately
$190,000 in 1996. If KDSM, Inc. is required to make capital expenditures to keep
up with emerging technologies, management believes it will be able to fund such
expenditures from its cash flow and from the proceeds of indebtedness or
financing that it is allowed to incur or obtain under KDSM, Inc.'s Senior
Debenture Indenture (as long as KDSM, Inc.'s debt to operating cash flow ratio
is 4 to 1 or less) or from capital contributions from Sinclair to the extent
permitted under Sinclair's debt instruments. Under these instruments, Sinclair
would currently be able to make capital contributions to the Company in an
amount sufficient to cover such costs if it chose to do so.
In March 1997, KDSM, Inc. completed a private placement of $200 million
aggregate liquidation value 11 5/8% High Yield Trust Offered Preferred
Securities (the "Trust Preferred Securities") of Sinclair Capital, a subsidiary
trust of KDSM, Inc., generating net proceeds of $195 million. Simultaneously
with the private placement of the Trust Preferred Securities, KDSM, Inc.
utilized the net proceeds from the issuance of the KDSM, Inc. Senior Debentures
to the Trust, combined with proceeds from Sinclair capital contributions, to
acquire $206.2 million of 12 5/8% Series C Preferred Stock issued by Sinclair
(the "Parent Preferred"). KDSM, Inc. expects to receive dividend payments
relating to its investment in the Parent Preferred Securities that will be
sufficient to meet dividend payments required relating to the Preferred
Securities.
59
<PAGE>
KDSM, INC.
KDSM, Inc. is an indirect wholly owned subsidiary of Sinclair, which owns
all of the License and Non-License Assets related to the operation of television
station KDSM-TV. KDSM, Inc. acquired the Non-License Assets of KDSM-TV as part
of the River City Acquisition in April 1996. KDSM-TV was, at the time of the
acquisition, a Fox affiliate and currently maintains its Fox affiliation. KDSM
Licensee, Inc., a wholly-owned subsidiary of KDSM, Inc. acquired the License
Assets relating to the operation of KDSM-TV (including the affiliation agreement
with Fox) on April 22, 1997. See "Risk Factors-Certain Network Affiliation
Agreements," "-Multiple Ownership Rules and Effect on LMAs" and "-LMAs- Rights
of Preemption and Termination."
KDSM-TV is located in Des Moines, the state capital of Iowa. The Des Moines
DMA is the 72nd largest television market consisting of three counties (Dallas,
Polk and Warren Counties) within the state of Iowa. The area has a diversified
economy with major sectors in the financial services, food processing,
agricultural services, health care, retail and wholesale trades. The insurance
and financial sectors are important to the Des Moines economy. There are more
than 60 life, health and casualty insurance firms that are headquartered in Des
Moines, making the city the second largest insurance center behind Hartford,
Connecticut. In addition, the state of Iowa is the largest single employer in
the Des Moines area and government workers (federal, state and local) as a group
represent a significant percentage of total employment.
The Des Moines market is currently served by four commercial television
stations, all of which are network affiliated. KDSM-TV, the Fox affiliate, is
pursuing a counter-programming strategy against the other network affiliates
designed to attract additional audience share in demographic groups not served
by programming on competing stations. KDSM-TV also has a program license
agreement with UPN. KDSM-TV has exclusive rights in the Des Moines DMA to
broadcast Iowa Hawkeye basketball games through the 1997-1998 season and Big Ten
and Iowa football games through the 1997 season. KDSM-TV carries programming
from UPN including "Star Trek: Voyager" and such successful syndicated products
as "Home Improvement," "Mad About You," "The Simpsons," "Married with Children"
and "Baywatch." The Station has acquired syndicated rights to "Frasier"
beginning Fall 1997.
The following table sets forth certain market revenue, size and audience
share information for the Des Moines DMA:
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- --------- -----------
(DOLLARS IN THOUSANDS)
Market revenue ..................... $ 35,314 $38,089 $ 41,988
Annual market revenue growth ...... 19.5% 7.9% 10.2%
Station rank within market ...... 4 3 3
Television homes .................. 364,980 369,410 373,630
KDSM audience share ............... 8.0% 8.0% 8.3%
KDSM, Inc. and its predecessor had combined station broadcast revenues of
$8.2 million and combined broadcast cash flow of $3.7 million in 1996. The
Company has received a third-party appraisal valuing KDSM, Inc.'s assets (other
than the Parent Preferred and the Common Securities) at $50.2 million as of
February 18, 1997.
The principal office of KDSM, Inc. is located at 2000 W. 41st Street,
Baltimore, MD 21211 and its telephone number is 410-467-5005.
60
<PAGE>
SINCLAIR CAPITAL
Sinclair Capital is a special purpose statutory business trust created
under Delaware law pursuant to (i) a trust agreement executed by KDSM, Inc. as
depositor for the Trust, and First Union National Bank of Maryland, as Property
Trustee (the "Property Trustee"), and First Union Bank of Delaware as Delaware
Trustee (the "Delaware Trustee"), and (ii) the filing of a certificate of trust
with the Delaware Secretary of State on February 24, 1997. Such trust agreement
was amended and restated in its entirety prior to the closing of the Old
Securities Offering (as so amended and restated, the "Trust Agreement"). The
Property Trustee acts as sole trustee under the Trust Agreement for the purposes
of compliance with the Trust Indenture Act. The Trust exists for the exclusive
purposes of (i) issuing the Preferred Securities and the Common Securities,
representing undivided beneficial interests in the assets of the Trust, (ii)
purchasing the KDSM Senior Debentures with the proceeds from sale of the
Preferred Securities and the Common Securities and (iii) engaging in only those
other activities necessary or incidental thereto. All of the Common Securities
are owned by KDSM, Inc., and KDSM, Inc. has agreed in the KDSM Senior Debenture
Indenture to maintain such ownership. KDSM, Inc. has acquired Common Securities
having an aggregate liquidation amount equal to approximately 3% of the total
capital of the Trust. The Trust has a term expiring in 2015, but may terminate
earlier as provided in the Trust Agreement. The Trust's business affairs will be
conducted by the Property Trustee, the Delaware Trustee and the Administrative
Trustees. The holder of the Common Securities, or the holders of at least a
majority in the aggregate Liquidation Value of then outstanding Preferred
Securities if an Event of Default has occurred and is continuing, will be
entitled to appoint, remove or replace the Trustees of the Trust.
The duties and obligations of the Trustees are governed by the Trust
Agreement. David D. Smith and David B. Amy, each an officer of Sinclair, have
been appointed as administrative trustees of the Trust (in such capacity, the
"Administrative Trustees") pursuant to the terms of the Trust Agreement. Under
the Trust Agreement, the Administrative Trustees have certain duties and powers
including, but not limited to, the delivery of certain notices to the holders of
the Preferred Securities, the appointment of the Preferred Securities Paying
Agent (as defined under "Description of the New Preferred Securities-Redemption
Procedures") and the Preferred Securities Registrar (as defined under
"Description of the New Preferred Securities-Registrar and Transfer Agent"), the
registering of transfers of the Preferred Securities and the Common Securities
and preparing and filing on behalf of the Trust all United States federal, state
and local tax information and returns and reports required to be filed by or in
respect of the Trust. Under the Trust Agreement, the Property Trustee will have
certain duties and powers, including, but not limited to, holding legal title to
the KDSM Senior Debentures on behalf of the Trust, the collection of payments in
respect of the KDSM Senior Debentures, maintenance of the Payment Account (as
defined in the Trust Agreement), the sending of default notices with respect to
the Preferred Securities and the distribution of the assets of the Trust in the
event of a winding-up of the Trust. See "Description of the New Preferred
Securities."
61
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
In connection with the Old Securities Offering, the Company, KDSM, Inc. and
the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company, KDSM, Inc. and the Trust agreed,
among other things, (i) to use their best efforts to file under the Securities
Act a registration statement relating to an offer to exchange the Old Preferred
Securities, the Old KDSM Senior Debentures, the Old Parent Preferred, the Old
Parent Guarantee and the Old Parent Debenture Guarantee (collectively, the "Old
Securities") for new securities with terms identical in all material respects
(except as described below) to the terms of the Old Securities and (ii) to use
their best efforts to cause such registration statement to become effective. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Exchange Offer is
being made to satisfy the contractual obligations of the Company, KDSM, Inc. and
the Trust under the Registration Rights Agreement.
The Old Preferred Securities provide, among other things, that, if the
Exchange Offer is not consummated by August 8, 1997, additional interest (the
"Registration Default Interest") will become payable in respect of the Old KDSM
Senior Debentures, and corresponding additional distributions (the "Registration
Default Distributions", and, together with the Registration Default Interest,
the "Penalty Amounts") will become payable on the Old Parent Preferred and the
Old Preferred Securities, at the rate of .50% per annum for the first 60 days
starting on the 31st day after the effective date of the Registration Statement
of which this Prospectus is a part, and increasing by an additional .25% per
annum at the beginning of each subsequent 90-day period; provided that such
Penalty Amounts will cease to accrue upon consummation of the Exchange Offer;
and provided further that the Penalty Amounts rate may not exceed 1.5% per
annum. See "Risk Factors-Consequences of a Failure to Exchange Old Preferred
Securities" and "Description of the Old Securities." The form and terms of the
New Preferred Securities are identical in all material respects to the form and
terms of the Old Preferred Securities except that the New Preferred Securities
have been registered under the Securities Act and therefore will not contain
terms with respect to transfer restrictions and will not provide for an increase
in interest payments or other distributions thereon as a consequence of a
failure to take certain actions in connection with their registration under the
Securities Act.
The Exchange Offer is not being made to, nor will the Trust accept tenders
for exchange from, holders of Old Preferred Securities in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Preferred Securities
are registered on the books of the Trust or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Preferred Securities are held of record by The Depository Trust Company who
desires to deliver such Old Preferred Securities by book-entry transfer at The
Depository Trust Company.
In connection with the Exchange Offer, the Company and KDSM, Inc., as
applicable, will exchange as soon as practicable after the date hereof, the Old
Parent Guarantee for the New Parent Guarantee, the Old KDSM Senior Debentures,
for the New KDSM Senior Debentures, the Old Parent Preferred for the New Parent
Preferred, and the Old Parent Debenture Guarantee for the New Parent Debenture
Guarantee. The New Parent Preferred, the New KDSM Senior Debentures, the New
Parent Guarantee, and the New Parent Debenture Guarantee are being registered
under the Securities Act pursuant to the Registration Statement of which this
Prospectus forms a part.
TERMS OF THE EXCHANGE
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Consent and Letter of
Transmittal, to exchange up to $200,000,000 aggregate Liquidation Value of New
Preferred Securities for a like aggregate Liquidation Value of Old Preferred
Securities properly tendered on or prior to the Expiration Date (as defined
below) and not properly withdrawn in accordance with the procedures described
below. The Trust will issue, promptly after the
62
<PAGE>
Expiration Date, an aggregate Liquidation Value of up to $200,000,000 of New
Preferred Securities in exchange for a like principal amount of outstanding Old
Preferred Securities tendered and accepted in connection with the Exchange
Offer. The Exchange Offer is not conditioned upon any minimum Liquidation Value
of Old Preferred Securities being tendered. As of the date of this Prospectus
$200,000,000 aggregate Liquidation Value of the Old Preferred Securities is
outstanding.
Holders of Old Preferred Securities do not have any appraisal or
dissenters' rights in connection with the Exchange Offer. Old Preferred
Securities that are not tendered for, or are tendered but not accepted in
connection with the Exchange Offer, will remain outstanding and be entitled to
the benefits of the Amended and Restated Trust Agreement, but will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Risk Factors-Consequences of
a Failure to Exchange Old Preferred Securities" and "Description of the Old
Securities." If any tendered Old Preferred Securities are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Old
Preferred Securities will be returned, without expense, to the tendering holder
thereof promptly after the Expiration Date, or, if such unaccepted securities
are uncertificated, such securities will be returned, without expense to the
tendering holder thereof promptly after the Expiration Date via book entry
transfer.
Holders who tender Old Preferred Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Consent and Letter of Transmittal, transfer taxes with
respect to the exchange of Old Preferred Securities in connection with the
Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
See "-Fees and Expenses."
NONE OF THE BOARD OF DIRECTORS OF THE COMPANY, THE BOARD OF DIRECTORS OF
KDSM, INC. OR THE TRUSTEES OF THE TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF
OLD PREFERRED SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL
OR ANY PORTION OF THEIR OLD PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD PREFERRED SECURITIES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER
PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD PREFERRED
SECURITIES TO TENDER AFTER READING THIS PROSPECTUS AND THE CONSENT AND LETTER OF
TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN
FINANCIAL POSITION AND REQUIREMENTS.
AMENDMENT OF PARENT PREFERRED ARTICLES SUPPLEMENTARY
In connection with the Exchange Offer, the Company is proposing to make a
technical amendment to the Parent Preferred Articles Supplementary in order to
clarify the ability of Sinclair to issue the New Parent Preferred in connection
with the Exchange Offer and to ensure that shares of New Parent Preferred issued
in the Exchange Offer are validly issued. The "Redemption" section of the Parent
Preferred Articles Supplementary provides that "Shares of Series C Preferred
Stock issued and reacquired . . . may not be reissued or sold as shares of
Series C Preferred Stock." In order to rule out the possibility that this
provision could be interpreted to prohibit the Company from issuing shares of
New Parent Preferred in exchange for shares of Old Parent Preferred, the Company
is proposing to append the following clause to the provision:
; provided however, that nothing in these Articles Supplementary shall be
deemed to prevent the Company from exchanging shares of Series C Preferred
Stock for like shares that have been registered under the Securities Act of
1933 pursuant to the Company's obligations under the Registration Rights
Agreement.
The consent of holders of a majority in aggregate Liquidation Value of the
Preferred Securities will be required to effect this amendment. The vote of
Preferred Securities holders is required because KDSM, which holds the Parent
Preferred, agreed in the Pledge Agreement that it would not consent to
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any actions under the Parent Preferred without the approval of the holders of a
majority in principal amount of the KDSM Senior Debentures. The KDSM Senior
Debentures are held by the Trust, which agreed in the Pledge Agreement that
while it held the KDSM Senior Debentures it would not provide such approval
without the consent of the holders of a majority in aggregate Liquidation Value
of the outstanding Preferred Securities. Submission of a Consent and Letter of
Transmittal in connection with the Exchange Offer will constitute consent to the
proposed amendment unless the holder indicates otherwise in the space provided
on the Consent and Letter of Transmittal.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on _______
__, 1997 unless the Exchange Offer is extended by the Trust (in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended). The Trust expressly reserves the right in its sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old Preferred Securities for exchange,
(ii) to terminate the Exchange Offer (whether or not any Old Preferred
Securities have theretofore been accepted for exchange) if the Trust determines,
in its sole and absolute discretion, that any of the events or conditions
referred to under "-Conditions to the Exchange Offer" have occurred or exist or
have not been satisfied, (iii) to extend the Expiration Date of the Exchange
Offer and retain all Old Preferred Securities tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of Old Preferred Securities to
withdraw their tendered Old Preferred Securities as described under "-Withdrawal
Rights," and (iv) to waive any condition or otherwise amend the terms of the
Exchange Offer in any respect. If the Exchange Offer is amended in a manner
determined by the Trust to constitute a material change, or if the Trust waives
a material condition of the Exchange Offer, the Trust will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders of the Old Preferred Securities, and the Trust will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Trust may choose to make any public announcement and
subject to applicable law, the Trust shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency.
ACCEPTANCE OR EXCHANGE AND ISSUANCE OF NEW PREFERRED SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the the
Trust will exchange, and will issue to the Exchange Agent, New Preferred
Securities for Old Preferred Securities validly tendered and not withdrawn
(pursuant to the withdrawal rights described under "-Withdrawal Rights")
promptly after the Expiration Date. In all cases, delivery of New Preferred
Securities in exchange for Old Preferred Securities tendered and accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) Old Preferred Securities or a book-entry
confirmation of a book-entry transfer of Old Preferred Securities into the
Exchange Agent's account at The Depository Trust Company ("DTC"), (ii) the
Consent and Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees, and (iii) any other
documents required by the Consent and Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Preferred Securities into the Exchange Agent's
account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Trust will
be deemed to have accepted for exchange, and thereby exchanged, Old Preferred
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Preferred Securities for exchange pursuant to the Exchange Offer. The
Exchange Agent will act as agent for the Trust for the purpose of receiving
tenders of Old Preferred
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Securities, Consents and Letters of Transmittal and related documents, and as
agent for tendering holders for the purpose of receiving Old Preferred
Securities, Consents and Letters of Transmittal and related documents and
transmitting New Preferred Securities to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Old Preferred
Securities tendered pursuant to the Exchange Offer is delayed (whether before or
after the Trust's acceptance for exchange of Old Preferred Securities) or the
Trust extends the Exchange Offer or is unable to accept for exchange or exchange
Old Preferred Securities tendered pursuant to the Exchange Offer, then, without
prejudice to the Trust's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Trust and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered Old Preferred Securities and such Old Preferred
Securities may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "-Withdrawal Rights."
Pursuant to the Consent and Letter of Transmittal, a holder of Old
Preferred Securities will warrant and agree in the Consent and Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Preferred Securities, that the Trust will acquire good,
marketable and unencumbered title to the tendered Old Preferred Securities, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Preferred Securities tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Trust or the Exchange
Agent to be necessary or desirable to complete the exchange, sale, assignment,
and transfer of the Old Preferred Securities tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD PREFERRED SECURITIES
Valid Tender. Except as set forth below, in order for Old Preferred
Securities to be validly tendered pursuant to the Exchange Offer, a properly
completed and duly executed Consent and Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must be received by the Exchange Agent at its address set forth under
"-Exchange Agent," and either (i) tendered Old Preferred Securities must be
received by the Exchange Agent, or (ii) such Old Preferred Securities must be
tendered pursuant to the procedures for book-entry transfer set forth below and
a book-entry confirmation must be received by the Exchange Agent, in each case
on or prior to the Expiration Date, or (iii) the guaranteed delivery procedures
set forth below must be complied with.
If less than all of the Old Preferred Securities delivered are tendered for
exchange, a tendering holder should fill in the amount of Old Preferred
Securities being tendered in the appropriate box on the Consent and Letter of
Transmittal. The entire amount of Old Preferred Securities delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE CONSENT AND LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF
THE TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN
RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book Entry Transfer. The Exchange Agent will establish an account with
respect to the Old Preferred Securities at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Old Preferred Securities by causing DTC to
transfer such Old Preferred Securities into the Exchange Agent's account at DTC
in accordance with DTC's procedures for transfers. However, although delivery of
Old Preferred Securities may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Consent and Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees
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and any other required documents, must in any case be delivered to and received
by the Exchange Agent at its address set forth under "-Exchange Agent" on or
prior to the Expiration Date, or the guaranteed delivery procedure set forth
below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Preferred Securities need
not be endorsed and signature guarantees on the Consent and Letter of
Transmittal are unnecessary unless (a) a certificate for the Old Preferred
Securities is registered in a name other than that of the person surrendering
the certificate or (b) such registered holder completes the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" in the
Consent and Letter of Transmittal. In the case of (a) or (b) above, such
certificates for Old Preferred Securities must be duly endorsed or accompanied
by a properly executed bond power, with the endorsement or signature on the bond
power and on the Consent and Letter of Transmittal guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Consent and Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Preferred Securities
pursuant to the Exchange Offer and the certificates for such Old Preferred
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or before the Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis, such
Old Preferred Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Consent and Letter of
Transmittal, is received by the Exchange Agent, as provided below, on
or prior to Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Preferred Securities, in proper form for transfer,
together with a properly completed and duly executed Consent and
Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other documents required by the Consent
and Letter of Transmittal, are received by the Exchange Agent within
three Nasdaq Stock Market trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Preferred
Securities in exchange for Old Preferred Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Preferred Securities, or of a
book-entry confirmation with respect to such Old Preferred Securities, and a
properly completed and duly executed Consent and Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees and any
other documents required by the Consent and Letter of Transmittal. Accordingly,
the delivery of New Preferred Securities might not be made to all tendering
holders at the same time, and will depend upon when Old Preferred Securities,
book-entry confirmations with respect to Old Preferred Securities and other
required documents are received by the Exchange Agent.
The acceptance by the Trust for exchange of Old Preferred Securities
tendered pursuant to any of the procedures described above will constitute a
binding agreement between the tendering holder and the Trust upon the terms and
subject to the conditions of the Exchange Offer.
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Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Preferred Securities will be determined by the Trust, in its
sole discretion, whose determination shall be final and binding on all parties.
The Trust reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by them not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the Trust,
be unlawful. The Trust also reserves the absolute right, subject to applicable
law, to waive any of the conditions of the Exchange Offer as set forth under
"-Conditions to the Exchange Offer" or any condition or irregularity in any
tender of Old Preferred Securities of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The Trust's interpretation of the terms and conditions of the Exchange
Offer (including the Consent and Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Preferred Securities will
be deemed to have been validly made until all irregularities with respect to
such tender have been cured or waived. None of the Company, KDSM, Inc., the
Trust, any affiliates or assigns of the Company, KDSM, Inc. or the Trust, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Consent and Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Consent and Letter of
Transmittal is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
unless waived by the Trust, proper evidence satisfactory to the Trust, in its
sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Preferred Securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF NEW PREFERRED SECURITIES
The Trust is making the Exchange Offer for the Old Preferred Securities in
reliance on the position of the staff of the Division of Corporation Finance of
the Commission (the "Staff") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Trust has not
sought its own interpretive letter and there can be no assurance that the Staff
would make a similar determination with respect to the Exchange Offer as it has
in such interpretive letters to third parties. Based on these interpretations by
the Staff, and subject to the two immediately following sentences, the Trust
believes that New Preferred Securities issued pursuant to this Exchange Offer in
exchange for Old Preferred Securities and any other New Preferred Securities
distributed to holders of New Preferred Securities in respect thereof may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Preferred Securities are acquired in the ordinary course
of such holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Securities. However, any
holder of Old Preferred Securities who is an "affiliate" of the Company, KDSM,
Inc. or the Trust or who intends to participate in the Exchange Offer for the
purpose of distributing New Securities, or any broker-dealer who purchased Old
Preferred Securities from the Trust to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the Staff set out in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Old Preferred
Securities in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Preferred Securities unless such sale is made
pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Preferred Securities acquired for its own
account as a result of market-making or other trading activities and exchanges
such Old Preferred Securities for New Preferred Securities, then such
broker-dealer must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Preferred Securities
or any other New Securities received in respect thereof.
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Each holder of Old Preferred Securities who wishes to exchange Old
Preferred Securities for New Preferred Securities in the Exchange Offer will be
required to represent that (i) it is not an "affiliate" of the Company, KDSM,
Inc. or the Trust, (ii) any New Securities to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Securities, and (iv) if such holder
is not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such New
Securities. In addition, the Company, KDSM, Inc. and the Trust may require such
holder, as a condition to such holder's eligibility to participate in the
Exchange Offer, to furnish to the Company, KDSM, Inc. and the Trust (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Old Preferred Securities to be exchanged in the Exchange Offer. Each
broker-dealer that receives New Preferred Securities for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old
Preferred Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Preferred Securities. The Consent and Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the Staff in the interpretive
letters referred to above, Trust believes that broker-dealers who acquired Old
Preferred Securities for their own accounts as a result of market-making
activities or other trading activities ("Participating Broker-Dealers") may
fulfill their prospectus delivery requirements with respect to the New Preferred
Securities received upon exchange of such Old Preferred Securities (and any
other New Securities received in respect thereof) (other than Old Preferred
Securities which represent an unsold allotment from the original sale of the Old
Preferred Securities) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such New Securities. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Securities received in exchange for Old Preferred Securities where such Old
Preferred Securities were acquired by such Participating Broker-Dealer for its
own account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Securities for a period ending 180 days
after the Expiration Date or, if earlier, when all such New Securities have been
disposed of by such Participating Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company, KDSM, Inc. or
the Trust may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old
Preferred Securities pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Consent and Letter of Transmittal, that, upon
receipt of notice from the Company, KDSM, Inc. or the Trust of the occurrence of
any event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreements, such Participating Broker-Dealer will suspend the sale of New
Securities pursuant to this Prospectus until the Company, KDSM, Inc. or the
Trust has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such Participating Broker-Dealer or the Company or KDSM, Inc. or the Trust
has given notice that the sale of the New Securities may be resumed, as the case
may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Preferred Securities
may be withdrawn at any time on or prior to the Expiration Date.
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In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its addresses set forth under "-Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Preferred Securities to be withdrawn,
the aggregate Liquidation Value of Old Preferred Securities to be withdrawn, and
(if certificates for such Old Preferred Securities have been tendered) the name
of the registered holder of the Old Preferred Securities as set forth on the Old
Preferred Securities, if different from that of the person who tendered such Old
Preferred Securities. If Old Preferred Securities have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Old Preferred Securities, the tendering holder must submit the serial
numbers shown on the particular Old Preferred Securities to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Preferred Securities tendered for the
account of an Eligible Institution. If Old Preferred Securities have been
tendered pursuant to the procedures for book-entry transfer set forth in "-
Procedures for Tendering Old Preferred Securities," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Preferred Securities, in which case a notice of withdrawal
will be effective if delivered to the Exchange Agent by written, telegraphic,
telex or facsimile transmission. Withdrawals of tenders of Old Preferred
Securities may not be rescinded. Old Preferred Securities properly withdrawn
will not be deemed validly tendered for purposes of the Exchange Offer, but may
be retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "-Procedures for Tendering
Old Preferred Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties. None
of the Company, KDSM, Inc., the Trust, any affiliates or assigns of the Company,
KDSM, Inc. or the Trust, the Exchange Agent or any other person shall be under
any duty to give any notification of any irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification. Any
Old Preferred Securities which have been tendered but which are withdrawn will
be returned to the holder thereof promptly after withdrawal.
DISTRIBUTIONS ON THE NEW PREFERRED SECURITIES
Holders of Old Preferred Securities whose Old Preferred Securities are
accepted for exchange will not receive accumulated distributions on such Old
Preferred Securities for any period from and after the last distribution date
with respect to such Old Preferred Securities prior to the original issue date
of the New Preferred Securities or, if no such distributions have been made,
will not receive any accumulated distributions on such Old Preferred Securities,
and will be deemed to have waived the right to receive any distributions on such
Old Preferred Securities accumulated from and after such distribution date or,
if no such distributions have been made, from and after March 12, 1997. However,
because distributions on the New Preferred Securities will accumulate from March
12, 1997, the amount of the distributions received by holders whose Old
Preferred Securities are accepted for exchange will not be affected by the
exchange.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Trust will not be required to accept for
exchange, or to exchange, any Old Preferred Securities for any New Preferred
Securities, and may terminate the Exchange Offer (whether or not any Old
Preferred Securities have theretofore been accepted for exchange) or may waive
any conditions to or amend the Exchange Offer, if, in the opinion of legal
counsel to the Trust, the consummation of the Exchange Offer or any portion
thereof would violate any applicable law or any applicable interpretation of the
Commission or its staff. In such event, if the Trust determines to amend the
Exchange Offer and such amendment constitutes a material change to the Exchange
Offer, the Trust will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Old
Preferred Securities, and the Trust will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act. Holders of Old Securities are
entitled to certain rights under the Registration Rights Agreement in the event
the Trust is unable to consummate the Exchange Offer. See "Description of the
Old Securities."
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EXCHANGE AGENT
First Union National Bank of Maryland has been appointed as Exchange Agent
for the Exchange Offer. Delivery of the Consent and Letter of Transmittal and
any other required documents, questions, requests for assistance, and requests
for additional copies of this Prospectus or of the Consent and Letter of
Transmittal should be directed to the Exchange Agent as follows:
First Union National Bank
Corporate Trust Department
1525 W. W.T. Harris Blvd. - 3C3
Charlotte, N.C. 28262-1153
Phone: (704) 590-7408
Facsimile: (704) 590-7628
Attention: Mr. Michael Klotz
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Preferred Securities, and in handling or
tendering for their customers.
Holders who tender their Old Preferred Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Preferred Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Preferred Securities
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Preferred Securities in connection with the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Consent and Letter of Transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
None of the Company, KDSM, Inc. or the Trust will make any payment to
brokers, dealers or others soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company currently has two classes of Common Stock, each having a par
value of $.01 per share, and, including the Old Parent Preferred, two classes of
issued and outstanding Preferred Stock, also with a par value of $.01 per share.
The Controlling Stockholders, by virtue of their beneficial ownership of 100% of
the shares of the Class B Common Stock, with its super voting rights as
described below, maintain control over the Company's business and operations.
The following summary of the Company's capital stock does not purport to be
complete and is subject to detailed provisions of, and is qualified in its
entirety by reference to, the Company's Amended and Restated Articles of
Incorporation (the "Amended Certificate"). The Amended Certificate is an exhibit
to the registration statement of which this Prospectus is a part and is
available as set forth under "Available Information."
The Amended Certificate authorizes the Company to issue up to 100,000,000
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 10,000,000 shares of
preferred stock, par value $.01 per share. Following the Old Securities
Offering, there are 2,000,000 shares of Series C Preferred Stock issued and
outstanding.
COMMON STOCK
The rights of the holders of the Class A Common Stock and Class B Common
Stock are substantially identical in all respects, except for voting rights and
the right of Class B Common Stock to convert into Class A Common Stock. The
holders of the Class A Common Stock are entitled to one vote per share. The
holders of the Class B Common Stock are entitled to ten votes per share except
as described below. The holders of all classes of Common Stock entitled to vote
will vote together as a single class on all matters presented to the
stockholders for their vote or approval except as otherwise required by the
general corporation laws of the State of Maryland ("Maryland General Corporation
Law"). Except for transfers to a "Permitted Transferee" (generally, related
parties of a Controlling Stockholder), any transfer of shares of Class B Common
Stock held by any of the Controlling Stockholders will cause such shares to be
automatically converted to Class A Common Stock. In addition, if the total
number of shares of Common Stock held by the Controlling Stockholders falls to
below 10% of the total number of shares of Common Stock outstanding, all of the
outstanding shares of Class B Common Stock automatically will be classified as
Class A Common Stock. In any merger, consolidation or business combination, the
consideration to be received per share by the holders of the Class A Common
Stock must be identical to that received by the holders of the Class B Common
Stock, except that in any such transaction in which shares of a third party's
common stock are distributed in exchange for the Company's Common Stock, such
shares may differ as to voting rights to the extent that such voting rights now
differ among the classes of Common Stock.
The holders of Class A Common Stock and Class B Common Stock will vote as a
single class, with each share of each class entitled to one vote per share, with
respect to any proposed (a) "Going Private" transaction; (b) sale or other
disposition of all or substantially all of the Company's assets; (c) sale or
transfer which would cause a fundamental change in the nature of the Company's
business; or (d) merger or consolidation of the Company in which the holders of
the Company's Common Stock will own less than 50% of the Common Stock following
such transaction. A "Going Private" transaction is any "Rule 13e-3 transaction,"
as such term is defined in Rule 13e-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") between the Company and (i) the
Controlling Stockholders, (ii) any affiliate of the Controlling Stockholders, or
(iii) any group of which the Controlling Stockholders are an affiliate or of
which the Controlling Stockholders are a member. An "affiliate" is defined as
(i) any individual or entity who or that, directly or indirectly, controls, is
controlled by, or is under the common control of the Controlling Stockholders;
(ii) any corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which any of the Controlling Stockholders is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of voting securities or in which any of the Controlling
Stockholders has a substantial beneficial
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interest; (iii) a voting trust or similar arrangement pursuant to which the
Controlling Stockholders generally control the vote of the shares of Common
Stock held by or subject to any such trust or arrangement; (iv) any other trust
or estate in which any of the Controlling Stockholders has a substantial
beneficial interest or as to which any of the Controlling Stockholders serves as
a trustee or in a similar fiduciary capacity; or (v) any relative or spouse of
the Controlling Stockholders or any relative of such spouse who has the same
residence as any of the Controlling Stockholders.
Under the Maryland General Corporation Law, the holders of Common Stock are
entitled to vote as a separate class with respect to any amendment of the
Amended Certificate that would increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of the
shares of such class, or modify or change the powers, preferences or special
rights of the shares of such class so as to affect such class adversely.
For a discussion of the effects of disproportionate voting rights upon the
holders of the Class A Common Stock, see "Risk Factors-Voting Rights; Control by
Controlling Stockholders; Potential AntiTakeover Effect of Disproportionate
Voting Rights."
Stockholders of the Company have no preemptive rights or other rights to
subscribe for additional shares, except that the Class B Common Stock is
convertible into Class A Common Stock by the holders thereof. Except as
described in the prior sentence, no shares of any class of Common Stock have
conversion rights or are subject to redemption. Subject to the rights of any
outstanding preferred stock which may be hereafter classified and issued,
holders of Common Stock are entitled to receive dividends, if any, as may be
declared by the Company's Board of Directors out of funds legally available
therefore and to share, regardless of class, equally on a share-for-share basis
in any assets available for distribution to stockholders on liquidation,
dissolution or winding-up of the Company. Under the Bank Credit Agreement, the
Existing Indentures and certain other debt of the Company, the Company's ability
to declare Common Stock dividends is restricted. See "Dividend Policy."
PREFERRED STOCK
Series B Convertible Preferred Stock. As partial consideration for the
acquisition of assets from River City in 1996, the Company issued 1,150,000
shares of Series A Preferred Stock to River City which has since been converted
into 1,150,000 shares of Series B Convertible Preferred Stock. Each share of
Series B Convertible Preferred Stock has a liquidation preference of $100 and,
after payment of this preference (plus all accrued and unpaid dividends through
the determination date), is entitled to share in distributions made to holders
of shares of Common Stock. Each holder of a share of Series B Convertible
Preferred Stock is entitled to receive the amount of liquidating distributions
received with respect to approximately 3.64 shares of Common Stock (subject to
adjustment) less the amount of the liquidation preference. The liquidation
preference of Series B Convertible Preferred Stock is payable in preference to
Common Stock of the Company, but may rank equal to or below other classes of
capital stock of the Company and will rank junior to Parent Preferred except
upon a Series B Trigger Event as described in the next sentence. After a Series
B Trigger Event (as defined below), the Series B Convertible Preferred Stock
ranks senior to all classes of capital stock of the Company as to liquidation
preference, except that the Company may issue up to $400 million of capital
stock ("Series B Convertible Preferred Stock Senior Securities"), as to which
the Series B Convertible Preferred Stock will have the same rank. The Company
has designated the Parent Preferred to be Series B Convertible Preferred Stock
Senior Securities for this purpose. A "Series B Trigger Event" means the
termination of the Baker Employment Agreement with the Company prior to the
expiration of its initial five-year term (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; (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 if 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
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cannot be appointed to such positions with the Company or SCI until the
occurrence of certain events with respect to WIIB, WTTV and WTTK in Indianapolis
and WTTE and WSYX in Columbus as described under "Risk Factors-Dependence on Key
Personnel; Employment Agreements with Key Personnel." There can be no assurance
as to when or whether these events will occur, although the Company believes Mr.
Baker does not presently intend to terminate the Baker Employment Agreement if
he is not appointed to the positions with Sinclair or SCI by August 31, 1997.
See "Risk Factors-Subordination of New Parent Guarantee, New Parent Debenture
Guarantee and New Parent Preferred."
The holders of Series B Convertible Preferred Stock do not initially
receive dividends, except to the extent that dividends are paid to the holders
of Common Stock. A holder of shares of Series B Convertible Preferred Stock is
entitled to share in any dividends paid to holders of Common Stock, with each
share of Series B Convertible Preferred Stock allocated the amount of dividends
allocated to approximately 3.64 shares of Common Stock (subject to adjustment).
In addition, after the occurrence of a Trigger Event, holders of shares of
Series B Convertible Preferred Stock are entitled to quarterly dividends in the
amount of $3.75 per share per quarter for the first year, and in the amount of
$5.00 per share per quarter after the first year. Dividends are payable either
in cash or in additional shares of Series B Convertible Preferred Stock at the
rate of $100 per share. Dividends on Series B Convertible Preferred Stock are
payable in preference to the holders of any other class of capital stock of the
Company, except for Series B Convertible Preferred Stock Senior Securities,
which will rank senior to the Series B Convertible Preferred Stock as to
dividends until a Series B Trigger Event, after which Series B Convertible
Preferred Stock Senior Securities will have the same rank as Series B
Convertible Preferred Stock as to dividends.
The Company may redeem shares of Series B Convertible Preferred Stock for
an amount equal to $100 per share plus any accrued and unpaid dividends at any
time beginning 180 days after a Trigger Event, but holders have the right to
retain their shares in which case the shares will automatically be converted
into shares of Class A Common Stock on the proposed redemption date.
Each share of Series B Convertible Preferred Stock is entitled to
approximately 3.64 votes (subject to adjustment) on all matters with respect to
which Class A Common Stock has a vote, and the Series B Convertible Preferred
Stock votes together with the Class A Common Stock as a single class, except
that the Series B Convertible Preferred Stock is entitled to vote as a separate
class (and approval of a majority of such votes is required) on certain matters,
including changes in the authorized amount of Series B Convertible Preferred
Stock and actions affecting the rights of holders of Series B Convertible
Preferred Stock.
Shares of Series B Convertible Preferred Stock are convertible at any time
into shares of Class A Common Stock, with each share of Series B Convertible
Preferred Stock convertible into approximately 3.64 shares of Class A Common
Stock. The conversion rate is subject to adjustment if the Company undertakes a
stock split, combination or stock dividend or distribution or if the Company
issues Common Stock or securities convertible into Common Stock at a price less
than $27.50 per share. Shares of Series B Convertible Preferred Stock issued as
payment of dividends are not convertible into Class A Common Stock and become
void at the time of conversion of a shareholder's other shares of Series B
Convertible Preferred Stock. All shares of Series B Convertible Preferred Stock
remaining outstanding on May 31, 2001 (other than shares issued as a dividend)
automatically convert into Class A Common Stock on that date.
Series C Preferred Stock. The terms of the Series C Preferred Stock of the
Company are set forth under "Description of the New Parent Preferred," below.
Additional Preferred Stock. The Amended Certificate authorizes the Board of
Directors to issue, without any further action by the stockholders, additional
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each series, and to fix the designations, powers,
preferences and rights of the shares of each series and the qualifications,
limitations or restrictions thereof. Although the ability of the Board of
Directors to designate and issue preferred stock provides desirable flexibility,
including the ability to engage in future public offerings to raise additional
capital, issuance of preferred stock may have adverse effects on the holders of
Common Stock
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including restrictions on dividends on the Common Stock if dividends on the
preferred stock have not been paid; dilution of voting power of the Common Stock
to the extent the preferred stock has voting rights; or deferral of
participation in the Company's assets upon liquidation until satisfaction of any
liquidation preference granted to holders of the preferred stock. In addition,
issuance of preferred stock could make it more difficult for a third party to
acquire a majority of the outstanding voting stock and accordingly may be used
as an "anti-takeover" device. The Board of Directors, however, is not aware of
any pending transactions that would be affected by such issuance.
CERTAIN STATUTORY AND CHARTER PROVISIONS
The following paragraphs summarize certain provisions of the Maryland
General Corporation Law and the Company's Amended Certificate and by-laws. The
summary does not purport to be complete and reference is made to Maryland law
and the Company's Amended Certificate and by-laws for complete information.
Business Combinations
Under the Maryland General Corporation Law, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
corporation's stock (an "Interested Stockholder") must be (a) recommended by the
corporation's board of directors; and (b) approved by the affirmative vote of at
least (i) 80% of the corporation's outstanding shares entitled to vote and (ii)
two-thirds of the outstanding shares entitled to vote which are not held by the
Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's common stockholders receive a
minimum price (as defined in the statute) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for his shares. In addition, an Interested Stockholder or any
affiliate thereof may not engage in a "business combination" with the
corporation for a period of five (5) years following the date he becomes an
Interested Stockholder. These provisions of Maryland law do not apply, however,
to business combinations that are approved or exempted by the board of directors
of a Maryland corporation. It is anticipated that the Company's Board of
Directors will exempt from the Maryland statute any business combination with
the Controlling Stockholders, any present or future affiliate or associate of
any of them, or any other person acting in concert or as a group with any of the
foregoing persons.
Control Share Acquisitions
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" may not be voted
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast by stockholders excluding shares owned by the acquirer, officers of the
corporation and directors who are employees of the corporation. "Control shares"
are shares which, if aggregated with all other shares previously acquired which
the person is entitled to vote, would entitle the acquirer to vote (i) 20% or
more but less than one-third of such shares, (ii) one-third or more but less
than a majority of such shares, or (iii) a majority of the outstanding shares.
Control shares do not include shares the acquiring person is entitled to vote
because stockholder approval has previously been obtained. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition and
who has obtained a definitive financing agreement with a responsible financial
institution providing for any amount of financing not to be provided by the
acquiring person may compel the corporation's board of directors to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
Subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares, except those for which voting rights have
previously been approved, for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of
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stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquirer is entitled to vote a majority of the shares entitled
to vote, all other stockholders may exercise appraisal rights. The fair value of
the shares as determined for purposes of such appraisal rights may not be less
than the highest price per share paid in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or excepted by or pursuant to the
articles of incorporation or by-laws of the corporation.
Effect of Business Combination and Control Share Acquisition Statutes
The business combination and control share acquisition statutes could have
the effect of discouraging offers to acquire any such offer.
Limitation on Liability of Directors and Officers
The Company's Amended Certificate provides that, to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or its stockholders for monetary damages. The
Maryland General Corporation Law provides that a corporation's charter may
include a provision which restricts or limits the liability of its directors or
officers to the corporation or its stockholders for money damages except (1) to
the extent that it is proved that the person actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received or (2) to the extent
that a judgment or other final adjudication adverse to the person is entered in
a proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. In situations to
which the Amended Certificate provision applies, the remedies available to the
Company or a stockholder are limited to equitable remedies such as injunction or
rescission. This provision would not, in the opinion of the Commission,
eliminate or limit the liability of directors and officers under the federal
securities laws.
Indemnification
The Company's Amended Certificate and by-laws provide that the Company may
advance expenses to its currently acting and its former directors to the fullest
extent permitted by Maryland General Corporation Law, and that the Company shall
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Maryland
General Corporation Law provides that a corporation may indemnify any director
made a party to any proceeding by reason of service in that capacity unless it
is established that (1) the act or omission of the director was material to the
matter giving rise to the proceeding and (a) was committed in bad faith or (b)
was the result of active and deliberate dishonesty, or (2) the director actually
received an improper personal benefit in money, property or services, or (3) in
the case of an criminal proceeding, the director had reasonable cause to believe
that the act or omission was unlawful. The statute permits Maryland corporations
to indemnify its officers, employees or agents to the same extent as its
directors and to such further extent as is consistent with law.
The Company has also entered into indemnification agreements with certain
officers and directors which provide that the Company shall indemnify and
advance expenses to such officers and directors to the fullest extent permitted
by applicable law in effect on the date of the agreement, and to such greater
extent as applicable law may thereafter from time to time permit. Such
agreements provide for the advancement of expenses (subject to reimbursement if
it is ultimately determined that the officer or director is not entitled to
indemnification) prior to the final disposition of any claim or proceeding.
FOREIGN OWNERSHIP
Under the Amended Certificate, and to comply with FCC rules and
regulations, the Company is not permitted to issue or transfer on its books any
of its capital stock to or for the account of any Alien if after giving effect
to such issuance or transfer, the capital stock held by or for the account of
any Alien
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or Aliens would exceed, individually or in the aggregate, 25% of the Company's
capital stock at any time outstanding. Pursuant to the Amended Certificate, the
Company will have 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. Any issuance or transfer of
capital stock in violation of such prohibition will be void and of no force and
effect. The Amended Certificate also provides that no Alien or Aliens shall be
entitled to vote, direct or control the vote of more than 25% of the total
voting power of all the shares of capital stock of the Company outstanding and
entitled to vote at any time and from time to time. Such percentage, however, is
20% in the case of the Company's subsidiaries which are direct holders of FCC
licenses. In addition, the Amended Certificate provides that no Alien shall be
qualified to act as an officer of the Company and no more than 25% of the total
number of directors of the Company at any time may be Aliens. The Amended
Certificate further gives the Board of Directors of the Company all power
necessary to administer the above provisions. See "Business of Sinclair-Federal
Regulation of Television and Radio Broadcasting."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Class A Common Stock is
The First National Bank of Boston.
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DESCRIPTION OF THE NEW PARENT PREFERRED
GENERAL
Pursuant to the Parent Preferred Articles Supplementary, up to 2,062,000
shares of New Parent Preferred with a Liquidation Amount of $100.00 per share
(the "Liquidation Amount") will be issued. The Parent Preferred will rank junior
in right of payment to all liabilities and obligations (whether or not for
borrowed money) of Sinclair (other than common stock of Sinclair, any Old Parent
Preferred that remains outstanding after the Exchange Offer, as to which it will
have the same rank, and any preferred stock of Sinclair which by its terms is on
parity with or junior to the New Parent Preferred). In addition, creditors and
stockholders of Sinclair's Subsidiaries will also have priority over the New
Parent Preferred with respect to claims on the assets of such Subsidiaries. The
New Parent Preferred will, when issued, be fully paid and non-assessable and
holders thereof will have no preemptive rights in connection therewith. The
following description contains all material information concerning the New
Parent Preferred but does not purport to be complete and is qualified in its
entirety by reference to the Parent Preferred Articles Supplementary which are
filed as an exhibit to the registration statement of which this Prospectus is a
part and which is available as set forth under "Available Information." Certain
capitalized terms used herein are defined under "Certain Definitions."
RANKING
The New Parent Preferred will, with respect to dividend rights and rights
on liquidation, winding-up and dissolution of Sinclair, rank (i) senior to all
classes of common stock of Sinclair, each other class of capital stock or series
of preferred stock established after the date the New Parent Preferred is issued
(the "New Parent Preferred Issue Date") by the board of directors of Sinclair,
the terms of which do not expressly provide that it ranks senior to or on a
parity with the New Parent Preferred as to dividend rights and rights on
liquidation, winding-up and dissolution of Sinclair (collectively referred to
with all classes of common stock of Sinclair as "Junior Securities"); (ii) on a
parity with the Old Parent Preferred (to the extent any remains outstanding
after the Exchange Offer) and any class of capital stock or series of preferred
stock established after the New Parent Preferred Issue Date, the terms of which
expressly provides that such class or series will rank on a parity with the New
Parent Preferred as to dividend rights and rights on liquidation, winding-up and
dissolution (collectively, "Parity Securities"); and (iii) junior to each class
of capital stock or series of preferred stock issued by Sinclair established
after the New Parent Preferred Issue Date by the board of directors of Sinclair,
the terms of which expressly provide that such series will rank senior to the
New Parent Preferred as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively referred to as "Senior Securities"). Sinclair will
not be able to authorize any new class of Senior Securities without the approval
of the holders of at least a majority of the Liquidation Amount of Parent
Preferred then outstanding, voting or consenting, as the case may be, and,
pursuant to the Pledge Agreement, KDSM, Inc. as holder of the New Parent
Preferred will not be able to take any such action without the consent of the
Trust which will be required to obtain the consent of holders of a majority of
the Liquidation Value of the Preferred Securities. The New Parent Preferred will
rank (i) junior in right of payment to all indebtedness of Sinclair and its
Subsidiaries; (ii) senior in right of payment to all common stock of Sinclair;
and (iii) senior to Sinclair's Series B Convertible Preferred Stock ($111.5
million liquidation value as of the date hereof) except that upon the
termination of Barry Baker's employment agreement with Sinclair prior to May 31,
2001 by Sinclair for any reason other than "for cause" (as defined in the
employment agreement) or by Mr. Baker under certain circumstances described
under "Description of Capital Stock-Preferred Stock-Series B Convertible
Preferred Stock," then the Parent Preferred will rank pari passu with the Series
B Convertible Preferred Stock in respect of dividends and distributions upon
liquidation, dissolution and winding-up of Sinclair. See "Description of Capital
Stock."
DIVIDENDS
Holders of Parent Preferred will be entitled to receive, when, as and if
declared by the board of directors of Sinclair, out of funds legally available
therefor, cash dividends on the Parent Preferred, at an annual rate equal to
12 5/8% of the then stated Liquidation Amount per share of Parent Preferred.
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Holders of New Parent Preferred will be entitled to receive cumulative cash
dividends from the most recent distribution date on the Old Parent Preferred
surrendered in exchange for such New Preferred Securities. Dividends will accrue
from the date of issuance and will be payable quarterly in arrears on March 15,
June 15, September 15 and December 15 of each year (each a "Dividend Payment
Date"), commencing on June 15, 1997 to holders of record on the March 1, June 1,
September 1 and December 1 next preceding each such Dividend Payment Date.
Dividends, whether or not declared, will cumulate with additional dividends on
unpaid dividends compounding quarterly until declared and paid. Sinclair will
have the right, at any time and from time to time, to defer dividend payments on
the New Parent Preferred for up to three consecutive quarters during a Dividend
Extension Period; provided that Sinclair will be required to pay all dividends
due and owing on the New Parent Preferred at least once every four quarters and
on March 15, 2009. See "Description of New Preferred Securities-Distributions."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
(or are deemed declared and paid) in full or declared and, a sum in cash
sufficient for full payment of the dividends set apart for such payment on the
New Parent Preferred. If full dividends are not so paid, the New Parent
Preferred shall share dividends pro rata with the Parity Securities. No
dividends may be paid or set apart for such payment on Junior Securities (except
dividends on Junior Securities in additional shares of Junior Securities) and no
Junior Securities may be repurchased, redeemed or otherwise retired nor may
funds be set apart for payment with respect thereto, if full cumulative
dividends have not been paid in full (or deemed paid) on the New Parent
Preferred. Accumulated unpaid dividends will bear additional dividends
compounding quarterly at a rate of 12 5/8% per annum. Dividends on account of
arrears for any past dividend period and dividends in connection with any
optional redemption may be declared and paid at any time, without reference to
any regular Dividend Payment Date, to holders of record of the New Parent
Preferred on such date, not more than forty-five (45) days prior to the payment
thereof, as may be fixed by the board of directors of Sinclair. So long as any
shares of the New Parent Preferred are outstanding, Sinclair shall not make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any of the
Parity Securities or Junior Securities or any warrants, rights, calls or options
exercisable for or convertible into any of the Parity Securities or Junior
Securities, and shall not permit any corporation or other entity directly or
indirectly controlled by Sinclair to purchase or redeem any of the Parity
Securities or Junior Securities or any such warrants, rights, calls or options
unless full cumulative dividends determined in accordance herewith on the New
Parent Preferred have been paid (or are deemed paid) in full, except in the case
of Parity Securities if the New Parent Preferred shall share in such payments on
a pro rata basis. See "Description of Capital Stock-Preferred Stock-Series B
Convertible Preferred Stock."
In the event that dividends on the Parent Preferred are in arrears in an
amount equal to or exceeding four quarterly dividend payments, and until all
such arrearages are repaid in full, holders of Parent Preferred will be
entitled to elect two directors to the board of directors of Sinclair pursuant
to the Pledge Agreement and the Trust Agreement. See "-Voting Rights."
The terms of the Existing Notes and the Bank Credit Agreement limit
Sinclair's ability to pay cash dividends on its capital stock, including the
New Parent Preferred; and future agreements may provide the same. See "Risk
Factors-Covenant Restrictions on Dividends and Distributions."
In addition, if the Trust would be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any taxing authority, then in any such
case, the dividend rate on the New Parent Preferred shall be increased such that
the amount payable to the holder of the New Parent Preferred will include an
amount equal to the Additional Interest Attributable to Taxes as defined herein,
in addition to the dividends on the New Parent Preferred otherwise payable to
such holder as provided herein.
TERM OF NEW PARENT PREFERRED
The New Parent Preferred will have a maturity of 12 years from issuance of
the Old Parent Preferred. The terms of the Bank Credit Agreement currently limit
Sinclair's ability to redeem any capital stock, including the New Parent
Preferred.
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OPTIONAL REDEMPTION
The New Parent Preferred may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after March 15, 2002, in whole or in part, in cash
at the option of Sinclair, at the redemption prices (expressed as a percentage
of such shares' Liquidation Amount) set forth below, if redeemed during the
12-month period beginning March 15 of each of the years set forth below:
REDEMPTION
YEAR PRICE
------ ----------
2002 ........................ 105.813%
2003 ........................ 104.650
2004 ........................ 103.488
2005 ........................ 102.325
2006 ........................ 101.163
and thereafter at 100% of such shares' Liquidation Amount, together with accrued
and unpaid dividends, if any, to the redemption date (including an amount equal
to a prorated dividend from the last payment date to the redemption date).
In addition, up to 33 1/3% of the aggregate Liquidation Amount of the
Parent Preferred may be redeemed, in cash at the option of Sinclair, at any time
on or prior to March 15, 2000, at a redemption price per share equal to 111.625%
of the Liquidation Amount thereof, together with accrued and unpaid dividends,
if any, out of the net proceeds of one or more Public Equity Offerings of
Sinclair, provided, that, after any such redemption, the number of shares of
Parent Preferred outstanding must equal at least 66 2/3% of the number of shares
of Parent Preferred originally issued.
REDEMPTION UPON A TAX EVENT OR AN INVESTMENT COMPANY ACT EVENT
Upon a Tax Event or Investment Company Act Event, Sinclair will have the
option to redeem the New Parent Preferred, in whole or in part, in cash at a
redemption price of 105.813% in the case of a Tax Event, or 101% in the case of
an Investment Company Act Event, in each case of the aggregate Liquidation
Amount of the New Parent Preferred redeemed, plus accrued and unpaid dividends,
if any; provided that at the time of redemption in the case of a Tax Event
triggered by an amendment, clarification or change, such amendment,
clarification or change remains in effect.
The terms of Bank Credit Agreement and the Existing Notes currently
restrict Sinclair's ability to exercise this option.
"Tax Event" is defined generally as the receipt by the Trust of an opinion
of independent counsel to the Trust experienced in such matters to the effect
that, as a result of (i) any amendment to, clarification of, or change
(including any announced prospective change) in the laws or treaties (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein affecting taxation, (ii) any Administrative
Action or (iii) any amendment to, clarification of, or change in the official
position or the interpretation of such Administrative Action or judicial
decision or any interpretation or pronouncement that provides for a position
with respect to such Administrative Action or judicial decision that differs
from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory body, irrespective
of the manner in which such amendment, clarification or change is made known,
which amendment, clarification, or change is effective or such pronouncement or
decision is announced on or after the Issue Date, there is more than an
insubstantial risk that (a) the Trust is, or will be, subject to United States
federal income tax with respect to interest received on the New KDSM Senior
Debentures, (b) interest payable by KDSM, Inc. on the New KDSM Senior Debentures
is not, or will not be, fully deductible for United States federal income tax
purposes, or (c) the Trust is, or will be, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Investment Company Act Event" means the receipt by the Trust or KDSM, Inc.
of an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940 (the "1940 Act"), to the
effect that as a result of a change in law or regulation or a change in
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official interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority (a "Change in 1940 Act
Law"), the Trust or KDSM, Inc. is or will be considered an "investment company"
which is required to be registered under the 1940 Act which Change in 1940 Act
Law becomes effective on or after the Issue Date.
CHANGE OF CONTROL
The Parent Preferred Articles Supplementary provide that, upon a Change of
Control of Sinclair, each holder of New Parent Preferred will have the right to
require Sinclair to purchase all or a portion of such holder's New Parent
Preferred in cash pursuant to the Change of Control Offer, in whole or in part,
in integral multiples of $100, at a purchase price (the "Change of Control
Purchase Price") in cash in an amount equal to 101% of such shares' Liquidation
Amount, plus accrued and unpaid dividends, if any, to the date of purchase (the
"Change of Control Purchase Date"), pursuant to the Change of Control Offer and
the other procedures set forth in the Parent Preferred Articles Supplementary.
Notwithstanding the foregoing, the holders of the New Preferred Securities, the
New KDSM Senior Debentures and the New Parent Preferred will not have the right
to require the issuers of such securities to redeem or repurchase, as the case
may be, such securities upon a Change of Control under any circumstances unless
all of the Existing Notes and all indebtedness under the Bank Credit Agreement
are repaid, redeemed or repurchased, all of the commitments and letters of
credit issued under the Bank Credit Agreement are terminated and all interest
rate protection agreements entered into between Sinclair and any lenders under
the Bank Credit Agreement are terminated as a result of such Change of Control
or the holders of such instruments have consented to a Change of Control Offer,
in which case the date on which all Existing Notes and all Indebtedness under
the Bank Credit Agreement are so repaid, redeemed or repurchased and such
commitments, letters of credit and interest rate protection agreements are
terminated or the holders of such instruments have consented to a Change of
Control Offer shall be deemed to be the date on which such Change of Control
shall have occurred. If Sinclair does not make and consummate a Change of
Control Offer upon a Change of Control, the holders of the Parent Preferred
shall have the right to elect two directors to the board of directors of
Sinclair but will not have a right of redemption.
Within 30 days following any Change of Control, Sinclair shall give written
notice of such Change of Control to the holders of New Parent Preferred, by
first-class mail, postage prepaid, at their addresses appearing in the security
register, stating, among other things, that it is making the Change of Control
Offer, the Change of Control Purchase Price and that the Change of Control
Purchase Date shall be a Business Day no earlier than 30 days nor later than 60
days from the date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act; that any shares of New Parent
Preferred not tendered will continue to accrue dividends; that, unless Sinclair
defaults in the payment of the Change of Control Purchase Price, any shares of
New Parent Preferred accepted for payment pursuant to the Change of Control
Offer shall cease to accrue dividends after the Change of Control Purchase Date;
and certain other procedures that a holder of New Parent Preferred must follow
to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that
Sinclair will have available funds sufficient to pay the Change of Control
Purchase Price for all of the New Parent Preferred that may be tendered by
holders of the New Parent Preferred seeking to accept the Change of Control
Offer. A Change of Control will also result in an event of default under the
Bank Credit Agreement and the Existing Indentures and could result in the
acceleration of all indebtedness under the Bank Credit Agreement or the Existing
Indentures, as the case may be, and, in such case, the holders of the New Parent
Preferred will not have the right to have the New Parent Preferred redeemed. See
"Description of Indebtedness of Sinclair." Moreover, the Bank Credit Agreement
prohibits the redemption of the New Parent Preferred by Sinclair. The remedy of
a holder of New Parent Preferred if Sinclair fails to make or consummate the
Change of Control Offer upon a Change of Control or pay the Change of Control
Purchase Price when due will be the right to elect two directors to the board of
directors of Sinclair.
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under Maryland law (which is the governing law
of the Parent Preferred Articles Supple-
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mentary) to represent a specific quantitative test. As a consequence, in the
event the holders of the New Parent Preferred elected to exercise their rights
under the Parent Preferred Articles Supplementary related to the New Parent
Preferred and Sinclair elected to contest such election, there could be no
assurance as to how a court interpreting Maryland law would interpret the term.
The existence of a holder's right to require Sinclair to repurchase such
holder's New Parent Preferred upon a Change of Control may deter a third party
from acquiring Sinclair in a transaction which constitutes a Change of Control.
The Parent Preferred Articles Supplementary do not afford holders of New
Parent Preferred the right to require Sinclair to repurchase the New Parent
Preferred in the event of a highly leveraged transaction or certain transactions
with Sinclair's management or its affiliates, including a reorganization,
restructuring, merger or similar transaction (including, in certain
circumstances, an acquisition of Sinclair by management or its Affiliates)
involving Sinclair that may adversely affect holders of the New Parent
Preferred, if such transaction is not a transaction defined as a Change of
Control. In addition, Sinclair does not have to redeem the New Parent Preferred
upon a Change of Control if the Existing Notes or any indebtedness, commitments,
letters of credit or interest rate protection agreements under the Bank Credit
Agreement are outstanding. A transaction involving Sinclair's management or its
Affiliates, or a transaction involving a recapitalization of Sinclair, will
result in a Change of Control if it is the type of transaction specified by such
definition.
Sinclair will comply with the applicable securities laws or regulations in
connection with a Change of Control Offer.
USE OF REDEMPTION PROCEEDS
If Sinclair elects to redeem the New Parent Preferred held by KDSM, Inc.,
KDSM, Inc. will use the proceeds of such redemption to redeem New KDSM Senior
Debentures. The Trust will use the proceeds of such redemption to redeem New
Preferred Securities.
PROCEDURE FOR REDEMPTION
On and after a redemption date, unless Sinclair defaults in the payment of
the applicable redemption price, dividends will cease to accrue on shares of New
Parent Preferred called for redemption and all rights of holders of such shares
will terminate except for the right to receive the redemption price without
interest. If a notice of redemption shall have been given as provided in the
succeeding sentence and the funds necessary for redemption (including an amount
in respect of all dividends that will accrue to the redemption date) shall have
been segregated and irrevocably set apart by Sinclair, in trust for the benefit
of the holders of the shares called for redemption, then dividends shall cease
to accrue on the redemption date on the shares of New Parent Preferred to be
redeemed and, at the close of business on the date or when such funds were
segregated and set apart, the holders of the shares to be redeemed shall cease
to be stockholders of Sinclair and shall be entitled only to receive the
redemption price for such shares. Sinclair will send a written notice of
redemption by first class mail to each holder of record of shares of New Parent
Preferred, not fewer than 30 days nor more than 60 days prior to the date fixed
for such redemption at such holder's registered address. Shares of New Parent
Preferred issued and reacquired will, upon compliance with the applicable
requirements of Maryland law, have the status of authorized but unissued shares
of preferred stock of Sinclair undesignated as to series and may with any and
all other authorized but unissued shares of preferred stock of Sinclair be
designated or redesignated and issued or reissued, as the case may be, as part
of any series of preferred stock of Sinclair, except that any issuance or
reissuance of shares of preferred stock must be in compliance with the Parent
Preferred Articles Supplementary and except that such shares may not be reissued
or sold as shares of New Parent Preferred. In connection with the Exchange
Offer, Sinclair is seeking approval of an amendment to the Parent Preferred
Articles Supplementary to clarify that Sinclair may issue New Parent Preferred
in connection with the Exchange Offer. See "The Exchange Offer-Amendment of
Parent Preferred Articles Supplementary."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
Sinclair, holders of New Parent Preferred will be entitled to be paid out of the
assets of Sinclair available for distribution $100.00 per share, plus any
accrued and unpaid dividends thereon to the date fixed for liquidation,
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dissolution or winding-up (including an amount equal to a prorated dividend
(including additional dividends compounded quarterly with respect to any overdue
dividends) from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Securities, including, without limitation, any common stock of Sinclair.
If upon any voluntary or involuntary liquidation, dissolution or winding-up of
Sinclair, the amounts payable with respect to the New Parent Preferred and all
other Parity Securities are not paid in full, the holders of the New Parent
Preferred and the Parity Securities will share equally and ratably in any
distribution of assets of Sinclair in proportion to the full liquidation
preferences to which each is entitled. After payment of the full amount of the
liquidation preferences to which they are entitled, the holders of shares of New
Parent Preferred will not be entitled to any further participation in any
distribution of assets of Sinclair. However, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of Sinclair
nor the consolidation or merger of Sinclair with one or more corporations shall
be deemed to be a liquidation, dissolution or winding-up of Sinclair.
The Parent Preferred Articles Supplementary do not contain any provision
requiring funds to be set aside to protect the liquidation preference of the New
Parent Preferred, although such liquidation preference will be substantially in
excess of the par value of such shares of New Parent Preferred. In addition,
Sinclair is not aware of any provision of Maryland law or any controlling
decision of the courts of the State of Maryland (the state of incorporation of
Sinclair) that requires a restriction upon the surplus of Sinclair solely
because the liquidation preference of the New Parent Preferred will exceed its
par value. Consequently, there will be no restriction upon the surplus of
Sinclair solely because the liquidation preference of the New Parent Preferred
will exceed the par value thereof and there will be no remedies available to
holders of the New Parent Preferred before or after the payment of any dividend,
other than in connection with the liquidation of Sinclair, solely by reason of
the fact that such dividend would reduce the surplus of Sinclair to an amount
less than the difference between the liquidation preference of the New Parent
Preferred and its par value.
VOTING RIGHTS
Holders of the New Parent Preferred will have no voting rights, except as
provided by law or as set forth in the Parent Preferred Articles Supplementary.
The Parent Preferred Articles Supplementary provide that if (i) cash dividends
on the Parent Preferred are in arrears and unpaid for four or more quarterly
dividend payments (whether or not pursuant to an Extension Period) (a "Dividend
Default"); (ii) Sinclair shall fail to make and consummate a Change of Control
Offer upon the occurrence of a Change of Control; (iii) Sinclair fails to
discharge any redemption obligation with respect to the Parent Preferred; or
(iv) a breach or violation of any of the provisions described in the next
paragraph or under the caption "-Certain Covenants" occurs and such breach or
violation continues for a period of 30 days or more, then in any such case the
holders of a majority of the Liquidation Amount of the then outstanding Parent
Preferred, voting separately as a class, will have the right to elect two
directors to the board of directors of Sinclair pursuant to the Pledge Agreement
and the Trust Agreement. Such voting rights will continue until such time as, in
the case of a Dividend Default, all dividends in arrears on the Parent Preferred
are paid in full in cash and, in all other cases, any failure, breach or default
is remedied or waived by the holders of a majority of the Liquidation Amount of
the Parent Preferred then outstanding, at which time the terms of any directors
elected pursuant to the provisions of this paragraph shall terminate. Each such
event described in clauses (i) through (iv) above is referred to herein as a
"Voting Rights Triggering Event." The voting rights provided herein shall be the
holder's exclusive remedy at law or in equity for holders of New Parent
Preferred. KDSM, Inc. (which at the consummation of the Exchange Offer will be
the sole holder of the New Parent Preferred) will covenant in the Pledge
Agreement that it will elect the nominees of the Trust who will elect the
nominees of the holders of a majority of the Liquidation Value of the Preferred
Securities then outstanding to such directorships.
The Parent Preferred Articles Supplementary provide that Sinclair will not
authorize any class of Senior Securities without the affirmative vote or consent
of the holders of a majority of the Liquidation Amount of Parent Preferred then
outstanding, voting or consenting. The Parent Preferred Articles Supplementary
also provide, that Sinclair may not amend its Amended Certificate of
Incorporation or
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the Parent Preferred Articles Supplementary so as to affect adversely the
specified rights, preferences, privileges or voting rights of the holders of the
Parent Preferred or the holders of the Preferred Securities, or authorize the
issuance of any additional shares of Parent Preferred, without the affirmative
vote or consent of the holders of a majority of the Liquidation Amount of
outstanding shares of Parent Preferred or a majority of the Liquidation Value of
then outstanding Preferred Securities pursuant to the Pledge Agreement, voting
or consenting, as the case may be, as separate classes except that certain
amendments require 100% consent. The holders of a majority of the Liquidation
Amount of outstanding shares of Parent Preferred and the holders of a majority
of the Liquidation Value of the Preferred Securities then outstanding, pursuant
to the Pledge Agreement and the Trust Agreement, voting or consenting, as the
case may be, as a single class, may also waive compliance with any provision of
the Parent Preferred Articles Supplementary except for certain waivers which
require 100% consent. KDSM, Inc. will covenant in the Pledge Agreement that it
will not provide any such consents described in this paragraph without the
requisite consent of the holders of the Preferred Securities.
CERTAIN COVENANTS
Limitation on Indebtedness. The Parent Preferred Articles Supplementary
will provide that Sinclair will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or directly or indirectly guarantee or in
any other manner become directly or indirectly liable for ("incur") any
Indebtedness (including Acquired Indebtedness), except that Sinclair may incur
Indebtedness and a Restricted Subsidiary may incur Permitted Subsidiary
Indebtedness if, in each case, the Debt to Operating Cash Flow Ratio of Sinclair
and its Restricted Subsidiaries at the time of the incurrence of such
Indebtedness, after giving pro forma effect thereto, is 7:1 or less.
The foregoing limitation will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"):
(i) Indebtedness of Sinclair under the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed $300
million under any revolving credit facility thereunder;
(ii) Indebtedness of Sinclair pursuant to the Existing Notes and
Indebtedness of any Subsidiary of Sinclair pursuant to a guarantee of the
Existing Notes;
(iii) Indebtedness of any Subsidiary of Sinclair consisting of a
guarantee of Sinclair's Indebtedness under the Bank Credit Agreement;
(iv) Indebtedness of Sinclair or any Restricted Subsidiary outstanding
on the date the Old Parent Preferred was issued and listed therein;
(v) Indebtedness of Sinclair owing to a Restricted Subsidiary; provided
that any disposition, pledge or transfer of any such Indebtedness to a Person
(other than a disposition, pledge or transfer to a Wholly Owned Restricted
Subsidiary or a pledge to or for the benefit of the lenders under the Bank
Credit Agreement) shall be deemed to be an incurrence of such Indebtedness by
the obligor not permitted by this clause (v);
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary owing to
Sinclair or another Wholly Owned Restricted Subsidiary; provided that (a) any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to Sinclair or a Wholly Owned
Restricted Subsidiary or pledge to or for the benefit of the lenders under
the Bank Credit Agreement) shall be deemed to be an incurrence of such
Indebtedness by the obligor not permitted by this clause (vi) and (b) any
transaction pursuant to which any Wholly Owned Restricted Subsidiary, which
has Indebtedness owing to Sinclair or any other Wholly Owned Restricted
Subsidiary, ceases to be a Wholly Owned Restricted Subsidiary shall be deemed
to be the incurrence of Indebtedness by such Wholly Owned Restricted
Subsidiary that is not permitted by this clause (vi);
(vii) guarantees by any Restricted Subsidiary of Indebtedness of Sinclair
or another Restricted Subsidiary which, if any Existing Notes are
outstanding, are made in accordance with the Existing Indentures and
guarantees by Sinclair or any Subsidiary of the KDSM Senior Debentures;
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(viii) obligations of Sinclair entered into in the ordinary course of
business pursuant to Interest Rate Agreements designed to protect Sinclair
against fluctuations in interest rates in respect of Indebtedness of Sinclair
as long as such obligations at the time incurred do not exceed the aggregate
principal amount of such Indebtedness then outstanding or in good faith
anticipated to be outstanding within 90 days of such occurrence;
(ix) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness described in
clauses (ii), (iii), (iv) and (v) above, including any successive
refinancings so long as the aggregate principal amount of Indebtedness
represented thereby is not increased by such refinancing plus the lesser of
(I) the stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the Indebtedness
being refinanced or (II) the amount of premium or other payment actually paid
at such time to refinance the Indebtedness, plus, in either case, the amount
of expenses of Sinclair incurred in connection with such refinancing; and
(x) Indebtedness of Sinclair in addition to that described in clauses (i)
through (ix) above, and any renewals, extensions, substitutions,
refinancings, or replacements of such Indebtedness, so long as the aggregate
principal amount of all such Indebtedness shall not exceed $10,000,000.
Limitation on Restricted Payments. (a) Sinclair will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any of Sinclair's Junior Securities or Parity Securities (as defined in
the Parent Preferred Articles Supplementary) (other than dividends or
distributions payable solely in its Junior Securities or Parity Securities);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any Junior Securities or Parity Securities or warrants, rights
or options to acquire shares of Junior Securities or Parity Securities
(except Junior Securities or Parity Securities held by Sinclair or a Wholly
Owned Restricted Subsidiary);
(iii) declare or pay any dividend or distribution on any Equity Interests
of any Subsidiary to any Person (other than Sinclair or any of its Wholly
Owned Restricted Subsidiaries);
(iv) incur, create or assume any guarantee of Indebtedness of any
Affiliate (other than a Wholly Owned Restricted Subsidiary of Sinclair); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing payments described in clauses (i) through (v), other than
any such action that is a Permitted Payment, collectively, "Restricted
Payments") unless, after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, as determined by the
board of directors of Sinclair, whose determination shall be conclusive and
evidenced by a board resolution), (1) no Voting Rights Triggering Event shall
have occurred and be continuing or would occur as a consequence thereof; (2) all
dividends on the Parent Preferred payable on any Dividend Payment Date prior to
the date of the Restricted Payment have been declared and paid in cash and (3)
the aggregate amount of all such Restricted Payments declared or made after the
Issue Date does not exceed the sum of:
(A) an amount equal to Sinclair's Cumulative Operating Cash Flow less
1.4 times Sinclair's Cumulative Consolidated Interest Expense; and
(B) the aggregate Net Cash Proceeds received on or after the Issue
Date by Sinclair from capital contributions (other than from a Restricted
Subsidiary) or from the issuance or sale (other than to any of its
Restricted Subsidiaries) of its Qualified Equity Interests (except, in
each case, to the extent such Net Cash Proceeds are used to purchase,
redeem or otherwise retire Equity Interests as set forth below); and
(C) the aggregate Net Cash Proceeds from the sale of the Old Parent
Preferred.
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(b) Notwithstanding the foregoing, and in the case of clause (ii) below, so
long as no Voting Rights Triggering Event is continuing, the foregoing
provisions shall not prohibit the following actions (clauses (i) through (iii)
being referred to as "Permitted Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) of this Section and such payment
shall be deemed to have been paid on such date of declaration for purposes of
the calculation required by paragraph (a) of this Section;
(ii) any transaction with an officer or director of Sinclair entered into
in the ordinary course of business (including compensation or employee
benefit arrangements with any officer or director of Sinclair); or
(iii) the repurchase, redemption, or other acquisition or retirement of
any Junior Securities in exchange for (including any such exchange pursuant
to the exercise of a conversion right or privilege if in connection therewith
cash is paid in lieu of the issuance of fractional shares or scrip), or out
of the Net Cash Proceeds of, a substantially concurrent issue and sale for
cash (other than to a Subsidiary) of other Qualified Junior Securities (as
defined in the Parent Preferred Articles Supplementary) of Sinclair; provided
that the Net Cash Proceeds from the issuance of such Qualified Junior
Securities are excluded from clause (3) (B) of paragraph (a) of this Section.
Merger, Consolidation and Sale of Assets. The Parent Preferred Articles
Supplementary provide that, without the affirmative vote of the holders of a
majority of the Liquidation Amount of the issued and outstanding shares of
Parent Preferred, voting or consenting, as the case may be, as a separate class,
Sinclair may not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or adopt a plan of liquidation unless (i) either (a) Sinclair is the
survivor of such merger or consolidation or (b) the Person (if other than
Sinclair) formed by such consolidation or into which Sinclair is merged or the
Person that acquires by conveyance, transfer or lease the properties and assets
of Sinclair substantially as an entirety or, in the case of a plan of
liquidation, the Person to which assets of Sinclair have been transferred shall
be a corporation, partnership or trust organized and existing under the laws of
the United States or any State thereof or the District of Columbia; (ii) the
Parent Preferred shall be converted into or exchanged for and shall become
shares of such successor, transferee or resulting Person, having in respect of
such successor, transferee or resulting Person the same powers, preferences and
relative participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the Parent Preferred had immediately
prior to such transaction; (iii) immediately after giving effect to such
transaction and the use of proceeds therefrom (on a pro forma basis, including
any Indebtedness incurred or anticipated to be incurred in connection with such
transaction), Sinclair or the surviving or transferee Person is able to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "-Limitation on Indebtedness" covenant; (iv) immediately
after giving effect to such transaction, no Voting Rights Triggering Event shall
have occurred or be continuing; and (v) Sinclair has delivered to the transfer
agent prior to the consummation of the proposed transaction an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer complies with the Parent Preferred Articles Supplementary and
that all conditions precedent contained therein relating to such transaction
have been satisfied. For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties or assets of Sinclair, will be deemed to be the transfer
of all or substantially all of the properties and assets of Sinclair.
Limitation on Transactions with Affiliates. Sinclair will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of Sinclair (other than Sinclair or a Wholly Owned
Restricted Subsidiary of Sinclair) unless (a) such transaction or series of
transactions is in writing on terms that are no less favorable to Sinclair or
such Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction in arm's-length dealings with an unrelated third party
and (b) (i) with respect to
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any transaction or series of transactions involving aggregate payments in excess
of $1,000,000, Sinclair delivers an officers' certificate to the transfer agent
or the holders of the New Parent Preferred certifying that such transaction or
series of related transactions complies with clause (a) above and such
transaction or series of related transactions has been approved by a majority of
the members of the board of directors of Sinclair (and approved by a majority of
Independent Directors or, in the event there is only one Independent Director,
by such Independent Director) and (ii) with respect to any transaction or series
of transactions involving aggregate payments in excess of $5,000,000, an opinion
as to the fairness to Sinclair or such Restricted Subsidiary from a financial
point of view issued by an investment banking firm of national standing.
Notwithstanding the foregoing, this provision will not apply to (A) any
transaction with an officer or director of Sinclair entered into in the ordinary
course of business (including compensation or employee benefit arrangements with
any officer or director of Sinclair), (B) any transaction entered into by
Sinclair or one of its Wholly Owned Restricted Subsidiaries with a Wholly Owned
Restricted Subsidiary of Sinclair, and (C) transactions in existence on the date
the Old Parent Preferred was initially issued.
Limitation on Sale of Assets. (a) Sinclair will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) at least 80% of the consideration from such Asset Sale is
received in cash and (ii) Sinclair or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold (other than in the case of an involuntary
Asset Sale, as determined by the board of directors of Sinclair and evidenced in
a board resolution or in connection with an Asset Swap as determined in writing
by a nationally recognized investment banking or appraisal firm); provided,
however, that in the event Sinclair or any Restricted Subsidiary engages in an
Asset Sale with any third party and receives in consideration therefor, or
simultaneously with such Asset Sale enters into, a Local Marketing Agreement
with such third party or any affiliate thereof, the Fair Market Value of such
Local Marketing Agreement (as determined in writing by a nationally recognized
investment banking or appraisal firm) shall be deemed cash and considered when
determining whether such Asset Sale complies with the foregoing clauses (i) and
(ii). Notwithstanding the foregoing, clause (i) of the preceding sentence shall
not be applicable to any Asset Swap.
(b) Sinclair and its Restricted Subsidiaries consummating such an Asset
Sale shall apply the Net Cash Proceeds thereof to the permanent prepayment of
Indebtedness or within 12 months of the Asset Sale to the purchase of properties
and assets that (as determined by the board of directors of Sinclair) replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the businesses of Sinclair or its
Restricted Subsidiaries existing on the Issue Date or in businesses reasonably
related thereto.
Limitation on Unrestricted Subsidiaries. Sinclair will not make, and will
not permit any of its Restricted Subsidiaries to make, any Investments in
Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of such
Investments would exceed the amount of Restricted Payments then permitted to be
made pursuant to the "-Limitation on Restricted Payments" covenant. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as the payment of a Restricted Payment in
calculating the amount of Restricted Payments made by Sinclair and (ii) may be
made in cash or property. For all purposes under the New Parent Preferred, KDSM,
Inc. and any of its Subsidiaries shall be deemed to be Unrestricted Subsidiaries
and any Investment by Sinclair in KDSM, Inc. shall not be deemed a Restricted
Payment.
Provision of Financial Statements. Whether or not Sinclair is subject to
Section 13(a) or 15(d) of the Exchange Act, Sinclair will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which Sinclair would have been required to
file with the Commission pursuant to such Section 13(a) or 15(d) if Sinclair
were so subject, such documents to be filed with the Commission to the extent
permitted under the Exchange Act on or prior to the respective dates (the
"Required Filing Dates") by which Sinclair would have been required so to file
such documents if Sinclair were so subject. Sinclair will also in any event (x)
within 15 days of each Required Filing Date transmit by mail to all holders of
New Parent Preferred, as their names and addresses appear in Sinclair's stock
register, without cost to such holders, copies of the annual reports,
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quarterly reports and other documents which Sinclair would have been required to
file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
if Sinclair were subject to such Sections and (y) if filing such documents by
Sinclair with the Commission is not permitted under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective holder of New
Parent Preferred at Sinclair's cost.
TRANSFER AGENT AND REGISTRAR
First Union National Bank of Maryland is the transfer agent and registrar
for the New Parent Preferred.
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DESCRIPTION OF THE NEW KDSM SENIOR DEBENTURES
Set forth below is a description of the specific terms of the New KDSM
Senior Debentures, which KDSM, Inc. is offering to exchange for the Old KDSM
Senior Debentures. The Trust purchased the Old KDSM Senior Debentures with the
proceeds of the issuance and sale of the Common Securities and the Preferred
Securities. The following description contains all material information
concerning the New KDSM Senior Debentures but does not purport to be complete
and is qualified in its entirety by reference to the description in the KDSM
Senior Debenture Indenture, to be dated as of March 12, 1997, between KDSM, Inc.
and First Union National Bank of Maryland, as trustee with respect to the New
KDSM Senior Debentures (the "Debenture Trustee"), which is filed as an exhibit
to the registration statement of which this Prospectus is a part and is
available as set forth under "Available Information." Whenever particular
sections or defined terms in the KDSM Senior Debenture Indenture are referred to
herein, such sections or defined terms are incorporated by reference herein.
Section references used herein are references to provisions of the KDSM Senior
Debenture Indenture unless otherwise noted. Certain capitalized terms used
herein are defined under "Certain Definitions."
GENERAL
The New KDSM Senior Debentures will be limited in aggregate principal
amount to $206.2 million. The New KDSM Senior Debentures will be senior
obligations of KDSM, Inc., secured by a pledge of the New Parent
Preferred. (Section 1401).
The entire outstanding principal amount of the New KDSM Senior Debentures
will become due and payable, together with any accrued and unpaid interest
thereon, including any Additional Interest (as defined in "-Additional
Interest"), on March 15, 2009.
Payments by KDSM, Inc. on the New KDSM Senior Debentures, if made in
accordance with the terms of the KDSM Senior Debenture Indenture, will provide
funds sufficient to enable the Trust to make distributions and pay other amounts
on the New Preferred Securities. KDSM, Inc. will be substantially dependent on
the receipt of dividend payments on the New Parent Preferred and/or generating
cash from its operations to make payments on the New KDSM Senior Debentures.
KDSM, Inc.'s assets will initially consist of the Parent Preferred, the Common
Securities and the License Assets and Non-License Assets used in the operation
of KDSM-TV in Des Moines, Iowa. See "Risk Factors-High Leverage of KDSM, Inc.,"
"-Reliance on Television Operations in One Market" and "-Ability of KDSM, Inc.
to Transfer KDSM-TV" and "Relationship Among the New Preferred Securities, the
New KDSM Senior Debentures, the New Parent Preferred and the New Parent
Guarantee."
INTEREST
The KDSM Senior Debentures bear interest at the rate of 11 5/8% per annum
payable quarterly in arrears on March 15, June 15, September 15 and December 15
of each year (each, an "Interest Payment Date") to the Person in whose name each
KDSM Senior Debenture is registered as of the March 1, June 1, September 1 and
December 1 next preceding each such Interest Payment Date. Interest on the Old
KDSM Senior Debentures accrues from March 12, 1997, the date of original
issuance. The first Interest Payment Date with respect to the Old KDSM Senior
Debentures is June 15, 1997. Interest on the New KDSM Senior Debentures will
accrue from the most recent Interest Payment Date of the Old KDSM Senior
Debentures surrendered in exchange for such New KDSM Senior Debentures. It is
anticipated that the New KDSM Senior Debentures will be held in the name of the
Trust and will be held by the Property Trustee for the benefit of the holders of
the New Preferred Securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. (Section 312). In the event that any
date on which interest is payable on the New KDSM Senior Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), with the same force and effect as
if made on the date the payment was originally payable.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD
Sinclair will have the right, at any time and from time to time, to defer
any dividend payments on the New Parent Preferred for up to three consecutive
quarters during an Interest Extension Period; provided that Sinclair will be
required to pay all dividends due and owing on the New Parent Preferred at least
once every four quarters and must pay all dividends due and owing on March 15,
2009. Similarly, KDSM, Inc. shall have the right, at any time and from time to
time, to defer any interest payments on the New KDSM Senior Debentures during
any Interest Extension Period for (i) up to three consecutive quarters for any
period for which it does not receive dividends on the New Parent Preferred and
(ii) one quarter even if KDSM, Inc. receives dividends on the New Parent
Preferred; provided that KDSM, Inc. will be required to pay all interest due and
owing on the New KDSM Senior Debentures at least once every four quarters and
must pay all interest due and owing on the maturity date of the New KDSM Senior
Debentures. At the end of any such Interest Extension Period, KDSM, Inc. must
pay all interest then accrued and unpaid together with Additional Interest.
During any such Interest Extension Period, KDSM, Inc. covenants that it will not
declare or pay any dividend or distribution (other than a dividend or
distribution in its Capital Stock) on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its Capital Stock, or make any
guarantee payments with respect to the foregoing or repurchase, or cause any
subsidiary to repurchase, any security of KDSM, Inc. ranking pari passu with or
subordinate to the KDSM Senior Debentures. Except for Additional Interest
Attributable to Taxes (as defined under "-Additional Interest"), no interest
shall be due and payable during an Interest Extension Period, until the end of
such period. KDSM, Inc. must issue a press release in a normal commercial manner
which may be joint with the Trust and Sinclair and give the Property Trustee,
the Administrative Trustees and the Debenture Trustee notice of its election of
any Interest Extension Period at least ten Business Days prior to the earlier of
(i) the record date for interest payments on the New KDSM Senior Debentures or
(ii) the date the Administrative Trustees are required to give notice to any
applicable self-regulatory organization or security exchange or to holders of
the New Preferred Securities of the record date for the payment of such
distribution or the date such distributions are payable. The Debenture Trustee
will be required to give notice promptly of KDSM, Inc.'s election of such
Interest Extension Period. If the Property Trustee shall not be the sole holder
of record of the New KDSM Senior Debentures, KDSM, Inc. shall give all holders
of the New KDSM Senior Debentures notice at the time described in the prior
sentence.
In addition, the Parent Preferred Articles Supplementary will provide that,
during any period in which Sinclair defers dividends during a Dividend Extension
Period, Sinclair will not declare or pay any dividend or distribution (other
than a dividend or distribution in Common Stock of Sinclair or other security
junior in right of payment to the New Parent Preferred) on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its Capital Stock,
or make any guarantee payments with respect to the foregoing (other than
payments under the Parent Guarantee) or repurchase, or cause any Subsidiary to
repurchase, any security of Sinclair ranking pari passu with or subordinate to
the New Parent Preferred. The payment of the principal of and interest on the
New KDSM Senior Debentures will rank pari passu in right of payment to all
senior indebtedness of KDSM, Inc. and senior to all junior indebtedness of KDSM,
Inc. As of December 31, 1996 on a pro forma basis, KDSM, Inc. would have had no
long-term indebtedness outstanding other than the KDSM Senior Debentures.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any interest on
distributions in arrears in respect of the New Preferred Securities pursuant to
the terms thereof, KDSM, Inc. will in effect be required to pay as interest to
the Trust as the holder of the New KDSM Senior Debentures an amount of
additional interest ("Additional Interest Attributable to Deferral") equal to
such interest on distributions in arrears. Accordingly, in such circumstances
KDSM, Inc. will, to the fullest extent permitted by applicable law, pay interest
upon interest in order to provide for quarterly compounding on the New KDSM
Senior Debentures. In addition, if the Trust would be required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any other taxing authority,
then, in any such case, KDSM, Inc. will also be required to pay such amounts and
any other amounts as shall be required so that the net amounts received and
retained by the Trust after
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paying such taxes, duties, assessments or governmental charges whenever paid
will be not less than the amounts the Trust would have received had no such
taxes, duties, assessments or governmental charges been imposed ("Additional
Interest Attributable to Taxes" and, together with Additional Interest
Attributable to Deferral, "Additional Interest").
SET-OFF
Notwithstanding anything to the contrary in the KDSM Senior Debenture
Indenture, Sinclair shall have the right to cause KDSM, Inc. to set-off any
payment it is otherwise required to make under the New KDSM Senior Debentures to
the extent Sinclair has theretofore made, or is concurrently on the date of such
payment making, a payment under the New Parent Guarantee.
OPTIONAL REDEMPTION
KDSM, Inc. has the right (a) at any time on or after March 15, 2002, to
redeem the New KDSM Senior Debentures, in whole or in part, in cash at the
following redemption prices expressed as a percentage of the principal amount,
if redeemed during the 12-month period beginning March 15 of the years indicated
below:
REDEMPTION
YEAR PRICE
------- -----------
2002 ..................... 105.813%
2003 ..................... 104.650
2004 ..................... 103.488
2005 ..................... 102.325
2006 ..................... 101.163
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date or (b) at any time
on or prior to March 15, 2000, in whole or in part, to redeem up to 33 1/3% of
the aggregate principal amount of the KDSM Senior Debentures at 111.625% of
their principal amount, with the proceeds of one or more redemptions of the
Parent Preferred held by KDSM, Inc. (which Parent Preferred will have been
redeemed from the proceeds of one or more Public Equity Offerings of Sinclair);
provided that after such redemption at least 66 2/3% of the aggregate principal
amount of KDSM Senior Debentures originally issued in respect of the Preferred
Securities remains outstanding. Such redemption in the case of clause (b) must
be made within 180 days of such Public Equity Offerings. Upon a redemption
pursuant to clause (a) or (b), the Preferred Securities to be redeemed from the
proceeds of the redemption of KDSM Senior Debentures shall be redeemed at a
percentage of their Liquidation Value equal to the percentage of principal
amount for which such KDSM Senior Debentures were redeemed.
REDEMPTION UPON A TAX EVENT OR AN INVESTMENT COMPANY ACT EVENT
KDSM, Inc. will have the option (a) upon a Tax Event or an Investment
Company Act Event, to redeem, in whole or in part, the New KDSM Senior
Debentures for cash at a redemption price of 105.813% in the case of a Tax
Event, or 101% in the case of an Investment Company Act Event, in each case of
the aggregate principal amount of the New KDSM Senior Debentures redeemed, plus
all accrued and unpaid interest, and to require Sinclair to redeem the New
Parent Preferred for cash pursuant to the terms thereof at the same redemption
prices; provided that at the time of redemption in the case of a Tax Event
triggered by an amendment, clarification or change, such amendment,
clarification or change remains in effect or (b) upon a Tax Event, as the holder
of all the Common Securities of the Trust, to cause the Trust to be dissolved
with each holder of New Preferred Securities receiving New KDSM Senior
Debentures in a principal amount equal to the Liquidation Value of their New
Preferred Securities. If KDSM, Inc. exercises the option in clause (a) above,
KDSM, Inc. will use the cash proceeds from the redemption of the New Parent
Preferred to redeem New KDSM Senior Debentures held by the Trust at a price that
is a percentage above their principal amount equal to the same percentage above
the Liquidation Amount, if any, for which Sinclair redeems the New Parent
Preferred. The Trust
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would then promptly redeem New Preferred Securities with the proceeds it
received from KDSM, Inc. If KDSM, Inc. exercises the option in clause (b) above,
(i) pursuant to the KDSM Senior Debenture Indenture, Sinclair has agreed,
effective at the time of such distribution, to fully and unconditionally
guarantee the payment of the New KDSM Senior Debentures on a junior subordinated
basis (the "New Parent Debenture Guarantee"); provided that Sinclair confirms
the effectiveness of the New Parent Debenture Guarantee at the time of
distribution which it may not do if such New Parent Debenture Guarantee is not
then permitted under the terms of the Existing Indentures or the Bank Credit
Agreement and (ii) the Trust may not be dissolved unless the New Parent
Debenture Guarantee is effective. KDSM, Inc. will also be required to deliver a
tax opinion to the Trust to the effect that the dissolution of the Trust and the
distribution of the New KDSM Senior Debentures will not be a taxable event for
U.S. federal income tax purposes to the holders of the New Preferred Securities.
Sinclair is currently prohibited from taking any of the prospective actions
referred to above by the Bank Credit Agreement and the Existing Notes.
CHANGE OF CONTROL
Upon a Change of Control of Sinclair, each holder of the New KDSM Senior
Debentures will have the right to require KDSM, Inc. to redeem all or a portion
of such holder's New KDSM Senior Debentures in cash at a redemption price (the
"Change of Control Purchase Price") equal to 101% of principal amount plus
accrued and unpaid interest, if any, to the date of repurchase. Under the Trust
Agreement, each holder of New Preferred Securities, upon a Change of Control,
will have the right to require the Trust to redeem all or a portion of such
holder's New Preferred Securities at a cash purchase price equal to 101% of such
New Preferred Securities' Liquidation Value plus accrued and unpaid
distributions, if any, to the date of repurchase (the "Change of Control
Purchase Date"). Under the terms of the New Parent Preferred, upon a Change of
Control, Sinclair will be required to redeem sufficient shares of New Parent
Preferred to enable KDSM, Inc. to redeem the appropriate aggregate principal
amount of New KDSM Senior Debentures. See "Description of New Parent
Preferred-Change of Control." Notwithstanding the foregoing, the holders of the
New Preferred Securities, the New KDSM Senior Debentures and the New Parent
Preferred will not have the right to require the issuers of such securities to
redeem or repurchase such securities upon a Change of Control under any
circumstances unless all of the Existing Notes and all indebtedness under the
Bank Credit Agreement are repaid, redeemed or repurchased, all of the
commitments and letters of credit issued under the Bank Credit Agreement are
terminated and all interest rate protection agreements entered into between
Sinclair and any lenders under the Bank Credit Agreement are terminated as a
result of such Change of Control, or the holders of such instruments have
consented to a Change of Control Offer, in which case the date on which all
Existing Notes and all indebtedness under the Bank Credit Agreement are so
repaid, redeemed or repurchased and said commitments, letters of credit and
interest rate protection agreements are terminated or the holders of such
instruments have consented to a Change of Control Offer, shall be deemed to be
the date on which such Change of Control shall have occurred; provided that,
notwithstanding the foregoing, if Sinclair does not make and consummate a Change
of Control Offer upon a Change of Control, the holders of the Preferred
Securities will effectively have the right to elect two directors to the board
of directors of Sinclair but will not have any right of redemption.
Within 30 days following any Change of Control, KDSM, Inc. shall notify all
holders of the New KDSM Senior Debentures by first-class mail, postage prepaid,
at their addresses appearing in the security register, stating among other
things: that it is making the Change of Control Offer; the price (the "Change of
Control Purchase Price") at which it is offering to purchase the New KDSM Senior
Debentures; that the Change of Control Purchase Date shall be a Business Day not
earlier than 30 days nor later than 60 days from the date such notice is mailed,
or such later date as is necessary to comply with requirements under the
Exchange Act; that any New KDSM Senior Debenture not tendered will continue to
accrue interest; that, unless KDSM, Inc. does not make the payment of the Change
of Control Purchase Price, any New KDSM Senior Debentures accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Purchase Date; and certain other procedures that a holder of
New KDSM Senior Debentures must follow to accept a Change of Control Offer or to
withdraw such acceptance.
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If a Change of Control Offer is made, there can be no assurance that KDSM,
Inc. will have available funds sufficient to pay the Change of Control Purchase
Price for all of the New KDSM Senior Debentures that may be delivered by holders
of the New KDSM Senior Debentures seeking to accept the Change of Control Offer.
KDSM, Inc.'s assets are limited initially to the assets related to the
programming or operation of KDSM-TV and the New Parent Preferred and it will
have funds to redeem the New KDSM Senior Debentures only to the extent it has
funds relating to the operation of KDSM-TV and receives funds from Sinclair upon
a redemption of the New Parent Preferred. Under the terms of the New Parent
Preferred, Sinclair will not be required to redeem shares of the New Parent
Preferred upon a "Change of Control" under the New Parent Preferred if the
Existing Notes or any indebtedness under the Bank Credit Agreement are
outstanding; provided that KDSM, Inc. would have the right to elect two
directors to Sinclair's board of directors if Sinclair does not so redeem shares
of the New Parent Preferred. The failure of KDSM, Inc. to make and consummate
the Change of Control Offer when required may also result in an Event of Default
under the KDSM Senior Debenture Indenture. A Change of Control will result in an
event of default under the Bank Credit Agreement and the Existing Notes and
could result in the acceleration of all indebtedness under the Bank Credit
Agreement or the Existing Indentures, as the case may be. See "Description of
Indebtedness of Sinclair."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York, Delaware or Maryland law
(which are the governing laws of the various operative governing documents) to
represent a specific quantitative test. As a consequence, in the event the
holders of the KDSM Senior Debentures elected to exercise their rights and the
Trust, KDSM, Inc. or Sinclair elected to contest such election, there could be
no assurance as to how a court interpreting New York, Delaware or Maryland law
would interpret the term.
The existence of a holder's right to require the repurchase of the New KDSM
Senior Debentures upon a Change of Control may deter a third party from
acquiring Sinclair in a transaction which constitutes a Change of Control.
FUNDING OF REDEMPTIONS
KDSM, Inc. will finance any of the redemptions of the New KDSM Senior
Debentures described above by causing Sinclair to redeem shares of the New
Parent Preferred having a Liquidation Amount equal to the principal amount of
the New KDSM Senior Debentures being so redeemed. The terms of the New Parent
Preferred provide that KDSM, Inc. may cause Sinclair to make such redemptions
except to the extent provided herein. See "Description of New Parent
Preferred-Optional Redemption" and "-Redemption Upon a Tax Event or an
Investment Company Act Event."
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
For so long as the Trust is the holder of all the outstanding KDSM Senior
Debentures, the proceeds of any redemption of the KDSM Senior Debentures will be
used by the Trust to redeem Preferred Securities first and then the Common
Securities in accordance with their terms. KDSM, Inc. may not redeem the KDSM
Senior Debentures in part unless all accrued and unpaid interest (including any
Additional Interest) has been paid in full on all outstanding KDSM Senior
Debentures for all quarterly interest periods terminating on or prior to the
date of redemption and no Interest Extension Period is in effect. (Section
1101).
Any optional redemption of the New KDSM Senior Debentures shall be made
upon not less than 30 nor more than 60 days' notice to the holders thereof, as
provided in the KDSM Senior Debenture Indenture. (Section 1105).
CERTAIN COVENANTS OF KDSM, INC.
Limitation on Restricted Payments. KDSM, Inc. will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
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(i) declare or pay any dividend on, or make any distribution to
holders of, any securities of KDSM, Inc. that are junior in right of payment
to the New KDSM Senior Debentures ("Junior Securities") (other than dividends
or distributions payable solely in Junior Securities);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any Junior Securities or warrants, rights or options
to acquire shares of Junior Securities (except Junior Securities held by
KDSM, Inc. or a Wholly Owned Subsidiary of KDSM, Inc.);
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund or maturity, any subordinated Indebtedness;
(iv) declare or pay any dividend or distribution or any Equity Interests
of any Subsidiary to any Person (other than KDSM, Inc., or a Wholly Owned
Subsidiary of KDSM, Inc.);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate (other than a Wholly Owned Subsidiary of KDSM, Inc.); or
(vi) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing payments described in clauses (i) through (vi),
collectively, "Restricted Payments") unless, after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, as determined by the board of directors of Sinclair, whose determination
shall be conclusive and evidenced by a board resolution), (i) there shall not
have occurred any event that with the giving of notice or the lapse of time, or
both, would constitute an Event of Default under the KDSM Senior Debenture
Indenture, (ii) KDSM, Inc. shall not have given notice of its election of an
Interest Extension Period as provided in the KDSM Senior Debenture Indenture
(which notice shall not have been rescinded) and such Interest Extension Period
shall be continuing and KDSM, Inc. shall not have failed to make any interest
payment on the New KDSM Senior Debentures (whether or not as a result of an
Interest Extension Period) and such failure shall be continuing and (iii) the
aggregate amount of all Restricted Payments made after the date of the KDSM
Senior Debenture Indenture does not exceed an amount equal to KDSM, Inc.'s
Cumulative Operating Cash Flow, plus, to the extent not included in the
Cumulative Operating Cash Flow, Cumulative Parent Preferred Dividends, less
KDSM, Inc.'s Cumulative Consolidated Interest Expense. Notwithstanding the
foregoing, the foregoing provisions shall not prohibit an Asset Transfer
Transaction; provided that any Restricted Payment made in connection with an
Asset Transfer Transaction shall be considered in making the calculation of
Restricted Payments in the prior sentence with respect to any future
transaction. (Section 1008).
Limitation on Indebtedness. KDSM, Inc. will not, and will not permit any of
its Subsidiaries to, create, issue, incur, assume, or directly or indirectly
guarantee or otherwise in any manner become directly or indirectly liable for
("incur") any Indebtedness (including Acquired Indebtedness) except that KDSM,
Inc. may incur Indebtedness if the Debt to Operating Cash Flow Ratio of KDSM,
Inc. and its Subsidiaries at the time of the incurrence of such Indebtedness,
after giving pro forma effect thereto, is 4 to 1 or less. The foregoing
limitation will not apply to the incurrence of (i) debt pursuant to the issuance
of the KDSM Senior Debentures, (ii) trade credit incurred in the ordinary course
of business, (iii) Indebtedness of the Company represented by Capital Lease
Obligations or Purchase Money Obligations or Indebtedness incurred for working
capital purposes in an aggregate principal amount at any one time outstanding
not to exceed $5 million and (iv) guarantees by any Subsidiary of KDSM, Inc.
made in accordance with "-Limitation on Issuances of Guarantees of
Indebtedness." (Section 1009).
Limitation on Issuances of Guarantees of Indebtedness. KDSM, Inc. will not
permit any Subsidiary, directly or indirectly, to guarantee, assume or in any
other manner become liable with respect to any Indebtedness unless such
Subsidiary simultaneously executes and delivers a supplemental indenture to the
KDSM Senior Debenture Indenture providing for a guarantee of the New KDSM Senior
Debentures, on the same terms as the guarantee of such Indebtedness except that
if such Indebtedness is by its terms expressly subordinated to the New KDSM
Senior Debentures any such assumption, guarantee or other liability of such
Subsidiary with respect to such Indebtedness shall be subordinated to such
Subsidiary's guarantee of the New KDSM Senior Debentures at least to the same
extent as such Indebtedness is subordinated to the New KDSM Senior Debentures.
(Section 1010).
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Merger, Consolidation and Sale of Assets. KDSM, Inc. may not, in a single
transaction or a series of related transactions, consolidate with or merge with
or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets (with and without giving effect to the Parent
Preferred) to, another Person or adopt a plan of liquidation unless (i) either
(a) KDSM, Inc. is the survivor of such merger or consolidation or (b) the Person
(if other than KDSM, Inc.) formed by such consolidation or into which KDSM, Inc.
is merged or the Person that acquires by conveyance, transfer or lease the
properties and assets of KDSM, Inc. substantially as an entirety or, in the case
of a plan of liquidation, the Person to which assets of KDSM, Inc. have been
transferred, shall be a corporation, partnership or trust organized and existing
under the laws of the United States or any State thereof or the District of
Columbia; (ii) the New KDSM Senior Debentures shall be converted into or
exchanged for and shall become obligations of such successor, transferee or
resulting Person, having in respect of such successor, transferee or resulting
Person the same powers, preferences and relative participating, optional or
other special rights and the qualifications, limitations or restrictions
thereon, that the New KDSM Senior Debentures had immediately prior to such
transaction; (iii) immediately after giving effect to such transaction and the
use of proceeds therefrom (on a pro forma basis, including any Indebtedness
incurred or anticipated to be incurred in connection with such transaction), the
Consolidated Net Worth of the surviving entity shall equal or exceed the
Consolidated Net Worth of KDSM, Inc. immediately prior to such transaction; (iv)
immediately after giving effect to such transaction on a pro forma basis, the
Cumulative Operating Cash Flow for the four most recently completed fiscal
quarters for the surviving entity shall equal or exceed the Cumulative Operating
Cash Flow of KDSM, Inc. for such four-quarter period; and (v) KDSM, Inc. has
delivered to the Debenture Trustee prior to the consummation of the proposed
transaction an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer complies with the KDSM Senior
Debenture Indenture and that all conditions precedent in the KDSM Senior
Debenture Indenture relating to such transaction have been satisfied; provided
that the foregoing clauses (i) through (v) shall not apply to any Asset Transfer
Transaction. For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of related transactions) of
all or substantially all of the properties and assets of one or more
Subsidiaries of KDSM, Inc., the Capital Stock of which constitutes all or
substantially all of the properties or assets of KDSM, Inc., will be deemed to
be the transfer of all or substantially all of the properties and assets of
KDSM, Inc. (Section 801).
Limitation on Transactions with Affiliates. KDSM, Inc. will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of KDSM, Inc. (other than KDSM, Inc. or a Wholly
Owned Subsidiary of KDSM, Inc.) unless (a) such transaction or series of
transactions is in writing on terms that are no less favorable to KDSM, Inc. or
such Subsidiary, as the case may be, than would be available in a comparable
transaction in arm's-length dealings with an unrelated third party and (b) (i)
with respect to any transaction or series of transactions involving aggregate
payments in excess of $500,000, KDSM, Inc. delivers an officers' certificate to
the Debenture Trustee certifying that such transaction or series of related
transactions complies with clause (a) above and such transaction or series of
related transactions has been approved by a majority of the members of the Board
of Directors of KDSM, Inc. (and approved by a majority of Independent Directors
of KDSM, Inc. or, in the event there is only one such Independent Director, by
such Independent Director) and (ii) with respect to any transaction or series of
transactions involving aggregate payments in excess of $1,000,000, an opinion as
to the fairness to KDSM, Inc. or such Subsidiary from a financial point of view
issued by an investment banking firm of national standing. Notwithstanding the
foregoing, this provision will not apply to (A) any transaction with an officer
or director of KDSM, Inc. entered into in the ordinary course of business
(including compensation or employee benefit arrangements with any officer or
director of KDSM, Inc.), (B) any transaction entered into by KDSM, Inc. or one
of its Wholly Owned Subsidiaries with a Wholly Owned Subsidiary of KDSM, Inc.,
(C) transactions in existence on the date of the KDSM Senior Debenture
Indenture, and (D) any Asset Transfer Transactions. (Section 1011).
Limitation on Liens. KDSM, Inc. will not, and will not permit any
Subsidiary of KDSM, Inc. to, directly or indirectly, create, incur or, affirm
any Lien of any kind upon any of its property or assets
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(including any intercompany notes), now owned or acquired after the date of the
KDSM Senior Debenture Indenture, or any income or profits therefrom, excluding,
however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the date of the KDSM Senior Debenture
Indenture;
(b) any Lien arising by reason of (1) any judgment, decree or order
of any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have expired;
(2) taxes not yet delinquent or which are being contested in good faith; (3)
security for payment of workers' compensation or other insurance; (4) good
faith deposits in connection with tenders, leases or contracts (other than
contracts for the payment of money); (5) zoning restrictions, easements,
licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and
with respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any
parcel of property material to the operation of the business of KDSM, Inc. or
any Subsidiary thereof or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations, or in lieu
of surety or appeal bonds; and (7) operation of law in favor of mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary
course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings which
suspend the collection thereof;
(c) any Liens securing Purchase Money Obligations or Capital Lease
Obligations incurred in accordance with the KDSM Senior Debenture Indenture;
and
(d) any extension, renewal, refinancing or replacement, in whole or
in part, of any Lien described in the foregoing clauses (a) through (c) so
long as the amount of security is not increased thereby. (Section 1012).
Limitation on Sale of Assets. KDSM, Inc. will not, and will not permit any
of its Subsidiaries to, directly or indirectly, consummate an Asset Sale unless
KDSM, Inc. or such Subsidiary receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the Equity Interests or assets
sold as determined in good faith by the board of directors of KDSM, Inc. and
evidenced in a board resolution, except in connection with an Asset Transfer
Transaction. (Section 1013).
Impairment of Security Interest. KDSM, Inc. will not, and will not permit
any Subsidiary of KDSM, Inc., to take or omit to take any action which would
have the result of adversely affecting or impairing the security interests with
respect to the Collateral in contravention of the KDSM Senior Debenture
Indenture, except as required by applicable law and except that Collateral may
be released simultaneously with the payment for the redemption of any shares of
Parent Preferred, and KDSM, Inc. shall not (and shall cause its Subsidiaries not
to) grant to, or suffer to exist in favor of, any Person, any interest
whatsoever in the Collateral except as permitted by the Collateral Documents or
the KDSM Senior Debenture Indenture. KDSM, Inc. will not, and will not permit
any of its Subsidiaries to, enter into any agreement or instrument that by its
terms expressly requires that the proceeds received from the sale of any
Collateral by KDSM, Inc. be applied to repay, redeem or otherwise retire any
Indebtedness of any Person other than the KDSM Senior Debenture Indenture.
(Section 1014).
Provision of Financial Statements. Whether or not Sinclair or KDSM, Inc. is
subject to Section 13(a) or 15(d) of the Exchange Act, KDSM, Inc. will send to
the holders of New KDSM Senior Debentures copies of the annual reports,
quarterly reports and other documents which Sinclair would have been required to
file with the Commission pursuant to such Section 13(a) or 15(d) if Sinclair
were so subject, such documents to be filed with the Commission to the extent
permitted under the Exchange Act on or prior to the respective dates (the
"Required Filing Dates") by which Sinclair would have been required so to file
such documents if Sinclair were so subject. KDSM, Inc. will also in any event
(x) within 15
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days of each Required Filing Date transmit by mail to all holders of the New
KDSM Senior Debentures, as their names and addresses appear in the register,
without cost to such holders, copies of the annual reports, quarterly reports
and other documents which Sinclair would have been required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if Sinclair
were subject to such Sections and (y) if filing such documents by Sinclair with
the Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective holder at KDSM, Inc.'s cost. Any
such documents sent to the holders of New KDSM Senior Debentures shall also
include financial information regarding KDSM, Inc. to the extent information
regarding KDSM, Inc. would be required to be included in a registration
statement relating to the New Preferred Securities or New KDSM Senior
Debentures, if such securities were being issued to the public. If the Trust is
the sole holder of the New KDSM Senior Debentures, the Trustees will cause the
reports delivered to the Trust pursuant to this paragraph to be promptly
delivered to the holders of the New Preferred Securities. (Section 1015).
Other Covenants. KDSM, Inc. has also covenanted in the KDSM Senior
Debenture Indenture (i) to maintain 100% ownership of the Common Securities of
the Trust and that all of its Capital Stock will be directly or indirectly owned
by Sinclair; (ii) not to voluntarily dissolve, wind-up or terminate the Trust,
except in certain circumstances permitted by the Trust Agreement; (iii) to use
its reasonable efforts, consistent with the terms and provisions of the Trust
Agreement, to cause the Trust to remain a business trust and otherwise not to be
classified as an association taxable as a corporation for United States federal
income tax purposes; (iv) to promptly (a) redeem the New KDSM Senior Debentures
from the proceeds of any redemption of the New Parent Preferred and (b) make
interest payments on the New Preferred Securities if the Company receives
dividend payments on the New Parent Preferred, except to the extent that KDSM,
Inc. is permitted to defer interest payments for one quarterly period even if it
receives dividends on the New Parent Preferred; (v) that upon a Change of
Control and a resulting Change of Control Offer only if a Change of Control
Offer is required, to elect to have shares of the New Parent Preferred redeemed
by Sinclair with a Liquidation Amount equal to the Liquidation Value of the New
Preferred Securities which holders of New Preferred Securities elect to tender
for redemption to the Trust as a result of such Change of Control; and (vi) that
KDSM, Inc. may not sell, offer to sell, grant any option with respect to, pledge
or incur any Liens with respect to, the New Parent Preferred other than as
permitted by the Collateral Documents.
EVENTS OF DEFAULT
The KDSM Senior Debenture Indenture will provide that any one or more of
the following described events that has occurred and is continuing constitutes
an "Event of Default" with respect to the New KDSM Senior Debentures:
(a) failure for 30 days to pay any interest on the KDSM Senior Debentures,
including any Additional Interest in respect thereof, when due (subject to the
deferral of any due date in the case of an Interest Extension Period); or
(b) failure to pay any principal on the KDSM Senior Debentures when due,
whether at maturity, upon redemption by declaration or otherwise; or
(c) the occurrence of a Voting Rights Triggering Event under the Parent
Preferred, which Voting Rights Triggering Event shall be continuing; or
(d) (i) there shall be a default in the performance, or breach, of any
covenant or agreement of KDSM, Inc. or any guarantor under the KDSM Senior
Debenture Indenture (other than a default in the performance or breach of a
covenant or agreement which is specifically dealt with in clause (a) or (b) or
in clause (ii) or (iii) of this clause (d)) and such default or breach shall
continue for a period of 30 days after written notice has been given, by
certified mail, (1) to the holder or holders of KDSM Senior Debentures by the
Debenture Trustee or (2) to KDSM, Inc. and the Debenture Trustee by the holders
of at least 25% in aggregate principal amount of the outstanding KDSM Senior
Debentures; (ii) there shall be a default in the performance or breach of the
provisions described under "-Certain Covenants of KDSM, Inc.-Merger,
Consolidation and Sale of Assets"; or (iii) KDSM, Inc. shall have failed to
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promptly redeem the New KDSM Senior Debentures from the proceeds of any
redemption of the New Parent Preferred or shall make and consummate a Change of
Control Offer, if required in accordance with the provisions described under
"-Change of Control"; or
(e) the occurrence of an Event of Default under the Expense Agreement; or
(f) any of the Collateral Documents shall for any reason cease to be, or be
asserted in writing by KDSM, Inc. or any Subsidiary, as applicable, not to be,
in full force and effect and enforceable in accordance with its terms, or any
security interest purported to be created by any Collateral Document shall cease
to be valid and perfected first security interest in any Collateral or there
shall be an Event of Default under the Pledge Agreement, except in each case to
the extent contemplated by the KDSM Senior Debenture Indenture or such
Collateral Document; or
(g) the New Parent Debenture Guarantee, after initial effectiveness, shall
for any reason cease to be, or be asserted in writing by Sinclair not to be, in
full force and effect, enforceable in accordance with its terms, except to the
extent contemplated by the KDSM Senior Debenture Indenture and the New Parent
Debenture Guarantee; or
(h) certain events in bankruptcy, insolvency or reorganization of Sinclair
or KDSM, Inc. or any Significant Subsidiary of Sinclair or KDSM, Inc. (Section
501).
The holders of a majority in outstanding principal amount of the KDSM
Senior Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee upon
an Event of Default under the KDSM Senior Debenture Indenture. (Section 512). If
an Event of Default (other then as specified in clause (h)) has occurred and is
continuing, the Debenture Trustee, the holders of at least 25% in aggregate
outstanding principal amount of the outstanding KDSM Senior Debentures or the
Trustees under the Trust on their own behalf or pursuant to the Trust Agreement
at the direction of the holders of at least 25% in aggregate Liquidation Value
of outstanding Preferred Securities (if the Trust holds at least 25% in
aggregate principal amount of the KDSM Senior Debentures) may declare the
principal and interest, including Additional Interest, due and payable on the
KDSM Senior Debentures immediately upon an Event of Default. If an Event of
Default specified in clause (h) has occurred and is continuing, then all of the
KDSM Senior Debentures together with all accrued and unpaid interest, including
Additional Interest, shall become and immediately be due and payable, without
any declaration or other act on the part of any Trustee or any holder. The
holders of a majority in aggregate outstanding principal amount of the KDSM
Senior Debentures may annul such declaration and waive the default if the
default has been cured or waived and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any Additional Interest has been deposited with the Debenture Trustee.
The holders of a majority in principal amount of the outstanding KDSM
Senior Debentures affected thereby may, on behalf of the holders of all the KDSM
Senior Debentures, waive any past default, except a default in the payment of
principal or interest, including Additional Interest (unless such default has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and any Additional Interest has
been deposited with the Debenture Trustee) or a default in respect of a covenant
or provision which under the KDSM Senior Debenture Indenture cannot be modified
or amended without the consent of the holder of each outstanding KDSM Senior
Debenture; provided that the Trustees of the Trust will not provide such waiver
if the Trust owns any of the KDSM Senior Debentures without the consent of the
holders of at least a majority in aggregate Liquidation Value of the outstanding
Preferred Securities. (Section 513). KDSM, Inc. is required to file annually
with the Debenture Trustee a certificate as to whether or not KDSM, Inc. is in
compliance with all the conditions and covenants applicable to it under the KDSM
Senior Debenture Indenture. (Section 1023).
In case any Event of Default shall occur and be continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
New KDSM Senior Debentures (including any Additional Interest) and any other
amounts payable under the KDSM Senior Debenture Indenture to be forthwith due
and payable and to enforce its other rights as a creditor with respect to the
New KDSM Senior Debentures. (Section 502).
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An involuntary dissolution of the Trust prior to redemption or maturity of
the New KDSM Senior Debentures would not constitute an Event of Default with
respect to the KDSM Senior Debenture Indenture. If the Trust is dissolved, any
of the following, among other things, could occur: (i) a distribution of the New
KDSM Senior Debentures to the holders of the New Preferred Securities after
satisfaction of liabilities to creditors of the Trust, (ii) a cash distribution
to the holders of the New Preferred Securities out of the sale of assets of the
Trust, after satisfaction of liabilities to creditors of the Trust or (iii) a
permitted redemption of the New KDSM Senior Debentures, and a consequent
redemption of a Like Amount of the Preferred Securities, at the option of KDSM,
Inc. under the circumstances described under "-Optional Redemption."
SECURITY
KDSM, Inc.'s obligations to pay the principal of, premium, if any, and
interest on the New KDSM Senior Debentures will be secured by a first priority
security interest in the Parent Preferred (the "Collateral"). First Union
National Bank of Maryland is the Collateral Agent under the Pledge Agreement.
The Collateral Documents provide that no Person may share in the security
created under the Collateral Documents or receive any distributions of
Collateral or proceeds thereof upon the exercise of remedies under the
Collateral Documents.
Upon delivery of a notice to the Collateral Agent by the Debenture Trustee
(or Trustee under the Preferred Securities in certain circumstances) with
respect to the KDSM Senior Debenture Indenture, stating that the obligations
under the KDSM Senior Debentures have not been paid in full when due (taking
into account any applicable grace period) upon maturity, acceleration, any event
resulting in automatic acceleration or otherwise (each, a "Payment Default"),
the Pledge Agreement provides for the foreclosure upon the Collateral by the
Collateral Agent. Under the Collateral Documents the Debenture Trustee may
provide the Collateral Agent with instructions directing the Collateral Agent to
exercise or refrain from exercising the Collateral Agent's rights under the
Collateral Documents on behalf of the holders of the KDSM Senior Debentures.
Upon any foreclosure upon the Collateral, cash or other property realized
by the Collateral Agent will be applied by the Collateral Agent first to pay the
expenses of such foreclosure and fees and other amounts then payable to the
Collateral Agent and the Trustee under the Pledge Agreement or the KDSM Senior
Debenture Indenture then for the equal and ratable benefit of the holders of the
KDSM Senior Debentures that are not Affiliates of Sinclair, first to the payment
of all interest due and payable, second to the payment of principal, pro rata
based upon the aggregate principal amount of Indebtedness held by the holders of
the KDSM Senior Debentures and thereafter for the equal and ratable benefit of
the holders of KDSM Senior Debentures that are Affiliates of Sinclair, first to
the payment of interest due and payable and, second to the payment of principal,
pro rata based upon the aggregate principal amount of KDSM Senior Debentures
held by the holders of KDSM Senior Debentures that are Affiliates of Sinclair.
The Debenture Trustee may, in its sole discretion and without the consent
of the holders of the KDSM Senior Debentures, but subject to the KDSM Senior
Debenture Indenture, take all actions it deems necessary or appropriate in order
to (a) enforce the Collateral Documents and (b) collect and receive any and all
amounts payable in respect of the Indenture Obligations of KDSM, Inc. under the
KDSM Senior Debenture Indenture, in each case in accordance with and to the
extent provided in the Collateral Documents. Subject to the provisions of the
Collateral Documents, the Debenture Trustee shall have power to institute and to
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any acts which may be unlawful or in violation
of the Collateral Documents or the KDSM Senior Debenture Indenture, and to
preserve or protect its interest and the interests of the holders of the New
KDSM Senior Debentures in the Collateral. The Debenture Trustee is authorized to
receive any funds for the benefit of holders of the New KDSM Senior Debentures
distributed under the Collateral Documents, and to make further distributions of
such funds to the holders of the KDSM Senior Debentures according to the
provisions of the KDSM Senior Debenture Indenture.
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The Pledge Agreement may not be amended or waived without the requisite
consent (as set forth in the relevant instrument governing the relevant
indebtedness) of the holders of a majority of the aggregate principal amount of
KDSM Senior Debentures outstanding which, while the Trust holds the KDSM Senior
Debentures, will not be provided without the consent of the holders of a
majority in aggregate Liquidation Value of the outstanding Preferred Securities.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the KDSM Senior Debenture Indenture
and the Collateral Documents, KDSM, Inc. will be entitled to receive all
dividends and other payments made upon or with respect to the Collateral. Upon
the occurrence and during the continuance of an Event of Default: (a) all rights
of KDSM, Inc. to receive all dividend and other payments made upon or with
respect to the Collateral will cease and such interest and other payments will
be required to be paid to the Collateral Agent and (b) the Collateral Agent may
sell the Collateral or any part thereof in accordance with the terms of the
Collateral Documents.
The Pledge Agreement will prohibit KDSM, Inc. from providing any consents
to any action under the Parent Preferred without the consent of the holders of
the majority in aggregate principal amount of the KDSM Senior Debentures which,
while the Trust holds the KDSM Senior Debentures, will not, pursuant to the
Pledge Agreement, be provided without the consent of holders of a majority in
aggregate Liquidation Value of the outstanding Preferred Securities and will
require KDSM, Inc. to elect the nominees of the holders of the majority in
aggregate principal amount of the KDSM Senior Debentures, which, while the Trust
holds the KDSM Senior Debentures, will, pursuant to the Pledge Agreement, elect
the nominees of the holders of a majority in aggregate Liquidation Value of the
Preferred Securities to Sinclair's Board of Directors if KDSM, Inc. has that
right.
DISPOSITIONS AND RELEASES OF COLLATERAL
Under the terms of the Collateral Documents, the Collateral Agent, acting
as required pursuant to the Collateral Documents, will determine the
circumstances and manner in which the Collateral shall be disposed of, including
but not limited to the determination of whether to release all or any portion of
the Collateral from the Liens created by the Collateral Documents and whether to
foreclose on the Collateral following an Event of Default. In addition, if
Sinclair redeems a portion of the Parent Preferred, such Parent Preferred and
the proceeds thereof will be released from the security interest created under
the Pledge Agreement so long as the proceeds thereof are used simultaneously to
redeem the KDSM Senior Debentures. Upon release of any Collateral, the holders
of the KDSM Senior Debentures will not have perfected security interests in such
Collateral or the proceeds thereof. Any release of such Collateral will comply
with the Trust Indenture Act to the extent required.
FORM, EXCHANGE, AND TRANSFER
The New KDSM Senior Debentures will initially be issuable to the Trust in
certificated registered form, without coupons and only in denominations of $100
and integral multiples thereof. (Section 302).
The New KDSM Senior Debentures, if distributed to holders of New Preferred
Securities pursuant to the dissolution of the Trust, will be issued as a
registered security in global form (a "Global Security") registered in the name
of the DTC or its nominees if permitted under the rules of the DTC except that
New KDSM Senior Debentures issued to institutional accredited investors may be
issued in certificated form. In the event that New KDSM Senior Debentures are
issued in certificated form, such New KDSM Senior Debentures will be in
denominations of $100 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Subject to the terms of the KDSM Senior Debenture Indenture, New KDSM
Senior Debentures may be presented for registration of transfer or exchange
(duly endorsed or accompanied by satisfactory instruments of transfer) at the
office of the security registrar of the New KDSM Senior Debentures (the
"Debenture Registrar") or at the office of any transfer agent designated by
KDSM, Inc. for such purpose. No service charge will be made for any registration
of transfer or exchange of New KDSM Senior Debentures, but, in the case of a
transfer, KDSM, Inc. may require payment of a sum sufficient to cover
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any tax or other governmental charge payable in connection therewith. Such
transfer or exchange will be effected when the Debenture Registrar or such
transfer agent, as the case may be, is satisfied with the documents of transfer,
title and identity of the person making the request. KDSM, Inc. has appointed
the Debenture Trustee as the initial Debenture Registrar. (Section 306). KDSM,
Inc. may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts. (Section 1002).
If the New KDSM Senior Debentures are to be redeemed in part, KDSM, Inc.
will not be required to issue, register the transfer of, or exchange any New
KDSM Senior Debentures that are going to be redeemed during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such New KDSM Senior Debentures and ending at the close of
business on the day of such mailing. (Section 306).
PAYMENT AND PAYING AGENTS
Payment of interest on the New KDSM Senior Debentures on any Interest
Payment Date will be made to the Person in whose name such New KDSM Senior
Debenture (or one or more predecessor securities) is registered at the close of
business on the Regular Record Date (as defined in the KDSM Senior Debenture
Indenture) for such interest. (Section 309). Payments on New KDSM Senior
Debentures issued as a Global Security will be made to DTC, as the depositary
for the New KDSM Senior Debentures.
The principal of and any interest (including Additional Interest) on the
New KDSM Senior Debentures will be payable at the office of such paying agent or
paying agents (the "Debenture Paying Agent") as KDSM, Inc. may designate for
such purpose from time to time, except that at the option of KDSM, Inc. payment
of any interest may be made by check mailed to the address of the Person
entitled thereto as such address appears in the Security Register or by wire
transfer. (Section 301). The corporate trust office of the Debenture Trustee is
designated as KDSM, Inc.'s sole Debenture Paying Agent for payments with respect
to the New KDSM Senior Debentures. KDSM, Inc. may at any time designate
additional Debenture Paying Agents or rescind the designation of any Debenture
Paying Agent or approve a change in the office through which any Debenture
Paying Agent acts. (Section 1003).
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a default by KDSM, Inc. in performance of the KDSM Senior Debenture Indenture,
undertakes to perform only such duties as are specifically set forth in the KDSM
Senior Debenture Indenture and, after an Event of Default under the KDSM Senior
Debenture Indenture, must exercise the same degree of care and skill as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. Subject to this provision, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the KDSM
Senior Debenture Indenture at the request of any holder of New Preferred
Securities or New KDSM Senior Debentures unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby. (Section 602).
Sinclair and certain of its Subsidiaries maintain deposit accounts and
conduct other banking transactions with the Debenture Trustee in the ordinary
course of their businesses.
MODIFICATION OF THE KDSM SENIOR DEBENTURE INDENTURE
From time to time, KDSM, Inc. and the Debenture Trustee may, without the
consent of the holders of the New KDSM Senior Debentures, amend, waive or
supplement the KDSM Senior Debenture Indenture for specified purposes of (i)
evidencing the succession of another Person to KDSM, Inc. and the assumption by
such successor of KDSM, Inc.'s obligations under the KDSM Senior Debenture
Indenture and the New KDSM Senior Debentures; (ii) adding to the covenants of
KDSM, Inc. for the benefit of the holders of the New KDSM Senior Debentures or
surrendering any right or power conferred upon KDSM, Inc. by the KDSM Senior
Debenture Indenture or the New KDSM Senior Debentures; (iii) evidencing and
providing the acceptance of the appointment of a successor Debenture Trustee;
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(iv) curing ambiguities, defects or inconsistencies; (v) qualifying, or
maintaining the qualification of, the KDSM Senior Debenture Indenture under the
Trust Indenture Act; or (vi) making any other change that does not adversely
affect the rights of any holder of New KDSM Senior Debentures. (Section 901).
The KDSM Senior Debenture Indenture shall contain provisions permitting KDSM,
Inc. and the Debenture Trustee, with the consent of the holders of not less than
a majority in aggregate principal amount of the outstanding KDSM Senior
Debentures, to modify the KDSM Senior Debenture Indenture in a manner affecting
the rights of the holders of the KDSM Senior Debentures; provided that no such
modification may, without the consent of the holder of each outstanding KDSM
Senior Debenture, (i) change the fixed maturity of the KDSM Senior Debentures,
or reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, (ii) change the place or currency of payment of
principal or interest on the KDSM Senior Debentures, (iii) change the
subordination provisions in a manner adverse to the holders of the KDSM Senior
Debentures or the Preferred Securities, (iv) change the date on which the KDSM
Senior Debentures may be redeemed at the option of KDSM, Inc. to an earlier
date, (v) reduce the percentage of principal amount of KDSM Senior Debentures,
the holders of which are required to consent to any such modification of the
KDSM Senior Debenture Indenture or (vi) modify certain provisions of the KDSM
Senior Debenture Indenture relating to the waiver of past defaults or compliance
by KDSM, Inc. with the covenants therein; provided that under the Trust
Agreement the Trustees of the Trust will not provide such consent to any such
amendment if the Trust owns any KDSM Senior Debentures without the consent of
the holders of at least the same percentage of aggregate Liquidation Value of
the outstanding Preferred Securities that would be required to approve an
amendment to the KDSM Senior Debenture Indenture if they held such KDSM Senior
Debentures directly. As described herein, the Pledge Agreement also requires the
consent of the holders of the Preferred Securities to any action taken by KDSM,
Inc. regarding the Parent Preferred. (Sections 901 and 902).
SATISFACTION AND DISCHARGE
Under the terms of the KDSM Senior Debenture Indenture, KDSM, Inc. will be
discharged from any and all obligations in respect of the KDSM Senior Debentures
(except in each case for certain obligations to register the transfer or
exchange of KDSM Senior Debentures, pay Additional Interest, compensate,
indemnify and reimburse the Debenture Trustee, replace stolen, lost or mutilated
KDSM Senior Debentures and hold moneys for payment in trust) if all
authenticated and delivered KDSM Senior Debentures (other than certain stolen,
lost, or mutilated KDSM Senior Debentures and KDSM Senior Debentures for which
payment money was segregated and then discharged) have been delivered to the
Debenture Trustee for cancellation or if KDSM, Inc. deposits with the Debenture
Trustee, in trust, moneys in an amount sufficient to pay all the principal of,
premium, if any, and interest on, the KDSM Senior Debentures on the dates such
payments are due in accordance with the terms of the KDSM Senior Debentures.
(Section 1201).
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
KDSM, Inc. may, at its option, at any time, elect to have the obligations
of KDSM, Inc. and any other obligor upon New KDSM Senior Debentures discharged
with respect to the outstanding New KDSM Senior Debentures ("defeasance"). Such
defeasance means that KDSM, Inc. and any other obligor under the KDSM Senior
Debenture Indenture shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding KDSM Senior Debentures, except for
(i) the rights of holders of outstanding KDSM Senior Debentures to receive
payments in respect of the principal of, premium, if any, and interest on such
KDSM Senior Debentures when such payments are due, (ii) KDSM, Inc.'s obligations
with respect to the KDSM Senior Debentures concerning issuing temporary KDSM
Senior Debentures, registration of KDSM Senior Debentures, mutilated, destroyed,
lost or stolen KDSM Senior Debentures, and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and (iv) the
defeasance provisions of the KDSM Senior Debenture Indenture. In addition, KDSM,
Inc. may, at its option and at any time, elect to have the obligations of KDSM,
Inc. and any other obligor released with respect to certain covenants that are
described in the KDSM Senior Deben-
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ture Indenture ("covenant defeasance") and any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the KDSM Senior Debentures. In the event covenant defeasance occurs, certain
events (not including non-payment, enforceability of any guarantee, bankruptcy
and insolvency events) described under "-Events of Default" will no longer
constitute an Event of Default with respect to the KDSM Senior Debentures.
(Sections 401, 402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) KDSM,
Inc. must irrevocably deposit with the Debenture Trustee, in trust, for the
benefit of the holders of the KDSM Senior Debentures, cash in United States
dollars, U.S. Government Obligations (as defined in the KDSM Senior Debenture
Indenture), or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants or
a nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Debenture Trustee, to pay and discharge
the principal of, premium, if any, and interest on the outstanding KDSM Senior
Debentures on the Stated Maturity of such principal or installment of principal
or interest (or on any date after March 15, 2002 (such date being referred to as
the "Defeasance Redemption Date"), if when exercising either defeasance or
covenant defeasance, KDSM, Inc. has delivered to the Debenture Trustee an
irrevocable notice to redeem all of the outstanding KDSM Senior Debentures on
the Defeasance Redemption Date; (ii) in the case of defeasance, KDSM, Inc. shall
have delivered to the Debenture Trustee an opinion of independent counsel in the
United States stating that (A) KDSM, Inc. has received from, or there has been
published by, the IRS a ruling or (B) since the date of the KDSM Senior
Debenture Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such opinion of
independent counsel in the United States shall confirm that, the holders of the
outstanding KDSM Senior Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred; (iii) in
the case of covenant defeasance, KDSM, Inc. shall have delivered to the Trustee
an opinion of independent counsel in the United States to the effect that the
holders of the outstanding KDSM Senior Debentures will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such covenant
defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as clause (h)
under the first paragraph under "-Events of Default" is concerned, at any time
during the period ending on the 91st day after the date of deposit; (v) such
defeasance or covenant defeasance shall not cause the Debenture Trustee to have
a conflicting interest with respect to any securities of KDSM, Inc. or any
guarantor; (vi) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, the KDSM Senior Debenture
Indenture or any other material agreement or instrument to which KDSM, Inc. or
any guarantor is a party or by which it is bound; (vii) KDSM, Inc. shall have
delivered to the Debenture Trustee an opinion of independent counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (viii)
KDSM, Inc. shall have delivered to the Debenture Trustee an officers'
certificate stating that the deposit was not made by KDSM, Inc. with the intent
of preferring the holders of the KDSM Senior Debentures or any guarantee thereof
over the other creditors of KDSM, Inc. or any guarantor with the intent of
defeating, hindering, delaying or defrauding creditors of KDSM, Inc., any
guarantor or others; (ix) no event or condition shall exist that would prevent
KDSM, Inc. from making payments of the principal of, premium, if any, and
interest on the KDSM Senior Debentures on the date of such deposit or at any
time ending on the 91st day after the date of such deposit; and (x) KDSM, Inc.
shall have delivered to the Debenture Trustee an officers' certificate and an
opinion of independent counsel, each stating that all conditions precedent
provided for relating to either the defeasance or the covenant defeasance, as
the case may be, have been complied with. (Section 404)
GOVERNING LAW
The KDSM Senior Debenture Indenture and the New KDSM Senior Debentures will
be governed by, and construed in accordance with, the laws of the State of New
York. (Section 113).
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MISCELLANEOUS
All covenants and agreements of KDSM, Inc. contained in the KDSM Senior
Debenture Indenture will bind its successors and assigns. (Section 110).
As long as payments of dividends and other payments are made when due on
the Parent Preferred, such payments will be sufficient to cover interest and
other payments due on the KDSM Senior Debentures, primarily because (i) the
aggregate stated Liquidation Amount of the Parent Preferred will be equal to the
sum of the aggregate stated principal amount of the KDSM Senior Debentures and
the Common Securities, (ii) the dividend rate and the Dividend Payment Dates and
other payment dates on the Parent Preferred will match the interest rate and the
Interest Payment Dates and other payment dates for the KDSM Senior Debentures
and (iii) the dividend rate on the Parent Preferred will be 1 percentage point
higher than the interest rate on the KDSM Senior Debentures. See "Risk Factors-
High Leverage of KDSM, Inc."
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by KDSM, Inc. under the
Trust Agreement (the "Expense Agreement"), KDSM, Inc. will irrevocably and
unconditionally guarantee to each Person to whom the Trust becomes indebted or
liable, the full payment of any indebtedness, expenses or liabilities of the
Trust, as incurred, other than obligations of the Trust to pay to the holders of
any Common Securities being held by KDSM, Inc. or New Preferred Securities being
issued pursuant to this Prospectus the amounts due such holders pursuant to the
terms of such securities. Failure to make any payments under the Expense
Agreement will result in an Event of Default under the KDSM Senior Debenture
Indenture.
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DESCRIPTION OF THE NEW PREFERRED SECURITIES
The Trust Agreement among KDSM, Inc., as Depositor (the "Depositor"), First
Union National Bank of Maryland as the "Property Trustee," First Union Bank of
Delaware as the "Delaware Trustee," and the two "Administrative Trustees" named
in the Trust Agreement (together with the Property Trustee and the Delaware
Trustee, the "Trustees"), authorizes the issuance of the Preferred Securities
and the Common Securities (together, the "Issuer Securities") by the Trust. The
Old Preferred Securities were issued, and the New Preferred Securities will be
issued by the Administrative Trustees on behalf of the Trust pursuant to the
terms of the Trust Agreement. The New Preferred Securities will represent
undivided beneficial interests in the assets of the Trust and entitle the
holders thereof to a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the Common
Securities, as well as other benefits as described in the Trust Agreement. The
following summaries contain the material information concerning the Trust
Agreement but do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms. The Trust
Agreement is filed as an exhibit to the registration statement of which this
Prospectus is a part and is available as set forth in "Available Information."
Wherever particular sections or defined terms of the Trust Agreement are
referred to, such sections or defined terms are incorporated herein by
reference. Section references used herein are references to provisions of the
Trust Agreement unless otherwise stated. Certain capitalized terms used herein
are defined under "Certain Definitions."
GENERAL
All of the Common Securities are owned by KDSM, Inc. The Common Securities
will rank junior in right of payment to the Preferred Securities except as
described under "-Subordination of Common Securities." (Section 4.03). The
ability of the Trust to make distributions and pay other amounts on the New
Preferred Securities will be solely dependent upon KDSM, Inc. making interest
payments on the New KDSM Senior Debentures as and when required. Such payments,
if made in accordance with the terms of the KDSM Senior Debenture Indenture,
will provide sufficient funds to enable the Trust to make distributions and pay
other amounts on the New Preferred Securities. The ability of KDSM, Inc. to pay
interest on the New KDSM Senior Debentures will be dependent on its receipt of
dividends on the New Parent Preferred and its ability to generate cash from its
operations which will initially consist of the License Assets and Non-License
Assets of KDSM-TV in Des Moines, Iowa. See "Risk Factors-Ability of KDSM, Inc.
to Transfer KDSM-TV."
Subject to applicable law (including, without limitation, United States
federal securities law), Sinclair or its Subsidiaries may at any time and from
time to time purchase outstanding New Preferred Securities by tender, in the
open market or by private agreement.
DISTRIBUTIONS
The Distributions payable on each new preferred security will be entitled
to a preference fixed at a rate per annum of 11 5/8% of the stated Liquidation
Value of $100 per New Preferred Security. Distributions that are in arrears will
accrue additional distributions on the amount thereof at the rate per annum of
11 5/8% (the same rate as the preference rate described above), compounded
quarterly. The term "distributions" as used herein includes any such additional
distributions payable, unless otherwise stated, and shall also include, unless
duplicative, any Additional Amounts with respect to the New Preferred
Securities. "Additional Amounts" means the amount of Additional Interest
Attributable to Deferral (as defined under "Description of the New KDSM Senior
Debentures-Additional Interest") paid by KDSM, Inc. on the New KDSM Senior
Debentures. See "Description of the New KDSM Senior Debentures-Additional
Interest." The amount of distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. (Section 4.01(a) and
4.01(b)).
Distributions on the New Preferred Securities will be cumulative, will
accrue from the Issue Date, March 12, 1997, and will be payable quarterly in
arrears, on March 15, June 15, September 15 and December 15 of each year,
commencing on June 15, 1997, to holders of record on the March 1, June 1,
September 1 and December 1 next preceding such distribution date, except as
otherwise described
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below. Holders of the New Preferred Securities will be entitled to receive
cumulative cash distributions from the most recent distribution date of the Old
Preferred Securities surrendered in exchange for such New Preferred Securities.
In the event that any date on which distributions are otherwise payable on the
New Preferred Securities is not a Business Day, payment of the distribution
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay)
(each date on which distributions are payable in accordance with the foregoing,
a "Distribution Payment Date"). (Section 4.01(a)).
As described under "Description of the New KDSM Senior Debentures-Option to
Extend Interest Payment Period," Sinclair will have the right, at any time and
from time to time, to defer dividend payments on the New Parent Preferred for up
to three consecutive quarters during a Dividend Extension Period; provided that
Sinclair will be required to pay all dividends due and owing on the New Parent
Preferred at least once every four quarters and must pay all dividends due and
owing on March 15, 2009. Similarly, KDSM, Inc. will have the right, at any time
and from time to time, to defer any interest payments on the New KDSM Senior
Debentures during an Interest Extension Period for (i) up to three consecutive
quarters for any period for which it does not receive dividends on the New
Parent Preferred, and (ii) one quarter even if KDSM, Inc. receives dividends on
the New Parent Preferred provided that KDSM, Inc. will be required to pay all
interest due and owing on the KDSM Senior Debentures at least once every four
quarters and must pay all interest due and owing on the maturity date of the New
KDSM Senior Debentures. The New Preferred Securities will provide that quarterly
distributions thereon may similarly be deferred for up to three consecutive
quarters (but additional distributions would continue to accrue on such amounts,
including additional distributions payable on any unpaid distributions at the
rate per annum set forth above, compounded quarterly) by the Trust during any
Interest Extension Period in which KDSM, Inc. does not pay interest on the New
KDSM Senior Debentures; provided that the Trust will be required to pay all
distributions due and owing on the New Preferred Securities at least once every
four quarters and the Trust must pay all distributions due and owing on the
maturity date of the New Preferred Securities. If the Trust does not make
distributions on the Preferred Securities for four consecutive quarters, the
holders of the Preferred Securities will be entitled to elect new Trustees to
the Trust. The Trust must make partial distributions to the extent KDSM, Inc.
makes partial interest payments on the New KDSM Senior Debentures. KDSM, Inc.,
the Trust and Sinclair may exercise such deferral options only by issuing a
press release at least ten Business Days prior to the record date for any
distribution, interest payment or dividend payment which is being deferred. In
the event that KDSM, Inc. or Sinclair exercises any deferral right, during such
period KDSM, Inc. or Sinclair, as the case may be, may not declare or pay any
dividend or distribution (other than a dividend or distribution in common stock)
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock, or make any guarantee payments with respect to the
foregoing (other than payments under the New Parent Guarantee), or repurchase or
cause any subsidiary to repurchase any security of KDSM, Inc. or Sinclair, as
the case may be, ranking pari passu with or subordinate to the New KDSM Senior
Debentures in the case of KDSM, Inc. or the New Parent Preferred in the case of
Sinclair (except on a ratable basis with securities ranking pari passu with the
New KDSM Senior Debentures or New Parent Preferred, as the case may be). In
addition, if dividends on the Parent Preferred are not paid for four consecutive
quarters, KDSM, Inc. shall be entitled, as the holder of the Parent Preferred,
to elect two directors to Sinclair's board of directors. KDSM, Inc. has agreed
in the Pledge Agreement to elect the nominees of the Trust who will elect the
holders of a majority in aggregate Liquidation Value of the outstanding
Preferred Securities to such directorships. Upon the termination of any such
deferral period and the payment of all amounts then due, KDSM, Inc., the Trust
and Sinclair may select a new deferral period, subject to the foregoing
requirements. See "Description of the New KDSM Senior Debentures-Interest" and
"-Option to Extend Interest Payment Period."
It is anticipated that the income of the Trust available for distribution
to the holders of the New Preferred Securities will be limited to payments under
the New KDSM Senior Debentures. See "Description of the New KDSM Senior
Debentures." If KDSM, Inc. does not make interest payments on the New KDSM
Senior Debentures, the Property Trustee will not have funds available to pay
distributions on the New Preferred Securities. If Sinclair does not pay
dividends on the New Parent Preferred and KDSM, Inc. does not generate
sufficient cash from its operations, KDSM, Inc. will not have funds available to
pay interest on the New KDSM Senior Debentures. The payment of distributions (if
and to
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the extent the Trust has funds sufficient to make such payments) shall be
guaranteed on a junior subordinated basis by Sinclair to the limited extent set
forth herein under "Description of the New Parent Guarantee-Status of the New
Parent Guarantee." See "Risk Factors-High Leverage of KDSM, Inc."
OPTIONAL REDEMPTION
Upon the repayment of the New KDSM Senior Debentures held by the Trust,
whether at maturity or upon earlier redemption as provided in the KDSM Senior
Debenture Indenture, the proceeds from such repayment shall be applied by the
Property Trustee to redeem a Like Amount of Issuer Securities, upon not less
than 30 nor more than 60 days' notice of the date of such redemption, at $100
per New Preferred Security plus accumulated and unpaid distributions to the
Redemption Date, whether or not earned or declared (the "Redemption Price");
provided that if the New KDSM Senior Debentures are redeemed at a price in
excess of their principal amount, the New Preferred Securities will be redeemed
at the same higher percentage of their Liquidation Value. Such payment in
redemption shall be made to the extent that the Trust has funds available for
such payment. KDSM, Inc. may not redeem the New KDSM Senior Debentures in part
unless all accrued and unpaid interest (including any Additional Interest) has
been paid in full on all outstanding KDSM Senior Debentures for all quarterly
interest periods terminating on or prior to the date of redemption. The maturity
date of the New KDSM Senior Debentures is March 15, 2009. See "Description of
the New KDSM Senior Debentures-Optional Redemption."
KDSM, Inc. has the right (a) at any time on or after March 15, 2002, to
redeem the New KDSM Senior Debentures in whole or in part, in cash at the
following redemption prices expressed as a percentage of the principal amount,
if redeemed during the 12-month period beginning March 15 of the years indicated
below:
REDEMPTION
YEAR PRICE
------- -----------
2002 ..................... 105.813%
2003 ..................... 104.650
2004 ..................... 103.488
2005 ..................... 102.325
2006 ..................... 101.163
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date or (b) at any time
on or prior to March 15, 2000, to redeem up to 33 1/3% of the aggregate
principal amount of the KDSM Senior Debentures at 111.625% of the principal
amount, with the proceeds of one or more redemptions of the Parent Preferred
held by KDSM, Inc. (and if the Parent Preferred will have been redeemed from the
proceeds of one or more Public Equity Offerings of Sinclair); and provided
further that after such redemption at least 66 2/3% of the aggregate principal
amount of the KDSM Senior Debentures originally issued remain outstanding. Such
redemption in the case of clause (b) must be made within 180 days of such Public
Equity Offerings. Upon a redemption pursuant to clause (a) or (b), the New
Preferred Securities to be redeemed from the proceeds of a redemption of the New
KDSM Senior Debentures shall be redeemed at a percentage of their Liquidation
Value equal to the percentage of principal amount at which such New KDSM Senior
Debentures were redeemed.
REDEMPTION UPON A TAX EVENT OR AN INVESTMENT COMPANY ACT EVENT
KDSM, Inc. will have the option (a) upon a Tax Event or an Investment
Company Act Event, to redeem the New KDSM Senior Debentures for cash at a
redemption price of 105.813% in the case of a Tax Event, or 101% in the case of
an Investment Company Act Event, in each case of the aggregate principal amount
of the New KDSM Senior Debenture redeemed, plus all accrued and unpaid interest,
and to require Sinclair to redeem the New Parent Preferred for cash pursuant to
the terms thereof at the same redemption prices; provided that at the time of
redemption in the case of a Tax Event triggered by an amendment, clarification
or change, such amendment, clarification or change remains in effect, or (b)
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upon a Tax Event, as the holder of all the Common Securities of the Trust, to
cause the Trust to be dissolved with each holder of New Preferred Securities
receiving New KDSM Senior Debentures in a principal amount equal to the
Liquidation Value of their New Preferred Securities. If KDSM, Inc. exercises the
option in clause (a) above, KDSM, Inc. will use the cash proceeds from the
redemption of the New Parent Preferred to redeem New KDSM Senior Debentures held
by the Trust at a price that is a percentage above their principal amount equal
to the same percentage above the Liquidation Amount, if any, for which Sinclair
redeems the New Parent Preferred. The Trust would then promptly redeem New
Preferred Securities with the proceeds it received from KDSM, Inc. If KDSM, Inc.
exercises the option in clause (b) above, (i) pursuant to the KDSM Senior
Debenture Indenture, Sinclair has agreed, effective at the time of such
distribution, to fully and unconditionally guarantee the New KDSM Senior
Debentures on a junior subordinated basis (the "New Parent Debenture
Guarantee"); provided that Sinclair confirms the effectiveness of the Parent
Debenture Guarantee at the time of distribution which it may not do if such
guarantee is not then permitted under the terms of the Existing Notes or the
Bank Credit Agreement and (ii) the Trust may not be dissolved unless the New
Parent Debenture Guarantee is effective. KDSM, Inc. will also be required to
deliver a tax opinion to the effect that the dissolution of the Trust and the
distribution of the New KDSM Senior Debentures will not be a taxable event to
the holders of the New Preferred Securities. Sinclair is currently prohibited
from taking any of the prospective actions referred to above by the Bank Credit
Agreement and the Existing Indentures.
FUNDING OF REDEMPTIONS
KDSM, Inc. will finance any of the redemptions of the New KDSM Senior
Debentures described under "-Optional Redemption" or "-Redemption Upon a Tax
Event or an Investment Company Act Event" by causing Sinclair to redeem New
Parent Preferred having a Liquidation Amount equal to the principal amount of
the New KDSM Senior Debentures being so redeemed. The redemption premiums (as a
percentage of principal amount or Liquidation Amount, as the case may be) will
be the same for the New KDSM Senior Debentures and New Parent Preferred. The
terms of the Parent Preferred will provide that KDSM, Inc. may require Sinclair
to make such redemptions. See "Description of the New Parent Preferred-Optional
Redemption" and "-Redemption Upon a Tax Event or an Investment Company Act
Event."
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
For so long as the Trust is the holder of all the outstanding KDSM Senior
Debentures, the proceeds of any redemption of the KDSM Senior Debentures will be
used by the Trust to redeem Preferred Securities first and then the Common
Securities in accordance with their respective terms. KDSM, Inc. may not redeem
the KDSM Senior Debentures in part unless all accrued and unpaid interest
(including any Additional Interest) has been paid in full on all outstanding
KDSM Senior Debentures for all quarterly interest periods terminating on or
prior to the date of redemption and no Interest Extension Period is in effect.
(Section 1101).
Any optional redemption of the KDSM Senior Debentures shall be made upon
not less than 30 nor more than 60 days' notice to the holders thereof, as will
be provided in the KDSM Senior Debenture Indenture. (Section 1105).
CHANGE OF CONTROL
Upon a Change of Control of Sinclair, each holder of the New Preferred
Securities will have the right to require the Trust to redeem all or a portion
of such holder's New Preferred Securities in cash from the proceeds of the
redemption by KDSM, Inc. of New KDSM Senior Debentures held by the Trust at a
cash redemption price of 101% of such New Preferred Securities' Liquidation
Value plus accrued and unpaid distributions, if any (the "Change of Control
Purchase Price"), to the date of repurchase (the "Change of Control Purchase
Date"). Under the terms of the New Parent Preferred, upon a Change of Control,
Sinclair will be required to redeem sufficient shares of New Parent Preferred to
enable KDSM, Inc. to redeem the appropriate aggregate principal amount of New
KDSM Senior Debentures. See "Description of the New Parent Preferred-Change of
Control." Notwithstanding the
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foregoing, the holders of the New Preferred Securities, the New KDSM Senior
Debentures and the New Parent Preferred will not have the right to require the
issuers of such securities to redeem or repurchase, as the case may be, such
securities upon a Change of Control under any circumstances unless all of the
Existing Notes and all indebtedness under the Bank Credit Agreement are repaid,
redeemed or repurchased, all of the commitments and letters of credit issued
under the Bank Credit Agreement are terminated, and all interest rate protection
agreements entered into between Sinclair and any lenders under the Bank Credit
Agreement are terminated as a result of such Change of Control or the holders of
such instruments have consented to a Change of Control Offer, in which case the
date on which all Existing Notes and all indebtedness under the Bank Credit
Agreement are so repaid, redeemed or repurchased and such commitments, letters
of credit and interest rate protection agreements are terminated or the holders
of such instruments have consented to a Change of Control Offer shall be deemed
to be the date on which such Change of Control shall have occurred. If Sinclair
does not make and consummate a Change of Control Offer upon a Change of Control,
the holders of the New Preferred Securities will effectively have the right to
elect two directors to the board of directors of Sinclair but will not have a
right of redemption.
Within 30 days following any Change of Control, the Trust shall give
written notice to the holders of the New Preferred Securities by first-class
mail, postage prepaid, at their addresses appearing in the register for the New
Preferred Securities, stating, among other things, that it is making the Change
of Control Offer, the Change of Control Purchase Price and that the Change of
Control Purchase Date shall be a Business Day not earlier than 30 days nor later
than 60 days from the date such notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act; that any New
Preferred Security not tendered will continue to accrue distributions; that,
unless the Trust defaults in the payment of the Change of Control Purchase
Price, any New Preferred Securities accepted for payment pursuant to the Change
of Control Offer shall cease to accrue distributions after the Change of Control
Purchase Date; and certain other procedures that a holder of New Preferred
Securities must follow to accept a Change of Control Offer or to withdraw such
acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Trust will have available funds sufficient to pay the Change of Control Purchase
Price for all of the New Preferred Securities that may be delivered by holders
of New Preferred Securities seeking to accept the Change of Control Offer. The
Trust will have the funds to redeem the New Preferred Securities only to the
extent KDSM, Inc. redeems a sufficient number of New KDSM Senior Debentures upon
such Change of Control. KDSM, Inc. will have funds to redeem the New KDSM Senior
Debentures only to the extent it receives funds from Sinclair upon a redemption
of the New Parent Preferred. Under the New Parent Preferred, Sinclair will not
be required to redeem the New Parent Preferred tendered to it by KDSM, Inc. upon
a Change of Control unless the conditions set forth in the preceding paragraph
relating to the Existing Notes and the Bank Credit Agreement are satisfied. The
failure of KDSM, Inc. to make or consummate the Change of Control Offer when
required will result in an Event of Default under the KDSM Senior Debenture
Indenture. A Change of Control will result in an event of default under
Sinclair's Bank Credit Agreement and the Existing Notes and could result in the
acceleration of all indebtedness under the Bank Credit Agreement or the Existing
Indentures, as the case may be, and in such case the holders of the New Parent
Preferred and New Preferred Securities will not have any right to have the New
Parent Preferred or New Preferred Securities redeemed. See "Description of
Indebtedness of Sinclair."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York, Delaware or Maryland law
(which are the governing laws of the various applicable documents) to represent
a specific quantitative test. As a consequence, in the event the holders of the
Preferred Securities elected to exercise their rights and the Trust, KDSM, Inc.
or Sinclair elected to contest such election, there could be no assurance as to
how a court interpreting New York, Delaware or Maryland law would interpret the
term.
The existence of a holder's right to require the repurchase of the New
Preferred Securities upon a Change of Control may deter a third party from
acquiring Sinclair in a transaction which constitutes a Change of Control.
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REDEMPTION PROCEDURES
New Preferred Securities redeemed on each date fixed for redemption (the
"Redemption Date") shall be redeemed at the Redemption Price with the proceeds
from the contemporaneous redemption of New KDSM Senior Debentures. Redemptions
of the New Preferred Securities will be made and the Redemption Price will be
payable on each Redemption Date only to the extent that the Trust has funds
sufficient for the payment of such Redemption Price. (Section 4.02(d)).
If the Property Trustee gives a notice of redemption in respect of New
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York time, on the Redemption Date, the Property Trustee will, so long as the
New Preferred Securities are in book-entry-only form and to the extent that the
Trust has funds immediately available for payment of the applicable Redemption
Price, irrevocably deposit with DTC funds or securities, as the case may be,
sufficient to pay the Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the New
Preferred Securities. See "-Book-Entry Securities; The Depository Trust Company;
Delivery and Form." If the New Preferred Securities are no longer in
book-entry-only form, the Property Trustee, to the extent that the Trust has
funds immediately available for the payment of the Redemption Price, will
irrevocably deposit with the paying agent for the New Preferred Securities (the
"New Preferred Securities Paying Agent") funds or securities, as the case may
be, sufficient to pay the applicable Redemption Price and will give the New
Preferred Securities Paying Agent irrevocable instructions and authority to pay
the Redemption Price to the holders thereof upon surrender of their certificates
evidencing such New Preferred Securities. Notwithstanding the foregoing,
distributions payable on or prior to the Redemption Date for any New Preferred
Securities called for redemption shall be payable to the holders of such New
Preferred Securities on the relevant record dates for the related Distribution
Payment Dates. If notice of redemption shall have been given and funds or
securities, as the case may be, deposited as required, then upon the date of
such deposit, all rights of holders of such New Preferred Securities so called
for redemption will cease, except the right of the holders of such New Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such New Preferred Securities will cease to be
outstanding. In the event that any date fixed for redemption of New Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of New Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Trust or by Sinclair
pursuant to the New Parent Guarantee described herein under "Description of the
New Parent Guarantee," distributions on such New Preferred Securities will
continue to accrue from the original Redemption Date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price. (Section 4.02(e)).
If less than all the outstanding Issuer Securities are to be redeemed on a
Redemption Date, then the aggregate Redemption Price to be paid shall be
allocated first to the Preferred Securities and then to the Common Securities.
The particular Preferred Securities to be redeemed will be selected not more
than 60 days prior to the Redemption Date by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions (equal to $100 or integral
multiples thereof) of the aggregate Liquidation Value of Preferred Securities
then-outstanding. The Property Trustee shall promptly notify the Preferred
Securities Registrar (as defined under "Registrar and Transfer Agent"), in
writing, of the Preferred Securities selected for redemption and, in the case of
any Preferred Securities selected for partial redemption, the Liquidation Value
thereof to be redeemed. For purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities will relate, in the case of any Preferred Securities redeemed or to
be redeemed only in part, to the portion of the aggregate Liquidation Value of
Preferred Securities that has been or is to be redeemed. (Section 4.02(f)).
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SUBORDINATION OF COMMON SECURITIES
Payment of distributions (including Additional Amounts, if applicable) on,
and the Redemption Price of, the Issuer Securities, as applicable, shall be made
pro rata based on the aggregate liquidation value of the Issuer Securities;
provided, however, that no payment of any distribution (including Additional
Amounts, if applicable) on, or Redemption Price of, any Common Security and no
other payment on account of the redemption, liquidation or other acquisition of
any Common Security, shall be made unless payment in full in cash of all
accumulated and unpaid distributions (including Additional Amounts, if
applicable) on all outstanding Preferred Securities for all distribution periods
terminating on or prior thereto (whether or not such distributions have been
properly deferred), or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all outstanding Preferred Securities called
for redemption, shall have been made or provided for, and all funds legally
available to the Property Trustee shall first be applied to the payment in full
in cash of all distributions (including Additional Amounts, if applicable) on,
or the Redemption Price of, Preferred Securities then due and payable. (Section
4.03(a)).
If there is any Event of Default under the Trust Agreement, the holders of
Common Securities will be deemed to have waived any right to act with respect to
any such Event of Default under the Trust Agreement until the effect of all such
Events of Default with respect to the Preferred Securities have been cured,
waived or otherwise eliminated. Until any such Events of Default under the Trust
Agreement with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Preferred Securities and not the holder of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf. (Section 4.03(b)).
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Trust shall dissolve and be liquidated
by the Trustees on the first to occur of: (i) March 15, 2015, the expiration of
the term of the Trust; (ii) subject to the condition described in the following
paragraph, the bankruptcy, insolvency, dissolution, winding-up or liquidation of
Sinclair or one or more of its subsidiaries which in the aggregate own directly
or indirectly more than 50% of Sinclair's consolidated assets; (iii) the
occurrence of a Tax Event or an Investment Company Act Event and a related
redemption of the New Preferred Securities for cash or (in the case of a Tax
Event) the distribution of New KDSM Senior Debentures to holders of Issuer
Securities as described herein; (iv) the redemption of all of the Preferred
Securities; and (v) upon the entry of a decree of judicial dissolution of the
Trust. (Sections 9.01 and 9.02).
The Trust may only be dissolved pursuant to an event described in clause
(ii) of the prior paragraph with the consent of the holders of a majority in
Liquidation Value of the Preferred Securities then outstanding; provided that
under current bankruptcy laws the holders of the Preferred Securities may not be
able to exercise this right to dissolve the Trust. If, upon the occurrence of a
Tax Event, KDSM, Inc. chooses to cause (i) the liquidation of the Trust and (ii)
the Trust to distribute the KDSM Senior Debentures to the holders of the Issuer
Securities, the Trust shall be liquidated by the Trustees as expeditiously as
the Trustees determine to be appropriate by causing the Property Trustee to
distribute to each holder of Preferred Securities and Common Securities, after
satisfaction of liabilities to creditors of the Trust, a Like Amount of KDSM
Senior Debentures, including any rights attached thereto. If the Trust is
terminated other than as a result of a Tax Event as described in the prior
sentence, the Trust shall be liquidated and the holders of the Preferred
Securities will be entitled to receive, out of the assets of the Trust available
for distribution to holders of the Issuer Securities after satisfaction of
liabilities to creditors of the Trust, an amount equal to, in the case of
holders of Preferred Securities, the aggregate of the stated Liquidation Value
of $100 per Preferred Security plus accrued and unpaid distributions thereon to
the date of payment, whether or not earned or declared (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution only after the holders of the Preferred Securities have been paid in
full.(Sections 4.02 and 9.04).
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EVENTS OF DEFAULT; NOTICE
The "Events of Default" under the Trust Agreement with respect to the New
Preferred Securities issued thereunder will be (a) the failure to obtain the
consent of the holders of the Preferred Securities as required under the Trust
Agreement and as described under "-Voting Rights", (b) the failure to make
distributions on the Preferred Securities for any period for which KDSM, Inc.
pays interest on the KDSM Senior Debentures, (c) the occurrence of any Event of
Default under the KDSM Senior Debenture Indenture and (d) the failure of the
Trust to perform its obligations under the Trust Agreement. Events of Default
under the KDSM Senior Debenture Indenture are set forth under "Description of
the New KDSM Senior Debentures-Events of Default."
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of Preferred Securities, the
Administrative Trustees and the Depositor, unless such Event of Default shall
have been cured or waived. (Section 8.02).
Unless an Event of Default shall have occurred and be continuing, any
Trustee may be removed at any time by act of the holder of the Common
Securities. If such an Event of Default has occurred and is continuing, any
Trustee may be removed at such time by written act of the holders of a majority
in aggregate Liquidation Value of the outstanding Preferred Securities,
delivered to such Trustee (in its individual capacity and on behalf of the
Trust). No registration or removal of a Trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by the
successor Trustee in accordance with the provisions of the Trust
Agreement.(Section 8.10).
The Preferred Securities shall have a preference over the Common
Securities in certain circumstances upon dissolution of the Trust as described
above. See "-Liquidation Distribution Upon Dissolution."
MERGER OR CONSOLIDATION OF A TRUSTEE
Any Person into which the Property Trustee or, if not a natural person, the
Delaware Trustee or any Administrative Trustee may be merged or with which it
may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which any such Trustee shall be a party, or any Person
succeeding to all or substantially all the corporate trust business of any such
Trustee, shall be the successor to such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible. (Section 8.12).
VOTING RIGHTS
Except as provided below and as described under "Description of the New
Parent GuaranteeAmendments and Assignment" and as otherwise required by law, the
holders of the New Preferred Securities will have no voting rights. (Section
6.01(a)).
Subject to the provisions described below under "-Modification of the Trust
Agreement Without Consent," if any proposed amendment to the Trust Agreement
provides for, or the Trustees otherwise propose to effect, any action that would
adversely affect the powers, preferences or special rights of the holders of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise, or the dissolution, winding-up or termination of the Trust, other
than pursuant to the Trust Agreement, then the holders of outstanding Preferred
Securities will be entitled to vote on such amendment or proposal, and such
amendment or proposal shall not be effective except with the approval of the
holders of at least a majority in aggregate Liquidation Value of outstanding
Preferred Securities; provided that no such modification may, without the
consent of the holder of each outstanding Preferred Security (i) change the
amount, timing, place of payment or currency of any distribution on the
Preferred Securities or otherwise adversely affect the amount of any
distribution required to be made in respect of the Preferred Securities as of a
specified date, (ii) restrict the right of any holder of the Preferred
Securities to institute suit for the enforcement of any payment under the Trust
Agreement, (iii) modify the purposes of the Trust, (iv) authorize or issue any
interest in the Trust other than as currently contemplated by the Trust
Agreement, (v) change the Redemption Price or modify the redemption procedures
with
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respect to Issuer Securities or (vi) affect the limited liability of any holder
of Preferred Securities. In addition, the Trust Agreement will provide that the
Trust may not issue any additional Equity Interests or incur debt without the
approval of a majority in aggregate Liquidation Value of outstanding Preferred
Securities.
So long as any KDSM Senior Debentures are held in the name of the Property
Trustee for the benefit of the holders of the Preferred Securities, the Property
Trustee shall not (i) direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee, or execute any
trust or power conferred on the Debenture Trustee with respect to the KDSM
Senior Debentures, (ii) waive any past default under the KDSM Senior Debenture
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the KDSM Senior Debentures shall be due and payable, (iv)
consent to any amendment, modification or termination of the KDSM Senior
Debenture Indenture or the KDSM Senior Debentures, where such consent shall be
required, or (v) exercise any right with respect to the Parent Preferred
without, in each case, obtaining the prior approval of the holders of at least a
majority in aggregate Liquidation Value of the outstanding Preferred Securities;
provided, however, that where a consent under the KDSM Senior Debenture
Indenture would require the consent of each holder of KDSM Senior Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of Preferred Securities. The Property Trustee
shall not revoke any action previously authorized or approved by a vote of the
holders of the outstanding Preferred Securities except by subsequent vote of
such holders. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Debenture Trustee. In
addition to obtaining the foregoing approvals of the holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Trustees shall
obtain, at the expense of KDSM, Inc., an opinion of independent counsel
experienced in such matters to the effect that the Trust will not be classified
as an association taxable as a corporation for United States federal income tax
purposes on account of such action. (Section 6.01 (b)).
In addition, upon an Event of Default under the Preferred Securities, the
holders of a majority of the aggregate Liquidation Value of the outstanding
Preferred Securities will have the right to replace any or all of the Trustees
of the Trust. Additionally, upon a Voting Rights Triggering Event under the
Parent Preferred, KDSM, Inc. will have the right to elect two directors of
Sinclair. KDSM, Inc. will also agree in the Pledge Agreement that it will elect
the nominees of the holders of a majority of the Liquidation Value of
outstanding Preferred Securities to such directorships.
Any required approval of holders of Preferred Securities may be given at a
separate meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Administrative Trustees will cause a notice of
any meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be taken,
to be given to each holder of record of Preferred Securities in the manner set
forth in the Trust Agreement. (Sections 6.02 and 6.06).
No vote or consent of the holders of Preferred Securities will be required
for the Trust to redeem and cancel Preferred Securities in accordance with the
Trust Agreement.
For purposes of any vote of the holders of the Preferred Securities, any
Preferred Securities that are held by Sinclair, any Trustee or any affiliate of
Sinclair or any Trustee, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default under the Trust Agreement shall have occurred
and be continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any part
of the Trust Property (as defined in the Trust Agreement) may at the time be
located, the holder of the Common Securities and the Administrative Trustees
shall have power to appoint, and upon the written request of the Administrative
Trustees, KDSM, Inc., as depositor (the "Depositor"), shall for such purpose
join with the Administrative Trustees in the execution, delivery and performance
of all instruments and agreements necessary or proper to appoint, one or more
Persons
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approved by the Property Trustee either to act as co-property trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to act
as separate trustee of any such property, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
persons in such capacity, any property, title, right or power deemed necessary
or desirable, subject to the provisions of the Trust Agreement. If KDSM, Inc.,
as Depositor, does not join in such appointment within 15 days after the receipt
by it of a request so to do, or in case an Event of Default under the KDSM
Senior Debenture Indenture has occurred and is continuing, the Property Trustee
alone shall have the power to make such appointment. (Section 8.09).
PAYMENT AND PAYING AGENT
Payments in respect of the Global Security shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable Distribution Payment
Dates or, if the New Preferred Securities are not held by DTC, such payments
shall be made at the office or agency of the New Preferred Securities Paying
Agent maintained for such purpose, or at the option of the Property Trustee, by
check mailed to the address of the holder entitled thereto as such address shall
appear on the New Preferred Securities Register. The New Preferred Securities
Paying Agent shall initially be First Union National Bank of Maryland. The New
Preferred Securities Paying Agent shall be permitted to resign as New Preferred
Securities Paying Agent upon 30 days' written notice to the Administrative
Trustees, the Property Trustee, KDSM, Inc. and Sinclair. In the event that First
Union National Bank of Maryland chooses no longer to be the New Preferred
Securities Paying Agent, the Administrative Trustees shall appoint a successor
(which shall be a bank or trust company) acceptable to the Property Trustee and
Sinclair to act as New Preferred Securities Paying Agent.(Sections 4.04 and
5.09).
BOOK-ENTRY SECURITIES; THE DEPOSITORY TRUST COMPANY; DELIVERY AND FORM
DTC will act as securities depository for the New Preferred Securities.
Except as described in the next paragraph, the New Preferred Securities
initially will be represented by a Global Security. The Global Security will be
deposited on the date of initial issuance with, or on behalf of DTC and
registered in the name of Cede & Co. (DTC's nominee).
The New Preferred Securities issued to institutional Accredited Investors
will be issued as Certificated Securities. Upon the transfer to a QIB of any
Certificated Security initially issued to a Non-Global Securities holder, such
Certificated Security will, unless the Global Security has previously been
exchanged in whole for Certificated Securities, be exchanged for an interest in
the Global Security.
The laws of certain jurisdictions require that certain purchases of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to own, transfer or pledge beneficial interests in the
global Preferred Securities as represented by a global certificate.
DTC has informed the Trust, KDSM, Inc. and Sinclair that it is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds
securities that its participants ("Participants") deposit with DTC. DTC also
facilitates the settlement of securities transactions among Participants through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
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Exchanges of Preferred Securities that are represented by a Global Security
within the DTC system must be made by or through Direct Participants, which will
receive a credit for the New Preferred Securities on DTC's records. The
ownership interest of each actual owner of each New Preferred Security
("Beneficial Owner") is in turn to be recorded on the Direct Participants and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their holdings, but Beneficial Owners are expected to
receive written confirmations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct Participants or Indirect
Participants through which the Beneficial Owners hold New Preferred Securities.
Transfers of ownership interests in the New Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in New Preferred Securities, except as described
below.
DTC will have no knowledge of the actual Beneficial Owners of the New
Preferred Securities; DTC's records will reflect only the identity of the Direct
Participants to whose accounts such Preferred Securities will be credited, which
may or may not be the Beneficial Owners. The Participants will be responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the New
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Direct Participant in such New Preferred Securities in
accordance with its procedures.
Although voting with respect to the New Preferred Securities is limited in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to New Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the New Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Distribution payments on the New Preferred Securities will be made by the
Trust to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of each such Participant and not of DTC, the Trust, Sinclair or
any Trustee, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the responsibility
of the Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Security will not be entitled to receive physical delivery of New Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the New Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the New Preferred Securities at any time by giving reasonable notice
to the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Certificated Securities representing the New
Preferred Securities will be printed and delivered. If an Event of Default
occurs under the KDSM Senior Debenture Indenture or if the Trust decides to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary), Certificated Securities representing the New Preferred
Securities will be printed and delivered.
The New Preferred Securities will be delivered in certificated form if (i)
DTC ceases to be registered as a clearing agency under the Exchange Act or is no
longer willing or able to provide securities depository services with respect to
the New Preferred Securities, (ii) Sinclair so determines, or (iii) there
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shall have occurred an Event of Default or an event which, with the giving of
notice or the lapse of time or both, would constitute an Event of Default with
respect to the Preferred Securities represented by such Global Security and such
Event of Default or event continues for a period of 90 days.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Sinclair, KDSM, Inc. and the Trust believe
to be reliable. Neither the Trust nor any Trustee has any responsibility for the
accuracy of such information or performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
If the New Parent Preferred, New KDSM Senior Debenture or New Parent
Debenture Guarantee are issued to the public, the issuing entity will also seek
to have such securities represented by a global certificate or certificates
registered in the name of DTC or its nominees if permitted under the rules of
DTC.
REGISTRAR AND TRANSFER AGENT
The First Union National Bank of Maryland will act as registrar and
transfer agent for the New Preferred Securities (the "Preferred Securities
Registrar"). (Section 5.05).
As described under "-Book-Entry Securities; The Depository Trust Company;
Delivery and Form," so long as the New Preferred Securities are in book-entry
form, registration of transfers and exchanges of New Preferred Securities will
be made through Direct Participants and Indirect Participants in DTC. If
physical certificates representing the New Preferred Securities are issued,
registration of transfers and exchanges of New Preferred Securities will be
effected without charge by or on behalf of the Trust, but, in the case of a
transfer, upon payment (with the giving of such indemnity as the Trust or
Sinclair may require) in respect of any tax or other governmental charges which
may be imposed in relation to it. (Section 5.04).
The Trust will not be required to register or cause to be registered any
transfer of New Preferred Securities during a period beginning 15 days prior to
the mailing of notice of redemption of New Preferred Securities and ending on
the day of such mailing. (Section 5.05).
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of a
default by Sinclair in performance of the Trust Agreement, undertakes to perform
only such duties as are specifically set forth in the Trust Agreement and, after
an Event of Default under the Trust Agreement, must exercise the same degree of
care and skill as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs. Subject to this provision, the
Property Trustee is under no obligation to exercise any of the powers vested in
it by the Trust Agreement at the request of any holder of Issuer Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
MODIFICATION OF THE TRUST AGREEMENT WITHOUT CONSENT
From time to time, KDSM, Inc., as the holder of the Common Securities, and
the Trustees may, without the consent of any holders of the New Preferred
Securities, amend the Trust Agreement for specified purposes, including, among
other things, (i) to cure ambiguities, correct or supplement any provision of
the Trust Agreement which may be inconsistent with any other provision thereof
or to make any other provisions with respect to matters or questions arising
under the Trust Agreement, which shall not be inconsistent with the other
provisions of the Trust Agreement, or (ii) to ensure that the Trust will not be
classified for United States federal income tax purposes as an association
taxable as a corporation and will not be required to register as an "investment
company" under the 1940 Act; provided, however, that such amendment or action in
the case of clause (i) or (ii) shall not adversely affect the rights of any
holder of the Issuer Securities.
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GOVERNING LAW
The Trust Agreement will be governed by, and construed in accordance with,
the laws of the State of Delaware. (Section 11.05).
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of the Trust and to operate the Trust so that (i) the Trust will not be
deemed to be an "investment company" required to be registered under the 1940
Act or taxed as a corporation for United States federal income tax purposes and
(ii) the New KDSM Senior Debentures will be treated as indebtedness of Sinclair
for United States federal income tax purposes. In this connection KDSM, Inc., as
the holder of the Common Securities, and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Trust Agreement that Sinclair or any of
the Administrative Trustees determines in their discretion to be necessary or
desirable or convenient for such purposes, as long as such action does not
adversely affect the interests of the holders of the New Preferred
Securities.(Section 2.07(d)).
The Property Trustee will act as sole trustee under the Trust Agreement for
the purposes of compliance with the Trust Indenture Act.
The New Preferred Securities will, upon issuance, be validly issued, fully
paid and non-assessable. Holders of the New Preferred Securities have no
preemptive rights.
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DESCRIPTION OF THE NEW PARENT GUARANTEE
Set forth below is a summary of information concerning the New Parent
Guarantee that will be executed and delivered by Sinclair for the benefit of the
holders from time to time of New Preferred Securities. The New Parent Guarantee
will be issued under an agreement (the "Parent Guaranty Agreement"). First Union
National Bank of Maryland will act as "Guarantee Trustee" under the New Parent
Guarantee. This summary contains all material information concerning the New
Parent Guarantee but does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference to,
the New Parent Guarantee. The Guarantee Trustee will hold the New Parent
Guarantee for the benefit of the holders of the New Preferred Securities. The
New Parent Guarantee will not run to the benefit of the creditors of the Trust.
Certain capitalized terms used herein are defined under "Certain Definitions."
For a description of certain registration rights with respect to the New Parent
Guarantee, see "Description of the New Preferred Securities-Registration
Rights."
GENERAL
Sinclair will unconditionally guarantee, on a junior subordinated basis,
the payment in full under the New Preferred Securities of (i) any accrued and
unpaid distributions on the New Preferred Securities that have been theretofore
properly declared on the New Preferred Securities from funds of the Trust
legally available therefor in accordance with the Trust Agreement, (ii) the
Redemption Price payable with respect to any New Preferred Securities called for
redemption by the Trust, from funds legally available therefor in accordance
with the terms of the Trust Agreement and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with a redemption of all of the Preferred Securities), the payment of an amount
if, when, and to the extent holders of the New Preferred Securities are lawfully
entitled to payment thereof from the Trust equal to the lesser of (a) the full
liquidation preference plus accumulated and unpaid dividends to which the
holders of the New Preferred Securities are lawfully entitled, and (b) the
amount of the Trust's legally available assets remaining after satisfaction of
all claims of other parties which, as a matter of law, are prior to those of the
holders of the New Preferred Securities. The Trust Agreement provides that
distributions on the New Preferred Securities are not properly declarable, and
funds are not legally available for redemption of New Preferred Securities,
unless the Trust has funds sufficient to pay such distributions or make such
redemption, as the case may be. If Sinclair fails to make any such Guarantee
Preferred Security Payment, as required, such failure will result in an Event of
Default under the New Parent Guarantee. See "Risk Factors-Limited Rights Under
the New Parent Guarantee."
The New Parent Guarantee will be an irrevocable guarantee on a junior
subordinated basis of the Trust's obligations under the New Preferred
Securities, but will apply only to the extent that the Trust has funds
sufficient to make such payments under the Trust Agreement, and is not a
guarantee of collection. If KDSM, Inc. does not make interest payments on the
New KDSM Senior Debentures held by the Trust, it is unlikely that the Trust will
pay distributions on the New Preferred Securities and the New Parent Guarantee
will not require any payments in such situation. Such interest payments, if made
in accordance with the terms of the KDSM Senior Debenture Indenture, will
provide sufficient funds to enable the Trust to make distributions and pay other
amounts on the New Preferred Securities. Sinclair's obligations under the New
Parent Guarantee are subordinated and junior in right of payment to all other
liabilities of Sinclair except the Old Parent Guarantee any liabilities that may
be made pari passu with or subordinate to the New Parent Guarantee expressly by
their terms. See "-Status of the New Parent Guarantee."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of New Preferred Securities (in which case no consent of holders of
New Preferred Securities will be required), the terms of the New Parent
Guarantee may be changed only with the prior approval of the holders of not less
than a majority in aggregate Liquidation Value of the outstanding New Preferred
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Securities. All guarantees and agreements contained in the New Parent Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
Sinclair and shall inure to the benefit of the holders of the New Preferred
Securities then outstanding.
HOLDERS' ABILITY TO TAKE ACTION
An event of default under the New Parent Guarantee will occur upon the
failure of SINCLAIR TO perform any of its payment obligations thereunder. The
holders of a majority in aggregate Liquidation Value of the outstanding
Preferred Securities will thereupon have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the New Parent Guarantee or to direct the exercise of any
trust or other power conferred upon the Guarantee Trustee under the New Parent
Guarantee.
If the Guarantee Trustee fails to enforce the New Parent Guarantee, any
holder of New Preferred Securities may institute a legal proceeding directly
against Sinclair to enforce its rights under the New Parent Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity.
Sinclair will be required to provide annually to the Guarantee Trustee a
statement as to the performance by Sinclair of certain of its obligations under
the New Parent Guarantee and as to any default in such performance. Sinclair
will also be required to file annually with the Guarantee Trustee an officer's
certificate as to Sinclair's compliance with all conditions under the New Parent
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default bY Sinclair in performance of the New Parent Guarantee, undertakes to
perform only such duties as are specifically set forth in the New Parent
Guarantee and, after default with respect to the New Parent Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs. Subject to
this provision, the Guarantee Trustee shall be under no obligation to exercise
any of the powers vested in it by the New Parent Guarantee at the request of any
holder of New Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE NEW PARENT GUARANTEE
The New Parent Guarantee will terminate and be of no further force and
effect upon fulL payment of the Redemption Price of all Preferred Securities or
the distribution of KDSM Senior Debentures to holders of Preferred Securities
upon liquidation of the Trust. Upon the distribution of the New KDSM Senior
Debentures, Sinclair will be obligated to fully and unconditionally guarantee
the New KDSM Senior Debentures on a junior subordinated basis in certain
circumstances. See "Risk Factors-New Parent Debenture Guarantee."
Notwithstanding the foregoing, the New Parent Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of New Preferred Securities must restore payment of any sums paid under the New
Preferred Securities or the New Parent Guarantee.
STATUS OF THE NEW PARENT GUARANTEE
The New Parent Guarantee will constitute an unsecured obligation of
sinclair and will rank (i) subordinate and junior in right of payment to all
Indebtedness of Sinclair (excluding trade payables and other liabilities that
may be made pari passu with or subordinate to the New Parent Guarantee expressly
by their terms), and (ii) senior to Sinclair's Series B Convertible Preferred
Stock, the Parent Preferred and Sinclair's Common Stock. The Trust Agreement
provides that each holder of New Preferred Securities by acceptance thereof will
agree to the subordination provisions and other terms of the New Parent
Guarantee. Because Sinclair is a holding company whose assets consist
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substantially of the stock of its subsidiaries, Sinclair's obligations under
the New Parent Guarantee shall effectively be subordinated to the claims of the
direct creditors of its subsidiaries. See "Risk Factors-Subordination of New
Parent Guarantee, New Parent Debenture Guarantee and New Parent Preferred."
The New Parent Guarantee will constitute a guarantee of payment, not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against Sinclair to enforce its rights under the New Parent Guarantee without
first instituting a legal proceeding against any other person or entity) and not
of performance of non-payment covenants.
GOVERNING LAW
The New Parent Guarantee will be governed by and construed in accordance
with the laws of the State of New York.
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DESCRIPTION OF THE NEW PARENT DEBENTURE GUARANTEE
Upon a Tax Event, KDSM, INC., as the holder of all the Common Securities of
the Trust, will have the right to cause the Trust to be dissolved with each
holder of New Preferred Securities receiving New KDSM Senior Debentures in a
principal amount equal to the Liquidation Value of their New Preferred
Securities. If KDSM, Inc. exercises this option, pursuant to the KDSM Senior
Debenture Indenture, Sinclair has agreed, effective at the time of such
distribution, to fully and unconditionally guarantee the New KDSM Senior
Debentures on a junior subordinated basis pursuant to the New Parent Debenture
Guarantee; provided that (i) Sinclair confirms the effectiveness of the New
Parent Debenture Guarantee at the time of distribution which it may not do if
such guarantee is not then permitted under the terms of the Existing Notes or
the Bank Credit Agreement and (ii) the Trust may not be dissolved unless the New
Parent Debenture Guarantee is effective.
SUBORDINATION OF NEW PARENT DEBENTURE GUARANTEE
Payments under the New Parent Debenture Guarantee, if effective, will be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (as defined herein) of Sinclair in cash or cash equivalents or in
any other form acceptable to the holders of Senior Indebtedness. The New Parent
Debenture Guarantee, if effective, will be junior subordinated indebtedness of
Sinclair ranking pari passu with all other existing and future subordinated
indebtedness of Sinclair and senior to all existing and future junior
indebtedness of Sinclair and to all Capital Stock of Sinclair.
During the continuance of any default in the payment of any Designated
Senior Indebtedness, no payment (other than payments previously made pursuant to
certain defeasance provisions described in the New KDSM Senior Debenture
Indenture) or distribution of any assets of Sinclair of any kind or character
(excluding certain permitted equity interests or subordinated securities) shall
be made under the New Parent Debenture Guarantee or on account of the purchase,
redemption, defeasance or other acquisition of, the New Parent Debenture
Guarantee unless and until such default has been cured, waived or has ceased to
exist or the holders of such Designated Senior Indebtedness shall have been
discharged or paid in full in cash or cash equivalents or in any other form
acceptable to the holders of Senior Indebtedness.
During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a "Non-payment Default") and after the receipt by the Debenture
Trustee from a representative of the holder of any Designated Senior
Indebtedness of a written notice of such default, no payment (other than
payments previously made pursuant to certain defeasance provisions described in
the KDSM Senior Debenture Indenture) or distribution of any assets of Sinclair
of any kind or character (excluding certain permitted equity or subordinated
securities) may be made by Sinclair under the New Parent Debenture Guarantee or
on account of the purchase, redemption, defeasance or other acquisition of, the
New Parent Debenture Guarantee for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of
the Non-payment Default by the Debenture Trustee and Sinclair from a
representative of the holder of any Designated Senior Indebtedness and shall end
on the earliest of (i) the first date on which more than 179 days shall have
elapsed since the receipt of such written notice (provided such Designated
Senior Indebtedness as to which notice was given shall not theretofore have been
accelerated), (ii) the date on which such Non-payment Default (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) are cured, waived or ceased to exist or on which such
Designated Senior Indebtedness is discharged or paid in full in cash or cash
equivalents or in any other form acceptable to the holders of Designated Senior
Indebtedness or (iii) the date on which such Payment Blockage Period (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) shall have been terminated by written notice to Sinclair or
the Debenture Trustee from the representatives of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which, in the case
of clauses (i), (ii) and (iii), Sinclair shall promptly resume making any and
all required payments in respect of the New Parent Debenture Guarantee,
including any missed payments. In no event will a Payment Blockage Period extend
beyond 179 days from the date of the receipt by Sinclair or the Debenture
Trustee of the notice initiating such Payment Blockage Period (such 179-day
period referred to as the "Initial Period"). Any number of notices of
Non-payment
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Defaults may be given during the Initial Period; provided that during any
365-day consecutive period only one Payment Blockage Period during which payment
of principal of, or interest on, the New KDSM Senior Debentures may not be made
may commence and the duration of the Payment Blockage Period may not exceed 179
days. No Non-payment Default with respect to Designated Senior Indebtedness
which existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days.
The KDSM Senior Debenture Indenture will provide that, in the event of any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case proceeding in connection therewith,
relative to Sinclair or its assets, or any liquidation, dissolution or other
winding up of Sinclair, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, or any assignment for the benefit of
creditors or any other marshaling of assets or liabilities of Sinclair, all
Senior Indebtedness must be paid in full in cash or cash equivalents or in any
other manner acceptable to the holders of Senior Indebtedness, or provision made
for such payment, before any payment or distribution (excluding distributions of
certain permitted equity or subordinated securities) is made under the New
Parent Debenture Guarantee.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of Sinclair who are holders of Senior Indebtedness may recover more,
ratably, than the holders of the New Parent Debenture Guarantee, and funds which
would be otherwise payable to the holders of the New Parent Debenture Guarantee
will be paid to the holders of the Senior Indebtedness to the extent necessary
to pay the Senior Indebtedness in full in cash or cash equivalents or in any
other manner acceptable to the holders of Senior Indebtedness, and Sinclair may
be unable to meet its obligations fully with respect to the New Parent Debenture
Guarantee.
"Senior Indebtedness" is defined as the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy law whether or not
allowable as a claim in such proceeding) on any indebtedness of Sinclair (other
than as otherwise provided in this definition), whether outstanding on the date
of the New Parent Debenture Guarantee or thereafter created, incurred or
assumed, and whether at any time owing, actually or contingent, unless, in the
case of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the New Parent Debenture
Guarantee. Without limiting the generality of the foregoing, "Senior
Indebtedness" shall include (i) the principal of, premium, if any, and interest
(including interest accruing after the filing of a petition initiating any
proceeding under any state, federal or foreign bankruptcy law whether or not
allowable as a claim in such proceeding) and all other obligations of every
nature of Sinclair from time to time owed to the lenders (or their agent) under
the Bank Credit Agreement; provided, however, that any Indebtedness under any
refinancing, refunding or replacement of the Bank Credit Agreement shall not
constitute Senior Indebtedness to the extent that the Indebtedness thereunder is
by its express terms subordinate to any other Indebtedness of Sinclair, (ii)
Indebtedness outstanding under the Founders' Notes, (iii) Indebtedness under the
Existing Notes and (iv) Indebtedness under Interest Rate Agreements.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the KDSM Senior Debentures, (ii) Indebtedness which
when incurred and without respect to any election under Section 1111(b) of Title
11 United States Code, is without recourse to Sinclair, (iii) Indebtedness which
is represented by Disqualified Equity Interests, (iv) any liability for foreign,
federal, state, local or other taxes owed or owing by Sinclair, (v) Indebtedness
of Sinclair to the extent such liability constitutes Indebtedness to a
Subsidiary or any other Affiliate of Sinclair or any of such Affiliate's
Subsidiaries, (vi) that portion of any Indebtedness which at the time of
issuance is issued in violation of the KDSM Senior Debenture Indenture, (vii)
Indebtedness owed by Sinclair for compensation to employees or for services and
(viii) Indebtedness outstanding under the Minority Note.
"Designated Senior Indebtedness" is defined as (i) all Senior Indebtedness
outstanding under the Bank Credit Agreement and (ii) any other Senior
Indebtedness which is incurred pursuant to an agreement (or series of related
agreements simultaneously entered into) providing for indebtedness, or
commitments to
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lend, of at least $25,000,000 at the time of determination and is specifically
designated in the instrument evidencing such Senior Indebtedness or the
agreement under which such Senior Indebtedness arises as "Designated Senior
Indebtedness" by Sinclair.
Substantially all of the operations of Sinclair are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors and creditors holding guarantees issued by such subsidiaries, will
have priority with respect to the assets and earnings of such subsidiaries
(other than KDSM, Inc.) over the claims of creditors of Sinclair, including
holders of the New Parent Debenture Guarantee, even though such obligations do
not constitute Senior Indebtedness.
As of December 31, 1996 on a pro forma basis, after giving effect to the
Old Securities Offering and the application of the estimated net proceeds
thereof, the aggregate amount of Senior Indebtedness that would have ranked
senior in right of payment to the New Parent Debenture Guarantee if effective
would have been $1.3 billion, and there would have been no Indebtedness that
would have been pari passu or junior in right of payment with the New KDSM
Senior Debentures. Any Indebtedness which can be incurred by Sinclair in the
future may constitute additional Senior Indebtedness.
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DESCRIPTION OF THE OLD SECURITIES
The terms of the Old Securities are identical in all material respects to
those of the New Securities, except that the Old Securities (i) have not been
registered under the Securities Act, and, accordingly, contain terms with
respect to transfer restrictions, (ii) are entitled to certain registration
rights under the Registration Rights Agreement (which rights will terminate upon
consummation of the Exchange Offer, except under limited circumstances), and
(iii) are entitled under the Registration Rights Agreement to an increase in the
rate of interest payments or distributions thereon (as applicable) in the event
that the Company, KDSM, Inc. and the Trust fail to comply with certain terms of
the Registration Rights Agreement relating to the Exchange Offer. Certain
relevant terms of the Registration Rights Agreement are described more fully
below.
The Registration Rights Agreement provides that in the event that (i) due
to a change in applicable law or current interpretations by the Commission, the
Company, KDSM, Inc. and the Trust are not permitted to effect the Exchange Offer
for all of the Old Securities, (ii) the Exchange Offer is not for any other
reason consummated by August 9, 1997, (iii) any holder of the Old Securities
shall, within 30 days after consummation of the Exchange Offer, notify the
Company that such holder (x) is prohibited by applicable law or Commission
policy from participating in the Exchange Offer, (y) may not resell New
Securities acquired by it in the Exchange Offer to the public without delivering
a prospectus and that the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
holder or (z) is a broker-dealer and holds Old Preferred Securities acquired
directly from the Company, KDSM, Inc. or the Trust or an "affiliate" of the
Company, KDSM, Inc. or the Trust, or (iv) at the request of either Smith Barney,
Inc. or Chase Securities, Inc. (the "Initial Purchasers"), then in addition to
or in lieu of conducting the Exchange Offer, the Company, KDSM, Inc. and the
Trust will be required to file a registration statement (a "Shelf Registration
Statement") covering resales (a) by the holders of the Old Securities in the
event the Company, KDSM, Inc. and the Trust are not permitted to effect the
Exchange Offer pursuant to the foregoing clause (i) or the Exchange Offer is not
consummated by August 9, 1997 pursuant to the foregoing clause (i) or (ii) or
(b) by the holders of Old Securities with respect to which the Company receives
notice pursuant to the foregoing clauses (iii) or (iv), and will use their best
efforts to cause any such Shelf Registration Statement to become effective and
to keep such Shelf Registration Statement continuously effective for two years
from the effective date thereof or such shorter period that will terminate when
all of the Old Securities covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement. The Company, KDSM, Inc. and
the Trust shall, if they file a Shelf Registration Statement, provide to each
holder of the Old Securities a copy of the related prospectus and notify each
such holder when the Shelf Registration Statement has become effective. A holder
that sells Old Securities pursuant to a Shelf Registration Statement generally
will be required to be named as a selling securityholder in the related
prospectus and to deliver a current prospectus to purchasers, and will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales.
Under the Registration Rights Agreement, the Company, KDSM, Inc. and the
Trust have agreed to use their best efforts to: (i) file the Exchange Offer
Registration Statement or a Shelf Registration Statement with the Commission as
soon as practicable after March 12, 1997 (the "Closing Date") or notice from
holders in the event of clauses (iii) or (iv) of the prior paragraph, (ii) have
such Exchange Offer Registration Statement or Shelf Registration Statement
declared effective by the Commission as soon as practicable after the filing
thereof, and (iii) commence the Exchange Offer and issue the New Securities in
exchange for all Old Securities validly tendered in accordance with the terms of
the Exchange Offer prior to the close of the Exchange Offer, or, in addition or
in the alternative, cause such Shelf Registration Statement to remain
continuously effective for two years from the effective date thereof or such
shorter period that will terminate when all of the Old Securities covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. Although the Company, KDSM, Inc. and the Trust intend to file an
Exchange Offer Registration Statement and, if applicable, a Shelf Registration
Statement as described above, there can be no assurance that any such
registration statement will be filed or, if filed, that it will become effective
with respect to each of the Old Securities. Each holder of the Old Securities,
by virtue of becoming a holder, is bound by the provisions of the Registration
Rights Agreement that may require the holder to furnish notice or other
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information to the Company, KDSM, Inc. or the Trust as a condition to certain
obligations of the Company, KDSM, Inc. and the Trust to file a Shelf
Registration Statement by a particular date or to maintain its effectiveness
for the prescribed two-year period.
If the Company, KDSM, Inc. and the Trust fail to comply with the above
provisions, additional dividends will be required on the Old Parent Preferred,
additional interest will be assessed on the Old KDSM Senior Debentures and
additional distributions will be required under the Old Preferred Securities (in
any case "Penalty Amounts") as follows:
(i) (A) if an Exchange Offer Registration Statement (or, in the event of a
change in applicable law or due to current interpretations by the Commission,
the Company, KDSM, Inc. and the Trust are not permitted to effect the Exchange
Offer, a Shelf Registration Statement) is not filed within 60 days following the
Closing Date, (B) in the event that within the 30 days after consummation of the
Exchange Offer, any holder of Old Securities shall notify the Company that such
holder (x) is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, (y) may not resell New Securities acquired
by it in the Exchange Offer to the public without delivering a prospectus and
that the prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales by such holder or (z) is a
broker-dealer and holds Old Securities acquired directly from the Company or an
"affiliate" of the Company or (C) upon the request of an Initial Purchaser, a
Shelf Registration Statement is not filed within 60 days after such request,
then commencing on either the 61st day after the Closing Date or the expiration
of either of the time periods set forth in clauses (B) and (C) above (either a
"prescribed time period"), as the case may be, Penalty Amounts shall be accrued
on the Old Parent Preferred, the Old KDSM Senior Debentures and the Old
Preferred Securities over and above the stated payment rates thereon at a rate
of .50% per annum for the first 90 days immediately following either the 61st
day after the Closing Date or the expiration of the prescribed time period, as
the case may be, such Penalty Amount rate increasing by an additional .25% per
annum at the beginning of each subsequent 90-day period;
(ii) if an Exchange Offer Registration Statement or a Shelf Registration
Statement is filed pursuant to clause (i) of the preceding full paragraph and is
not declared effective within 120 days following either the Closing Date or the
expiration of the prescribed time period, as the case may be, then commencing on
the 121st day after either the Closing Date or the expiration of a prescribed
time period, as the case may be, Penalty Amounts shall be accrued on the Old
Securities over and above the accrued stated payment rates thereon at a rate of
.50% per annum for the first 90 days immediately following the 121st day after
either the Closing Date or the expiration of the prescribed time period, as the
case may be, such Penalty Amounts rate increasing by an additional .25% per
annum at the beginning of each subsequent 90-day period; and
(iii) if either (A) the Company, KDSM, Inc. and the Trust have not
exchanged New Securities for all Old Securities validly tendered in accordance
with the terms of the Exchange Offer on or prior to 150 days after the Closing
Date or the expiration of the prescribed time period, or (B) if applicable, a
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective prior to two years from its
original effective date or such shorter period that will terminate when all of
the Old Securities covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement, then, subject to certain
exceptions, Penalty Amounts shall be accrued on the Old Securities over and
above the stated payment rates at a rate of .50% per annum for the first 60 days
immediately following (x) the 31st day after such effective date, in the case of
(A) above, or (y) the day such Shelf Registration Statement ceases to be
effective in the case of (B) above, such Penalty Amounts rate increasing by an
additional .25% per annum at the beginning of each subsequent 90-day period;
provided, however, that the Penalty Amounts rate on the applicable Old
Securities may not exceed 1.5% per annum; and provided further that (1) upon the
filing of the Exchange Offer Registration Statement or a Shelf Registration
Statement (in the case of (i) above), (2) upon the effectiveness of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
(ii) above), or (3) upon the exchange of New Securities for all Old Securities
tendered in the Exchange Offer or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective prior to two years
from its original effective date (in the case of (iii) above), Penalty Amounts
as a result of such clause (i), (ii) or (iii) shall cease to accrue.
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Any Penalty Amounts due pursuant to clause (i), (ii) or (iii) above will be
payable in cash on the various payment dates related to the respective
securities. The Penalty Amounts will be determined by multiplying the applicable
Penalty Amounts rate by the Liquidation Value of the Old Preferred Securities,
the Liquidation Amount of the Old Parent Preferred or principal amount of the
Old KDSM Senior Debentures, as the case may be, multiplied by a fraction, the
numerator of which is the number of days such Penalty Amount rate was applicable
during such period, and the denominator of which is 360.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Rights
Agreement. Copies of the Registration Rights Agreement are available from the
Company or the Trust upon request. Holders of Old Preferred Securities should
review the information set forth under "Risk Factors-Certain Consequences of a
Failure to Exchange Old Preferred Securities" and "Description of the New
Preferred Securities."
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CERTAIN DEFINITIONS
Set forth below are certain defined terms relating to the descriptions of
the Parent Preferred, KDSM Senior Debentures, the Preferred Securities, the
Parent Guarantee, and the Parent Debenture Guarantee and which are also used
elsewhere in this Prospectus. Whenever used in this Prospectus, the terms
"Change of Control Offer," "Change of Control Purchase Price," "Default," "Event
of Default," "Junior Securities," "Senior Indebtedness" or "Senior Securities"
refer to such terms as defined for the purpose of the particular security being
discussed in such security's relevant governing document. Other definitions are
contained in the Glossary of Defined Terms.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person, (ii) any other Person that
owns, directly or indirectly, 5% or more of such Person's Equity Interests or
any officer or director of any such Person or other Person or, with respect to
any natural Person, any Person having a relationship with such Person or other
Person by blood, marriage or adoption not more remote than first cousin or (iii)
any other Person 10% or more of the voting Equity Interests of which are
beneficially owned or held directly or indirectly by such specified Person. For
the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person directly or indirectly, whether through ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Sale" means with respect to any Person any sale, issuance,
conveyance, transfers, lease or other disposition (including, without
limitation, by way of merger, consolidation or Sale and Leaseback Transaction)
(collectively, a "transfer"), directly or indirectly, in one or a series of
related transactions, of (i) any Equity Interest of any Restricted Subsidiary of
such Person; (ii) all or substantially all of the properties and assets of any
division or line of business of such Person or of its Restricted Subsidiaries;
or (iii) any other properties or assets of such Person or any of its Restricted
Subsidiaries, other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include any transfer of
properties and assets (A) that is governed by the provisions described under
"Certain Covenants-Consolidation, Merger and Sale of Assets" of the relevant
document, (B) that is by such Person to any Wholly Owned Restricted Subsidiary,
or by any Restricted Subsidiary to any Person or any Wholly Owned Restricted
Subsidiary in accordance with the terms of the operative document or (C) that
aggregates not more than $1,000,000 in gross proceeds.
"Asset Swap" means an Asset Sale by any Person or any Restricted Subsidiary
in exchange for properties or assets that will be used in the business of
Sinclair and its Restricted Subsidiaries existing on the date of the operative
document or reasonably related thereto.
"Asset Transfer Transaction" means the sale, transfer or conveyance, or
other disposition, directly or indirectly, in one or a series of related
transactions of any properties or assets of KDSM, Inc. or any of its
Subsidiaries (the "KDSM Transferred Assets") to any Person in exchange for
properties or assets that will be used in the operations of one or more
television or radio broadcasting stations or assets reasonably related thereto
(the "Received Assets"), provided that (i) KDSM, Inc. shall deliver to the
Debenture Trustee a written opinion from an investment banking firm of national
standing or other financial services firm experienced in such matters and
reasonably acceptable to the Debenture Trustee to the effect that the Fair
Market Value of the Received Assets is at least equal to the greater of (a) 90%
of the Fair Market Value of the KDSM Transferred Assets immediately prior to the
proposed Asset Transfer Transaction or (b) $50 million, (ii) both the Received
Assets (if considered as a separate entity) and KDSM, Inc., after giving effect
to the Asset Transfer Transaction, would have had positive Operating Cash Flow
(as defined in the KDSM Senior Debenture Indenture) for at least two prior
fiscal years (based on audited financial statements) and any subsequent three,
six or nine month interim period (on an unaudited basis) on an actual and pro
forma
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basis (without giving effect to dividends under the Parent Preferred and
interest payments on the KDSM Senior Debentures) prepared in accordance with
Rule 11-02 of Regulation S-X as if such entity were making a public equity
offering under the Securities Act as of the closing date of the Asset Transfer
Transaction; (iii) there has been no material adverse change in the condition
(financial or otherwise), business, prospects, or results of operations of the
Received Assets since the latter of the end of the last fiscal year or any
subsequent three, six or nine month interim period; (iv) such transaction does
not result in a violation of the Trust Indenture Act; and (v) KDSM, Inc. shall
have delivered to the KDSM Debenture Trustee simultaneously with the
consummation of the Asset Transfer Transaction an officers' certificate and an
opinion of counsel, each to the effect that the transaction complies with this
definition and that all conditions precedent to such Asset Transfer Transaction
have been satisfied.
"Bank Credit Agreement" means the Third Amended and Restated Credit
Agreement, dated as of May 20, 1997, between Sinclair, the Subsidiaries of
Sinclair identified on the signature pages thereof under the caption "Subsidiary
Guarantors," the lenders named therein, and The Chase Manhattan Bank, as agent,
as such agreement may be amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from time to time
(including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing). For all purposes under the Parent
Preferred, "Bank Credit Agreement" shall include any amendments, renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplements or any other modifications that increase the principal amount of the
Indebtedness or the commitments to lend thereunder and have been made in
compliance with the "-Certain Covenants-Limitation on Indebtedness;" covenant of
the relevant document, if applicable, provided, that, for purposes of the
definition of "Permitted Indebtedness," no such increase may result in the
principal amount of Indebtedness of Sinclair under the Bank Credit Agreement
exceeding the amount permitted by clause (i) of the definition of "Permitted
Indebtedness," of the relevant document.
"Business Day" means any day other than (i) a Saturday or a Sunday, (ii) a
day on which banking institutions in Maryland or The City of New York are
authorized or obligated by law or executive order to close or (iii) a day on
which the office of the trustee or transfer agent, as the case may be, or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of the Parent Preferred, the KDSM Senior Debenture
Indenture or the Preferred Securities shall be principally administered is
closed for business.
"Capital Lease Obligation" means any obligation under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders (as defined below), is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have beneficial ownership
of all shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 40% of the total outstanding Voting Stock of Sinclair,
provided that the Permitted Holders "beneficially own" (as so defined) a lesser
percentage of such Voting Stock than such other Person and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of Sinclair; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the board of directors of Sinclair (together with any new directors
whose election to such board of directors or whose nomination for election by
the shareholders of Sinclair, was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of such board of directors then in
office; (iii) Sinclair consolidates with or merges with or into any Person or
conveys, transfers or leases all or substantially all of its assets to any
Person, or any corporation consolidates with or merges into or with Sinclair, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of Sinclair is changed into or ex-
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changed for cash, securities or other property, other than any such transaction
where the outstanding Voting Stock of Sinclair is not changed or exchanged at
all (except to the extent necessary to reflect a change in the jurisdiction of
incorporation of Sinclair) or where (A) the outstanding Voting Stock of Sinclair
is changed into or exchanged for (x) Voting Stock of the surviving corporation
which is not Disqualified Equity Interests or (y) cash, securities and other
property (other than Equity Interests of the surviving corporation) in an amount
which could be paid by Sinclair as a Restricted Payment under the Parent
Preferred (and such amount shall be treated as a Restricted Payment) and (B) no
"person" or "group" other than Permitted Holders owns immediately after such
transaction, directly or indirectly, more than the greater of (1) 40% of the
total outstanding Voting Stock of the surviving corporation and (2) the
percentage of the outstanding Voting Stock of the surviving corporation owned,
directly or indirectly, by Permitted Holders immediately after such transaction;
or (iv) Sinclair is liquidated or dissolved or adopts a plan of liquidation or
dissolution other than in a transaction which complies with the provisions
described under "Description of the Parent Preferred-Certain Covenants-Merger,
Consolidation, Sale of Assets."
"Collateral" means the pledge and first priority security interest in the
Parent Preferred and any proceeds thereof granted pursuant to the Pledge
Agreement.
"Collateral Documents" means the Pledge Agreement and any related UCC
financing statements or similar instruments.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
issuance of the Securities such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Consolidated Interest Expense" means, for any Person without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Consolidated Restricted Subsidiaries for such period, on a Consolidated basis,
(provided that for purposes of the KDSM Senior Debenture Indenture, the interest
expense related to the KDSM Senior Debenture shall be deemed interest expense of
KDSM, Inc. and its Subsidiaries on a Consolidated basis) including, without
limitation, (i) amortization of debt discount, (ii) the net cost under Interest
Rate Agreements (including amortization of discounts), (iii) the interest
portion of any deferred payment obligation and (iv) accrued interest, plus (b)
the interest component of the Capital Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person during such period, and all
capitalized interest of such Person and its Consolidated Restricted
Subsidiaries, in each case as determined in accordance with GAAP consistently
applied.
"Consolidated Net Income (Loss)" means, for any period, for any Person, the
Consolidated net income (or loss) of such Person and its Consolidated Restricted
Subsidiaries for such period as determined in accordance with GAAP consistently
applied, adjusted, to the extent included in calculating such net income (or
loss), by excluding, without duplication, (i) all extraordinary gains but not
losses (less all fees and expenses relating thereto), (ii) the portion of net
income (or loss) of such Person and its Consolidated Restricted Subsidiaries
allocable to interests in unconsolidated Persons or Unrestricted Subsidiaries,
except to the extent of the amount of dividends or distributions actually paid
to such Person or its Consolidated Restricted Subsidiaries by such other Person
during such period, (iii) net income (or loss) of any Person combined with such
Person or any of its Restricted Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains but not losses (less all fees and expenses relating
thereto) in respect of disposition of assets other than in the ordinary course
of business, or (vi) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its shareholders.
"Consolidated Net Worth" of any Person means the Consolidated equity of the
holders of Equity Interests (excluding Disqualified Equity Interests) of such
Person and its Restricted Subsidiaries, as determined in accordance with GAAP
consistently applied.
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"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries (other than any
Unrestricted Subsidiaries) if and to the extent the accounts of such Person and
each of its Subsidiaries (other than any Unrestricted Subsidiaries) would
normally be consolidated with those of such Person, all in accordance with GAAP
consistently applied. The term "Consolidated" shall have a similar meaning.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from the Issue Date to the end of
such Person's most recently ended full fiscal quarter prior to such date, taken
as a single accounting period.
"Cumulative Operating Cash Flow" means, as of any date of determination,
Operating Cash Flow from the Issue Date to the end of such Person's most
recently ended full fiscal quarter prior to such date, taken as a single
accounting period.
"Cumulative Parent Preferred Dividends" means, as of any date of
determination, the amount of dividends under the Parent Preferred from the Issue
Date to the end of such Person's most recently ended full fiscal quarter prior
to such date, taken as a single accounting period.
"Debt to Operating Cash Flow Ratio" means, for any Person as of any date of
determination, the ratio of (a) the aggregate principal amount of all
outstanding Indebtedness of such Person and its Restricted Subsidiaries as of
such date on a Consolidated basis (provided, that for purposes of the KDSM
Senior Debenture Indenture, the KDSM Senior Debentures shall be deemed
Indebtedness of KDSM, Inc. and its Subsidiaries on a Consolidated basis) plus
the aggregate liquidation preference or redemption amount of all Disqualified
Equity Interests of such Person (excluding any such Disqualified Equity
Interests held by such Person or a Wholly Owned Restricted Subsidiary of such
Person), to (b) Operating Cash Flow of such Person and its Restricted
Subsidiaries on a Consolidated basis for the four most recent full fiscal
quarters ending immediately prior to such date, determined on a pro forma basis
(and after giving pro forma effect to (i) the incurrence of such Indebtedness
and (if applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness were incurred, and the
application of such proceeds had occurred, at the beginning of such four-quarter
period; (ii) the incurrence, repayment or retirement of any other Indebtedness
by such Person and its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness were incurred, repaid or retired at
the beginning of such four-quarter period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average balance of such Indebtedness at the end
of each month during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition as if such acquisition had occurred at the
beginning of such four-quarter period; and (iv) any acquisition or disposition
by such Person and its Restricted Subsidiaries of any company or any business or
any assets out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such four-quarter period,
assuming such acquisition or disposition had been consummated on the first day
of such four-quarter period).
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disqualified Equity Interests" means any Equity Interests that, either by
their terms or by the terms of any security into which they are convertible or
exchangeable or otherwise, are or upon the happening of an event or passage of
time would be required to be redeemed prior to any Stated Maturity of the
principal of the applicable security or are redeemable at the option of the
holder thereof at any time prior to any such Stated Maturity, or are convertible
into or exchangeable for debt securities at any time prior to any such Stated
Maturity at the option of the holder thereof.
"Equity Interest" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Existing Notes" means the 1993 Notes, the 1995 Notes and the 1997 Notes.
"Existing Indentures" means the Indentures relating to the Existing Notes
and guarantees by Sinclair or any Subsidiary of the Existing Notes.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Film Contract" means contracts with suppliers that convey the right to
broadcast specified films, videotape motion pictures, syndicated television
programs or sports or other programming.
"Founders' Notes" means the term notes, dated September 30, 1990, made by
Sinclair to Julian S. Smith and to Carolyn C. Smith pursuant to a stock
redemption agreement, dated June 19, 1990, among Sinclair, certain of its
Subsidiaries, Julian S. Smith, Carolyn C. Smith, David D. Smith, Frederick G.
Smith, J. Duncan Smith and Robert E. Smith.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the 1993 Notes.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
contained in this Section guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to, or in any other manner invest in, the debtor (including any
agreement to pay for property or services without requiring that such property
be received or such services be rendered), (iv) to maintain working capital or
equity capital of the debtor, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include endorsements
for collection or deposit, in either case in the ordinary course of business.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Equity Interests of such Person, or any warrants, rights or options to
acquire such Equity Interests, now or hereafter outstanding, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Disqualified Equity Interests valued
at the greater of their voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends, and (ix) any amendment, supplement,
modification, deferral, renewal, extension, refunding or refinancing of any
liability of the types referred to in clauses (i) through (viii) above;
provided, however, that the term Indebtedness shall not include any obligations
of such Person and its Restricted Subsidiaries with respect to Film Contracts
entered into in the ordinary course of business. The amount of Indebtedness of
any Person at any date shall be, without duplication, the principal amount that
would be shown on a balance
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sheet of such Person prepared as of such date in accordance with GAAP and the
maximum determinable liability of any Guaranteed Debt referred to in clause
(vii) above at such date. The Indebtedness of any Person and its Restricted
Subsidiaries shall not include any Indebtedness of Unrestricted Subsidiaries so
long as such Indebtedness is non-recourse to such Person and its Restricted
Subsidiaries. For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Equity Interests which do not have a fixed repurchase price shall
be calculated in accordance with the terms of such Disqualified Equity Interests
as if such Disqualified Equity Interests were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the KDSM Senior
Debenture Indenture, or in respect of the Parent Preferred and if such price is
based upon, or measured by, the Fair Market Value of such Disqualified Equity
Interests, such Fair Market Value to be determined in good faith by the Board of
Directors of the relevant entity.
"Indenture Obligations" means the obligations of KDSM, Inc. and any other
obligor under the KDSM Senior Debenture Indenture to pay principal, premium, if
any, and interest when due and payable, and all other amounts due or to become
due under or in connection with the KDSM Senior Debentures or the KDSM Senior
Debenture Indenture and the performance of all other obligations to the Trustee
and the holders under the KDSM Senior Debentures or the KDSM Senior Debenture
Indenture, according to the terms thereof.
"Independent Director" means a director of Sinclair or KDSM, Inc., as the
case may be, other than a director (i) who (apart from being a director of
Sinclair, KDSM, Inc. or any Subsidiary thereof) is an employee, insider,
associate or Affiliate of Sinclair or a Subsidiary or has held any such position
during the previous five years or (ii) who is a director, an employee, insider,
associate or Affiliate of another party to the transaction in question.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investments" means, with respect to any Person, directly or indirectly,
any advance, loan (including guarantees), or other extension of credit or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase, acquisition or ownership by such Person of any Equity
Interests, bonds, notes, debentures or other securities or assets issued or
owned by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means the date on which the relevant security was issued.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind (including any conditional sale or other
title retention agreement, any leases in the nature thereof, and any agreement
to give any security interest), real or personal, movable or immovable, now
owned or hereafter acquired.
"Like Amount" means (i) with respect to a redemption of Issuer Securities
for cash, Issuer Securities having an aggregate Liquidation Amount equal to the
principal amount of KDSM Senior Debentures to be contemporaneously redeemed in
accordance with the KDSM Senior Debenture Indenture and (ii) with respect to a
distribution of KDSM Senior Debentures to holders of Issuer Securities in
connection with a Tax Event, KDSM Senior Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Preferred Securities of the
holder to whom such KDSM Senior Debentures are distributed.
"Local Marketing Agreement" or "LMA" means a local marketing arrangement,
sale agreement, time brokerage agreement, management agreement or similar
arrangement pursuant to which a Person (i) obtains the right to sell at least a
majority of the advertising inventory of a television station on behalf of a
third party, (ii) purchases at least a majority of the air time of a television
station to exhibit programming and sell advertising time, (iii) manages the
selling operations of a television station with respect to at least a majority
of the advertising inventory of such station, (iv) manages the acquisition of
programming for a television station, (v) acts as a program consultant for a
television station, or (vi) manages the operation of a television station
generally.
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"Maturity," when used with respect to the KDSM Senior Debentures, means the
date on which the principal of such the KDSM Senior Debentures becomes due and
payable as provided in the KDSM Senior Debentures or as provided in the the KDSM
Senior Debenture Indenture.
"Minority Note" means the promissory note, dated December 26, 1986, made by
Sinclair to Frederick M. Himes, B. Stanley Resnick and Edward A. Johnston, as
representatives, pursuant to a stock purchase agreement, dated December 22,
1986, among Sinclair, Commercial Radio Institute, Inc., Chesapeake Television,
Inc. and certain individuals.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Temporary Cash Investments including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed of for, cash or Temporary Cash
Investments (except to the extent that such obligations are financed or sold
with recourse to Sinclair or any Restricted Subsidiary) net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is secured by the assets
or properties the subject of such Asset Sale, (iv) amounts required to be paid
to any Person (other than such Person or any of its Restricted Subsidiaries)
owning a beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by such Person or any of its Restricted
Subsidiaries, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by such Person or
any of its Restricted Subsidiaries, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee and (b) with
respect to any issuance or sale of Equity Interests, or debt securities or
Equity Interests that have been converted into or exchanged for Equity
Interests, as referred to under the "-Certain CovenantsLimitation on Restricted
Payments" provisions of the relevant operative governing document, the proceeds
of such issuance or sale in the form of cash or Temporary Cash Investments,
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Temporary Cash
Investments (except to the extent that such obligations are financed or sold
with recourse to such Person or any of its Restricted Subsidiaries), net of
attorney's fees, accountant's fees and brokerage, consultation, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"1993 Notes" means Sinclair's 10% Senior Subordinated Notes due 2003.
"1995 Notes" means Sinclair's 10% Senior Subordinated Notes due 2007.
"1997 Notes" means Sinclair's 9% Senior Subordinated Notes due 2007.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Cash Flow" for any Person means, for any period, the
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, plus (a) extraordinary net losses and net losses on sales of assets
outside the ordinary course of business during such period, to the extent such
losses were deducted in computing Consolidated Net Income, plus (b) provision
for taxes based on income or profits, to the extent such provision for taxes was
included in computing such Consolidated Net Income, and any provision for taxes
utilized in computing the net losses under clause (a) hereof, plus (c)
Consolidated Interest Expense of such Person and its Restricted Subsidiaries for
such period, plus (d) depreciation, amortization and all other non-cash charges,
to the extent such depreciation, amortization and other non cash charges were
deducted in computing such Consolidated Net Income (including amortization of
goodwill and other intangibles, including Film Contracts and write-downs of Film
Contracts, minus (f) any cash payments contractually required to be made with
respect to Film Contracts (to the extent not previously included in computing
such Consolidated Net Income).
"Permitted Holders" means as of the date of determination (i) any of David
D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith; (ii) family
members or the relatives of the Persons described in clause (i), (iii) any
trusts created for the benefit of any of the Persons described in clauses (i),
(ii) or (iv) or
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any trust for the benefit of any such trust, or (iv) in the event of the
incompetence or death of any of the Persons described in clauses (i) and (ii),
such Person's estate, executor, administrator, committee or other personal
representative or beneficiaries, who, in each case, at any particular date shall
beneficially own or have the right to acquire, directly or indirectly, Equity
Interests of Sinclair.
"Permitted Investment" for purposes of the Parent Preferred means (i)
Investments in any Restricted Subsidiary, (ii) Indebtedness of Sinclair or a
Restricted Subsidiary described under clauses (vi) and (vii) of the definition
of "Permitted Indebtedness," (iii) Temporary Cash Investments, (iv) Investments
acquired by Sinclair or any Restricted Subsidiary in connection with an Asset
Sale permitted under "Description of the Parent Preferred-Certain
Covenants-Limitation on Sale of Assets" to the extent such Investments are
non-cash proceeds as permitted under such covenant, (v) guarantees of
Indebtedness permitted by clause (iii) of the definition of "Permitted
Indebtedness," (vi) Investments in existence on the date of the issuance of the
Parent Preferred, (vii) loans up to an aggregate of $1,000,000 outstanding at
any one time to employees pursuant to benefits available to the employees of
Sinclair or any Restricted Subsidiary from time to time in the ordinary course
of business, (viii) any Investments in the Existing Notes or the Preferred
Securities, (ix) any guarantee given by a Guarantor of any Indebtedness of
Sinclair given in accordance with the terms of the Parent Preferred, (x)
Investments by Sinclair or any Restricted Subsidiary in a Person, if as a result
of such Investment (I) such Person becomes a Restricted Subsidiary or (II) such
Person is merged or consolidated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, Sinclair or a
Restricted Subsidiary and (xi) other Investments in businesses reasonably
related to the Company's businesses as of the Issue Date that do not exceed
$100,000,000 at any time outstanding KDSM Senior Debentures.
"Permitted Investment" for purposes of the KDSM Senior Debentures means (i)
any Investments in any Subsidiary, (ii) Temporary Cash Investments, (iii)
Investments in existence on the date the KDSM Senior Debentures are issued, (iv)
loans up to an aggregate of $100,000 outstanding at any one time to employees
pursuant to benefits available to the employees of KDSM, Inc. and its
Subsidiaries from time to time in the ordinary course of business, (v) any
Investments in the Parent Preferred or the Common Securities, (vi) any guarantee
of Indebtedness incurred in accordance with the KDSM Senior Debenture Indenture,
and (vii) investments by KDSM, Inc. or any Subsidiary in any Person if as a
result of such Investment (I) such Person becomes a Subsidiary or (II) such
Person is merged, consolidated with or into, or transfers or conveys
substantially all of its assets to or is liquidated into KDSM, Inc. or any of
its Subsidiaries.
"Permitted Subsidiary Indebtedness" means:
(i) Indebtedness of any Subsidiary under Capital Lease Obligations
incurred in the ordinary course of business; and
(ii) Indebtedness of any Subsidiary (a) issued to finance or refinance
the purchase or construction of any assets of such Subsidiary or (b) secured
by a Lien on any assets of such Subsidiary where the lender's sole recourse
is to the assets so encumbered, in either case (x) to the extent the purchase
or construction prices for such assets are or should be included in "property
and equipment" in accordance with GAAP and (y) if the purchase or
construction of such assets is not part of any acquisition of a Person or
business unit.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.
"Preferred Equity Interest," as applied to the Equity Interest of any
Person, means an Equity Interest of any class or classes (however designated)
which is preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over Equity Interests of any other class of such
Person.
"Public Equity Offering" means, with respect to any Person, an underwritten
public offering by such Person of some or all of its Equity Interests (other
than Disqualified Equity Interests), the net proceeds of which (after deducting
any underwriting discounts and commissions) exceed $10,000,000.
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"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of KDSM, Inc. and any additions and accessions
thereto, which are purchased by KDSM, Inc. or any Subsidiary thereof at any time
after the KDSM Senior Debentures are issued; provided that (i) the security
agreement or condition sales or other title retention contract pursuant to which
the Lien on such assets is created (collectively a "Purchase Money Security
Agreement") shall be entered into within 90 days after the purchase or
substantial completion of the construction of such assets and shall at all times
be confined solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom, (ii) at no time shall the
aggregate principal amount of the outstanding Indebtedness secured thereby be
increased, except in connection with the purchase of additions and accessions
thereto and except in respect of fees and other obligations in respect of such
Indebtedness and (iii) (A) the aggregate outstanding principal amount of
Indebtedness secured thereby (determined on a per asset basis in the case of any
additions and accessions) shall not at the time such Purchase Money Security
Agreement is entered into exceed 100% of the purchase price to KDSM, Inc. of the
assets subject thereto or (B) the Indebtedness secured thereby shall be with
recourse solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom.
"Qualified Equity Interests" of any Person means any and all Equity
Interests of such Person other than Disqualified Equity Interests.
"Restricted Subsidiary" of any Person means a Subsidiary of such Person
other than an Unrestricted Subsidiary. For the purposes of the KDSM Senior
Debentures, all references to a "Restricted Subsidiary" in this Prospectus shall
be deemed to refer to a Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which any Person sells or transfers any property or
asset in connection with the leasing, or the resale against installment
payments, of such property or asset to the seller or transferor.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary of a Person that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Sinclair" means Sinclair Broadcast Group, Inc., a corporation incorporated
under the laws of Maryland.
"Stated Maturity," when used with respect to any Indebtedness or any
installment of interest thereon, means the date specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Subsidiary" of any Person means any Person a majority of the equity
ownership or the Voting Stock of which is at the time owned, directly or
indirectly, by such Person or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and guaranteed
fully as to principal, premium, if any, and interest by the United States of
America, (ii) any certificate of deposit, maturing not more than one year after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution (including the applicable trustee) that is a member of the Federal
Reserve System and that has combined capital and surplus and undivided profits
of not less than $500,000,000, whose debt has a rating, at the time as of which
any investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. ("Moody's") or any successor rating agency or "A- 1" (or
higher) according to Standard & Poor's Rating Group, a division of McGraw-Hill,
Inc. ("S&P"), or any successor rating agency, (iii) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of Sinclair) organized and existing under
the laws of the United States of America with a rating, at the time as of which
any investment therein is made, of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P and (iv) any money market deposit accounts
issued or offered by a domestic commercial bank (including the applicable
trustee) having capital and surplus in excess of $500,000,000.
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of such Person, as provided below) and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of such
Person may designate any Subsidiary of such Person (including any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary if all of the
following conditions apply: (a) such Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness and (b) any Investment in such Subsidiary made as a result of
designating such Subsidiary an Unrestricted Subsidiary shall not, in the case of
the Parent Preferred, violate the provisions of the "Description of Parent
Preferred-Certain Covenants-Limitation on Unrestricted Subsidiaries" covenant of
the relevant document. Any such designation by the Board of Directors of such
Person shall be evidenced to the Trustee by filing with the Trustee a board
resolution giving effect to such designation and an officers' certificate
certifying that such designation complies with the foregoing conditions. The
Board of Directors of such Person may designate any Unrestricted Subsidiary as a
Restricted Subsidiary; provided that immediately after giving effect to such
designation, Sinclair could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the restrictions under the "Description of
Parent Preferred-Certain Covenants-Limitation on Indebtedness" covenant. For
purposes of the Parent Preferred, KDSM, Inc., and any of its Subsidiaries will
be deemed Unrestricted Subsidiaries of Sinclair.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary of
any Person means Indebtedness of such Unrestricted Subsidiary (i) as to which
neither such Person nor any of its Restricted Subsidiaries is directly or
indirectly liable (by virtue of such Person or any such Restricted Subsidiary
being the primary obligor on, guarantor of, or otherwise liable in any respect
to, such Indebtedness), except Guaranteed Debt of such Person or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of such
Guaranteed Debt resulted in a Restricted Payment at the time of incurrence) such
Person shall be deemed to have made a Restricted Payment equal to the principal
amount of any such Indebtedness to the extent guaranteed at the time such
Affiliate is designated an Unrestricted Subsidiary and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of such Person or any Restricted Subsidiary to
declare, a default on such Indebtedness of such Person or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary all the Equity Interest of which are owned by such Person or another
Wholly Owned Restricted Subsidiary of such Person. For purposes of the KDSM
Senior Debentures, all references to "Wholly Owned Restricted Subsidiary" shall
be deemed to refer to a "Wholly Owned Subsidiary."
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RELATIONSHIP AMONG THE NEW PREFERRED SECURITIES,
THE NEW KDSM SENIOR DEBENTURES, THE NEW
PARENT PREFERRED AND THE NEW PARENT GUARANTEE
As long as payments of interest and other payments are made when due on the
KDSM Senior Debentures, such payments will be sufficient to cover distributions
and other payments due on the Preferred Securities, because (i) the aggregate
principal amount of KDSM Senior Debentures will be equal to the sum of the
aggregate stated Liquidation Value of the Preferred Securities and the Common
Securities; (ii) the interest rate and the Interest Payment Dates and other
payment dates on the KDSM Senior Debentures will match the distribution rate and
the Distribution Payment Dates and other payment dates for the Preferred
Securities; (iii) the Expense Agreement entered into by KDSM, Inc. pursuant to
the Trust Agreement provides that KDSM, Inc. shall pay for all, and the Trust
shall not be obligated to pay, directly or indirectly, for any costs, expenses
and liabilities of the Trust, including any income taxes, duties and other
governmental charges, and all costs and expenses with respect thereto, to which
the Trust may become subject, except for United States withholding taxes and the
Trust's obligations to holders of the Preferred Securities under the Trust
Agreement and the Preferred Securities; and (iv) the Trust Agreement further
provides that the Trustees shall not cause or permit the Trust to, among other
things, engage in any activity that is not consistent with the limited purposes
of the Trust without consent.
Similarly, as long as payments of dividends and other payments are made
when due on the Parent Preferred, such payments will be sufficient to cover
interest and other payments due on the KDSM Senior Debentures, primarily because
(i) the aggregate Liquidation Amount of Parent Preferred will be equal to the
aggregate principal amount of the KDSM Senior Debentures and the Common
Securities; (ii) the dividend rate on the Parent Preferred will be one
percentage point higher than the interest rate on the KDSM Senior Debentures and
(iii) the Dividend Payment Dates and other payment dates on the Parent Preferred
will match the Interest Payment Dates and other payment dates for the KDSM
Senior Debentures.
A holder of a New Preferred Security may institute a legal proceeding
directly against Sinclair to enforce its rights under the New Parent Guarantee
without first instituting a legal proceeding against the Trust or any other
person or entity.
The New Preferred Securities evidence the rights of the holders thereof to
the assets of the Trust, a trust that exists for the sole purpose of issuing the
Issuer Securities and investing the proceeds thereof in debt securities of KDSM,
Inc., while the New KDSM Senior Debentures represent indebtedness of KDSM, Inc.
A principal difference between the rights of the holders of the New Preferred
Securities and the holders of New KDSM Senior Debentures is that the holders of
the New KDSM Senior Debentures will accrue, and are entitled to receive,
interest on the principal amount of New KDSM Senior Debentures held, while the
holders of New Preferred Securities are only entitled to receive distributions
if and to the extent the Trust has funds sufficient for the payment of such
distributions.
Should certain Events of Default under the KDSM Senior Debenture Indenture
occur and be continuing, the holders of at least 25% in aggregate Liquidation
Value of the outstanding Preferred Securities may, in certain circumstances,
cause the Debenture Trustee on behalf of the Trust to accelerate the maturity of
the KDSM Senior Debentures. Should certain Events of Default relating to a
bankruptcy or similar event occur, the maturity of the KDSM Senior Debentures
will automatically accelerate. The holders of the Preferred Securities would not
be able to exercise directly any other remedies available to the holders of the
KDSM Senior Debentures unless the Property Trustee or the Debenture Trustee,
acting for the benefit of the Property Trustee, fails to do so. In such event,
the holders of at least 25% in aggregate Liquidation Value of the outstanding
Preferred Securities would have the right to elect new Trustees. At any time,
the holders of a majority of the aggregate Liquidation Value of the outstanding
Preferred Securities may direct the Property Trustee to enforce rights of the
holders of the KDSM Senior Debentures under the KDSM Senior Debenture Indenture.
In addition, holders of Preferred Securities may, in certain circumstances,
institute a legal proceeding directly against Sinclair to
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enforce their rights under the Parent Guarantee. In addition, upon an Event of
Default under the Preferred Securities, the holders of a majority in aggregate
Liquidation Value of the outstanding Preferred Securities will have the right to
elect new Trustees of the Trust.
If an early termination event (as described in "Description of the New
Preferred SecuritiesLiquidation Distribution Upon Dissolution") with respect to
the Trust occurs, thereby giving rise to the dissolution and liquidation of the
Trust, any of the following, among other things, could occur: (i) a distribution
of the New KDSM Senior Debentures to the holders of the New Preferred Securities
after satisfaction of liabilities to creditors of the Trust, (ii) a cash
distribution to the holders of the New Preferred Securities out of the sale of
assets of the Trust, after satisfaction of liabilities to creditors of the Trust
or (iii) a permitted redemption of the New KDSM Senior Debentures, and a
consequent redemption of a Like Amount of the New Preferred Securities, at the
option of KDSM, Inc. under the circumstances described under "Description of the
New KDSM Senior DebenturesOptional Redemption." If the New KDSM Senior
Debentures are distributed, the holders will be able to exercise directly rights
of the holders of New KDSM Senior Debentures under the KDSM Senior Debenture
Indenture.
Upon a Voting Rights Triggering Event under the New Parent Preferred, the
only remedy of the holders of the New Parent Preferred is the right of such
holders to elect two directors to the board of directors of Sinclair. Such
rights will be passed to the holders of the New Preferred Securities pursuant to
the Pledge Agreement and the Trust Agreement.
DESCRIPTION OF INDEBTEDNESS OF SINCLAIR
BANK CREDIT AGREEMENT
On May 20, 1997, the Company amended and restated the Bank Credit
Agreement. The terms of the Bank Credit Agreement as amended and restated are
summarized below. The summary set forth below does not purport to be complete
and is qualified in its entirety by reference to the provisions of the Bank
Credit Agreement. A copy of the Bank Credit Agreement is available upon request
from the Company. In addition, not all indebtedness of the Company is described
below, only that incurred in connection with the Existing Notes and indebtedness
that has been incurred since May 20, 1997. The terms of other indebtedness of
the Company are set forth in other documents previously filed by the Company
with the Commission. See "Available Information."
The Company entered into the Bank Credit Agreement with The Chase Manhattan
Bank as Agent, and certain lenders (collectively, the "Banks"). The Bank Credit
Agreement is comprised of two components, consisting of (i) a reducing revolving
credit facility in the amount of $400 million (the "Revolving Credit Facility"),
and (ii) a term loan in the amount of $600 million (the "Term Loan"). An
additional term loan in the amount of $400 million is available to the Company
under the Bank Credit Agreement. The Company has borrowed no funds with respect
to this additional term loan. Beginning March 31, 2000, the commitment under the
Revolving Credit Facility is subject to mandatory quarterly reductions to the
following percentages of the initial amount: 90% at December 31, 2000, 69.2% at
December 31, 2001, 48.4% at December 31, 2002, 27.5% at December 31, 2003 and 0%
at December 31, 2004. The Term Loan is required to be repaid by the Company in
equal quarterly installments beginning on September 30, 1997 with the quarterly
payment escalating annually through the final maturity date of December 31,
2004.
The Company is entitled to prepay the outstanding amounts under the
Revolving Credit Facility and the Term Loan subject to certain prepayment
conditions and certain notice provisions at any time and from time to time.
Partial prepayments of the Term Loan are applied in the inverse order of
maturity to the outstanding loans on a pro rata basis. Prepaid amounts of the
Term Loan may not be reborrowed. In addition, the Company is required to pay an
amount equal to (i) 100% of the net proceeds from the sale of assets (other than
in the ordinary course of business) not used within 270 days, (ii) insurance
recoveries and condemnation proceeds not used for permitted uses within 270 days
(iii) 80% of net Equity Issuance (as defined in the Bank Credit Agreement), net
of prior approved uses and certain other exclusions not used within 270 days
unless the Company has a contract to reinvest the
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proceeds within 90 days of the 270 days, and (iv) 50% of Excess Cash Flow so
long as Total Debt/ Adjusted EBITDA (each as defined in the Bank Credit
Agreement) is greater than or equal to 5.0x , to the Banks for application first
to prepay the Term Loan, pro rata in inverse order of maturity, and then to
prepay outstanding amounts under the Revolving Credit Facility with a
corresponding reduction in commitment. The proceeds of the Old Securities
Offering have been used to repay a portion of the amounts due under the Bank
Credit Agreement. See "Use of Proceeds."
In addition to the Revolving Credit Facility and the Term Loans, the Bank
Credit Agreement provides that the Banks may, but are not obligated to, loan the
Company up to an additional $400 million at any time prior to September 29, 1998
(the "Incremental Facility"). This additional loan, if agreed to by the Agent
and a majority of the Banks, would be in the form of a senior secured standby
multiple draw term loan. The Incremental Facility would be available to fund the
acquisition of WSYX and certain other acquisitions and would be repayable in
equal quarterly installments beginning September 30, 1998, with the quarterly
payment escalating annually through the final maturity date of December 30,
2004.
The Company's obligations under the Bank Credit Agreement are secured by a
pledge of substantially all of the Company's assets, including the stock of all
of the Company's subsidiaries other than KDSM, Inc., KDSM Licensee, Inc. and
Cresap Enterprises, Inc. The subsidiaries of the Company (other than KDSM, Inc.,
KDSM Licensee, Inc., the Trust and Cresap Enterprises, Inc.) as well as Gerstell
Development Corporation, Keyser Investment Group, Inc. and Cunningham
Communications (each a "Stockholder Affiliate"), have guaranteed the obligations
of the Company. In addition, all subsidiaries of the Company (other than Cresap
Enterprises, Inc., KDSM, Inc., KDSM Licensee, Inc. and the Trust) have pledged,
to the extent permitted by law, all of their assets to the Banks and Gerstell
Development Corporation, Keyser Investment Group, Inc. and Cunningham
Communications have pledged certain real property to the Banks.
The Company has caused the FCC license for each television station (to the
extent such license has been transferred or acquired) or the option to acquire
such licenses to be held in a single-purpose entity utilized solely for such
purpose (the "TV License Subsidiaries") with the exception of the options for
WTTV and WTTK in the Indianapolis DMA, both of which are held by a single
entity. The TV License Subsidiaries are in all instances owned by wholly-owned
indirect subsidiaries of the Company. Additionally, the Company has caused the
FCC licenses of the radio stations in each local market to be held by a single
purpose entity utilized solely for that purpose (the "Radio License
Subsidiaries"). The Radio License Subsidiaries are in all instances owned by
wholly-owned indirect subsidiaries of the Company.
Interest on amounts drawn under the Bank Credit Agreement is, at the option
of Company, equal to (i) the London Interbank Offered Rate plus a margin of .50%
to 1.875% for the Revolving Credit Facility and 2.75% for the Term Loan, or (ii)
the Base Rate, which equals the higher of the Federal Funds Rate plus 1/2 of 1%
or the Prime Rate of Chase, plus a margin of zero to .625% for the Revolving
Credit Facility and the Term Loan. The Company must maintain interest rate
hedging arrangements or instruments for at least 60% of the principal amount of
the facilities.
The Bank Credit Agreement contains a number of covenants which restrict the
operations of the Company and its subsidiaries, including the ability to: (i)
merge, consolidate, acquire or sell assets; (ii) create additional indebtedness
or liens; (iii) pay dividends on the Parent Preferred provided at the time for
making such dividend payment the Fixed Charge Ratio (as defined in the Bank
Credit Agreement) shall not be less than 1.05 to 1; (iv) enter into certain
arrangements with or investments in affiliates; and (v) change the business or
ownership of the Company. The Company and its subsidiaries are also prohibited
under the Bank Credit Agreement from incurring obligations relating to the
acquisition of programming if, as a result of such acquisition, the cash
payments on such programming exceed specified amounts set forth in the Bank
Credit Agreement.
In addition, the Company must comply with certain other financial covenants
in the Bank Credit Agreement which include: (i) Fixed Charges Ratio (as defined
in the Bank Credit Agreement) of no less than 1.05 to 1 at any time; (ii)
Interest Coverage Ratio (as defined in the Bank Credit Agreement) of no
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less than 1.8 to 1 from the Restatement Effective Date (as defined in the Bank
Credit Agreement) to December 30, 1998 and increasing each fiscal year to 2.20
to 1 from December 31, 2000 and thereafter; and (iii) a Senior Indebtedness
Ratio (as defined in the Bank Credit Agreement) of no greater than 5.0x from the
Restatement Effective Date declining to 4.00 by year end December 31, 2001 and
at all times thereafter and (iv) a Total Indebtedness Ratio (as defined in the
Bank Credit Agreement) of no greater than 6.75 to 1 from the Restatement
Effective Date declining to 4.00 to 1 by December 31, 2001 and at all times
thereafter.
The Events of Default under the Bank Credit Agreement include, among
others: (i) the failure to pay principal, interest or other amounts when due;
(ii) the making of untrue representations and warranties in connection with the
Bank Credit Agreement; (iii) a default by the Company or the subsidiaries in the
performance of its obligations under the Bank Credit Agreement or certain
related security documents; (iv) certain events of insolvency or bankruptcy, (v)
the rendering of certain money judgments against the Company or its
subsidiaries; (vi) the incurrence of certain liabilities to certain plans
governed by the Employee Retirement Income Security Act of 1974; (vii) a change
of control or ownership of the Company or its subsidiaries; (viii) the security
documents being terminated and ceasing to be in full force and effect; (ix) any
broadcast license (other than a non-material license) being terminated,
forfeited or revoked or failing to be renewed for any reason whatsoever or for
any reason a subsidiary shall at any time cease to be a licensee under any
broadcast license (other than a non-material broadcast license); (x) any LMA or
options to acquire License Assets being terminated for any reason whatsoever;
(xi) any amendment, modification, supplement or waiver of the provisions of the
Indenture without the prior written consent of the majority lenders; and (xii) a
payment default on any other indebtedness of the Company if the principal amount
of such indebtedness exceeds $5 million.
DESCRIPTION OF EXISTING NOTES UNDER EXISTING INDENTURES
The Existing Notes were issued under Indentures dated December 9, 1993 as
amended, modified or supplemented from time to time (the "1993 Indenture"),
August 28, 1995 (the "1995 Indenture") and July 2, 1997 (the "1997 Indenture"
and as amended, modified, or supplemented from time to time together with the
1993 Indenture and the 1995 Indenture, the "Existing Indentures"). Pursuant to
the terms of the Existing Indentures, the Existing Notes are guaranteed, jointly
and severally, on a senior subordinated unsecured basis by all of the
Subsidiaries, except Cresap Enterprises, Inc., KDSM, Inc., KDSM Licensee, Inc.
and the Trust.
The 1993 Notes mature on December 15, 2003, the 1995 Notes mature on
September 30, 2005, and the 1997 Notes mature on July 15, 2007, and are
unsecured senior subordinated obligations of the Company. The 1993 Indenture
limited the aggregate principal amount of the 1993 Notes to $200.0 million, the
1995 Indenture limited the aggregate principal amount of the 1995 Notes to
$300.0 million and the 1997 Indenture limited the aggregate principal amount of
the 1997 Notes to $200.0 million. The 1993 Notes bear interest at the rate of
10% per annum and are payable semi-annually on June 15 and December 15 of each
year: the 1995 Notes bear interest at a rate of 10% per annum and are payable
semi-annually on September 30 and March 30 of each year; and the 1997 Notes bear
interest at the rate of 9% per annum and are payable semi-annually on January 15
and July 15 each year commencing January 15, 1998. In addition, if the Company
fails to meet in a timely manner certain obligations under a Registration Rights
Agreement entered into in connection with the issuance of the 1997 Notes, the
annual interest rate may increase by an amount up to 1.5% per annum, but the
interest rate will return to 9% per annum for all periods after the Company has
satisfied such obligations.
The Company issued $200.0 million of the 1993 Notes on December 9, 1993.
$100.0 million of these Notes were subsequently redeemed by the Company in March
1994 with proceeds from the sale of the original 1993 Notes that had been held
in escrow pending their expected use in connection with certain acquisitions of
the Company that were instead financed through drawings under the Bank Credit
Agreement. As of the date hereof, $100.0 million of the 1993 Notes remain
outstanding. The Company issued $300.0 million of the 1995 Notes on August 28,
1995. As of the date hereof, $300.0 million of the 1995 Notes remain
outstanding. The Company issued $200.0 million of the 1997 Notes on July 2,
1997, all of which are outstanding as of the date hereof.
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The 1993 Notes are redeemable in whole or in part prior to maturity at the
option of the Company on or after December 15, 1998 at certain redemption prices
specified in the 1993 Indenture; the 1995 Notes are redeemable in whole or in
part prior to maturity at the option of the Company on or after September 30,
2000 at certain redemption prices specified in the 1995 Indenture; and the 1997
Notes are redeemable in whole or on part prior to maturity at the option of the
Company on or after July 15, 2002 at certain redemption prices specified in the
1997 Indenture.
The Existing Notes are general unsecured obligations of the Company and
subordinated in right of payment to all senior debt (as defined in the Existing
Indentures), including all indebtedness of the Company under the Bank Credit
Agreement.
Upon a change of control (as defined in the Existing Indentures), each
holder of the Existing Notes will have the right to require the Company to
repurchase such holder's Existing Notes at a price equal to 101% of the
principal amount plus accrued interest through the date of repurchase. A Change
of Control will also result in an event of default under the Bank Credit
Agreement and could result in an acceleration of indebtedness under the Bank
Credit Agreement. See "Description of Indebtedness of Sinclair-Bank Credit
Agreement." In addition, the Company will be obligated to offer to repurchase
Existing Notes at 100% of their principal amount plus accrued interest through
the date of repurchase in the event of certain asset sales.
The Existing Indentures impose certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
indebtedness, pay dividends, or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur indebtedness that is subordinate in right to the payment of any senior
debt and senior in right of payment to the Existing Notes, incur liens, impose
restrictions on the ability of the subsidiary to pay dividends or make any
payments to the Company, or merge or consolidate with any other person or sell,
assign, transfer, lease, convey, or otherwise dispose of all or substantially
all of the assets of the Company. See "Risk Factors Restrictions Imposed by
Terms of Indebtedness."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of ownership of the New Preferred Securities. The summary is based
on the Internal Revenue Code of 1986, as amended (the "Code"), and regulations,
rulings, and judicial decisions as of the date hereof, all of which may be
repealed, revoked, or modified so as to result in federal income tax
consequences different from those described below. Such changes could be applied
retroactively in a manner that could adversely affect a holder of the New
Preferred Securities. In addition, the authorities on which this summary is
based are subject to various interpretations. It is therefore possible that the
federal income tax treatment of the purchase, ownership, and disposition of the
New Preferred Securities may differ from the treatment described below.
Unless otherwise stated, this summary applies only to New Preferred
Securities held as capital assets, and does not deal with special situations,
such as those of dealers in securities or currencies, financial institutions,
insurance companies, persons holding New Preferred Securities as part of a
hedging or conversion transaction or a straddle, persons whose "functional
currency" is not the U.S. dollar, and certain U.S. expatriates. Unless otherwise
stated, the discussion only addresses the tax consequences to holders that
acquired the Preferred Securities in their original issue at their original
offering price.
This summary is for general information only. It does not address all
aspects of U.S. federal income taxation that may be relevant to holders of the
New Preferred Securities in light of their particular circumstances, nor does it
address any tax consequences arising under the laws of any state, local, or
foreign taxing jurisdiction. Prospective holders should consult their tax
advisors about the particular United States federal income tax consequences to
them of holding and disposing of the New Preferred Securities, as well as any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
CLASSIFICATION OF THE NEW KDSM SENIOR DEBENTURES
Sinclair believes, based on the advice of its counsel, that the New KDSM
Senior Debentures will be treated as indebtedness for United States federal
income tax purposes, and that KDSM, Inc. will be able to deduct interest paid on
the New KDSM Senior Debentures. Holders of the New Preferred Securities should
be aware, however, that the IRS may attempt to treat the New KDSM Senior
Debentures as equity rather than indebtedness for tax purposes. If the IRS were
successful in such attempt, interest paid on the New KDSM Senior Debentures
would not be deductible and the New Preferred Securities may be subject to
redemption at the option of KDSM, Inc. as described in "Description of the New
Preferred Securities-Redemption Upon a Tax Event or an Investment Company Act
Event." Moreover, classification of the New KDSM Senior Debentures as equity
could have certain adverse consequences for Non-U.S. Holders (as defined below)
of the New Preferred Securities.
CLASSIFICATION OF THE TRUST
The Trust has received an opinion from Wilmer, Cutler & Pickering that,
under current law and assuming compliance with the terms of the Trust Agreement
and certain other documents, the Trust will be classified as a grantor trust and
not as an association taxable as a corporation for United States federal income
tax purposes. As a result, each beneficial owner of the New Preferred Securities
will be treated as owning an undivided pro rata interest in the New KDSM Senior
Debentures.
CONSEQUENCES FOR U.S. HOLDERS
As used herein, a "U.S. Holder" means a holder that is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate, the income of which is subject to United States
federal income taxation regardless of its source or a "U.S. Trust." A U.S. Trust
is any trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
trustees have the authority to control all substantial decisions of the trust. A
non-U.S. citizen is considered a resident alien, and hence a U.S. Holder, if
that person is present in the United
141
<PAGE>
States at least 31 days in the calendar year and for an aggregate of at least
183 days during a three-year period, counting for such purposes all of the days
present in the current year, one-third of the days present in the immediately
preceding year, and one-sixth of the days present in the second preceding year.
Each U.S. Holder that is a cash basis taxpayer will be required to include
in its gross income its pro rata share of any interest payments on the New KDSM
Senior Debentures that are received by the Trust, whether or not distributions
are made by the Trust to the holders of the New Preferred Securities. U.S.
Holders that are accrual basis taxpayers must include in gross income their pro
rata share of interest payable on the New KDSM Senior Debentures in accordance
with their method of accounting. The New KDSM Senior Debentures should not be
considered debt instruments that are subject to the original issue discount
("OID") rules. No amount included in income with respect to the New Preferred
Securities will be eligible for the dividends received deduction.
Gain or loss will be recognized by a U.S. Holder on a sale or exchange of
the New Preferred Securities, including a redemption for cash, in an amount
equal to the difference between the amount realized and the U.S. Holder's tax
basis in the New Preferred Securities sold or so redeemed. Except to the extent
attributable to accrued but unpaid interest, gain or loss recognized by a U.S.
Holder on New Preferred Securities held for more than one year will generally be
taxable as long-term capital gain or loss.
Failure of the Company to comply with its obligations under the
Registration Rights Agreement may, in certain circumstances, cause Penalty
Amounts to accrue on the KDSM Senior Debentures and the Preferred Securities as
provided in the Registration Rights Agreement. It is not expected that the
payment of such Penalty Amounts would materially affect the U.S. federal income
tax consequences of the ownership of the Preferred Securities by U.S. Holders,
except that U.S. Holders of Preferred Securities with respect to which such
Penalty Amounts are paid, including those using the cash method of accounting,
may be required thereafter to accrue interest on the KDSM Senior Debentures in
accordance with the OID rules.
CONSEQUENCES OF EXCHANGE OFFER
Pursuant to the Exchange Offer by the Company contemplated herein, an
exchange of Old Preferred Securities for New Preferred Securities will not be a
taxable event for U.S. federal income tax purposes. A U.S. Holder will have the
same tax basis and holding period in the New Preferred Securities as the Old
Preferred Securities.
CONSEQUENCES FOR NON-U.S. HOLDERS
As used herein, a "Non-U.S. Holder" is any holder of the New Preferred
Securities that is not a U.S. Holder and is not subject to United States federal
income taxation on a net basis with respect to the New Preferred Securities.
Under present United States federal income tax law, payments by the Trust
or any of its paying agents to any Non-U.S. Holder will not be subject to United
States federal withholding tax, provided that (1) the beneficial owner of the
New Preferred Securities does not actually or constructively own ten percent or
more of the total combined voting power of all classes of stock of KDSM, Inc.
that is entitled to vote; (2) the beneficial owner of the New Preferred
Securities is not a controlled foreign corporation for U.S. federal income tax
purposes that is related to KDSM, Inc. through stock ownership; and (3) either
(a) the beneficial owner of the New Preferred Securities certifies to the Trust
or its agent, under penalties of perjury, that it is a Non-U.S. Holder and
provides its name or address or (b) a securities clearing organization, bank, or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") and holds the New
Preferred Securities certifies to the Trust or its agent under penalties of
perjury that such statement has been received from the beneficial owner and
furnishes the Trust or its agent a copy thereof. A Non-U.S. Holder of the New
Preferred Securities will generally not be subject to United States federal
withholding tax on any gain realized upon the sale or other disposition of the
New Preferred Securities unless such holder is present in the United States for
183 days or more in the taxable year of sale or other disposition and certain
other conditions are met.
142
<PAGE>
If the IRS were successful in an attempt to classify the New KDSM Senior
Debentures as equity, interest payments on the New KDSM Senior Debentures would
be treated as dividends, and would generally be subject to withholding tax at a
30 percent rate or such lower rate as may be specified by an applicable income
tax treaty.
In addition, the Company believes, based on advice of counsel, that IRS
regulations that permit the IRS to recharacterize certain conduit financing
transactions for purposes of the withholding tax rules should not apply to the
New KDSM Senior Debentures. If the IRS were successful in an attempt to apply
such regulations to the New KDSM Senior Debentures, interest on the New KDSM
Senior Debentures could be treated as dividends for withholding tax purposes.
DISTRIBUTION OF THE NEW KDSM SENIOR DEBENTURES
Upon the occurrence of a Tax Event, the New KDSM Senior Debentures may be
distributed to holders in exchange for New Preferred Securities provided
Sinclair guarantees the New KDSM Senior Debentures. Under current United States
federal income tax law, Sinclair's placement of such guarantee and subsequent
distribution by the Trust of the New KDSM Senior Debentures will be non-taxable
and will result in each holder receiving directly its pro rata share of the New
KDSM Senior Debentures previously held indirectly through the Trust, with a
holding period and aggregate tax basis equal to the holding period and aggregate
tax basis such U.S. Holder had in its New Preferred Securities before such
distribution. A U.S. Holder will include interest in respect of the New KDSM
Senior Debentures received from the Trust in the manner described above under
"-Consequences for U.S. Holders."
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting will apply to interest received with
respect to the New Preferred Securities by U.S. Holders (other than corporations
and other exempt U.S. Holders). Backup withholding at a rate of 31 percent will
apply to payments of interest to non-exempt U.S. Holders unless the U.S. Holder
furnishes its taxpayer identification number in the manner prescribed in
applicable Treasury Regulations, certifies that such number is correct,
certifies as to no loss of exemption from backup withholding, and meets certain
other conditions.
Payment of the proceeds from the sale by a Non-U.S. Holder of the New
Preferred Securities made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that if the
broker is a United States person, a "controlled foreign corporation" for United
States tax purposes, or a foreign person 50 percent or more of whose gross
income is effectively connected with a United States trade or business for a
specified three-year period, information reporting (but not backup withholding)
may apply to those payments. Payment of the proceeds from the sale of New
Preferred Securities to or through the United States office of a broker is
subject to information reporting and backup withholding unless the holder or
beneficial owner certifies as to its non-United States status or otherwise
establishes an exemption from information reporting and backup withholding.
The IRS has issued proposed regulations which, if finalized in their
current form, would require backup withholding on payments made with respect to
the New Preferred Securities that are made outside the United States if the
payor has actual knowledge that the recipient is a U.S. Holder. The proposed
regulations are proposed to be effective for payments made after December 31,
1997, and current law would remain in effect until then. U.S. Holders should
consult with their tax advisors as to compliance with the new rules so as to
avoid possible backup withholding on payments after 1997.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against a holder's United States federal income tax
liability, provided that the required information is furnished to the IRS.
POSSIBLE TAX LAW CHANGES
The Taxpayer Relief Act of 1997, as passed by the House of Representatives,
includes a proposal that would deny interest deductions on certain debt
instruments that are payable in equity of the issuer or a related party. The
proposal is substantially similar to a proposal that was included in the
balanced
143
<PAGE>
budget package released by the Clinton Administration in February 1997. The
House Committee Report on the proposal indicates that it is intended to apply to
an instrument that is nonrecourse to the issuer and secured principally by such
equity. If the proposal were enacted and the KDSM Senior Debentures were issued
on or after the effective date, the proposal might be construed to apply to the
KDSM Senior Debentures, with the result that KDSM, Inc. would be unable to
deduct interest on the KDSM Senior Debentures. The proposal passed by the House
is proposed to be effective for instruments issued after June 8, 1997, and it
would not apply to instruments if they were issued pursuant to a written
agreement that was binding on such date or described in a public announcement or
filing with the Securities and Exchange Commission on or before such date.
As such, the House-passed proposal would not apply to the KDSM Senior
Debentures. Nevertheless, there can be no assurance that current or future
legislative or administrative proposals or final legislation will not affect the
ability of KDSM, Inc. to deduct interest on the New KDSM Senior Debentures. Such
a change would give rise to a Tax Event, which would permit the Trust to cause a
redemption of the New Preferred Securities or to distribute the New KDSM Senior
Debentures in exchange for the New Preferred Securities, provided that Sinclair
is able to provide a full and unconditional guarantee of the New KDSM Senior
Debentures. A tax law change in the form set forth in the Proposal would not,
however, alter the United States federal income tax consequences of the
purchase, ownership, or disposition of the New Preferred Securities.
144
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Preferred Securities for its own
account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Preferred
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by Participating Broker-Dealers during the period referred to
below in connection with resales of New Preferred Securities received in
exchange for Old Preferred Securities if such Old Preferred Securities were
acquired by such Participating Broker-Dealers for their own accounts as a result
of market-making activities or other trading activities. The Company has agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker- Dealer in connection with resales of such
New Preferred Securities for a period ending 180 days after the Registration
Statement of which this Prospectus constitutes a part is declared effective. See
"The Exchange Offer-Resales of New Preferred Securities." None of the Company,
KDSM, Inc. or the Trust will receive any cash proceeds from the issuance of the
New Preferred Securities offered hereby. New Preferred Securities received by
broker-dealers for their own accounts in connection with the Exchange Offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
Preferred Securities or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Preferred Securities. Any broker-dealer that resells
New Preferred Securities that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates in
a distribution of such New Preferred Securities may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Preferred Securities and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Consent and Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
None of the Company, KDSM, Inc., the Trust or the Trustees shall be liable
for any delay by the Depository or any Participant or Indirect Participant in
identifying the beneficial owners of the related New Preferred Securities and
each such person may conclusively rely on, and shall be protected in relying on,
instructions from the Depository for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the New
Preferred Securities to be issued).
This Prospectus also relates to the resale of Preferred Securities by
certain holders who may have the right pursuant to the Registration Rights
Agreement to require the Company and the Trust to register the resale of the
Preferred Securities because such holders are not eligible to rely on the
registration of the New Preferred Securities to resell the New Preferred
Securities or because such holders are not eligible to exchange their Old
Preferred Securities for New Preferred Securities. If any holders of Preferred
Securities seek to resell their Preferred Securities pursuant to this
Prospectus, such holders, as well as the plan of distribution for such resales
will be identified in a Prospectus Supplement.
LEGAL MATTERS
The validity of the New KDSM Senior Debentures, the New Parent Preferred,
the New Parent Guarantee and the New Parent Debenture Guarantee will be passed
upon by Thomas & Libowitz, P.A., Baltimore, Maryland, counsel to the Company,
KDSM, Inc. and the Trust and by Wilmer, Cutler & Pickering, Baltimore, Maryland,
special securities counsel to the Company, KDSM, Inc. and the Trust. Certain
matters of Delaware law relating to the validity of the New Preferred
Securities, the validity of the Trust Agreement and the formation of the Trust
are being passed upon by Richards, Layton & Finger, Wilmington, Delaware,
special Delaware counsel to the Company, KDSM, Inc. and the Trust.
145
<PAGE>
EXPERTS
The Consolidated Financial Statements and schedules of the Company as of
December 31, 1995 and 1996 and for each of the years ended December 31, 1994,
1995 and 1996, incorporated by reference in this Prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
The Consolidated Financial Statements of KDSM, Inc. and subsidiary as of
December 31, 1996 and for the seven months then ended and KDSM-TV (the
Predecessor) for the five months ended May 31, 1996 included in this Prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of KDSM-TV as of December 31, 1995 and 1994 and
for the years then ended have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of River City Broadcasting, L.P. as of December
31, 1995 and 1994 and for each of the years in the three-year period ended
December 31, 1995 have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Paramount Stations Group of Kerrville, Inc. as
of December 31, 1994 and August 3, 1995 and for the year ended December 31, 1994
and the period from January 1, 1995 through August 3, 1995, incorporated by
reference in this Prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of KRRT, Inc. as of December 31, 1995 and for the
period from July 25, 1995 through December 31, 1995, incorporated by reference
in this Prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Superior Communications Group,
Inc. at December 31, 1995 and 1994, and for each of the two years in the period
ended December 31, 1995, incorporated by reference in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Kansas City TV 62 Limited Partnership and
Cincinnati TV 64 Limited Partnership as of and for the year ended December 31,
1995, incorporated in this Prospectus by reference to the Form 8-K of Sinclair
Broadcast Group, Inc. dated May 9, 1996 (filed May 17, 1996) have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
146
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, A LIMITED PARTNER-
SHIP (THE PREDECESSOR) AND KDSM, INC. AND SUBSIDIARY (THE COMPANY)
(BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Public Accountants .......................................... F-2
Balance Sheet as of December 31, 1996 ............................................. F-3
Statements of Operations for the Five Months Ended May 31, 1996 and the Seven Months
Ended December 31, 1996 ............................................................ F-4
Statements of Changes in Undistributed Earnings and Stockholder's Equity for the Five
Months Ended May 31, 1996 and the Seven Months Ended December 31, 1996 ............ F-5
Statements of Cash Flows for the Five Months Ended May 31, 1996 and the Seven Months
Ended December 31, 1996 ............................................................ F-6
Notes to Financial Statements ...................................................... F-7
Unaudited Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and March 31, 1997 ............ F-13
Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and
1997 .............................................................................. F-14
Consolidated Statements of Stockholder's Equity for the Three Months Ended March 31,
1997 .............................................................................. F-15
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and
1997 .............................................................................. F-16
Notes to Unaudited Consolidated Financial Statements .............................. F-17
KDSM-TV (BUSINESS ACQUIRED)
Audited Financial Statements
Independent Auditors' Report ......................................................... F-20
Balance Sheets as of December 31, 1995 and 1994 .................................... F-21
Statements of Earnings for the Years Ended December 31, 1995 and 1994 ............... F-22
Statements of Equity of Partnership for Years Ended December 31, 1995 and 1994 ...... F-23
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 ............ F-24
Notes to Financial Statements ...................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited the accompanying balance sheet of KDSM, Inc. and subsidiary (the
Company) as of December 31, 1996, and the related statements of operations,
stockholder's equity and cash flows of KDSM, Inc. and subsidiary for the seven
months ended December 31, 1996, and the statements of operations, changes in
undistributed earnings and cash flows of KDSM-TV, a Division of River City
Broadcasting, a limited partnership, (the Predecessor) for the five months ended
May 31, 1996. These financial statements are the responsibility of the Company's
and the Predecessor'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 KDSM, Inc. and subsidiary (the
Company) as of December 31, 1996, and the results of its operations and its cash
flows for the seven months ended December 31, 1996, and the results of
operations and cash flows of KDSM-TV, a Division of River City Broadcasting, a
limited partnership, (the Predecessor) for the five months ended May 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 14, 1997
F-2
<PAGE>
KDSM, INC. AND SUBSIDIARY
BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash .............................................................................. $ 2,614
Accounts receivable, net of allowance for doubtful accounts of $39,111 ............ 2,051,983
Current portion of program contract costs ....................................... 860,247
Deferred barter costs ............................................................ 50,438
Prepaid expenses and other current assets ....................................... 85,875
------------
Total current assets ............................................................ 3,051,157
PROPERTY AND EQUIPMENT, net ...................................................... 2,802,838
PROGRAM CONTRACT COSTS, less current portion ....................................... 793,534
DUE FROM PARENT .................................................................. 495,643
ACQUIRED INTANGIBLE AND OTHER BROADCASTING ASSETS, net ........................... 33,530,193
------------
Total assets ..................................................................... $40,673,365
============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................................. $ 291,705
Accrued liabilities ............................................................... 409,772
Current portion of program contracts payable .................................... 1,384,105
Deferred barter revenues ......................................................... 120,142
------------
Total current liabilities ...................................................... 2,205,724
PROGRAM CONTRACTS PAYABLE ......................................................... 879,235
DEFERRED STATE TAXES ............................................................... 72,694
------------
Total liabilities ............................................................... 3,157,653
------------
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share, 1,000 shares authorized; 100 shares issued
and outstanding .................................................................. 1
Additional paid-in capital ...................................................... 36,810,925
Retained earnings ............................................................... 704,786
------------
Total stockholder's equity ................................................... 37,515,712
------------
Total liabilities and stockholder's equity .................................... $40,673,365
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P., AND
KDSM, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE FIVE MONTHS ENDED MAY 31, 1996
AND THE SEVEN MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- -------------
MAY 31, DECEMBER 31,
1996 1996
------------- -------------
<S> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions of $493,547
and $731,348, respectively .......................................... $3,478,067 $4,740,489
Revenues realized from station barter arrangements .................. 84,650 118,507
----------- -----------
Total revenues ...................................................... 3,562,717 4,858,996
----------- -----------
OPERATING EXPENSES:
Programming and production .......................................... 509,411 626,740
Selling, general and administrative ................................. 1,321,123 1,316,508
Expenses realized from barter arrangements ........................... 97,361 127,641
Amortization of program contract costs and net realizable value ad-
justments 507,110 863,607
Depreciation and amortization of property and equipment ............ 232,991 190,777
Amortization of intangibles, broadcast assets and other assets ...... 276,780 544,461
----------- -----------
Total Operating Expenses .......................................... 2,944,776 3,669,734
----------- -----------
Broadcast Operating Income .......................................... 617,941 1,189,262
OTHER INCOME ......................................................... - 150
----------- -----------
INCOME BEFORE ALLOCATION OF CONSOLIDATED FED-
ERAL INCOME TAXES AND STATE INCOME TAXES 617,941 1,189,412
ALLOCATION OF CONSOLIDATED FEDERAL INCOME
TAXES ............................................................... - 411,932
STATE INCOME TAXES ................................................... - 72,694
----------- -----------
NET INCOME ............................................................ $ 617,941 $ 704,786
=========== ===========
PRO FORMA NET INCOME AFTER IMPUTING AN INCOME
TAX PROVISION:
Net income, as reported ............................................. $ 617,941
Imputed income tax provision ....................................... 247,176
-----------
Pro forma net income ................................................ $ 370,765
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P., AND
KDSM, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN UNDISTRIBUTED EARNINGS
AND STOCKHOLDER'S EQUITY
FOR THE FIVE MONTHS ENDED MAY 31, 1996 AND
THE SEVEN MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL
UNDISTRIBUTED
PREDECESSOR EARNINGS
- ---------------------------------- --------------
<S> <C>
BALANCE, December 31, 1995 ...... $ 5,045,595
Net income ..................... 617,941
-----------
BALANCE, May 31, 1996 ............ $ 5,663,536
===========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
COMPANY STOCK CAPITAL EARNINGS EQUITY
- ---------------------------------- -------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
BALANCE, June 1, 1996 ............ $ 1 $36,810,925 $ - $36,810,926
Net income ..................... - - 704,786 704,786
---- ------------ --------- ------------
BALANCE, December 31, 1996 ...... $ 1 $36,810,925 $704,786 $37,515,712
==== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P., AND
KDSM, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED MAY 31, 1996
AND THE SEVEN MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- -------------
MAY 31, DECEMBER 31,
1996 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 617,941 $ 704,786
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization .................................... 232,991 190,777
Amortization of intangibles and other assets ..................... 276,780 544,461
Amortization of program contracts ................................. 507,110 863,607
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ........................ 20,837 (2,052,848)
Decrease (increase) in prepaid expenses and other current assets . 82,257 (67,225)
Increase in accounts payable and accrued expenses ............... 78,652 635,983
Increase in deferred state taxes ................................. - 72,694
Net effect of change in deferred barter revenues and change in
deferred barter costs .......................................... 60,571 9,133
Payments on program contracts payable ........................... (890,589) (242,095)
---------- ------------
Net cash provided by operating activities ..................... 986,550 659,273
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .............................. (29,076) (161,016)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due from parent, net ................................. (772,585) (495,643)
Prepayment of excess syndicated contract liabilities ............... (216,000) -
---------- ------------
Net cash flows used in financing activities ..................... (988,585) (495,643)
---------- ------------
Net (decrease) increase in cash ................................. (31,111) 2,614
CASH, beginning of period .......................................... 61,963 -
---------- ------------
CASH, end of period ................................................ $ 30,852 $ 2,614
========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Program contract costs acquired .................................... $ 61,000 $ 943,966
========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. AND
KDSM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
KDSM, Inc. and subsidiary, a Maryland corporation (the Company) is a television
broadcaster serving the Des Moines, Iowa, area through station KDSM on Channel
17, a Fox affiliate. This station was wholly owned and operated by River City
Broadcasting (RCB), a limited partnership, through its ownership in KDSM-TV, a
division of RCB (the Predecessor) through May 31, 1996. The Company and the
Predecessor are collectively referred to as "the Company" or "KDSM" herein.
Sinclair Broadcast Group, Inc. (the Parent) purchased of all of the non-license
assets of KDSM from RCB limited partnership on May 31, 1996. KDSM owns all of
the issued and outstanding stock of KDSM Licensee, Inc. All intercompany amounts
are eliminated in consolidation.
The accompanying December 31, 1996, consolidated balance sheet and related
statements of operations and cash flows for the seven-month period ended
December 31, 1996, are presented on a new basis of accounting. The accompanying
financial statements for the five-month period ended May 31, 1996, are presented
as "predecessor" financial statements (see Note 9).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Programming
The Company has 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 sheet.
The rights to program materials are reflected in the accompanying consolidated
balance sheet 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 not affected by adjustments
for amortization or estimated net realizable value.
Barter Arrangements
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.
F-7
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. AND
KDSM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - (Continued)
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.
Acquired Intangible and Other Broadcasting Assets
Acquired intangible broadcasting assets are being amortized over periods of 15
to 40 years. These amounts result from the acquisition of the non-license assets
of KDSM by the Parent from RCB in May 1996. The Company monitors and evaluates
the realizability of its intangible broadcast assets and the existence of any
impairment to recoverability based on its projected undiscounted cash flows.
Intangible assets consist of the following as of December 31, 1996:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD
-------------
<S> <C> <C>
Fox television network affiliation agreement, net of amorti-
zation of $39,274 $ 1,643,883 25 years
Decaying advertising base, net of amortization of $56,481 ...... 1,395,888 15 years
Purchase options ............................................. 3,390,000 -
Goodwill, net of amortization of $448,706 ..................... 27,100,422 40 years
------------
$33,530,193
============
</TABLE>
Revenues
Broadcasting revenues are derived principally from the sale of program time and
spot announcements to local, regional and national advertisers. Advertising
revenue is recognized in the period during which the program time and spot
announcements are broadcast.
2. INCOME TAXES
No income tax provision has been included in the Predecessor's financial
statements for the five months ended May 31, 1996, since profit and loss and the
related tax attributes are deemed to be distributed to, and reportable by, the
partners of RCB Limited Partnership on their respective income tax returns.
A pro forma income tax provision, along with the related pro forma effect on net
income, is presented in the accompanying statement of operations. These pro
forma income taxes are the product of multiplying the estimated blended federal
and state statutory rate of 40% by net income as reported in the statement of
operations.
The Company's Parent files a consolidated federal tax return, and separate state
tax returns for each of its subsidiaries. It is the Parent's policy to charge
KDSM for its federal income tax provision through intercompany charges, and KDSM
is directly responsible for its current state tax liabilities. The accompanying
financial statements have been prepared in accordance with the separate return
method of FASB 109, whereby the allocation of the federal tax provision due to
the Parent is based on what the subsidiary's current and deferred federal tax
provision would have been had the subsidiary filed a federal income tax return
outside its consolidated group. Given that KDSM is required to reimburse its
Parent for its federal tax provision, the federal income tax provision is
recorded as an intercompany charge and included as a reduction of the due from
Parent amount in the accompanying consolidated balance sheet as a current
obligation. Accordingly, KDSM has no federal deferred income taxes. Since KDSM
is directly responsible for its state taxes all deferred tax assets or
liabilities are related to state income taxes. The federal and state tax
provision was calculated based on pretax income plus permanent book to tax
differences of approximately $22,000 times the statutory tax rate of 40%. The
Company had no alternative minimum tax credit carryforwards as of December 31,
1996.
F-8
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. AND
KDSM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - (Continued)
The allocation of consolidated income taxes consists of the following for the
seven months ended December 31, 1996:
Current
Federal ....................... $ 411,932
State ..........................
----------
411,932
----------
Deferred
Federal ........................
State ........................... 72,694
----------
$ 484,626
==========
The following table summarizes the tax effects of the significant types of
temporary differences between financial reporting basis and tax basis which were
generated during the seven months ended December 31, 1996.
Film amortization ....................... $(237,876)
Goodwill amortization .................... (261,155)
Other ................................... 14,405
---------
$(484,626)
=========
The deferred state tax liability represents the state tax benefit related to the
temporary differences listed above.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the estimated
useful lives. Property and equipment and their estimated useful lives are as
follows as of December 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
IN YEARS
-------------
<S> <C> <C>
Buildings and improvements ..................... $ 95,080 31.5
Transmission towers and equipment ............ 1,191,906 5-15
Studio equipment .............................. 1,442,636 5
Vehicles, office equipment and furniture ...... 261,748 5
Leasehold improvements ........................ 2,245 15
-----------
2,993,615
Less: Accumulated depreciation ............... (190,777)
-----------
$ 2,802,838
===========
</TABLE>
F-9
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. AND
KDSM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. PROGRAM CONTRACTS
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of December 31, 1996:
Aggregate cost ..................... $ 2,517,388
Less-Accumulated amortization ...... (863,607)
-----------
1,653,781
Less-Current portion ............... (860,247)
-----------
$ 793,534
===========
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,263,340 as of December 31, 1996. Future payments, by year, for
program contract rights payable, are as follows:
YEAR ENDING
DECEMBER 31,
1996
-------------
1997 .............................. $ 1,384,105
1998 .............................. 617,158
1999 .............................. 217,908
2000 .............................. 43,859
2001 .............................. 310
2002 and thereafter ............... -
-----------
$ 2,263,340
===========
The Company has entered into noncancelable commitments for future program rights
of approximately $498,000 as of December 31, 1996.
The Company has estimated the fair value of its program contract payables and
noncancelable commitments at approximately $1.9 million as of December 31, 1996
based on future cash flows discounted at the Company's current borrowing rate.
5. LEASES
The Company leases certain property and equipment under noncancelable
operating lease agreements. Rental expense charged to income for the five months
ended May 31, 1996, and the seven months ended December 31, 1996, was
approximately $5,000 and $7,000, respectively. Future minimum lease payments
under noncancellable operating leases are approximately:
YEAR ENDING
DECEMBER 31,
1996
-------------
1997 ..................... $ 88,000
1998 ..................... 88,000
1999 ..................... 84,000
2000 ..................... 85,000
2001 ..................... 92,000
2002 and thereafter ...... 640,000
-----------
$ 1,077,000
===========
F-10
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. AND
KDSM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - (Continued)
6. RELATED PARTY TRANSACTIONS
The Predecessor's financial statements of KDSM-TV are included in the
consolidated financial statements of RCB, limited partnership. RCB corporate
expenses are allocated to KDSM-TV and each of RCB's stations to cover the
salaries and expenses of senior management. Total management fees and expenses,
including allocated corporate expenses, for the five months ended May 31, 1996,
totaled approximately $289,000.
The Company's financial statements of KDSM, Inc. and subsidiary are included in
the consolidated financial statements of Sinclair Broadcast Group, Inc. (the
Parent). Parent corporate expenses are allocated to KDSM, and each of the
Parent's subsidiaries to cover the salaries and expenses of senior management.
Total management fees and expenses, including allocated corporate expenses, for
the seven months ended December 31, 1996, totaled approximately $146,000. The
Parent also provides and receives short-term cash advances to and from the
Company through a central cash management system. No interest is charged or
received for these advances. The total amount due from Parent as of December 31,
1996, amounted to approximately $496,000.
In connection with the acquisition of KDSM's Non-License Assets by the Parent,
on May 31, 1996, the Parent entered into a local marketing agreement (LMA) with
RCB limited partnership to provide programming services. The Parent makes
specified periodic payments to RCB limited partnership in exchange for the right
to program and sell advertising. During the seven months ended December 31,
1996, the Parent made payments of approximately $172,000 to RCB in connection
with the LMA. These payments are included in the accompanying statement of
operations as programming and production expenses for the seven months ended
December 31, 1996. KDSM reimburses the Parent for these payments, and any
amounts due to the Parent have been included in the net due from Parent amount
in the accompanying Consolidated Balance Sheet.
7. EMPLOYEE BENEFITS
Substantially all employees of KDSM, as of May 31, 1996, were covered under a
qualified profit-sharing plan administered by RCB, which includes a thrift
provision qualifying under Section 401(k) of the Internal Revenue Code. The
provision allows the participants to contribute up to 12% of their compensation
in the plan year, subject to statutory limitations.
As of May 31, 1996, KDSM participates in the Parent Company's retirement savings
plan under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all employees of the Company who meet minimum age or service
requirements and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Contributions from the Company are made on a
monthly basis in an amount equal to 50% of the participating employee
contributions, to the extent such contributions do not exceed 6% of the
employees' eligible compensation during the month.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation matters arising in the normal
course of business. In the opinion of management, these matters are not
significant and will not have a material adverse effect on the Company's
financial position.
F-11
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. AND
KDSM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - (Continued)
9. ACQUISITION OF BUSINESS
On May 31, 1996, the Parent acquired all of the non-license assets of the
Company from RCB limited partnership for approximately $36.8 million. In
connection with this purchase, the Company purchased an option to acquire the
license assets of KDSM for approximately $3.4 million, with an option exercise
price of $1.6 million and entered into an LMA with RCB as described in Note 6.
None of the current assets of KDSM were acquired. 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, other intangible assets and purchase options of $2.8 million, $3.1
million, $27.5 million and $3.4 million, respectively.
10. PREPAYMENT OF SYNDICATED PROGRAM CONTRACT LIABILITIES
In connection with the acquisition described in Note 9, the Company prepaid
certain syndicated program contracts payable for which the underlying value of
the associated syndicated program assets was determined to be of little or no
value. KDSM made cash payments of $216,000 relating to these syndicated program
contracts payable. The related assets had been written down to their net
realizable value prior to the prepayment.
11. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS
The unaudited pro forma summary results of operations for the year ended
December 31, 1996, assuming the 1996 acquisition had been consummated on January
1, 1996, is as follows:
1996
-----------
(UNAUDITED)
Net broadcast revenues .................................... $8,421,713
==========
Income before allocation of consolidated income taxes ...... $1,791,954
==========
Net income available to common shareholders ............... $1,075,172
==========
F-12
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (the "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
-------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................................... $ 3 $ 1
Accounts receivable, net of allowance for doubtful accounts ......... 2,052 1,687
Dividends receivable ............................................. - 1,355
Current portion of program contract costs ........................... 860 687
Prepaid expenses and other current assets ........................... 86 85
Deferred barter costs ............................................. 50 68
-------- ---------
Total current assets ............................................. 3,051 3,883
PROPERTY AND EQUIPMENT, net .......................................... 2,803 2,748
PROGRAM CONTRACT COSTS, less current portion ........................ 794 662
INVESTMENT IN PARENT PREFERRED SECURITIES ........................... - 206,200
DUE FROM PARENT ...................................................... 496 1,049
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ........................ 33,530 39,055
-------- ---------
Total Assets ...................................................... $40,674 $253,597
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 292 $ 91
Accrued liabilities ................................................ 410 430
Current portion of program contracts payable ........................ 1,384 1,106
Deferred barter revenues .......................................... 120 134
Trust distributions payable ....................................... - 1,210
-------- ---------
Total current liabilities .......................................... 2,206 2,971
PROGRAM CONTRACTS PAYABLE .......................................... 879 703
DEFERRED STATE TAXES ................................................ 73 129
-------- ---------
Total liabilities ................................................ 3,158 3,803
-------- ---------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURI-
TIES OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR
DEBENTURES ......................................................... - 200,000
-------- ---------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares authorized and 100 shares
issued and outstanding .......................................... - -
Additional paid-in capital .......................................... 36,811 48,819
Retained Earnings... ................................................ 705 975
-------- ---------
Total stockholder's equity ....................................... 37,516 49,794
-------- ---------
Total Liabilities and Stockholder's Equity ........................ $40,674 $253,597
======== =========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
F-13
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
PREDECESSOR COMPANY
1996 1997
------------- -----------
<S> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ..................... $2,012 $ 2,135
Revenues realized from station barter arrangements ........................ 33 78
------- --------
Total revenues ......................................................... 2,045 2,213
------- --------
OPERATING EXPENSES:
Program and production ................................................... 324 376
Selling, general and administrative ....................................... 583 738
Expenses realized from station barter arrangements ........................ 63 43
Amortization of program contract costs and net realizable value adjust-
ments 373 394
Depreciation and amortization of property and equipment .................. 229 85
Amortization of acquired intangible broadcasting assets and other assets . 216 254
------- --------
Total operating expenses ................................................ 1,788 1,890
------- --------
Broadcast operating income ............................................. 257 323
------- --------
OTHER INCOME (EXPENSE):
Dividend Income ......................................................... - 1,355
------- --------
Subsidiary Trust Minority Interest Expense .............................. - (1,210)
------- --------
Income before allocation of consolidated federal income taxes and state
income taxes ............................................................ 257 468
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES ........................... - 142
------- --------
STATE INCOME TAXES ...................................................... - 56
------- --------
NET INCOME ............................................................... $ 257 $ 270
======= ========
Net income per common share ............................................. $ - $ 2,700
======= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................................. - 100
======= ========
PRO FORMA NET INCOME AFTER IMPUTING AN INCOME TAX
PROVISION:
Net Income, as reported ................................................ $ 257
Imputed income tax provision ............................................. 103
-------
Pro forma net income ................................................... $ 154
=======
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
F-14
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
-------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 ......... $ - $36,811 $ 705 $ 37,516
Parent capital contributions ...... - 12,008 - 12,008
Net income ........................ - - 270 270
---- -------- ------ ---------
BALANCE, March 31, 1997 ............ $ - $48,819 $ 975 $ 49,794
==== ======== ====== =========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
F-15
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
PREDECESSOR COMPANY
1996 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 257 $ 270
Adjustments to reconcile net loss to net cash flows from operating activities-
Depreciation and amortization of property and equipment ........................... 229 85
Amortization of acquired intangible broadcasting assets and other assets . 216 254
Amortization of program contract costs and net realizable value adjust-
ments 373 394
Changes in assets and liabilities, net of effects of acquisitions and dispositions-
Decrease in accounts receivable, net ............................................. 121 365
Increase in dividends receivable ................................................ - (1,355)
(Increase) decrease in prepaid expenses and other current assets .................. (19) 1
Increase (decrease) in accounts payable and accrued liabilities .................. 297 (181)
Increase in deferred taxes ...................................................... - 56
Net effect of change in deferred barter revenues and deferred barter costs 29 (4)
Increase in distribution payable to outside investors of the Trust ............... - 1,210
Payments on program contracts payable .......................................... (485) (514)
------ ----------
Net cash flows from operating activities ....................................... 1,018 581
------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Parent Preferred Securities ....................................... - (206,200)
Acquisition of property and equipment ............................................. (16) (30)
------ ----------
Net cash flows used in investing activities .................................... (16) (206,230)
------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfers to partnership ...................................................... (969) -
Net change in due from parent ................................................... - (553)
Contributions of capital ......................................................... - 12,008
Payments of costs related to preferred securities offering ........................ - (808)
Proceeds from preferred securities offering, net of $5,000 underwriters' dis-
count - 195,000
------ ----------
Net cash flows used in/from financing activities .............................. (969) 205,647
------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . 33 (2)
CASH AND CASH EQUIVALENTS, beginning of period .................................... 62 3
------ ----------
CASH AND CASH EQUIVALENTS, end of period .......................................... $ 95 $ 1
====== ==========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated statements.
F-16
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
KDSM, Inc., Sinclair Capital (a subsidiary trust), and KDSM Licensee Inc., which
are collectively referred to hereafter as "the Company or KDSM." KDSM, Inc. is a
television broadcaster serving the Des Moines, Iowa, area through station KDSM
on Channel 17, a Fox affiliate. This station was wholly owned and operated by
River City Broadcasting (RCB), a limited partnership through its ownership in
KDSM-TV, a division of RCB (the "Predecessor") through May 31, 1996. Sinclair
Broadcast Group, Inc. (Sinclair) purchased the non- license assets of KDSM-TV
from RCB on May 31, 1996, and subsequently exercised its option to acquire all
of the license assets of KDSM-TV from RCB on April 22, 1997. KDSM owns all of
the issued and outstanding common stock of KDSM Licensee, Inc. and Sinclair
Capital. All intercompany amounts are eliminated in consolidation.
Interim Financial Statements
The consolidated financial statements for the three months ended March 31,
1997 are unaudited, but in the opinion of management, such financial statements
have been presented on the same basis as the audited consolidated financial
statements as of December 31,1996 and for the seven months then ended and
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations, and cash flows for these periods.
The Company's December 31, 1996 consolidated balance sheet and related
statements of operations and cash flows for the seven month period ended
December 31, 1996, are presented on a new basis of accounting. The accompanying
financial statements for the three month period ended March 31, 1996, are
presented as "Predecessor" financial statements.
As permitted under the applicable rules and regulations of the Securities
and Exchange Commission, these financial statements do not include all
disclosures normally included with audited consolidated financial statements,
and, accordingly, should be read in conjunction with the consolidated financial
statements as of December 31, 1995, and for the year then ended, and the
December 31, 1996 consolidated balance sheet and related statements of
operations and cash flows for seven month period ended December 31, 1996 and the
five month period ended May 31,1996 and the related notes thereto. The results
of operations presented in the accompanying financial statements are not
necessarily representative of operations for an entire year.
Programming
The Company has 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.
F-17
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (the "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. CONTINGENCIES AND OTHER COMMITMENTS:
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.
3. EARNINGS PER SHARE:
In March 1997, the Financial Accounting Standard Board released SFAS 128
"Earnings per Share." The new statement is effective December 15, 1997 and early
adoption is not permitted. When adopted, SFAS 128 will require the restatement
of prior periods and disclosure of basic and diluted earnings per share and
related computations. At the present time, management believes that the adoption
of SFAS 128 will not materially affect the Company's consolidated financial
statements.
4. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST:
In March 1997, the Company completed a private placement of $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities (the "Trust Preferred Securities") of Sinclair Capital, a subsidiary
trust of the Company. The Trust Preferred Securities were issued March 12, 1997,
mature March 15, 2009, will be mandatorily redeemable at maturity, and provide
for quarterly distributions to be paid in arrears beginning June 15, 1997. The
Trust Preferred Securities were sold to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act of 1933, as amended) and a limited
number of institutional "accredited investors". The Company utilized the
proceeds of the private offering combined with other capital contributions to
acquire $206.2 million of 12 5/8% Series C Preferred Stock (the "Parent
Preferred Securities") of Sinclair.
Pursuant to a Registration Rights Agreement entered into in connection with
the private placement of the Trust Preferred Securities, Sinclair Capital is
obligated to offer to holders of the Trust Preferred Securities the right to
exchange the Trust Preferred Securities with new Trust Preferred Securities
having the same terms as the existing securities, except that the exchange of
the new Trust Preferred Securities for the existing Trust Preferred Securities
will be registered under the Securities Act of 1933, as amended and the new
Trust Preferred Securities will not contain provisions for additional
distributions if the exchange offer does not occur as required. The Company was
to filed the registration statement May 2, 1997 and is required to complete the
exchange offer prior to August 8, 1997.
5. PARENT PREFERRED SECURITIES:
In March 1997, the Company utilized the proceeds of the Trust Preferred
Securities combined with other capital contributions to acquire $206.2 million
of 12 5/8% Parent Preferred Securities, issued by Sinclair. The Parent Preferred
Securities were issued March 12, 1997, mature March 15, 2009, will be
mandatorily redeemable at maturity, and provide for quarterly distributions to
be paid in arrears beginning June 15, 1997.
Pursuant to a Registration Rights Agreement entered into in connection with
the private placement of the Trust Preferred Securities, Sinclair is obligated
to exchange the existing Parent Preferred Securities (the "Old Parent
Preferred") with New Parent Preferred Securities (the "New Parent Preferred")
registered under the Securities Act of 1933. The New Parent Preferred will have
terms which are identical in all material respects to those of the Old Parent
Preferred. A registration statement was filed on May 2, 1997 with respect to
registering the New Parent Preferred.
F-18
<PAGE>
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (the "PREDECESSOR"),
AND KDSM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. SUBSEQUENT EVENTS:
In April 1997, the Company received FCC approval for the transfer of the
FCC license KDSM in Des Moines, Iowa. The Company exercised its options to
acquire the license assets of KDSM for the exercise price of $1,576,000.
On May 2, 1997, the Company filed a registration statement on Form S-4 with
the Securities and Exchange Commission for the purpose of registering $200
million aggregate liquidation value of 11 5/8% Trust Preferred Securities and
the $206.2 million aggregate liquidation value of 12 5/8% New Parent Preferred
Securities to be offered in exchange for the aforementioned existing Trust
Preferred Securities and Parent Preferred Securities issued by the Company in
March 1997.
In June 1997, KDSM, Inc. acquired its station premises and building from
the owner at a purchase price of approximately $560,000, financing the
acquisition through a capital contribution from Sinclair.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
KDSM-TV:
We have audited the accompanying balance sheets of KDSM-TV as of December 31,
1995 and 1994, and the related statements of earnings, equity of partnership,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KDSM-TV as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
years then ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
February 7, 1997
F-20
<PAGE>
KDSM-TV
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash ......................................................... $ 61,963 $ 55,684
Accounts receivable, net of allowance for doubtful accounts of
approximately $12,000 in 1995 and $23,000 in 1994 ............ 1,700,083 1,621,812
Current portion of program rights ........................... 914,783 777,754
Prepaid and other current assets .............................. 177,762 229,824
----------- ------------
Total current assets .......................................... 2,854,591 2,685,074
Property and equipment, net of accumulated depreciation ...... 1,628,463 2,392,938
Program rights, less current portion ........................... 881,856 694,366
Intangible assets, net ....................................... 2,979,140 3,915,860
----------- ------------
Total assets ................................................... $8,344,050 $ 9,688,238
=========== ============
LIABILITIES AND EQUITY OF PARTNERSHIP
Current liabilities:
Current installments of program rights payable ............... $1,339,882 $ 943,390
Accrued expenses ............................................. 534,880 491,904
Accounts payable ............................................. 100,945 77,293
----------- ------------
Total current liabilities .................................... 1,975,707 1,512,587
Program rights payable, less current installments ............ 1,322,748 1,106,826
----------- ------------
Total liabilities ............................................. 3,298,455 2,619,413
Equity of partnership .......................................... 5,045,595 7,068,825
----------- ------------
Total liabilities and equity of partnership .................. $8,344,050 $ 9,688,238
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
KDSM-TV
STATEMENTS OF EARNINGS
DECEMBER 31, 1995 AND 1994
1995 1994
------------ -----------
Net operating revenues:
Local time sales ........................ $4,327,637 $4,031,018
National time sales ..................... 2,844,380 2,390,900
Other revenues ........................ 306,137 425,633
----------- -----------
Total operating revenues ............... 7,478,154 6,847,551
----------- -----------
Operating costs:
Station operating expenses ............ 1,822,370 1,831,230
Selling expenses ........................ 1,516,619 1,158,874
Program amortization expense ............ 1,504,520 907,135
Corporate expenses ..................... 150,000 356,816
Depreciation ........................... 897,220 876,865
Amortization of intangible assets ...... 936,720 1,194,523
----------- -----------
Total operating costs .................. 6,827,449 6,325,443
----------- -----------
Operating income ........................ 650,705 522,108
Other income ........................... 12,041 -
----------- -----------
Net earnings ........................... $ 662,746 $ 522,108
=========== ===========
See accompanying notes to financial statements.
F-22
<PAGE>
KDSM-TV
STATEMENTS OF EQUITY OF PARTNERSHIP
DECEMBER 31, 1995 AND 1994
Balance at December 31, 1993 ..................... $ 9,058,289
Net earnings .................................... 522,108
Partnership transfers, net ........................ (2,511,572)
------------
Balance at December 31, 1994 ..................... 7,068,825
Net earnings .................................... 662,746
Partnership transfers, net ........................ (2,685,976)
------------
Balance at December 31, 1995 ..................... $ 5,045,595
============
See accompanying notes to financial statements.
F-23
<PAGE>
KDSM-TV
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities - net earnings .................. $ 662,746 $ 522,108
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Program amortization expense .......................................... 1,504,520 907,135
Depreciation ......................................................... 897,220 876,865
Gain on disposal of property and equipment ........................... (12,041) -
Amortization of intangible assets .................................... 936,720 1,194,523
Retirement of program rights payable ................................. (1,216,625) (949,538)
Change in assets and liabilities: ....................................
Accounts receivable, net ............................................. (78,271) 7,202
Prepaid and other current assets .................................... 52,062 (48,317)
Accounts payable and accrued expenses .............................. 66,628 169,487
------------ ------------
Net cash provided by operating activities .............................. 2,812,959 2,679,465
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ................................. (139,169) (140,270)
Proceeds from disposal of property and equipment ..................... 18,465 -
------------ ------------
Net cash used in investing activities ................................. (120,704) (140,270)
------------ ------------
Cash flows from financing activities - net transfers to partnership ... (2,685,976) (2,511,572)
------------ ------------
Net increase in cash and cash equivalents .............................. 6,279 27,623
Cash, beginning of year ................................................ 55,684 28,061
------------ ------------
Cash, end of year ...................................................... $ 61,963 $ 55,684
============ ============
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
KDSM-TV
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. BUSINESS DESCRIPTION
KDSM-TV (THE COMPANY) IS A TELEVISION BROADCASTER SERVING THE DES MOINES, IOWA
AREA THROUGH STATION KDSM on Channel 17, a Fox affiliate. This station is fully
owned and operated by River City Broadcasting (RCB), a limited partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use Of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Program Rights
Program rights and related liabilities are recorded at cost when the program
right is available for broadcasting. Agreements define the lives of the program
rights and frequently the number of showings. The cost of program rights is
charged against earnings using straight-line and accelerated methods.
Program rights, representing the cost of those rights available for broadcasting
and expected to be broadcast in the succeeding fiscal year, are shown as a
current asset. Program rights payable are classified as current based on those
payments of the various contracts due within the next 12 months.
Program rights are stated at the lower of cost or estimated net realizable
value.
Property and Equipment
Property and equipment is recorded at cost. Maintenance and repairs are charged
against earnings, while improvements which extend useful lives are capitalized.
Depreciation expense is computed using primarily the straight-line method over
the estimated useful lives of the related assets.
Intangible Assets
Intangible assets consist principally of broadcasting licenses, covenants not to
compete, and going- concern values. Amortization expense is computed on a
straight-line basis over the estimated lives of the assets, which generally
range from 5-20 years.
The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the remaining balances over their
remaining lives can be recovered through projected undiscounted future results.
The amount of impairment, if any, is measured based on projected discounted
future results using a discount rate reflecting the Company's average cost of
funds. The methodology that management used to project results of operations
forward was based on the historical trend line of actual results.
Income Taxes and Distributions for Taxes
No income tax provision has been included in the Company's financial statements
since profit and loss and the related tax attributes are deemed to be
distributed to, and to be reportable by, the partners of RCB Limited Partnership
on their respective income tax returns. Accordingly, based on the tax attributes
to be passed through to the partners, RCB Partnership records a distribution
payable for amounts expected to be distributed to the partners for their
estimated tax liability.
F-25
<PAGE>
KDSM-TV
NOTES TO FINANCIAL STATEMENTS- (Continued)
Revenues
Broadcasting revenues are derived principally from the sale of program time and
spot announcements to local, regional, and national advertisers. Advertising
revenue is recognized in the period during which the program time and spot
announcements are broadcast.
Barter Transactions
Barter transactions are recorded at the estimated fair values of the products
and services received. Barter revenues are recognized when commercials are
broadcast.
3. INTANGIBLE ASSETS
Intangible assets include the following:
<TABLE>
<CAPTION>
ASSET
LIVES IN
1995 1994 YEARS
------------ ----------- ---------
<S> <C> <C> <C>
Broadcasting licenses, net of amortization of approximately
$168,000 and $130,000 in 1995 and 1994, respectively ......... $ 577,571 $ 614,834 20
Covenants not to compete, net of amortization of approxi-
mately $1,800,000 and $1,400,000 in 1995 and 1994, respec-
tively 200,004 600,000 5
Going-concern value, net of amortization of approximately
$80,000 and $62,000 in 1995 and 1994, respectively ............ 276,755 294,607 20
Other intangible assets, net of amortization of approximately
$3,470,000 and $2,989,000 in 1995 and 1994, respectively ...... 1,924,810 2,406,419 2-20
----------- ----------- =====
$2,979,140 $3,915,860
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment include the following:
<TABLE>
<CAPTION>
LIVES
1995 1994 IN YEARS
------------ ----------- ---------
<S> <C> <C> <C>
Buildings and improvements ................................... $ 320,029 $ 305,382 31.5
Equipment, furniture, and fixtures .......................... 5,140,515 5,045,645 5-15
----------- ----------- =====
5,460,544 5,351,027
Less accumulated depreciation ................................ 3,832,081 2,958,089
----------- -----------
$1,628,463 $2,392,938
=========== ===========
</TABLE>
F-26
<PAGE>
KDSM-TV
NOTES TO FINANCIAL STATEMENTS- (Continued)
5. LEASES
THE COMPANY LEASES CERTAIN PROPERTY AND EQUIPMENT UNDER NONCANCELLABLE OPERATING
LEASE AGREEMENTS. Rental expense charged to earnings for the years ended
December 31, 1995 and 1994 was approximately $97,000 and $96,000, respectively.
Future minimum lease payments under noncancellable operating leases are
approximately:
Year ending December 31:
1996 .................. $ 89,000
1997 .................. 88,000
1998 .................. 88,000
1999 .................. 84,000
2000 .................. 84,000
---------
$433,000
=========
6. SUPPLEMENTAL CASH FLOW AND OTHER FINANCIAL INFORMATION
THE COMPANY PURCHASED PROGRAM RIGHTS, ON AN INSTALLMENT BASIS, AMOUNTING TO
APPROXIMATELY $1,829,000 and $992,000 in 1995 and 1994, respectively. Amounts
reflected as retirements of program rights payable represent amounts paid to
vendors under various program rights agreements.
Based on certain events, management performed a review of program rights to
determine projected usage and revenue streams. Based on this review, the Company
wrote off certain programming and recognized a charge to operations of
approximately $189,000 for the year ended December 31, 1995. This amount is
included in program amortization expense.
7. RELATED PARTY TRANSACTIONS
THE FINANCIAL STATEMENTS OF KDSM-TV ARE INCLUDED IN THE CONSOLIDATED FINANCIAL
STATEMENTS OF RIVER City Broadcasting. RCB corporate expenses are allocated to
KDSM-TV and each of RCB's stations to cover the salaries and expenses of senior
management. Total management fees and expenses, including corporate expenses,
for the years ended December 31, 1995 and 1994 totaled approximately $150,000
and $357,000, respectively. The Company has an interest in the equity of the
partnership which represents the net of the initial investment of RCB in
KDSM-TV, cash which has been transferred by KDSM-TV to RCB, expenses which have
been allocated from RCB to KDSM-TV and accumulated earnings of KDSM-TV since the
initial investment of RCB.
8. EMPLOYEE BENEFITS
SUBSTANTIALLY ALL EMPLOYEES OF THE COMPANY ARE COVERED UNDER A QUALIFIED
PROFIT-SHARING PLAN, ADMINIStered by RCB, which includes a thrift provision
qualifying under Section 401(k) of the Internal Revenue Code. The provision
allows the participants to contribute up to 12% of their compensation in the
plan year, subject to statutory limitations. The Company contributed
approximately $21,000 and $10,000 for the years ended December 31, 1995 and
1994, respectively, to the plan.
F-27
<PAGE>
KDSM-TV
NOTES TO FINANCIAL STATEMENTS- (Continued)
9. COMMITMENTS AND CONTINGENCIES
IN CONJUNCTION WITH THE COMPANY'S COMMITMENT TO OBTAIN NEW PROGRAMMING, THE
COMPANY HAS PURchased for the period subsequent to December 31, 1995
approximately $1,349,000 of future program rights, including $856,000 of sports
rights, of which approximately $37,000 will become payable in 1996. These rights
are generally for a period ranging from one to four years. Program rights and
related obligations in the accompanying financial statements do not include
these future commitments.
The Company is involved in certain litigation matters arising in the normal
course of business. In the opinion of management, these matters are not
significant and will not have a material adverse effect on the Company's
financial position.
10. SUBSEQUENT EVENT
ON MAY 31, 1996, SUBSTANTIALLY ALL OF THE ASSETS OF KDSM-TV WERE SOLD TO
SINCLAIR BROADCAST GROUP, Inc. (SBG). River City Broadcasting retained ownership
of the FCC license assets, but issued an option to acquire the FCC license
assets to SBG which expires on April 10, 2006. Concurrently, RCB entered into a
time brokerage agreement with Sinclair Communications, Inc. (SCI) whereby SCI
will broadcast programming of its selection on KDSM-TV for consideration paid to
RCB. RCB has and will retain full authority, power, and control over the
management and operations of KDSM-TV during the term of the time brokerage
agreement which expires upon exercise of the option to acquire the FCC license
assets by SBG.
F-28
<PAGE>
GLOSSARY OF DEFINED TERMS
"ABC" means Capital Cities/ABC, Inc.
"Amended Certificate" means the Amended and Restated Articles of
Incorporation of the Company.
"Banks" means The Chase Manhattan Bank, N.A., as agent under the Bank
Credit Agreement and certain lenders named in the Bank Credit Agreement.
"Boston Ventures" means Boston Ventures IV, Limited Partnership and Boston
Ventures IVA, Limited Partnership collectively.
"Broadcast Cash Flow" means operating income plus corporate overhead
expenses, special bonuses paid to executive officers, non-cash deferred
compensation, depreciation and amortization, including both tangible and
intangible assets and program rights, less cash payment for program rights. Cash
program payments represent cash payments made for current program payables and
sports rights and do not necessarily correspond to program usage. Special
bonuses paid to executive officers are considered unusual and 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 (i) does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements of
cash flow, (ii) is not a measure of financial performance under generally
accepted accounting principles and (iii) should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
"Broadcast cash flow margin" means broadcast cash flow divided by net
broadcast revenues.
"CBS" means CBS, Inc.
"CCI" means Cunningham Communications, Inc.
"Cincinnati/Kansas City Acquisitions" means the Company's acquisition of
the assets and liabilities of WSTR-TV (Cincinnati, OH) and KSMO-TV (Kansas City,
MO).
"Class A Common Stock" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common Stock" means the Company's Class B Common Stock, par value
$.01 per share.
"Columbus Option" means the Company's option to purchase both the
Non-License Assets and the License Assets relating to WSYX-TV (ABC), Columbus,
OH.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A Common Stock and the Class B Common
Stock.
"Communications Act" means the Communications Act of 1934, as amended.
"Company" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Controlling Stockholders" means David D. Smith, Frederick G. Smith, J.
Duncan Smith and Robert E. Smith.
"Designated Market Area" or "DMA" means one of the 211 generally-recognized
television market areas.
"DOJ" means the United States Justice Department.
"DTV" means digital television.
"EDGAR" means the Commission's Electronic Data Gathering, Analysis and
Retrieval System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indentures" means the indentures relating to the Notes.
"FCC" means the Federal Communications Commission.
"Flint Acquisition" means the Company's acquisition of the assets of
WSMH-TV (Flint, Michigan).
G-1
<PAGE>
"Fox" means Fox Broadcasting Company.
"FSFA" means FSF Acquisition Corporation, the parent of the owner and
operator of WRDC-TV in Raleigh, Durham, acquired by the Company in August 1994.
"Gerstell" means Gerstell Development Corporation.
"Gerstell LP" means Gerstell Development Limited Partnership.
"Glencairn" means Glencairn, Ltd. and its subsidiaries.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act, as amended.
"Independent" means a station that is not affiliated with any of ABC, CBS,
NBC, FOX, UPN or Warner Brothers.
"JSAs" means joint sales agreements pursuant to which an entity has the
right, for a fee paid to the owner and operator of a station, to sell
substantially all of the commercial advertising on the station.
"KIG" means Keyser Investment Group.
"KSC" means Keymarket of South Carolina, Inc.
"License Assets" means the television and radio 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.
"LMAs" means program services agreements, time brokerage agreements or
local marketing agreements pursuant to which an entity provides programming
services to television or radio stations that are not owned by the entity.
"Major Networks" means each of ABC, CBS or NBC, singly or collectively.
"Maryland General Corporation Law" means the general corporation laws of
the State of Maryland.
"NASD" means National Association of Securities Dealers, Inc.
"NBC" means the National Broadcasting Company.
"Nielsen" means the A.C. Nielsen Company Station Index dated May, 1996.
"1995 Notes" means the Company's 10% Senior Subordinated Notes due in
2005.
"1997 Notes" means the Company's 9% Senior Subordinated Notes due in 2007.
"1996 Act" means the Telecommunications Act of 1996.
"1993 Notes" means the Company's 10% Senior Subordinated Notes due in
2003.
"Non-License Assets" means the assets relating to operation of a television
or radio station other than License Assets.
"Operating cash flow margin" means the operating cash flow divided by net
broadcast revenues.
"Peoria/Bloomington Acquisition" means the acquisition by the Company of
the assets of WYZZ-TV on July 1, 1996.
"Permitted Transferee" means (i) any Controlling Stockholder, (ii) the
estate of a Controlling Stockholder, (iii) the spouse or former spouse of a
Controlling Stockholder, (iv) any lineal descendant of a Controlling
Stockholder, any spouse of any such lineal descendant, a Controlling
Stockholder's grandparent, parent, brother or sister, or a Controlling
Stockholder's spouse's brother or sister, (v) any guardian or custodian
(including a custodian for purposes of the Uniform Gift to Minors Act or Uniform
Transfers to Minors Act) for, or any conservator or other legal representative
of, one or more Permitted Transferees, (vi) any trust or savings or retirement
account, including an individual retirement account for purposes of federal
income tax laws, whether or not involving a trust, principally for the benefit
of one or more Permitted Transferees, including any trust in respect of which a
Permitted Transferee has any general or special testamentary power of
appointment or general or special non-testamentary power of appointment which is
limited to any other Permitted Transferee, (vii) the Company, (viii) any
employee benefit plan or trust thereunder sponsored by the Company or any of its
subsidiaries, (ix) any
G-2
<PAGE>
trust principally for the benefit of one or more of the persons referred to in
(i) through (iii) above, (x) any corporation, partnership or other entity if all
of the beneficial ownership is held by one or more of the persons referred to in
(i) through (iv) above, and (xi) any broker or dealer in securities, clearing
house, bank, trust company, savings and loan association or other financial
institution which holds Class B Common Stock for the benefit of a Controlling
Stockholder or Permitted Transferee thereof.
"Revolving Credit Facility" means the reducing revolving credit facility
under the Bank Credit Agreement in the principal amount of $400.0 million.
"River City" means River City Broadcasting, L.P.
"River City Acquisition" means the Company's acquisition from River City
and the owner of KRRT of certain Non-License Assets, options to acquire certain
License and Non-License Assets and rights to provide programming or sales and
marketing for certain stations, which was completed May 31, 1996.
"SCI" means Sinclair Communications, Inc., a wholly owned subsidiary of the
Company that will hold all of the broadcast operations of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Securities" means up to $400.0 million of stock that may be issued
by the Company, as to which the Series B Convertible Preferred Stock will have
the same rank except in certain circumstances.
"Series A Preferred Stock" means the Company's Series A Exchangeable
Preferred Stock, par value $.01, each share of which has been exchanged for a
share of the Company's Series B Convertible Preferred Stock.
"Series B Convertible Preferred Stock" means the Company's Series B
Convertible Preferred Stock, par value $.01.
"Series C Preferred Stock" means the Company's Series C Preferred Stock,
par value $.01.
"Sinclair" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Sinclair Capital" means Sinclair Capital, a Delaware Business Trust, 100%
of the common securities of which are held by KDSM, Inc., an indirect wholly
owned subsidiary of the Company.
"Stockholder Affiliates" means certain non-Company entities owed and
controlled by the Controlling Stockholders, including CCI, Gerstell, Gerstell LP
and KIG.
"Stockholders' Agreement" means the stockholders agreement by and among
the Controlling Stockholders.
"Superior Acquisition" means the Company's acquisition of the stock of
Superior Communications, Inc.
"TBAs" means time brokerage agreements; see definition of "LMAs."
"Term Loan" means the term loan under the Bank Credit Agreement in the
principal amount of $600.0 million.
"UHF" means ultra-high frequency.
"UPN" means United Paramount Television Network Partnership.
"VHF" means very-high frequency.
"Voting Agreement" means the voting agreement dated as of April 10, 1996 by
and among the Controlling Stockholders, Barry Baker and Boston Ventures.
"WB" or "Warner Brothers" means Warner Brothers, Inc.
G-3
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFER MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, KDSM, INC. OR THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE NEW PREFERRED SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
-------------------------------
TABLE OF CONTENTS
PAGE
NO.
-----
Summary ................................................ 1
Risk Factors ............................................. 29
Use of Proceeds .......................................... 46
Dividend Policy .......................................... 46
Historical and Pro Forma Ratio of Earnings to Fixed
Charges ................................................ 47
Accounting Treatment .................................... 47
Capitalization of Sinclair .............................. 48
Capitalization of KDSM, Inc. ........................... 49
Selected Financial Information of KDSM-TV and
KDSM, Inc. .......................................... 50
Pro Forma Financial Information of KDSM-TV and
KDSM, Inc. ............................................. 53
Management's Discussion and Analysis of Financial Con-
dition and Results of Operations of KDSM-TV and
KDSM, Inc. .......................................... 56
KDSM, Inc. ............................................. 60
Sinclair Capital ....................................... 61
The Exchange Offer ....................................... 62
Description of Capital Stock ........................... 71
Description of the New Parent Preferred .................. 77
Description of the New KDSM Senior Debentures ............ 88
Description of the New Preferred Securities ............ 104
Description of the New Parent Guarantee .................. 117
Description of the New Parent Debenture Guarantee ...... 120
Description of the Old Securities ........................ 123
Certain Definitions .................................... 126
Relationship Among the New Preferred Securities, the
New KDSM Senior Debenture, the New Parent Pre-
ferred and the New Parent Guarantee 136
Description of Indebtedness of Sinclair .................. 137
Certain Federal Income Tax Consequences .................. 141
Plan of Distribution .................................... 145
Legal Matters .......................................... 145
Experts ................................................ 146
Index to Financial Statements ........................... F-1
Glossary of Defined Terms .............................. G-1
Until ____ __, 1997 (180 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
================================================================================
<PAGE>
================================================================================
OFFER FOR ALL OUTSTANDING
11 5/8% HIGH YIELD TRUST OFFERED PREFERRED SECURITIES
(LIQUIDATION AMOUNT $100 PER PREFERRED SECURITY)
IN EXCHANGE FOR
11 5/8% HIGH YIELD TRUST OFFERED PREFERRED SECURITIES
(LIQUIDATION AMOUNT $100 PER PREFERRED SECURITY)
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
of
Sinclair Capital
guaranteed to the extent set forth herein by
[GRAPHIC OMITTED]
-----------------
P R O S P E C T U S
, 1997
-----------------
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Amendment and Restatement and By-Laws of the Company state
that the Company shall indemnify, and advance expenses to, its directors and
officers whether serving the Company or at the request of another entity to the
fullest extent permitted by and in accordance with Section 2-418 of the Maryland
General Corporation Law. Section 2-418 contains certain provisions which
establish that a Maryland corporation may indemnify any director or officer made
party to any proceeding by reason of service in that capacity, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the director or officer in connection with such proceeding unless it
is established that the director's or officer's act or omission was material to
the matter giving rise to the proceeding and the director or officer (i) acted
in bad faith or with active and deliberate dishonesty; (ii) actually received an
improper personal benefit in money, property or services; or (iii) in the case
of a criminal proceeding, had reasonable cause to believe that his act was
unlawful. However, if the proceeding was one by or in the right of the
corporation, indemnification may not be made if the director or officer is
adjudged to be liable to the corporation. The statute also provides for
indemnification of directors and officers by court order.
Section 12 of Article II of the Amended By-Laws of Sinclair Broadcast
Group, Inc. provides as follows:
A director shall perform his duties as a director, including his duties as
a member of any Committee of the Board upon which he may serve, in good faith,
in a manner he reasonably believes to be in the best interests of the
Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances. In performing his duties, a
director shall be entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial data, in each
case prepared or presented by:
(a) one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters
presented;
(b) counsel, certified public accountants, or other persons as to matters
which the director reasonably believes to be within such person's
professional or expert competence; or
(c) a Committee of the Board upon which he does not serve, duly designated
in accordance with a provision of the Articles of Incorporation or the
By-Laws, as to matters within its designated authority, which
Committee the director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted. A person who performs his duties in
compliance with this Section shall have no liability by reason of being or
having been a director of the Corporation.
The Company has also entered into indemnification agreements with certain
officers and directors which provide that the Company shall indemnify and
advance expenses to such officers and directors to the fullest extent
permitted by applicable law in effect on the date of the agreement, and to
such greater extent as applicable law may thereafter from time to time
permit. Such agreements provide for the advancement of expenses (subject to
reimbursement if it is ultimately determined that the officer or director is
not entitled to indemnification) prior to the disposition of any claim or
proceeding.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------
<S> <C>
3.1* Amended and Restated Trust Agreement, dated as of March 12, 1997
among KDSM, Inc., First Union National Bank of Maryland, First
Union Bank of Delaware, David D. Smith and David B. Amy
3.2* Amended and Restated Articles of Incorporation of Sinclair
Broadcast Group, Inc., as amended as of March 11, 1997
3.3 Amended By-Laws of Sinclair Broadcast Group, Inc., as amended as
of May 31, 1995 (1)
3.4* Articles of Incorporation of KDSM, Inc. as of April 22, 1996
3.5* By-Laws of KDSM, Inc.
4.1* Indenture, dated as of March 12, 1997 among KDSM, Inc., Sinclair
Broadcast Group, Inc. and First Union National Bank of Maryland
4.2* Registration Rights Agreement, dated as of March 5, 1997 among
Sinclair Broadcast Group, Inc., KDSM, Inc., Sinclair Capital,
Smith Barney Inc. and Chase Securities Inc.
4.3* Pledge and Security Agreement dated as of March 12, 1997 between
KDSM, Inc. and First Union National Bank of Maryland
4.4* Form of 11 5/8 % High Yield Trust Offered Preferred Securities of
Sinclair Capital
4.5* Form of 11 5/8 % Senior Debentures due 2009 of KDSM, Inc.
(included in Exhibit 4.1)
4.6* Form of Parent Guarantee Agreement between Sinclair Broadcast
Group, Inc. and First Union National Bank of Maryland
5.1 Opinion of Wilmer, Cutler & Pickering as to the legality of the
11 5/8 % Senior Debentures due 2009 of KDSM, Inc., the 12 5/8 %
Series C Preferred Stock of Sinclair Broadcast Group, Inc., and
Parent Guarantee and the Parent Debenture Guarantee of Sinclair
Broadcast Group, Inc.
5.2 Opinion of Thomas & Libowitz as to the legality of the 11 5/8 %
Senior Debentures due 2009 of KDSM, Inc., the 12 5/8 % Series C
Preferred Stock of Sinclair Broadcast Group, Inc., and the Parent
Guarantee and the Parent Debenture Guarantee of Sinclair
Broadcast Group, Inc.
5.3 Opinion of Richards, Layton & Finger, as to the legality of the
11 5/8 % High Yield Trust Offered Preferred Securities of
Sinclair Capital
8.1 Opinion of Wilmer, Cutler & Pickering as to certain federal
income tax matters
12.1 Calculation of Ratio of Earnings to Fixed Charges of Sinclair
Broadcast Group, Inc. (Included in 'Historical and Pro Forma
Ratio of Earnings to Fixed Charges' in the Registration
Statement)
23.1 Consent of Arthur Andersen LLP, independent certified public
accountants
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants, relating to financial statements of River City
Broadcasting, L.P.
23.3 Consent of KPMG Peat Marwick LLP, independent certified public
accountants, relating to financial statements of KDSM-TV
23.4 Consent of Price Waterhouse, independent accountants, relating to
financial statements of Kansas City TV 62 Limited Partnership
23.5 Consent of Price Waterhouse, independent accountants, relating to
financial statements of Cincinnati TV 64 Limited Partnership
23.6 Consent of Ernst & Young LLP, independent certified public
accountants
24 Powers of Attorney (Included in the signature pages to the
Registration Statement)
II-2
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- --------------------------------------------------------------------------------------
25.1 Form T-1 Statement of Eligibility of First Union National Bank of
Maryland to act as trustee under the Amended and Restated Trust
Agreement
25.2 Form T-1 Statement of Eligibility of First Union National Bank of
Maryland to act as trustee under the Indenture
25.3 Form T-1 Statement of Eligibility of First Union National Bank of
Maryland to act as trustee under the Parent Guarantee Agreement
27 Financial Data Schedule of KDSM, Inc.
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3* Form of Exchange Agent Agreement
</TABLE>
- -----
* Previously filed
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1, No. 33-90682.
ITEM 22. UNDERTAKINGS
Each of the undersigned registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Each of the undersigned registrants also hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Each of the undersigned registrants hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-3
<PAGE>
Each of the undersigned registrants hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuers undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
Each of the registrants undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
certify that they have reasonable grounds to believe that they meet all of the
requirements for filing on Form S-4 and have duly caused this Amendment to the
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Baltimore, Maryland on the 8th day of
July, 1997.
SINCLAIR BROADCAST GROUP, INC.
By: *
---------------------------------------
David D. Smith
Chief Executive Officer and President
KDSM, INC.
By: *
---------------------------------------
David D. Smith
President and Director
SINCLAIR CAPITAL
By: *
---------------------------------------
David D. Smith
Administrative Trustee
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------------- -------------
<S> <C> <C>
* Chairman Of The Board, July 8, 1997
- --------------------------- Chief Executive Officer, President and
David D. Smith Director (Principal Executive Officer),
Sinclair Broadcast Group, Inc.
President and Director
(Principal Executive Officer),
KDSM, Inc.
Administrative Trustee
(Principal Executive Officer),
Sinclair Capital
/s/ DAVID B. AMY Chief Financial Officer July 8, 1997
- --------------------------- (Principal Financial and Accounting
David B. Amy Officer), Sinclair Broadcast Group, Inc.
Vice President and Director
(Principal Financial and Accounting
Officer), KDSM, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------------ -------------
<S> <C> <C>
Administrative Trustee
(Principal Financial and Accounting
Officer), Sinclair Capital
* Director, Sinclair Broadcast Group, Inc. July 8, 1997
- ---------------------------
Frederick G. Smith
* Director, Sinclair Broadcast Group, Inc July 8, 1997
- ---------------------------
J. Duncan Smith
* Director, Sinclair Broadcast Group, Inc July 8, 1997
- ---------------------------
Robert E. Smith
* Director, Sinclair Broadcast Group, Inc July 8, 1997
- ---------------------------
Basil A. Thomas
* Director, Sinclair Broadcast Group, Inc July 8, 1997
- ---------------------------
William E. Brock
* Director, Sinclair Broadcast Group, Inc July 8, 1997
- ---------------------------
Lawrence E. McCanna
</TABLE>
- ----------
* Signed on behalf of the above-listed offices and directors by their
attorney-in-fact.
By: /s/ DAVID B. AMY
- ---------------------------
David B. Amy
Attorney-In-Fact
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------
3.1* Amended and Restated Trust Agreement, dated as of March 12, 1997
among KDSM, Inc., First Union National Bank of Maryland, First
Union Bank of Delaware, David D. Smith and David B. Amy
3.2* Amended and Restated Articles of Incorporation of Sinclair
Broadcast Group, Inc., as amended as of March 11, 1997
3.3 Amended By-Laws of Sinclair Broadcast Group, Inc., as amended as
of May 31, 1995 (1)
3.4* Articles of Incorporation of KDSM, Inc. as of April 22, 1996
3.5* By-Laws of KDSM, Inc.
4.1* Indenture, dated as of March 12, 1997 among KDSM, Inc., Sinclair
Broadcast Group, Inc. and First Union National Bank of Maryland
4.2* Registration Rights Agreement, dated as of March 5, 1997 among
Sinclair Broadcast Group, Inc., KDSM, Inc., Sinclair Capital,
Smith Barney Inc. and Chase Securities Inc.
4.3* Pledge and Security Agreement dated as of March 12, 1997 between
KDSM, Inc. and First Union National Bank of Maryland
4.4* Form of 11 5/8 % High Yield Trust Offered Preferred Securities of
Sinclair Capital
4.5* Form of 11 5/8 % Senior Debentures due 2009 of KDSM, Inc.
(included in Exhibit 4.1)
4.6* Form of Parent Guarantee Agreement between Sinclair Broadcast
Group, Inc. and First Union National Bank of Maryland
5.1 Opinion of Wilmer, Cutler & Pickering as to the legality of the
11 5/8 % Senior Debentures due 2009 of KDSM, Inc., the 12 5/8 %
Series C Preferred Stock of Sinclair Broadcast Group, Inc., and
Parent Guarantee and the Parent Debenture Guarantee of Sinclair
Broadcast Group, Inc.
5.2 Opinion of Thomas & Libowitz as to the legality of the 11 5/8 %
Senior Debentures due 2009 of KDSM, Inc., the 12 5/8 % Series C
Preferred Stock of Sinclair Broadcast Group, Inc., and the Parent
Guarantee and the Parent Debenture Guarantee of Sinclair
Broadcast Group, Inc.
5.3 Opinion of Richards, Layton & Finger, as to the legality of the
11 5/8 % High Yield Trust Offered Preferred Securities of
Sinclair Capital
8.1 Opinion of Wilmer, Cutler & Pickering as to certain federal
income tax matters
12.1 Calculation of Ratio of Earnings to Fixed Charges of Sinclair
Broadcast Group, Inc. (Included in 'Historical and Pro Forma
Ratio of Earnings to Fixed Charges' in the Registration
Statement)
23.1 Consent of Arthur Andersen LLP, independent certified public
accountants
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants, relating to financial statements of River City
Broadcasting, L.P.
23.3 Consent of KPMG Peat Marwick LLP, independent certified public
accountants, relating to financial statements of KDSM-TV
23.4 Consent of Price Waterhouse, independent accountants, relating to
financial statements of Kansas City TV 62 Limited Partnership
23.5 Consent of Price Waterhouse, independent accountants, relating to
financial statements of Cincinnati TV 64 Limited Partnership
23.6 Consent of Ernst & Young LLP, independent certified public
accountants
24 Powers of Attorney (Included in the signature pages to the
Registration Statement)
<PAGE>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------
25.1 Form T-1 Statement of Eligibility of First Union National Bank of
Maryland to act as trustee under the Amended and Restated Trust
Agreement
25.2 Form T-1 Statement of Eligibility of First Union National Bank of
Maryland to act as trustee under the Indenture
25.3 Form T-1 Statement of Eligibility of First Union National Bank of
Maryland to act as trustee under the Parent Guarantee Agreement
27 Financial Data Schedule of KDSM, Inc.
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3* Form of Exchange Agent Agreement
- -----
* Previously filed
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1, No. 33-90682.
Exhibit 5.1
July 8, 1997
Sinclair Broadcast Group, Inc.
KDSM, Inc.
Sinclair Capital
2000 West 41st Street
Baltimore, MD 21211
Re: Sinclair Broadcast Group, Inc. Exchange Offer Registration
Statement on Form S-4 (SEC File No. 333-26427)
Ladies and Gentlemen:
We have acted as special counsel to Sinclair Broadcast Group, Inc. (the
"Company"), a Maryland corporation, KDSM, Inc. ("KDSM, Inc."), a Maryland
corporation, and Sinclair Capital, a Delaware business trust (the "Trust" and
together with the Company and KDSM, Inc., the "Offerors"), in connection with
the preparation and filing of a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to an exchange offer (the "Exchange Offer") pursuant to which the Trust
is offering to exchange up to $200,000,000 aggregate liquidation value of
11 5/8% High Yield Trust Offered Preferred Securities of the Trust (the "New
Preferred Securities") for a like aggregate liquidation amount of the Trust's
outstanding 11 5/8% High Yield Trust Offered Preferred Securities. In connection
with the Exchange Offer (i) KDSM, Inc. is exchanging all of its 11 5/8% Senior
Debentures due 2009 of KDSM, Inc. (the "Old KDSM, Inc. Senior Debentures") for a
like principal amount of 11 5/8% Senior Debentures due 2009 (the "New KDSM
Senior Debentures") which New KDSM Senior Debentures have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), (ii) the Company
is exchanging all of its 12 5/8% Series C Preferred Stock, par value $.01 per
share, (the "Old Parent Preferred"), for a
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 2
like number of shares having a like aggregate liquidation amount of its 12 5/8%
Series C Preferred Stock, par value $.01 per share (the "New Parent Preferred"),
which New Parent Preferred has been registered under the Securities Act; and
(iii) the Company is exchanging its guarantees with respect to the Old Preferred
Securities and the Old KDSM Senior Debentures (the "Old Parent Guarantee" and
the "Old Parent Debenture Guarantee," respectively) for like guarantees with
respect to the New Preferred Securities and the New KDSM Senior Debentures (the
"New Parent Guarantee" and the "New Parent Debenture Guarantee," respectively).
In so acting, we have examined originals or copies of (1) the Registration
Statement; (2) the Prospectus that is a part of the Registration Statement (the
"Prospectus"); (3) the Articles Supplementary relating to the Old Parent
Preferred (the "Articles Supplementary"); (4) the indenture dated as of March
12, 1997 by and among KDSM, Inc., Sinclair Broadcast Group, Inc. and First Union
National Bank of Maryland relating to the New KDSM Senior Debentures; (5) the
Amended and Restated Trust Agreement of the Trust dated as of March 12, 1997
(the "Trust Agreement"); and (6) the New Parent Guarantee (the "Parent
Guarantee") between Sinclair Broadcast Group, Inc. and First Union National Bank
of Maryland (the "Parent Guarantee") (collectively, the "Operative Documents").
We have also examined original, reproduced or certified copies of the
certificates of incorporation and by-laws of the Company and KDSM, Inc. and of
resolutions adopted by their respective boards of directors and such other
documents, corporate and trust records, certifi cates of public officials,
certificates of officers and trustees of the respective Offerors and other
instruments as we have deemed necessary or appropriate to render the opinions
set forth below, and have considered such questions of law as we have deemed
necessary to enable us to render the opinions expressed below.
In our examination of documents and records, we have assumed, without
investigation, the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, 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 all
documents executed by a party other than the respective Offerors or any
respective subsidiaries thereof 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 enforceable against such party in accordance with their
respective terms.
With respect to questions of fact material to our opinion, we have relied
with your consent, without independent inquiry or verification by us, solely
upon (a) the representations and warranties and factual matters set forth in the
Registration Statement, the Prospectus, the
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 3
Trust Agreement and each of the Operative Documents, including any exhibits or
schedules attached thereto, respectively, (b) written and oral representations
of officers and trustees, as the case may be, of the Offerors and (c)
certificates of public officials. We do not opine in any respect as to the
accuracy of any such facts contained in items (a)-(c).
We are members of the Bar of the District of Columbia and Maryland. This
opinion is limited to the laws of the United States of America, the District of
Columbia, the State of Maryland and the State of New York ("Applicable Law");
provided, however, that "Applicable Law" includes only those laws that, in our
experience, in transactions of the type provided for in the Registration
Statement, and with respect to general business corporations engaged in
regulated activities, are normally applicable to such transactions. Although we
do not hold ourselves out as experts in New York law, we have made such
investigation thereof as we deem necessary to render the opinions expressed
herein. Insofar as this opinion relates to the laws of any jurisdiction other
than those jurisdictions subsumed within the definition of the Applicable Law,
we have assumed with your consent, without any independent investigation, that
the law of each such other jurisdiction is identical to the law of the District
of Columbia. We express no opinion whatsoever as to any other laws or
regulations or as to laws relating to choice of law or conflicts of law
principles.
Based upon the foregoing, subject to the assumptions, limitations and
exceptions contained herein, we are of the opinion that:
1. Upon (i) due adoption by the board of directors of the Company of
resolutions authorizing issuance of the New Parent Preferred in the Exchange
Offer and (ii) the approval by the board of directors of the Company, KDSM, Inc.
as holder of the Old Parent Preferred, the Trust as holder of the New KDSM
Senior Debentures, and the holders of a majority in aggregate liquidation value
of the Old Preferred Securities of the amendment to the Articles Supplementary
set forth in the Registration Statement, the New Parent Preferred will have been
duly authorized and, when delivered to KDSM, Inc. pursuant to the Exchange
Offer, will be legally issued, fully paid and non-assessable;
2. Upon due adoption by the board of directors of KDSM, Inc. of resolutions
authorizing issuance of the New KDSM Senior Debentures in the Exchange Offer,
the New KDSM Senior Debentures will have been duly authorized, and when
delivered to the Trust pursuant to the Exchange Offer, will be legally issued,
fully paid and non-assessable, and will be legally binding obligations of KDSM,
Inc., enforceable against KDSM, Inc. in accordance with their terms;
3. Upon due adoption by the board of directors of the Company of
resolutions authorizing issuance of the New Parent Guarantee in connection with
the Exchange Offer, the New Parent Guarantee Agreement will have been duly
authorized and, when executed,
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 4
will constitute a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms; and
4. Upon due adoption by the board of directors of the Company of a
resolution authorizing issuance of the New Parent Debenture Guarantee in
connection with the Exchange Offer, the New Parent Debenture Guarantee will have
been duly authorized and constitutes a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes which may thereafter be brought to our
attention. Our opinions are based on statutory and judicial decisions in effect
at the date hereof, and we do not opine with respect to any law, regulation,
rule or governmental policy or decision which may be enacted, determined or
adopted after the date hereof, nor assume any responsibility to advise you of
future changes in our opinions.
We understand that you have received an opinion from Richards, Layton &
Finger, LLP, special Delaware counsel to the Company and the Trust. We are
expressing no opinion with respect to the matters contained in such opinion.
This opinion is furnished by us, as special counsel to the Offerors, to you
and is solely for your benefit in connection with the Exchange Offer. We hereby
consent to the use of this opinion as an exhibit to the Registration Statement.
We also consent to any and all references to our firm under the caption "Legal
Matters" in the Prospectus. This opinion may not be relied on by you for any
other purpose or by any other person for any purpose without our written
consent.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ John B. Watkins
---------------------------
John B. Watkins, a partner
Exhibit 5.2
[Letterhead of Thomas & Libowitz, P.A.]
July 8, 1997
Sinclair Broadcast Group, Inc.
KDSM, Inc.
Sinclair Capital
2000 West 41st Street
Baltimore, MD 21211
Re: Sinclair Broadcast Group, Inc. Exchange Offer Registration
Statement on Form S-4 (SEC File No. 333-26427)
Ladies and Gentlemen:
We have acted as special counsel to Sinclair Broadcast Group,
Inc. (the "Company"), a Maryland corporation, KDSM, Inc. ("KDSM, Inc."), a
Maryland corporation, and Sinclair Capital, a Delaware business trust (the
"Trust" and together with the Company and KDSM, Inc., the "Offerors"), in
connection with the preparation and filing of a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended,
with respect to an exchange offer (the "Exchange Offer") pursuant to which the
Trust is offering to exchange up to $200,000,000 aggregate liquidation value of
11 5/8% High Yield Trust Offered Preferred Securities of the Trust (the "New
Preferred Securities") for a like aggregate liquidation amount of the Trust's
outstanding 11 5/8% High Yield Trust Offered Preferred Securities. In connection
with the Exchange Offer (i) KDSM, Inc. is exchanging all of its 11 5/8% Senior
Debentures due 2009 of KDSM, Inc. (the "Old KDSM, Inc. Senior Debentures") for a
like principal amount of 11 5/8% Senior Debentures due 2009 (the "new KDSM
Senior Debentures") which New KDSM Debentures have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), (ii) the Company is
exchanging all of its 12 5/8% Series C Preferred Stock, par value $.01 per
share, (the "Old Parent Preferred"), for a like number of shares having a like
aggregate liquidation amount of its 12 5/8% Series C Preferred Stock, par value
$.01 per share (the "New Parent Preferred"), which New Parent Preferred has been
registered under the Securities Act; and (iii) the Company is exchanging its
guarantees with respect to the Old Preferred Securities and the Old KDSM Senior
Debentures (the "Old Parent Guarantee" and the "Old Parent Debenture Guarantee,"
respectively) for like guarantees with respect to the New Preferred Securities
and the New KDSM Senior Debentures (the "New Parent Guarantee" and the "New
Parent Debenture Guarantee," respectively).
In so acting, we have examined originals or copies of (1) the
Registration Statement; (2) the Prospectus that is a part of the Registration
Statement (the "Prospectus"); (3) the Articles Supplementary relating to the Old
Parent Preferred (the "Articles Supplementary"); (4) the indenture dated as of
March 12, 1997 by and among KDSM, Inc., Sinclair Broadcast Group, Inc. and First
Union National Bank of Maryland relating to the New KDSM Senior Debentures; (5)
the Amended and Restated Trust Agreement of the Trust dated as of March 12, 1997
(the "Trust Agreement"); and (6) the New Parent Guarantee (the "Parent
Guarantee") between Sinclair Broadcast Group, Inc. and First Union National Bank
of Maryland (the "Parent Guarantee") (collectively, the "Operative Documents").
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 2
We have also examined original, reproduced or certified copies
of the certificates of incorporation and by-laws of the Company and KDSM, Inc.
and of resolutions adopted by their respective boards of directors and such
other documents, corporate and trust records, certificates of public officials,
certificates of officers and trustees of the respective Offerors and other
instruments as we have deemed necessary or appropriate to render the opinions
set forth below, and have considered such questions of law as we have deemed
necessary to enable us to render the opinions expressed below.
In our examination of documents and records, we have assumed,
without investigation, the genuineness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as originals,
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 all
documents executed by a party other than the respective Offerors or any
respective subsidiaries thereof 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 enforceable against such party in accordance with their
respective terms.
With respect to questions of fact material to our opinion, we
have relied with your consent, without independent inquiry or verification by
us, solely upon (a) the representations and warranties and factual matters set
forth in the Registration Statement, the Prospectus, the Trust Agreement and
each of the Operative Documents, including any exhibits or schedules attached
thereto, respectively, (b) written and oral representations of officers and
trustees, as the case may be, of the Offerors and (c) certificates of public
officials. We do not opine in any respect as to the accuracy of any such facts
contained in items (a)-(c).
We are members of the Bar of the State of Maryland. This
opinion is limited to the laws of the United States of America and the State of
Maryland ("Applicable Law"); provided, however, that "Applicable Law" includes
only those laws that, in our experience, in transactions of the type provided
for in the Registration Statement, and with respect to general business
corporations engaged in regulated activities, are normally applicable to such
transactions. Insofar as this opinion relates to the laws of any jurisdiction
other than those jurisdictions subsumed within the definition of the Applicable
Law, we have assumed with your consent, without any independent investigation,
that the law of each such other jurisdiction is identical to the law of the
State of Maryland. We express no opinion whatsoever as to any other laws or
regulations or as to laws relating to choice of law or conflicts of law
principles.
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 3
Based upon the foregoing, subject to the assumptions,
limitations and exceptions contained herein, we are of the opinion that:
1. Upon (i) due adoption by the board of directors of the
Company of resolutions authorizing issuance of the New Parent Preferred in the
Exchange Offer and (ii) the approval by the board of directors of the Company,
KDSM, Inc. as holder of the Old Parent Preferred, the Trust as holder of the New
KDSM Senior Debentures and the holders of a majority in aggregate liquidation
value of the Old Preferred Securities of the amendment to the Articles
Supplementary set forth in the Registration Statement, the New Parent Preferred
will have been duly authorized and, when delivered to KDSM, Inc. pursuant to the
Exchange Offer, will be legally issued, fully paid and non-assessable;
2. Upon due adoption by the board of directors of KDSM, Inc.
of resolutions authorizing issuance of the New KDSM Senior Debentures in the
Exchange Offer, the New KDSM Senior Debentures will have been duly authorized,
and when delivered to the Trust pursuant to the Exchange Offer, will be legally
issued, fully paid and non-assessable, and will be legally binding obligations
of KDSM, Inc., enforceable against KDSM, Inc. in accordance with their terms;
3. Upon due adoption by the board of directors of the Company
of resolutions authorizing issuance of the New Parent Guarantee in connection
with the Exchange Offer, the New Parent Guarantee Agreement will have been duly
authorized and, when executed, will constitute a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms; and
4. Upon due adoption by the board of directors of the Company
of a resolution authorizing issuance of the New Parent Debenture Guarantee in
connection with the Exchange Offer, the New Parent Debenture Guarantee will have
been duly authorized and constitutes a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms.
The information set forth herein is as of the date hereof. We
assume no obligation to advise you of changes which may thereafter be brought to
our attention. Our opinions are based on statutory and judicial decisions in
effect at the date hereof, and we do not opine with respect to any law,
regulation, rule or governmental policy or decision which may be enacted
determined or adopted after the date hereof, nor assume any responsibility to
advise you of future changes in our opinions.
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 4
We understand that you have received an opinion from Richards,
Layton & Finger, LLP, special Delaware counsel to the Company and the Trust. We
are expressing no opinion with respect to the matters contained in such opinion.
This opinion is furnished by us, as special counsel to the
Offerors, to you and is solely for your benefit in connection with the Exchange
Offer. We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. We also consent to any and all references to our firm
under the caption "Legal Matters" in the Prospectus. This opinion may not be
relied on by you for any other purpose or by any other person for any purpose
without our written consent.
Very truly yours,
THOMAS & LIBOWITZ, P.A.
Exhibit 5.3
[Letterhead of Richards, Layton & Finger]
July 8, 1997
Sinclair Capital
c/o Sinclair Broadcast Group, Inc.
2000 West 41st Street
Baltimore, MD 21211
Re: Sinclair Capital
Ladies and Gentlemen:
We have acted as special Delaware counsel for Sinclair Broadcast Group,
Inc., a Maryland corporation ("Sinclair"), and Sinclair Capital, a Delaware
business trust (the "Trust"), in connection with the matters set forth herein.
At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our examination
of documents has been limited to the examination of originals or copies of the
following:
(a) The Certificate of Trust of the Trust, dated as of February 24, 1997
(the "Certificate"), as filed in the office of the Secretary of State of the
State of Delaware (the "Secretary of State") on February 24, 1997;
(b) The Trust Agreement of the Trust, dated as of February 24, 1997, by and
between KDSM, Inc., A Maryland corporation (the "Company"), as depositor, and
First Union National Bank of Maryland, First Union Bank of Delaware, and David
B. Amy, as trustees of the Trust;
(c) The Amended and Restated Trust Agreement of the Trust (including
Exhibits C, E and F), dated as of March 12, 1997 (the "Trust Agreement"), among
the Company, as sponsor, First Union National Bank of Maryland, as property
trustee, First Union Bank of Delaware, as Delaware trustee, the several holders
of undivided beneficial interests in the assets of the Trust and the
administrative trustees named therein;
<PAGE>
(d) The registration statement (the "Initial Registration Statement") on
Form S-4 (Registration No. 333-26427), filed by the Company, the Trust and
Sinclair with the Securities and Exchange Commission (the "SEC") on May 2, 1997,
as amended by Amendment No. 1 to the Initial Registration Statement, as filed by
the Company, the Trust and Sinclair with the SEC on May 16, 1997 ("Amendment No.
1"), and as amended by Amendment No. 2 to the Initial Registration Statement,
including a related preliminary prospectus (the "Prospectus"), relating to the
Capital Securities of the Trust representing beneficial interests in the assets
of the Trust (each, a "Preferred Security" and collectively, the "Preferred
Securities"), as proposed to be filed by the Company, the Trust and Sinclair.
with the SEC on or about July 8, 1997 ("Amendment No. 2") (the Initial
Registration Statement, as amended by Amendment No. 1 and Amendment No. 2 is
hereinafter referred to as the "Registration Statement"); and
(e) A Certificate of Good Standing for the Trust, dated July 8, 1997,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are used
as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other than
the documents listed above, and we have assumed that there exists no provision
in any document that we have not reviewed that bears upon or is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust Agreement
constitutes the entire agreement among the parties thereto with respect to the
subject matter thereof, including with respect to the creation, operation and
termination of the Trust, and that the Trust Agreement and the Certificate are
in full force and effect and have not been amended, (ii) except to the extent
provided in paragraph 1 below, the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us, (iv) that each
of the parties to the documents examined by us has the power and authority to
execute and deliver, and to perform its obligations under, such documents, (v)
the due authorization, execution and delivery by all parties thereto of all
documents examined by us, (vi) the receipt by each Person to whom a Preferred
Security is to be issued to the Trust (collectively, the "Preferred Security
Holders") of a certificate evidencing the Preferred Security
<PAGE>
and the payment for the Preferred Security acquired by it, in accordance with
the Trust Agreement and the Registration Statement, and (vii) that the Preferred
Securities are issued and sold to the Preferred Security Holders in accordance
with the Trust Agreement and the Registration Statement. We have not
participated in the preparation of the Registration Statement and assume no
responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding the
securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of law
and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good standing
as a business trust under the Delaware Business Trust Act, 12 Del. C. ss. 3801,
et seq.
2. When issued and sold, the Preferred Securities will represent valid and,
subject to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust, will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the SEC as an exhibit to the
Registration Statement. In addition, we hereby consent to the use of our name
under the heading "Legal Matters" in the Prospectus. In giving the foregoing
consents, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the SEC thereunder. Except as stated
above, without our prior written consent, this opinion may not be furnished or
quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
Richards, Layton & Finger
Exhibit 8.1
[Letterhead of Wilmer, Cutler & Pickering]
July 8, 1997
Sinclair Broadcast Group, Inc.
KDSM, Inc.
Sinclair Capital
2000 West 41st Street
Baltimore, Maryland 21211
Dear Ladies and Gentlemen:
We have acted as tax counsel to Sinclair Broadcast Group, Inc.
("Sinclair"), KDSM, Inc., and Sinclair Capital (the "Trust") in connection with
the preparation and filing with the Securities and Exchange Commission (the
"Commission") of a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended, for the registration
of the 11 5/8% High Yield Trust Offered Preferred Securities of the Trust (the
"Preferred Securities"), the 11 5/8% Senior Debentures due 2009 of KDSM, Inc.
(the "KDSM Senior Debentures"), the 12 5/8% Series C Preferred Stock, par value
$.01 per share of Sinclair, Sinclair's guarantee with respect to the Preferred
Securities, and Sinclair's guarantee with respect to the KDSM Senior Debentures,
each of which is described in the Prospectus that forms a part of the
Registration Statement (the "Prospectus"). All capitalized terms not otherwise
defined herein shall have the same meaning ascribed to such terms in the
Prospectus.
We have examined copies of the following documents: (1) the
Registration Statement, including the Prospectus; (2) the Trust Agreement; (3)
the KDSM Senior Debenture Indenture; (4) the Pledge Agreement; (5) the Parent
Preferred Articles Supplementary; (6) the Parent Guarantee Agreement; (7) the
Registration Rights Agreement; (8) the Expense Agreement; and
<PAGE>
Sinclair Broadcast Group, Inc.
July 8, 1997
Page 2
(9) such other documents as we have deemed relevant for purposes of the opinion
set forth herein.
In our examination of such documents, we have assumed, without
independent inquiry, the genuineness of all signatures, the proper execution of
all documents, the authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as copies, the
authenticity of the originals of any such copies, and the legal capacity of all
natural persons.
Based on and subject to the foregoing, it is our opinion that the
discussion set forth in the Prospectus under the heading "Certain Federal Income
Tax Consequences" constitutes, in all material respects, a fair and accurate
summary of the United States federal income tax consequences of the purchase,
ownership, and disposition of the Preferred Securities under current law.
The foregoing opinion is based on relevant provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder,
court decisions, and administrative determinations as currently in effect, all
of which are subject to change, prospectively or retroactively, at any time. We
undertake no obligation to update or supplement this opinion to reflect any
changes in laws that may occur after the date hereof.
This opinion has been prepared solely for your use in connection with
the filing of the Registration Statement and should not be quoted in whole or in
part or otherwise be referred to, nor otherwise be filed with or furnished to
any governmental agency or other person or entity, without our express prior
written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein under the headings
"Certain Federal Income Tax Consequences" and "Legal Matters" in the Prospectus.
Very Truly Yours,
WILMER, CUTLER & PICKERING
By: /s/ William J. Wilkins
---------------------------
William J. Wilkins
A Partner
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement (File No. 333-26427) on Form S-4.
Arthur Andersen LLP
Baltimore, Maryland,
July 8, 1997
INDEPENDENT ACCOUNTANTS' CONSENT
The Partners
River City Broadcasting, L.P.:
We consent to the use our report dated February 23, 1996 incorporated herein by
reference in Amendment No. 2 to the registration statement (No. 333-26427-02) on
Form S-4 filed by Sinclair Broadcast Group, Inc. and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
St. Louis, Missouri
July 8, 1997
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
KDSM-TV:
We consent to the use of our report dated February 7, 1997 included herein in
Amendment No. 2 to the registration statement (No. 333-26427-02) on Form S-4
filed by Sinclair Broadcast Group, Inc. and to the reference to our firm under
the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
St. Louis, Missouri
July 8, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Sinclair
Broadcast Group, Inc. (the "Company") of our report dated March 22, 1996
relating to the financial statements of Kansas City TV 62 Limited Partnership,
which appears in the Company's Form 8-K dated May 9, 1996 (filed May 17, 1996).
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Price Waterhouse LLP
Boston, Massachusetts
July 7, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Sinclair
Broadcast Group, Inc. (the "Company") of our report dated March 22, 1996
relating to the financial statements of Cincinnati TV 64 Limited Partnership,
which appears in the Company's Current Report on Form 8-K dated May 9, 1996
(filed May 17, 1996). We also consent to the reference to us under the heading
"Experts" in such Prospectus.
Price Waterhouse LLP
Boston, Massachusetts
July 7, 1997
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 23, 1996, with respect to the financial
statements of Superior Communications Group, Inc. incorporated by reference in
the Registration Statement (Form S-4 Nos. 333-26427 and 333-26427-02) and
related Prospectus of Sinclair Broadcast Group, Inc.
Ernst & Young LLP
Pittsburgh, Pennsylvania
July 7, 1997
Exhibit 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
FIRST UNION NATIONAL BANK OF MARYLAND
(Exact name of Trustee as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
110 CONGRESSIONAL LANE
ROCKVILLE, MD 20852 52-1982008
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
Patricia A. Welling, (804) 788-9663
901 E. Cary Street, Richmond, Virginia 23219
----------
SINCLAIR CAPITAL
(Exact name of obligor as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 52-2026076
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2000 West 41st Street
Baltimore, MD 21211
(Address of principal executive offices) (Zip Code)
</TABLE>
----------
HIGH YIELD TRUST OFFERED PREFERRED SECURITIES
11 5/8% due 2009
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR.
The obligor is not an affiliate of the Trustee.
3. VOTING SECURITIES OF THE TRUSTEE.
Not applicable.
(See answer to Item 13)
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
Not applicable.
(See answer to Item 13)
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
Not applicable.
(See answer to Item 13)
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Not applicable.
(See answer to Item 13
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
Not applicable.
(See answer to Item 13)
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Not applicable.
2
<PAGE>
(See answer to Item 13)
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
Not applicable.
(See answer to Item 13)
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
Not applicable.
(See answer to Item 13)
11. OWNERSHIP OF HOLDERS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
Not applicable.
(See answer to Item 13)
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Not applicable.
(See answer to Item 13)
13. DEFAULTS BY THE OBLIGOR.
A. None
B. None
14. AFFILIATIONS WITH THE UNDERWRITERS.
Not applicable.
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the
laws of the United States.
16. LIST OF EXHIBITS.
(1) Articles of Incorporation. (Incorporated by reference from
Exhibit 25 to Registration 33-57401, filed January 25, 1995.)
3
<PAGE>
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration
33-57401, filed January 25, 1995.)
(3) Certificate of Authority of the Trustee to exercise corporate
trust powers. (Incorporated by reference from Exhibit 25 to
Registration 33-57401, filed January 25, 1995.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 33-57401, filed January 25, 1995.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 6 of this Form T-1
Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK OF MARYLAND, a national
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Richmond, and Commonwealth of Virginia on the 6th day of June, 1997.
FIRST UNION NATIONAL BANK OF MARYLAND
(Trustee)
BY: /s/ Patricia A. Welling
------------------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Sinclair Capital of its 11 5/8% High
Yield Trust Offered Preferred Securities, First Union National Bank of Maryland,
as the Trustee herein named, hereby consents that reports of examinations of
said Trustee by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
requests therefor.
FIRST UNION NATIONAL BANK OF MARYLAND
BY: /s/ John M. Turner
--------------------------------------------------
John M. Turner, Vice President and Managing Director
Dated: June 6, 1997
------------
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: FIRST UNION NATIONAL BANK OF MARYLAND Call Date: 3/31/97 ST-BK: 24-1427 FFIEC 032
Address: 12244 ROCKVILLE PIKE Page RC-1
City, State Zip: ROCKVILLE, MD 20852
FDIC Certificate No.: /1/8/0/2/4/
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1997
SCHEDULE RC--BALANCE SHEET
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1) ........................... 143,846
b. Interest-bearing balances (2) ................................................... 878,558
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) ...................... 75,563
b. Available-for-sale securities (from Schedule RC-B, column D) .................... 329,597
3. Federal funds sold and securities purchased under agreements to resell ............. 16,111
4. Loans and lease financing receivables:
--------------------
a. Loans and leases, net of unearned income (from Schedule RC-C) 1,986,340
b. LESS: Allowance for loan and lease losses ................... 32,772
c. LESS: Allocated transfer risk reserve ....................... 0
--------------------
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. 1,953,568
5. Trading assets (from Schedule RC-D) ................................................. 0
6. Premises and fixed assets (including capitalized leases) ............................ 34,985
7. Other real estate owned (from Schedule RC-M) ........................................ 6,316
8. Investments in unconsolidated subsidiaries and associated companies(from Schedule RC-M) 2,009
9. Customers' liability to this bank on acceptances outstanding ........................ 247
10. Intangible assets (from Schedule RC-M)............................................... 361,389
11. Other assets (from Schedule RC-F) ................................................... 51,253
12. Total Assets (sum of items 1 through 11) ............................................ 3,853,442
----------
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: FIRST UNION NATIONAL BANK OF MARYLAND Call Date: 3/31/97 ST-BK: 24-1427 FFIEC 032
Address: 12244 ROCKVILLE PIKE Page RC-2
City, State Zip: ROCKVILLE, MD 20852
FDIC Certificate No.: /1/8/0/2/4/
SCHEDULE RC--CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) ........ 3,008,156
-------------------
(1) Noninterest-bearing (1) .................................. 344,596
(2) Interest-bearing ......................................... 2,663,560
-------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................
(1) Noninterest-bearing ..........................................................
(2) Interest-bearing .............................................................
14. Federal funds purchased and securities sold under agreements to repurchase .......... 207,441
15. a. Demand notes issued to the U.S. Treasury ......................................... 0
b. Trading liabilities (from Scheudle RC-D) ......................................... 0
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less .................................... 0
b. With a remaining maturity of more than one year .................................. 9.580
17. Not applicable
18. Bank's liability on acceptances executed and outstanding ............................ 247
19. Subordinated notes and debentures (2) ............................................... 0
20. Other liabilities (from Schedule RC-G) .............................................. 30,929
21. Total liabilities (sum of items 13 through 20) ...................................... 3,256,353
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ....................................... 0
24. Common stock ........................................................................ 200
25. Surplus (exclude all surplus related to preferred stock) ............................ 582,242
26. a. Undivided profits and capital reserves ........................................... 19,359
b. Net unrealized holding gains (losses) on available-for-sale securities ........... (4,712)
27. Cumulative foreign currency translation adjustments .................................
28. Total equity capital (sum of items 23 through 27) ................................... 597,089
29. Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21 and 28) ............................................................ 3,853,442
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Memorandum
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicated in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
----------------
auditors as of any date during 1996 ..................................................... 2 M.1.
----------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by
with generally accepted auditing standards by a certified other external auditors (may be required by state
public accounting firm which submits a report on the bank chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by
conducted in accordance with generally accepted audit- external auditors
ing standards by a certified public accounting firm which
submits a report on the consolidated holding company (but 6 = Compilation of the bank's financial statements by
not on the bank separately) external auditors
3 = Directors' examination of the bank conducted in 7 = Other audit procedures (excluding tax preparation
accordance with generally accepted auditing standards by work)
a certified public accounting firm (may be required by
state chartering authority) 8 = No external audit work
</TABLE>
- ----------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
2) Includes limited-life preferred stock and related surplus.
<PAGE>
I, Gary R. Sessions, Vice President of the above-named bank do hereby declare
that these Reports of Condition and Income (including the supporting scehdules)
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and are true to the best of my
knowldege and belief.
Gary R. Sessions
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
Gail C. Graham
Thomas Johnston
Karen C. Holtz
Exhibit 25.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
FIRST UNION NATIONAL BANK OF MARYLAND
(Exact name of Trustee as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
110 CONGRESSIONAL LANE
ROCKVILLE, MD 20852 52-1982008
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
Patricia A. Welling, (804) 788-9663
901 E. Cary Street, Richmond, Virginia 23219
----------
KDSM, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 52-1975792
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2000 West 41st Street
Baltimore, MD 21211
(Address of principal executive offices) (Zip Code)
</TABLE>
----------
SENIOR DEBENTURES 11 5/8% due 2009
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR.
The obligor is not an affiliate of the Trustee.
3. VOTING SECURITIES OF THE TRUSTEE.
Not applicable.
(See answer to Item 13)
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
Not applicable.
(See answer to Item 13)
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
Not applicable.
(See answer to Item 13)
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Not applicable.
(See answer to Item 13
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
Not applicable.
(See answer to Item 13)
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Not applicable.
(See answer to Item 13)
2
<PAGE>
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
Not applicable.
(See answer to Item 13)
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
Not applicable.
(See answer to Item 13)
11. OWNERSHIP OF HOLDERS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
Not applicable.
(See answer to Item 13)
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Not applicable.
(See answer to Item 13)
13. DEFAULTS BY THE OBLIGOR.
A. None
B. None
14. AFFILIATIONS WITH THE UNDERWRITERS.
Not applicable.
(See answer to Item 13)
15. FOREIGN TRUSTEE.
Trustee us a national banking association organized under the
laws of the united States.
16. LIST OF EXHIBITS.
(1) Articles of Incorporation. (Incorporated by reference from
Exhibit 25 to Registration 33-57401, filed January 25, 1995.)
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration
33-57401, filed January 25, 1995.)
(3) Certificate of Authority of the Trustee to exercise corporate
trust powers. (Incorporated by reference
3
<PAGE>
from Exhibit 25 to Registration 33-57401, filed January 25,
1995.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 33-57401, filed January 25, 1995.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 6 of this Form T-1
Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK OF MARYLAND, a national
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Richmond, and Commonwealth of Virginia on the 6th day of June, 1997.
FIRST UNION NATIONAL BANK OF MARYLAND
(Trustee)
BY: /s/ Patricia A. Welling
-------------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by KDSM, Inc. of its 11 5/8% Senior
Debentures due 2009, First Union National Bank of Maryland, as the Trustee
herein named, hereby consents that reports of examinations of said Trustee by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK OF MARYLAND
BY: /s/ John M. Turner
-------------------------------------------
John M. Turner, Vice President and Managing
Director
Dated: June 6, 1997
------------
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: FIRST UNION NATIONAL BANK OF MARYLAND Call Date: 3/31/97 ST-BK: 24-1427 FFIEC 032
Address: 12244 ROCKVILLE PIKE Page RC-1
City, State Zip: ROCKVILLE, MD 20852
FDIC Certificate No.: /1/8/0/2/4/
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1997
SCHEDULE RC--BALANCE SHEET
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1) ........................... 143,846
b. Interest-bearing balances (2) ................................................... 878,558
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) ...................... 75,563
b. Available-for-sale securities (from Schedule RC-B, column D) .................... 329,597
3. Federal funds sold and securities purchased under agreements to resell ............. 16,111
4. Loans and lease financing receivables:
--------------------
a. Loans and leases, net of unearned income (from Schedule RC-C) 1,986,340
b. LESS: Allowance for loan and lease losses ................... 32,772
c. LESS: Allocated transfer risk reserve ....................... 0
--------------------
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. 1,953,568
5. Trading assets (from Schedule RC-D) ................................................. 0
6. Premises and fixed assets (including capitalized leases) ............................ 34,985
7. Other real estate owned (from Schedule RC-M) ........................................ 6,316
8. Investments in unconsolidated subsidiaries and associated companies(from Schedule RC-M) 2,009
9. Customers' liability to this bank on acceptances outstanding ........................ 247
10. Intangible assets (from Schedule RC-M)............................................... 361,389
11. Other assets (from Schedule RC-F) ................................................... 51,253
12. Total Assets (sum of items 1 through 11) ............................................ 3,853,442
----------
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: FIRST UNION NATIONAL BANK OF MARYLAND Call Date: 3/31/97 ST-BK: 24-1427 FFIEC 032
Address: 12244 ROCKVILLE PIKE Page RC-2
City, State Zip: ROCKVILLE, MD 20852
FDIC Certificate No.: /1/8/0/2/4/
SCHEDULE RC--CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) ........ 3,008,156
-------------------
(1) Noninterest-bearing (1) .................................. 344,596
(2) Interest-bearing ......................................... 2,663,560
-------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................
(1) Noninterest-bearing ..........................................................
(2) Interest-bearing .............................................................
14. Federal funds purchased and securities sold under agreements to repurchase .......... 207,441
15. a. Demand notes issued to the U.S. Treasury ......................................... 0
b. Trading liabilities (from Scheudle RC-D) ......................................... 0
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less .................................... 0
b. With a remaining maturity of more than one year .................................. 9.580
17. Not applicable
18. Bank's liability on acceptances executed and outstanding ............................ 247
19. Subordinated notes and debentures (2) ............................................... 0
20. Other liabilities (from Schedule RC-G) .............................................. 30,929
21. Total liabilities (sum of items 13 through 20) ...................................... 3,256,353
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ....................................... 0
24. Common stock ........................................................................ 200
25. Surplus (exclude all surplus related to preferred stock) ............................ 582,242
26. a. Undivided profits and capital reserves ........................................... 19,359
b. Net unrealized holding gains (losses) on available-for-sale securities ........... (4,712)
27. Cumulative foreign currency translation adjustments .................................
28. Total equity capital (sum of items 23 through 27) ................................... 597,089
29. Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21 and 28) ............................................................ 3,853,442
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Memorandum
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicated in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
----------------
auditors as of any date during 1996 ..................................................... 2 M.1.
----------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by
with generally accepted auditing standards by a certified other external auditors (may be required by state
public accounting firm which submits a report on the bank chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by
conducted in accordance with generally accepted audit- external auditors
ing standards by a certified public accounting firm which
submits a report on the consolidated holding company (but 6 = Compilation of the bank's financial statements by
not on the bank separately) external auditors
3 = Directors' examination of the bank conducted in 7 = Other audit procedures (excluding tax preparation
accordance with generally accepted auditing standards by work)
a certified public accounting firm (may be required by
state chartering authority) 8 = No external audit work
</TABLE>
- ----------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
2) Includes limited-life preferred stock and related surplus.
<PAGE>
I, Gary R. Sessions, Vice President of the above-named bank do hereby declare
that these Reports of Condition and Income (including the supporting scehdules)
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and are true to the best of my
knowldege and belief.
Gary R. Sessions
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
Gail C. Graham
Thomas Johnston
Karen C. Holtz
Exhibit 25.3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
FIRST UNION NATIONAL BANK OF MARYLAND
(Exact name of Trustee as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
110 CONGRESSIONAL LANE
ROCKVILLE, MD 20852 52-1982008
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
Patricia A. Welling, (804) 788-9663
901 E. Cary Street, Richmond, Virginia 23219
----------
SINCLAIR BROADCAST GROUP, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 52-1494660
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2000 West 41st Street
Baltimore, MD 21211
(Address of principal executive offices) (Zip Code)
</TABLE>
----------
GUARANTY OF 11 5/8% HIGH YIELD TRUST
OFFERED PREFERRED SECURITIES OF SINCLAIR CAPITAL
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1. GENERAL INFORMATION.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR.
The obligor is not an affiliate of the Trustee.
3. VOTING SECURITIES OF THE TRUSTEE.
Not applicable.
(See answer to Item 13)
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
Not applicable.
(See answer to Item 13)
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
Not applicable.
(See answer to Item 13)
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Not applicable.
(See answer to Item 13)
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
Not applicable.
(See answer to Item 13)
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Not applicable.
2
<PAGE>
(See answer to Item 13)
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
Not applicable.
(See answer to Item 13)
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
Not applicable.
(See answer to Item 13)
11. OWNERSHIP OF HOLDERS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
Not applicable.
(See answer to Item 13)
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Not applicable.
(See answer to Item 13)
13. DEFAULTS BY THE OBLIGOR.
A. None
B. None
14. AFFILIATIONS WITH THE UNDERWRITERS.
Not applicable.
(See answer to Item 13)
15. FOREIGN TRUSTEE.
Trustee is a national banking association organized under the
laws of the United States.
16. LIST OF EXHIBITS.
(1) Articles of Incorporation. (Incorporated by reference from
Exhibit 25 to Registration 33-57401, filed January 25, 1995.)
3
<PAGE>
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration
33-57401, filed January 25, 1995.)
(3) Certificate of Authority of the Trustee to exercise corporate
trust powers. (Incorporated by reference from Exhibit 25 to
Registration 33-57401, filed January 25, 1995.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 33-57401, filed January 25, 1995.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 6 of this Form T-1
Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK OF MARYLAND, a national
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Richmond, and Commonwealth of Virginia on the 6th day of June, 1997.
FIRST UNION NATIONAL BANK OF MARYLAND
(Trustee)
BY: /s/ Patricia A. Welling
----------------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Sinclair Broadcast Group, Inc. of its
12 5/8% Series C Preferred Stock, First Union National Bank of Maryland, as the
Trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION NATIONAL BANK OF MARYLAND
BY: /s/ John M. Turner
--------------------------------------------------
John M. Turner, Vice President and Managing Director
Dated: June 6, 1997
------------
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: FIRST UNION NATIONAL BANK OF MARYLAND Call Date: 3/31/97 ST-BK: 24-1427 FFIEC 032
Address: 12244 ROCKVILLE PIKE Page RC-1
City, State Zip: ROCKVILLE, MD 20852
FDIC Certificate No.: /1/8/0/2/4/
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1997
SCHEDULE RC--BALANCE SHEET
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1) ........................... 143,846
b. Interest-bearing balances (2) ................................................... 878,558
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) ...................... 75,563
b. Available-for-sale securities (from Schedule RC-B, column D) .................... 329,597
3. Federal funds sold and securities purchased under agreements to resell ............. 16,111
4. Loans and lease financing receivables:
--------------------
a. Loans and leases, net of unearned income (from Schedule RC-C) 1,986,340
b. LESS: Allowance for loan and lease losses ................... 32,772
c. LESS: Allocated transfer risk reserve ....................... 0
--------------------
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) .............................. 1,953,568
5. Trading assets (from Schedule RC-D) ................................................. 0
6. Premises and fixed assets (including capitalized leases) ............................ 34,985
7. Other real estate owned (from Schedule RC-M) ........................................ 6,316
8. Investments in unconsolidated subsidiaries and associated companies(from Schedule RC-M) 2,009
9. Customers' liability to this bank on acceptances outstanding ........................ 247
10. Intangible assets (from Schedule RC-M) .............................................. 361,389
11. Other assets (from Schedule RC-F) ................................................... 51,253
12. Total Assets (sum of items 1 through 11) ............................................ 3,853,442
----------
</TABLE>
- ----------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: FIRST UNION NATIONAL BANK OF MARYLAND Call Date: 3/31/97 ST-BK: 24-1427 FFIEC 032
Address: 12244 ROCKVILLE PIKE Page RC-2
City, State Zip: ROCKVILLE, MD 20852
FDIC Certificate No.: /1/8/0/2/4/
SCHEDULE RC--CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E) ........ 3,008,156
-------------------
(1) Noninterest-bearing (1) .................................. 344,596
(2) Interest-bearing ......................................... 2,663,560
-------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................
(1) Noninterest-bearing ..........................................................
(2) Interest-bearing .............................................................
14. Federal funds purchased and securities sold under agreements to repurchase .......... 207,441
15. a. Demand notes issued to the U.S. Treasury ......................................... 0
b. Trading liabilities (from Scheudle RC-D) ......................................... 0
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less .................................... 0
b. With a remaining maturity of more than one year .................................. 9.580
17. Not applicable
18. Bank's liability on acceptances executed and outstanding ............................ 247
19. Subordinated notes and debentures (2) ............................................... 0
20. Other liabilities (from Schedule RC-G) .............................................. 30,929
21. Total liabilities (sum of items 13 through 20) ...................................... 3,256,353
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ....................................... 0
24. Common stock ........................................................................ 200
25. Surplus (exclude all surplus related to preferred stock) ............................ 582,242
26. a. Undivided profits and capital reserves ........................................... 19,359
b. Net unrealized holding gains (losses) on available-for-sale securities ........... (4,712)
27. Cumulative foreign currency translation adjustments .................................
28. Total equity capital (sum of items 23 through 27) ................................... 597,089
29. Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21 and 28) ............................................................ 3,853,442
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Memorandum
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicated in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
----------------
auditors as of any date during 1996 ..................................................... 2 M.1.
----------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by
with generally accepted auditing standards by a certified other external auditors (may be required by state
public accounting firm which submits a report on the bank chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by
conducted in accordance with generally accepted audit- external auditors
ing standards by a certified public accounting firm which
submits a report on the consolidated holding company (but 6 = Compilation of the bank's financial statements by
not on the bank separately) external auditors
3 = Directors' examination of the bank conducted in 7 = Other audit procedures (excluding tax preparation
accordance with generally accepted auditing standards by work)
a certified public accounting firm (may be required by
state chartering authority) 8 = No external audit work
</TABLE>
- ----------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
2) Includes limited-life preferred stock and related surplus.
<PAGE>
I, Gary R. Sessions, Vice President of the above-named bank do hereby declare
that these Reports of Condition and Income (including the supporting scehdules)
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and are true to the best of my
knowldege and belief.
Gary R. Sessions
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
Gail C. Graham
Thomas Johnston
Karen C. Holtz
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912752
<NAME> SINCLAIR BROADCAST GROUP, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 1,687
<ALLOWANCES> 54
<INVENTORY> 0
<CURRENT-ASSETS> 3,883
<PP&E> 2,748
<DEPRECIATION> 85
<TOTAL-ASSETS> 253,597
<CURRENT-LIABILITIES> 2,971
<BONDS> 0
200,000
0
<COMMON> 0
<OTHER-SE> 49,794
<TOTAL-LIABILITY-AND-EQUITY> 253,597
<SALES> 0
<TOTAL-REVENUES> 2,213
<CGS> 0
<TOTAL-COSTS> 1,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 468
<INCOME-TAX> 198
<INCOME-CONTINUING> 270
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-PRIMARY> 2,700
<EPS-DILUTED> 0
</TABLE>
FORM OF CONSENT AND LETTER OF TRANSMITTAL
SINCLAIR CAPITAL
Offer To Exchange Sinclair Capital's 11 5/8% High Yield Trust Offered
Preferred Securities
That Have Been Registered Under the Securities Act of 1933
For Any and All of Sinclair Capital's Outstanding
11 5/8% High Yield Trust Offered Preferred Securities (Liquidation Value $100
per Preferred Security)
Pursuant to the Prospectus Dated ____ __, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ________ ___, 1997, UNLESS THE EXCHANGE OFFER IS EXTENDED.
SINCLAIR BROADCAST GROUP, INC. HAS PROPOSED A TECHNICAL AMENDMENT TO THE
ARTICLES SUPPLEMENTARY GOVERNING ITS SERIES C PREFERRED STOCK. THE AMENDMENT IS
INTENDED TO ENSURE THAT SHARES OF SINCLAIR CAPITAL'S HIGH YIELD TRUST OFFERED
PREFERRED SECURITIES ISSUED IN CONNECTION WITH THE EXCHANGE OFFER WILL BE
VALIDLY ISSUED. THE CONSENT OF HOLDERS OF A MAJORITY IN AGGREGATE LIQUIDATION
VALUE OF THE OUTSTANDING HIGH YIELD TRUST OFFERED PREFERRED SECURITIES IS
REQUIRED TO EFFECT THIS AMENDMENT. YOUR SUBMISSION OF THIS CONSENT AND LETTER
OF TRANSMITTAL WILL CONSTITUTE CONSENT TO THE PROPOSED AMENDMENT UNLESS YOU
INDICATE OTHERWISE IN THE SPACE PROVIDED HEREIN.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
First Union National Bank of Maryland
<TABLE>
<S> <C> <C>
BY MAIL, HAND BY FACSIMILE TRANSMISSION: TO CONFIRM BY TELEPHONE
OR OVERNIGHT DELIVERY: (704) 590-7628 OR FOR INFORMATION:
First Union National Bank Michael Klotz:
Customer Information Center (704) 590-7408
Corporate Trust Department
1525 W. W.T. Harris Blvd. - 3C3
Charlotte, NC 28262-1153
Attn: Michael Klotz
</TABLE>
DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS CONSENT AND LETTER OF TRANSMITTAL VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
CONSENT AND LETTER OF TRANSMITTAL IS COMPLETED. CAPITALIZED TERMS USED BUT NOT
DEFINED HEREIN SHALL HAVE THE SAME MEANING GIVEN THEM IN THE PROSPECTUS (AS
DEFINED BELOW).
<PAGE>
This Consent and Letter of Transmittal is to be completed by holders of Old
Preferred Securities (as defined below) either if Old Preferred Securities are
to be forwarded herewith or if tenders of Old Preferred Securities are to be
made by book-entry transfer to an account maintained by First Union National
Bank of Maryland (the "Exchange Agent") at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in "The Exchange Offer - Procedures for
Tendering Old Preferred Securities" in the Prospectus.
Holders of Old Preferred Securities whose certificates (the "Certificates")
for such Old Preferred Securities are not immediately available or who cannot
deliver their Certificates and all other required documents to the Exchange
Agent on or prior to the Expiration Date (as defined in the Prospectus) or who
cannot complete the procedures for book-entry transfer on a timely basis, must
tender their Old Preferred Securities according to the guaranteed delivery
procedures set forth in "The Exchange Offer - Procedures for Tendering Old
Preferred Securities" in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
---------------------
2
<PAGE>
Please list below the Old Preferred Securities to which this Consent and
Letter of Transmittal relates. If the space provided below is inadequate, please
list the certificate numbers and Aggregate Liquidation Values on a separately
executed schedule and affix the schedule to this Consent and Letter of
Transmittal.
<TABLE>
<CAPTION>
DESCRIPTION OF THE OLD PREFERRED SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE LIQUIDATION
AGGREGATE LIQUIDATION VALUE OF OLD PREFERRED
CERTIFICATE VALUE OF OLD PREFERRED SECURITIES TENDERED FOR
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NUMBER(S)* SECURITIES DELIVERED EXCHANGE**
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders. Such holders should check the
appropriate box below and provide the requested information.
** Need not be completed if tendering for exchange all Old Preferred
Securities delivered to the Exchange Agent. All Old Preferred Securities
delivered shall be deemed tendered unless a lesser number is specified in
this column.
3
<PAGE>
TENDER OF OLD PREFERRED SECURITIES
- --------------------------------------------------------------------------------
[ ] Check here if tendered Old Preferred Securities are enclosed herewith.
[ ] Check here if tendered Old Preferred Securities are being delivered by
book-entry transfer made to the account maintained by the Exchange Agent at
DTC and complete the following:
Name of Tendering Institution:
--------------------------------------------
DTC Account Number:
--------------------------------------------------------
Transaction Code Number:
---------------------------------------------------
[ ] Check here if tendered Old Preferred Securities are being delivered
pursuant to a Notice of Guaranteed Delivery previously delivered to the
Exchange Agent. In such case, please enclose a photocopy of the Notice of
Guaranteed Delivery and complete the following:
Name of Registered Holders(s):
---------------------------------------------
Window Ticket Number (if any):
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Eligible Institution that Guaranteed Delivery:
---------------------
[ ] Check here if you are a broker-dealer who acquired the Old Preferred
Securities for its own account as a result of market making or other
trading activities (a "Participating Broker-Dealer") and wish to receive 10
additional copies of the Prospectus and 10 copies of any amendments or
supplements thereto. In such case, please complete the following:
Name:
---------------------------------------------------------------------
Address:
-------------------------------------------------------------------
Area Code and Telephone Number:
---------------------------------------------
Contact Person:
------------------------------------------------------------
4
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Sinclair Capital, a Delaware special
purpose statutory business trust (the "Trust") the above described aggregate
Liquidation Value of the Trust's 11 5/8% High Yield Trust Offered Preferred
Securities (the "Old Preferred Securities") in exchange for a like aggregate
Liquidation Value of the Trust's 11 5/8% High Yield Trust Offered Preferred
Securities (the "New Preferred Securities") which have been registered under the
Securities Act of 1933 (the "Securities Act"), upon the terms and subject to the
conditions set forth in the Prospectus dated ____ __, 1997 (as the same may be
amended or supplemented from time to time, the "Prospectus"), receipt of which
is acknowledged, and in this Consent and Letter of Transmittal (which, together
with the Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Preferred Securities tendered herewith in accordance with the
terms and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Trust all right, title and interest in and to such Old Preferred
Securities as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of Sinclair
Broadcast Group, Inc. (the "Company") and the Trust in connection with the
Exchange Offer) with respect to the tendered Old Preferred Securities, with full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), subject only to the right of withdrawal
described in the Prospectus, to (i) deliver Certificates for Old Preferred
Securities to the Trust together with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Trust, upon receipt by the Exchange
Agent, as the undersigned's agent, of the New Preferred Securities to be issued
in exchange for such Old Preferred Securities, (ii) present Certificates for
such Old Preferred Securities for transfer, and to transfer the Old Preferred
Securities on the books of the Trust, and (iii) receive for the account of the
Trust all benefits and otherwise exercise all rights of beneficial ownership of
such Old Preferred Securities, all in accordance with the terms and conditions
of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENT(S) AND WARRANT(S) THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
PREFERRED SECURITIES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE TRUST WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OLD PREFERRED SECURITIES TENDERED HEREBY ARE NOT SUBJECT TO ANY
ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND
DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE TRUST OR THE EXCHANGE AGENT TO BE
NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE
OLD PREFERRED SECURITIES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH
ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS
READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old
Preferred Securities tendered hereby should be printed on page 3, if they are
not already set forth there, as they appear on the Certificates (or, in the case
of book-entry securities, on the relevant security position listing)
representing such Old Preferred Securities. The Certificate number(s) and the
Old Preferred Securities that the undersigned wishes to tender should be
indicated in the appropriate boxes on page 3.
5
<PAGE>
If any tendered Old Preferred Securities are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more Old
Preferred Securities than are tendered or accepted for exchange, Certificates
for such nonexchanged or nontendered Old Preferred Securities will be returned
(or, in the case of Old Preferred Securities tendered by book-entry transfer,
such Old Preferred Securities will be credited to the appropriate account
maintained at DTC), without expense to the tendering holder, promptly following
the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Preferred Securities
pursuant to any one of the procedures described in "The Exchange Offer
Procedures for Tendering Old Preferred Securities" in the Prospectus and in the
instructions hereto will, upon the Trust's acceptance for exchange of such
tendered Old Preferred Securities, constitute a binding agreement between the
undersigned, the Trust upon the terms and subject to the conditions of the
Exchange Offer. The undersigned recognizes that, under certain circumstances set
forth in the Prospectus, the Trust may not be required to accept for exchange
any of the Old Preferred Securities tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Preferred
Securities be issued in the name(s) of the undersigned or, in the case of a
book-entry transfer of Old Preferred Securities, that such New Preferred
Securities be credited to the account indicated above maintained at DTC. If
applicable, substitute Certificates representing Old Preferred Securities not
tendered or not accepted for exchange will be issued to the undersigned or, in
the case of a book-entry transfer of Old Preferred Securities, will be credited
to the account indicated above maintained at DTC. Similarly, unless otherwise
indicated under "Special Delivery Instructions," the undersigned hereby directs
that New Preferred Securities be delivered to the undersigned at the address
shown below the undersigned's signature.
BY TENDERING OLD PREFERRED SECURITIES AND EXECUTING THIS CONSENT AND LETTER
OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, KDSM, INC. OR THE TRUST, (II)
ANY NEW PREFERRED SECURITIES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING
ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO
ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW PREFERRED SECURITIES TO BE
RECEIVED IN THE EXCHANGE OFFER (OR ANY OTHER NEW SECURITIES (AS DEFINED IN THE
PROSPECTUS) THAT MIGHT BE RECEIVED IN RESPECT OF SUCH NEW PREFERRED SECURITIES),
AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT
ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING
OF THE SECURITIES ACT) OF SUCH NEW PREFERRED SECURITIES (OR ANY OTHER NEW
SECURITIES THAT MIGHT BE RECEIVED IN RESPECT THEREOF). BY TENDERING OLD
PREFERRED SECURITIES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS CONSENT
AND LETTER OF TRANSMITTAL, A HOLDER OF OLD PREFERRED SECURITIES THAT IS A
BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION (THE "STAFF") TO THIRD PARTIES, THAT (A) SUCH
OLD PREFERRED SECURITIES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE,
OR (B) SUCH OLD PREFERRED SECURITIES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET- MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND IT WILL DELIVER A PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME)
MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF
SUCH NEW PREFERRED SECURITIES (OR ANY OTHER NEW SECURITIES RECEIVED IN RESPECT
THEREOF) (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER"
WITHIN THE MEANING OF THE SECURITIES ACT).
6
<PAGE>
THE COMPANY, KDSM, INC. AND THE TRUST HAVE AGREED THAT, SUBJECT TO THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE
AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING
BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH RESALES OF NEW PREFERRED
SECURITIES RECEIVED IN EXCHANGE FOR OLD PREFERRED SECURITIES (OR ANY OTHER NEW
SECURITIES RECEIVED IN RESPECT OF SUCH NEW PREFERRED SECURITIES) WHERE SUCH OLD
PREFERRED SECURITIES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES,
FOR A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION
UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER,
WHEN ALL SUCH NEW PREFERRED SECURITIES (OR ANY OTHER NEW SECURITIES RECEIVED IN
RESPECT THEREOF) HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER- DEALER. IN
THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD PREFERRED SECURITIES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD PREFERRED SECURITIES AND
EXECUTING THIS CONSENT AND LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF
NOTICE FROM THE COMPANY OR THE TRUST OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW SECURITIES PURSUANT TO
THE PROSPECTUS UNTIL THE COMPANY AND THE TRUST HAVE AMENDED OR SUPPLEMENTED THE
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF
THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE
COMPANY OR THE TRUST HAS GIVEN NOTICE THAT THE SALE OF THE NEW SECURITIES MAY BE
RESUMED, AS THE CASE MAY BE, IF THE COMPANY OR THE TRUST GIVES SUCH NOTICE TO
SUSPEND THE SALE OF THE NEW SECURITIES, IT SHALL EXTEND THE 180-DAY PERIOD
REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE
THE PROSPECTUS IN CONNECTION WITH THE RESALE OF NEW SECURITIES BY THE NUMBER OF
DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE
TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED
COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF
THE NEW SECURITIES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY OR THE
TRUST HAS GIVEN NOTICE THAT THE SALE OF NEW SECURITIES MAY BE RESUMED, AS THE
CASE MAY BE.
Holders of Old Preferred Securities whose Old Preferred Securities are
accepted for exchange will not receive accrued distributions on such Old
Preferred Securities for any period from and after the last Distribution Payment
Date with respect to which distributions have been paid or duly provided for on
such Old Preferred Securities prior to the original issue date of the New
Preferred Securities or, if no such distributions have been paid or duly
provided for, will not receive any accrued distributions on such Old Preferred
Securities, and the undersigned waives the right to receive any distributions on
such Old Preferred Securities accrued from and after such Distribution Payment
Date or, if no such distributions have been paid or duly provided for, from and
after March 12, 1997. The distribution payment provisions of the New Preferred
Securities are described in the Prospectus. See "Description of the New
Preferred Securities - Distributions."
All authority herein conferred or agreed to be conferred in this Consent
and Letter of Transmittal shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, personal representatives, trustees in
bankruptcy, legal representatives, successors and assigns of the undersigned.
7
<PAGE>
Please be advised that the Trust is registering the New Preferred
Securities in reliance on the position of the Staff enunciated in Exxon Capital
Holdings Corp. (available April 13, 1989), Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Brown & Wood, LLP (available Feb. 7, 1997). None of
the Company, KDSM, Inc. or the Trust has entered into any arrangement or
understanding with any person to distribute the New Preferred Securities to be
received in the Exchange Offer and, to the best of its information and belief,
each person participating in the Exchange Offer is acquiring the New Preferred
Securities in its ordinary course of business and has no arrangement or
understanding with any person to participate in the distribution of the New
Preferred Securities to be received in the Exchange Offer. In this regard, the
undersigned is aware that if the undersigned is participating in the Exchange
Offer for the purpose of distributing the New Preferred Securities to be
acquired in the Exchange Offer, the undersigned (a) may not rely on the Staff
position enunciated in Exxon Capital or interpretative letters to similar effect
and (b) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. The
undersigned is aware that such a secondary resale transaction by a person
participating in the Exchange Offer for the purpose of distributing the New
Preferred Securities should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K.
8
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, AND 6) (SEE INSTRUCTIONS 1, 5, AND 6)
To be completed ONLY if New To be completed ONLY if New Preferred
Preferred Securities or any ties or any Securities or any Old Preferred Secur-
Old Preferred Securities delivered but ities delivered, but not tendered for
not tendered for exchange are to be exchange are to be sent to someone
issued in the name of someone other other than the registered holder of the
than the registered holder of the Old Old Preferred Securities whose name(s)
Preferred Securities whose name(s) appear(s) above, or such registered
appear(s) above. holder(s) at an address other than that
shown above.
Issue: [ ] New Preferred Securities Mail: [ ] New Preferred Securities
and/or and/or
[ ] Old Preferred Securities delivered [ ] Old Preferred Securities delivered
but not tendered for exchange: but not tendered for exchange:
Name(s): ----------------------------- Name(s): ------------------------------
(Please Print) (Please Print)
Address: ----------------------------- Address: ------------------------------
(Please Print) (Please Print)
-------------------------------------- ---------------------------------------
-------------------------------------- ---------------------------------------
(Please include ZIP code) (Please include ZIP code)
-------------------------------------- ---------------------------------------
Telephone Number with Area Code Telephone Number with Area Code
-------------------------------------- ---------------------------------------
Tax ID Number Tax ID Number
9
<PAGE>
CONSENT TO PROPOSED AMENDMENT
- --------------------------------------------------------------------------------
By checking the appropriate box below, the undersigned hereby gives or
withholds consent for the proposed amendment to the Parent Preferred Articles
Supplementary with respect to the aggregate Liquidation Value of the Old
Preferred Securities listed in the box labeled "Description of Old Preferred
Securities." By checking neither box, the undersigned hereby consents to the
proposed amendment. The Proposed Amendment is intended to ensure that New
Preferred Securities issued in the Exchange Offer will be validly issued. The
Proposed Amendment is described in the Prospectus section captioned "The
Exchange Offer - Amendment of the Parent Preferred Articles Supplementary."
[ ] FOR PROPOSED AMENDMENT
[ ] AGAINST PROPOSED AMENDMENT
If the undersigned is not a holder of Old Preferred Securities listed in the
box labeled "Description of Old Preferred Securities" (i.e. the record holder
thereof as of the close of business as of the Record Date) or such Holder's
legal representative or attorney-in-fact, then, in order to validly consent,
the undersigned must obtain a properly completed irrevocable proxy that
authorizes the undersigned (or the undersigned's legal representative or
attorney-in-fact) to vote such Old Preferred Securities on behalf of the holder
thereof, and such proxy should be delivered with this Consent and Letter of
Transmittal.
10
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(Please Complete Substitute Form W-9 Contained Herein)
(Note: Signatures Must be Guaranteed if Required by Instruction 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Preferred Securities hereby tendered (or, in the
case of book-entry securities, on the relevant security position listing), or
by any person(s) authorized to become the registered holder(s) by endorsements
and documents transmitted herewith (including such opinions of counsel,
certifications and other information as may be required by the Trust or the
Trustee for the Old Preferred Securities to comply with the restrictions on
transfer applicable to the Old Preferred Securities). If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
X ---------------------------------- GUARANTEE OF SIGNATURE(S)
(See Instructions 2 and 5 below)
Certain Signatures Must be Guaranteed
X ---------------------------------- by an Eligible Instruction
(SIGNATURE(S) OF HOLDER(S) OR
AUTHORIZED SIGNATORY)
Date: ---------------------- , 1997 --------------------------------------
(AUTHORIZED SIGNATURE)
Name(s): -------------------------- --------------------------------------
(CAPACITY (FULL TITLE)
---------------------------------- --------------------------------------
(PLEASE PRINT) (NAME OF ELIGIBLE INSTITUTION
GUARANTEEING SIGNATURE)
Capacity: ------------------------- --------------------------------------
(ADDRESS OF FIRM - PLEASE INCLUDE
ZIP CODE)
Address: -------------------------- --------------------------------------
-----------------------------------
(PLEASE INCLUDE ZIP CODE) --------------------------------------
Telephone No.(with area code): --------------------------------------
-------- TELEPHONE NO. (WITH AREA CODE) OF FIRM
Tax ID No.:
------------------------ Date: ,1997
--------------------------
11
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF CONSENT AND LETTER OF TRANSMITTAL AND CERTIFICATES;
GUARANTEED DELIVERY PROCEDURES. This Consent and Letter of Transmittal is to be
completed either if (a) Certificates are to be forwarded herewith or (b) tenders
are to be made pursuant to the procedures for tender by book-entry transfer set
forth in "The Exchange Offer - Procedures for Tendering Old Preferred
Securities" in the Prospectus. Certificates, or timely confirmation of a
book-entry transfer of such Old Preferred Securities into the Exchange Agent's
account at DTC, as well as this Consent and Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Consent and Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to the Expiration Date.
Holders who wish to tender their Old Preferred Securities and (i) whose Old
Preferred Securities are not immediately available or (ii) who cannot deliver
their Old Preferred Securities, this Consent and Letter of Transmittal and all
other required documents to the Exchange Agent on or prior to the Expiration
Date or (iii) who cannot complete the procedures for delivery by book-entry
transfer on a timely basis, may tender their Old Preferred Securities by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth in "The Exchange Offer -
Procedures for Tendering Old Preferred Securities" in the Prospectus. Pursuant
to such procedures: (i) such tender must be made by or through an Eligible
Institution (as defined below); (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Company, must be received by the Exchange Agent on or prior to the Expiration
Date; and (iii) the Certificates (or a book-entry confirmation (as defined in
the Prospectus)) representing all tendered Old Preferred Securities, in proper
form for transfer, together with a Consent and Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by this Consent and Letter
of Transmittal, must be received by the Exchange Agent within three Nasdaq Stock
Market trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in "The Exchange Offer Procedures for Tendering Old
Preferred Securities" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Preferred
Securities to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or
prior to the Expiration Date. As used herein and in the Prospectus, "Eligible
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as "an eligible guarantor institution," including (as such terms
are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS CONSENT AND LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF
THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT, IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
12
<PAGE>
The trust will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Consent and Letter of
Transmittal (or facsimile thereof), waives any right to receive any notice of
the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Consent and
Letter of Transmittal is required if:
(i)this Consent and Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on the relevant security position listing as the
owner of the Old Preferred Securities) of Old Preferred Securities
tendered herewith, unless such holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" above, or
(ii) such Old Preferred Securities are tendered for the account of a firm
that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Consent and Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Preferred Securities" is inadequate, the Certificate
number(s) and/or the aggregate Liquidation Value of Old Preferred Securities and
any other required information should be listed on a separate signed schedule
which is attached to this Consent and Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. If less than all the Old
Preferred Securities evidenced by any Certificate submitted are to be tendered,
fill in the aggregate Liquidation Value of Old Preferred Securities which are to
be tendered in the box entitled "Aggregate Liquidation Value of Old Preferred
Securities Tendered for Exchange." In such case, new Certificate(s) for the
remainder of the Old Preferred Securities that were evidenced by your old
Certificate(s) will be sent to the holder of the Old Preferred Securities (or
such other party as you identify in the box captioned "Special Delivery
Instructions"), promptly after the Expiration Date. All Old Preferred Securities
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Preferred Securities
may be withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at its address set forth above on or prior to the Expiration
Date. Any such notice of withdrawal must specify the name of the person who
tendered the Old Preferred Securities to be withdrawn, the aggregate Liquidation
Value of Old Preferred Securities to be withdrawn, and (if Certificates for Old
Preferred Securities have been tendered) the name of the registered holder of
the Old Preferred Securities as set forth on the Certificate for the Old
Preferred Securities, if different from that of the person who tendered such Old
Preferred Securities. If Certificates for the Old Preferred Securities have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Preferred Securities, the
tendering holder must submit the serial numbers shown on the particular
Certificates for the Old Preferred Securities to be withdrawn and the signature
on the notice of withdrawal must be guaranteed by an Eligible Institution,
except in the case of Old Preferred Securities tendered for the account of an
Eligible Institution. If Old Preferred Securities have been tendered pursuant to
the procedures for book-entry transfer set forth in "The Exchange Offer -
Procedures for Tendering Old
13
<PAGE>
Preferred Securities," the notice of withdrawal must specify the name and number
of the account at DTC to be credited with the withdrawal of Old Preferred
Securities, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Preferred Securities may not be rescinded. Old
Preferred Securities properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer - Procedures for Tendering Old
Preferred Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Trust, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company and the Trust, any affiliates or assigns of the Company and the Trust,
the Exchange Agent or any other person shall not be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Preferred
Securities which have been tendered but which are withdrawn will be returned to
the holder thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES ON CONSENT AND LETTER OF TRANSMITTAL, ASSIGNMENTS AND
ENDORSEMENTS. If this Consent and Letter of Transmittal is signed by the
registered holder(s) of the Old Preferred Securities tendered hereby, the
signature(s) must correspond exactly with the name(s) as written on the face of
the Certificate(s) (or, in the case of book-entry securities, on the relevant
security position listing) without alteration, enlargement or any change
whatsoever.
If any of the Old Preferred Securities tendered hereby are owned of record
by two or more joint owners, all such owners must sign this Consent and Letter
of Transmittal.
If any tendered Old Preferred Securities are registered in different
name(s) on several Certificates, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal (or facsimiles thereof) as there
are different registrations of Certificates.
If this Consent and Letter of Transmittal or any Certificates or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and must
submit proper evidence satisfactory to the Trust, in its sole discretion, of
such persons' authority to so act.
When this Consent and Letter of Transmittal is signed by the registered
owner(s) of the Old Preferred Securities listed and transmitted hereby, no
endorsement(s) of Certificate(s) or separate bond power(s) are required unless
New Preferred Securities are to be issued in the name of a person other than the
registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must
be guaranteed by an Eligible Institution.
If this Consent and Letter of Transmittal is signed by a person other than
the registered owner(s) of the Old Preferred Securities listed, the Certificates
must be endorsed or accompanied by appropriate bond powers, signed exactly as
the name or names of the registered owner(s) appear(s) on the Certificates, and
also must be accompanied by such opinions of counsel, certifications and other
information as the Trust or the Trustee for the Old Preferred Securities may
require in accordance with the restrictions on transfer applicable to the Old
Preferred Securities. Signatures on such Certificates or bond powers must be
guaranteed by an Eligible Institution.
14
<PAGE>
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Preferred Securities
are to be issued in the name of a person other than the signer of this Consent
and Letter of Transmittal, or if New Preferred Securities are to be sent to
someone other than the signer of this Consent and Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this Consent and
Letter of Transmittal should be completed. Certificates for Old Preferred
Securities not exchanged will be returned by mail or, if tendered by book-entry
transfer, by crediting the account indicated above maintained at DTC. See
Instruction 4.
7. IRREGULARITIES. The Trust will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Preferred Securities,
which determination shall be final and binding on all parties. The Trust
reserves the absolute right to reject any and all tenders determined by either
of them not to be in proper form or the acceptance of which, or exchange for,
may, in the view of counsel to the Trust, be unlawful. The Trust also reserves
the absolute right, subject to applicable law, to waive any of the conditions of
the Exchange Offer set forth in the Prospectus under "The Exchange Offer Certain
Conditions to the Exchange Offer" or any conditions or irregularity in any
tender of Old Preferred Securities of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The Trust's interpretation of the terms and conditions of the Exchange Offer
(including this Consent and Letter of Transmittal and the instructions hereto)
will be final and binding. No tender of Old Preferred Securities will be deemed
to have been validly made until all irregularities with respect to such tender
have been cured or waived. The Company, the Trust, any affiliates or assigns of
the Company, the Trust, the Exchange Agent, or any other person shall not be
under any duty to give notification of any irregularities in tenders or incur
any liability for failure to give such notification.
8. QUESTIONS, REQUEST FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Consent and Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Consent and Letter of Transmittal may be obtained from the
Exchange Agent or from your broker, dealer, commercial bank, trust company or
other nominee.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Preferred Securities have been lost, destroyed or stolen, the
holder should promptly notify the Exchange Agent. The holder will then be
instructed as to the steps that must be taken in order to replace the
Certificate(s). This Consent and Letter of Transmittal and related documents
cannot be processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
10. SECURITY TRANSFER TAXES. Holders who tender their Old Preferred
Securities for exchange will not be obligated to pay any transfer taxes in
connection therewith. If, however, New Preferred Securities are to be delivered
to, or are to be issued in the name of, any person other than the registered
holder of the Old Preferred Securities tendered, or if a transfer tax is imposed
for any reason other than the exchange of Old Preferred Securities in connection
with the Exchange Offer, then the amount of any such transfer tax (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Consent and Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering holder.
IMPORTANT: THIS CONSENT AND LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF)
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
15
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a holder whose tendered Old Preferred
Securities are accepted for exchange is required by law to provide the Exchange
Agent with such holder's correct taxpayer identification number ("TIN") on
Substitute Form W-9 included herein or otherwise establish a basis for exemption
from backup withholding. If such holder is an individual, the TIN is his social
security number. If the Exchange Agent is not provided with the correct TIN, the
Internal Revenue Service may subject the holder or transferee to a $50 penalty.
In addition, delivery of such holder's New Preferred Securities may be subject
to backup withholding. Failure to comply truthfully with the backup withholding
requirements also may result in the imposition of severe criminal and/or civil
fines and penalties.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should furnish their TIN, write "Exempt" on the
face of the Substitute Form W-9, and sign, date and return the Substitute Form
W-9 to the Exchange Agent. A foreign person, including entities, may qualify as
an exempt recipient by submitting to the Exchange Agent a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to that holder's foreign status. A Form W-8 can be obtained from the Exchange
Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the holder or other transferee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to Old
Preferred Securities exchanged in the Exchange Offer, the holder is required to
provide the Exchange Agent with either: (i) the holder's correct TIN by
completing the form included herein, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such holder is awaiting a TIN) and that
(A) the holder has not been notified by the Internal Revenue Service that the
holder is subject to backup withholding as a result of failure to report all
interest or dividends or (B) the Internal Revenue Service has notified the
holder that the holder is no longer subject to backup withholding; or (ii) an
adequate basis for exemption.
NUMBER TO GIVE THE DEPOSITORY
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered holder of
the Old Preferred Securities. If the Old Preferred Securities are held in more
than one name or are held not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W- 9" for additional guidance on which number to report.
16
<PAGE>
PAYER'S NAME:
- --------------------------------------------------------------------------------
Part 1 - PLEASE PROVIDE YOUR TIN IN Social security number or
SUBSTITUTE
THE BOX AT RIGHT AND CERTIFY BY ____________/________/_______
SIGNING AND DATING BELOW Employer identification number
-----------------------------------------------------------------
FORM W-9
PAYER'S Part 2 - Certification - Under penalties of perjury, I
REQUEST FOR certify that:
TAXPAYER (1) The number shown on this form is my correct Taxpayer
IDENTIFICAT- Identification Number (or I am waiting for a number to be
ION NUMBER issued to me) and
(TIN)
(2) I am not subject to backup withholding because (i) I have
not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of
failure to report all interest or dividends, or (ii) the IRS
has notified me that I am no longer subject to backup
withholding.
-----------------------------------------------------------------
Certificate Instructions - You must cross
out item (2) in Part 2 above if you have
been notified by the IRS that you are Part 3 --
subject to backup withholding because of Awaiting TIN
underreporting interest or dividends on your [ ]
tax return. However, if after being notified
by the IRS that you are subject to backup
withholding you received another
notification from the IRS stating that you
are no longer subject to backup withholding,
do not cross out item (2).
Date , 1997
------------------------ --------
Signature
------------------------
Name (please print)
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF THIS SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the New Preferred Securities shall be
retained until I provide a taxpayer identification number to the Exchange Agent
and that, if I do not provide my taxpayer identification number within 60 days,
such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter
will be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Date: , 1997
--------------------------
Signature
--------------------------------
Name (please print)
----------------------
17
NOTICE OF GUARANTEED DELIVERY
For Tender of High Yield Trust Offered Preferred Securities
(Liquidation Value $100 per Preferred Security) of
Sinclair capital
As set forth in the Exchange Offer (as defined below), this Notice of
Guaranteed Delivery, or one substantially equivalent to this form, must be used
to accept the Exchange Offer if (i) certificates for Sinclair Capital's High
Yield Trust Offered Preferred Securities (the "Old Preferred Securities") are
not immediately available, (ii) the Old Preferred Securities, the Letter of
Transmittal and all other required documents cannot be delivered to First Union
National Bank of Maryland (the "Exchange Agent") on or prior to the Expiration
Date (as defined in the Prospectus referred to below) or (iii) the procedures
for delivery by book-entry transfer cannot be completed on or prior to the
Expiration Date as set forth below. This Notice of Guaranteed Delivery may be
delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent on or prior to the Expiration Date. See "The
Exchange Offer - Procedures for Tendering Old Preferred Securities" in the
Prospectus.
The Exchange Agent is:
FIRST UNION NATIONAL BANK OF MARYLAND
<TABLE>
<S> <C>
By Mail, Hand or Overnight Delivery:
First Union National Bank By Facsimile Transmission
Corporate Trust Department (704) 590-7628
1525 W. W.T. Harris Blvd. - 3C3
Charlotte, N.C. 28262-1153 To Confirm By Telephone:
Attn: Michael Klotz Michael Klotz: (704) 590-7408
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on the Consent and Letter of Transmittal is required
to be guaranteed by an "Eligible Institution" under the instructions thereto,
such signature guarantee must appear in the applicable space provided in the
signature box on the Consent and Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to Sinclair Capital, a Delaware special
purpose statutory business trust, upon the terms and subject to the conditions
set forth in the Prospectus dated __________, 1997 (as the same may be amended
or supplemented from time to time, the "Prospectus"), and the related Consent
and Letter of Transmittal (which together constitute the "Exchange Offer"),
receipt of which is hereby acknowledged, the aggregate Liquidation Value of Old
Preferred Securities set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer
Procedures for Tendering Old Preferred Securities."
<TABLE>
<S> <C>
Signature(s)---------------------------- Address(es)--------------------------
---------------------------- --------------------------
Zip Code
Name(s) of Record Holder(s)
- ------------------------------------- Area Code and Tel. No.(s)--------------
- -------------------------------------
Please Type or Print Date ___________________________, 1997
Aggregate Liquidation Value Tendered_______ If Old Preferred Securities will be
tendered by book-entery transfer,
provide the DTC account number:
Share Certificate No.(s). (If available)
- ------------------------------------- -----------------------------------
- -------------------------------------
</TABLE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE>
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at its address set forth above, either the Old Preferred
Securities tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Old Preferred Securities to the Exchange Agent's
account at The Depository Trust Company ("DTC"), pursuant to the procedures for
book-entry transfer set forth in the Prospectus, in either case together with
one or more properly completed and duly executed Letters of Transmittal (or
facsimile thereof or Agent's Message in lieu thereof) and any other required
documents within three Nasdaq Stock Market trading days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letters of Transmittal
(or facsimile thereof or Agent's Message in lieu thereof) and the Old Preferred
Securities tendered hereby (or a book-entry confirmation) to the Exchange Agent
within the time period set forth above and that failure to do so could result
in a financial loss to the undersigned.
<TABLE>
<S> <C>
--------------------------------- ---------------------------------
Name of Firm Authorized Signature
--------------------------------- Name
Address -----------------------------
Please Type or Print
---------------------------------
Zip Code Title------------------------------
Area Code and Tel. No.
----------- Dated , 1997
---------------------
</TABLE>
NOTE: DO NOT SEND OLD PREFERRED SECURITIES WITH THIS NOTICE OF GUARANTEED
DELIVERY. ACTUAL SURRENDER OF OLD PREFERRED SECURITIES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY
EXECUTED CONSENT AND LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
