AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997
REGISTRATION NO. 333-12257
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-3/A
AMENDMENT NO. 5
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
SINCLAIR BROADCAST GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 4833 52-1494660
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(410) 467-5005
(Address, including zip code, and telephone number, including area
code, of registrant's 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)
------------------
SEE TABLE OF ADDITIONAL REGISTRANTS.
------------------
With a copy 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 and from time to time after the effective date
of this Registration Statement.
------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, 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, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
EXPLANATORY NOTE
This registration statement contains a Prospectus relating to the offering
of $1,000,000,000 of Securities, followed by a Prospectus Supplement relating to
the offering of 5,300,000 shares of Class A Common Stock followed by a
Prospectus Supplement relating to the offering of 3,000,000 shares of
Convertible Exchangeable Preferred Stock.
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
ZIP CODE,
PRIMARY AND TELEPHONE NUMBER,
EXACT NAME OF STATE OR OTHER STANDARD I.R.S. INCLUDING AREA CODE,
REGISTRANT AS JURISDICTION OF INDUSTRIAL EMPLOYER OF REGISTRANT'S
SPECIFIED IN INCORPORATION OR CLASSIFICATION INDENTIFICATION PRINCIPAL EXECUTIVE
ITS CHARTER ORGANIZATION CODE NUMBER NUMBER OFFICES
- ------------------------- ------------------ ---------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
Chesapeake Television, Maryland 4833 52-1590917 2000 West 41st Street
Inc. Baltimore, Maryland 21211
410/467-5005
Chesapeake Television Delaware 4833 51-0336990 2000 West 41st Street
Licensee, Inc. Baltimore, Maryland 21211
410/467-5005
FSF-TV, Inc. North Carolina 4833 56-1739096 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
KABB Licensee, Inc. Delaware 4833 52-1974581 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
KDNL Licensee, Inc. Delaware 4833 52-1974579 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
KSMO, Inc. Maryland 4833 52-1836395 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
KSMO Licensee, Inc. Delaware 4833 52-1966077 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
KUPN Licensee, Inc. Maryland 4833 52-2016990 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
SCI-Indiana Licensee, Delaware 4833 52-1974576 2000 West 41st Street
Inc. Baltimore, Maryland 21211
410/467-5005
SCI-Sacramento Delaware 4833 52-1974575 2000 West 41st Street
Licensee, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Communica- Maryland 4833 52-1977539 2000 West 41st Street
tions, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Albu- Maryland 4833 52-1976547 2000 West 41st Street
querque, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Albu- Delaware 4833 52-1974593 2000 West 41st Street
querque Licensee, Baltimore, Maryland 21211
Inc. 410/467-5005
Sinclair Radio of Maryland 4833 52-1975701 2000 West 41st Street
Buffalo, Inc. Baltimore, Maryland 21211
410/467-5005
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
ZIP CODE,
PRIMARY AND TELEPHONE NUMBER,
EXACT NAME OF STATE OR OTHER STANDARD I.R.S. INCLUDING AREA CODE,
REGISTRANT AS JURISDICTION OF INDUSTRIAL EMPLOYER OF REGISTRANT'S
SPECIFIED IN INCORPORATION OR CLASSIFICATION INDENTIFICATION PRINCIPAL EXECUTIVE
ITS CHARTER ORGANIZATION CODE NUMBER NUMBER OFFICES
- ------------------------- ------------------ ---------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
Sinclair Radio of Buf- Delaware 4833 52-1974582 2000 West 41st Street
falo Licensee, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Maryland 4833 52-1975786 2000 West 41st Street
Greenville, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Delaware 4833 52-1974584 2000 West 41st Street
Greenville Licensee, Baltimore, Maryland 21211
Inc. 410/467-5005
Sinclair Radio of Los Maryland 4833 52-1975780 2000 West 41st Street
Angeles, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Los Delaware 4833 52-1974591 2000 West 41st Street
Angeles Licensee, Baltimore, Maryland 21211
Inc. 410/467-5005
Sinclair Radio of Maryland 4833 52-1975784 2000 West 41st Street
Memphis, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Delaware 4833 52-1974586 2000 West 41st Street
Memphis Licensee, Baltimore, Maryland 21211
Inc. 410/467-5005
Sinclair Radio of Maryland 4833 52-1975785 2000 West 41st Street
Nashville, Inc. Baltimore, aryland 21211
410/467-5005
Sinclair Radio of Nash- Delaware 4833 52-1974585 2000 West 41st Street
ville Licensee, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of New Maryland 4833 52-1975783 2000 West 41st Street
Orleans, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of New Delaware 4833 52-1974588 2000 West 41st Street
Orleans Licensee, Baltimore, Maryland 21211
Inc. 410/467-5005
Sinclair Radio of St. Maryland 4833 52-1975782 2000 West 41st Street
Louis, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of St. Delaware 4833 52-1974592 2000 West 41st Street
Louis Licensee, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio of Maryland 4833 52-1975788 2000 West 41st Street
Wilkes-Barre, Inc. Baltimore, Maryland 21211
410/467-5005
Sinclair Radio Delaware 4833 52-1974583 2000 West 41st Street
of Wilkes-Barre Baltimore, Maryland 21211
Licensee, Inc. 410/467-5005
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
ZIP CODE,
PRIMARY AND TELEPHONE NUMBER,
EXACT NAME OF STATE OR OTHER STANDARD I.R.S. INCLUDING AREA CODE,
REGISTRANT AS JURISDICTION OF INDUSTRIAL EMPLOYER OF REGISTRANT'S
SPECIFIED IN INCORPORATION OR CLASSIFICATION INDENTIFICATION PRINCIPAL EXECUTIVE
ITS CHARTER ORGANIZATION CODE NUMBER NUMBER OFFICES
- ----------------------- ------------------ ---------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
Superior Communica- Delaware 4833 61-1250982 2000 West 41st Street
tions of Kentucky, Baltimore, Maryland 21211
Inc. 410/467-5005
Superior Communica- Oklahoma 4833 73-1021304 2000 West 41st Street
tions of Oklahoma, Baltimore, Maryland 21211
Inc. 410/467-5005
Superior KY License Delaware 4833 61-1250983 2000 West 41st Street
Corp. Baltimore, Maryland 21211
410/467-5005
Superior OK License Delaware 4833 73-1438189 2000 West 41st Street
Corp. Baltimore, Maryland 21211
410/467-5005
Tuscaloosa Broadcast- Maryland 4833 52-1940000 2000 West 41st Street
ing, Inc. Baltimore, Maryland 21211
410/467-5005
WCGV, Inc. Maryland 4833 52-1836393 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WCGV Licensee, Inc. Delaware 4833 52-0349552 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WDBB, Inc. Maryland 4833 52-1947227 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WLFL, Inc. Maryalnd 4833 52-1911462 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WLFL Licensee, Inc. Delaware 4833 51-0364246 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WLOS Licensee, Inc. Delaware 4833 52-1974580 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WPGH, Inc. Maryland 4833 52-1742771 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WPGH Licensee, Inc. Maryland 4833 52-1742774 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WSMH, Inc. Maryland 4833 52-1952880 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
ZIP CODE,
PRIMARY AND TELEPHONE NUMBER,
EXACT NAME OF STATE OR OTHER STANDARD I.R.S. INCLUDING AREA CODE,
REGISTRANT AS JURISDICTION OF INDUSTRIAL EMPLOYER OF REGISTRANT'S
SPECIFIED IN INCORPORATION OR CLASSIFICATION INDENTIFICATION PRINCIPAL EXECUTIVE
ITS CHARTER ORGANIZATION CODE NUMBER NUMBER OFFICES
- ------------------------ ------------------ ---------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
WSMH Licensee, Inc. Delaware 4833 52-1939265 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WSTR, Inc. Maryland 4833 52-1836394 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WSTR Licensee, Inc. Maryalnd 4833 52-1958895 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WSYX, Inc. Maryland 4833 52-2050323 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WTTE, Channel 28, Inc. Maryland 4833 52-1313500 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WTTE, Channel 28 Maryland 4833 52-1742776 2000 West 41st Street
Licensee, Inc. Baltimore, Maryland 21211
410/467-5005
WTTO , Inc. Maryland 4833 52-1836391 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WTTO Licensee, Inc. Delaware 4833 51-0349553 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WTVZ, Inc. Maryland 4833 52-1903498 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WTVZ Licensee, Inc. Maryland 4833 52-1908393 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WYZZ, Inc. Maryland 4833 52-1959155 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
WYZZ Licensee, Inc. Delaware 4833 52-1959631 2000 West 41st Street
Baltimore, Maryland 21211
410/467-5005
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 26, 1997
PROSPECTUS
$1,000,000,000
SBG
SINCLAIR BROADCAST GROUP
CLASS A COMMON STOCK
DEBT SECURITIES
PREFERRED STOCK
------------
Sinclair Broadcast Group, Inc. ("Sinclair " or the "Company") may from time
to time offer, together or separately, its (I) Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), (ii) debt securities (the "Debt
Securities") which may be either senior debt securities (the "Senior Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities") and (iii) shares of its preferred stock, par value $.01 per share
(the "Preferred Stock"), in amounts, at prices and on terms to be determined at
the time of the offering. The Class A Common Stock, the Debt Securities and the
Preferred Stock are collectively called the "Securities." To the extent
indicated in the accompanying Prospectus Supplement (the "Prospectus
Supplement"), certain stockholders of the Company (the "Selling Stockholders")
may from time to time offer up to 1,750,000 shares of Class A Common Stock. See
"Selling Stockholders" and "Plan of Distribution."
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances and will be limited to $1,000,000,000 in aggregate
initial public offering price. Certain specific terms of the particular
Securities in respect of which this Prospectus is being delivered will be set
forth in the Prospectus Supplement, including, where applicable, (i) in the case
of Debt Securities, the specific title, aggregate principal amount, the
denomination, maturity, premium, if any, the interest, if any (which may be at a
fixed or variable rate), the time and method of calculating payment of interest,
if any, the place or places where principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, any terms of
redemption at the option of the Company or the holder, any sinking fund
provisions, terms for any conversion into Class A Common Stock, guarantees, if
any, the initial public offering price, listing (if any) on a securities
exchange or quotation (if any) on an automated quotation system, acceleration,
if any, and other terms and (ii) in the case of Preferred Stock, the specific
title, the aggregate number of shares offered, any dividend (including the
method of calculating payment of dividends), liquidation, redemption, voting and
other rights, any terms for any conversion or exchange into Class A Common Stock
or Debt Securities, the initial public offering price, listing (if any) on a
securities exchange or quotation (if any) on an automated quotation system and
other terms. If so specified in the applicable Prospectus Supplement, Debt
Securities of a series may be issued in whole or in part in the form of one or
more temporary or permanent global securities.
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities, when issued, will be unsecured and will rank equally with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities, when issued, will be subordinated in right of payment to all Senior
Debt (as defined in the applicable Prospectus Supplement) of the Company. Debt
Securities may be guaranteed to the extent specified in the applicable
Prospectus Supplement (the "Guarantees") by certain subsidiaries of the Company
specified in the Prospectus Supplement (the "Guarantors,").
The Securities will be sold directly, through agents, underwriters or
dealers as designated from time to time, or through a combination of such
methods. If agents of the Company or any dealers or underwriters are involved in
the sale of the Securities in respect of which this Prospectus is being
delivered, the names of such agents, dealers or underwriters and any applicable
commissions or discounts will be set forth in or may be calculated from the
Prospectus Supplement with respect to such Securities. See "Plan of
Distribution" for possible indemnification arrangements with agents, dealers and
underwriters.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement relating to such Securities. Any
statement contained in this Prospectus will be deemed to be modified or
superseded by any inconsistent statement contained in an accompanying Prospectus
Supplement.
The Prospectus Supplement will contain information concerning certain
United States federal income tax considerations, if applicable to the Securities
offered.
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
------------
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 August , 1997
Information contained in this preliminary prospectus is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exhange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time that a final prospectus is
delivered. This preliminary prospectus and the accompanying prospectus
supplement 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>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files 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: 75 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
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.
The Company has filed a Registration Statement on Form S-3 (together with
all amendments thereto, the "Registration Statement") with the Commission in
Washington, D.C., in accordance with the provisions of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus and any accompanying Prospectus Supplement do not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto. Statements contained herein and in any accompanying
Prospectus Supplement concerning the provisions of any document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission are
not necessarily complete, and in each instance reference is made to the copy of
the document so filed. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be inspected
without charge at the offices of the Commission or on EDGAR or copies thereof
may be obtained at prescribed rates from the Public Reference Section of the
Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to Sections 13(a) and 15(d) of the Exchange Act are incorporated hereby by
reference:
(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 Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 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, July 2, 1997,
July 14, 1997, July 17, 1997, July 29, 1997, August 13, 1997 and
August 26, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to termination of the offering of the Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in
this Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus will be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is or is deemed to be incorporated
by reference herein or in any accompanying Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
1
<PAGE>
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.
A copy of any and all of the documents incorporated herein by reference
(other than exhibits unless such exhibits are specifically incorporated by
reference into any such document) will be provided without charge to any person
to whom a copy of this Prospectus is delivered, upon written or oral request.
Requests should be directed to:
Patrick J. Talamantes
Sinclair Broadcasting Group, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
SECURITIES OFFERED HEREBY TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
IN CONNECTION WITH THE OFFERING OF SECURITIES PURSUANT TO THIS PROSPECTUS,
THE UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE SECURITIES ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "PLAN
OF DISTRIBUTION."
2
<PAGE>
Unless the context otherwise indicates, as used herein, the "Company" or
"Sinclair" means Sinclair Broadcast Group, Inc. and its direct and indirect
wholly-owned subsidiaries (collectively, the "Subsidiaries").
THE COMPANY
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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the rights to provide programming to
two additional 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 sales services to 27 radio
stations has pending acquisitions of 24 radio stations and has options to
acquire an additional seven radio stations.
The Company is a Maryland corporation 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.
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should review carefully the following
risks concerning the Company, the Securities 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 31, 1997, the Company had
outstanding long-term indebtedness (including current installments) of
approximately $1.2 billion. In addition, Sinclair Capital, a subsidiary trust of
the Company (the "Trust"), had issued and outstanding $200 million aggregate
liquidation amount of 115/8% High Yield Trust Offered Preferred Securities (the
"Preferred Securities"), which are ultimately backed by $206.2 million
liquidation amount of Series C Preferred Stock, par value $.01, of the Company
(the "Series C Preferred Stock") each of which must be redeemed in 2009. The
Company may borrow additional amounts under a bank credit facility governed by
an Amended and Restated Credit Agreement dated as of May 20, 1997 with The Chase
Manhattan Bank, as agent (as amended from time to time, the "Bank Credit
Agreement"), of which $633.7 million was outstanding as of July 31, 1997 and
expects to do so to finance its pending acquisition (the "Heritage Acquisition")
of assets from certain subsidiaries of Heritage Media Corporation, Inc.
(collectively, "Heritage"). 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 July 31, 1997. 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
payment obligations relating to the Bank Credit Agreement, the 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, together with the 1993 Notes and the 1995 Notes, the
"Existing Notes"), and the Preferred Securities, and a significant amount of the
Company's cash flow will be required to service these obligations. In addition,
the Company may be required to pay dividends on the Series B Convertible
Preferred Stock in certain circumstances. See "Description of Capital Stock --
Existing Preferred Stock." 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 acquisitions completed by the Company in 1996, the
issuance of the Preferred Securities and the issuance of the 1997 Notes as
though each occurred on January 1, 1996, and the
3
<PAGE>
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 Series C Preferred Stock 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 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 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.
COVENANT RESTRICTIONS ON DIVIDENDS AND REDEMPTION
Certain covenants under the Existing Indentures, the Bank Credit Agreement
and the Articles Supplementary relating to the Series C Preferred Stock restrict
the amount of dividends and redemptions that may be declared and paid by the
Company on its capital stock, which will include Preferred Stock offered
pursuant to this Prospectus unless otherwise provided in the applicable
Prospectus Supplement. Although the Company presently believes it will be able
to pay dividends on any Preferred Stock offered hereunder as required, there can
be no assurance that the Company will be permitted under such restrictions to
declare dividends throughout the term of the Preferred Stock. The Company may
make other restricted payments or the Company's consolidated operating
performance may decline, either of which could limit the Company's ability to
declare dividends. In addition, under the terms of the Bank Credit Agreement,
the Company may not be able to pay full cash dividends on Preferred Stock
throughout the term of any Preferred Stock unless the Company's Total
Indebtedness Ratio (as defined in the Bank Credit Agreement) improves from the
Company's pro forma 1996 Total Indebtedness Ratio. The Company must also satisfy
other financial covenants to pay cash dividends under the Bank Credit Agreement.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The indentures relating to the Existing Notes (the "Existing Indentures")
and the Articles Supplementary relating to the Series C Preferred Stock
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
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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. In addition, any Debt Securities may have
other and more restrictive covenants. 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 and/or Debt Securities. In
the event of a default under the Bank Credit Agreement, the Existing Indentures
or any Debt Securities, the lenders and the noteholders could seek to declare
all amounts outstanding under the Bank Credit Agreement, the Existing Notes or
any Debt Securities, 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 including Debt
Securities. Substantially all of the assets of the Company and its Subsidiaries
(other than the assets of KDSM, Inc. which ultimately back up the Preferred
Securities) 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 Company's
current majority stockholders (David D. Smith, Frederick G. Smith, J. Duncan
Smith and Robert E. Smith, collectively, 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.
SUBORDINATION OF THE SUBORDINATED DEBT SECURITIES AND THE RELATED GUARANTEES;
ASSET ENCUMBRANCES
The payment of principal of, premium, if any, and interest on the
Subordinated Debt Securities will be subordinated to the prior payment in full
of Senior Debt (as defined in the applicable Prospectus Supplement) of the
Company, which, unless specified otherwise in the applicable Prospectus
Supplement, will include, among other things, all indebtedness under the Bank
Credit Agreement including obligations under interest rate agreements related
thereto (the "Bank Interest Rate Agreements"). Therefore, in the event of the
liquidation, dissolution, reorganization, or any similar proceeding regarding
the Company, the assets of the Company will be available to pay obligations on
the Subordinated Debt Securities only after Senior Debt has been paid in full in
cash or cash equivalents or in any other form acceptable to the holders of
Senior Debt, and there may not be sufficient assets to pay amounts due on all or
any of the Subordinated Debt Securities. In addition, the Company may not pay
principal of, premium, if any, interest on or any other amounts owing in respect
of the Subordinated Debt Securities, make any deposit pursuant to defeasance
provisions or purchase, redeem or otherwise retire the Subordinated Debt
Securities, if any Designated Senior Debt (as defined in the indenture relating
to Subordinated Debt Securities) is not paid when due or any other default on
Designated Senior Debt
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occurs and the maturity of such indebtedness is accelerated in accordance with
its terms unless, in either case, such default has been cured or waived, any
such acceleration has been rescinded or such indebtedness has been repaid in
full. Moreover, under certain circumstances, if any non-payment default exists
with respect to Designated Senior Debt, the Company may not make any payments on
the Subordinated Debt Securities for a specified time, unless such default is
cured or waived, any acceleration of such indebtedness has been rescinded or
such indebtedness has been repaid in full. See "Description of the Notes --
Subordination." Unless otherwise specified in the applicable Prospectus
Supplement, the Company's and the Subsidiaries' ability to incur additional
indebtedness will also be restricted under the indenture relating to the
Subordinated Debt Securities.
If Subordinated Debt Securities are guaranteed (the "Guarantees") by all or
some of the Company's Subsidiaries (the "Guarantors"), unless otherwise
specified in the applicable Prospectus Supplement, the Guarantees by the
Guarantors will be subordinated in right of payment to the guarantees by the
Guarantors of the Company's obligations under the Bank Credit Agreement
including, but not limited to the obligations under any Bank Interest Rate
Agreement related thereto.
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities will not be secured by any of the Company's assets. The
obligations of the Company under the Bank Credit Agreement including, but not
limited to any Bank Interest Rate Agreement, however, are secured, to the extent
permitted by law, by a first priority security interest in substantially all of
the Company's assets, including the assets of the substantially all of the
Company's Subsidiaries. Moreover, the Company's obligations under certain other
indebtedness (the "Founders' Notes") are secured on a second priority basis by
substantially all of the Company's assets, including the assets of substantially
all of the Company's Subsidiaries. If the Company becomes insolvent or is
liquidated, or if payment under the Bank Credit Agreement, any Bank Interest
Rate Agreement or the Founders' Notes is accelerated, the lenders under the Bank
Credit Agreement, any Bank Interest Rate Agreement or the holders of the
Founders' Notes would be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to instruments governing such
indebtedness. Accordingly, such lenders will have a prior claim on the Company's
assets. In any such event, because the Debt Securities will not be secured by
any of the Company's assets, it is possible that there would be no assets
remaining from which claims of the holders of the Debt Securities could be
satisfied or, if any such assets remained, such assets might be insufficient to
satisfy such claims fully. See "Description of the Debt Securities" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," and Notes to the Consolidated
Financial Statements in the filings incorporated by reference herein.
DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES; POSSIBLE INVALIDITY OF GUARANTEES
The Debt Securities will be the obligations of the Company. Substantially
all of the Company's operating assets are held by its Subsidiaries and
substantially all of its income before provision or benefit for income taxes was
derived from operations of its Subsidiaries. Therefore, the Company's ability to
make interest and principal payments when due to holders of the Debt Securities
is dependent, in part, upon the receipt of sufficient funds from its
Subsidiaries.
To the extent that a court were to find that: (i) any Guarantee of the Debt
Securities was incurred by a Guarantor with intent to hinder, delay or defraud
any present or future creditor or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others; or (ii) such Guarantor did not receive fair consideration or reasonably
equivalent value for issuing its Guarantee and such Guarantor: (a) was
insolvent; (b) was rendered insolvent by reason of the issuance of such
Guarantee; (c) was engaged or about to engage in a business or transaction for
which the remaining assets of such Guarantor constituted unreasonably small
capital to carry on its business; or (d) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured, the
court could avoid or subordinate such Guarantee in favor of the Guarantor's
other creditors. Among other things, a legal challenge of a Guarantee on
fraudulent conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by the Company of the Debt Securities. To
the extent any Guarantee were to be avoided as a fraudulent conveyance or
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held unenforceable for any other reason, holders of the Debt Securities would
cease to have any claim in respect of such Guarantor and would be creditors
solely of the Company and any Guarantor whose Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Debt Securities
against the issuer of an invalid Guarantee would be subject to the prior payment
of all liabilities of such Guarantor. There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy the
claims of the holders of the Debt Securities relating to any voided Guarantee.
POTENTIAL RELEASE OF GUARANTEES
Unless otherwise provided in the applicable Prospectus Supplement, any
Guarantee of a Guarantor, if granted, may be released at any time upon any sale,
exchange or transfer by the Company of the stock of such Guarantor or
substantially all the assets of such Guarantor to a non-affiliate. Unless
otherwise provided in the applicable Prospectus Supplement, under the
Indentures, the net cash proceeds of any Asset Sale (as defined) will be
required to be applied to the repayment of any Senior Debt or to the purchase of
properties and assets for use in the Company's businesses existing on the date
of the Indenture or reasonably related thereto. Unless otherwise provided in the
applicable Prospectus Supplement, any Guarantee of any of the Company's
subsidiaries may also be released at such time as such subsidiary no longer
guarantees any other debt of the Company.
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 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, WABM in Birmingham, KRRT
in San Antonio, and WFBC in Asheville/Greenville/Spartanburg, South Carolina.
The Company has also agreed to sell the assets essential for broadcasting a
television signal in compliance with regulatory guidelines ("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 Acquisition 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
Broadcasting, L.P. ("River City"), from which the Company purchased certain
assets in 1996
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(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 Articles
Supplementary relating to the Series C Preferred Stock provide (and the Debt
Securities may 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 (and the Debt Securities may 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.
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 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 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 Controlling Stockholders own in the aggregate over 60% of the
outstanding voting capital stock (including the Series B Preferred Stock) of the
Company and control over 90% 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 Federal Communications Commission ("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
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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 the Series B 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 the 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. In addition, the Company has the right to issue
additional shares of preferred stock the terms of which could make it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company and accordingly may be used as an anti-takeover device.
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")
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 is Chief Executive Officer of River City and devotes a
substantial amount of his business time and energies to those services. 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. The Company has no reason to
believe Mr. Baker will terminate his employment agreement in such event. If Mr.
Baker's employment agreement is terminated under certain specified
circumstances, 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, either of 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 and 1997, 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 27 radio stations. In addition, the Company has entered into an
agreement to acquire four television and 24 radio stations and the right to
provide programming services to two television stations in connection with the
Heritage Acquisition. There can be no assurance that the Company will be able to
continue to locate and complete acquisitions on the
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scale of the River City Acquisition, the Heritage 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, including those to be acquired in the Heritage Acquisition. Inherent
in any 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.
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 materially
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 one 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 (without giving effect to the Heritage
Acquisition) was from Fox affiliated stations. WVTV, a station to which the
Company provides 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
affiliates of The WB Television Network ("WB"). 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, and the Company has entered into an agreement
with WB for those stations to become affiliated with WB at that time. 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.
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Each of the affiliation agreements relating to television stations involved
in the River City Acquisition (other than River City's ABC and Fox affiliates)
became 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, and, pursuant to an agreement between the
Company and WB, certain of the Company's stations affiliated with UPN will
become affiliated with WB when their current affiliations expire in January
1998. 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. In
connection with the change of affiliation of certain of the Company's stations
from UPN to WB, UPN has filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998. There can be no assurance that the Company and its subsidiaries will
prevail in these proceedings or that the outcome of these proceedings, if
adverse to the Company and its subsidiaries, will not have a material adverse
effect on the Company.
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 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.
11
<PAGE>
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. Under the Balanced Budget Act recently signed into law by
President Clinton, however, the FCC is authorized to extend the December 31,
2006 deadline for reclamation of a television station's non-digital channel if,
in any given case: (a) one or more television stations affiliated with one of
the four major networks in a market are not broadcasting digitally and the FCC
determines that the station(s) has (have) "exercised due diligence" in
attempting to convert to digital broadcasting; (b) less than 85% of the
television households in the station's market subscribe to a multichannel video
service (cable, wireless cable or direct-to-home broadcast satellite television)
that carries at least one digital channel from each of the local stations in
that market; or (c) less than 85% of the television households in the station's
market can receive digital signals off the air using either a set-top converted
box for an analog television set or a new digital television set. The Balanced
Budget Act also directs the FCC to auction the non-digital channels by September
30, 2002 even though they are not to be reclaimed by the government until at
least December 31, 2006. 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 reconsideration 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
12
<PAGE>
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 radio programming can be
simulcast through LMA arrangements, and LMA arrangements in radio are 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 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
13
<PAGE>
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 one was 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 LMA entered into
after enactment of the 1996 Act has a term 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.
A petition has been filed to deny the 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 FCC, at
the Company's request, has withheld 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 petitioner has appealed deferral of
actions on these applications.
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 petition to deny or (ii) the impact such factors may have upon
the Company's broadcast operations. As a result of regulatory changes, 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 this petition 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
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<PAGE>
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 acquisitions completed by the Company in 1996 (the "1996
Acquisitions"), the issuance of the 1997 Notes and the Preferred Securities).
The Company experienced a net loss of $5.8 million during the six months ended
June 30, 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.
ABSENCE OF PUBLIC TRADING MARKET
There may be no public market for certain Securities at the time of their
issuance. The Company may or may not apply for listing of such Securities on an
exchange or for quotation on an automated interdealer quotation system. If the
Company does apply for such listing, there is no assurance that such application
will be granted. If the Securities are accepted for listing, no assurance can be
given as to whether an active trading market for the Securities will develop
and, if so, as to the liquidity of such trading market. If any active trading
market does not develop or is not maintained, the market price of the Securities
may be adversely affected.
TRADING CHARACTERISTICS OF FIXED INCOME SECURITIES
Securities offered hereunder that constitute a fixed-income security are
expected to trade at a price that takes into account the value, if any, of
accrued and unpaid interest or distributions; thus, purchasers will not pay for,
and sellers will not receive, any accrued and unpaid interest or distributions
that are not included in the trading price of such Securities.
The liquidation preference of any Preferred Stock offered pursuant to this
Prospectus or the principal amount of any Debt Security offered pursuant to this
Prospectus will not necessarily be indicative of the price at which such
Securities will actually trade at or after the time of the issuance, and such
Securities may trade at prices below their liquidation preference or principal
amount, as applicable. 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.
FORWARD-LOOKING STATEMENTS
This Prospectus (including the documents or portions thereof incorporated
herein by reference and any Prospectus Supplement) contains forward-looking
statements. 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 adver-
15
<PAGE>
tising, 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.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will use the net proceeds from the sale of the Securities for general
corporate purposes including, without limitation, acquisitions and the repayment
of outstanding indebtedness. Pursuant to the terms of the Bank Credit Agreement,
all or a portion of the proceeds may be required to be used for reduction of
indebtedness. Amounts repaid under the Bank Credit Agreement may be subsequently
reborrowed. The Bank Credit Agreement matures on December 31, 2004 and the
average interest rate thereunder as of July 31, 1997 was 6.75%. The Company will
receive no proceeds from the sale of shares of Class A Common Stock by the
Selling Stockholders.
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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Historical(a) ..................... -- 1.1x -- 1.3x 1.1x -- --
Pro Forma(b)(c) .................. -- --
</TABLE>
- ----------
(a) Earnings were inadequate to cover fixed charges for the years ended December
31, 1992 and 1994, and for the six months ended June 30, 1996 and 1997.
Additional earnings of $5,840, $3,387 and $9,922 would have been required to
cover fixed charges in the years ended December 31, 1992 and 1994, and the
six months ended June 30, 1996 and 1997, respectively.
(b) The pro forma information in this table reflects the pro forma effect of the
completion of the issuance of the Preferred Securities and the 1997 Notes
and the 1996 Acquisitions as if such transactions had occurred on January 1,
1996 with respect to the pro forma information for the year ended December
31, 1996 and as if such transactions had occurred on January 1, 1997 with
respect to the pro forma information for the six months ended June 30, 1997.
(c) Earnings were inadequate to cover fixed charges for the pro forma year ended
December 31, 1996 and pro forma six months ended June 30, 1997. Additional
earnings of $42,088 and $12,148 would have been required to cover fixed
charges for the pro forma year ended December 31, 1996 and pro forma six
months ended June 30, 1997, respectively.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Company's voting securities beneficially owned as of August 12, 1997 by the
Selling Stockholders. The address of all persons in the table is 2000 W. 41st
Street, Baltimore, Maryland 21211. Except as set forth below, each of the shares
offered by the Selling Stockholders is currently held as a share of Class B
Common Stock, and each of such shares will automatically be converted into a
share of Class A Common Stock upon their transfer in connection with a sale
pursuant to this Prospectus. The Selling Stockholders may sell up to an
aggregate of 1,750,000 shares of Class A Common Stock from time to time in
amounts specified in an accompanying Prospectus Supplement.
<TABLE>
<CAPTION>
SHARES OWNED AS OF AUGUST 12, 1997
----------------------------------------------
CLASS A CLASS B PERCENTAGE
COMMON STOCK COMMON STOCK (1) OF VOTING
--------------------- ------------------------ POWER OF
NUMBER PERCENT OF NUMBER PERCENT OF ALL
NAMES OF OF CLASS A OF CLASS B CAPITAL
SELLING STOCKHOLDERS SHARES SHARES SHARES SHARES STOCK
- ------------------------------ -------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
David D. Smith ............... 10,000 * 7,249,999 26.3% 25.3%
Frederick G. Smith (2) ...... 4,000 * 6,754,944 24.5% 23.5%
J. Duncan Smith (3) ......... -- -- 6,969,994 25.3% 24.3%
Robert E. Smith (4) ......... -- -- 6,601,644 23.9% 23.0%
</TABLE>
* Less than one percent.
(1) Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share expect
for votes relating to "going private" and certain other transactions.
Holders of both classes of Common Stock will vote together as a single class
on all matters presented for a vote, except as otherwise may be required by
Maryland law, and holders of Class B Common Stock may exchange their shares
of Class B Common Stock into Class A Common Stock at any time.
(2) Includes 506,645 shares held in irrevocable trusts established by Frederick
G. Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(3) Includes 491,695 shares held in irrevocable trusts established by J. Duncan
Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(4) Includes 959,745 shares held in irrevocable trusts established by Robert E.
Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
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<PAGE>
DESCRIPTION OF DEBT SECURITIES
Debt Securities may be issued from time to time in one or more series under
one or more indentures, each dated as of a date on or prior to the issuance of
the Debt Securities to which it relates. Senior Debt Securities and Subordinated
Debt Securities may be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same Trustee, and in the
form that will be filed as an exhibit to or incorporated by reference into the
Registration Statement of which this Prospectus is a part, subject to such
amendments or supplements as may be adopted from time to time. The Senior
Indenture and the Subordinated Indenture, as amended or supplemented from time
to time, are sometimes referred to individually as an "Indenture" and
collectively as the "Indentures." Each Indenture will be subject to and governed
by the Trust Indenture Act of 1939, as amended (the "TIA").
The statements made hereunder relating to the Debt Securities and the
Indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the applicable Indenture, including the
definitions therein of certain terms and those terms made part of such Indenture
by reference to the TIA, as in effect on the date of such Indenture, and to such
Debt Securities. Copies of the forms of the Indentures will be filed as exhibits
to or incorporated by reference into the Registration Statement of which this
Prospectus is a part. See "Available Information." Certain capitalized terms
used below and not defined have the respective meanings assigned to them in the
applicable Indenture.
GENERAL
The Debt Securities will be unsecured obligations of the Company unless
otherwise specified in the Prospectus Supplement. The Senior Debt Securities
will rank on a parity with all other unsecured and unsubordinated obligations of
the Company. The Subordinated Debt Securities will be subordinate and junior in
right of payment to the extent and in the manner set forth in the Subordinated
Indenture to all Senior Debt (as defined in the applicable Prospectus
Supplement) of the Company, including any Senior Debt Securities. See "--
Subordination." The Company is a holding company which presently conducts its
business through its subsidiaries. Most of the operating assets of the Company
and its consolidated subsidiaries are owned by such subsidiaries and the Company
relies primarily on dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt obligations and
corporate expenses. Accordingly, the Debt Securities will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Debt Securities should look only to the assets of
the Company for payments on the Debt Securities unless the Debt Securities are
guaranteed by the Company's subsidiaries as described in any Prospectus
Supplement. The Debt Securities may be guaranteed by some or all of the
Company's Subsidiaries, in which case such guarantees will, unless otherwise
specified in the applicable Prospectus Supplement, (i) rank pari passu in right
of payment with all other unsecured senior obligations of such Subsidiaries with
respect to guarantees of Senior Debt Securities, and (ii) rank subordinate in
right of payment to all unsecured senior obligations of such Subsidiaries and
rank pari passu in right of payment to all subordinated obligations of such
Subsidiaries with respect to guarantees of Subordinated Debt Securities. The
guarantees will be effectively subordinated in right of payment to all secured
Indebtedness of such Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
The Indentures will not limit the aggregate amount of Debt Securities which
may be issued thereunder. Except as otherwise provided in the applicable
Prospectus Supplement, the Indentures, as they apply to any series of Debt
Securities, will not limit the incurrence or issuance of other secured or
unsecured debt of the Company, whether under the Indentures, any other indenture
that the Company may enter into in the future or otherwise.
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for a description of the specific series of Debt
Securities being offered thereby, including:
(1) the title of such Debt Securities;
(2) any limit upon the aggregate principal amount of such Debt
Securities;
18
<PAGE>
(3) the date or dates on which the principal of and premium, if any, on
such Debt Securities will mature or the method of determining such date or
dates;
(4) the rate or rates (which may be fixed or variable) at which such Debt
Securities will bear interest, if any, or the method of calculating such rate
or rates;
(5) the date or dates from which interest, if any, will accrue or the
method by which such date or dates will be determined;
(6) the date or dates on which interest, if any, will be payable and the
record date or dates therefor;
(7) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable or at which Debt
Securities may be surrendered for registration of transfer or exchange;
(8) the period or periods within which, the price or prices at which, the
currency or currencies if other than in United States dollars (including
currency unit or units) in which, and the other terms and conditions upon
which, such Debt Securities may be redeemed, in whole or in part, at the
option of the Company;
(9) the obligation, if any, of the Company to redeem or purchase such
Debt Securities pursuant to any sinking fund or analogous provisions or upon
the happening of a specified event or at the option of a holder thereof and
the period or periods within which, the price or prices at which, the
currency or currencies if other than in United States dollars (including
currency unit or units) in which, and the other terms and conditions upon
which, such Debt Securities shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(10) the denominations in which such Debt Securities are authorized to
be issued;
(11) the currency or currency unit in which such Debt Securities may be
denominated and/or the currency or currencies (including currency unit or
units) in which principal of, premium, if any, and interest, if any, on such
Debt Securities will be payable and whether the Company or the holders of any
such Debt Securities may elect to receive payments in respect of such Debt
Securities in a currency or currency unit other than that in which such Debt
Securities are stated to be payable;
(12) if the amount of principal of, or any premium or interest on, such
Debt Securities may be determined with reference to an index or pursuant to a
formula or other method, the manner in which such amounts will be determined;
(13) if other than the principal amount thereof, the portion of the
principal amount of such Debt Securities which will be payable upon
declaration of the acceleration of the maturity thereof or the method by
which such portion shall be determined;
(14) provisions, if any, granting special rights to the holders of such
Debt Securities upon the occurrence of such events as may be specified;
(15) any addition to, or modification or deletion of, any Event of
Default or any covenant of the Company specified in the Indenture with
respect to such Debt Securities;
(16) the circumstances, if any, under which the Company will pay
additional amounts on such Debt Securities held by non-U.S. persons in
respect of taxes, assessments or similar charges;
(17) whether such Debt Securities will be issued in registered or bearer
form or both;
(18) the date as of which any bearer Securities of the series and any
temporary global security representing outstanding securities shall be dated,
if other than the original issuance date of the series of Debt Securities;
(19) the forms of the Securities and interest coupons, if any, of the
series;
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(20) if other than the Trustee, the identity of the Registrar and any
Paying Agent;
(21) the application, if any, of such means of defeasance or covenant
defeasance as may be specified for such Debt Securities;
(22) whether such Debt Securities are to be issued in whole or in part in
the form of one or more temporary or permanent global securities and, if so,
the identity of the depositary or its nominee, if any, for such global
security or securities and the circumstances under which beneficial owners of
interests in the global security may exchange such interests for certificated
Debt Securities to be registered in the names of or to be held by such
beneficial owners or their nominees;
(23) if the debt Securities of the series may be issued or delivered, or
any installation of principal or interest payable, only upon receipt of
certain certificates or other documents or satisfaction of other conditions
in addition to those specified in the Indenture, the form of such
certificates, documents or conditions;
(24) if other than as provided in the Indenture, the person to whom any
interest on any registered security of the series shall be payable and the
manner in which, or the person to whom, any interest on any bearer Securities
of the series shall be payable;
(25) the definition of "Unrestricted Subsidiary" to be used for such
series;
(26) in the case of the Subordinated Indenture, the relative degree to
which Debt Securities of the series offered shall be senior to or be
subordinated to other series of such Debt Securities, and to other
indebtedness of the Company, in right of payment, whether such other series
of Debt Securities and other indebtedness are outstanding or not;
(27) whether such Debt Securities are guaranteed and, if so, the identity
of the Guarantors and the terms of such Guarantees (including whether and the
extent to which the Guarantees are subordinated to the other indebtedness of
the Guarantors);
(28) the terms, if any, upon which the Company may be able to redeem such
Debt Securities prior to their maturity including the dates on which such
redemptions may be made and the price at which such redemptions may be made;
(29) the terms, if any, upon which such Debt Securities may be converted
or exchanged into or for Common Stock, Preferred Stock or other securities or
property of the Company;
(30) any restrictions on the registration, transfer or exchange of such
Debt Securities; and
(31) any other terms not inconsistent with the terms of the Indentures
pertaining to such Debt Securities or which may be required or advisable
under the United States laws or regulations or advisable (as determined by
the Company) in connection with marketing of securities of the series.
The terms of each specific series of Debt Securities being offered in the
Prospectus Supplements shall be established (i) by the resolution of the Board
of Directors, (ii) by action taken pursuant to a resolution of the Board of
Directors and set forth, or determined in a manner provided in, an Officer's
Certificate (as defined in the applicable Prospectus Supplement) or (iii) in one
or more supplemental indentures.
Unless otherwise provided in the applicable Prospectus Supplement, the Debt
Securities will not be listed on any securities exchange.
The number of shares of Common Stock or Preferred Stock that will be
issuable upon the conversion or exchange of any Debt Securities issued with
conversion or exchange provisions will be adjusted to prevent dilution resulting
from stock splits, stock dividends or similar or other transactions, and the
nature and amount of the securities, assets or other property to be received
upon the conversion or exchange of such Debt Securities will be changed as
necessary in the event of any consolidation, merger, combination or similar
transaction. The specific provisions will be set forth in the applicable
Prospectus Supplement.
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Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be issued in denominations of U.S. $1,000 or
any integral multiples of U.S. $1,000, and Debt Securities in bearer form will
be issued in denominations of U.S. $5,000 or any integral multiples of U.S.
$5,000. Where Debt Securities of any series are issued in bearer form, the
special restrictions and considerations, including special offering restrictions
and material U.S. federal income tax considerations, applicable to any such Debt
Securities and to payments in respect of and transfers and exchanges of such
Debt Securities will be described in the applicable Prospectus Supplement. Debt
Securities in bearer form will be transferable by delivery.
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Material U.S. federal income tax consequences
and special considerations applicable to any such Debt Securities will be
described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, the restrictions,
elections, material U.S. federal income tax considerations and other information
with respect to such issue of Debt Securities and such foreign currency or
currency units will be set forth in the applicable Prospectus Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest, if any, on any series of Debt Securities, material
U.S. federal income tax, accounting and other considerations applicable thereto
will be described in the applicable Prospectus Supplement.
The general provisions of the Indentures will not afford holders of the
Debt Securities protection in the event of a highly leveraged transaction,
restructuring, change in control, merger or similar transaction involving the
Company that may adversely affect holders of the Debt Securities.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at
such office or agency of the Company maintained for that purpose as the Company
may designate from time to time, except that, at the option of the Company,
interest payments, if any, on Debt Securities in registered form may be made (i)
by checks mailed to the holders of Debt Securities entitled thereto at their
registered addresses or (ii) by wire transfer to an account maintained by the
holders of the Debt Securities entitled thereto as specified in the register for
the applicable Debt Securities (the "Register"). Unless otherwise provided in
the applicable Prospectus Supplement, each payment in respect of the Debt
Securities shall be considered to have been made on the date such payment is due
if there shall have been sent to the Trustee or paying agent by wire transfer
(received by no later than the business day following such due date), or the
Trustee or paying agent otherwise holds, on such due date sufficient funds to
make such payment. Unless otherwise indicated in an applicable Prospectus
Supplement, scheduled payments of any installment of interest on Debt Securities
in registered form will be made to the person in whose name such Debt Security
is registered at the close of business on the regular record date for such
interest.
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the United
States as the Company may appoint from time to time. The paying agents outside
the United States, if any, initially appointed by the Company for a series of
Debt Securities will be named in the Prospectus Supplement. Unless otherwise
provided in the applicable Prospectus Supplement, the Company may at any time
designate additional paying agents or rescind the designation of any paying
agents, except that, if Debt Securities of a series are issuable in registered
form, the Company will be required to maintain at least one paying agent in each
place of payment for such series and if Debt Securities of a series are issuable
in bearer form, the Company will be required to maintain at least one paying
agent in a place of payment outside the United States where Debt Securities of
such series and any coupons appertaining thereto may be presented and
surrendered for payment.
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Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of the Company maintained for such purpose as designated by the Company from
time to time. Debt Securities may be transferred or exchanged without service
charge, although the Company may require a holder to pay any tax or other
governmental charge imposed in connection therewith.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a "Registered Global
Security"). Each Registered Global Security will be registered in the name of a
depositary (the "Depositary") or a nominee for the Depositary identified in the
applicable Prospectus Supplement, will be deposited with such Depositary or
nominee or a custodian therefor and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof and any such
other matters as may be provided for pursuant to the applicable Indenture. In
such a case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be represented
by such Registered Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in definitive certificated
form, a Registered Global Security may not be transferred or exchanged except as
a whole by the Depositary for such Registered Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor Depositary,
or except in the circumstances described in the applicable Prospectus
Supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the applicable Prospectus Supplement.
Upon the issuance of any Registered Global Security, and the deposit of
such Registered Global Security with or on behalf of the Depositary for such
Registered Global Security, the Depositary will credit on its book-entry
registration and transfer system the respective principal amounts of the Debt
Securities represented by such Registered Global Security to the accounts of
institutions ("Participants") that have accounts with the Depositary. The
accounts to be credited will be designated by the underwriters or agents
engaging in the distribution of such Debt Securities or by the Company, if such
Debt Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Registered Global Security will be limited to
Participants or persons that may hold interests through Participants. Ownership
of beneficial interests in a Registered Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depositary for such Registered Global Security or by its nominee.
Ownership of beneficial interests in such Registered Global Security by persons
who hold through Participants will be shown on, and the transfer of such
beneficial interests within such Participants will be effected only through,
records maintained by such Participants.
So long as the Depositary for a Registered Global Security, or its nominee,
is the owner of such Registered Global Security, such Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Debt Security represented by such Registered Global Security for all purposes
under each Indenture. Accordingly, each person owning a beneficial interest in
such Registered Global Security must rely on the procedures of the Depositary
and, if such person is not a Participant, on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a holder
under such Indenture. The Company understands that under existing industry
practices, if it requests any action of holders or if an owner of a beneficial
interest in a Registered Global Security desires to give or take any instruction
or action which a holder is entitled to give or take under the Indenture, the
Depositary would authorize the Participants holding the relevant beneficial
interests to give or take such instruction or action, and such Participants
would authorize beneficial owners owning through such Participants to give or
take such instruction or action or would otherwise act upon the instructions of
beneficial owners holding through them.
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Unless otherwise provided in the Prospectus Supplement, payments with
respect to principal, premium, if any, and interest, if any, on the Debt
Securities represented by a Registered Global Security registered in the name of
the Depositary or its nominee will be made to such Depositary or its nominee, as
the case may be, as the registered owner of such Registered Global Security. The
Company expects that the Depositary for any Debt Securities represented by a
Registered Global Security, upon receipt of any payment of principal or interest
in respect of such Registered Global Security, will credit immediately
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Registered Global Security as shown on
the records of the Depositary. The Company also expects that payments by
Participants to owners of beneficial interests in such Registered Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities in
bearer form held for the accounts of customers or registered in "street name,"
and will be the responsibility of such Participants. None of the Company, the
respective Trustees or any agent of the Company or the respective Trustees shall
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial interests in any Registered Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial interests.
Unless otherwise provided in the applicable Prospectus Supplement, if the
Depositary for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as depositary of such Registered
Global Security and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Debt Securities in certificated form in
exchange for such Registered Global Security. In addition, unless otherwise
provided in the applicable Prospectus Supplement, the Company in its sole
discretion may at any time determine not to have any of the Debt Securities of a
series represented by one or more Registered Global Securities and, in such
event, will issue Debt Securities of such series in certificated form in
exchange for all of the Registered Global Securities representing such series of
Debt Securities. The Debt Securities of a series may also be issued in whole or
in part in the form of one or more bearer global securities (a "Bearer Global
Security") that will be deposited with a depositary, or with a nominee for such
depositary, identified in the applicable Prospectus Supplement. Any such Bearer
Global Securities may be issued in temporary or permanent form. The specific
terms and procedures, including the specific terms of the depositary
arrangement, with respect to any portion of a series of Debt Securities to be
represented by one or more Bearer Global Securities will be described in the
applicable Prospectus Supplement.
CERTAIN COVENANTS
The applicable Prospectus Supplement will describe any material covenants
in respect of any series of Debt Securities.
CONSOLIDATION, MERGER, SALE OF ASSETS
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the Company shall not, in a single transaction or a
series of related transactions, consolidate with or merge with or into any other
person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any person or group of
affiliated persons, or permit any of its Subsidiaries to enter into any such
transaction or transactions if such transaction or transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Subsidiaries on a consolidated basis to any other person or
group of affiliated persons, unless at the time and after giving effect thereto:
(i) either (1) the Company shall be the continuing corporation or (2) the person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the person which acquires by sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company and its Subsidiaries on a consolidated basis (the
"Surviving Entity") shall be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and such person assumes, by a supplemental indenture in a
form reasonably satisfactory to the Trustee, all the obligations of the Company
under the applicable Debt Securities and the Indenture, and the Indenture shall
remain in full force and effect; (ii) immediately before and immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
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transaction on a pro forma basis, the consolidated net worth (as defined in the
applicable Indenture) of the Company (or the Surviving Entity if the Company is
not the continuing obligor under the Indenture) is equal to or greater than the
consolidated net worth of the Company immediately prior to such transaction;
(iv) immediately before and immediately after giving effect to such transaction
on a pro forma basis (on the assumption that the transaction occurred on the
first day of the four-quarter period immediately prior to the consummation of
such transaction with the appropriate adjustments with respect to the
transaction being included in such pro forma calculation), the Company (or the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) could incur $1.00 of additional indebtedness under any applicable
provisions of the Indenture limiting incurrence of indebtedness; (v) each
Guarantor, if any, unless it is the other party to the transactions described
above, shall have by supplemental indenture confirmed that its guarantee shall
apply to such person's obligations under the Indenture and the Debt Securities;
(vi) if any of the property or assets of the Company or any of its Subsidiaries
would thereupon become subject to any lien, any provisions of the Indenture
limiting liens are complied with; and (vii) the Company or the Surviving Entity
shall have delivered, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an officers' certificate and
an opinion of counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, lease or other transaction and the supplemental
indenture in respect thereto comply with the provisions of the Indenture and
that all conditions precedent provided for in the Indenture relating to such
transaction have been complied with.
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that any Guarantor will not, and the Company will not
permit any such Guarantor to, in a single transaction or series of related
transactions merge or consolidate with or into any other corporation (other than
the Company or any other Guarantor) or other entity, or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets on a consolidated basis to any entity (other than the
Company or any other Guarantor) unless at the time and after giving effect
thereto: (i) either (1) such Guarantor shall be the continuing corporation or
(2) the entity (if other than such Guarantor) formed by such consolidation or
into which such Guarantor is merged or the entity which acquires by sale,
assignment, conveyance, transfer, lease or disposition the properties and assets
of such Guarantor shall be a corporation duly organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture, executed and
delivered to the Trustee, in a form reasonably satisfactory to the Trustee, all
the obligations of such Guarantor under the Debt Securities and the Indenture;
(ii) immediately before and immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing; and (iii)
such Guarantor shall have delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or disposition and such supplemental indenture
comply with the Indenture, and thereafter all obligations of the predecessor
shall terminate.
EVENTS OF DEFAULT
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that an Event of Default with respect to the Debt
Securities of a particular series will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Debt
Security of that series when it becomes due and payable, and such default
shall continue for a period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Debt Security of that series at its maturity (upon
acceleration, optional or mandatory redemption, required repurchase or
otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with in clause (i) or (ii) or in clause
(b) of this clause (iii)) and such default or breach shall continue for a
period of 30 days after written notice has been given, by certified mail, (x)
to the Company by the Trustee or (y) to the Company
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and the Trustee by the holders of at least 25% in aggregate principal amount
of the outstanding Debt Securities of the series; or (b) there shall be a
default in the performance or breach of the provisions described in "--
Consolidation, Merger, Sale of Assets;"
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company, any Guarantor or certain
subsidiaries specified in the Indenture (a "Restricted Subsidiary") then has
outstanding indebtedness in excess of an amount specified in the applicable
Prospectus Supplement in the aggregate and, if not already matured at its
final maturity in accordance with its terms, such Indebtedness shall have
been accelerated;
(v) any Guarantee shall for any reason cease to be, or be asserted in
writing by any Guarantor or the Company not to be, in full force and effect,
enforceable in accordance with its terms, except to the extent contemplated
by the Indenture and any such guarantee;
(vi) one or more judgments, orders or decrees for the payment of money in
excess of an amount specified in the applicable Prospectus Supplement, either
individually or in the aggregate (net of amounts covered by insurance, bond,
surety or similar instrument) shall be entered against the Company, any
Guarantor or any Restricted Subsidiary or any of their respective properties
and shall not be discharged and either (a) any creditor shall have commenced
an enforcement proceeding upon such judgment, order or decree or (b) there
shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of an appeal or otherwise,
shall not be in effect;
(vii) any holder or holders of at least an amount specified in the
applicable Prospectus Supplement in aggregate principal amount of
indebtedness of the Company, any Guarantor or any Restricted Subsidiary after
a default under such indebtedness shall notify the Trustee of the intended
sale or disposition of any assets of the Company, any Guarantor or any
Restricted Subsidiary that have been pledged to or for the benefit of such
holder or holders to secure such indebtedness or shall commence proceedings,
or take any action (including by way of set-off), to retain in satisfaction
of such indebtedness or to collect on, seize, dispose of or apply in
satisfaction of indebtedness, assets of the Company or any Restricted
Subsidiary (including funds on deposit or held pursuant to lock-box and other
similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company,
any Guarantor or any Restricted Subsidiary in an involuntary case or
proceeding under any applicable bankruptcy law or (b) a decree or order
adjudging the Company, any Guarantor or any Restricted Subsidiary bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company, any Guarantor or any Restricted Subsidiary
under any applicable federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company, any Guarantor or any Restricted Subsidiary or of
any substantial part of their respective properties, or ordering the winding
up or liquidation of their affairs, and any such decree or order for relief
shall continue to be in effect, or any such other decree or order shall be
unstayed and in effect, for a period of 60 consecutive days; or
(ix) (a) the Company, any Guarantor or any Restricted Subsidiary
commences a voluntary case or proceeding under any applicable bankruptcy law
or any other case or proceeding to be adjudicated bankrupt or insolvent, (b)
the Company, any Guarantor or any Restricted Subsidiary consents to the entry
of a decree or order for relief in respect of the Company, any Guarantor or
such Restricted Subsidiary in an involuntary case or proceeding under any
applicable bankruptcy law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, (c) the Company, any Guarantor or
any Restricted Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (d) the
Company, any Guarantor or any Restricted Subsidiary (x) consents to the
filing of such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company, any Guarantor or such Restricted Subsidiary
or of any substantial part
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of their respective property, (y) makes an assignment for the benefit of
creditors or (z) admits in writing its inability to pay its debts generally
as they become due or (e) the Company, any Guarantor or any Restricted
Subsidiary takes any corporate action in furtherance of any such actions in
this paragraph (ix).
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that if an Event of Default (other than as specified in
clauses (viii) and (ix) of the prior paragraph) shall occur and be continuing,
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Debt Securities of the applicable series outstanding may, and the Trustee at
the request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on, all the Debt Securities of the applicable series
to be due and payable immediately by a notice in writing to the Company (and to
the Trustee if given by the holders of the Debt Securities of the applicable
series); provided that so long as the Bank Credit Agreement is in effect, such
declaration shall not become effective until the earlier of (a) five business
days after receipt of such notice of acceleration from the holders or the
Trustee by the agent under the Bank Credit Agreement or (b) acceleration of the
indebtedness under the Bank Credit Agreement. Thereupon the Trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of the
applicable Debt Securities by appropriate judicial proceeding. If an Event of
Default specified in clause (viii) or (ix) of the prior paragraph occurs and is
continuing, then all the Debt Securities of the applicable series shall ipso
facto become and be immediately due and payable, in an amount equal to the
principal amount of the Debt Securities of the applicable series, together with
accrued and unpaid interest, if any, to the date the Debt Securities become due
and payable, without any declaration or other act on the part of the Trustee or
any holder. The Trustee or, if notice of acceleration is given by the holders of
the Debt Securities of the applicable series, the holders of the Debt Securities
of the applicable series shall give notice to the agent under the Bank Credit
Agreement of such acceleration.
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide after a declaration of acceleration, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the Debt
Securities of the applicable series, by written notice to the Company and the
Trustee, may rescind and annul such declaration if (a) the Company has paid or
deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced
by the Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Debt Securities of the applicable series, (iii) the
principal of and premium, if any, on any Debt Securities of the applicable
series which have become due otherwise than by such declaration of acceleration
and interest thereon at a rate borne by the Debt Securities and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Debt Securities; and (b) all Events of Default, other
than the non-payment of principal of the Debt Securities which have become due
solely by such declaration of acceleration, have been cured or waived.
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the holders of not less than a majority in aggregate
principal amount of the Debt Securities of the applicable series outstanding may
on behalf of the holders of all the Debt Securities of the applicable series
waive any past default under the Indenture and its consequences, except a
default in the payment of the principal of, premium, if any, or interest on any
Debt Security, or in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Debt Security outstanding.
Unless specified otherwise in the applicable Prospectus Supplement, each
Indenture will provide that the Company is also required to notify the Trustee
within five business days of the occurrence of any Default. Unless otherwise
provided in the applicable Prospectus Supplement, the Company is required to
deliver to the Trustee, on or before a date not more than 60 days after the end
of each fiscal quarter and not more than 120 days after the end of each fiscal
year, a written statement as to compliance with the Indenture, including whether
or not any default has occurred. Unless otherwise provided in the applicable
Prospectus Supplement, the Trustee is under no obligation to exercise any of the
rights or powers vested in it by the Indenture at the request or direction of
any of the holders of the Debt
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Securities unless such holders offer to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred thereby.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions, provided that if it acquires any conflicting
interest it must eliminate such conflict upon the occurrence of an Event of
Default or else resign.
Reference is made to the Prospectus Supplement relating to each series of
Debt Securities that are Original Issue Discount Securities for the particular
provisions relating to acceleration of the maturity of a portion of the
principal amount of such Original Issue Discount Securities upon the occurrence
of an Event of Default and the continuation thereof.
MODIFICATIONS AND AMENDMENTS
Unless otherwise specified in the applicable Prospectus Supplement,
modifications and amendments of the Indenture may be made by the Company, any
Guarantor and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the outstanding Debt Securities of all
series affected by the modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the holder of each
outstanding Debt Security of all series affected by the modification or
amendment affected thereby: (i) change the stated maturity of the principal of,
or any installment of interest on, any Debt Security or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of any
Debt Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after the stated
maturity thereof (or in the case of redemption, on or after the redemption
date); (ii) reduce the percentage in principal amount of outstanding Debt
Securities of a series, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver or compliance with certain provisions of the Indenture or certain
defaults or with respect to any Guarantee; (iii) modify any of the provisions
relating to supplemental indentures requiring the consent of holders or relating
to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase the percentage of outstanding Debt Securities required for
such actions or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each Debt Security
affected thereby; (iv) except as otherwise permitted under "-- Consolidation,
Merger, Sale of Assets," consent to the assignment or transfer by the Company or
any Guarantor of any of its rights and obligations under the Indenture; or (v)
amend or modify any provisions of the Indenture relating to the subordination of
the Debt Security or any guarantee in any manner adverse to the holders of the
Debt Securities or any guarantee.
Unless otherwise provided in the applicable Prospectus Supplement,
modifications and amendments of each Indenture may be made by the Company and
Trustee without the consent of the Holders to: (i) cause each Indenture to be
qualified under the Trust Indenture Act ("TIA") or to add provisions expressly
required under the TIA: (ii) evidence the succession of another person to the
Company and the assumption by any such successor of the covenants of the Company
and the under the Indenture and in the Debt Securities of any series; (iii) add
to the covenants of the Company for the benefit of the holders or an additional
event of default to all or any series of Debt Securities, or surrender any right
or power conferred upon the Company; (iv) secure the Debt Securities; (v) to add
to or change any provisions to such extent as necessary to facilitate the
issuance or administration of Debt Securities in bearer form or facilitate the
issuance or administration of Debt Securities in global form; (vi) to change or
eliminate any provision affecting only Debt Securities not yet issued; (vii) to
establish the form or terms of Debt Securities of any series; (viii) to evidence
and provide for successor Trustees or to add or change any provisions of such
Indenture to such extent as necessary to permit or facilitate the appointment of
a separate Trustee or Trustees for specific series of Debt Securities; (ix) to
permit payment in respect of Debt Securities in bearer form in the United States
to the extent allowed by law; (x) to make provision with respect to any
conversion or exchange rights of holders not adverse to the holders of any
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Debt Securities of any series then outstanding with such conversion or exchange
rights, including providing for the conversion or exchange of Debt Securities
into Common Stock or Preferred Stock; or (xi) cure any ambiguity, correct or
supplement any provision which may be defective or inconsistent with any other
provision, or make any other provisions with respect to matters or questions
arising under the Indenture which shall not be inconsistent with the provisions
of the Indenture; provided, however, that no such modifications or amendment may
adversely affect the interest of holders of Debt Securities of any series then
outstanding in any material respect.
The holders of a majority in aggregate principal amount of the Debt
Securities of a series may waive compliance with certain restrictive covenants
and provisions of the Indenture with respect to that series.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement, the
payment of principal of, premium on, if any, and interest on any Subordinated
Debt Securities will be subordinated in right of payment, as set forth in the
applicable Subordinated Indenture, to the prior payment in full of all Senior
Debt (as defined in the applicable Prospectus Supplement), whether outstanding
on the date of the Subordinated Indenture or thereafter incurred.
Unless otherwise provided in the applicable Prospectus Supplement, during
the continuance of any default in the payment of any Designated Senior Debt (as
such term is defined in the applicable Prospectus Supplement) no payment (other
than payments previously made pursuant to the provisions described under "--
Defeasance or Covenant Defeasance of Indenture") or distribution of any assets
of the Company of any kind or character (excluding certain permitted equity
interests or subordinated securities) shall be made on account of the principal
of, premium, if any, or interest on, the Subordinated Debt Securites or on
account of the purchase, redemption, defeasance or other acquisition of, the
Subordinated Debt Securities unless and until such default has been cured,
waived or has ceased to exist or such Designated Senior Debt (as such term is
defined in the applicable Prospectus Supplement) shall have been discharged or
paid in full in cash or cash equivalents or in any other form as acceptable to
the holders of Senior Debt.
Unless otherwise provided in the applicable Prospectus Supplement, during
the continuance of any non-payment default with respect to any Designated Senior
Debt pursuant to which the maturity thereof may be accelerated (a "Non-payment
Default") and after the receipt by the Trustee and the Company from a
representative of the holder of any Designated Senior Debt of a written notice
of such default, no payment (other than payments previously made pursuant to the
provisions described under "-- Defeasance or Covenant Defeasance of Indenture")
or distribution of any assets of the Company of any kind or character (excluding
certain permitted equity or subordinated securities) may be made by the Company
on account of the principal of, premium, if any, or interest on, the
Subordinated Debt Securities or on account of the purchase, redemption,
defeasance or other acquisition of, the Subordinated Debt Securities for the
period specified below (the "Payment Blockage Period").
Unless otherwise provided in the applicable Prospectus Supplement, the
Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Trustee and the Company from a representative of the
holders of any Designated Senior Debt 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 Debt 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 Debt is discharged or paid in full in
cash or cash equivalents or in any other form as acceptable to the holders of
Designated Senior Debt 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 intiated) shall have been terminated by written notice to the
Company or the Trustee from the representative of holders of Designated Senior
Debt initiating such Payment Blockage Period, after which, in the case of
clauses (i), (ii) and (iii), the Company shall promptly resume making any and
all required payments in respect of the Subordinated Debt Securities, including
any missed payments. In no event will a Payment Blockage Period extend beyond
179 days from the date of the receipt by the
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Company or the 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 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 Subordinated Debt Securities
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
Debt 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.
Unless otherwise provided in the applicable Prospectus Supplement, if the
Company fails to make any payment on Subordinated Debt Securities when due or
within any applicable grace period, whether or not on account of the payment
blockage provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Subordinated
Debt Securities to accelerate the maturity thereof. See "-- Events of Default."
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that in the event of any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to the Company or its
assets, or any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or any other
marshalling of assets or liabilities of the Company, all Senior Debt must be
paid in full in cash or cash equivalents or in any other manner acceptable to
the holders of Senior Debt, or provision made for such payment, before any
payment or distribution (excluding distributions of certain permitted equity or
subordinated securities) is made on account of the principal of, premium, if
any, or interest on the Subordinated Debt Securities.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Debt may recover more,
ratably, than the holders of the Subordinated Debt Securities, and funds which
would be otherwise payable to the holders of the Subordinated Debt Securities
will be paid to the holders of the Senior Debt to the extent necessary to pay
the Senior Debt in full in cash or cash equivalents or in any other manner
acceptable to the holders of Senior Debt, and the Company may be unable to meet
its obligations fully with respect to the Subordinated Debt Securities.
To the extent provided in the applicable Prospectus Supplement, any
Guarantee of Subordinated Debt Securities by a Guarantor will be an unsecured
subordinated obligation of such Guarantor, ranking pari passu with, or senior in
right of payment to, all other existing and future indebtedness of such
Guarantor that is expressly subordinated to Guarantor Senior Debt (as defined in
the applicable Indenture). To the extent provided in the applicable Prospectus
Supplement, indebtedness evidenced by the Guarantees will be subordinated to
Guarantor Senior Debt to the same extent as the Subordinated Debt Securities are
subordinated to Senior Debt and during any period when payment on the
Subordinated Debt Securities is blocked by Designated Senior Debt, payment on
the Guarantees will be similarly blocked.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the Company may, at its option, at any time, elect
to have the obligations of the Company, each of the Guarantors (if any) and any
other obligor upon the Debt Securities discharged with respect to the
outstanding Debt Securities of an applicable series ("defeasance"). Such
defeasance means that the Company, each of the Guarantors (if any) and any other
obligor under the Indenture shall be deemed to have paid and discharged the
entire indebtedness represented by the outstanding Debt Securities of such
series, except for (i) the rights of holders of outstanding Debt Securities to
receive payments in respect of the principal of, premium, if any, and interest
on such Debt Securities when such payments are due, (ii) the Company's
obligations with respect to the Debt Securities concerning issuing temporary
Debt Securities, registration of Debt Securities, mutilated, destroyed, lost or
stolen Debt Securities, and the
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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 Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company and any Guarantor released with respect to certain covenants that are
described in the 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 Debt Securities of the applicable series. 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
Notes.
Unless otherwise provided in the applicable Prospectus Supplement, in order
to exercise either defeasance or covenant defeasance, (i) the Company must
irrevocably deposit with the Trustee, in trust, for the benefit of the holders
of the Debt Securities, cash in United States dollars, U.S. Government
Obligations (as defined in the 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 Trustee, to
pay and discharge the principal of, premium, if any, and interest on the
applicable Debt Securities on the stated maturity of such principal or
installment of principal or interest (or on the "Defeasance Redemption Date" as
defined in the applicable Prospectus Supplement), if when exercising either
defeasance or covenant defeasance, the Company has delivered to the Trustee an
irrevocable notice to redeem all of the outstanding Debt Securities of the
applicable series on the Defeasance Redemption Date); (ii) in the case of
defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of issuance of the applicable Debt Securities,
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 Debt Securities
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, the
Company shall have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that the holders of the applicable Debt
Securities 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 (vii) or (viii) under the first paragraph
under "-- Events of Default" are 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 Trustee for the applicable Debt Securities to
have a conflicting interest with respect to any securities of the Company or any
Guarantor; (vi) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, the Indenture or any
other material agreement or instrument to which the Company or any Guarantor is
a party or by which it is bound; (vii) the Company shall have delivered to the
Trustee an opinion of independent counsel to the effect that (A) the trust funds
will not be subject to any rights of holders of Senior Debt or Guarantor Senior
Debt, including, without limitation, those arising under the Indenture and (B)
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) the Company shall have
delivered to the Trustee an officers' certificate stating that the deposit was
not made by the Company with the intent of preferring the holders of the Debt
Securities or any guarantee over the other creditors of the Company or any
Guarantor with the intent of defeating, hindering, delaying or defrauding
creditors of the Company, any Guarantor or others; (ix) no event or condition
shall exist that would prevent the Company from making payments of the principal
of, premium, if any, and interest on the Debt Securities on the date of such
deposit or at any time ending on the 91st day after the date of such deposit;
and (x) the Company shall have delivered to the 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.
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NOTICES
Unless otherwise provided in the applicable Prospectus Supplement, notices
to holders of registered Debt Securities will be given by mail to the addresses
of such holders as they may appear in the Register.
OWNER OF DEBT SECURITIES
Unless otherwise provided in the applicable Prospectus Supplement relating
to the Debt Securities of a particular series, the Company, the Trustees and any
agent of the Company or the Trustees may treat the person in whose name a Debt
Security in registered form is registered, and may treat the bearer of a Debt
Security in bearer form, as the absolute owner thereof (whether or not such Debt
Security may be overdue) for the purpose of receiving payment and for all other
purposes.
GOVERNING LAW
Unless otherwise provided in the applicable Prospectus Supplement, the
Indenture, the Debt Securities and any guarantees will be governed by the laws
of the State of New York.
THE TRUSTEE
The Trustee for each series of Debt Securities will be identified in the
applicable Prospectus Supplement. Each Indenture will contain certain
limitations on the right of a Trustee thereunder, as a creditor of the Company,
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise.
The holders of a majority in principal amount of all outstanding Debt
Securities of a series (or if more than one series is affected thereby, of all
series so affected, voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy or
power available to the Trustee for such series.
In case an Event of Default shall occur (and shall not be cured) under any
Indenture relating to a series of Debt Securities and is known to the Trustee
under such Indenture, such Trustee shall exercise such of the rights and powers
vested in it by such Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of his own affairs. Subject to such provisions, no Trustee will be
under any obligation to exercise any of its rights or powers under the
applicable Indenture at the request of any of the Holders of Debt Securities
unless they shall have offered to such Trustee security and indemnity
satisfactory to it.
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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 two classes of issued and outstanding Preferred
Stock, also with a par value of $.01 per share. Upon the issuance of all shares
covered by this Prospectus, 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, will retain 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. As of August 11, 1997, 34,745,522
shares of Common Stock, consisting of 7,168,941 shares of Class A Common Stock
and 27,576,581 shares of Class B Common Stock, were issued and outstanding,
1,091,825 shares of Series B Preferred Stock were issued and outstanding and
2,062,000 shares of Series C Preferred Stock will be 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 defined as 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
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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 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 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 Anti-Takeover 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
therefor 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, the terms of the Series C Preferred Stock and certain other
debt of the Company, the Company's ability to declare Common Stock dividends is
restricted.
EXISTING PREFERRED STOCK
Series B Preferred Stock. As partial consideration for the acquisition of
assets from River City, 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 Preferred Stock. Each share of Series B Preferred Stock has a
liquidation preference of $100 and, after payment of this preference, is
entitled to share in distributions made to holders of shares of (plus all
accrued and unpaid dividends through the determination date) Common Stock. Each
holder of a share of Series B 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 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. After a "Trigger Event" (as defined
below), the Series B 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 ("Senior Securities"), as to which the
Series B Preferred Stock will have the same rank. The Series C Preferred Stock
are Senior Securities. The Prospectus Supplement for any Preferred Securities
sold pursuant to this Prospectus that are to be designated Senior Securities
will so indicate. A 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 (1) by the Company for any reason other than
for Cause (as defined in the employment agreement) or (2) by Barry Baker upon
the occurrence of certain events described in the employment agreement.
The holders of Series B 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 Preferred Stock is entitled to share in any
dividends paid to holders of Common Stock, with each share of Series B Preferred
Stock allocated the amount of dividends allocated to approximately 3.64 shares
of Common
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Stock (subject to adjustment). In addition, after the occurrence of a Trigger
Event, holders of shares of Series B 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 Preferred Stock at
the rate of $100 per share. Dividends on Series B Preferred Stock are payable in
preference to the holders of any other class of capital stock of the Company,
except for Senior Securities, which will rank senior to the Series B Preferred
Stock as to dividends until a Trigger Event, after which Senior Securities will
have the same rank as Series B Preferred Stock as to dividends.
The Company may redeem shares of Series B 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 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 Preferred Stock votes together with
the Class A Common Stock as a single class, except that the Series B 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 Preferred Stock and actions affecting the rights of holders
of Series B Preferred Stock.
Shares of Series B Preferred Stock are convertible at any time into shares
of Class A Common Stock, with each share of Series B Preferred Stock convertible
into approximately 3.64 shares of 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 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 Preferred Stock. All shares of
Series B 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. As of August 11, the Company has issued and
outstanding 2,062,000 shares of Series C Preferred Stock, all of which shares
are held by KDSM, Inc., a wholly-owned subsidiary of the Company. Each share of
Series C Preferred Stock has a liquidation preference (the "Liquidation Amount")
of $100 plus an amount equal to any accumulated and unpaid dividends (whether or
not earned or declared) to the date of payment. KDSM, Inc. purchased the Series
C Preferred Stock from the proceeds of $206,200,000 aggregate principal amount
of 115/8% Senior Debentures due 2009 (the "KDSM Senior Debentures"), all of
which are held by Sinclair Capital, a trust all of the common securities of
which are held by KDSM, Inc. The obligations of KDSM, Inc. under the KDSM Senior
Debentures are secured by the Series C Preferred Stock. The Trust purchased the
KDSM Senior Debentures from the proceeds of $200 million aggregate liquidation
value of 115/8% High Yield Trust Offered Preferred Securities (the "Preferred
Securities") plus the proceeds of the issuance to KDSM, Inc. of $6.2 million of
common securities of the Trust. Sinclair has guaranteed the obligations under
the Preferred Securities, on a junior subordinated basis in an amount 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 the satisfaction of all claims of other parties which, as a matter of law,
are prior to those of the holders of the Preferred Securities. Sinclair has also
agreed to fully and unconditionally guarantee the payment of the KDSM Senior
Debentures on a junior subordinated basis if and effective as of the time the
KDSM Senior Debentures are distributed to holders of the Preferred Securities in
certain circumstances.
The Series C Preferred Stock has a maturity date of March 15, 2009, and
will be mandatorily redeemable on its maturity date. With respect to dividend
rights and rights upon liquidation, winding-up and dissolution of Sinclair, the
Series C Preferred Stock ranks senior to the Sinclair's common stock and
Sinclair's Series B Preferred Stock except that upon a Trigger Event the Series
C Preferred Stock will rank pari passu with the Series B Preferred Stock in
respect of dividend rights and rights upon liquidation, dissolution and
winding-up of Sinclair.
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Dividends on the Series C Preferred Stock are payable quarterly at a rate
per annum of 12 5/8% of the stated Liquidation Amount of $100 per share and
cumulate from March 12, 1997 (the "Issue Date"). Dividends are payable quarterly
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. Sinclair
has 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 Series
C Preferred Stock at least once every four quarters and must pay all dividends
due and owing on the Series C Preferred Stock on March 25, 2009. The remedy for
the holders of the Series C Preferred Stock 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 Series C Preferred Stock) is the right to elect two
directors to Sinclair's board of directors.
Holders of the Series C Preferred Stock do not have any voting rights in
ordinary circumstances. However, the vote of the holders of a majority in
aggregate Liquidation Amount of outstanding Series C Preferred Stock (100% in
certain circumstances) is required to approve any amendment to the Amended
Certificate or the Articles Supplementary to the Amended Certificate that govern
the Series C Preferred Stock (the "Series C Articles Supplementary") that would
adversely affect the powers, preferences or special rights of the holders of the
Series C Preferred Stock or cause the liquidation, dissolution or winding-up of
Sinclair. In addition, the approval of the holders of a majority in aggregate
Liquidation Amount of outstanding Series C Preferred Stock is required to
approve the issuance of any preferred stock by Sinclair which is senior to the
Series C Preferred Stock in right of payment. In addition, upon a Voting Rights
Triggering Event (which is defined to include a failure to pay dividends as
described above, a failure to make a Change of Control Offer as defined below, a
failure to redeem the Series C Preferred Stock upon maturity and a breach of the
covenants described below), the holders of a majority in aggregate Liquidation
Amount of the outstanding Series C Preferred Stock have the right to elect two
directors to the board of directors of Sinclair. KDSM, Inc., as the holder of
the Series C Preferred Stock, has agreed not to take or consent to any actions
or waive any rights under the Series C Preferred Stock or elect any directors
without the approval of the holders of the majority in principal amount of the
KDSM Senior Debentures. The Trust, as the holder of the KDSM Senior Debentures,
has in turn agreed that it will not provide such approval without the approval
of the holders of a majority in aggregate Liquidation Value of the outstanding
Preferred Securities (100% in certain circumstances).
The Series C 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.
Upon a Change of Control of Sinclair (as defined), Sinclair is required to
make an offer (a "Change of Control Offer") to redeem all or a portion of the
shares of Series C Preferred Stock at 101% of such shares' aggregate Liquidation
Amount, plus accrued and unpaid dividends, if any, to the date of redemption
unless and for so long as such redemption is prohibited by the terms of the Bank
Credit Agreement or the Existing Indentures. If Sinclair does not make and
consummate a Change of Control Offer upon a Change of Control, the holders of
the Series C Preferred Stock will have the right to elect two directors to the
board of directors of Sinclair.
The Company has the option (a) at any time on or after March 15, 2002 to
redeem the Series C Preferred Stock, in whole or in part, in cash at redemption
prices declining from 105.813% to 100% (in 2006) of the Liquidation Amount, 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 Liquidation Amount of the Series C Preferred Stock,
with the proceeds of one or more Public Equity Offerings (as defined), at a cash
redemption price of 111.625% of the principal amount thereof, plus accrued
dividends to the date of redemption; provided that after any
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such redemption at least 66 2/3% of the aggregate Liquidation Amount of the
Series C Preferred Stock originally issued remain outstanding and that such
redemption be made within 180 days of each such Public Equity Offering.
NEW PREFERRED STOCK
The particular terms of any series of Preferred Stock offered hereby will
be set forth in the Prospectus Supplement relating thereto. The rights,
preferences, privileges and restrictions, including dividend rights, voting
rights, terms of redemption, retirement and sinking fund provisions and
liquidation preferences, if any, of the Preferred Stock of each series offered
hereby will be fixed or designated pursuant to Articles Supplementary adopted by
the Board of Directors or a duly authorized committee thereof. The terms, if
any, on which shares of any series of Preferred Stock offered hereby are
convertible or exchangeable into Common Stock or Debt Securities will also be
set forth in the Prospectus Supplement relating thereto. Such terms may include
provisions for conversion or exchange, either mandatory, at the option of the
holder, or at the option of the Company, in which case the number of shares of
Common Stock to be received by the holders of Preferred Stock offered hereby
would be calculated as of a time and in the manner stated in the applicable
Prospectus Supplement. The description of the terms of a particular series of
Preferred Stock offered hereby that will be set forth in the applicable
Prospectus Supplement does not purport to be complete and is qualified in its
entirety by reference to the Articles Supplementary relating to such series.
DEPOSITARY SHARES
General. The Company may, at its option, elect to offer receipts for
fractional interests ("Depositary Shares") in Preferred Stock, rather than full
shares of Preferred Stock. In such event, receipts ("Depositary Receipts") for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock) of
a share of a particular series of Preferred Stock, will be issued as described
below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between the Company and a depositary to be named by the Company in a Prospectus
Supplement (the "Depositary"). Subject to the terms of the Deposit Agreement,
each owner of a Depositary Share will be entitled, in proportion to the
applicable fraction of a share of Preferred Stock represented by such Depositary
Share, to all the rights and preferences of the Preferred Stock represented
thereby (including dividend, voting, redemption, subscription and liquidation
rights). The following summary of certain provisions of the Deposit Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Deposit Agreement, including
the definitions therein of certain terms. Copies of the forms of Deposit
Agreement and Depositary Receipt will be filed as exhibits to or incorporated by
reference into the Registration Statement of which this Prospectus is a part,
and the following summary is qualified in its entirety by reference to such
exhibits.
Dividends and Other Distributions. The Depositary will distribute all cash
dividends or other cash distributions received in respect of the Preferred Stock
to the record holders of Depositary Shares relating to such Preferred Stock in
proportion to the numbers of such Depositary Shares owned by such holders.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares in
an equitable manner, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may sell such property and
distribute the net proceeds from such sale to such holders. The amount
distributed in any of the foregoing cases may be reduced by any amounts required
to be withheld by the Company or the Depositary on account of taxes.
Withdrawal of Preferred Stock. Upon surrender of Depositary Receipts at a
designated office of the Depositary, the owner of the Depositary Shares
evidenced thereby will be entitled to delivery at such office of certificates
evidencing Preferred Stock (but only in whole shares of Preferred Stock)
represented by such Depositary Shares. If the Depositary Receipts delivered by
the holder evidence a
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number of Depositary Shares in excess of the number of whole shares of Preferred
Stock to be withdrawn, the Depositary will deliver to such holder at the same
time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
Redemption of Depositary Shares. If a series of Preferred Stock represented
by Depositary Shares is subject to redemption, the Depositary Shares will be
redeemed from the proceeds received by the Depositary resulting from the
redemption, in whole or in part, of such series of Preferred Stock held by the
Depositary. The redemption price per Depositary Share will be equal to the
applicable fraction of the redemption price per share payable with respect to
such series of the Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of
Preferred Stock so redeemed. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot, pro rata
or by any other equitable method as may be determined by the Depositary.
Voting the Preferred Stock. Upon receipt of notice of any meeting at which
the holders of the Preferred Stock are entitled to vote, the Depositary will
mail the information contained in such notice of meeting to the record holders
of the Depositary Shares relating to such Preferred Stock. Each record holder of
such Depositary Shares on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Depositary
as to the exercise of the voting rights pertaining to the amount of the
Preferred Stock represented by such holder's Depositary Shares. The Depositary
will endeavor, insofar as practicable, to vote the number of shares of the
Preferred Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by the Depositary in order to enable the Depositary to do
so. The Depositary will abstain from voting shares of the Preferred Stock to the
extent it does not receive specific instructions from the holder of Depositary
Shares representing such Preferred Stock.
Amendment and Termination of the Deposit Agreement. The form of Depositary
Receipt evidencing the Depositary Shares and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and the
Depositary. However, any amendment which materially and adversely alters the
rights of the holders of Depositary Shares will not be effective unless such
amendment has been approved by the holders of at least a majority of the
Depositary Shares then outstanding. The Deposit Agreement will only terminate if
(i) all outstanding Depositary Shares have been redeemed or (ii) there has been
a final distribution in respect of the Preferred Stock, including in connection
with any liquidation, dissolution or winding up of the Company and such
distribution has been distributed to the holders of Depositary Receipts.
Resignation and Removal of Depositary. The Depositary may resign at any
time by delivering to the Company notice of its election to do so, and the
Company may at any time remove the Depositary, any such resignation or removal
to take effect upon the appointment of a successor Depositary and its acceptance
of such appointments. Such successor Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
Charges of Depositary. The Company will pay all transfer and other taxes
and governmental charges arising solely from the existence of the depositary
arrangements. The Company will pay charges of the Depositary in connection with
the initial deposit of the Preferred Stock and issuance of Depositary Receipts,
all withdrawals of shares of Preferred Stock by owners of the Depositary Shares
and any redemption of the Preferred Stock. Holders of Depositary Receipts will
pay other transfer and other taxes and governmental charges and such other
charges as they are expressly provided in the Deposit Agreement to be for their
accounts.
Miscellaneous. The Depositary will forward all reports and communications
from the Company which are delivered to the Depositary and which the Company is
required or otherwise determines to furnish to the holders of the Preferred
Stock.
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Neither the Depositary nor the Company will be liable under the Deposit
Agreement to holders of Depositary Receipts other than for its gross negligence,
willful misconduct or bad faith. Neither the Company nor the Depositary will be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting Preferred Stock
for deposit, holders of Depositary Receipts or other persons believed to be
competent and on documents believed to be genuine.
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
General Corporation 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 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
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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 (as defined) if after giving
effect to such issuance or transfer, the capital stock held by or for the
account of any alien 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
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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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Class A Common Stock is
The First National Bank of Boston. The Transfer Agent and Registrar for any
Preferred Securities issued pursuant to this Prospectus will be specified in the
applicable Prospectus Supplement.
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold by the Company or the Selling
Stockholders on a negotiated or competitive bid basis through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate, dealers or agents designated from time to time, or directly to other
purchasers. The distribution of the Securities offered hereby may be effected
from time to time in one or more transactions at a fixed price or prices, which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. To the extent
required, any Prospectus Supplement with respect to the Securities will set
forth the method of distribution of the offered Securities, of the offering and
the proceeds to the Company from the sale thereof, any underwriting discounts,
commission and other terms constituting compensation to underwriters and other
items of price, and any discounts or concessions allowed or reallowed or paid to
dealers. Any public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are utilized, the Securities being sold to them will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price, or at varying prices determined at the time of
sale. The Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. To the extent required, the underwriter or
underwriters with respect to the Securities being offered by the Company or the
Selling Stockholders will be named in the Prospectus Supplement relating to such
offering and, if an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover page of such Prospectus Supplement.
Any underwriting agreement will provide that the obligations of the underwriters
are subject to certain conditions precedent.
Underwriters may sell the Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they act as agents. If a dealer is utilized in the sale of the Securities,
the Company or the Selling Stockholders will sell the Securities to the dealer
as principal. The dealer may then resell the Securities to the public at varying
prices to be determined by the dealer at the time of sale. To the extent
required, any dealer involved in the offer or sale of the Securities in respect
of which this Prospectus is delivered will be set forth in the Prospectus
Supplement.
The Securities may be sold directly by the Company or the Selling
Stockholders or through agents designated by the Company or the Selling
Stockholders from time to time. To the extent required, any agent involved in
the offer or sale of the securities in respect of which this Prospectus is
delivered will be set forth in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. This Prospectus is not the
exclusive means for resales of Class A Common Stock by the Selling Stockholders
who may, for example, sell Class A Common Stock under Rule 144 under the
Securities Act.
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Any underwriters, dealers and agents that participate in the distribution
of the Securities may be deemed to be underwriters as the term is defined in the
Securities Act and any discounts or commissions received by them from the
Company or the Selling Stockholders and any profits on the resale of the
Securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements that may be entered into with the Company or the Selling
Stockholders, to indemnification against or to contribution toward certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that the underwriters, dealers or agents may be
required to make in respect of such liabilities.
Underwriters, dealers and agents may engage in other transactions with or
perform other services for the Company or the Selling Stockholders. To the
extent required, any such relationships will be set forth in a Prospectus
Supplement.
LEGAL MATTERS
The validity of the securities being offered hereby and certain other legal
matters regarding the securities will be passed upon for the Company by Thomas &
Libowitz, P.A., Baltimore, Maryland, counsel to the Company, and by Wilmer,
Cutler & Pickering, Baltimore, Maryland, special securities counsel to the
Company. Certain legal matters under the Communications Act of 1934, as amended
and the rules and regulations promulgated thereunder by the FCC will be passed
upon for the Company by Fisher Wayland Cooper Leader & Zaragoza L.L.P.,
Washington. D.C. Basil A. Thomas, a director of the Company, is of counsel to
Thomas & Libowitz, P.A.
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 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.
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The financial statements of Flint TV, Inc. as of December 31, 1994 and 1995
and for each of the years ended December 31, 1994 and 1995, incorporated by
reference in this Prospectus and elsewhere in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their reports with respect thereto, and are incorporated herein in reliance
on the authority of said firm as experts in giving said reports.
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 by reference 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.
The financial statements of Heritage Media Services, Inc. -- Broadcasting
Segment as of and for the year ended December 31, 1996, incorporated by
reference in this Prospectus and elsewhere in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their reports with respect thereto, and are incorporated herein in reliance
on the authority of said firm as experts in giving said reports.
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SUBJECT TO COMPLETION DATED AUGUST 26, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST , 1997)
5,300,000 SHARES
SBG
SINCLAIR BROADCAST GROUP
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
Of the 5,300,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), of Sinclair Broadcast Group, Inc. ("Sinclair" or
the "Company") offered hereby, 4,000,000 shares are being offered by the Company
(the "Common Stock Offering" or the "Offering") and 1,300,000 shares are being
offered by certain stockholders of the Company (the "Selling Stockholders"). See
"Selling Stockholders." The Company will receive no proceeds from the sale of
shares by the Selling Stockholders. Concurrently with the Common Stock Offering,
the Company is offering to sell 3,000,000 shares of its Series D Preferred
Stock, par value $.01 per share (the "Convertible Exchangeable Preferred Stock"
and the offering of such securities, the "Preferred Stock Offering"). The
Convertible Exchangeable Preferred Stock will have an aggregate liquidation
value of $150 million. See "Prospectus Supplement Summary -- Recent
Developments." The completion of the Common Stock Offering is not conditioned
upon the completion of the Preferred Stock Offering. The Class A Common Stock is
traded on the Nasdaq National Market System under the symbol "SBGI." On August
21, 1997, the last reported sale price of the Class A Common Stock as reported
by Nasdaq was $36 per share.
The Company's outstanding capital stock consists of shares of Class A
Common Stock, shares of Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"), shares of Series B Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock") and shares of Series C Preferred Stock,
par value $.01 per share (the "Series C Preferred Stock"). The rights of the
Class A Common Stock and the Class B Common Stock (collectively, the "Common
Stock") are identical, except that each share of Class A Common Stock entitles
the holder thereof to one vote in respect of matters submitted for the vote of
holders of Common Stock, whereas each share of Class B Common Stock entitles
the holder thereof to one vote on "going private" and certain other
transactions and to ten votes on other matters. Immediately after the sale of
all shares covered by this Prospectus Supplement, the Controlling Stockholders
(as defined in the accompanying Prospectus) will have the power to vote 100% of
the outstanding shares of Class B Common Stock representing, together with the
Class A Common Stock held by the Controlling Stockholders, approximately 94.1%
of the aggregate voting power of the Company's capital stock, assuming no
exercise of the Underwriters' over-allotment option. Each share of Class B
Common Stock converts automatically into one share of Class A Common Stock upon
sale or other transfer to a party other than a Permitted Transferee (generally,
related parties of a Controlling Stockholder). Each share of Series B Preferred
Stock has a liquidation preference of $100, is convertible into 3.64 shares of
Class A Common Stock (subject to adjustment), and has 3.64 votes on all matters
on which holders of shares of Common Stock have a vote. Except as described in
the accompanying Prospectus, the Series C Preferred Stock does not and the
Convertible Exchangeable Preferred Stock will not have rights to vote on
matters on which holders of shares of Common Stock have a vote. Each share of
Convertible Exchangeable Preferred Stock to be issued in the Preferred Stock
Offering will be convertible at any time at the option of the holder thereof
into shares of Class A Common Stock at an initial conversion price of $ per
share of Class A Common Stock (subject to adjustment). See "Description of
Capital Stock" in the accompanying Prospectus.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY.
-----------
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 SUPPLEMENT OR THE ATTACHED PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
THE PUBLIC AND COMMISSIONS (1) THE COMPANY (2) THE SELLING STOCKHOLDERS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(3) $ $ $ $
=====================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $800,000.
(3) The Company and certain Selling Stockholders have granted the Underwriters
a 30-day option to purchase up to an additional 345,000 and 450,000 shares,
respectively, of Class A Common Stock on the same terms as set forth above
solely to cover over-allotments, if any. If all such 795,000 shares are
purchased, the total Price to the Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Stockholders will be $ , $ ,$ and $ , respectively. See "Underwriting." The
Company will not receive any of the proceeds from the sale of shares of
Class A Common Stock by Selling Stockholders pursuant to the over-allotment
option.
-----------
The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for
the Class A Common Stock will be available for delivery on or about , 1997,
at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.
-----------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
CHASE SECURITIES, INC.
FURMAN SELZ
August , 1997
Information contained herein is subject to completion or amendment. A
registration statement 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
supplement and the attached 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>
[insert map]
TELEVISION AND RADIO STATIONS (I) OWNED AND OPERATED BY THE COMPANY, (II)
PROGRAMMED BY THE COMPANY PURSUANT TO LMAS, (III) PROVIDED
SELLING SERVICES PURSUANT TO JSAS, (IV) SUBJECT TO OPTIONS TO ACQUIRE AND (V)
UNDER AGREEMENTS TO BE ACQUIRED, INCLUDING
AGREEMENTS TO ACQUIRE RIGHTS TO PROGRAM STATIONS PURSUANT TO LMAS, ALL AS SET
FORTH UNDER "BUSINESS OF SINCLAIR."
Certain persons participating in this offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of Class A Common Stock,
including overallotment, entering stabilizing bids, effecting syndicate covering
transactions and imposing penalty bids. For a description of those activities,
see "Underwriting."
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary should be read in conjunction with the more detailed
information, financial statements and notes thereto appearing elsewhere in or
incorporated by reference into this Prospectus Supplement and the accompanying
Prospectus. Unless the context requires otherwise, this Prospectus Supplement
and the Prospectus assume no exercise of the Underwriters' over-allotment
option. Unless the context otherwise indicates, as used herein, the "Company" or
"Sinclair" means Sinclair Broadcast Group, Inc. and its direct and indirect
wholly owned subsidiaries (collectively, the "Subsidiaries"). Capitalized terms
used in this Prospectus Supplement have the meaning set forth in the Glossary of
Defined Terms, which appears at the end of this Prospectus Supplement.
THE COMPANY
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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the rights to provide programming to
two additional 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 sales services to 27 radio
stations, has pending acquisitions of 24 radio stations and has options to
acquire an additional seven radio stations.
The 29 television stations the Company owns or programs pursuant to LMAs
are located in 21 geographically diverse markets, with 23 of the stations in the
top 51 television DMAs in the United States. The Company's television station
group is diverse in network affiliation with ten stations affiliated with Fox,
12 with UPN, three with WB, two with ABC and one with CBS. One station operates
as an independent. The Company has recently entered into an agreement with WB
pursuant to which seven of its stations would switch affiliations to, and one
independent station would become affiliated with, WB.
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 27 stations owned, programmed or
with which the Company has a JSA, 12 broadcast on the AM band and 15 on the FM
band. The Company owns, programs or has a JSA with from two to eight stations in
all but one of the eight radio markets it serves.
The Company has undergone rapid and significant growth over the course of
the last six years. Since 1991, the Company has increased the number of stations
it owns or provides services to from three television stations to 29 television
stations and 27 radio stations. From 1991 to 1996, net broadcast revenues and
Adjusted EBITDA (as defined herein) increased from $39.7 million to $346.5
million, and from $15.5 million to $180.3 million, respectively. Pro forma for
the acquisitions completed in 1996 and the Heritage Acquisition described below,
1996 net broadcast revenues and Adjusted EBITDA would have been $532.4 million
and $246.3 million, respectively.
COMPANY 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) expand its stations' involvement in their communities;
and (vi) establish additional television LMAs and increase the size of its radio
clusters.
S-3
<PAGE>
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.
The Company intends to continue to pursue acquisitions in order to build a
larger and more diversified broadcasting company. In implementing its
acquisition strategy, the Company routinely reviews and conducts investigations
of potential television and radio station acquisitions. When the Company
believes a favorable opportunity exists, the Company seeks to enter into
discussions with the owners of such stations regarding the possibility of an
acquisition by the Company. At any given time, the Company may be in discussions
with one or more such station owners. In addition, the Company intends to seek
and may take advantage of favorable opportunities to sell or swap television and
radio stations. See "Business of Sinclair -- Broadcast Acquisition Strategy."
RECENT DEVELOPMENTS
AGREEMENT WITH THE WB NETWORK
On July 4, 1997, the Company entered into an agreement with WB (the "WB
Agreement"), pursuant to which the Company agreed that certain stations
currently affiliated with UPN would terminate their affiliations with UPN at the
end of the current affiliation term in January 1998, and would enter into
affiliation agreements with WB effective as of that date. The Company has
advised UPN that the following stations owned or provided programming services
by the Company will not renew their affiliation agreements with UPN when the
current agreements expire on January 15, 1998: WPTT-TV, Pittsburgh,
Pennsylvania, WNUV-TV, Baltimore, Maryland. WSTR-TV, Cincinnati, Ohio, KRRT-TV,
San Antonio, Texas, and KOCB-TV, Oklahoma City, Oklahoma. These stations will
enter into ten-year affiliation agreements with WB beginning on January 16,
1998. Pursuant to the WB Agreement, the WB affiliation agreements of WVTV-TV,
Milwaukee, Wisconsin, and WTTO-TV, Birmingham, Alabama (whose programming is
simulcasted on WDBB-TV, Tuscaloosa, Alabama), have been extended to January 16,
2008. In addition, WFBC-TV in Greenville, South Carolina will become affiliated
with WB on November 1, 1999, when WB's current affiliation with another station
in that market expires. WTVZ-TV, Norfolk, Virginia and WLFL-TV, Raleigh, North
Carolina, will become affiliated with WB when their affiliations with Fox
expire. These Fox affiliations are scheduled to expire on August 31, 1998. Under
the terms of the WB Agreement, WB has agreed to pay the Company $64 million
aggregate amount in monthly installments during the eight years commencing on
January 16, 1998 in consideration for entering into affiliation agreements with
WB. In addition, WB will be obligated to pay an additional $10 million aggregate
amount in monthly installments in each of the following two years provided that
WB is in the business of supplying programming as a television network during
each of those years.
In August 1997, UPN filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998. See "Risk Factors -- Certain Network Affiliation Agreements" in the
accompanying Prospectus and "Business of Sinclair -- Legal Proceedings" herein.
S-4
<PAGE>
HERITAGE ACQUISITION
On July 16, 1997, the Company entered into agreements (the "Heritage
Acquisition Agreements") with The News Corporation Limited, Heritage Media
Group, Inc. and certain subsidiaries of Heritage Media Corporation
(collectively, "Heritage"), pursuant to which the Company agreed to acquire
certain television and radio assets of such subsidiaries. Under the Heritage
Acquisition Agreements, the Company will acquire the assets of, or the right to
program pursuant to LMAs, six television stations in three markets and the
assets of 24 radio stations in seven markets (the "Heritage Acquisition"). The
television stations serve the following markets: Charleston/ Huntington, West
Virginia; Mobile, Alabama/Pensacola, Florida; and Burlington, Vermont/
Plattsburgh, New York. The radio stations serve the following markets: St.
Louis, Missouri; Portland, Oregon; Kansas City, Missouri; Milwaukee, Wisconsin;
Norfolk, Virginia; New Orleans, Louisiana; and Rochester, New York. The
aggregate purchase price for the assets is $630 million payable in cash at
closing, less a deposit of $63 million paid at the time of signing the Heritage
Acquisition Agreements. The Heritage Acquisition Agreements also provide for the
acquisition of the assets of a television station in Oklahoma City, Oklahoma;
the Company is required by the agreements to dispose of its interest in that
station, and the Company has entered into a letter of intent to sell that
station for $60 million in cash. The Company intends to finance the purchase
price from some combination of the proceeds of the Common Stock Offering, the
proceeds of the Preferred Stock Offering, funds available under the Company's
Bank Credit Agreement (as defined herein), and the anticipated $60 million in
proceeds from the sale of the Company's interest in the Oklahoma City station.
Closing of the Heritage Acquisition is conditioned on, among other things, FCC
approval and the expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
PREFERRED STOCK OFFERING
Concurrently with the offering of shares of Class A Common Stock pursuant
to this Prospectus Supplement, the Company plans to offer in the Preferred Stock
Offering $150 million aggregate liquidation amount of Convertible Exchangeable
Preferred Stock. The Convertible Exchangeable Preferred Stock will have a
liquidation preference of $50 per share and a stated annual dividend of $ per
share payable quarterly out of legally available funds and will be convertible
into shares of Class A Common Stock at the option of the holders thereof at a
conversion price of $ per share, subject to adjustment. The Convertible
Exchangeable Preferred Stock will be exchangeable at the option of the Company,
for % Convertible Subordinated Debentures of the Company, due 2012, and will be
redeemable at the option of the Company on or after , 2000 at specified prices
plus accrued dividends. Except as described herein, the Convertible Exchangeable
Preferred Stock will not have rights to vote on matters on which shares of
Common Stock have a vote, prior to their conversion into Class A Common Stock.
The sale of shares of Class A Common Stock pursuant to this Prospectus
Supplement is not contingent on the completion of the Preferred Stock Offering.
See "Use of Proceeds."
S-5
<PAGE>
THE OFFERING
CLASS A COMMON STOCK OFFERED:
Company .................. 4,000,000 shares
Selling Stockholders...... 1,300,000 shares
Total .................. 5,300,000 shares(a)
COMMON STOCK TO BE OUTSTAND-
ING AFTER THE OFFERING 12,531,566 shares of Class A Common Stock(a)(b)
26,224,581 shares of Class B Common Stock(b)
----------
38,756,147 total shares of Common Stock(a)
USE OF PROCEEDS ......... The net proceeds to the Company from the Offering
will be used to repay certain amounts outstanding
under the revolving credit facility under the
Company's Bank Credit Agreement with the remainder
retained for general corporate purposes including
funding the Heritage Acquisition, which is
anticipated to close in the first quarter of 1998,
and other acquisitions if suitable acquisitions
can be identified on acceptable terms. See "Use of
Proceeds."
VOTING RIGHTS ........... The holders of the Class A Common Stock, the Class
B Common Stock and the Series B Preferred Stock
vote together as a single class (except as may be
otherwise required by Maryland law) on all matters
submitted to a vote of stockholders, with each
share of Class A Common Stock entitled to one
vote, each share of Class B Common Stock entitled
to one vote on "going private" and certain other
transactions and to ten votes on all other matters
and each share of Series B Preferred Stock
entitled to 3.64 votes (subject to adjustment).
The holders of Series C Preferred Stock and the
Convertible Exchangeable Preferred Stock to be
issued in the Preferred Stock Offering are not
entitled to vote on matters submitted to a vote of
stockholders except on matters that may adversely
affect their rights and except that holders of
each such series have the right to elect two
directors of the Company in certain circumstances.
See "Description of Capital Stock --
- ----------
(a) Excludes up to 345,000 and 450,000 shares of Class A Common Stock that may
be sold by the Company and certain of the Selling Stockholders,
respectively, upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting." Also excludes 3,963,611 shares of Class A
Common Stock that may be issued upon conversion of shares of Series B
Preferred Stock outstanding after the Offering and up to 2,641,673 shares
of Class A Common Stock reserved for issuance pursuant to the Company's
Incentive Stock Option Plan, the Company's Designated Participants Stock
Option Plan and the Company's Long-Term Incentive Plan. Also excludes
shares of Class A Common Stock that may be issued upon conversion of shares
of Convertible Exchangeable Preferred Stock to be issued in the Preferred
Stock Offering (based on the conversion price on the date of issuance).
(b) The number of shares of Class A Common Stock and Class B Common Stock
outstanding after the Offering assumes that the sale of shares of Common
Stock by the Selling Stockholders in the Offering will include the sale of
14,000 shares of Class A Common Stock and the sale of 1,286,000 shares of
Class B Common Stock and the conversion of such shares upon sale into
1,286,000 shares of Class A Common Stock.
S-6
<PAGE>
Preferred Stock" in the accompanying Prospectus
and "-- Recent Developments," above. Each share of
Class B Common Stock converts automatically into
one share of Class A Common Stock upon the sale or
other transfer of such share of Class B Common
Stock to a person or entity other than a Permitted
Transferee (generally, related parties of a
Controlling Stockholder (as defined in the
accompanying Prospectus)). Each share of Series B
Preferred Stock may be converted at any time, at
the option of the holder thereof, into 3.64 shares
of Class A Common Stock (subject to adjustment).
Each class of Common Stock otherwise has identical
rights. After giving effect to the Offering
contemplated hereby, approximately 94.1% of the
total voting power of the capital stock of the
Company will be owned by the Controlling
Stockholders. See "Risk Factors -- Voting Rights;
Control by Controlling Stockholders; Potential
Anti-Takeover Effect of Disproportionate Voting
Rights" in the accompanying Prospectus.
NASDAQ NATIONAL MARKET SYSTEM
SYMBOL..................... SBGI
DIVIDEND POLICY............ The Company generally has not paid a dividend on
its Common Stock and does not expect to pay cash
dividends on its Common Stock in the foreseeable
future. The Company's ability to pay cash
dividends in the future is subject to limitations
and prohibitions contained in certain debt
instruments to which the Company is a party.
S-7
<PAGE>
SINCLAIR BROADCAST GROUP, INC. -- SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL DATA
(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 summary
historical consolidated financial data for the six months ended June 30, 1996
and 1997 and as of June 30, 1996 and 1997 are unaudited, but in the opinion of
management, such financial 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 that
period. Results for the six months ended June 30, 1996 and 1997 are not
necessarily indicative of the results for a full year. The summary pro forma
statement of operations data and other data of the Company reflect the 1996
Acquisitions (as defined in "Business of Sinclair -- Broadcasting Acquisition
Strategy"), the Heritage Acquisition, and the application of the proceeds of the
issuance of $200,000,000 in principal amount of the Company's 9% Senior
Subordinated Notes due 2007 (the "1997 Notes") issued on July 2, 1997 (the "Debt
Issuance"), the issuance of $200,000,000 in liquidation amount of the Company's
115/8% High Yield Trust Offered Preferred Securities (the "HYTOPS") issued on
March 14, 1997 (the "HYTOPS Issuance"), and the Common and Preferred Stock
Offerings and the application of the proceeds therefrom as set forth in "Use of
Proceeds" as though they occurred at the beginning of the periods presented and
are derived from the pro forma consolidated financial statements of the Company
included elsewhere in this Prospectus Supplement. See "Pro Forma Consolidated
Financial Information of Sinclair." The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Sinclair" included herein and Sinclair's
Consolidated Financial Statements, 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 period ended June 30, 1997 incorporated herein by
reference. Included elsewhere in this Prospectus Supplement under the heading
"Pro Forma Consolidated Financial Information of Sinclair" are pro forma
financial statements for the six months ended June 30, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994(A) 1995(A) 1996(A)
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ........................... $ 61,081 $ 69,532 $118,611 $187,934 $ 346,459
Barter revenues .................................... 8,805 6,892 10,743 18,200 32,029
-------- -------- -------- -------- ---------
Total revenues ....................................... 69,886 76,424 129,354 206,134 378,488
-------- -------- -------- -------- ---------
Operating expenses, excluding depreciation and amor-
tization, deferred compensation and special bonuses
paid to executive officers ........................... 32,993 32,295 50,545 80,446 167,765
Depreciation and amortization(d) .................. 30,943 22,486 55,587 80,410 121,081
Amortization of deferred compensation ............... -- -- -- -- 739
Special bonuses paid to executive officers ......... -- 10,000 3,638 -- --
-------- -------- -------- -------- ---------
Broadcast operating income ........................... 5,950 11,643 19,584 45,278 88,903
-------- -------- -------- -------- ---------
Interest and amortization of debt discount expense ... 12,997 12,852 25,418 39,253 84,314
Interest and other income ........................... 1,207 2,131 2,447 4,163 3,478
Subsidiary trust minority interest expense(e) ...... -- -- -- -- --
-------- -------- -------- -------- ---------
Income (loss) before (provision) benefit for income
taxes and extraordinary item ........................ $ (5,840) $ 922 $ (3,387) $ 10,188 $ 8,067
======== ======== ======== ======== =========
Net income (loss) available to common sharehold-
ers $ (4,651) $ (7,945) $ (2,740) $ 76 $ 1,131
======== ======== ======== ======== =========
Earnings (loss) per common share:
Net income (loss) before extraordinary item ......... $ (0.16) $ -- $ (0.09) $ 0.15 $ 0.03
Extraordinary item ................................. -- (0.27) -- (0.15) --
-------- -------- -------- -------- ---------
Net income (loss) per common share .................. $ (0.16) $ (0.27) $ (0.09) $ -- $ 0.03
======== ======== ======== ======== =========
Weighted average shares outstanding (in thousands) 29,000 29,000 29,000 32,205 37,381
======== ======== ======== ======== =========
OTHER DATA:
Broadcast cash flow(f) .............................. $ 28,019 $ 37,498 $ 67,519 $111,124 $ 189,216
Broadcast cash flow margin(g) ..................... 45.9% 53.9% 56.9% 59.1% 54.6%
Adjusted EBITDA(h) ................................. $ 26,466 $ 35,406 $ 64,547 $105,750 $ 180,272
Adjusted EBITDA margin(g) ........................... 43.3% 50.9% 54.4% 56.3% 52.0%
After tax cash flow(i) .............................. $ 9,398 $ 43 $ 21,310 $ 46,376 $ 74,441
After tax cash flow margin(g) ........................ 15.4% --% 18.0% 24.7% 21.5%
Program contract payments ........................... $ 10,427 $ 8,723 $ 14,262 $ 19,938 $ 30,451
Capital expenditures ................................. 426 528 2,352 1,702 12,609
Corporate overhead expense ........................... 1,553 2,092 2,972 5,374 8,944
<PAGE>
<CAPTION>
DEBT AND
HYTOPS ISSUANCES,
SIX MONTHS ENDED 1996 ACQUISITIONS AND
JUNE 30, HERITAGE ACQUISITION
-------------------------- -----------------------
PRO FORMA YEAR ENDED
1996(A) 1997(A) DECEMBER 31, 1996(B)
------------- ------------ -----------------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ........................... $ 117,339 $219,701 $ 532,357
Barter revenues .................................... 9,571 19,870 40,179
--------- -------- ---------
Total revenues ....................................... 126,910 239,571 572,536
--------- -------- ---------
Operating expenses, excluding depreciation and amor-
tization, deferred compensation and special bonuses
paid to executive officers ........................... 52,826 114,697 274,073
Depreciation and amortization(d) .................. 45,493 76,650 177,286
Amortization of deferred compensation ............... 506 233 933
Special bonuses paid to executive officers ......... -- -- --
--------- -------- ---------
Broadcast operating income ........................... 28,085 47,991 120,244
--------- -------- ---------
Interest and amortization of debt discount expense ... 27,646 51,993 163,207
Interest and other income ........................... 3,172 1,087 7,753
Subsidiary trust minority interest expense(e) ...... -- 7,007 23,250
--------- -------- ---------
Income (loss) before (provision) benefit for income
taxes and extraordinary item ........................ $ 3,611 $ (9,922) $ (58,460)
========= ======== =========
Net income (loss) available to common sharehold-
ers .................................................. $ 1,511 $ (5,822) $ (40,553)
========= ======== =========
Earnings (loss) per common share:
Net income (loss) before extraordinary item ......... $ 0.04 $ (0.17) $ (1.04)
Extraordinary item ................................. -- -- --
--------- -------- ---------
Net income (loss) per common share .................. $ 0.04 $ (0.17) $ (1.04)
========= ======== =========
Weighted average shares outstanding (in thousands) 34,750 34,746 39,058
========= ======== =========
OTHER DATA:
Broadcast cash flow(f) .............................. $ 65,079 $105,600 $ 257,528
Broadcast cash flow margin(g) ..................... 55.5% 48.1% 48.4%
Adjusted EBITDA(h) ................................. $ 62,013 $ 98,615 $ 246,278
Adjusted EBITDA margin(g) ........................... 52.8% 44.9% 46.3%
After tax cash flow(i) .............................. $ 30,441 $ 32,737 $ 75,340
After tax cash flow margin(g) ........................ 26.0% 15.0% 14.2%
Program contract payments ........................... $ 12,071 $ 26,259 $ 52,185
Capital expenditures ................................. 2,114 8,286 18,512
Corporate overhead expense ........................... 3,066 6,985 11,250
<PAGE>
<CAPTION>
DEBT AND
DEBT AND HYTOPS ISSUANCES,
HYTOPS ISSUANCES, 1996 ACQUISITIONS,
1996 ACQUISITIONS, HERITAGE ACQUISITION,
HERITAGE ACQUISITION COMMON AND PREFERRED
AND COMMON STOCK OFFERING STOCK OFFERINGS(M)
--------------------------- ----------------------
PRO FORMA YEAR ENDED DECEMBER 31, 1996(B)
--------------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ........................... $ 532,357 $ 532,357
Barter revenues .................................... 40,179 40,179
--------- ---------
Total revenues ....................................... 572,536 572,536
--------- ---------
Operating expenses, excluding depreciation and amor-
tization, deferred compensation and special bonuses
paid to executive officers ........................... 274,073 274,073
Depreciation and amortization(d) .................. 177,286 177,286
Amortization of deferred compensation ............... 933 933
Special bonuses paid to executive officers ......... -- --
--------- ---------
Broadcast operating income ........................... 120,244 120,244
--------- ---------
Interest and amortization of debt discount expense ... 153,877 143,903
Interest and other income ........................... 7,753 7,753
Subsidiary trust minority interest expense(e) ...... 23,250 23,250
--------- ---------
Income (loss) before (provision) benefit for income
taxes and extraordinary item ........................ $ (49,130) $ (39,156)
========= =========
Net income (loss) available to common sharehold-
ers .................................................. $ (34,955) $ (38,346)
========= =========
Earnings (loss) per common share:
Net income (loss) before extraordinary item ......... $ (0.81) $ (0.89)
Extraordinary item ................................. -- --
--------- ---------
Net income (loss) per common share .................. $ (0.81) $ (0.89)
========= =========
Weighted average shares outstanding (in thousands) .. 43,058 43,058
========= =========
OTHER DATA:
Broadcast cash flow(f) .............................. $ 257,528 $ 257,528
Broadcast cash flow margin(g) ..................... 48.4% 48.4%
Adjusted EBITDA(h) ................................. $ 246,278 $ 246,278
Adjusted EBITDA margin(g) ........................... 46.3% 46.3%
After tax cash flow(i) .............................. $ 80,938 $ 86,922
After tax cash flow margin(g) ........................ 15.2% 16.3%
Program contract payments ........................... $ 52,185 $ 52,185
Capital expenditures ................................. 18,512 18,512
Corporate overhead expense ........................... 11,250 11,250
</TABLE>
(Continued on following page)
S-8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------------------ JUNE 30,
1992 1993 1994(A) 1995(A) 1996(A) 1997(A)
---------- ------------ ------------ ------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET AND CASH
FLOW DATA:
Cash and cash equivalents .................. $ 1,823 $ 18,036 $ 2,446 $ 112,450 $ 2,341 $ 2,740
Total assets .............................. 140,366 242,917 399,328 605,272 1,707,297 1,762,505
Total debt(j) .............................. 110,659 224,646 346,270 418,171 1,288,147 1,175,783
Company Obligated Mandatorily Re-
deemable Security of Subsidiary
Trust Holding Solely KDSM Senior
Debentures(k) .............................. -- -- -- -- -- 200,000
Total stockholders' equity (deficit) ...... (3,127) (11,024) (13,723) 96,374 237,253 232,638
Cash flows from operating activities(l). 5,235 11,230 20,781 55,909 68,970 42,483
Cash flows from investing activities(l) . (1,051) 1,521 (249,781) (119,243) (1,011,897) (112,429)
Cash flows from financing activities(l) . (3,741) 3,462 213,410 173,338 832,818 70,345
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) The Company made acquisitions in 1994, 1995, 1996 and the first six months
of 1997 as described in the footnotes to the Consolidated Financial
Statements incorporated herein by reference. The statement of operations
data 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) The pro forma information in this table reflects the pro forma effect of
the Debt Issuance, the HYTOPS Issuance, the 1996 Acquisitions, the
completion of the Heritage Acquisition and the completion of the Common
Stock Offering and the Preferred Stock Offering. See "Pro Forma
Consolidated Financial Information of Sinclair" included elsewhere herein.
The Heritage Acquisition is subject to a number of conditions customary for
acquisitions of broadcasting properties. See "-- Recent Developments."
(c) Net broadcast revenues are defined as broadcast revenues net of agency
commissions.
(d) 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.
(e) Subsidiary trust minority interest expense represents the distributions on
the HYTOPS.
(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.
(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) plus depreciation and
amortization (excluding film amortization), amortization of deferred
compensation, and the deferred tax provision (or minus the deferred tax
benefit). 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. (notes continued
on following page)
S-9
<PAGE>
(j) "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
$10,400 in 1993. Total debt as of December 31, 1993 included $100,000 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. $100,000 of the 1993 Notes was redeemed from the
escrow in the first quarter of 1994. Total debt does not include the HYTOPS
or the Company's preferred stock.
(k) Company Obligated Mandatorily Redeemable Security of Subsidiary Trust
Holding Solely KDSM Senior Debentures represents $200,000 aggregate
liquidation value of the HYTOPS.
(l) 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.
(m) There can be no assurance that the Preferred Stock Offering will be
consummated. The completion of the Common Stock Offering is not conditioned
upon the completion of the Preferred Stock Offering.
S-10
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Common Stock Offering as contemplated
hereby (net of underwriting discounts and commissions and the estimated expenses
of the Offering) at an assumed price of $36 per share (the closing price for the
Class A Common Stock on August 21, 1997) are estimated to be approximately
$137.1 million ($149.0 million if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any of the net proceeds from
the sale of Class A Common Stock by the Selling Stockholders. Concurrently with
this Offering, the Company is conducting the Preferred Stock Offering, the net
proceeds of which are estimated to be approximately $145.1 million (such
offering along with the Common Stock Offering, the "Offerings"). There can be no
assurance that the Preferred Stock Offering will be consummated. The completion
of the Common Stock Offering is not conditioned upon the completion of the
Preferred Stock Offering. A portion of the net proceeds to the Company from the
Offerings will be used to repay existing borrowings under the Company's
revolving credit facility under the Bank Credit Agreement (as defined herein).
These borrowings, which total $14 million as of the date of this Prospectus
Supplement, bear interest at the rate of 8.5% per annum and were used for
general corporate purposes. After such debt repayment, the Company may make
additional borrowings under the revolving credit facility until December 31,
2004. The remainder of the net proceeds to the Company from the Offerings
($268.2 million if both of the Offerings are completed and $123.1 million if
only the Common Stock Offering is completed) will be retained by the Company for
general corporate purposes including funding the Heritage Acquisition, which is
anticipated to close in the first quarter of 1998, and other acquisitions if
suitable acquisitions can be identified on acceptable terms.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (a) the actual
capitalization of the Company, (b) the pro forma capitalization of the Company
as adjusted to reflect the consummation of the Debt Issuance consummated on July
2, 1997 and the Heritage Acquisition as if such transaction had occurred on June
30, 1997, (c) the pro forma capitalization of the Company as adjusted to reflect
the items noted in (b) and the Common Stock Offering at an assumed offering
price of $36 per share (the closing price of the Class A Common Stock on August
21, 1997) and the application of the estimated net proceeds therefrom as set
forth in "Use of Proceeds" as if such transactions had occurred on June 30, 1997
and (d) the pro forma capitalization of the Company as adjusted to reflect the
items noted in (b) and (c) and the Preferred Stock Offering at an offering price
of $50 per share and the application of the estimated net proceeds therefrom as
set forth in "Use of Proceeds" as if such transactions had occurred on June 30,
1997. The information set forth below should be read in conjunction with "Pro
Forma Consolidated Financial Information of Sinclair" located elsewhere in this
Prospectus Supplement and the historical Consolidated Financial Statements of
the Company incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DEBT ISSUANCE, DEBT ISSUANCE,
HERITAGE HERITAGE ACQUISITION,
DEBT ISSUANCE ACQUISITION COMMON AND
AND HERITAGE AND COMMON PREFERRED
ACTUAL ACQUISITION STOCK OFFERING STOCK OFFERINGS(A)
------------ --------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents .............................. $ 2,740 $ 35,740 $ 35,740 $ 35,740
========== ========== ========== ==========
Current portion of long-term debt ........................ $ 66,881 $ 66,881 $ 66,881 $ 66,881
========== ========== ========== ==========
Long-term debt:
Commercial bank financing .............................. $ 697,000 $1,104,500 $ 967,420 $ 822,345
Notes and capital leases payable to affiliates ......... 11,872 11,872 11,872 11,872
Capital leases .......................................... 30 30 30 30
Senior subordinated notes .............................. 400,000 600,000 600,000 600,000
---------- ---------- ---------- ----------
1,108,902 1,716,402 1,579,322 1,434,247
---------- ---------- ---------- ----------
Company Obligated Mandatorily Redeemable Security
of Subsidiary Trust Holding Solely KDSM Senior
Debentures ............................................. 200,000 200,000 200,000 200,000
---------- ---------- ---------- ----------
Stockholders' equity (deficit):
Series B Preferred Stock, $.01 par value, 10,000,000
shares authorized and 1,106,608 shares issued and
outstanding .......................................... 11 11 11 11
Series D Convertible Exchangeable Preferred Stock,
$.01 par value, 3,450,000 shares authorized and
3,000,000 shares issued and outstanding post Pre-
ferred Stock Offering .................................. -- -- -- 30
Class A Common Stock, $.01 par value, 100,000,000
shares authorized and 7,100,188 shares issued and
outstanding; 11,100,188 shares issued and outstand-
ing, post Common Stock Offering ........................ 71 71 111 111
Class B Common Stock, $.01 par value, 35,000,000
shares authorized and 27,591,581 shares issued and
outstanding .......................................... 277 277 277 277
Additional paid-in capital ........................... 234,812 234,812 371,852 516,897
Additional paid-in capital -- deferred compensation ..... (896) (896) (896) (896)
Additional paid-in capital -- equity put options ...... 23,117 23,117 23,117 23,117
Accumulated deficit .................................... (24,754) (24,754) (24,754) (24,754)
---------- ---------- ---------- ----------
Total stockholders' equity ........................... 232,638 232,638 369,718 514,793
---------- ---------- ---------- ----------
Total capitalization ................................. $1,541,540 $2,149,040 $2,149,040 $2,149,040
========== ========== ========== ==========
</TABLE>
- ----------
(a) There can be no assurance that the Preferred Stock Offering will be
consummated. The completion of the Common Stock Offering is not conditioned
upon the completion of the Preferred Stock Offering.
S-12
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR
The following Pro Forma Consolidated Financial Data include the unaudited
pro forma consolidated balance sheet as of June 30, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1996 and the six months ended June
30, 1997 (the "Pro Forma Consolidated Statement of Operations"). The unaudited
Pro Forma Consolidated Balance Sheet is adjusted to give effect to the Debt
Issuance, the Heritage Acquisition, the Common Stock Offering and the Preferred
Stock Offering as if they occurred on June 30, 1997 and assuming application of
the proceeds of the Common Stock Offering and the Preferred Stock Offering as
set forth in "Use of Proceeds" above. The unaudited Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1996 is adjusted to give
effect to the 1996 Acquisitions, the HYTOPS Issuance, the Debt Issuance, the
Heritage Acquisition, the Common Stock Offering and the Preferred Stock Offering
as if each occurred at the beginning of such period and assuming application of
the proceeds of the Common Stock Offering and the Preferred Stock Offering as
set forth in "Use of Proceeds." The unaudited Pro Forma Consolidated Statement
of Operations for the six months ended June 30, 1997 is adjusted to give effect
to the HYTOPS Issuance, the Debt Issuance, the Heritage Acquisition, and the
Common Stock Offering and the Preferred Stock Offering as if each occurred at
the beginning of such period and assuming application of the proceeds of the
Common Stock Offering and the Preferred Stock Offering as set forth in "Use of
Proceeds." The pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The Pro Forma
Consolidated Financial Data should be read in conjunction with the Company's
Consolidated Financial Statements as of and for the year ended December 31, 1996
and related notes thereto, the Company's unaudited consolidated financial
statements for the six months ended June 30, 1997 and related notes thereto, the
historical financial data of Flint T.V., Inc., the historical financial data of
Superior Communications, Inc., the historical financial data of KSMO and WSTR,
the historical financial data of River City Broadcasting, L.P. and the
historical financial data of Heritage Media Services, Inc. -- Broadcasting
Segment, all of which have been filed with the Commission as part of (i) 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; (ii) the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997; or (iii) 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 and August 26, 1997, each of which is
incorporated by reference into this Prospectus Supplement. The unaudited Pro
Forma Consolidated Financial Data do not purport to represent what the Company's
results of operations or financial position would have been had any of the above
events occurred on the dates specified or to project the Company's results of
operations or financial position for or at any future period or date.
S-13
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEBT
ISSUANCE
CONSOLIDATED DEBT HERITAGE AND HERITAGE
HISTORICAL ISSUANCE(A) ACQUISITION(B) ACQUISITION
-------------- ------------------ ---------------- -------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 2,740 $ 33,000 (e) $ 35,740
Accounts receivable, net of allowance for doubtful accounts 102,093 102,093
Current portion of program contract costs .................. 34,768 $ 926 35,694
Prepaid expenses and other current assets .................. 4,054 4,054
Deferred barter costs ....................................... 4,267 2,218 6,485
Deferred tax asset .......................................... 8,188 8,188
---------- ----------
Total current assets ....................................... 156,110 33,000 3,144 192,254
PROGRAM CONTRACT COSTS, less current portion .................. 30,778 712 31,490
LOANS TO OFFICERS AND AFFILIATES .............................. 11,241 11,241
PROPERTY AND EQUIPMENT, net ................................. 156,681 22,022 178,703
NON-COMPETE AND CONSULTING AGREEMENTS, net .................. 2,250 2,250
OTHER ASSETS ................................................ 71,970 4,500 (f) 76,470
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net .................. 1,333,475 545,969 1,879,444
---------- ------------ ----------
Total Assets ............................................. $1,762,505 $ 37,500 $ 571,847 $2,371,852
========== ============ ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 5,310 $ 5,310
Accrued liabilities .......................................... 39,023 39,023
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............... 65,500 65,500
Capital leases payable .................................... 11 11
Notes and capital leases payable to affiliates ............ 1,370 1,370
Program contracts payable ................................. 49,766 $ 1,096 50,862
Deferred barter revenues .................................... 4,458 4,458
---------- ----------
Total current liabilities ................................. 165,438 1,096 166,534
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............... 1,097,000 $ 37,500 (g) 570,000 (h) 1,704,500
Capital leases payable .................................... 30 30
Notes and capital leases payable to affiliates ............ 11,872 11,872
Program contracts payable ................................. 46,670 751 47,421
Other long-term liabilities ................................. 4,960 4,960
---------- ----------
Total liabilities .......................................... 1,325,970 37,500 571,847 1,935,317
---------- ------------ ------------ ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ............... 3,897 3,897
---------- ----------
COMPANY OBLIGATED MANDATORILY REDEEMABLE SE-
CURITY OF SUBSIDIARY TRUST HOLDING SOLELY KDSM
SENIOR DEBENTURES .......................................... 200,000 200,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ................................. 11 11
Series D Convertible Exchangeable Preferred Stock ......... -- --
Class A Common Stock ....................................... 71 71
Class B Common Stock ....................................... 277 277
Additional paid-in capital ................................. 234,812 234,812
Additional paid-in capital - deferred compensation ......... (896) (896)
Additional paid-in capital - equity put options ............ 23,117 23,117
Accumulated deficit ....................................... (24,754) (24,754)
---------- ----------
Total stockholders' equity ................................. 232,638 232,638
---------- ----------
Total Liabilities and Stockholders' Equity ............... $1,762,505 $ 37,500 $ 571,847 $2,371,852
========== ============ ============ ==========
</TABLE>
(Continued on following page)
S-14
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEBT
DEBT ISSUANCE,
ISSUANCE, HERITAGE
DEBT HERITAGE ACQUISITION,
ISSUANCE COMMON ACQUISITION, AND PREFERRED COMMON AND
AND HERITAGE STOCK COMMON STOCK STOCK PREFERRED STOCK
ACQUISITION OFFERING(C) OFFERING OFFERING(D) OFFERINGS(D)
-------------------------- ------------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 35,740 $ 35,740 $ 35,740
Accounts receivable, net of allowance for doubtful ac-
counts 102,093 102,093 102,093
Current portion of program contract costs ............ 35,694 35,694 35,694
Prepaid expenses and other current assets ............ 4,054 4,054 4,054
Deferred barter costs ................................. 6,485 6,485 6,485
Deferred tax asset .................................... 8,188 8,188 -- 8,188
---------- ----------- ---------- -----------
Total current assets ................................. 192,254 192,254 192,254
PROGRAM CONTRACT COSTS, less current portion 31,490 31,490 31,490
LOANS TO OFFICERS AND AFFILIATES ........................ 11,241 11,241 11,241
PROPERTY AND EQUIPMENT, net ........................... 178,703 178,703 178,703
NON-COMPETE AND CONSULTING AGREE-
MENTS, net 2,250 2,250 2,250
OTHER ASSETS .......................................... 76,470 76,470 76,470
ACQUIRED INTANGIBLE BROADCASTING AS-
SETS, net 1,879,444 -- 1,879,444 -- 1,879,444
---------- ---------- ----------- ---------- -----------
Total Assets ....................................... $2,371,852 $ $ 2,371,852 $ $ 2,371,852
========== ========== =========== ========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 5,310 $ 5,310 $ 5,310
Accrued liabilities .................................... 39,023 39,023 39,023
Current portion of long-term liabilities-
Notes payable and commercial bank financing ......... 65,500 65,500 65,500
Capital leases payable .............................. 11 11 11
Notes and capital leases payable to affiliates ...... 1,370 1,370 1,370
Program contracts payable ........................... 50,862 50,862 50,862
Deferred barter revenues .............................. 4,458 -- 4,458 -- 4,458
---------- ---------- ----------- ---------- -----------
Total current liabilities ........................... 166,534 166,534 166,534
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ......... 1,704,500 $ (137,080) 1,567,420 $ (145,075) 1,422,345
Capital leases payable .............................. 30 30 30
Notes and capital leases payable to affiliates ...... 11,872 11,872 11,872
Program contracts payable ........................... 47,421 47,421 47,421
Other long-term liabilities ........................... 4,960 4,960 4,960
---------- ----------- -----------
Total liabilities .................................... 1,935,317 (137,080) 1,798,237 (145,075) 1,653,162
---------- ---------- ----------- ---------- -----------
MINORITY INTEREST IN CONSOLIDATED SUB-
SIDIARIES 3,897 3,897 3,897
---------- ----------- -----------
COMPANY OBLIGATED MANDATORILY RE-
DEEMABLE SECURITY OF SUBSIDIARY
TRUST HOLDING SOLELY KDSM SENIOR DE-
BENTURES 200,000 200,000 200,000
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ........................... 11 11 11
Series D Convertible Exchangeable Preferred Stock -- -- 30 30
Class A Common Stock ................................. 71 40 111 111
Class B Common Stock ................................. 277 277 277
Additional paid-in capital ........................... 234,812 137,040 371,852 145,045 516,897
Additional paid-in capital - deferred compensation. (896) (896) (896)
Additional paid-in capital - equity put options ...... 23,117 23,117 23,117
Accumulated deficit ................................. (24,754) (24,754) (24,754)
---------- ----------- -----------
Total stockholders' equity ........................... 232,638 137,080 369,718 145,075 514,793
---------- ---------- ----------- ---------- -----------
Total Liabilities and Stockholders' Equity ......... $2,371,852 $ -- $ 2,371,852 $ -- $ 2,371,852
========== ========== =========== ========== ===========
</TABLE>
S-15
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(a) To reflect the proceeds of the Debt Issuance consummated on July 2, 1997,
net of $4,500 of underwriting discounts and commissions and estimated
expenses and the application of the proceeds therefrom.
(b) The Heritage Acquisition column reflects the assets and liabilities
acquired in connection with the $630,000 purchase of Heritage less the
$60,000 divestiture of the Heritage television station KOKH in Oklahoma
City, Oklahoma, which is required pursuant to the Heritage Acquisition
Agreements and with respect to which the Company has entered into a letter
of intent. The Heritage Acquisition is subject to a number of conditions
customary for acquisitions of broadcasting properties. Total acquired
intangibles are calculated as follows:
<TABLE>
<CAPTION>
HERITAGE
HERITAGE KOKH ACQUISITION
---------- ---------- ------------
<S> <C> <C> <C>
Purchase Price .......................................... $630,000
Add:
Liabilities acquired--
Current portion of program contracts payable ......... $ 1,552 $ (456) 1,096
Long-term portion of program contracts payable ...... 860 (109) 751
Less:
Assets acquired--
Current portion of program contract costs ............ 1,603 (677) 926
Deferred barter costs .............................. 2,496 (278) 2,218
Program contract costs, less current portion ......... 1,266 (554) 712
Property and equipment .............................. 27,524 (5,502) 22,022
Sale of KOKH ....................................... 60,000
---------
Acquired intangibles ................................. $545,969
=========
</TABLE>
(c) To reflect the proceeds of the Common Stock Offering (at an assumed
offering price of $36 per share, the closing price of the Class A Common
Stock on August 21, 1997), net of $6,920 of underwriting discounts and
commissions and estimated expenses and the application of the proceeds
therefrom as set forth in "Use of Proceeds."
(d) To reflect the proceeds of the Preferred Stock Offering (at an assumed
offering price of $50 per share), net of $4,925 of underwriting discounts
and commissions and estimated expenses and the application of the proceeds
therefrom as set forth in "Use of Proceeds." There can be no assurance that
the Preferred Stock Offering will be consummated. The completion of the
Common Stock Offering is not conditioned upon the completion of the
Preferred Stock Offering.
(e) To record the increase in cash and cash equivalents resulting from the net
proceeds of the Debt Issuance after giving effect to the repayment of the
revolving credit facility under the Bank Credit Agreement as follows:
Offering proceeds .......................................... $ 200,000
Underwriting discounts, commissions and estimated expenses (4,500)
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................ (162,500)
----------
Pro forma adjustment ....................................... $ 33,000
==========
(f) To record underwriting discounts and commissions and estimated expenses of
$4,500.
(g) To reflect the increase in indebtedness resulting from the Debt Issuance
after giving effect to the repayment of the revolving credit facility under
the Bank Credit Agreement as follows:
Indebtedness incurred .................................... $ 200,000
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................ (162,500)
----------
Pro forma adjustment ....................................... $ 37,500
==========
(h) To reflect the incurrence of $570,000 of bank financing in connection with
the Heritage Acquisition.
S-16
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR
CONSOLIDATED FLINT COMMUNICATIONS
HISTORICAL TV, INC.(A) GROUP, INC.(B) KSMO(C)
-------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 346,459 $1,012 $4,431 $ 7,694
Revenues realized from station barter arrange-
ments .............................................. 32,029 2,321
---------- --------
Total revenues .................................... 378,488 1,012 4,431 10,015
---------- ------- ------ --------
OPERATING EXPENSES:
Program and production ........................... 66,652 101 539 1,550
Selling, general and administrative ............... 75,924 345 2,002 2,194
Expenses realized from barter arrangements ......... 25,189 2,276
Amortization of program contract costs and net
realizable value adjustments ..................... 47,797 125 736 601
Amortization of deferred compensation ............ 739
Depreciation and amortization of property and
equipment ....................................... 11,711 4 373 374
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 58,530 529
Amortization of excess syndicated programming ...... 3,043
----------
Total operating expenses ........................ 289,585 575 4,179 6,995
---------- ------- ------ --------
Broadcast operating income (loss) ............... 88,903 437 252 3,020
---------- ------- ------ --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. (84,314) (457) (823)
Interest income .................................... 3,136
Subsidiary trust minority interest expense .........
Other income (expense) ........................... 342 19 4 7
---------- ------- ------ --------
Income (loss) before provision (benefit) for
income taxes .................................... 8,067 456 (201) 2,204
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. 6,936
----------
NET INCOME (LOSS) ................................. $ 1,131 $ 456 $ (201) $ 2,204
========== ======= ====== ========
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS ................................... $ 1,131
==========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ........................... $ 0.03
==========
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTANDING .................. 37,381
==========
<PAGE>
<CAPTION>
RIVER CITY(E) 1996
---------------------------- ACQUISITION
WSTR(D) RIVER CITY WSYX WYZZ(F) ADJUSTMENTS
----------- ------------ --------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 7,488 $ 86,869 $ (10,783) $1,838
Revenues realized from station barter arrange-
ments .............................................. 1,715
---------
Total revenues .................................... 9,203 86,869 (10,783) 1,838
--------- ---------- ---------- -------
OPERATING EXPENSES:
Program and production ........................... 961 10,001 (736) 214
Selling, general and administrative ............... 2,173 39,786 (3,950) 702 $ (3,577)(h)
Expenses realized from barter arrangements ......... 1,715
Amortization of program contract costs and net
realizable value adjustments ..................... 1,011 9,721 (458) 123
Amortization of deferred compensation ............ 194 (i)
Depreciation and amortization of property and
equipment ....................................... 284 6,294 (1,174) 6 (943)(j)
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 39 14,041 (3,599) 3 4,034 (k)
Amortization of excess syndicated programming ......
Total operating expenses ........................ 6,183 79,843 (9,917) 1,048 (292)
--------- ---------- ---------- ------- -------------
Broadcast operating income (loss) ............... 3,020 7,026 (866) 790 292
--------- ---------- ---------- ------- -------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. (1,127) (12,352) (17,409)(l)
Interest income .................................... 15 195 (1,636)(m)
Subsidiary trust minority interest expense .........
Other income (expense) ........................... (149) (8)
---------- ----------
Income (loss) before provision (benefit) for
income taxes .................................... 1,908 (5,280) (874) 790 (18,753)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (7,900)(n)
-------------
NET INCOME (LOSS) ................................. $ 1,908 $ (5,280) $ (874) $ 790 $ (10,853)
========= ========== ========== ======= =============
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTANDING ..................
<PAGE>
<CAPTION>
DEBT ISSUANCE,
HYTOPS DEBT HYTOPS ISSUANCE
ISSUANCE ISSUANCE AND 1996 ACQUISITIONS
------------------ -------------------- ----------------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 445,008
Revenues realized from station barter arrange-
ments .............................................. 36,065
-----------
Total revenues .................................... 481,073
-----------
OPERATING EXPENSES:
Program and production ........................... 79,282
Selling, general and administrative ............... 115,599
Expenses realized from barter arrangements ......... 29,180
Amortization of program contract costs and net
realizable value adjustments ..................... 59,656
Amortization of deferred compensation ............ 933
Depreciation and amortization of property and
equipment ....................................... 16,929
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. $ 500 (p) $ 450 (s) 74,527
Amortization of excess syndicated programming ...... 3,043
-----------
Total operating expenses ........................ 500 450 379,149
------------- ------------- -----------
Broadcast operating income (loss) ............... (500) (450) 101,924
------------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. 11,820 (q) (18,000) (t) (122,662)
Interest income .................................... 1,710
Subsidiary trust minority interest expense ......... (23,250)(r) (23,250)
Other income (expense) ........................... 215
-----------
Income (loss) before provision (benefit) for
income taxes .................................... (11,930) (18,450) (42,063)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (4,772)(n) (7,380)(n) (13,116)
------------- ------------- -----------
NET INCOME (LOSS) ................................. $ (7,158) $ (11,070) $ (28,947)
============= ============= ===========
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTANDING
</TABLE>
(Continued on following page)
S-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HERITAGE(G)
DEBT ISSUANCE, -----------------------
HYTOPS ISSUANCE
AND 1996 ACQUISITIONS HERITAGE KOKH
----------------------- ------------ ----------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 445,008 $ 95,302 $(7,953)
Revenues realized from station barter arrangements ............ 36,065 4,292 (178)
----------- ---------- --------
Total revenues ............................................. 481,073 99,594 (8,131)
----------- ---------- --------
OPERATING EXPENSES:
Program and production ....................................... 79,282 20,089 (1,871)
Selling, general and administrative ........................ 115,599 31,916 (1,722)
Expenses realized from barter arrangements .................. 29,180 3,478 (70)
Amortization of program contract costs and net realizable
value adjustments ............................................. 59,656 3,165 (1,208)
Amortization of deferred compensation ........................ 933
Depreciation and amortization of property and equipment ....... 16,929 5,472 (1,022)
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ............ 74,527 8,460 (367)
Amortization of excess syndicated programming ............... 3,043
-----------
Total operating expenses .................................... 379,149 72,580 (6,260)
----------- ---------- --------
Broadcast operating income (loss) ........................... 101,924 27,014 (1,871)
----------- ---------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (122,662) (17,949) 1,025
Gain on sale of station ....................................... 6,031
Interest income ............................................. 1,710
Subsidiary trust minority interest expense .................. (23,250)
Other income (expense) ....................................... 215 (203)
----------- ----------
Income (loss) before provision (benefit) for income taxes .... (42,063) 14,893 (846)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (13,116) 7,853 (466)
----------- ---------- --------
NET INCOME (LOSS) ............................................. $ (28,947) $ 7,040 $ (380)
=========== ========== ========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE .............................................
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ..............................
<PAGE>
<CAPTION>
DEBT ISSUANCE,
HERITAGE HYTOPS ISSUANCE, COMMON
ACQUISITION 1996 ACQUISITIONS AND STOCK
ADJUSTMENTS HERITAGE ACQUISITION OFFERING
-------------------- ----------------------- -----------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 532,357
Revenues realized from station barter arrangements ............ 40,179
------------
Total revenues ............................................. 572,536
------------
OPERATING EXPENSES:
Program and production ....................................... 97,500
Selling, general and administrative ........................ $ (1,808) (u) 143,985
Expenses realized from barter arrangements .................. 32,588
Amortization of program contract costs and net realizable
value adjustments ............................................. 61,613
Amortization of deferred compensation ........................ 933
Depreciation and amortization of property and equipment ....... (900)(v) 20,479
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ............ 9,531 (w) 92,151
Amortization of excess syndicated programming ............... 3,043
------------
Total operating expenses .................................... 6,823 452,292
----------- ------------
Broadcast operating income (loss) ........................... (6,823) 120,244
----------- ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (23,621)(x) (163,207) $ 9,330 (y)
Gain on sale of station ....................................... 6,031
Interest income ............................................. 1,710
Subsidiary trust minority interest expense .................. (23,250)
Other income (expense) ....................................... 12
------------
Income (loss) before provision (benefit) for income taxes..... (30,444) (58,460) 9,330
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (12,178)(n) (17,907) 3,732 (n)
----------- ------------ ----------
NET INCOME (LOSS) ............................................. $ (18,266) $ (40,553) $ 5,598
=========== ============ ==========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................ $ (40,553)
============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE ............................................. $ (1.04)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 39,058 (o)
============
<PAGE>
<CAPTION>
DEBT ISSUANCE,
DEBT ISSUANCE, HYTOPS ISSUANCE,
HYTOPS ISSUANCE, 1996 ACQUISITIONS,
1996 ACQUISITIONS, HERITAGE ACQUISITION,
HERITAGE ACQUISITION PREFERRED COMMON AND
AND COMMON STOCK STOCK PREFERRED STOCK
OFFERING OFFERING(MM) OFFERINGS(MM)
---------------------- ---------------- ----------------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 532,357 $ 532,357
Revenues realized from station barter arrangements ............ 40,179 40,179
------------ ------------
Total revenues ............................................. 572,536 572,536
------------ ------------
OPERATING EXPENSES:
Program and production ....................................... 97,500 97,500
Selling, general and administrative ........................ 143,985 143,985
Expenses realized from barter arrangements .................. 32,588 32,588
Amortization of program contract costs and net realizable
value adjustments ............................................. 61,613 61,613
Amortization of deferred compensation ........................ 933 933
Depreciation and amortization of property and equipment........ 20,479 20,479
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ............ 92,151 92,151
Amortization of excess syndicated programming ............... 3,043 3,043
------------ ------------
Total operating expenses .................................... 452,292 452,292
------------ ------------
Broadcast operating income (loss) ........................... 120,244 120,244
------------ ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (153,877) $ 9,974(aa) (143,903)
Gain on sale of station ....................................... 6,031 6,031
Interest income ............................................. 1,710 1,710
Subsidiary trust minority interest expense .................. (23,250) (23,250)
Other income (expense) ....................................... 12 12
------------ ------------
Income (loss) before provision (benefit) for income taxes .... (49,130) 9,974 (39,156)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (14,175) 3,990(n) (10,185)
------------ ---------- ------------
NET INCOME (LOSS) ............................................. $ (34,955) $ 5,984 $ (28,971)
============ ========== ============
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................ $ (34,955) $ (38,346)
============ ============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE ............................................. $ (0.81) $ (0.89)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 43,058 (z) 43,058 (z)
============ ============
</TABLE>
S-18
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HERITAGE(G)
CONSOLIDATED HYTOPS DEBT ------------------------
HISTORICAL ISSUANCE ISSUANCE HERITAGE KOKH
------------- ----------------- ----------------- --------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 219,701 $ 46,451 $ (3,706)
Revenues realized from station barter ar-
rangements .................................... 19,870 2,430 (125)
---------- --------- --------
Total revenues .............................. 239,571 48,881 (3,831)
---------- --------- --------
OPERATING EXPENSES:
Program and production ........................ 46,760 15,313 (1,150)
Selling, general and administrative ......... 51,634 9,447 (784)
Expenses realized from station barter ar-
rangements .................................... 16,303 1,849 (62)
Amortization of program contract costs and
net realizable value adjustments ............ 30,918 824 (297)
Amortization of deferred compensation ......... 233
Depreciation and amortization of property
and equipment .............................. 8,340 2,819 (445)
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets ............... 37,392 $ 88 (bb) $ 225 (ee) 4,174 (184)
---------- ------------ ------------ --------- --------
Total operating expenses ..................... 191,580 88 225 34,426 (2,922)
---------- ------------ ------------ --------- --------
Broadcast operating income (loss) ............ 47,991 (88) (225) 14,455 (909)
---------- ------------ ------------ --------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... (51,993) 2,894 (cc) (9,000)(ff) (9,979) 425
Gain of sale of station ..................... 9,401
Interest income .............................. 1,040
Subsidiary trust minority interest expense .... (7,007) (4,618)(dd)
Other income ................................. 47 (98)
---------- ---------
Income (loss) before provision (bene-
fit) for income taxes ........................ (9,922) (1,812) (9,225) 13,779 (484)
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (4,100) (725)(n) (3,690)(n) 7,262 (369)
---------- ------------ ------------ --------- --------
NET INCOME (LOSS) .............................. $ (5,822) $ (1,087) $ (5,535) $ 6,517 $ (115)
========== ============ ============ ========= ========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (5,822)
==========
NET LOSS PER COMMON AND COM-
MON EQUIVALENT SHARE .......................... $ (0.17)
==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,746
==========
<PAGE>
<CAPTION>
HERITAGE DEBT ISSUANCE, COMMON
ACQUISITION HYTOPS ISSUANCE STOCK
<S> <C> <C> <C>
ADJUSTMENTS AND HERITAGE ACQUISITION OFFERING
------------------- -------------------------- ----------------
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 262,446
Revenues realized from station barter ar-
rangements .................................... 22,175
---------
Total revenues .............................. 284,621
---------
OPERATING EXPENSES:
Program and production ........................ 60,923
Selling, general and administrative ......... $ (883) (gg) 59,414
Expenses realized from station barter ar-
rangements .................................... 18,090
Amortization of program contract costs and
net realizable value adjustments ............ 31,445
Amortization of deferred compensation ......... 233
Depreciation and amortization of property
and equipment .............................. (450) (hh) 10,264
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets ............... 4,964 (ii) 46,659
------------- ---------
Total operating expenses ..................... 3,631 227,028
------------- ---------
Broadcast operating income (loss) ............ (3,631) 57,593
------------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... (10,768) (jj) (78,421) $ 4,665 (kk)
Gain of sale of station ..................... 9,401
Interest income .............................. 1,040
Subsidiary trust minority interest expense .... (11,625)
Other income ................................. (51)
---------
Income (loss) before provision (bene-
fit) for income taxes ........................ (14,399) (22,063) 4,665
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (5,760) (n) (7,382) 1,866 (n)
------------- --------- ----------
NET INCOME (LOSS) .............................. $ (8,639) $ (14,681) $ 2,799
============= ========= ==========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (14,681)
=========
NET LOSS PER COMMON AND COM-
MON EQUIVALENT SHARE .......................... $ (0.42)
=========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,769
=========
<PAGE>
<CAPTION>
DEBT ISSUANCE,
DEBT ISSUANCE, HYTOPS ISSUANCE,
HYTOPS ISSUANCE, HERITAGE ACQUISITION,
HERITAGE ACQUISITION PREFERRED COMMON AND
AND COMMON STOCK PREFERRED STOCK
<S> <C> <C> <C>
STOCK OFFERING OFFERING(MM) OFFERINGS(MM)
---------------------- ------------------ ----------------------
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 262,446 $ 262,446
Revenues realized from station barter ar-
rangements .................................... 22,175 22,175
------------ ------------
Total revenues .............................. 284,621 284,621
------------ ------------
OPERATING EXPENSES:
Program and production ........................ 60,923 60,923
Selling, general and administrative ......... 59,414 59,414
Expenses realized from station barter ar-
rangements .................................... 18,090 18,090
Amortization of program contract costs and
net realizable value adjustments ............ 31,445 31,445
Amortization of deferred compensation ......... 233 233
Depreciation and amortization of property
and equipment .............................. 10,264 10,264
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets ............... 46,659 46,659
------------ ------------
Total operating expenses ..................... 227,028 227,028
------------ ------------
Broadcast operating income (loss) ............ 57,593 57,593
------------ ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... (73,756) $ 4,987 (ll) (68,769)
Gain of sale of station ..................... 9,401 9,401
Interest income .............................. 1,040 1,040
Subsidiary trust minority interest expense .... (11,625) (11,625)
Other income ................................. (51) (51)
------------ ------------
Income (loss) before provision (bene-
fit) for income taxes ........................ (17,398) 4,987 (12,411)
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (5,516) 1,994 (n) (3,522)
------------ ---------- ------------
NET INCOME (LOSS) .............................. $ (11,882) $ 2,993 $ (8,889)
============ ========== ============
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (11,882) $ (13,577)
============ ============
NET LOSS PER COMMON AND COM-
MON EQUIVALENT SHARE .......................... $ (0.31) $ (0.35)
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 38,769 (z) 38,769 (z)
============ ============
</TABLE>
S-19
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Flint T.V., Inc. ("Flint-TV") column reflects the results of operations
for WSMH for the period from January 1, 1996 to February 28, 1996, the date
the Flint Acquisition was consummated.
(b) The Superior Communications Group, Inc. column reflects the results of
operations for Superior for the period from January 1, 1996 to May 7, 1996,
the date the Superior Acquisition was consummated.
(c) The KSMO column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the transaction was consummated in July
1996.
(d) The WSTR column reflects the results of operations for the period from
January 1, 1996 to July 31, 1996 as the transaction was consummated in
August 1996.
(e) The River City column reflects the results of operations for River City
(including KRRT, Inc.) for the period from January 1, 1996 to May 31, 1996,
the date the River City Acquisition was consummated. The WSYX column
removes the results of WSYX from the results of River City for the period
as the Company has not yet acquired WSYX. See "Business of Sinclair --
Broadcasting Acquisition Strategy."
(f) The WYZZ column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the purchase transaction was
consummated in July 1996.
(g) The Heritage column reflects the results of operations for the period from
January 1, 1996 to December 31, 1996 for the year ended December 31, 1996
Pro Forma Consolidated Statement of Operations and the results of
operations for the period from January 1, 1997 to June 30, 1997 for the six
months ended June 30, 1997 Pro Forma Consolidated Statement of Operations.
The KOKH column removes the results of KOKH from the results of Heritage
for both periods to reflect the sale of KOKH, which is required pursuant to
the Heritage Acquisition Agreements and with respect to which the Company
has entered into a letter of intent. See "Business of Sinclair -- 1997
Acquisitions."
(h) To adjust River City operating expenses for non-recurring LMA payments made
to KRRT, Inc. for KRRT, Inc. debt service and to adjust River City and
Superior operating expenses for employment contracts and other corporate
overhead expenses not assumed at the time of the 1996 Acquisitions.
(i) To record compensation expense related to options granted under the
Company's Long-Term Incentive Plan:
YEAR ENDED
DECEMBER 31,
1996
-------------
Compensation expense related to the Long-Term Incentive
Plan on a pro forma basis .............................. $ 933
Less: Compensation expense recorded by the Company re-
lated to the Long-Term Incentive Plan (739)
------
$ 194
======
(j) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Flint-TV, Superior, KSMO, WSTR,
River City and WYZZ from the period of January 1, 1996 through the date of
acquisition. Tangible assets are to be depreciated over lives ranging from
5 to 29.5 years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
---------------------------------
FLINT-TV SUPERIOR KSMO
---------- ---------- -----------
<S> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 32 $ 315 $ 240
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (4) (373) (374)
----- ------ -------
Pro forma adjustment ................................. $ 28 $ (58) $ (134)
===== ====== =======
<CAPTION>
WSTR RIVER CITY WYZZ TOTAL
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 507 $ 3,965 $ 159 $ 5,218
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (284) (5,120) (6) (6,161)
------- --------- ------ ---------
Pro forma adjustment ................................. $ 223 $ (1,155) $ 153 $ (943)
======= ========= ====== =========
</TABLE>
(k) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by
Flint-TV, Superior, KSMO, WSTR, River City and WYZZ from the period of
January 1, 1996 through date of acquisition. Intangible assets are to be
amortized over lives ranging from 1 to 40 years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------------------
FLINT-TV SUPERIOR KSMO
---------- ---------- -------
<S> <C> <C> <C>
Amortization expense on acquired intangible assets $ 167 $ 827 $ 180
Deferred financing costs ...........................
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... -- (529) --
------ ------- ------
Pro forma adjustment .............................. $ 167 $ 298 $ 180
====== ======= ======
<CAPTION>
WSTR RIVER CITY WYZZ TOTAL
------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Amortization expense on acquired intangible assets $ 285 $ 12,060 $ 99 $ 13,618
Deferred financing costs ........................... 1,429 1,429
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (39) (10,442) (3) (11,013)
----- ---------- ----- ----------
Pro forma adjustment .............................. $ 246 $ 3,047 $ 96 $ 4,034
===== ========== ===== ==========
</TABLE>
S-20
<PAGE>
(l) To record interest expense for the year ended December 31, 1996 on
acquisition financing relating to Superior of $59,850 (under the Bank
Credit Agreement at 8.0% for four months), KSMO and WSTR of $10,425 and
$7,881, respectively (both under the Bank Credit Agreement at 8.0% for six
months), River City (including KRRT) of $868,300 (under the Bank Credit
Agreement at 8.0% for five months) and of $851 for hedging agreements
related to the River City financing and WYZZ of $20,194 (under the Bank
Credit Agreement at 8.0% for six months) and eliminate interest expense
recorded. No interest expense has been recorded for Flint-TV as it has been
assumed that the proceeds from the 1995 Notes were used to purchase
Flint-TV.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------------------------------------
SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
----------- --------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense adjustment as noted above ...... $ (1,596) $ (417) $ (315) $ (29,032) $ (808) $ (32,168)
Less: Interest expense recorded by Superior, KSMO,
WSTR, River City and WYZZ ........................ 457 823 1,127 12,352 -- 14,759
--------- ------- ------- --------- ------- ----------
Pro forma adjustment ........................... $ (1,139) $ 406 $ 812 $ (16,680) $ (808) $ (17,409)
========= ======= ======= ========= ======= ==========
</TABLE>
(m) To eliminate interest income for the year ended December 31, 1996 on
proceeds from the sale of the 1995 Notes due to assumed utilization of
excess cash for the following acquisitions: Flint-TV, KSMO and WSTR and
WYZZ of $34,400 (with a commercial bank at 5.7% for two months), $10,425
and $7,881 (both with a commercial bank at 5.7% for six months) and $20,194
(with a commercial bank at 5.7% for six months).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------------------------------
FLINT-TV KSMO WSTR RIVER CITY WYZZ TOTAL
---------- --------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income adjustment as noted above ...... $ (327) $ (297) $ (226) $ -- $ (576) $ (1,426)
Less: Interest income recorded by Flint-TV, KSMO,
WSTR, River City and WYZZ ..................... -- -- (15) (195) -- (210)
------- ------- ------- ------- ------- ---------
Pro forma adjustment ........................... $ (327) $ (297) $ (241) $ (195) $ (576) $ (1,636)
======= ======= ======= ======= ======= =========
</TABLE>
(n) To record tax provision (benefit) at the applicable statutory tax rates.
(o) Weighted average shares outstanding on a pro forma basis assumes that the
1,150,000 shares of Series B Preferred Stock were converted to 4,181,818
shares of Class A Common Stock and the Company's Incentive Stock Options
and Long-Term Incentive Plan Options were outstanding as of the beginning
of the period.
(p) To record amortization expense on other assets that relate to the HYTOPS
Issuance for one year ($6,000 over 12 years).
(q) To record the net interest expense reduction for 1996 related to
application of the HYTOPS Issuance proceeds to the outstanding balance
under the revolving credit facility offset by an increase in commitment
fees for the available but unused portion of the revolving credit facility
for the year ended December 31, 1996.
<TABLE>
<S> <C>
Interest on adjusted borrowing on the revolving credit facility .................. $ 12,600
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for 12 months ............................................. (1,250)
Commitment fee on available borrowings recorded by the Company .................. 470
--------
Pro forma adjustment ............................................................ $ 11,820
========
</TABLE>
(r) To record subsidiary trust minority interest expense for the year ended
December 31, 1996 ($200,000 aggregate liquidation value of HYTOPS).
(s) To record amortization expense on other assets for one year ($4,500 over 10
years). See note (f) of notes to Pro Forma Consolidated Balance Sheet.
(t) To record interest expense on the 1997 Notes for one year ($200,000 at 9%).
(u) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(v) To record depreciation expense related to acquired tangible assets of
$3,550 and eliminate depreciation expense of $4,450 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
(w) To record amortization expense related to acquired intangible assets of
$17,624 and eliminate amortization expense of $8,093 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(x) To record interest expense on acquisition financing of $570,000 (under the
Bank Credit Agreement at 71/4%), net of $780 of commitment fees for the
available but unused portion of the revolving credit facility, and
eliminated interest expense of $16,924 recorded by Heritage.
(y) To record the interest expense reduction of $9,938 related to application
of the Common Stock Offering proceeds to the
S-21
<PAGE>
outstanding balance under the revolving credit facility offset by an
increase in commitment fees of $608 for the available but unused portion of
the revolving credit facility.
(z) Weighted average shares outstanding on a pro forma basis assumes that the
4,000,000 shares of Class A Common Stock to be issued in the Common Stock
Offering were outstanding as of the beginning of the period.
(aa) To record the interest expense reduction of $10,518 related to application
of the Preferred Stock Offering proceeds to the outstanding balance under
the revolving credit facility offset by an increase in commitment fees of
$544 for the available but unused portion of the revolving credit facility.
(bb) To record amortization expense on other assets that resulted from the
HYTOPS Issuance for six months ($6,000 over 12 years).
Amortization expense on other assets ............... $ 250
Amortization expense recorded by the Company ...... (162)
------
Pro forma adjustment .............................. $ 88
======
(cc) To record the net interest expense reduction for 1997 related to
application of the HYTOPS Issuance proceeds to the outstanding balance
under the revolving credit facility offset by an increase in commitment
fees for the available but unused portion of the revolving credit facility
for the quarter ended June 30, 1997.
<TABLE>
<S> <C>
Interest on adjusted borrowing on the revolving credit facility ............... $3,235
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for six months .......................................... (625)
Commitment fee on available borrowings recorded by the Company .................. 284
------
Pro forma adjustment ............................................................ $2,894
======
</TABLE>
(dd) To record subsidiary trust minority interest expense for the quarter ended
June 30, 1997 ($200,000 aggregate liquidation value HYTOPS).
<TABLE>
<S> <C>
Subsidiary trust minority interest expense for six months ........................ $ (11,625)
Subsidiary trust minority interest expense made by the Company during the quarter . 7,007
---------
Pro forma adjustment ............................................................... $ (4,618)
=========
</TABLE>
(ee) To record amortization expense on other assets for six months ($4,500 over
10 years). See note (f) of notes to Pro Forma Consolidated Balance Sheet.
(ff) To record interest expense on the 1997 Notes for six months ($200,000 at
9%).
(gg) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(hh) To record depreciation expenses related to acquired tangible assets of
$1,775 and eliminate depreciation expense of $2,225 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
(ii) To record amortization expense related to acquired intangible assets of
$8,954 and eliminate amortization expense of $3,990 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(jj) To record interest expense on acquisition financing of $570,000 (under the
Bank Credit Agreement at 71/4%), net of $341 of commitment fees for the
available but unused portion of the revolving credit facility, and
eliminate interest expense of $9,554 recorded by Heritage.
(kk) To record the interest expense reduction of $4,969 related to application
of the Common Stock Offering proceeds to the outstanding balance under the
revolving credit facility offset by an increase in commitment fees of $304
for the available but unused portion of the revolving credit facility.
(ll) To record the interest expense reduction of $5,259 related to application
of the Preferred Stock Offering proceeds to the outstanding balance under
the revolving credit facility offset by an increase in commitment fees of
$272 for the available but unused portion of the revolving credit facility.
(mm) There can be no assurance that the Preferred Stock Offering will be
consummated. The completion of the Common Stock Offering is not conditioned
upon the completion of the Preferred Stock Offering.
S-22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SINCLAIR
INTRODUCTION
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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the right to provide programming to
two additional 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 sales services to 27 radio stations, has pending
acquisitions of 24 radio stations, and has options to acquire an additional
seven radio stations.
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from television network compensation.
The Company's primary operating expenses involved in owning, operating or
programming the television and radio stations are syndicated program rights
fees, commissions on revenues, employee salaries, news-gathering and promotion.
Amortization and depreciation of costs associated with the acquisition of the
stations and interest carrying charges are significant factors in determining
the Company's overall profitability.
Set forth below are the principal types of broadcast revenues received by
the Company's stations for the periods indicated and the percentage contribution
of each type to the Company's total gross broadcast revenues:
BROADCAST REVENUES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Local/regional advertising ...... $ 67,881 48.6% $ 104,299 47.5% $ 199,029 49.4%
National advertising ............ 69,374 49.6 113,678 51.7 191,449 47.6
Network compensation ............ 302 0.2 442 0.2 3,907 1.0
Political advertising ............ 1,593 1.1 197 0.1 6,972 1.7
Production ..................... 696 0.5 1,115 0.5 1,142 0.3
--------- ------ --------- ------ --------- ------
Broadcast revenues ............... 139,846 100.0% 219,731 100.0% 402,499 100.0%
====== ====== ======
Less: agency commissions ......... (21,235) (31,797) (56,040)
--------- --------- ---------
Broadcast revenues, net ......... 118,611 187,934 346,459
Barter revenues .................. 10,743 18,200 32,029
--------- --------- ---------
Total revenues .................. $ 129,354 $ 206,134 $ 378,488
========= ========= =========
</TABLE>
The Company's primary types of programming and their approximate
percentages of 1996 net broadcast revenues were network programming (14.1%),
children's programming (7.4%) and other syndicated programming (56.7%).
Similarly, the Company's three largest categories of advertising and their
approximate percentages of 1996 net broadcast revenues were automotive (17.4%),
fast food advertising (9.2%) and movies (5.5%). No other advertising category
accounted for more than 5% of the Company's net broadcast revenues in 1996. No
individual advertiser accounted for more than 5% of any of the Company's
individual station's net broadcast revenues in 1996.
S-23
<PAGE>
The following table sets forth certain operating data of the Company for
the years ended December 31, 1994, 1995 and 1996 and the six months ended June
30, 1996 and 1997:
OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues .............................. $ 118,611 $ 187,934 $ 346,459 $ 117,339 $ 219,701
Barter revenues .................................... 10,743 18,200 32,029 9,571 19,870
---------- --------- --------- --------- ---------
Total revenues .................................... 129,354 206,134 378,488 126,910 239,571
---------- --------- --------- --------- ---------
Operating expenses, excluding depreciation and
amortization and special bonuses paid to executive
officers .......................................... 50,545 80,446 167,765 52,826 114,697
Depreciation and amortization ..................... 55,587 80,410 118,038 45,493 76,650
Amortization of deferred compensation ............... -- -- 739 506 233
Amortization of excess syndicated programming ...... -- -- 3,043 -- --
Special bonuses to executive officers ............... 3,638 -- -- -- --
---------- --------- --------- --------- ---------
Broadcast operating income ........................ $ 19,584 $ 45,278 $ 88,903 $ 28,085 $ 47,991
========== ========= ========= ========= =========
BROADCAST CASH FLOW (BCF) DATA:
Television BCF .................................... $ 67,519 $ 111,124 $ 175,212 $ 63,309 $ 98,032
Radio BCF .......................................... -- -- 14,004 1,770 7,568
---------- --------- --------- --------- ---------
Consolidated BCF (a) .............................. $ 67,519 $ 111,124 $ 189,216 $ 65,079 $ 105,600
========== ========= ========= ========= =========
Television BCF margin .............................. 56.9% 59.1% 56.7% 56.3% 51.2%
Radio BCF margin .................................... -- -- 37.3% 36.4% 26.7%
Consolidated BCF margin (b) ........................ 56.9% 59.1% 54.6% 55.5% 48.1%
OTHER DATA:
Adjusted EBITDA(c) ................................. $ 64,547 $ 105,750 $ 180,272 $ 62,013 $ 98,615
Adjusted EBITDA margin (b) ........................ 54.4% 56.3% 52.0% 52.8% 44.9%
After-tax cash flow (d) ........................... $ 21,310 $ 46,376 $ 74,441 $ 30,441 $ 32,737
Program contract payments ........................... 14,262 19,938 30,451 12,071 26,259
Corporate expense ................................. 2,972 5,374 8,944 3,066 6,985
</TABLE>
- ----------
(a) "Consolidated BCF" is defined as broadcast operating income plus corporate
overhead expenses, special bonuses paid to executive officers, depreciation
and amortization (including film amortization and amortization of deferred
compensation and excess syndicated programming), less cash payments for
program contract rights. Cash program payments represent cash payments made
for current program payables and do not necessarily correspond to program
usage. Special bonuses 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, Consolidated BCF does not
purport to represent cash provided by operating activities as reflected in
the Company's consolidated 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.
(b) "Consolidated BCF 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.
(c) "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 the Company's consolidated statements of cash
flows, is not a measure of financial performance under generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
(d) "After-tax cash flow" is defined as net income (loss) plus depreciation and
amortization (excluding film amortization), amortization of deferred
compensation, and the deferred tax provision (or minus the deferred tax
benefit). 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.
S-24
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Total revenues increased to $239.6 million for the six months ended June
30, 1997 from $126.9 million for the six months ended June 30, 1996, or 88.8%.
After excluding the effects of non-cash barter transactions, net broadcast
revenues for the six months ended June 30, 1997 increased by 87.2% over the six
months ended June 30, 1996. The increase in broadcast revenues was primarily the
result of acquisitions and LMA transactions consummated by the Company in 1996
(the "1996 Acquisitions") and, to a lesser extent, market growth in television
broadcast revenue and television broadcast revenue on a same stations basis.
Operating expenses excluding depreciation, amortization of intangible
assets and amortization of deferred compensation increased to $114.7 million for
the six months ended June 30, 1997 from $52.8 million for the six months ended
June 30, 1996, or 117.2%. The increase in expenses for the six months ended June
30, 1997 as compared to the six months ended June 30, 1996 was primarily
attributable to operating costs associated with the 1996 Acquisitions (92.9% of
increase for the six month period) and an increase in corporate overhead
expenses (6.3% of increase for the six month period) related primarily to the
additional expense of managing a larger base of operations.
Broadcast operating income increased to $48.0 million for the six months
ended June 30, 1997 from $28.1 million for the six months ended June 30, 1996,
or 70.8%. The increase in broadcast operating income for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996 was primarily
attributable to the 1996 Acquisitions.
Interest expense increased to $52.0 million for the six months ended June
30, 1997 from $27.6 million for the six months ended June 30, 1996, or 88.4%.
The increase in interest expense for the six months ended June 30, 1997
primarily related to indebtedness incurred by the Company to finance the River
City Acquisition on May 31, 1996, other subsequent 1996 acquisitions and
acquisitions consummated in 1997 (the "1997 Acquisitions"). Subsidiary Trust
Minority Interest Expense of $7.0 million for the six months ended June 30, 1997
is related to the HYTOPS. Subsidiary Trust Minority Interest Expense
distributions will be partially offset by reductions in interest expense because
a portion of the proceeds of the sale of the HYTOPS was used to reduce
indebtedness under the Company's Bank Credit Agreement.
Interest and other income decreased to $1.1 million for the six months
ended June 30, 1997 from $3.2 million for the six months ended June 30, 1996, or
65.6%. This decrease was primarily due to lower average cash balances and
related interest income.
The net deferred tax asset increased to $8.2 million as of June 30, 1997
from $782,000 at December 31, 1996. The increase in the Company's net deferred
tax asset as of June 30, 1997 as compared to December 31, 1996 primarily results
from the anticipation that the pre-tax losses incurred in the first six months
of 1997 will be used to offset future taxable income.
Net loss for the six months ended June 30, 1997 was $5.8 million or $(0.17)
per share compared to net income of $1.5 million or $0.04 per share for the six
months ended June 30, 1996.
Broadcast cash flow increased to $105.6 million for the six months ended
June 30, 1997 from $65.1 million for the six months ended June 30, 1996, or
62.2%. This increase in broadcast cash flow primarily resulted from the 1996 and
1997 Acquisitions and, to a lesser extent, increases in net broadcast revenues
on a same station basis. The Company's broadcast cash flow margin decreased to
48.1% for the six months ended June 30, 1997 from 55.5% for the six months ended
June 30, 1996. Excluding the effect of radio station broadcast cash flow,
television broadcast cash flow margin decreased to 51.2% for the six months
ended June 30, 1997 from 56.3% for the six months ended June 30, 1996. The
decrease in broadcast cash flow margins for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996 primarily resulted from the
lower margins of the acquired radio broadcasting assets and lower margins of
certain television stations acquired during 1996. For television stations owned,
operated or programmed for the six months ended June 30, 1996 and the six months
ending June 30,
S-25
<PAGE>
1997, broadcast cash flow margins increased from 55.5% to 57.0%, respectively.
This increase primarily resulted from expense savings related to synergies
realized from the 1996 Acquisitions combined with increases in net broadcast
revenue.
Adjusted EBITDA increased to $98.6 million for the six months ended June
30, 1997 from $62.0 million for the six months ended June 30, 1996, or 59.0%.
This increase in Adjusted EBITDA for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996 resulted from the 1996 and 1997
Acquisitions. The Company's Adjusted EBITDA margin decreased to 44.9% for the
six months ended June 30, 1997 from 52.8% for the six months ended June 30,
1996. The decrease in Adjusted EBITDA margin for the six months ended June 30,
1997 as compared to the six months ended June 30, 1996 primarily resulted from
operating cost structures at certain of the acquired stations and increases in
corporate overhead expenses. The Company has begun to implement and will
continue to implement operating and programming expense savings resulting from
synergies realized from the businesses acquired in and prior to 1996 and 1997
and believes that the benefits of the implementation of these methods will
result in improvement in broadcast cash flow margin and Adjusted EBITDA margin
over time.
After-tax cash flow increased to $32.7 million for the six months ended
June 30, 1997 from $30.4 million for the six months ended June 30, 1996, or
7.6%. The increase in after-tax cash flow for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996 primarily resulted from the
1996 and 1997 Acquisitions and internal growth, offset by increased interest
expense on the debt incurred to consummate the 1996 and 1997 Acquisitions and
subsidiary trust minority interest expense related to the HYTOPS Issuance during
March 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenues increased to $378.5 million for the year ended December 31,
1996 from $206.1 million for the year ended December 31, 1995, or 83.6%.
Excluding the effects of non-cash barter transactions, net broadcast revenues
for the year ended December 31, 1996 increased by 84.4% over the year ended
December 31, 1995. The increase in broadcast revenues was primarily the result
of acquisitions and LMA transactions consummated by the Company in 1995 (the
"1995 Acquisitions") and 1996. For stations owned, operated or programmed
throughout 1995 and 1996, television broadcast revenue grew 2.1% for the year
ended December 31, 1996 when compared to the year ended December 31, 1995. For
stations owned, operated or programmed throughout 1994 and 1995, television
broadcast revenue grew 12.8% for the year ended December 31, 1995 when compared
to the year ended December 31, 1994. The decrease in 1996 revenue growth as
compared to 1995 revenue growth primarily resulted from the loss in 1996 of the
Fox affiliation at WTTO in the Birmingham market, the loss of the NBC
affiliation at WRDC in the Raleigh market and decreases in ratings at WCGV and
WNUV in the Milwaukee and Baltimore markets, respectively.
Operating expenses excluding depreciation, amortization of intangible
assets and amortization of deferred compensation and excess syndicated
programming costs increased to $167.8 million for the year ended December 31,
1996 from $80.4 million for the year ended December 31, 1995, or 108.7%. The
increase in expenses for the year ended December 31, 1996 as compared to the
year ended December 31, 1995 was largely attributable to operating costs
associated with the 1995 and 1996 Acquisitions, an increase in LMA fees
resulting from LMA transactions and an increase in corporate overhead expenses.
Broadcast operating income increased to $88.9 million for the year ended
December 31, 1996, from $45.3 million for the year ended December 31, 1995, or
96.2%. The increase in broadcast operating income for the year ended December
31, 1996 as compared to the year ended December 31, 1995 was primarily
attributable to the 1995 and 1996 Acquisitions.
Interest expense increased to $84.3 million for the year ended December 31,
1996 from $39.3 million for the year ended December 31, 1995, or 114.5%. The
increase in interest expense for the year ended December 31, 1996 was primarily
related to senior bank indebtedness incurred by the Company to finance the River
City Acquisition and other acquisitions.
S-26
<PAGE>
Interest and other income decreased to $3.5 million for the year ended
December 31, 1996 from $4.2 million for the year ended December 31, 1995, or
16.7%. The decrease for the year ended December 31, 1996 was primarily due to
lower cash balances and related interest income resulting from cash payments
made in February 1996 when the Company made a $34.4 million payment relating to
the WSMH acquisition and April 1996 when the Company made a $60 million down
payment relating to the River City Acquisition. The decrease in interest income
was offset by an increase in other income resulting from the 1995 and 1996
Acquisitions.
For the reasons described above, net income for the year ended December 31,
1996 was $1.1 million or $0.03 per share compared to net income of $5.0 million
or $0.15 per share for the year ended December 31, 1995 before the extraordinary
loss on early extinguishment of debt.
Broadcast cash flow increased to $189.2 million for the year ended December
31, 1996 from $111.1 million for the year ended December 31, 1995, or 70.3%. The
increase in broadcast cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from the 1995 and 1996
Acquisitions. For stations owned, operated or programmed throughout 1995 and
1996, broadcast cash flow grew 1.3% for the year ended December 31, 1996 when
compared to the year ended December 31, 1995. For stations owned, operated or
programmed throughout 1994 and 1995, broadcast cash flow grew 23.7% for the year
ended December 31, 1995 when compared to the year ended December 31, 1994. The
decrease in 1996 broadcast cash flow growth as compared to 1995 broadcast cash
flow growth primarily resulted from the loss in 1996 of the Fox affiliation at
WTTO in the Birmingham market, the loss of the NBC affiliation at WRDC in the
Raleigh market and decreases in ratings at WCGV and WNUV in the Milwaukee and
Baltimore markets, respectively. The Company's broadcast cash flow margin
decreased to 54.6% for the year ended December 31, 1996 from 59.1% for the year
ended December 31, 1995. Excluding the effect of radio station broadcast cash
flow, television station broadcast cash flow margin decreased to 56.7% for the
year ended December 31, 1996 as compared to 59.1% for the year ended December
31, 1995. The decrease in broadcast cash flow margins for the year ended
December 31, 1996 as compared to the year ended December 31, 1995 primarily
resulted from the lower margins of the acquired radio broadcasting assets and
lower margins of certain of the acquired television stations. For stations
owned, operated or programmed throughout 1996 and 1995, broadcast cash flow
margins were unchanged when comparing the years ended December 31, 1996 and
1995. The Company believes that margins of certain of the acquired stations will
improve as operating and programming synergies are implemented.
Adjusted EBITDA increased to $180.3 million for the year ended December 31,
1996 from $105.8 million for the year ended December 31, 1995, or 70.4%. The
increase in Adjusted EBITDA for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 resulted from the 1995 and 1996 Acquisitions.
The Company's Adjusted EBITDA margin decreased to 52.0% for the year ended
December 31, 1996 from 56.3% for the year ended December 31, 1995. The decrease
in Adjusted EBITDA margins for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 primarily resulted from higher operating costs
at certain of the acquired stations. The Company has begun to implement and will
continue to implement operating and programming synergies throughout the
businesses acquired in and prior to 1996. The Company believes that the benefits
of the implementation of these methods will result in improvement in broadcast
cash flow and Adjusted EBITDA margins in future periods.
After-tax cash flow increased to $74.4 million for the year ended December
31, 1996 from $46.4 million for the year ended December 31, 1995, or 60.3%. The
increase in after-tax cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from the 1995 and 1996
Acquisitions offset by interest expense on the debt incurred to consummate these
acquisitions.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenues increased to $206.1 million for the year ended December 31,
1995, from $129.4 million for the year ended December 31, 1994, or 59.3%. This
increase includes revenues from the acquisitions of WTVZ and WLFL and the
entering into LMA agreements with WABM and WDBB.
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<PAGE>
This increase also includes the first full year of revenues from the acquisition
of WCGV and WTTO and the entering into LMA agreements with WNUV, WVTV and FSFA
(the "1994 Acquisitions"). Excluding the effect of non-cash barter transactions,
net broadcast revenues increased to $187.9 million for the year ended December
31, 1995 from $118.6 million for the year ended December 31, 1994, or 58.4%.
These increases in net broadcast revenues were primarily a result of the
1994 and 1995 Acquisitions and LMA transactions consummated by the Company, as
well as television broadcast revenue growth in each of the Company's markets.
WPGH, the Pittsburgh Fox affiliate, achieved in excess of 14% net broadcast
revenue growth for the year ended December 31, 1995 as compared to the year
ended December 31, 1994. This increase was primarily attributable to a new
metered rating service that began in May 1995 which significantly improved
WPGH's market rating. WBFF, the Fox affiliate in Baltimore and WCGV, the former
Fox affiliate, now a UPN affiliate in Milwaukee, both achieved in excess of 10%
net broadcast revenue growth as these stations began to realize the advantages
of having an LMA in these markets.
Operating expenses excluding depreciation and amortization and special
bonuses paid to executive officers increased to $80.4 million for the year ended
December 31, 1995 from $50.5 million for the year ended December 31, 1994. These
increases in expenses were primarily attributable to increases in operating
expenses relating to the 1994 and 1995 Acquisitions, including the payment of
LMA fees which increased to approximately $5.6 million for the year ended
December 31, 1995 as compared to $1.1 million for the year ended December 31,
1994. Corporate overhead expenses increased 80.8% for the year ended December
31, 1995 as compared to the year ended December 31, 1994. This increase was
primarily due to expenses associated with being a public company (i.e.,
directors and officers insurance, travel expenses and professional fees) and
executive bonus accruals for bonuses which were paid based on achieving in
excess of 20% growth percentages in pro forma broadcast cash flow for the year
1995 compared to 1994.
Broadcast operating income increased to $45.3 million for the year ended
December 31, 1995 from $19.6 million for the year ended December 31, 1994, or
131.1%. This increase in broadcast operating income was primarily a result of
the 1994 and 1995 Acquisitions and an increase in television broadcast revenues
in each of the Company's markets, partially offset by increased amortization
expenses related to these acquisitions.
Interest expense increased to $39.3 million for the year ended December 31,
1995 from $25.4 million for the year ended December 31, 1994, or 54.7%. The
major component of this increase in interest expense was increased borrowings
under the Bank Credit Agreement to finance the 1994 and 1995 Acquisitions.
During August 1995, the Company issued $300 million of Senior Subordinated Notes
and used a portion of the net proceeds to repay outstanding indebtedness under
the Bank Credit Agreement and the remainder provided an increase to the
Company's cash balances of approximately $91.4 million. The interest expense
related to these notes was approximately $10.0 million in 1995. This increase
was partially offset by the application of the net proceeds of an offering of
Class A Common Stock to reduce a portion of the indebtedness under the Bank
Credit Agreement during June 1995. Interest expense was also reduced as a result
of the application of net cash flow from operating activities to further
decrease borrowings under the Bank Credit Agreement.
Interest and other income increased to $4.2 million for the year ended
December 31, 1995 from $2.4 million for the year ended December 31, 1994, or
75.0%. This increase in interest income primarily resulted from an increase in
cash balances that remained from the proceeds of Senior Subordinated Notes
issued in August 1995. Income (loss) before benefit (provision) for income taxes
and extraordinary item increased to income of $10.2 million for the year ended
December 31, 1995 from a loss of $3.4 million for the year ended December 31,
1994.
Net income available to common shareholders improved to income of $76,000
for the year ended December 31, 1995 from a loss of $2.7 million for the year
ended December 31, 1994. In August 1995, the Company consummated the sale of
$300 million of Senior Subordinated Notes generating net proceeds to the Company
of $293.2 million. The net proceeds of this offering were utilized to repay
outstanding indebtedness under the Bank Credit Agreement of $201.8 million with
the remainder being
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<PAGE>
retained for general corporate purposes including potential future acquisitions.
In conjunction with the early retirement of the indebtedness under the Bank
Credit Agreement, the Company recorded an extraordinary loss of $4.9 million net
of a tax benefit of $3.4 million, related to the write-off of deferred financing
costs under the Bank Credit Agreement.
Broadcast cash flow increased to $111.1 million for the year ended December
31, 1995 from $67.5 million for the year ended December 31, 1994, or 64.6%. This
increase in broadcast cash flow was primarily due to the 1994 and 1995
Acquisitions, growth in market revenues and a reduction in program payments as a
percentage of net broadcast revenues to 10.6% for the year ended December 31,
1995 from 12.0% for the year ended December 31, 1994.
Adjusted EBITDA increased to $105.8 million for the year ended December 31,
1995 from $64.6 million for the year ended December 31, 1994, or 63.8%,
consistent with the growth in broadcast cash flow. After tax cash flow increased
to $46.4 million for the year ended December 31, 1995 from $21.3 million for the
year ended December 31, 1994, or 117.8%.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had $2.7 million in cash balances and a
working capital deficit of approximately $9.3 million. The Company's working
capital deficit primarily results from the accelerated method of amortization of
program contract costs and the even payment streams of program contract
liabilities. Excluding the effect of current program contract costs and current
program contract liabilities, the Company's working capital at June 30, 1997,
would have been $5.7 million. The Company's primary source of liquidity is cash
provided by operations and availability under the Bank Credit Agreement. As of
August 11, 1997, the Company's cash balances were approximately $1.9 million
with approximately $254 million available for borrowing under the Bank Credit
Agreement. In addition, the Bank Credit Agreement provides for a Tranche C term
loan in the amount of up to $400 million which can be utilized upon approval by
the agent bank and the raising of sufficient commitments from banks to fund the
additional loans. In July 1997, the Company entered into a purchase agreement to
acquire the license and non-license assets of the radio and television stations
of Heritage for $630 million and made a cash down payment of $63.0 million. The
Company has entered into a letter of intent to sell one of the Heritage
television stations for $60 million (the sale of which is required pursuant to
the acquisition agreement relating to the remaining Heritage television and
radio properties). The Company anticipates that it will finance the Heritage
acquisition through additional bank financing (including a draw under Tranche C
described above) or through a combination of additional bank financing and
proceeds from an offering of securities.
Net cash flows from operating activities increased to $42.5 million for the
six months ended June 30, 1997 from $26.4 million for the six months ended June
30, 1996. The Company made income tax payments of $5.3 million for the six
months ended June 30, 1997 as compared to $5.6 million for the six months ended
June 30, 1996 due to anticipated tax benefits generated by the 1996
Acquisitions. The Company made interest payments on outstanding indebtedness of
$55.7 million during the six months ended June 30, 1997 as compared to $29.5
million for the six months ended June 30, 1996. Additional interest payments for
the six months ended June 30, 1997 as compared to the six months ended June 30,
1996 primarily related to additional interest costs on indebtedness incurred to
finance the 1996 Acquisitions. The Company made subsidiary trust minority
interest expense payments of $6.0 million for the six months ended June 30, 1997
related to the private placement of the HYTOPS completed in March 1997. Program
rights payments increased to $26.3 million for the six months ended June 30,
1997 from $12.1 million for the six months ended June 30, 1996, primarily as a
result of the 1996 Acquisitions.
Net cash flows used in investing activities decreased to $112.4 million for
the six months ended June 30, 1997 from $942.1 million for the six months ended
June 30, 1996. During January 1997, the Company purchased the license and
non-license assets of WWFH-FM and WILP-AM in Wilkes-Barre, Pennsylvania for
approximately $770,000. In January and March 1997, the Company made cash
payments of $9.0 million and $1.5 million relating to the acquisition of the
license and non-license assets of KUPN-TV and WGR-AM and WWWS-AM, respectively,
utilizing indebtedness under the Bank Credit Agreement and existing cash
balances. In May 1997, the Company made cash payments of $78 million to acquire
the
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<PAGE>
license and non-license assets of KUPN-TV utilizing indebtedness under the Bank
Credit Agreement and existing cash balances. During the six months ended June
30, 1997, the Company made purchase option extension payments of $6.5 million
relating to WSYX-TV. The Company made payments totaling $8.5 million during the
six months ended June 30, 1997 in order to exercise options to acquire certain
FCC licenses. The Company made payments for property and equipment of $8.3
million for the six months ended June 30, 1997. In July 1997, the Company
entered into a purchase agreement to acquire the license and non-license assets
of the television and radio stations of Heritage and made a cash down payment of
$63.0 million. The Company anticipates that future requirements for capital
expenditures will also include other acquisitions if suitable acquisitions can
be identified on acceptable terms and capital expenditures incurred during the
ordinary course of business.
Net cash flows provided by financing activities decreased to $70.3 million
for the six months ended June 30, 1997 from $807.4 million for the six months
ended June 30, 1996. In March 1997, the Company completed a private placement of
the HYTOPS. The Company utilized $135 million of the approximately $193.4
million net proceeds of the HYTOPS Issuance to repay outstanding debt and
retained the remainder for general corporate purposes. The Company made payments
totaling $4.6 million to repurchase 186,000 shares of Class A Common Stock for
the six months ended June 30, 1997. In May 1997, the Company made payments of
$4.7 million related to the amendment of its Bank Credit Agreement. In the
fourth quarter of 1996, the Company negotiated the prepayment of syndicated
program contract liabilities for excess syndicated programming assets. In the
first quarter of 1997, the Company made final cash payments of $1.4 million
related to these negotiations. In July 1997, the Company issued the 1997 Notes
using $162.5 million of the approximately $196 million proceeds to repay
outstanding indebtedness under the revolving credit facility under the Bank
Credit Agreement and using the remainder to pay a portion of the $63 million
cash down payment relating to the Heritage Acquisition.
The Company anticipates that funds from operations, existing cash balances
and availability of the revolving credit facility under the Bank Credit
Agreement will be sufficient to meet its working capital, capital expenditure
commitments and debt service requirements for the foreseeable future. However,
to the extent such funds are not sufficient, or if the Company commits to
additional capital expenditures (including additional acquisitions), the Company
may need to incur additional indebtedness, refinance existing indebtedness or
raise funds from the sale of additional equity. The Bank Credit Agreement and
the indentures relating to the Company's 9% Senior Subordinated Notes due 2007,
10% Senior Subordinated Notes due 2003 and 10% Senior Subordinated Notes due
2005 restrict the incurrence of additional indebtedness and the use of proceeds
of an equity issuance. On August 22, 1997, the Company filed a $1 billion shelf
registration statement covering the issuance of the Company's debt securities,
preferred stock and common stock. The shares of Class A Common Stock offered in
the Common Stock Offering and the shares of Convertible Exchangeable Preferred
Stock offered in the Preferred Stock Offering are offered pursuant to such shelf
registration statement. A portion of the net proceeds to the Company from the
Offerings will be used to repay existing borrowings under the revolving credit
facility under the Bank Credit Agreement, and the remainder of the net proceeds
will be retained by the Company for general corporate purposes, including
funding the Heritage Acquisition, which is anticipated to close in the first
quarter of 1998, and other acquisitions if suitable acquisitions can be
identified on acceptable terms. See "Use of Proceeds" and "Business of Sinclair
- -- 1997 Acquisitions."
INCOME TAXES
Income tax benefit increased to $4.1 million for the six months ended June
30, 1997 from a provision of $2.1 million for the six months ended June 30,
1996. The Company's effective tax rate decreased to a benefit of 41.3% for the
six months ended June 30, 1997 from a provision of 58.2% for the six months
ended June 30, 1996. The net deferred tax asset increased to $8.2 million as of
June 30, 1997 from $782,000 at December 31, 1996. The increase in the Company's
net deferred tax asset as of June 30, 1997 as compared to December 31, 1996
primarily resulted from the anticipation that the pre-tax losses incurred in the
first six months of 1997 will be used to offset future taxable income.
The Company's income tax provision increased to $6.9 million for the year
ended December 31, 1996 from $5.2 million for the year ended December 31, 1995.
The Company's effective tax rate increased to 86% for the year ended December
31, 1996 from 51% for the year ended December 31, 1995.
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<PAGE>
The increase for the year ended December 31, 1996 as compared to the year ended
December 31, 1995 primarily related to certain financial reporting and income
tax differences attributable to certain 1995 and 1996 Acquisitions, and state
franchise taxes which are independent of pre-tax income.
The net deferred tax asset decreased to $782,000 as of December 31, 1996
from $21.0 million at December 31, 1995. The decrease in the Company's net
deferred tax asset as of December 31, 1996 as compared to December 31, 1995 is
primarily due to the Company recording deferred tax liabilities of $18.1 million
relating to the acquisition of all of the outstanding stock of Superior in May
1996, adjustments related to certain 1995 acquisitions, and resulting
differences between the book and tax basis of the underlying assets.
A $1.8 million net tax provision and a $647,000 tax benefit was recognized
for the years ended December 31, 1995 and December 31, 1994, respectively. The
provision for the year ended December 31, 1995 was comprised of $5.2 million
provision relating to the Company's income before provision for income taxes and
extraordinary item offset by a $3.4 million income tax benefit relating to the
extraordinary loss on early extinguishment of debt. The $5.2 million tax
provision reflects a 51% effective tax rate for the year ended December 31,
1995, which is higher than the statutory rate primarily due to the
non-deductibility of goodwill relating to the repurchase of Common Stock in
1990. The income tax benefit for the year ended December 31, 1994 was 19.1% of
the Company's loss before income taxes, which is lower than the benefit
calculated at statutory rates primarily due to non-deductible goodwill
amortization. After giving effect to these changes the Company had net deferred
tax assets of $21.0 million at December 31, 1995 and $12.5 million at December
31, 1994, respectively.
SEASONALITY
The Company's results usually are subject to seasonal fluctuations, which
result in fourth quarter broadcast operating income usually being greater than
first, second and third quarter broadcast operating income. This seasonality is
primarily attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership during this period.
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<PAGE>
INDUSTRY OVERVIEW
TELEVISION BROADCASTING
Commercial television stations in the United States are typically
affiliated with one of six television networks, which are at different stages of
development. The networks are differentiated in part by the amount of
programming they provide their affiliates each week and by the length of time
they have been in operation. These networks are ABC, CBS, NBC, FOX, WB, and UPN.
The ABC, CBS, and NBC networks (the "Traditional Networks") have a substantial
number of affiliated stations, have been in operation for the longest time and
provide the majority of their affiliates' programming each day. Fox established
an affiliate network in the mid-`80s and provides fewer hours of prime-time and
daytime programming than the Traditional Networks. WB and UPN, the newest
television networks, will soon increase their prime-time programming from three
to four nights and also provide a number of hours of children's programming each
week. Television stations affiliated with Fox, WB, or UPN have more hours of the
day to program and consequently have more commercial inventory to sell to
advertisers.
Each Traditional Network provides the majority of its affiliates'
programming each day without charge in exchange for a substantial majority of
the available advertising time in the programs supplied. Each Traditional
Network sells this advertising time and retains the revenue. The affiliate
receives compensation from the Traditional Network and retains the revenue from
time sold during breaks in and between network programs and in programming the
affiliate produces or purchases from non-network sources.
In contrast, a station that is not affiliated with a Traditional Network
supplies over-the-air programming by acquiring rights to broadcast programs
through syndication. This syndicated programming is generally acquired by such
stations for cash and barter. Those stations that acquire a program through
syndication are usually given exclusive rights to show the program in the
station's market for either a period of years or a number of episodes agreed
upon between the station and the syndicator of the programming. Types of
syndicated programs aired on these stations include feature films, popular
series previously shown on network television and series produced for direct
distribution to television stations.
Fox has established a network of television stations that operates on a
basis similar to the Traditional Networks. However, the 15 hours per week of
prime-time programming supplied by Fox to its affiliates are significantly less
than that of the Traditional Networks and, as a result, Fox affiliates retain a
significantly higher portion of the available inventory of broadcast time for
their own use than Traditional Network affiliates. As of December 31, 1996, Fox
had 169 affiliated stations broadcasting to 95.0% of U.S. television households.
During 1994, WB established an affiliation of independent stations which
began broadcasting in January 1995 and operates on a basis similar to Fox.
However, WB currently supplies only six hours of prime-time programming per week
to its affiliates (which will increase to eight hours per week in January 1998),
which is significantly less than that of Fox and, as a result, WB affiliates
retain a significantly higher portion of the available inventory of broadcast
time for their own use than affiliates of Fox or the Traditional Networks. As of
December 31, 1996, WB had 96 affiliated stations broadcasting to 86.0% of U.S.
television households, including cable coverage provided by WGN-TV.
During 1994, UPN established an affiliation of independent television
stations that began broadcasting in January 1995. The amount of prime-time
programming supplied by UPN to its affiliates in January 1997 was six hours per
week, which will be increased in the 1997 fall season to eight hours per week.
As of December 31, 1996, UPN had 91 affiliated stations broadcasting to 73.9% of
U.S. television households, excluding secondary affiliations.
Television stations derive their revenues primarily from the sale of
national, regional and local advertising. All network-affiliated stations,
including those affiliated with Fox and others, are required to carry spot
advertising sold by their networks. This reduces the amount of advertising
available for sale directly by the network-affiliated stations. Network
affiliates generally are compensated for the broadcast of network advertising.
The compensation paid is negotiated, station-by-station, based on a fixed
formula, subject to certain adjustments. Stations directly sell all of the
remaining advertising to be
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inserted in network programming and all of the advertising in non-network
programming, retaining all of the revenues received from these sales of
advertising, less any commissions paid. Through barter and cash-plus-barter
arrangements, however, a national syndicated program distributor typically
retains a portion of the available advertising time for programming it supplies,
in exchange for no or reduced fees to the station for such programming.
Advertisers wishing to reach a national audience usually purchase time
directly from the Traditional Networks, the Fox network, UPN, or WB, or
advertise nationwide on an ad hoc basis. National advertisers who wish to reach
a particular regional or local audience buy advertising time directly from local
stations through national advertising sales representative firms. Additionally,
local businesses purchase advertising time directly from the stations' local
sales staff. Advertising rates are based upon factors which include the size of
the DMA in which the station operates, a program's popularity among the viewers
that an advertiser wishes to attract, the number of advertisers competing for
the available time, demographic characteristics of the DMA served by the
station, the availability of alternative advertising media in the DMA,
aggressive and knowledgeable sales forces and the development of projects,
features and marketing programs that tie advertiser messages to programming.
Because broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, will adversely affect
the broadcast business. Conversely, increases in advertising budgets may
contribute to an increase in the revenue and operating cash flow of a particular
broadcast television station.
Information regarding competition in the television broadcast industry is
set forth under "Business of Sinclair -- Competition."
RADIO BROADCASTING
The primary source of revenues for radio stations is the sale of
advertising time to local and national spot advertisers and national network
advertisers. During the past decade, local advertising revenue as a percentage
of total radio advertising revenue in a given market has ranged from
approximately 79% to 82%. The growth in total radio advertising revenue tends to
be fairly stable and has generally grown at a rate faster than the Gross
Domestic Product ("GDP"). Total domestic radio advertising revenue reached an
all-time record of $12.3 billion in 1996, as reported by the Radio Advertising
Bureau (the "RAB").
According to the RAB's Radio Marketing Guide and Fact Book for Advertisers,
1997, radio reaches approximately 95% of all Americans over the age of 12 every
week. More than one half of all radio listening is done outside the home, in
contrast to other advertising media. The average adult listener spends
approximately three hours and 20 minutes per weekday listening to radio. Most
radio listening occurs during the morning, particularly between the time a
listener wakes up and the time the listener reaches work. This "morning drive
time" period reaches more than 80% of people over the age of 12 and, as a
result, radio advertising sold during this period achieves premium advertising
rates. Radio listeners have gradually shifted over the years from AM to FM
stations. FM reception, as compared to AM, is generally clearer and provides
greater total range and higher fidelity, except for so-called "clear channel" AM
radio stations, which have the maximum range of any type of station and can be
very successful in the news/talk/sports format. In comparison to AM, FM's
listener share is now in excess of 75%, despite the fact that the number of AM
and FM commercial stations in the United States is approximately equal.
Radio is considered an efficient, cost-effective means of reaching
specifically identified demographic groups. Stations are typically classified by
their on-air format, such as country, adult contemporary, oldies and news/talk.
A station's format and style of presentation enable it to target certain
demographics. By capturing a specific share of a market's radio listening
audience, with particular concentration in a targeted demographic, a station is
able to market its broadcasting time to advertisers seeking to reach a specific
audience. Advertisers and stations utilize data published by audience measuring
services, such as Arbitron, to estimate how many people within particular
geographical markets and demographics listen to specific stations.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format of
a particular station and the local competitive envi-
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ronment. Although the number of advertisements broadcast during a given time
period may vary, the total number of advertisements broadcast on a particular
station generally does not vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station
usually will engage a firm that specializes in soliciting radio advertising
sales on a national level. National sales representatives obtain advertising
principally from advertising agencies located outside the station's market and
receive commissions based on the revenue from the advertising obtained.
Information regarding competition in the radio broadcast industry is set
forth under "Business of Sinclair -- Competition."
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<PAGE>
BUSINESS OF 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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the rights to provide programming to
two additional 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 sales services to 27 radio
stations, has pending acquisitions of 24 radio stations, and has options to
acquire an additional seven radio stations.
The 29 television stations the Company owns or programs pursuant to LMAs
are located in 21 geographically diverse markets, with 23 of the stations in the
top 51 television DMAs in the United States. The Company's television station
group is diverse in network affiliation, with ten stations affiliated with Fox,
12 with UPN, three with WB, two with ABC and one with CBS. One station operates
as an independent. The Company has recently entered into an agreement with WB
pursuant to which seven of its stations would switch affiliations to, and one
independent station would become affiliated with, WB. See "-- Television
Broadcasting -- Programming and Affiliations," below.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
album/progressive rock and adult contemporary. Of the 27 stations owned,
programmed or with which the Company has a JSA, 12 broadcast on the AM band and
15 on the FM band. The Company owns, programs or has a JSA with from two to
eight stations in all but one of the eight radio markets it serves.
The Company has undergone rapid and significant growth over the course of
the last six years. Since 1991, the Company has increased the number of stations
it owns or provides services to from three television stations to 29 television
stations and 27 radio stations. From 1991 to 1996, net broadcast revenues and
Adjusted EBITDA increased from $39.7 million to $346.5 million and from $15.5
million to $180.3 million, respectively. Pro forma for the 1996 Acquisitions and
the Heritage Acquisition, 1996 net broadcast revenues and Adjusted EBITDA would
have been $532.4 million and $246.3 million, respectively.
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<PAGE>
TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET(C) RANK(D) FCC LICENSE
- ----------------------------- --------- ---------- ------------ --------- ------------- --------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pittsburgh, Pennsylvania .... 19 WPGH O&O 53 FOX 6 4 8/1/99
WPTT LMA 22 UPN 5 8/1/99
Sacramento, California ...... 20 KOVR O&O 13 CBS 8 3 2/1/99
St. Louis, Missouri ......... 21 KDNL O&O 30 ABC 7 5 2/1/98
Baltimore, Maryland ......... 23 WBFF O&O 45 FOX 5 4 10/1/04
WNUV LMA 54 UPN 5 10/1/04
Indianapolis, Indiana ...... 25 WTTV LMA(e) 4 UPN 8 4 8/1/97 (f)
WTTK LMA(e)(g) 29 UPN 4 8/1/97 (f)
Raleigh-Durham,
North Carolina ............ 29 WLFL O&O 22 FOX 5 3 12/1/04
WRDC LMA 28 UPN 5 12/1/04
Cincinnati, Ohio ............ 30 WSTR O&O 64 UPN 5 5 10/1/97 (f)
Milwaukee, Wisconsin ...... 31 WCGV O&O 24 UPN 6 4 12/1/97 (f)
WVTV LMA 18 WB 5 12/1/97 (f)
Kansas City, Missouri ...... 32 KSMO O&O 62 UPN 5 5 2/1/98
Columbus, Ohio ............ 34 WTTE O&O 28 FOX 5 4 10/1/97 (f)
Asheville, North Carolina
and Greenville/
Spartanburg/Anderson,
South Carolina ......... 35 WFBC LMA 40 IND(h) 6 5 12/1/04
WLOS O&O 13 ABC 6 3 12/0/04
San Antonio, Texas ......... 38 KABB O&O 29 FOX 7 4 8/1/98
KRRT LMA 35 UPN 6 8/1/98
Norfolk, Virginia ......... 40 WTVZ O&O 33 FOX 6 4 10/1/04
Oklahoma City,
Oklahoma .................. 43 KOCB O&O 34 UPN 7 5 6/1/98
Birmingham, Alabama ......... 51 WTTO O&O 21 WB 5 4 4/1/05
WABM LMA 68 UPN 5 4/1/05
Charleston and Hunting-
ton, West Virginia 56 WCHS Pending 8 ABC 4 3 10/10/00
Mobile, Alabama and
Pensacola, Florida ......... 61 WEAR Pending 3 ABC 6 2 2/1/02
WFGX Pending(i) 35 WB 6 4/1/02
Flint/Saginaw/Bay City,
Michigan .................. 62 WSMH O&O 66 FOX 5 4 10/1/97 (f)
Las Vegas, Nevada ......... 64 KUPN O&O 21 UPN 8 5 10/1/98
Lexington, Kentucky ......... 68 WDKY O&O 56 FOX 5 4 8/1/05
Des Moines, Iowa ............ 71 KDSM O&O 17 FOX 4 4 2/1/98
Burlington, Vermont and
Plattsburgh, New York 91 WPTZ Pending 5 NBC 4 2 1/1/99
WNNE Pending(j) 31 NBC 3 4/1/99
WFFF Pending(i) 44 FOX (k) 4/1/99
Peoria/Bloomington,
Illinois .................. 110 WYZZ O&O 43 FOX 4 4 12/1/97 (f)
Tuscaloosa, Alabama ......... 185 WDBB LMA(l) 17 WB 2 2 4/1/05
</TABLE>
(footnotes on following page)
- ----------
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<PAGE>
(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
"-- 1997 Acquisitions."
(c) Represents the number of television stations designated by Nielsen as
"local" to the DMA, excluding public television stations and stations which
do not meet the minimum Nielsen reporting standards (weekly cumulative
audience of at least 2.5%) for the Sunday-Saturday, 6:00 a.m. to 2:00 a.m.
time period.
(d) The rank of each station in its market is based upon the November 1996
Nielsen estimates of the percentage of persons tuned to each station in the
market from 6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) Non-License Assets acquired from River City Broadcasting, L.P. ("River
City") and option exercised to acquire License Assets will become owned and
operated upon FCC approval of transfer of License Assets and closing of
acquisition of License Assets.
(f) License renewal application pending.
(g) WTTK currently simulcasts all of the programming aired on WTTV and the
station rank applies to the combined viewership of these stations.
(h) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, WB or UPN.
(i) The Company will provide programming services to this station upon
completion of the Heritage Acquisition.
(j) WNNE currently simulcasts the programming broadcast on WPTZ.
(k) This station began broadcast operations in August 1997 and has not yet
established a rank.
(l) WDBB simulcasts the programming broadcast on WTTO.
Operating Strategy
The Company's television operating strategy includes the following key
elements:
Attracting Viewership
The Company seeks to attract viewership and expand its audience share
through selective, high-quality programming.
Popular Programming. The Company believes that an important factor in
attracting viewership to its stations is their network affiliations with Fox,
WB, ABC, CBS and UPN. These affiliations enable the Company to attract viewers
by virtue of the quality first-run original programming provided by these
networks and the networks' promotion of such programming. The Company also seeks
to obtain, at attractive prices, popular syndicated programming that is
complementary to the station's network affiliation. Examples of popular
syndicated programming obtained by the Company for broadcast on its Fox, WB and
UPN affiliates and Independent stations are "Mad About You," "Frasier," "The
Simpsons," "Home Improvement" and "Seinfeld." In addition to network
programming, the Company's ABC and CBS affiliates broadcast news magazine, talk
show, and game show programming such as "Hard Copy," "Entertainment Tonight,"
"Regis and Kathie Lee," "Wheel of Fortune" and "Jeopardy."
Children's Programming. The Company seeks to be a leader in children's
programming in each of its respective DMAs. The Company's nationally recognized
"Kids Club" was the forerunner and model for the Fox network-wide marketing
efforts promoting children's programming. Sinclair carries the Fox Children's
Network ("FCN") and WB's and UPN's children's programming, all of which include
significant amounts of animated programming throughout the week. In those
markets where the Company owns or programs ABC or CBS affiliates, the Company
broadcasts those networks' animated programming during weekends. In addition to
this animated programming, the Company broadcasts other forms of children's
programming, which may be produced by the Company or by an affiliated network.
Counter-Programming. The Company's programming strategy on its Fox, WB, UPN
and Independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
program-
S-37
<PAGE>
ming on competing stations. The Company believes that implementation of this
strategy enables its stations to achieve competitive rankings in households in
the 18-49 and 25-54 demographics and to offer greater diversity of programming
in each of its DMAs.
Local News. The Company believes that the production and broadcasting of
local news can be an important link to the community and an aid to the station's
efforts to expand its viewership. In addition, local news programming can
provide access to advertising sources targeted specifically to local news. The
Company carefully assesses the anticipated benefits and costs of producing local
news prior to introduction at a Company station because a significant investment
in capital equipment is required and substantial operating expenses are incurred
in introducing, developing and producing local news programming. The Company
currently provides local news programming at WBFF and WNUV in Baltimore, WLFL in
Raleigh/Durham, KDNL in St. Louis, KABB in San Antonio, KOVR in Sacramento, WPGH
in Pittsburgh and WLOS in Asheville. The Company also broadcasts news programs
on WDKY in Lexington, which are produced in part by the Company and in part
through the purchase of production services from an independent third party and
on WTTV in Indianapolis, which are produced by a third party in exchange for a
limited number of advertising spots. River City provides the Company news
production services with respect to the production of news programming and on
air talent on WTTE. Pursuant to an agreement, River City provides certain
services to the Company in return for a fee equal to approximately $416,000 per
year. The possible introduction of local news at the other Company stations is
reviewed periodically. The Company's policy is to institute local news
programming at a specific station only if the expected benefits of local news
programming at the station are believed to exceed the associated costs after an
appropriate start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's WB and UPN affiliated and independent stations generally face fewer
restrictions on broadcasting live local sporting events than do their
competitors that are affiliates of the major networks and Fox since affiliates
of the major networks and Fox are subject to prohibitions against preemptions of
network programming. The Company has been able to acquire the local television
broadcast rights for certain sporting events, including NBA basketball, Major
League Baseball, NFL football, NHL hockey, ACC basketball, Big Ten football and
basketball, and SEC football. The Company seeks to expand its sports
broadcasting in DMAs as profitable opportunities arise. In addition, the
Company's stations that are affiliated with Fox, ABC and CBS broadcast certain
Major League Baseball games, NFL football games and NHL hockey games as well as
other popular sporting events.
Innovative Local Sales and Marketing
The Company believes that it is able to attract new advertisers to its
stations and increase its share of existing customers' advertising budgets by
creating a sense of partnership with those advertisers. The Company develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to advertisers. These campaigns often involve the sponsorship by
advertisers of local promotional events that capitalize on the station's local
identity and programming franchises. For example, several of the Company's
stations stage local "Kids Fairs" which allow station advertisers to reinforce
their on-air advertising with their target audience. Through its strong local
sales and marketing focus, the Company seeks to capture an increasing share of
its revenues from local sources, which are generally more stable than national
advertising.
Control of Operating and Programming Costs
By employing a disciplined approach to managing programming acquisition and
other costs, the Company has been able to achieve operating margins that the
Company believes are among the highest in the television broadcast industry. The
Company has sought and will continue to seek to acquire quality programming for
prices at or below prices paid in the past. As an owner or provider of
programming services to 29 stations in 21 DMAs reaching approximately 15% of
U.S. television households (without giving effect to the Heritage Acquisition),
the Company believes that it is able to negotiate favorable terms for the
acquisition of programming. Moreover, the Company emphasizes control of each of
its stations' programming and operating costs through program-specific profit
analysis, detailed budgeting, tight control over staffing levels and detailed
long-term planning models.
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<PAGE>
Attract and Retain High Quality Management
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to general
managers, sales managers and other station managers is based on their achieving
certain operating results. The Company also provides its corporate and station
managers with deferred compensation plans offering options to acquire Class A
Common Stock.
Community Involvement
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employees to become
active members of their communities and to promote involvement in community and
charitable affairs. The Company believes that active community involvement by
its stations provides its stations with increased exposure in their respective
DMAs and ultimately increases viewership and advertising support.
Establish LMAs
The Company believes that it can attain significant growth in operating
cash flow through the utilization of LMAs. By expanding its presence in a market
in which it owns a station, the Company can improve its competitive position
with respect to a demographic sector. In addition, by providing programming
services to an additional station in a market, the Company is able to realize
significant economies of scale in marketing, programming, overhead and capital
expenditures. The Company provides programming services pursuant to an LMA to an
additional station in seven of the 21 television markets in which the Company
owns or programs a station.
Programming and Affiliations
The Company continually reviews its existing programming inventory and
seeks to purchase the most profitable and cost-effective syndicated programs
available for each time period. In developing its selection of syndicated
programming, the Company balances the cost of available syndicated programs with
their potential to increase advertising revenue and the risk of their reduced
popularity during the term of the program contract. The Company seeks to
purchase only those programs with contractual periods that permit programming
flexibility and which complement a station's overall programming strategy and
counter-programming strategy. Programs that can perform successfully in more
than one time period are more attractive due to the long lead time and
multi-year commitments inherent in program purchasing.
Twenty-eight of the 29 television stations owned or provided programming
services by the Company currently operate as affiliates of Fox (ten stations),
UPN (twelve stations), ABC (two stations), WB (three stations) or CBS (one
station). The networks produce and distribute programming in exchange for each
station's commitment to air the programming at specified times and for
commercial announcement time during the programming. In addition, networks other
than Fox and UPN pay each affiliated station a fee for each network-sponsored
program broadcast by the stations.
On August 21, 1996, the Company entered into an agreement with Fox (the
"Fox Agreement") which, among other things, provides that the affiliation
agreements between Fox and eight stations owned or provided programming services
by the Company (except as noted below) would be amended to have new five-year
terms commencing on the date of the Fox Agreement. Fox has the option to extend
the affiliation agreements for additional five-year terms and must extend all of
the affiliation agreements if it extends any (except that Fox may selectively
renew affiliation agreements if any station has breached its affiliation
agreement). The Fox Agreement also provides that the Company will have the right
to purchase, for fair market value, any station Fox acquires in a market
currently served by a Company-owned Fox affiliate (other than the Norfolk and
Raleigh-Durham markets) if Fox determines to terminate the affiliation agreement
with the Company's station in that market and operate the station acquired by
Fox as a Fox affiliate. The Fox Agreement confirmed that the affiliation
agreements for WTVZ-TV (Norfolk, Virginia) and WLFL-TV
S-39
<PAGE>
(Raleigh, North Carolina) will terminate August 31, 1998. The Fox Agreement also
includes provisions limiting the ability of the Company to preempt Fox
programming except where it has existing programming conflicts or where the
Company preempts to serve a public purpose.
The Company's affiliation agreements with ABC for KDNL and WLOS in St.
Louis and Asheville, respectively, have ten-year terms expiring in 2005 and
2004, respectively. Each of the Company's current UPN affiliation agreements
expires in January 1998 unless renewed by the Company.
On July 4, 1997, the Company entered into an agreement with WB, pursuant to
which the Company agreed that certain stations currently affiliated with UPN
would terminate their affiliations with UPN at the end of the current
affiliation term in January 1998, and would enter into affiliation agreements
with WB effective as of that date. The Company has advised UPN that the
following stations owned or provided programming services by the Company will
not renew their affiliation agreements with UPN when the current agreements
expire on January 15, 1998: WPTT-TV, Pittsburgh, Pennsylvania, WNUV-TV,
Baltimore, Maryland. WSTR-TV, Cincinnati, Ohio, KRRT-TV, San Antonio, Texas, and
KOCB-TV, Oklahoma City, Oklahoma. These stations will enter into ten-year
affiliation agreements with WB beginning on January 16, 1998. Pursuant to the WB
Agreement, the WB affiliation agreements of WVTV-TV, Milwaukee, Wisconsin, and
WTTO-TV, Birmingham, Alabama (whose programming is simulcasted on WDBB-TV,
Tuscaloosa, Alabama), have been extended to January 16, 2008. In addition,
WFBC-TV in Greenville, South Carolina will become affiliated with WB on November
1, 1999 when WB's current affiliation with another station in that market
expires. WTVZ-TV, Norfolk, Virginia and WLFL-TV, Raleigh, North Carolina, will
become affiliated with WB when their affiliations with Fox expire. These Fox
affiliations are scheduled to expire on August 31, 1998.
Under the terms of the WB Agreement, WB has agreed to pay the Company $64
million in aggregate amount in monthly installments during the first eight years
commencing on January 16, 1998 in consideration for entering into affiliation
agreements with WB. In addition, WB will be obligated to pay an additional $10
million aggregate amount in monthly installments in each of the following two
years provided that WB is in the business of supplying programming as a
television network during each of those years.
In August 1997, UPN filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998.
Each of the affiliation agreements relating to stations involved in the
River City Acquisition (other than River City's Fox and ABC affiliates) is
terminable by the network upon transfer of the License Assets of the station.
Since transfer of the License Assets, no such affiliation agreement has been
terminated.
S-40
<PAGE>
RADIO BROADCASTING
The following table sets forth certain information regarding the radio
stations (i) owned and operated by the Company, (ii) programmed by the Company,
(iii) with which the Company has a JSA, or (iv) which the Company has an option
or has agreed to acquire:
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(A) REVENUE(B) FORMAT TARGET(C) TARGET(D) LICENSE
- ------------------------- ------------ --------------------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Los Angeles, California 1
KBLA-AM(e) Korean N/A(e) N/A(e) 12/1/97(f)
St. Louis, Missouri 18
KPNT-FM Alternative Rock Adults 18-34 2 2/1/05
WVRV-FM Modern Adult Contemporary Adults 18-34 3 12/1/04
WRTH-AM(g) Adult Standards Adults 25-54 20 2/2/04
WIL-FM(g) Country Adults 25-54 7 2/2/04
KIHT-FM(g) 70s Rock Adults 25-54 11 2/1/05
Portland, Oregon 22
KKSN-AM(g) Adult Standards Adults 25-54 28 2/1/98
KKSN-FM(g) 60s Oldies Adults 25-54 5 2/1/98
KKRH-FM(g) 70s Rock Adults 25-54 7 2/1/98
Kansas City, Missouri 29
KCAZ-AM(g)(h) Children's N/A(h) N/A(h)
KCFX-FM(g) 70s Rock Adults 25-54 1 6/1/97
KQRC-FM(g) Active Rock Adults 18-34 2 6/1/97
KCIY-FM(g) Smooth Jazz Adults 25-54 11 4/2/01
KXTR-FM(g) Classical Adults 25-54 18 4/2/01
Milwaukee, Wisconsin 32
WEMP-AM(g) 60s Oldies Adults 25-54 26 12/1/00
WMYX-FM(g) Adult Contemporary Adults 25-54 6 12/1/00
WAMG-FM(g) Rhythmic Adults 25-54 15 12/1/03
Nashville, Tennessee 34
WLAC-FM Adult Contemporary Women 25-54 5 8/1/04
WJZC-FM Smooth Jazz Women 25-54 9 8/1/04
WLAC-AM News/Talk/Sports Adults 35-64 9 8/1/04
New Orleans, Louisiana 38
WLMG-FM Adult Contemporary Women 25-54 4 6/1/04
KMEZ-FM Urban Oldies Women 25-54 6 6/1/04
WWL-AM News/Talk/Sports Adults 35-64 1 6/1/04
WSMB-AM Talk/Sports Adults 35-64 17 6/1/04
WBYU-AM(g) Adult Standards Adults 25-54 19 6/1/98
WEZB-FM(g) Adult Contemporary Adults 25-54 10 6/1/05
WRNO-FM(g) 70s Rock Adults 25-54 8 6/1/01
Memphis, Tennessee 40
WRVR-FM Soft Adult Contemporary Women 25-54 2 8/1/04
WJCE-AM Urban Oldies Women 25-54 13 8/1/04
WOGY-FM Country Adults 25-54 7 8/1/04
Norfolk, Virginia 41
WGH-AM(g) Sports Talk Adults 25-54 18 12/1/01
WGH-FM(g) Country Adults 25-54 3 12/1/01
WVCL-FM(g) 60s Oldies Adults 25-54 10 12/1/01
Buffalo, New York 42
WMJQ-FM Adult Contemporary Women 25-54 2 6/1/98
WKSE-FM Contemporary Hit Radio Women 18-49 1 6/1/98
WBEN-AM News/Talk/Sports Adults 35-64 6 6/1/98
WWKB-AM Country Adults 35-64 18 6/1/98
WGR-AM Sports Adults 25-54 9 6/1/98
WWWS-AM Urban Oldies Women 25-54 11 6/1/98
(continued on following page)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(A) REVENUE(B) FORMAT TARGET(C) TARGET(D) LICENSE
- ------------------------ ------------ ------------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Rochester, New York 53
WBBF-AM(g) Adult Standards Adults 25-54 23 6/1/98
WBEE-FM(g) Country Adults 25-54 1 6/1/98
WKLX-FM(g) 60s Oldies Adults 25-54 7 6/1/98
WQRV-FM(g) Classic Hits Adults 25-54 9 6/1/98
Asheville/Greenville/ 60
Spartanburg, South
Carolina
WFBC-FM(i) Contemporary Hit Radio Women 18-49 4 12/1/03
WORD-AM(i) News/Talk Adults 35-64 9 12/1/03
WYRD-AM(i) News/Talk Adults 35-64 10 12/1/03
WSPA-AM(i) Full Service/Talk Adults 35-64 15 12/1/03
WSPA-FM(i) Soft Adult Contemporary Women 25-54 4 12/1/03
WOLI-FM(i) Oldies Adults 25-54 9 12/1/03
WOLT-FM(i) Oldies Adults 25-54 11 12/1/03
Wilkes-Barre/Scranton, 68
Pennsylvania
WKRZ-FM(j) Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM Country Adults 25-54 2 8/1/98
WILK-AM(k) News/Talk/Sports Adults 35-64 8 8/1/98
WGBI-AM(k) News/Talk/Sports Adults 35-64 20 8/1/98
WWSH-FM(l)(m) Soft Hits Women 25-54 7 8/1/98
WILP-AM(k) News/Talk/Sports Adults 35-64 19 8/1/98
WWFH-FM(m) Soft Hits Women 25-54 10 8/1/98
WKRF-FM(j) Contemporary Hit Radio Adults 18-49 17 8/1/98
</TABLE>
- ----------
(a) Actual city of license may differ from the geographic market served.
(b) Ranking of the principal radio market served by the station among all U.S.
radio markets by 1996 aggregate gross radio broadcast revenue according to
Duncan's Radio Market Guide -- 1997 Edition.
(c) Due to variations that may exist within programming formats, the primary
demographic target of stations with the same programming format may be
different.
(d) All information concerning ratings and audience listening information is
derived from the Spring 1997 Arbitron Metro Area Ratings Survey (the
"Spring 1997 Arbitron"). Arbitron is the generally accepted industry source
for statistical information concerning audience ratings. Due to the nature
of listener surveys, other radio ratings services may report different
rankings; however, the Company does not believe that any radio ratings
service other than Arbitron is accorded significant weight in the radio
broadcast industry. "Station Rank in Primary Demographic Target" is the
ranking of the station among all radio stations in its market that are
ranked in its target demographic group and is based on the station's
average persons share in the primary demographic target in the applicable
Metro Survey Area. Source: Average Quarter Hour Estimates, Monday through
Sunday, 6:00 a.m. to midnight, Spring 1997 Arbitron.
(e) Programming is provided to this station by a third party pursuant to an
LMA.
(f) License renewal application pending.
(g) The Company has the right to acquire the assets of this station in the
Heritage Acquisition.
(h) This station is being programmed by a third party pursuant to an LMA. The
third party has an option to acquire this station for $550,000 which
expires on September 30, 1997.
(i) The Company has an option to acquire Keymarket of South Carolina, Inc.
("Keymarket" or "KSC"). Keymarket owns and operates WYRD-AM, WORD-AM and
WFBC-FM, and has exercised its option to acquire WSPA-AM and WSPA-FM, and
provides sales services pursuant to a JSA and has an option to acquire
WOLI-FM and WOLT-FM.
(j) WKRZ-FM and WKRF-FM simulcast their programming.
(k) WILK-AM, WGBI-AM and WILP-AM simulcast their programming.
(l) The Company has agreed to acquire this station and has obtained FCC
approval to acquire the related licenses. The Company is currently
providing sales services to this station pursuant to a JSA.
(m) WWSH-FM and WWFH-FM simulcast their programming.
S-42
<PAGE>
Radio Operating Strategy
The Company's radio strategy is to operate a cluster of radio stations in
selected geographic markets throughout the country. In each geographic market,
the Company employs broadly diversified programming formats to appeal to a
variety of demographic groups within the market. The Company seeks to strengthen
the identity of each of its stations through its programming and promotional
efforts, and emphasizes that identity to a far greater degree than the identity
of any local radio personality.
The Company believes that its strategy of appealing to diverse demographic
groups in selected geographic markets allows it to reach a larger share of the
overall advertising market while realizing economies of scale and avoiding
dependence on one demographic or geographic market. The Company realizes
economies of scale by combining sales and marketing forces, back office
operations and general management in each geographic market. At the same time,
the geographic diversity of its portfolio of radio stations helps lessen the
potential impact of economic downturns in specific markets and the diversity of
target audiences served helps lessen the impact of changes in listening
preferences. In addition, the geographic and demographic diversity allows the
Company to avoid dependence on any one or any small group of advertisers.
The Company's group of radio stations includes the top billing station
group in two markets and one of the top three billing station groups in each of
its markets other than Los Angeles, St. Louis and Nashville. Through ownership
or LMAs, the group also includes duopolies in six of its seven markets and, upon
exercise of options to acquire stations in the Asheville/Greenville/Spartanburg
market, the Company will have duopolies in seven of its eight markets.
Depending on the programming format of a particular station, there are a
predetermined number of advertisements broadcast each hour. The Company
determines the optimum number of advertisements available for sale during each
hour without jeopardizing listening levels (and the resulting ratings). Although
there may be shifts from time to time in the number of advertisements available
for sale during a particular time of day, the total number of advertisements
available for sale on a particular station normally does not vary significantly.
Any change in net radio broadcasting revenue, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments made to ensure that the station effectively uses advertising
time available for sale, an increase in the number of commercials sold or a
combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in
each of its radio markets. The Company's principal goal is to utilize its sales
efforts to develop long-standing customer relationships through frequent direct
contacts, which the Company believes provides it with a competitive advantage.
Additionally, in some radio markets, duopolies permit the Company to offer
creative advertising packages to local, regional and national advertisers. Each
radio station programmed by the Company also engages a national independent
sales representative to assist it in obtaining national advertising revenues.
These representatives obtain advertising through national advertising agencies
and receive a commission from the radio station based on its gross revenue from
the advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. The 1996 Act represents the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934, as
amended (the "Communications Act"). The 1996 Act relaxes the broadcast ownership
rules and simplifies the process for renewal of broadcast station licenses.
The Company believes that the enactment of the 1996 Act presents a unique
opportunity to build a larger and more diversified broadcasting company.
Additionally, the Company expects that the opportunity to act as one of the
consolidators of the industry will enable the Company to gain additional
influence with program suppliers, television networks, other vendors, and
alternative delivery media. The additions to the Company's management team as a
result of the River City Acquisition have given it additional resources to take
advantage of these developments.
S-43
<PAGE>
In implementing its acquisition strategy, the Company seeks to identify and
pursue favorable station or group acquisition opportunities primarily in the
15th to 75th largest DMAs and Metro Service Areas ("MSAs"). In assessing
potential acquisitions, the Company examines opportunities to improve revenue
share, audience share and/or cost control. Additional factors considered by the
Company in a potential acquisition include geographic location, demographic
characteristics and competitive dynamics of the market. The Company also
considers the opportunity for cross-ownership of television and radio stations
and the opportunity it may provide for cross-promotion and cross-selling.
In conjunction with its acquisitions, the Company may determine that
certain of the acquired stations may not be consistent with the Company's
strategic plan. In such an event, the Company reviews opportunities for swapping
such stations with third parties for other stations or selling such stations
outright. The Heritage Acquisition may provide such opportunities.
Since the 1996 Act became effective, the Company has acquired, obtained
options to acquire or has acquired the right to program or provide sales
services to 18 television and 34 radio stations for an aggregate consideration
of approximately $1.3 billion. Certain terms of these acquisitions are described
below.
River City Acquisition. On May 31, 1996, pursuant to an amended and
restated asset purchase agreement, the Company acquired all of the Non-License
Assets of River City other than the assets relating to WSYX-TV in Columbus,
Ohio. Simultaneously, the Company entered into a 10-year LMA with River City
with respect to all of River City's License Assets (with the exception of the
License Assets relating to WSYX-TV). The Company has since exercised options to
acquire all of River City's License Assets other than License Assets relating to
WTTV-TV and WTTK-TV in Indianapolis, Indiana, WSYX-TV in Columbus, Ohio and
WFBC-TV in Greenville, South Carolina. Glencairn has acquired the License Assets
of WFBC-TV, and the Company provides programming services to WFBC-TV pursuant to
an LMA. The Company has a 10-year option (the "License Assets Option") to
acquire River City's License Assets relating to WTTV-TV and WTTK-TV, and a
three-year option to acquire the assets relating to WSYX-TV (both the License
and Non-License Assets, collectively the "Columbus Option"). The exercise price
for the License Assets Option for WTTV-TV and WTTK-TV is $1.9 million and the
Company is required to pay a quarterly extension fee with respect to the License
Assets Option of 15% of the option exercise price through May 3, 1998 and 25% of
the option exercise price thereafter. Acquisition of the License Assets relating
to WTTV-TV and WTTK-TV is now subject to FCC approval of transfer of such
License Assets. There can be no assurance that this approval will be obtained.
An application for transfer of the License Assets was filed in November 1996. A
petition was filed to deny this application and, at the Company's request, the
FCC has withheld action on this application. The petitioner has appealed the
withholding of action on the application.
At the time of the River City Acquisition, the Company also acquired from
another party the Non-License Assets relating to one additional television
station (KRRT-TV in Kerrville, Texas) to which River City provided programming
pursuant to an LMA. Glencairn has acquired the License Assets of KRRT-TV and the
Company provides programming services to KRRT-TV pursuant to an LMA. The Company
has also acquired or has agreed to acquire four radio stations to which River
City provided programming or sales services.
On July 17, 1997, the Company and Glencairn acquired the License Assets of
WLOS-TV and WFBC-TV, respectively. An application for review has been filed
which appeals the FCC's grants of the Company's application to acquire WLOS-TV
in the Asheville/Greenville/Spartanburg market and Glencairn's application to
acquire WFBC-TV in that market.
The Company paid an aggregate of approximately $1.0 billion for the
Non-License Assets and the options to acquire License Assets consisting of
$847.6 million in cash and 1,150,000 shares of Series A Preferred Stock of the
Company and options to acquire 1,382,435 shares of Class A Common Stock at an
exercise price of $30.11. The Series A Preferred Stock has been exchanged for
1,150,000 shares of Series B Preferred Stock of the Company, which at issuance
had an aggregate liquidation value of $115 million and are convertible at any
time, at the option of the holders, into an aggregate of 4,181,818 shares of
Class A Common Stock of the Company (which had a market value on May 31, 1996 of
approximately $125.1 million). The exercise price for the Columbus Option is
approximately $130 million plus the amount of indebtedness secured by the WSYX
assets on the date of exercise (not to exceed
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the amount outstanding on the date of closing of $105 million) and the Company
is required to pay an extension fee with respect to the Columbus Option as
follows: (i) 8% of $130 million for the first year following the closing of the
River City Acquisition; (ii) 15% of $130 million for the second year following
the closing; and (iii) 25% of $130 million for each following year. The
extension fee accrues beginning on the date of closing, and is payable
(beginning December 31, 1996) at the end of each calendar quarter until such
time as the option is exercised or River City sells WSYX-TV to a third party,
which River City has the right to do in certain limited circumstances. The
Company paid the extension fees due March 31, 1997 and June 30, 1997. The
Company has acquired all of the River City License Assets except those related
to WTTV-TV and WTTK-TV, and the Company continues to provide programming
services to WTTV-TV and WTTK-TV pursuant to an LMA with River City. Pursuant to
the LMA with River City, the Company is required to provide at least 166 hours
per week of programming to WTTV-TV and WTTK-TV and, subject to certain
exceptions, River City is required to broadcast all programming provided by the
Company. The Company is required to pay River City monthly fees under the LMA
with respect to WTTV-TV and WTTK-TV in an amount sufficient to cover specified
expenses of operating the stations. The Company has the right to sell
advertising time on the stations during the hours programmed by the Company.
The Company and River City filed notification under the HSR Act, with
respect to the Company's acquisition of all River City assets prior to closing
the acquisition. After the United States Justice Department ("DOJ") indicated
that it would request additional information regarding the antitrust
implications of the acquisition of WSYX-TV by the Company in light of the
Company's ownership of WTTE-TV, the Company and River City agreed to submit
separate notifications with respect to the WSYX-TV assets and the other River
City assets. The DOJ then granted early termination of the waiting period with
respect to the transfer of the River City assets other than WSYX-TV, permitting
the acquisition of those assets to proceed. The Company and River City agreed to
notify the DOJ 30 days before entering into an LMA or similar agreement with
respect to WSYX-TV and agreed not to enter into such an agreement until 20 days
after substantially complying with any request for information from DOJ
regarding the transaction. The Company is in the process of preparing a
submission to the DOJ regarding the competitive effects of entering into an LMA
arrangement in Columbus. The Company has agreed to sell the License Assets of
WTTE-TV to Glencairn and to enter into an LMA with Glencairn to provide
programming services to WTTE-TV. The FCC has approved this transaction, but the
Company does not believe that this transaction will be completed unless the
Company acquires WSYX-TV.
In the River City Acquisition, the Company also acquired an option held by
River City to purchase either (i) all of the assets of Keymarket of South
Carolina, Inc. for the forgiveness of debt held by the Company in an aggregate
principal amount of approximately $7.4 million as of August 22, 1997, plus
payment of approximately $1,000,000 less certain adjustments or (ii) all of the
stock of KSC for $1,000,000 less certain adjustments. KSC owns and operates
three radio stations in the Asheville/Greenville/ Spartanburg, South Carolina
MSA (WFBC-FM, WFBC-AM and WORD-AM). The option to acquire the assets or stock of
KSC expires on December 31, 1997. The Company intends to exercise this option in
the fourth quarter of 1997. KSC also holds an option to acquire from Spartan
Radiocasting, Inc. certain assets relating to two additional stations (WSPA-AM
and WSPA-FM) in the Asheville/ Greenville/Spartanburg MSA which KSC currently
programs pursuant to an LMA. KSC's option to acquire these assets is exercisable
for $5.15 million and expires in January 2000, subject to extension to the
extent the applicable LMA is extended beyond that date. KSC also has an option
to acquire assets of Palm Broadcasting Company, L.P., which owns two additional
stations in the Asheville/Greenville/ Spartanburg MSA (WOLI-FM and WOLT-FM) in
an amount equal to the outstanding debt of Palm Broadcasting Company, L.P. to
the Company, which was approximately $3.03 million as of March 31, 1997. This
option expires in April 2001. KSC has a JSA with Palm Broadcasting Company,
L.P., but does not provide programming for WOLI or WOLT.
Superior Acquisition. On May 8, 1996, the Company acquired WDKY-TV
(Lexington, Kentucky) and KOCB-TV (Oklahoma City, Oklahoma) by acquiring the
stock of Superior Communications Group, Inc. for approximately $63.5 million.
Flint Acquisition. On February 27, 1996 the Company acquired the assets of
WSMH-TV (Flint, Michigan) for approximately $35.8 million by exercising options
granted in 1995.
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Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) and on August 1, 1996, it acquired
the assets of WSTR-TV (Cincinnati, Ohio) for approximately $34.2 million.
Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) for approximately $21.2
million.
1997 ACQUISITIONS
Las Vegas Acquisition. On January 30, 1997, the Company entered into an
agreement to acquire the assets of KUPN-TV, the UPN affiliate in Las Vegas,
Nevada, for $87.0 million. The Company completed this acquisition on May 30,
1997.
Heritage Acquisition. On July 16, 1997, the Company entered into the
Heritage Acquisition Agreements with certain subsidiaries of Heritage. Pursuant
to the Heritage Acquisition Agreements, the Company has the right to acquire the
assets of five television stations (the interests in one of which the Company is
required to dispose), programming rights under LMAs with respect to two
additional television stations, and the assets of 24 radio stations. The Company
will acquire the assets of one television station serving the
Charleston/Huntington, West Virginia market, one station in the Mobile, Alabama/
Pensacola, Florida market and rights under an LMA with respect to another
station in that market, and the assets of two stations in the Burlington,
Vermont/Plattsburgh, New York market and the right to provide programming to one
station in that market. The radio stations to be acquired serve the St. Louis,
Missouri market (three stations), the Portland, Oregon market (three stations),
the Kansas City, Missouri market (five stations), the Milwaukee, Wisconsin
market (three stations), the Norfolk, Virginia market (three stations), the New
Orleans, Louisiana market (three stations) and the Rochester, New York market
(four stations). The Heritage Acquisition Agreements also provide for the
acquisition of the assets relating to the operation of a television station in
Oklahoma City, Oklahoma, but the Company is required by the agreements to
dispose of its interest in that station, and the Company has entered into a
letter of intent to sell that station for $60 million in cash.
The aggregate purchase price of the Heritage Acquisition is $630 million
payable in cash at closing, less a deposit of $63 million paid at the time of
signing the Heritage Acquisition Agreements. The Company intends to finance the
purchase price from some combination of the proceeds of the Common Stock
Offering, the proceeds of the Preferred Stock Offering, funds available under
the Bank Credit Agreement, and the expected proceeds ($60 million) from the sale
of interests in the Oklahoma City station.
The Heritage Acquisition is conditioned on, among other things, FCC
approval and the expiration of the applicable waiting period under the HSR Act.
Additional Radio Acquisitions. The Company entered into an agreement on
January 29, 1997 to acquire the assets of WGR-AM and WWWS-AM in Buffalo, New
York, for $1.5 million. The Company's acquisition of 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 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. The Company
completed this acquisition on July 31, 1997. In April 1997, the Company entered
into an agreement to acquire the assets of radio station WWSH-FM in the
Wilkes-Barre/Scranton market. The FCC has approved this acquisition and such
acquisition is expected to close shortly.
Ongoing Discussions. In furtherance of its acquisition strategy, the
Company routinely reviews, and conducts investigations of potential television
and radio station acquisitions. When the Company believes a favorable
opportunity exists, the Company seeks to enter into discussions with the owners
of such stations regarding the possibility of an acquisition by the Company. At
any given time, the Company may be in discussions with one or more such station
owners. The Company is in serious negotiations with various parties relating to
the acquisition of television and radio properties which would be acquired for
aggregate consideration of approximately $85 million. In addition, the Company
is also in serious negotiations
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relating to the disposition of certain radio properties with a value of $35
million, possibly in a swap for other radio properties which would be more
consistent with the Company's strategic plan of clustering radio stations. Such
agreements could also result in the sale of certain radio stations. There can be
no assurance that any of these or other negotiations will lead to definitive
agreements or if agreements are reached that any transactions would be
consummated.
LOCAL MARKETING AGREEMENTS
The Company currently has LMA arrangements with stations in seven markets
in which it owns a television station: Pittsburgh, Pennsylvania (WPTT),
Baltimore, Maryland (WNUV), Raleigh/Durham, North Carolina (WRDC), Milwaukee,
Wisconsin (WVTV), Birmingham, Alabama (WABM), San Antonio, Texas (KRRT) and
Asheville/Greenville/Spartanburg, South Carolina (WFBC). In addition, the
Company has an LMA arrangement with a station in the Tuscaloosa, Alabama market
(WDBB), which is adjacent to Birmingham. In each of these markets, other than
Pittsburgh and Tuscaloosa, the LMA arrangement is with Glencairn and the Company
owns the Non-License Assets of the stations. The Company owns the assets of one
radio station (KBLA-AM in Los Angeles) which an independent third party programs
pursuant to an LMA.
The Company believes that it is able to increase its revenues and improve
its margins by providing programming services to stations in selected DMAs and
MSAs where the Company already owns a station. In certain instances, single
station operators and stations operated by smaller ownership groups do not have
the management expertise or the operating efficiencies available to the Company
as a multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In cases where the Company enters into LMA arrangements in connection with
a station whose acquisition by the Company is pending FCC approval, the Company
(i) obtains an option to acquire the station assets essential for broadcasting a
television or radio signal in compliance with regulatory guidelines, generally
consisting of the FCC license, transmitter, transmission lines, technical
equipment, call letters and trademarks, and certain furniture, fixtures and
equipment (the "License Assets") and (ii) acquires the remaining assets (the
"Non-License Assets") at the time it enters into the option. Following
acquisition of the Non-License Assets, the License Assets continue to be owned
by the owner-operator and holder of the FCC license, which enters into an LMA
with the Company. After FCC approval for transfer of the License Assets is
obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
In connection with the River City Acquisition, the Company entered into
LMAs with River City and the owner of KRRT with respect to each of the nine
television and 21 radio stations with respect to which the Company acquired
Non-License Assets. The Company or Glencairn has now acquired the License Assets
of all of the television and radio stations with respect to which it initially
acquired Non-License Assets in the River City Acquisition, other than WTTV and
WTTK in Indianapolis, Indiana. The LMA with River City for these two stations is
in effect for a ten-year term, which corresponds with the term of the option the
Company holds to acquire the related River City License Assets. Pursuant to the
LMA, the Company pays River City fees in return for which the Company acquires
all of the inventory of broadcast time of the stations and the right to sell
100% of each station's inventory of advertising time. Upon grant of FCC approval
of the transfer of License Assets with respect to WTTV and WTTK, the Company
intends to acquire the License Assets, and thereafter the LMA will terminate and
the Company will operate the stations. At the Company's request, the FCC has
withheld action on the applications for the Company's acquisition of WTTV and
WTTK in Indianapolis (and a pending application for the Controlling Stockholders
to divest their attributable interests in WIIB in Indianapolis) until the FCC
completes its pending rulemaking proceeding considering the cross-interest
policy.
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USE OF DIGITAL TELEVISION TECHNOLOGY
The Company believes that television broadcasting may be enhanced
significantly by the development and increased availability of digital
broadcasting service technology. This technology has the potential to permit the
Company to provide viewers multiple channels of digital television over each of
its existing standard channels, to provide certain programming in a high
definition television format and to deliver various forms of data, including
data on the Internet, to home and business computers. These additional
capabilities may provide the Company with additional sources of revenue . The
Company has announced its intention to provide multiple channels of television
on its allocated portions of the broadcast spectrum. The Company plans to
provide additional broadcast programming and transmitted data on a subscription
basis, and to continue to provide its current TV program channels without
subscription fees. This digital broadcasting service technology is not currently
available to the viewing public and a successful transition from the current
analog broadcast format to a digital format may take many years. There can be no
assurance that the Company's efforts to take advantage of the new technology
will be commercially successful.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the FCC, which acts under authority granted by
the Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act, the 1996 Act and specific FCC regulations and policies.
Reference should be made to the Communications Act, the 1996 Act, FCC rules and
the public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of broadcast stations.
License Grant and Renewal. Television and radio stations operate pursuant
to broadcasting licenses that are granted by the FCC for maximum terms of eight
years.
Television and radio station licenses are subject to renewal upon
application to the FCC. During certain periods when renewal applications are
pending, competing applicants may file for the radio or television frequency
being used by the renewal applicant. During the same periods, petitions to deny
license renewal applications may be filed by interested parties, including
members of the public. Prior to the 1996 Act, the FCC was generally required to
hold hearings on renewal applications if a competing application against a
renewal application was filed, if the FCC was unable to determine that renewal
of a license would serve the public interest, convenience and necessity, or if a
petition to deny raised a "substantial and material question of fact" as to
whether the grant of the renewal application would be prima facie inconsistent
with the public interest, convenience and necessity.
The 1996 Act does not prohibit either the filing of petitions to deny
license renewals or the filing of competing applications. Under the 1996 Act,
the FCC is still required to hold hearings on renewal applications if it is
unable to determine that renewal of a license would serve the public interest,
convenience or necessity, or if a petition to deny raises a "substantial and
material question of fact" as to whether the grant of the renewal application
would be prima facie inconsistent with the public interest, convenience and
necessity. Pursuant to the 1996 Act, however, the FCC is prohibited from
considering competing applications for a renewal applicant's frequency, and is
required to grant the renewal application, if the FCC finds: (i) that the
station has served the public interest, convenience and necessity; (ii) that
there have been no serious violations by the licensee of the Communications Act
or the rules and regulations of the FCC; and (iii) there have been no other
violations by the licensee of the Communications Act or the rules and
regulations of the FCC that, when taken together, would constitute a pattern of
abuse.
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All of the stations that the Company (i) owns and operates, (ii) intends to
acquire pursuant to pending acquisitions, (iii) currently provides programming
services to pursuant to an LMA, or (iv) currently sells commercial air time on
pursuant to a JSA, are presently operating under regular licenses, which expire
as to each station on the dates set forth under "-- Television Broadcasting" and
"-- Radio Broadcasting," above. Although renewal of license is granted in the
vast majority of cases even when petitions to deny are filed, there can be no
assurance that the licenses of such stations will be renewed.
Ownership Matters
General
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including compliance with various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, appropriate applications must be filed with the
FCC. If the application involves a "substantial change" in ownership or control,
the application must be placed on public notice for a period of approximately 30
days during which petitions to deny the application may be filed by interested
parties, including members of the public. If the application does not involve a
"substantial change" in ownership or control, it is a "pro forma" application.
The "pro forma" application is nevertheless subject to having informal
objections filed against it. If the FCC grants an assignment or transfer
application, interested parties have approximately 30 days from public notice of
the grant to seek reconsideration of that grant. Generally, parties that do not
file initial petitions to deny or informal objections against the application
face difficulty in seeking reconsideration of the grant. The FCC normally has
approximately an additional 10 days to set aside such grant on its own motion.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer to any party other than the assignee or transferee specified in the
application.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has a pending rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by (i) raising the attribution stock benchmark from 5% to 10%;
(ii) raising the attribution stock benchmark for passive investors from 10% to
20%; (iii) restricting the availability of the single majority shareholder
exemption; and (iv) attributing certain interests such as non-voting stock, debt
and certain holdings by limited liability corporations in certain circumstances.
More recently, the FCC has solicited comment on proposed rules that would (i)
treat an otherwise nonattributable equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark; (ii) treat a licensee of a
television station which, under an LMA, brokers more than 15% of the time on
another television station serving the same market, as having an attributable
interest in the brokered station; and (iii) in certain circumstances, treat the
licensee of a broadcast station that sells advertising time on another station
in the same market pursuant to a JSA as having an attributable interest in the
station whose advertising is being sold.
The Controlling Stockholders hold attributable interests in two entities
owning media properties, namely: Channel 63, Inc., licensee of WIIB-TV, a UHF
television station in Bloomington, Indiana, and Bay Television, Inc., licensee
of WTTA-TV, a UHF television station in St. Petersburg, Florida. All of the
issued and outstanding shares of Channel 63, Inc. are owned by the Controlling
Stockholders. All
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the issued and outstanding shares of Bay Television, Inc. are owned by the
Controlling Stockholders (75%) and Robert L. Simmons (25%), a former stockholder
of the Company. The Controlling Stockholders have agreed to divest their
attributable interests in Channel 63, Inc. and the Company believes that, after
doing so, such holdings will not materially restrict its ability to acquire or
program additional broadcast stations.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under this
policy, the FCC may consider significant equity interests combined with an
attributable interest in a media outlet in the same market, joint ventures, and
common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests, but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial relationships such as
debt, when combined with multiple business interrelationships such as LMAs and
JSAs, raise concerns under the cross-interest policy. Moreover, in its most
recent proposals in its ongoing attribution rulemaking proceeding, the FCC has
proposed treating television LMAs, JSAs, and debt or equity interests as
attributable interests in certain circumstances without regard to the
cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. As a
result of these provisions, the licenses granted to Subsidiaries of the Company
by the FCC could be revoked if, among other restrictions imposed by the FCC,
more than 25% of the Company's stock were directly or indirectly owned or voted
by Aliens. The Company and the Subsidiaries are domestic corporations, and the
Controlling Stockholders are all United States citizens. The Amended and
Restated Articles of Incorporation of the Company (the "Amended Certificate")
contain limitations on Alien ownership and control that are substantially
similar to those contained in the Communications Act. Pursuant to the Amended
Certificate, the Company has the right to repurchase Alien-owned shares at their
fair market value to the extent necessary, in the judgment of the Board of
Directors, to comply with the Alien ownership restrictions.
Television
National Ownership Rule. Prior to the 1996 Act, FCC rules generally
prohibited an individual or entity from having an attributable interest in more
than 12 television stations nationwide, or in television stations reaching more
than 25% of the national television viewing audience. Pursuant to the 1996 Act,
the FCC has modified its rules to eliminate any limitation on the number of
television stations an individual or entity may own nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching more than 35% of the national television viewing
audience. Historically, VHF stations have shared a larger portion of the market
than UHF stations. Therefore, only half of the households in the market area of
any UHF station are included when calculating whether an entity or individual
owns television stations reaching more than 35% of the
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national television viewing audience. All but three of the stations owned and
operated by the Company, or to which the Company provides programming services,
are UHF.
Duopoly Rule. On a local level, the television "duopoly" rule generally
prohibits a single individual or entity from having an attributable interest in
two or more television stations with overlapping Grade B service areas. While
the 1996 Act has not eliminated the TV duopoly rule, it does direct the FCC to
initiate a rulemaking proceeding to determine whether to retain, modify, or
eliminate the rule. The FCC has pending a rulemaking proceeding in which it has
proposed to modify the television duopoly rule to permit the common ownership of
television stations in different DMAs, so long as the Grade A signal contours of
the stations do not overlap. Pending resolution of its rulemaking proceeding,
the FCC has adopted an interim waiver policy that permits the common ownership
of television stations in different DMAs with no overlapping Grade A signal
contours, conditioned on the final outcome of the rulemaking proceeding. The FCC
has also sought comment on whether common ownership of two television stations
in a market should be permitted (i) where one or more of the commonly owned
stations is UHF, (ii) where one of the stations is in bankruptcy or has been off
the air for a substantial period of time and (iii) where the commonly owned
stations have very small audience or advertising shares, are located in a very
large market, and/or a specified number of independently owned media voices
would remain after the acquisition.
Local Marketing Agreements. Over the past few years, a number of television
stations, including certain of the Company's stations, have entered into what
have commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed television
stations agree to enter into cooperative arrangements of varying sorts, subject
to compliance with the requirements of antitrust laws and with the FCC's rules
and policies. Under these types of arrangements, separately owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately owned television stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question. The staff of the FCC's Mass Media Bureau has held that LMAs
are not contrary to the Communications Act, provided that the licensee of the
station which is being substantially programmed by another entity maintains
complete responsibility for and control over programming and operations of its
broadcast station and assures compliance with applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules. In connection with this proceeding, the FCC has
solicited detailed information from parties to television LMAs as to the terms
and characteristics of such 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,
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television LMAs that are entered into or renewed after November 5, 1996 would
have to be terminated if LMAs are made attributable interests and the LMA in
question resulted in a violation of the television multiple ownership rules. The
Company's LMAs with television stations WPTT in Pittsburgh, Pennsylvania, WNUV
in Baltimore, Maryland, WVTV in Milwaukee, Wisconsin, WRDC in Raleigh/Durham,
North Carolina, WABM in Birmingham, Alabama, and WDBB in Tuscaloosa, Alabama,
were in existence on both the date of enactment of the 1996 Act and November 5,
1996. The Company's LMAs with television stations WTTV and WTTK in Indianapolis,
Indiana were entered into subsequent to the date of enactment of the 1996 Act
but prior to November 5, 1996. The Company's LMA with television station KRRT in
Kerrville, Texas was in existence on the date of enactment of the 1996 Act, but
was assumed by the Company subsequent to that date but prior to November 5,
1996. The licensee's rights under the Company's LMA with KRRT-TV were assumed by
Glencairn subsequent to November 5, 1996. The Company's LMA with WFBC-TV in
Asheville/Greenville/Spartanburg, South Carolina, was entered into by the
Company subsequent to the date of enactment of the 1996 Act but prior to
November 5, 1996, and the licensee's rights under that LMA were assumed by
Glencairn subsequent to November 5, 1996. The Company cannot predict if any or
all of its LMAs will be grandfathered.
The Conference Agreement adopted as part of the recent Balanced Budget Act
of 1997 recently signed into law by President Clinton (The "Balanced Budget
Act") clarifies Congress' intent with respect to LMAs and duopolies. The
Conference Agreement states as follows: "The conferees do not intend that the
duopoly and television-newspaper cross-ownership relief provided herein should
have any bearing upon the [FCC's] current proceedings, which concerns more
immediate relief. The conferees expect that the [FCC] will proceed with its own
independent examination in these matters. Specifically, the conferees expect
that the [FCC] will provide additional relief (e.g., VHF/UHF combinations) that
it finds to be in the public interest, and will implement the permanent
grandfather requirement for local marketing agreements as provided in the
Telecommunications Act of 1996."
The TV duopoly rule currently prevents the Company from acquiring the
licenses of television stations with which it has LMAs in those markets where
the Company owns a television station. As a result, if the FCC were to decide
that the provider of programming services under a television LMA should be
treated as having an attributable interest in the brokered station, and if it
did not relax its television duopoly rule, the Company could be required to
modify or terminate those of its LMAs that were not in existence on the date of
enactment of the 1996 Act or on November 5, 1996. Furthermore, if the FCC adopts
its present proposal with respect to the grandfathering of television LMAs, the
Company could be required to terminate even those LMAs that were in effect prior
to the date of enactment of the 1996 Act or prior to November 5, 1996, after the
initial term of the LMA or upon assignment of the LMA. In such an event, the
Company could be required to pay termination penalties under certain of such
LMAs. Further, if the FCC were to find, in connection with any of the Company's
LMAs, that the owners/licensees of the stations with which the Company has LMAs
failed to maintain control over their operations as required by FCC rules and
policies, the licensee of the LMA station and/or the Company could be fined or
set for hearing, the outcome of which could be a monetary forfeiture or, under
certain circumstances, loss of the applicable FCC license. The Company is unable
to predict the ultimate outcome of possible changes to these FCC rules and the
impact such FCC rules may have on its broadcasting operations.
On June 1, 1995, the Chief of the FCC's Mass Media Bureau released a Public
Notice concerning the processing of television assignment and transfer of
control applications proposing LMAs. Due to the pendency of the ongoing
rulemaking proceeding concerning attribution of ownership, the Mass Media Bureau
has placed certain restrictions on the types of television assignment and
transfer of control applications involving LMAs that it will approve during the
pendency of the rulemaking. Specifically, the Mass Media Bureau has stated that
it will not approve arrangements where a time broker seeks to finance a station
acquisition and hold an option to purchase the station in the future. The
Company believes that none of the Company's LMAs fall within the ambit of this
Public Notice.
Radio
National Ownership Rule. Prior to the 1996 Act, the FCC's rules limited an
individual or entity from holding attributable interests in more than 20 AM and
20 FM radio stations nationwide. Pursuant to the
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1996 Act, the FCC has modified its rules to eliminate any limitation on the
number of radio stations a single individual or entity may own nationwide.
Local Ownership Rule. Prior to the 1996 Act, the FCC's rules generally
permitted an individual or entity to hold attributable interests in no more than
four radio stations in a local market (no more than two of which could be in the
same service (AM or FM)), and then only if the aggregate audience share of the
commonly owned stations did not exceed 25%. In markets with fewer than 15
commercial radio stations, an individual or entity could hold an attributable
interest in no more than three radio stations in the market (no more than two of
which could be in the same service), and then only if the number of the commonly
owned stations did not exceed 50% of the total number of commercial radio
stations in the market.
Pursuant to the 1996 Act, the limits on the number of radio stations one
entity may own locally have been increased as follows: (i) in a market with 45
or more commercial radio stations, an entity may own up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than four of
which are in the same service; (iii) in a market with between 15 and 29
(inclusive) commercial radio stations, an entity may own up to six commercial
radio stations, not more than four of which are in the same service; and (iv) in
a market with 14 or fewer commercial radio stations, an entity may own up to
five commercial radio stations, not more than three of which are in the same
service, except that an entity may not own more than 50% of the stations in such
market. These numerical limits apply regardless of the aggregate audience share
of the stations sought to be commonly owned. FCC ownership rules continue to
permit an entity to own one FM and one AM station in a local market regardless
of market size. Irrespective of FCC rules governing radio ownership, however,
the DOJ and the Federal Trade Commission have the authority to determine, and in
certain recent radio transactions not involving the Company have determined,
that a particular transaction presents antitrust concerns.
Local Marketing Agreements. As in television, a number of radio stations
have entered into LMAs. The FCC's multiple ownership rules specifically permit
radio station LMAs to be entered into and implemented, so long as the licensee
of the station which is being programmed under the LMA maintains complete
responsibility for and control over programming and operations of its broadcast
station and assures compliance with applicable FCC rules and policies. For the
purposes of the multiple ownership rules, in general, a radio station being
programmed pursuant to an LMA by an entity is not considered an attributable
ownership interest of that entity unless that entity already owns a radio
station in the same market. However, a licensee that owns a radio station in a
market, and brokers more than 15% of the time on another station serving the
same market, is considered to have an attributable ownership interest in the
brokered station for purposes of the FCC's multiple ownership rules. As a
result, in a market in which the Company owns a radio station, the Company would
not be permitted to enter into an LMA with another local radio station which it
could not own under the local ownership rules, unless the Company's programming
constituted 15% or less of the other local station's programming time on a
weekly basis. The FCC's rules also prohibit a broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA
arrangement where the brokered and brokering stations serve substantially the
same area.
Joint Sales Agreements. Over the past few years, a number of radio (and
television) stations have entered into cooperative arrangements commonly known
as joint sales agreements, or JSAs. While these agreements may take varying
forms, under the typical JSA, a station licensee obtains, for a fee, the right
to sell substantially all of the commercial advertising on a separately-owned
and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming.
The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be
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attributable interests of that licensee. However, in connection with its ongoing
rulemaking proceeding concerning the attribution rules, the FCC is considering
whether JSAs should be considered attributable interests or within the scope of
the FCC's cross-interest policy, particularly when JSAs contain provisions for
the supply of programming services and/or other elements typically associated
with LMAs. If JSAs become attributable interests as a result of changes in the
FCC rules, the Company may be required to terminate any JSA it might have with a
radio station which the Company could not own under the FCC's multiple ownership
rules.
Other Ownership Matters
There remain in place after the 1996 Act a number of additional
cross-ownership rules and prohibitions pertaining to licensees of television and
radio stations. FCC rules, the Communications Act, or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, a daily newspaper, or a cable television system
that is located in or serves the same market area.
Antitrust Regulation. The DOJ and the Federal Trade Commission have
recently increased their scrutiny of the television and radio industry, and have
indicated their intention to review matters related to the concentration of
ownership within markets (including LMAs and JSAs) even when the ownership or
LMA or JSA in question is permitted under the laws administered by the FCC or by
FCC rules and regulations.
Radio/Television Cross-Ownership Rule. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally prohibits a single
individual or entity from having an attributable interest in a television
station and a radio station serving the same market. However, in each of the 25
largest local markets in the United States, provided that there are at least 30
separately owned stations in the particular market, the FCC has traditionally
employed a policy that presumptively allows waivers of the one to a market rule
to permit the common ownership of one AM, one FM and one TV station in the
market. The 1996 Act directs the FCC to extend this policy to each of the top 50
markets. Moreover, the FCC has pending a rulemaking proceeding in which it has
solicited comment on whether the one to a market rule should be eliminated
altogether.
However, the FCC does not apply its presumptive waiver policy in cases
involving the common ownership of one television station, and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider waivers of the rule in such instances on a case-by-case
basis, considering (i) the public service benefits that will arise from the
joint operation of the facilities such as economies of scale, cost savings and
programming and service benefits; (ii) the types of facilities involved; (iii)
the number of media outlets owned by the applicant in the relevant market; (iv)
the financial difficulties of the stations involved; and (v) the nature of the
relevant market in light of the level of competition and diversity after joint
operation is implemented. The FCC has stated that it expects that any such
waivers that are granted will be conditioned on the outcome of the rulemaking
proceeding.
In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the following options for modifying the rule in the event
it is not eliminated: (i) extending the presumptive waiver policy to any
television market in which a specified number of independently owned voices
would remain after common ownership of a television station and one or more
radio stations is effectuated; (ii) extending the presumptive waiver policy to
entities that seek to own more than one FM and/or one AM radio station; (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated; and (iv) modifying the five-factor case-by-case
test for waivers.
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates
a previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that serve the same local market, the 1996
Act leaves the current FCC rule in place. The legislative history of the Act
indicates that the repeal of the statutory ban should not prejudge the outcome
of any FCC review of the rule.
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Broadcast Network/Cable Cross-Ownership Rule. The 1996 Act directs the FCC
to eliminate its rules which formerly prohibited the common ownership of a
broadcast network and a cable system, subject to the provision that the FCC
revise its rules as necessary to ensure carriage, channel positioning, and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. In March 1996, the FCC issued an
order implementing this legislative change.
Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC's rules prohibit
the common ownership of a radio or television broadcast station and a daily
newspaper in the same market. The 1996 Act does not eliminate or modify this
prohibition. In October 1996, however, the FCC initiated a rulemaking proceeding
to determine whether it should liberalize its waiver policy with respect to
cross-ownership of a daily newspaper and one or more radio stations in the same
market.
Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
prohibited from merging with each other or with another network television
entity such as WB or UPN.
Expansion of the Company's broadcast operations on both a local and
national level will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Concomitantly, any further relaxation of
the FCC's ownership rules may increase the level of competition in one or more
of the markets in which the Company's stations are located, more specifically to
the extent that any of the Company's competitors may have greater resources and
thereby be in a superior position to take advantage of such changes.
Must-Carry/Retransmission Consent
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
Area of Dominant Influence, in general as defined by the Arbitron 1991-92
Television Market Guide. These must-carry rights are not absolute, and their
exercise is dependent on variables such as (i) the number of activated channels
on a cable system; (ii) the location and size of a cable system; and (iii) the
amount of programming on a broadcast station that duplicates the programming of
another broadcast station carried by the cable system. Therefore, under certain
circumstances, a cable system may decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. In October 1996, the Company elected must-carry or
retransmission consent with respect to each of its markets based on its
evaluation of the respective markets and the position of the Company's station
within the market. The Company's stations continue to be carried on all
pertinent cable systems, and the Company does not believe that its elections
have resulted in the shifting of its stations to less desirable cable channel
locations. Certain of the Company's stations affiliated with Fox are required to
elect retransmission consent because Fox's retransmission consent negotiations
on behalf of the Company resulted in agreements which extend into 1998.
Therefore, the Company will need to negotiate retransmission consent agreements
for these Fox-affiliated stations to attain carriage on those relevant cable
systems for the balance of this triennial period (i.e., through December 31,
1999). For subsequent elections beginning with the election to be made by
October 1, 1999, the must-carry market will be the station's DMA, in general as
defined by the Nielsen DMA Market and Demographic Rank Report of the prior year.
The must-carry rules have been subject to judicial scrutiny. In April 1993,
the United States District Court for the District of Columbia summarily upheld
the constitutionality of the legislative must-carry provisions under a First
Amendment challenge. However, in June 1994, the Supreme Court remanded the case
to the lower court with instructions to test the constitutionality of the
must-carry rules under an "intermediate scrutiny" standard. In a decision issued
in December 1995, a closely divided three-judge District Court panel ruled that
the record showed that there was substantial evidence before Congress from which
it could draw the reasonable inferences that (1) the must-carry rules were
necessary to protect the local broadcast
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industry; and (2) the burdens on cable systems with rapidly increasing channel
capacity would be quite small. Accordingly, the District Court panel ruled that
Congress had not violated the First Amendment in enacting the "must-carry"
provisions. In March 1997, the Supreme Court, by a 5-4 majority, affirmed the
District Court's decision and thereby let stand the must-carry rules.
Syndicated Exclusivity/Territorial Exclusivity
The FCC has imposed syndicated exclusivity rules and expanded existing
network nonduplication rules. The syndicated exclusivity rules allow local
broadcast television stations to demand that cable operators black out
syndicated non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called "superstations," which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network television affiliates to
require that cable operators black out duplicating network programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations affiliated with a network, a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market. This is not in violation of the FCC's network nonduplication rules.
However, the carriage of two network stations on the same cable system could
result in a decline of viewership adversely affecting the revenues of the
Company owned or programmed station.
Restrictions on Broadcast Advertising
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states restrict the advertising
of alcoholic beverages. Congressional committees have recently examined
legislation proposals which may eliminate or severely restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations, as well as the revenues of other stations which carry beer and wine
advertising.
The FCC has imposed commercial time limitations in children's television
programming pursuant to legislation. In television programs designed for viewing
by children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. In granting
renewal of the license for WBFF-TV, the FCC imposed a fine of $10,000 on the
Company alleging that the station had exceeded these limitations. The Company
has appealed this fine and the appeal is pending.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things, (i) stations must provide "reasonable access" for
the purchase of time by legally qualified candidates for federal office; (ii)
stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement, and daypart.
Programming and Operation
General. The Communications Act requires broadcasters to serve the "public
interest." The FCC gradually has relaxed or eliminated many of the more
formalized procedures it had developed in the past to promote the broadcast of
certain types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to their communities' issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming may be considered by the FCC when it evaluates renewal
applications of a licensee, although such complaints may be filed at any time
and generally may be considered by the FCC at any time. Stations also must pay
regulatory and application fees, and follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries, ob-
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scene and indecent broadcasts, and technical operations, including limits on
radiofrequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application. Failure to observe these or
other rules and policies can result in the imposition of various sanctions,
including monetary forfeitures, or the grant of a "short" (i.e., less than the
full) license renewal term or, for particularly egregious violations, the denial
of a license renewal application or the revocation of a license.
Children's Television Programming. Pursuant to legislation enacted in 1991,
all television stations have been required to broadcast some television
programming designed to meet the educational and informational needs of children
16 years of age and under. In August 1996, the FCC adopted new rules setting
forth more stringent children's programming requirements. Specifically, as of
September 1, 1997, television stations will be required to broadcast a minimum
of three hours per week of "core" children's educational programming, which the
FCC defines as programming that (i) has serving the educational and
informational needs of children 16 years of age and under as a significant
purpose; (ii) is regularly scheduled, weekly and at least 30 minutes in
duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00 p.m.
Furthermore, as of January 2, 1997, "core" children's educational programs, in
order to qualify as such, are required to be identified as educational and
informational programs over the air at the time they are broadcast, and are
required to be identified in the children's programming reports required to be
placed in stations' public inspection files. Additionally, as of January 2,
1997, television stations are required to identify and provide information
concerning "core" children's programming to publishers of program guides and
listings.
Television Violence. The 1996 Act contains a number of provisions relating
to television violence. First, pursuant to the 1996 Act, the television industry
has developed a ratings system, and the FCC has recently solicited public
comment on that system. Furthermore, the 1996 Act provides that all television
sets larger than 13 inches that are manufactured one year after enactment of the
1996 Act must include the so-called "V-chip," a computer chip that allows
blocking of rated programming. In addition, the 1996 Act requires that all
television license renewal applications filed after May 1, 1995 contain
summaries of written comments and suggestions received by the station from the
public regarding violent programming.
Closed Captioning. The 1996 Act directs the FCC to adopt rules requiring
closed captioning of all broadcast television programming, except where
captioning would be "economically burdensome." The FCC has recently adopted such
rules. The rules require generally that (i) 95% of all new programming first
published or exhibited on or after January 1, 1998 must be closed captioned
within eight years, and (ii) 75% of old programming which first aired prior to
January 1, 1998 must be closed captioned within 10 years, subject to certain
exemptions.
Digital Television
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, adopted 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
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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. Under the Balanced Budget Act, however, the FCC is authorized to
extend the December 31, 2006 deadline for reclamation of a television station's
non-digital channel if, in any given case: (i) one or more television stations
affiliated with one of the four major networks in a market are not broadcasting
digitally, and the FCC determines that such stations have "exercised due
diligence" in attempting to convert to digital broadcasting; (ii) less than 85%
of the television households in the station's market subscribe to a multichannel
video service (cable, wireless cable or DBS) that carries at least one digital
channel from each of the local stations in that market; or (iii) less than 85%
of the television households in the station's market can receive digital signals
off the air using either a set-top converter box for an analog television set or
a new DTV television set. The Balanced Budget Act also directs the FCC to
auction the non-digital channels by September 30, 2002 even though they are not
to be reclaimed by the government until at least December 31, 2006. The Balanced
Budget Act also permits broadcasters to bid on the non-digital channels in
cities with populations greater than 400,000, provided the channels are used for
DTV. Thus, it is possible a broadcaster could own two channels in a market. The
FCC has opened a separate proceeding in which it has proposed to reallocate
television channels 60 through 69 to other services while protecting existing
television stations on those channels from interference during the DTV
transition period. 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 reconsideration 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.
Proposed Changes
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations, result in the loss of
audience share and advertising revenues for the Company's broadcast stations,
and affect the ability of the Company to acquire additional broadcast stations
or finance such acquisitions. In addition to the changes and proposed changes
noted above, such matters may include, for example, the license renewal process,
spectrum use fees, political advertising rates, potential restrictions on the
advertising of certain products (beer, wine and hard liquor, for example), and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry, such as direct radio
and television broadcast satellite service, the continued establishment of
wireless cable systems and low power television stations, digital television and
radio technologies, and the advent of telephone company participation in the
provision of video programming service.
Other Considerations
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
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regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal employment opportunity,
and other matters affecting the Company's business and operations.
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities, substances
or waste that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous substances. As a result, it is possible that the Company could
become subject to environmental liabilities in the future in connection with
these facilities under applicable environmental laws and regulations. Although
the Company believes that it is in substantial compliance with such
environmental requirements, and have not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The Company's television and radio stations compete for audience share and
advertising revenue with other television and radio stations in their respective
DMAs or MSAs, as well as with other advertising media, such as newspapers,
magazines, outdoor advertising, transit advertising, yellow page directories,
direct mail and local cable and wireless cable systems. Some competitors are
part of larger organizations with substantially greater financial, technical and
other resources than the Company.
Television Competition. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. The Company's
television stations are located in highly competitive DMAs. In addition, certain
of the Company's DMAs are overlapped by both over-the-air and cable carriage of
stations in adjacent DMAs, which tends to spread viewership and advertising
expenditures over a larger number of television stations.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations, radio stations and cable system
operators serving the same market. Traditional Network programming generally
achieves higher household audience levels than Fox, WB and UPN programming and
syndicated programming aired by independent stations. This can be attributed to
a combination of factors, including the Traditional Networks' efforts to reach a
broader audience, generally better signal carriage available when broadcasting
over VHF channels 2 through 13 versus broadcasting over UHF channels 14 through
69 and the higher number of hours of Traditional Network programming being
broadcast weekly. However, greater amounts of advertising time are available for
sale during Fox, UPN and WB programming and non-network syndicated programming,
and as a result the Company believes that the Company's programming typically
achieves a share of television market advertising revenues greater than its
share of the market's audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of the Company's prime time programming is supplied by Fox and to a
lesser extent WB, UPN, ABC and CBS. In those periods, the Company's affiliated
stations are totally dependent upon the performance of the networks' programs in
attracting viewers. Non-network time periods are programmed by the station
primarily with syndicated programs purchased for cash, cash and barter, or
barter-only, and also through self-produced news, public affairs and other
entertainment programming.
Television advertising rates are based upon factors which include the size
of the DMA in which the station operates, a program's popularity among the
viewers that an advertiser wishes to attract, the number of advertisers
competing for the available time, the demographic makeup of the DMA served by
the station, the availability of alternative advertising media in the DMA
(including radio and cable),
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the aggressiveness and knowledge of sales forces in the DMA and development of
projects, features and programs that tie advertiser messages to programming. The
Company believes that its sales and programming strategies allow it to compete
effectively for advertising within its DMAs.
Other factors that are material to a television station's competitive
position include signal coverage, local program acceptance, network affiliation,
audience characteristics and assigned broadcast frequency. Historically, the
Company's UHF broadcast stations have suffered a competitive disadvantage in
comparison to stations with VHF broadcast frequencies. This historic
disadvantage has gradually declined through (i) carriage on cable systems, (ii)
improvement in television receivers, (iii) improvement in television
transmitters, (iv) wider use of all channel antennae, (v) increased availability
of programming, and (vi) the development of new networks such as Fox, WB and
UPN.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have a
material effect on a television station's operations and profits. There are
sources of video service other than conventional television stations, the most
common being cable television, which can increase competition for a broadcast
television station by bringing into its market distant broadcasting signals not
otherwise available to the station's audience, serving as a distribution system
for national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling advertising time to local advertisers.
Other principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television ("DBS") entertainment services and
multichannel multipoint distribution services ("MMDS"). Moreover, technology
advances and regulatory changes affecting programming delivery through fiber
optic telephone lines and video compression could lower entry barriers for new
video channels and encourage the development of increasingly specialized "niche"
programming. The 1996 Act permits telephone companies to provide video
distribution services via radio communication, on a common carrier basis, as
"cable systems" or as "open video systems," each pursuant to different
regulatory schemes. The Company is unable to predict the effect that
technological and regulatory changes will have on the broadcast television
industry and on the future profitability and value of a particular broadcast
television station.
The FCC authorizes DBS services throughout the United States. Currently,
two FCC permitees, DirecTV and United States Satellite Broadcasting, provide
subscription DBS services via high-power communications satellites and small
dish receivers, and other companies provide direct-to-home video service using
lower powered satellites and larger receivers. Additional companies are expected
to commence direct-to-home operations in the near future. DBS and MMDS, as well
as other new technologies, will further increase competition in the delivery of
video programming.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
The Company believes that television broadcasting may be enhanced
significantly by the development and increased availability of digital
broadcasting service technology. This technology has the potential to permit the
Company to provide viewers multiple channels of digital television over each of
its existing standard channels, to provide certain programming in a high
definition television format and to deliver various forms of data, including
data on the Internet, to home and business computers. These additional
capabilities may provide the Company with additional sources of revenue. The
Company has announced its intention to provide multiple channels of television
on its allocated portions of the broadcast spectrum. The Company plans to
provide additional broadcast programming and transmitted data on a subscription
basis, and continue to provide its current TV program channels without
subscription fees. This digital broadcasting service technology is not currently
available to the viewing public and a successful transition from the current
analog broadcast format to a digital format may take many years. There can be no
assurance that the Company's efforts to take advantage of the new technology
will be commercially successful.
The Company also competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Company's sta-
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tions compete for exclusive access to those programs against in-market broadcast
station competitors for syndicated products. Cable systems generally do not
compete with local stations for programming, although various national cable
networks from time to time have acquired programs that would have otherwise been
offered to local television stations. Public broadcasting stations generally
compete with commercial broadcasters for viewers but not for advertising
dollars.
Historically, the cost of programming has increased because of an increase
in the number of new Independent stations and a shortage of quality programming.
However, the Company believes that over the past five years program prices
generally have stabilized.
The Company believes it competes favorably against other television
stations because of its management skill and experience, the ability of the
Company historically to generate revenue share greater than its audience share,
the network affiliations and its local program acceptance. In addition, the
Company believes that it benefits from the operation of multiple broadcast
properties, affording it certain nonquantifiable economies of scale and
competitive advantages in the purchase of programming.
Radio Competition. Radio broadcasting is a highly competitive business, and
each of the radio stations operated by the Company competes for audience share
and advertising revenue directly with other radio stations in its geographic
market, as well as with other media, including television, cable television,
newspapers, magazines, direct mail and billboard advertising. The audience
ratings and advertising revenue of each of such stations are subject to change,
and any adverse change in a particular market could have a material adverse
effect on the revenue of such radio stations located in that market. There can
be no assurance that any one of the Company's radio stations will be able to
maintain or increase its current audience ratings and radio advertising revenue
market share.
The Company will attempt to improve each radio station's competitive
position with promotional campaigns designed to enhance and reinforce its
identities with the listening public. Extensive market research is conducted in
order to identify specific demographic groups and design a programming format
for those groups. The Company seeks to build a strong listener base composed of
specific demographic groups in each market, and thereby attract advertisers
seeking to reach these listeners. Aside from building its stations' identities
and targeting its programming at specific demographic groups, management
believes that the Company also obtains a competitive advantage by operating
duopolies or multiple stations in the nation's larger mid-size markets.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems and by digital audio
broadcasting ("DAB"). DAB may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences. The FCC has issued licenses for two DAB systems.
Historically, the radio broadcasting industry has grown in terms of total
revenues despite the introduction of new technologies for the delivery of
entertainment and information, such as television broadcasting, cable
television, audio tapes and compact disks. There can be no assurance, however,
that the development or introduction in the future of any new media technology
will not have an adverse effect on the radio broadcast industry.
EMPLOYEES
As of August 20, 1997, the Company had approximately 2,300 employees. With
the exception of certain of the employees of KOVR-TV, KDNL-TV, WBEN-AM and
WWL-AM, none of the employees are represented by labor unions under any
collective bargaining agreement. No significant labor problems have been
experienced by the Company, and the Company considers its overall labor
relations to be good.
LEGAL PROCEEDINGS
On July 14, 1997, Sinclair publicly announced that it had reached an
agreement for certain of its owned and/or programmed television stations which
are currently affiliated with UPN to become affiliated with WB beginning January
16, 1998. On August 1, 1997, UPN informed Sinclair that it did not believe
Sinclair or its affiliates had provided proper notice of its intention not to
extend the UPN
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affiliation agreements beyond January 15, 1998, and, accordingly, that these
agreements had been automatically renewed through January 15, 2001.
In August 1997, UPN filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998. Although the Company believes that proper notice of intention not to
extend was provided to UPN, there can be no assurance that the Company and its
subsidiaries will prevail in these proceedings or that the outcome of these
proceedings, if adverse to the Company and its subsidiaries, will not have a
material adverse effect on the Company.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. Except as described above, the
Company is not a party to any lawsuit or proceeding that in the opinion of the
Company will have a material adverse effect.
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SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Company's voting securities beneficially owned as of August 12, 1997 by the
Selling Stockholders and as adjusted to reflect the sale of 5,300,000 shares of
Class A Common Stock collectively offered hereby by the Company and the Selling
Stockholders (assuming no exercise of the Underwriters' over-allotment option).
The address of all persons in the table is 2000 W. 41st Street, Baltimore,
Maryland 21211. Except as set forth below, each of the shares offered by the
Selling Stockholders is currently held as a share of Class B Common Stock, and
each of such shares will automatically be converted into a share of Class A
Common Stock upon their transfer in connection with a sale pursuant to this
Prospectus Supplement.
<TABLE>
<CAPTION>
SHARES OWNED AS OF AUGUST 12, 1997
----------------------------------------------
CLASS A CLASS B PERCENTAGE PERCENTAGE OF
COMMON STOCK COMMON STOCK (A) OF VOTING VOTING POWER OF
--------------------- ------------------------ POWER OF NUMBER OF ALL CAPITAL
NUMBER PERCENT OF NUMBER PERCENT OF ALL SHARES OF CLASS STOCK AFTER
NAMES OF OF CLASS A OF CLASS B CAPITAL A COMMON COMMON STOCK
SELLING STOCKHOLDERS SHARES SHARES SHARES SHARES STOCK STOCK OFFERED(B)(C) OFFERING(B)(C)
- ------------------------------ -------- ------------ ----------- ------------ ------------ -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
David D. Smith ............... 10,000 * 7,249,999 26.3% 25.3% 325,000 24.9%
Frederick G. Smith (d) ...... 4,000 * 6,754,944 24.5% 23.5% 325,000 23.0%
J. Duncan Smith (e) ......... -- -- 6,969,994 25.3% 24.3% 325,000 23.8%
Robert E. Smith (f) ......... -- -- 6,601,644 23.9% 23.0% 325,000 22.4%
</TABLE>
- ----------
* Less than one percent.
(a) Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share expect
for votes relating to "going private" and certain other transactions.
Holders of both classes of Common Stock will vote together as a single class
on all matters presented for a vote, except as otherwise may be required by
Maryland law, and holders of Class B Common Stock may convert their shares
of Class B Common Stock into shares of Class A Common Stock at any time.
(b) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, the aggregate
number of shares of Class A Common Stock offered by each of Frederick G.
Smith and Robert E. Smith would be 550,000 and the percentage of voting
power of all capital stock after the Common Stock Offering for these Selling
Stockholders would be 22.2% and 21.6%, respectively.
(c) Shares of Class A Common Stock offered in excess of the number currently
held by a given Selling Stockholder will be obtained upon sale to a
non-affiliate in the Common Stock Offering and resultant conversion of
shares of Class B Common Stock owned by such Selling Stockholder.
(d) Includes 506,645 shares held in irrevocable trusts established by Frederick
G. Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(e) Includes 491,695 shares held in irrevocable trusts established by J. Duncan
Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(f) Includes 959,745 shares held in irrevocable trusts established by Robert E.
Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
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MANAGEMENT
Set forth below is certain information relating to the Company's executive
officers, directors, certain key employees and persons expected to become
executive officers, directors or key employees.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------- ----- --------------------------------------------------
<S> <C> <C>
David D. Smith ............ 46 President, Chief Executive Officer, Director and
Chairman of the Board
Frederick G. Smith ......... 48 Vice President and Director
J. Duncan Smith ............ 43 Vice President, Secretary and Director
Robert E. Smith ............ 34 Vice President, Treasurer and Director
David B. Amy ............... 44 Chief Financial Officer
Barry Drake ............... 45 Chief Operating Officer, SCI Radio
Alan B. Frank ............... 47 Regional Director, SCI
Robert Gluck ............... 39 Regional Director, SCI
Michael Granados ............ 42 Regional Director, SCI
Steven M. Marks ............ 40 Regional Director, SCI
John T. Quigley ............ 54 Regional Director, SCI
Frank Quitoni ............... 52 Regional Director, SCI
M. William Butler ......... 44 Vice President/Group Program Director, SCI
Michael Draman ............ 48 Vice President/TV Sales and Marketing, SCI
Stephen A. Eisenberg ...... 55 Vice President/Director of National Sales, SCI
Nat Ostroff ............... 56 Vice President/New Technology
Delbert R. Parks, III ...... 44 Director of Operations and Engineering, SCI
Robert E. Quicksilver ...... 42 Vice President/General Counsel, SCI
Thomas E. Severson ......... 33 Corporate Controller
Michael E. Sileck ......... 37 Vice President/Finance, SCI
Robin A. Smith ............ 41 Chief Financial Officer, SCI Radio
Patrick J. Talamantes ...... 33 Director of Corporate Finance
Lawrence E. McCanna ......... 53 Director
Basil A. Thomas ............ 82 Director
</TABLE>
In addition to the foregoing, the following persons have agreed to serve as
executive officers and/or directors of the Company as soon as permissible under
the rules of the FCC and applicable laws. See "Risk Factors -- Dependence Upon
Key Personnel; Employment Agreements with Key Personnel" in the attached
Prospectus.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------------- ----- ------------------------------------------------
<S> <C> <C>
Barry Baker ............... 45 Executive Vice President of the Company, Chief
Executive Officer of SCI and Director
Kerby Confer ............... 56 Chief Executive Officer, SCI Radio
Roy F. Coppedge, III ...... 49 Director
</TABLE>
In connection with the River City Acquisition, the Company agreed to
increase the size of the Board of Directors from seven members to nine to
accommodate the prospective appointment of each of Barry Baker and Roy F.
Coppedge, III or such other designee as Boston Ventures may select. Mr. Baker
and Mr. Confer currently serve as consultants to the Company.
Members of the Board of Directors are elected for one-year terms and until
their successors are duly elected and qualified. Executive officers are
appointed by the Board of Directors annually to serve for one-year terms and
until their successors are duly appointed and qualified.
On July 30, 1997 William E. Brock submitted and the Company accepted his
resignation from the Company's Board of Directors. Currently, no action has
been taken by the Board of Directors to identify a replacement for Mr. Brock.
David D. Smith has served as President, Chief Executive Officer and
Chairman of the Board since September 1990. Prior to that, he served as General
Manager of WPTT from 1984, and assumed the financial and engineering
responsibility for the Company, including the construction of WTTE in 1984. In
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1980, Mr. Smith founded Comark Television, Inc., which applied for and was
granted the permit for WPXT-TV in Portland, Maine and which purchased WDSI-TV in
Chattanooga, Tennessee. WPXT-TV was sold one year after construction and WDSI-TV
was sold two years after its acquisition. From 1978 to 1986, Mr. Smith
co-founded and served as an officer and director of Comark Communications, Inc.,
a company engaged in the manufacture of high power transmitters for UHF
television stations. His television career began with WBFF in Baltimore, where
he helped in the construction of the station and was in charge of technical
maintenance until 1978. David D. Smith, Frederick G. Smith, J. Duncan Smith and
Robert E. Smith are brothers.
Frederick G. Smith has served as Vice President of the Company since 1990
and as a Director since 1986. Prior to joining the Company in 1990, Mr. Smith
was an oral and maxillofacial surgeon engaged in private practice and was
employed by Frederick G. Smith, M.S., D.D.S., P.A., a professional corporation
of which Mr. Smith was the sole officer, director and stockholder.
J. Duncan Smith has served as Vice President, Secretary and a Director of
the Company since 1988. Prior to that, he worked for Comark Communications, Inc.
installing UHF transmitters. In addition, he also worked extensively on the
construction of WPTT in Pittsburgh, WTTE in Columbus, WIIB in Bloomington and
WTTA in St. Petersburg, as well as on the renovation of the new studio, offices
and news facility for WBFF in Baltimore.
Robert E. Smith has served as Vice President, Secretary and a Director of
the Company since 1988. Prior to that, he served as Program Director at WBFF
from 1986 to 1988. Prior to that, he assisted in the construction of WTTE and
also worked for Comark Communications, Inc. installing UHF transmitters.
David B. Amy has served as Chief Financial Officer ("CFO") since October
of 1994. In addition, he serves as Secretary of Sinclair Communications, Inc.,
the Company subsidiary which owns and operates the broadcasting operations.
Prior to his appointment as CFO Mr. Amy served as the Corporate Controller of
the Company beginning in 1986 and has been the Company's Chief Accounting
Officer since that time. Mr. Amy has over thirteen years of broadcast
experience, having joined the Company as a business manager for WPTT in
Pittsburgh. Mr. Amy received an MBA degree from the University of Pittsburgh in
1981.
Barry Drake has served as Chief Operating Officer of SCI Radio since
completion of the River City Acquisition. Prior to that time, he was Chief
Operating Officer -- Keymarket Radio Division of River City since July 1995.
Prior to that time, he was President and Chief Operating Officer of Keymarket
since 1988. From 1985 through 1988, Mr. Drake performed the duties of the
President of each of the Keymarket broadcasting entities, with responsibility
for three stations located in Houston, St. Louis and Detroit.
Alan B. Frank has served as Regional Director for the Company since May
1994. As Regional Director, Mr. Frank is responsible for the Pittsburgh and
Kansas City markets. Prior to his appointment to Regional Director, Mr. Frank
served as General Manager of WPGH beginning in September 1991.
Robert Gluck has served as Regional Director of the Company since August
1997. As Regional Director, Mr. Gluck is responsible for the Milwaukee and
Raleigh/Durham markets. Prior to joining the Company, Mr. Gluck served as
General Manager at WTIC-TV in the Hartford-New Haven market. Prior to joining
WTIC-TV in 1988, Mr. Gluck served as National Sales Manager and Local Sales
Manager of WLVI-TV in Boston. Before joining WLVI-TV, Mr. Gluck served in
various sales and management capacities in with New York advertising agency
firms.
Michael Granados has served as a Regional Director of the Company since
July 1996. As a Regional Director, Mr. Granados is responsible for the San
Antonio, Des Moines, Peoria and Las Vegas markets. Prior to July 1996, Mr.
Granados has served in various positions with the Company and, before the River
City Acquisition, with River City. He served as the General Sales Manager of
KABB from 1989 to 1993, the Station Manager and Director of Sales of WTTV from
1993 to 1994 and the General Manager of WTTV prior to his appointment as
Regional Director in 1996.
Steven M. Marks has served as Regional Director for the Company since
October 1994. As Regional Director, Mr. Marks is responsible for the Baltimore,
Norfolk, Flint and Birmingham markets. Prior to his appointment as Regional
Director, Mr. Marks served as General Manager for WBFF since July 1991. From
1986 until joining WBFF in 1991, Mr. Marks served as General Sales Manager at
WTTE. Prior to that time, he was national sales manager for WFLX-TV in West
Palm Beach, Florida.
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John T. Quigley has served as a Regional Director of the Company since June
1996. As Regional Director, Mr. Quigley is responsible for the Columbus,
Cincinnati, and Oklahoma City markets. Prior to that time, Mr. Quigley served as
general manager of WTTE since July 1985. Prior to joining WTTE, Mr. Quigley
served in broadcast management positions at WCPO-TV in Cincinnati, Ohio and
WPTV-TV in West Palm Beach, Florida.
Frank Quitoni has served as a Regional Director since completion of the
River City Acquisition. As Regional Director, Mr. Quitoni is responsible for
the St. Louis, Sacramento, Indianapolis and Asheville/ Greenville/Spartanburg
markets. Prior to joining the Company, he was Vice President of Operations for
River City since 1995. Mr. Quitoni had served as the Director of Operations and
Engineering for River City since 1994. Prior thereto Mr. Quitoni served as a
consultant to CBS beginning in 1989. Mr. Quitoni was the Director of Olympic
Operations for CBS Sports for the 1992 Winter Olympic Games and consulted with
CBS for the 1994 Winter Olympic Games. Mr. Quitoni was awarded the Technical
Achievement Emmy for the 1992 and 1994 CBS Olympic broadcasts.
M. William Butler has served as Vice President/Group Program Director, SCI
since 1997. From 1995 to 1997, Mr. Butler served as Director of Programming at
KCAL, the Walt Disney Company station in Los Angeles, California. From 1991 to
1995, he was Director of Marketing and Programming at WTXF in Philadelphia,
Pennsylvania and prior to that he held the same position at WLVI in Boston,
Massachusetts. Mr. Butler attended the Graduate Business School of the
University of Cincinnati from 1975 to 1976.
Michael Draman has served as Vice President/TV Sales and Marketing, SCI
since 1997. From 1995 until joining the Company, Mr. Draman served as Vice
President of Revenue Development for New World Television. From 1983 to 1995,
he was Director of Sales and Marketing for WSVN in Miami, Florida. Mr. Draman
attended The American University and The Harvard Business School and served
with the U.S. Marine Corps in Vietnam.
Stephen A. Eisenberg has served as Director of National Sales, SCI since
November 1996. Prior to joining the Company, he worked since 1975 in various
capacities at Petry Television, including most recently as Vice
President/Director of Sales with total national sales responsibility for KTTV in
Los Angeles, California, KCPQ-TV in Seattle, Washington, WTNH-TV in New Haven,
Connecticut, WKYC-TV in Cleveland, Ohio, WBIR-TV in Knoxville, Tennessee,
WKEF-TV in Dayton, Ohio and WTMJ-TV in Milwaukee, Wisconsin. Mr. Eisenberg
received an MS degree in Journalism from Northwestern's Medill School and a BA
degree from Brooklyn College.
Nat Ostroff has served as Vice President for New Technology since joining
the Company in January of 1996. From 1981 until joining the Company, he was the
President and CEO of Comark Communication Inc., a leading manufacturer of UHF
transmission equipment. While at Comark, Mr. Ostroff was nominated and awarded a
Prime Time Emmy Award for outstanding engineering achievement for the
development of new UHF transmitter technologies in 1993. In 1968, Mr. Ostroff
founded Acrodyne Industries Inc., a manufacturer of TV transmitters and a public
company and served as its first President and CEO. Mr. Ostroff holds a BSEE
degree from Drexel University and an MEEE degree from New York University. He is
a member of several industry organizations, including, AFCCE, IEEE and SBE.
Delbert R. Parks III has served as Vice President of Operations and
Engineering since the completion of the River City Acquisition. Prior to that
time, he was Director of Operations and Engineering for WBFF and Sinclair since
1985, and has been with the Company for 25 years. He is responsible for
planning, organizing and implementing operational and engineering policies and
strategies as they relate to television and computer systems. Currently, he is
consolidating facilities for Sinclair's television stations and has just
completed a digital facility for Sinclair's news and technical operation in
Pittsburgh. Mr. Parks is also a Lieutenant Colonel in the Maryland Army National
Guard and commands the 1st Battalion, 175th Infantry (Light).
Robert E. Quicksilver has served as Vice President/General Counsel, SCI
since completion of the River City Acquisition. Prior to that time he served as
General Counsel of River City since September 1994. From 1988 to 1994, Mr.
Quicksilver was a partner of the law firm of Rosenblum, Goldenhersh,
Silverstein and Zafft, P.C. in St. Louis. Mr. Quicksilver holds a B.A. from
Dartmouth College and a J.D. from the University of Michigan.
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Thomas E. Severson has served as Corporate Controller since January 1997.
Prior to that time, Mr. Severson served as Assistant Controller of the Company
since 1995. Prior to joining the Company, Mr. Severson held positions in the
audit departments of KPMG Peat Marwick LLP and Deloitte & Touche LLP from 1991
to 1995. Mr. Severson is a graduate of the University of Baltimore and is a
Certified Public Accountant.
Michael E. Sileck has served as Vice President/Finance of SCI since
completion of the River City Acquisition. Prior to that time he served as the
Director of Finance for River City since 1993. Mr. Sileck joined River City in
July 1990 as Director of Finance and Business Affairs for KDNL-TV. Mr. Sileck
is an active member of the Broadcast Cable Financial Management Association
("BCFM") and was a Director of BCFM from 1993 to 1996. Mr. Sileck, a Certified
Public Accountant, received a B.S. degree in Accounting from Wayne State
University and an M.B.A. in Finance from Oklahoma City University.
Robin A. Smith has served as Chief Financial Officer, SCI Radio since June
1996. From 1993 until joining the Company, Ms. Smith served as Vice President
and Chief Financial Officer of the Park Lane Group of Menlo Park, California,
which owned and operated small market radio stations. From 1982 to 1993, she
served as Vice President and Treasurer of Edens Broadcasting, Inc. in Phoenix,
Arizona, which owns and operates radio stations in major markets. Ms. Smith is a
graduate of the Arizona State University and is a Certified Public Accountant.
Patrick J. Talamantes has served as Director of Corporate Finance and
Treasurer of SCI since completion of the River City Acquisition. Prior to that
time, he served as Treasurer for River City since April 1995. From 1991 to 1995,
he was a Vice President with Chemical Bank, where he completed financings for
clients in the cable, broadcasting, publishing and entertainment industries. Mr.
Talamantes holds a B.A. degree from Stanford University and an M.B.A. from the
Wharton School at the University of Pennsylvania.
Lawrence E. McCanna has served as a Director of the Company since July
1995. Mr. McCanna has been a partner of the accounting firm of Gross,
Mendelsohn & Associates, P.A., since 1972 and has served as its managing
partner since 1982. Mr. McCanna has served on various committees of the
Maryland Association of Certified Public Accountants and was chairman of the
Management of the Accounting Practice Committee. He is also a former member of
the Management of an Accounting Practice Committee of the American Institute of
Certified Public Accountants. Mr. McCanna is a member of the board of directors
of Maryland Special Olympics.
Basil A. Thomas has served as a Director of the Company since November
1993. He is of counsel to the Baltimore law firm of Thomas & Libowitz, P.A. and
has been in the private practice of law since 1983. From 1961 to 1968, Judge
Thomas served as an Associate Judge on the Municipal Court of Baltimore City
and, from 1968 to 1983, he served as an Associate Judge of the Supreme Bench of
Baltimore City. Judge Thomas is a trustee of the University of Baltimore and a
member of the American Bar Association and the Maryland State Bar Association.
Judge Thomas attended the College of William & Mary and received his L.L.B. from
the University of Baltimore. Judge Thomas is the father of Steven A. Thomas, a
senior attorney and founder of Thomas & Libowitz, counsel to the Company.
Barry Baker has been the Chief Executive Officer of River City since 1989,
and is the President of the corporate general partner of River City and Better
Communications, Inc. ("BCI"). The principal business of both River City and BCI
is television and radio broadcasting. In connection with the River City
Acquisition, the Company agreed to appoint Mr. Baker Executive Vice President of
the Company and to elect him as a Director at such time as he is eligible to
hold those positions under applicable FCC regulations. He currently serves as a
consultant to the Company.
Kerby Confer served as a member of the Board of Representatives and Chief
Executive Officer -- Keymarket Radio Division of River City since July 1995.
Prior thereto, Mr. Confer served as Chairman of the Board and Chief Executive
Officer of Keymarket since its founding in December 1981. Prior to engaging in
the acquisition of various radio stations in 1975, Mr. Confer held a number of
jobs in the broadcast business, including serving as Managing Partner of a radio
station in Annapolis, Maryland from 1969 to 1975. From 1966 to 1969, he hosted a
pop music television show on WBAL-TV (Baltimore) and
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WDCA-TV (Washington, D.C.). Prior thereto, Mr. Confer served as program director
or producer/director for radio and television stations owned by Susquehanna
Broadcasting and Plough Broadcasting Company, Inc. Mr. Confer currently provides
services to the Company and is expected to become Chief Executive Officer of SCI
Radio at such time as he is eligible to hold this position under applicable FCC
regulations.
Roy F. Coppedge, III is a general partner of the general partner of each of
the Boston Ventures partnerships, limited partnerships primarily involved in the
business of investments. Mr. Coppedge is a director of Continental Cablevision,
Inc., and American Media, Inc. and a member of the Board of Representatives of
Falcon Holding Group, L.P. In connection with the River City Acquisition, the
Company agreed to elect Mr. Coppedge as a Director at such time as he is
eligible to hold that position under applicable FCC regulations.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with David D. Smith,
President and Chief Executive Officer of the Company. David Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. The Company's
Compensation Committee has approved an increase in Mr. Smith's total
compensation to $1,200,000. Mr. Smith is also entitled to participate in the
Company's Executive Bonus Plan based upon the performance of the Company during
the year. The employment agreement provides that the Company may terminate Mr.
Smith's employment prior to expiration of the agreement's term as a result of
(i) a breach by Mr. Smith of any material covenant, promise or agreement
contained in the employment agreement; (ii) a dissolution or winding up of the
Company; (iii) the disability of Mr. Smith for more than 210 days in any twelve
month period (as determined under the employment agreement); or (iv) for cause,
which includes conviction of certain crimes, breach of a fiduciary duty to the
Company or the stockholders, or repeated failure to exercise or undertake his
duties as an officer of the Company (each, a "Termination Event").
In June 1995, the Company entered into an employment agreement with
Frederick G. Smith, Vice President of the Company. Frederick Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. Under the agreement, Mr.
Smith receives a base salary of $260,000 and is also entitled to participate in
the Company's Executive Bonus Plan based upon the performance of the Company and
Mr. Smith during the year. The employment agreement provides that the Company
may terminate Mr. Smith's employment prior to expiration of the agreement's term
as a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with J.
Duncan Smith, Vice President and Secretary of the Company. J. Duncan Smith's
employment agreement has an initial term of three years and is renewable for
additional one-year terms, unless either party gives notice of termination not
less than 60 days prior to the expiration of the then current term. Under the
agreement, Mr. Smith receives a base salary of $270,000 and is also entitled to
participate in the Company's Executive Bonus Plan based upon the performance of
the Company and Mr. Smith during the year. The employment agreement provides
that the Company may terminate Mr. Smith's employment prior to expiration of the
agreement's term as a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with Robert
E. Smith, Vice President and Treasurer of the Company. Robert E. Smith's
employment agreement has an initial term of three years and is renewable for
additional one-year terms, unless either party gives notice of termination not
less than 60 days prior to the expiration of the then current term. Under the
agreement, Mr. Smith receives a base salary of $250,000 and is also entitled to
participate in the Company's Executive Bonus Plan based upon the performance of
the Company and Mr. Smith during the year. The employment agreement provides
that the Company may terminate Mr. Smith's employment prior to expiration of the
agreement's term as a result of a Termination Event.
In connection with the River City Acquisition, the Company entered into an
employment agreement (the "Baker Employment Agreement") with Barry Baker
pursuant to which Mr. Baker will become President and Chief Executive Officer of
SCI and Executive Vice President of the Company at such time as
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Mr. Baker is able to hold those positions consistent with applicable FCC
regulations. Until such time as Mr. Baker is able to become an officer of the
Company, he serves as a consultant to the Company pursuant to a consulting
agreement and receives compensation that he would be entitled to as an officer
under the Baker Employment Agreement. While Mr. Baker acts as consultant to the
Company he will not direct employees of Sinclair in the operation of its
television stations and will not perform services relating to any shareholder,
bank financing or regulatory compliance matters with respect to the Company. In
addition, Mr. Baker will remain the Chief Executive Officer of River City and
will devote a substantial amount of his business time and energies to those
services. Mr. Baker receives a base salary of approximately $1,135,200 per year,
subject to annual increases of 7 1/2% on January 1 each year. Mr. Baker is also
entitled to receive a bonus equal to 2% of the amount by which the Broadcast
Cash Flow (as defined in the Baker Employment Agreement) of SCI for a year
exceeds the Broadcast Cash Flow for the immediately preceding year. Mr. Baker
has received options to acquire 1,382,435 shares of the Class A Common Stock (or
3.33% of the common equity of Sinclair determined on a fully diluted basis as of
the date of the River City Acquisition). The option became exercisable with
respect to 50% of the shares upon closing of the River City Acquisition, and
became exercisable with respect to an additional 25% of the shares on the first
anniversary of the closing of the River City Acquisition, and will become
exercisable with respect to the remaining 25% on the second anniversary of the
closing of the River City Acquisition. The exercise price of the option is
approximately $30.11 per share. The term of the Baker Employment Agreement
extends until May 31, 2001, and is automatically extended to the third
anniversary of any Change of Control (as defined in the Baker Employment
Agreement). If the Baker Employment Agreement is terminated as a result of a
Series B Trigger Event (as defined below), then Mr. Baker shall be entitled to a
termination payment equal to the amount that would have been paid in base salary
for the remainder of the term of the agreement plus bonuses that would be paid
for such period based on the average bonus paid to Mr. Baker for the previous
three years, and all options shall vest immediately upon such termination. In
addition, upon such a termination, Mr. Baker shall have the option to purchase
from the Company for the fair market value thereof either (i) all broadcast
operations of Sinclair in the St. Louis, Missouri DMA or (at the option of Mr.
Baker) the Asheville/Greenville/Spartanburg, South Carolina DMA or (ii) all of
the Company's radio broadcast operations. Mr. Baker shall also have the right
following such a termination to receive quarterly payments (which may be paid
either in cash or, at the Company's option, in additional shares of Class A
Common Stock) equal to 5.00% of the fair market value (on the date of each
payment) of all stock options and common stock issued pursuant to the exercise
of such stock options or pursuant to payments of this obligation in shares of
Class A Common Stock and held by him at the time of such payment (except that
the first such payment shall be 3.75% of such value). The fair market value of
unexercised options for such purpose shall be equal to the market price of
underlying shares less the exercise price of the options. Following termination
of Mr. Baker's employment agreement, the Company shall have the option to
purchase the options and shares from Mr. Baker at their market value. A "Series
B Trigger Event" means the termination of Barry Baker's employment with the
Company prior to the expiration of the initial five-year term of the Baker
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 such positions with the Company or SCI
until the Company or SCI takes certain actions with respect to WTTV and WTTK in
Indianapolis or WTTE or WSYX in Columbus as described under "Risk Factors --
Dependence on Key Personnel; Employment Agreements with Key Personnel" in the
accompanying Prospectus. The Company will not be able to take these actions
prior to August 31, 1997 and accordingly Mr. Baker will be able to terminate the
Baker Employment Agreement at any time thereafter.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
SCOPE AND LIMITATION
The following is a general discussion of certain United States federal
income and estate tax consequences of the purchase, ownership and disposition of
Class A Common Stock by a "Non-U.S. Holder" (as defined below). This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
administrative pronouncements, judicial decisions and existing and proposed
Treasury regulations each as in effect on the date hereof and changes to any of
which subsequent to the date of this Prospectus Supplement may affect the tax
consequences described herein.
This discussion does not purport to be a comprehensive description of all
of the tax considerations that may be relevant to a decision to purchase Class A
Common Stock. It does not discuss all of the tax consequences that may be
relevant to a holder in light of the holder's particular circumstances. This
discussion does not address any tax consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Prospective purchasers should consult their own tax advisors as to the
particular tax consequences of the purchase, ownership or disposition of Class A
Common Stock, including the effects of applicable state, local, foreign, or
other tax laws and possible changes in the tax laws.
For purposes of this discussion, a "Non-U.S. Holder" means any individual
or entity other than a holder of Class A Common Stock that is (i) a citizen or
resident of the United States (including certain former citizens and former
residents), (ii) a partnership, corporation (including an entity treated as a
corporation or partnership for United States federal income tax purposes) or
other entity created or organized in the United States or under the laws of the
United States or of any political subdivision thereof (other than any
partnership treated as foreign under federal regulations), (iii) an estate the
income of which is subject to United States federal income taxation regardless
of source, or (iv) a trust with respect to the administration of which a court
within the United States is able to exercise primary supervision and which has
one or more United States fiduciaries, who have the authority to control all
substantial decisions of the trust. The tax treatment of a Non-U.S. Holder may
vary depending upon the particular situation of such holder.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (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). Resident aliens are subject
to United States federal tax as if they were United States citizens.
DIVIDENDS
Subject to the discussion below, any dividends paid to a Non-U.S. Holder of
Class A Common Stock generally will be subject to withholding tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Under present law, for purposes of determining whether tax is to be
withheld at a 30% rate or a reduced rate as specified by an income tax treaty,
the Company ordinarily will presume that dividends paid to an address in a
foreign country are paid to a resident of such country absent definite knowledge
that such presumption is not warranted. A Non-U.S. Holder that is eligible for a
reduced rate of United States withholding tax pursuant to an income tax treaty
may obtain a refund of any excess amounts currently withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.
Under proposed regulations, a beneficial owner who is a Non-U.S. Holder must
submit a properly completed Internal Revenue Service Form W-8 to the Company or
a qualified intermediary to be eligible for a tax treaty reduction.
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If a Non-U.S. Holder is engaged in a trade or business in the United
States, and if (i) dividends on the Class A Common Stock are effectively
connected with the conduct of such trade or business or (ii) if a tax treaty
applies, dividends are attributable to a United States permanent establishment
of the Non-U.S. Holder, the Non-U.S. Holder will generally be subject to regular
United States income tax on such effectively connected income in the same manner
as if the Non-U.S. Holder were a United States resident. Such a Non-U.S. Holder
will be required to provide the Company a properly executed United States
Internal Revenue Service Form 4224 or successor form in order to claim an
exemption from the 30% withholding tax.
In addition, if such Non-U.S. Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits, subject to
certain adjustments, deemed to have been repatriated from the United States. For
purposes of the branch profits tax, dividends on and any gain recognized on the
sale, exchange or other disposition of the Class A Common Stock will be included
in the effectively connected earnings and profits of such Non-U.S. Holder if
such dividends or gain, as the case may be, is effectively connected with the
conduct by the Non-U.S. Holder of a trade or business in the United States.
OWNERSHIP AND SALE
In general, a Non-U.S. Holder will not be subject to United States federal
income tax with respect to any gain realized on a sale or other disposition of
Class A Common Stock unless (i) such Non-U.S. Holder is an individual who is
present in the United States for 183 days or more in the taxable year of
disposition, and either (a) such individual has a "tax home" (as defined in Code
Section 911(d)(3)) in the United States (unless such gain is attributable to a
fixed place of business in a foreign country maintained by such individual and
has been subject to foreign tax of at least 10%) or (b) the gain is attributable
to an office or other fixed place of business maintained by such individual in
the United States; (ii) such gain is effectively connected with the conduct by
such Non-U.S. Holder of a trade or business in the United States; or (iii) the
Company is or has been a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code at any time within the
shorter of the five-year period preceding such disposition or such Non-U.S.
Holder's holding period, and, with respect to any class of stock of the Company
that is regularly traded on an established securities market within the meaning
of the applicable Department of Treasury regulations, the Non-U.S. Holder held,
directly or indirectly, at any time within the shorter of the periods described
above more than 5% of such class. A corporation is generally a "United States
real property holding corporation" if the fair market value of its "United
States real property interests" equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. Although the Company does not believe
that it has been or is or will become a "United States real property holding
corporation" in the foreseeable future, any such development could have adverse
United States tax consequences for Non-U.S. Holders.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under certain circumstances, the Internal Revenue Service requires
"information reporting" and "backup withholding" at a rate of 31% with respect
to certain payments on Class A Common Stock. Non-U.S. Holders of Class A Common
Stock generally would be exempt from Internal Revenue Service reporting
requirements and United States backup withholding with respect to dividends
payable on Class A Common Stock. Under proposed regulations, however, a Non-U.S.
Holder of Class A Common Stock that fails to certify its Non-U.S. Holder status
in accordance with the requirements of the proposed regulations, would under
certain circumstances be subject to United States backup withholding at a rate
of 31% on payments of dividends. The application for exemption is available by
providing a properly completed Internal Revenue Service Form W-8.
The payment of the proceeds of the disposition of Class A Common Stock by a
holder to or through the United States office of a broker or through a
non-United States branch of a United States broker generally will be subject to
information reporting and backup withholding at a rate of 31% unless the holder
either certifies its status as a Non-U.S. Holder under penalties of perjury or
otherwise estab-
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lishes an exemption. The payment of the proceeds of the disposition by a
Non-U.S. Holder of Class A Common Stock to or through a non-United States office
of a non-United States broker will not be subject to backup withholding or
information reporting unless the non-United States broker has certain United
States relationships.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's United States
federal income tax liability, if any) provided that the required information is
furnished to the Internal Revenue Service.
FEDERAL ESTATE TAX
Under the United States federal estate tax law, an individual Non-U.S.
Holder who is treated as the owner of an interest in the Class A Common Stock
will be required to include the value thereof in his gross estate for United
States federal estate tax purposes, and may be subject to United States federal
estate tax unless an applicable estate tax treaty provides otherwise.
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UNDERWRITING
Under the terms and subject to the conditions stated in the Underwriting
Agreement dated the date of this Prospectus Supplement, each of the underwriters
of the Offering named below (the "Underwriters"), for whom Smith Barney Inc.,
Alex. Brown & Sons Incorporated, Credit Suisse First Boston Corporation, Salomon
Brothers Inc, Chase Securities, Inc. and Furman Selz are acting as the
representatives (the "Representatives"), has severally agreed to purchase, and
the Company and the Selling Stockholders have agreed to sell to each
Underwriter, the number of shares of Class A Common Stock set forth opposite the
name of such Underwriter below:
NUMBER
UNDERWRITER OF SHARES
----------- ----------
Smith Barney Inc ...........................
Alex. Brown & Sons Incorporated ............
Credit Suisse First Boston Corporation ......
Salomon Brothers Inc ........................
Chase Securities, Inc. .....................
Furman Selz .................................
----------
Total ....................................... 5,300,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and part of the shares to certain
dealers at a price that represents a concession not in excess of $ per share
below the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to the other Underwriters
or to certain other dealers. After the initial offering of the shares to the
public, the public offering price and such concessions may be changed by the
Representatives.
The Company and certain of the Selling Stockholders have granted to the
Underwriters options, exercisable for 30 days from the date of this Prospectus
Supplement, to purchase up to an aggregate of 345,000 and 450,000 additional
shares of Class A Common Stock, respectively, at the public offering price set
forth on the cover page of this Prospectus Supplement less underwriting
discounts and commissions. The Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
incurred in connection with the sale of the shares of Class A Common Stock
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares set forth
opposite each Underwriter's name in the preceding table bears to the total
number of shares of Class A Common Stock offered by the Underwriters hereby.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, its officers and directors and the holders of all of the
shares of Class B Common Stock to be outstanding after the Offering have agreed
that, for a period of 90 days from the date of this
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Prospectus Supplement, they will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock of the Company or any securities convertible into, or
exercisable or exchangeable for, Common Stock of the Company.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Class A Common Stock than
the total amount shown on the list of Underwriters which appears above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the shares of Class A Common Stock at levels above those which might
otherwise prevail in the open market. Such transactions may include placing bids
for the Class A Common Stock or effecting purchases of the Class A Common Stock
for the purpose of pegging, fixing or maintaining the price of the Class A
Common Stock or for the purpose of reducing a syndicate short position created
in connection with the Offering. A syndicate short position may be covered by
exercise of the option described above in lieu of or in addition to open market
purchases. In addition, the contractual arrangements among the Underwriters
include a provision whereby, if the Representatives purchase shares of Class A
Common Stock in the open market for the account of the underwriting syndicate
and the securities purchased can be traced to a particular Underwriter or member
of the selling group, the underwriting syndicate may require the Underwriter or
selling group member in question to purchase the shares of Class A Common Stock
in question at the cost price to the syndicate or may recover from (or decline
to pay to) the Underwriter or selling group member in question the selling
concession applicable to the securities in question. The Underwriters are not
required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
Smith Barney Inc. and certain of the other Representatives have and may
continue to provide investment banking services to the Company for which they
receive customary fees.
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GLOSSARY OF DEFINED TERMS
"ABC" means Capital Cities/ABC, Inc.
"Adjusted EBITDA" means 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.
"Adjusted EBITDA margin" means the Adjusted EBITDA divided by net
broadcast revenues.
"Amended Certificate" means the Amended and Restated Articles of
Incorporation of the Company as amended.
"Arbitron" means Arbitron, Inc.
"Bank Credit Agreement" means the Third Amended and Restated Credit
Agreement, dated as of May 20, 1997, among the Company, the Subsidiaries,
certain lenders named therein, and The Chase Manhattan Bank, as agent.
"Broadcast cash flow margin" means broadcast cash flow divided by net
broadcast revenues.
"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.
"CBS" means CBS, 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, 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.
"DAB" means digital audio broadcasting.
"DBS" means direct-to-home broadcast satellite television.
"Debt Issuance" means the Company's private placement of the 1997 Notes, in
the principal amount of $200,000,000, on July 2, 1997.
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"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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commision.
"FCN" means the Fox Children's Network.
"Flint Acquisition" means the Company's acquisition of the assets of
WSMH-TV (Flint, Michigan).
"Fox" means Fox Broadcasting Company.
"Glencairn" means Glencairn, Ltd. and its subsidiaries.
"Greenville Stations" means radio stations WFBC-FM, WORD-AM, WFBC-AM,
WSPA-AM, WSPA-FM, WOLI-FM, and WOLT-FM located in the Greenville/Spartanburg,
South Carolina area.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"HYTOPS" means the Company's 115/8% High Yield Trust Offered Preferred
Securities issued pursuant to the HYTOPS Issuance.
"HYTOPS Issuance" means the Company's private placement of HYTOPS, in a
liquidation amount of $200,000,000, on March 14, 1997.
"Independent" means a station that is not affiliated with any of ABC, CBS,
NBC, FOX, UPN or WB.
"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.
"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.
"License Assets Option" means the Company's option to purchase the License
Assets of KDNL-TV, St. Louis, MO; KOVR-TV, Sacramento, CA; WTTV-TV and WTTK-TV,
Indianapolis, IN; WLOS-TV, Asheville, NC; KABB-TV, San Antonio, TX; and KDSM-TV,
Des Moines, IA, which the Company has exercised with respect to all stations
other than WTTV-TV and WTTK-TV.
"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.
"MSA" means the Metro Survey Area as defined by Arbitron.
"MMDS" means multichannel multipoint distribution services.
"NBC" means the National Broadcasting Company.
"Nielsen" means the A.C. Nielsen Company Station Index dated May 1996.
"1993 Notes" means the Company's 10% Senior Subordinated Notes due 2003.
"1995 Notes" means the Company's 10% Senior Subordinated Notes due 2005.
"1996 Acquisitions" means the 16 television and 33 radio stations that the
Company acquired, obtained options to acquire, or obtained the right to program
during 1996 for an aggregate consideration of approximately $1.2 billion.
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"1997 Notes" means the Company's 9% Senior Subordinated Notes due 2007,
issued pursuant to the Debt Issuance.
"Non-License Assets" means the assets relating to operation of a television
or radio station other than License Assets.
"Peoria/Bloomington Acquisition" means the acquisition by the Company of
the assets of WYZZ-TV on July 1, 1996.
"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 holds all of the broadcast operations of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Company's Series A Exchangeable
Preferred Stock, par value $.01 per share, each share of which has been
exchanged for a share of the Company's Series B Convertible Preferred Stock.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock, par value $.01 per share.
"Series C Preferred Stock" means the Company's Series C Preferred Stock,
par value $.01 per share.
"Sinclair" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Superior Acquisition" means the Company's acquisition of the stock of
Superior Communications, Inc. ("Superior").
"TBAs" means time brokerage agreements; see definition of "LMAs."
"UHF" means ultra-high frequency.
"UPN" means United Paramount Television Network Partnership.
"VHF" means very-high frequency.
"WB" and the "WB Network" mean The WB Television Network Partners.
S-77
<PAGE>
<TABLE>
<S> <C>
========================================================== ==========================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS, IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS 5,300,000 SHARES
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES OF CLASS A COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH THE OFFER OR SOLICITATION IS SINCLAIR BROADCAST GROUP, INC.
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON Class A Common Stock
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
SBG
---------------- SINCLAIR BROADCAST GROUP
TABLE OF CONTENTS
PAGE NO. -------------
---------
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary ............... S-3 P R O S P E C T U S S U P P L E M E N T
Use of Proceeds ........................... S-11
Capitalization .............................. S-12 AUGUST , 1997
Pro Forma Consolidated Financial Information S-13 -------------
Management's Discussion and Analysis of
Financial Condition and Results of Op-
erations of Sinclair...................... S-23
Industry Overview ........................... S-32
Business of Sinclair ........................ S-35
Selling Stockholders ........................ S-63
Management ................................. S-64
Certain United States Federal Tax Consid-
erations for Non-U.S. Holders of Com-
mon Stock ................................ S-70
Underwriting .............................. S-73
Glossary of Defined Terms .................. S-75
PROSPECTUS
Available Information ..................... 1 SMITH BARNEY INC.
Incorporation of Certain Documents by
Reference .............................. 1 ALEX. BROWN & SONS
The Company ................................. 3 INCORPORATED
Risk Factors .............................. 3
Use of Proceeds ........................... 16 CREDIT SUISSE FIRST BOSTON
Historical and Pro Forma
Ratio of Earnings to Fixed Charges ...... 16 SALOMON BROTHERS INC
Selling Stockholders ........................ 17
Description of Debt Securities ............ 18 CHASE SECURITIES, INC.
Description of Capital Stock ............... 32
Plan of Distribution ........................ 40 FURMAN SELZ
Legal Matters .............................. 41
Experts .................................... 41
========================================================== ==========================================================
<PAGE>
</TABLE>
SUBJECT TO COMPLETION DATED AUGUST 26, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST , 1997)
3,000,000 SHARES
SBG
SINCLAIR BROADCAST GROUP
$ CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
-----------
Each share of $ Series D Convertible Exchangeable Preferred Stock, par
value $.01 per share (the "Convertible Exchangeable Preferred Stock"), of
Sinclair Broadcast Group, Inc. ("Sinclair" or the "Company") has a liquidation
preference of $50. Dividends on the Convertible Exchange Preferred Stock will be
cumulative from the date of original issue and will be payable quarterly
commencing on , 1997, in the amount of $ per share annually when, a
and if declared by the Board of Directors out of legally available funds. See
"Description of Preferred Stock -- Dividends."
Shares of the Convertible Exchangeable Preferred Stock are convertible at
any time, at the option of the holders thereof, unless previously redeemed or
exchanged, into shares of Class A Common Stock, par value $.01 per share, of the
Company (the "Class A Common Stock") at an initial conversion price of $ per
share of Class A Common Stock (equivalent to a conversion rate of shares of
Class A Common Stock per share of Convertible Exchangeable Preferred Stock)
subject to adjustment in certain events. See "Description of Preferred Stock--
Conversion Rights". On August 21, 1997, the last reported sale price of the
Class A Common Stock as reported by Nasdaq was $36 per share. The Convertible
Exchangeable Preferred Stock will not be redeemable until September , 2000. On
and after September, 2000, the Convertible Exchangeable Preferred Stock will be
redeemable at the option of the Company, in whole or in part, initially at a
price per share equal to % of the liquidation preference thereof and
thereafter at prices declining to 100% of such liquidation preference on and
after September, 2007, in each case plus accrued and unpaid dividends to the
redemption date. See "Description of Preferred Stock -- Company's Right of
Redemption."
(continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SHARES OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OFFERED
HEREBY.
-----------
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 SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS (1) THE COMPANY (2)
- --------------------------------------------------------------------------------
Per Share $50 $ $
Total(3) $150,000,000 $ $
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 450,000 additional shares of Convertible Exchangeable
Preferred Stock on the same terms as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Convertible Exchangeable Preferred Stock are being offered by the
several Underwriters named herein, subject to prior sale, when, as and if
accepted by them and subject to certain conditions. It is expected that
certificates for the Convertible Exchangeable Preferred Stock will be available
for delivery on or about , 1997, at the offices of Smith Barney Inc., 333 West
34th Street, New York, New York 10001.
-----------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
CHASE SECURITIES, INC.
August , 1997 FURMAN SELZ
Information contained herein is subject to completion or amendment. A
registration statement 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
supplement and the attached 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>
[insert map]
TELEVISION AND RADIO STATIONS (I) OWNED AND OPERATED BY THE COMPANY, (II)
PROGRAMMED BY THE COMPANY PURSUANT TO LMAS, (III) PROVIDED
SELLING SERVICES PURSUANT TO JSAS, (IV) SUBJECT TO OPTIONS TO ACQUIRE AND (V)
UNDER AGREEMENTS TO BE ACQUIRED, INCLUDING
AGREEMENTS TO ACQUIRE RIGHTS TO PROGRAM STATIONS PURSUANT TO LMAS, ALL AS SET
FORTH UNDER "BUSINESS OF SINCLAIR."
Certain persons participating in this offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of Convertible Exchangeable
Preferred Stock, including overallotment, entering stabilizing bids, effecting
syndicate covering transactions and imposing penalty bids. For a description of
those activities, see "Underwriting."
<PAGE>
Subject to certain conditions, on any dividend payment date after ,
2000, the Convertible Exchangeable Preferred Stock will be exchangeable at the
option of the Company, in whole but not in part, for % Convertible
Subordinated Exchange Debentures (the "Exchange Debentures") due September ,
2012 in a principal amount equal to $50 per share of Convertible Exchangeable
Preferred Stock, provided that all accrued dividends (whether or not declared)
have been paid. The Exchange Debentures will be issued pursuant to an indenture
(the "Exchange Debentures Indenture"), will be convertible into shares of Class
A Common Stock on the same terms as the Convertible Exchangeable Preferred Stock
and will pay interest quarterly. The Exchange Debentures will contain redemption
provisions similar to those of the Convertible Exchangeable Preferred Stock. The
Exchange Debentures will be unsecured obligations of the Company and
subordinated to all Senior Debt (as defined herein) whether outstanding on the
date of the exchange or thereafter incurred. As of June 30, 1997, on a pro forma
basis, after giving effect to the Debt Issuance (as defined herein), the sale of
the Convertible Exchangeable Preferred Stock offered hereby and the use of the
estimated net proceeds therefrom, the aggregate amount of Senior Debt that would
have ranked senior in right of payment to the Exchange Debentures would have
been approximately $1.6 billion. See "Description of Exchange Debentures."
Concurrently with the offering of the Convertible Exchangeable Preferred
Stock hereunder (the "Preferred Stock Offering" or the "Offering") the Company
and certain stockholders of the Company (the "Selling Stockholders") are
offering to sell by a separate Prospectus Supplement 4,000,000 shares and
1,300,000 shares, respectively, of Class A Common Stock (the "Common Stock
Offering"). The completion of the Preferred Stock Offering is not conditioned
upon the completion of the Common Stock Offering.
The Company intends to apply for listing for the Convertible Exchangeable
Preferred Stock on the Nasdaq National Market.
The Company's outstanding capital stock consists of shares of Class A
Common Stock, shares of Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"), shares of Series B Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock") and shares of Series C Preferred Stock,
par value $.01 per share (the "Series C Preferred Stock"). The rights of the
Class A Common Stock and the Class B Common Stock (collectively, the "Common
Stock") are identical, except that each share of Class A Common Stock entitles
the holder thereof to one vote in respect of matters submitted for the vote of
holders of Common Stock, whereas each share of Class B Common Stock entitles the
holder thereof to one vote on "going private" and certain other transactions and
to ten votes on other matters. The Controlling Stockholders (as defined in the
accompanying Prospectus) have the power to vote 100% of the outstanding shares
of Class B Common Stock representing, together with the Class A Common Stock
held by the Controlling Stockholders, approximately 96.1% of the aggregate
voting power of the Company's capital stock (or approximately 94.1% after the
sale of shares in the Common Stock Offering assuming no exercise of the
over-allotment option granted the Underwriters in connection with the Common
Stock Offering). Each share of Class B Common Stock converts automatically into
one share of Class A Common Stock upon sale or other transfer to a party other
than a Permitted Transferee (generally, related parties of a Controlling
Stockholder). Each share of Series B Preferred Stock has a liquidation
preference of $100, is convertible into 3.64 shares of Class A Common Stock
(subject to adjustment), and has 3.64 votes on all matters on which shares of
Common Stock have a vote. Except as described in the accompanying Prospectus,
the Series C Preferred Stock does not have rights to vote on matters on which
shares of Common Stock have a vote. See "Description of Capital Stock" in the
accompanying Prospectus.
iii
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary should be read in conjunction with the more detailed
information, financial statements and notes thereto appearing elsewhere in or
incorporated by reference into this Prospectus Supplement and the accompanying
Prospectus. Unless the context requires otherwise, this Prospectus Supplement
and the Prospectus assume no exercise of the Underwriters' over-allotment
option. Unless the context otherwise indicates, as used herein, the "Company" or
"Sinclair" means Sinclair Broadcast Group, Inc. and its direct and indirect
wholly-owned subsidiaries (collectively, the "Subsidiaries"). Capitalized terms
used in this Prospectus Supplement have the meaning set forth in the Glossary of
Defined Terms, which appears at the end of this Prospectus Supplement.
THE COMPANY
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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the rights to provide programming to
two additional 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 sales services to 27 radio
stations, has pending acquisitions of 24 radio stations and has options to
acquire an additional seven radio stations.
The 29 television stations the Company owns or programs pursuant to LMAs
are located in 21 geographically diverse markets, with 23 of the stations in the
top 51 television DMAs in the United States. The Company's television station
group is diverse in network affiliation with ten stations affiliated with Fox,
12 with UPN, three with WB, two with ABC and one with CBS. One station operates
as an independent. The Company has recently entered into an agreement with WB
pursuant to which seven of its stations would switch affiliations to, and one
independent station would become affiliated with, WB.
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 27 stations owned, programmed or
with which the Company has a JSA, 12 broadcast on the AM band and 15 on the FM
band. The Company owns, programs or has a JSA with from two to eight stations in
all but one of the eight radio markets it serves.
The Company has undergone rapid and significant growth over the course of
the last six years. Since 1991, the Company has increased the number of stations
it owns or provides services to from three television stations to 29 television
stations and 27 radio stations. From 1991 to 1996, net broadcast revenues and
Adjusted EBITDA (as defined herein) increased from $39.7 million to $346.5
million, and from $15.5 million to $180.3 million, respectively. Pro forma for
the acquisitions completed in 1996 and the Heritage Acquisition described below,
1996 net broadcast revenues and Adjusted EBITDA would have been $532.4 million
and $246.3 million, respectively.
COMPANY 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) expand its stations' involvement in their communities;
and (vi) establish additional television LMAs and increase the size of its radio
clusters.
S-1
<PAGE>
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.
The Company intends to continue to pursue acquisitions in order to build a
larger and more diversified broadcasting company. In implementing its
acquisition strategy, the Company routinely reviews and conducts investigations
of potential television and radio station acquisitions. When the Company
believes a favorable opportunity exists, the Company seeks to enter into
discussions with the owners of such stations regarding the possibility of an
acquisition by the Company. At any given time, the Company may be in discussions
with one or more such station owners. In addition, the Company intends to seek
and may take advantage of favorable opportunities to sell or swap television and
radio stations. See "Business of Sinclair -- Broadcast Acquisition Strategy."
RECENT DEVELOPMENTS
AGREEMENT WITH THE WB NETWORK
On July 4, 1997, the Company entered into an agreement with WB (the "WB
Agreement"), pursuant to which the Company agreed that certain stations
currently affiliated with UPN would terminate their affiliations with UPN at the
end of the current affiliation term in January 1998, and would enter into
affiliation agreements with WB effective as of that date. The Company has
advised UPN that the following stations owned or provided programming services
by the Company will not renew their affiliation agreements with UPN when the
current agreements expire on January 15, 1998: WPTT-TV, Pittsburgh,
Pennsylvania, WNUV-TV, Baltimore, Maryland. WSTR-TV, Cincinnati, Ohio, KRRT-TV,
San Antonio, Texas, and KOCB-TV, Oklahoma City, Oklahoma. These stations will
enter into ten-year affiliation agreements with WB beginning on January 16,
1998. Pursuant to the WB Agreement, the WB affiliation agreements of WVTV-TV,
Milwaukee, Wisconsin, and WTTO-TV, Birmingham, Alabama (whose programming is
simulcasted on WDBB-TV, Tuscaloosa, Alabama), have been extended to January 16,
2008. In addition, WFBC-TV in Greenville, South Carolina will become affiliated
with WB on November 1, 1999, when WB's current affiliation with another station
in that market expires. WTVZ-TV, Norfolk, Virginia and WLFL-TV, Raleigh, North
Carolina, will become affiliated with WB when their affiliations with Fox
expire. These Fox affiliations are scheduled to expire on August 31, 1998. Under
the terms of the WB Agreement, WB has agreed to pay the Company $64 million
aggregate amount in monthly installments during the eight years commencing on
January 16, 1998 in consideration for entering into affiliation agreements with
WB. In addition, WB will be obligated to pay an additional $10 million aggregate
amount in monthly installments in each of the following two years provided that
WB is in the business of supplying programming as a television network during
each of those years.
In August 1997, UPN filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998. See "Risk Factors -- Certain Network Affiliations" in the accompanying
Prospectus and "Business of Sinclair -- Legal Proceedings" herein.
S-2
<PAGE>
HERITAGE ACQUISITION
On July 16, 1997, the Company entered into agreements (the "Heritage
Acquisition Agreements") with The News Corporation Limited, Heritage Media
Group, Inc. and certain subsidiaries of Heritage Media Corporation
(collectively, "Heritage"), pursuant to which the Company agreed to acquire
certain television and radio assets of such subsidiaries. Under the Heritage
Acquisition Agreements, the Company will acquire the assets of, or the right to
program pursuant to LMAs, six television stations in three markets and the
assets of 24 radio stations in seven markets (the "Heritage Acquisition"). The
television stations serve the following markets: Charleston/ Huntington, West
Virginia; Mobile, Alabama/Pensacola, Florida; and Burlington, Vermont/
Plattsburgh, New York. The radio stations serve the following markets: St.
Louis, Missouri; Portland, Oregon; Kansas City, Missouri; Milwaukee, Wisconsin;
Norfolk, Virginia; New Orleans, Louisiana; and Rochester, New York. The
aggregate purchase price for the assets is $630 million payable in cash at
closing, less a deposit of $63 million paid at the time of signing the Heritage
Acquisition Agreements. The Heritage Acquisition Agreements also provide for the
acquisition of the assets of a television station in Oklahoma City, Oklahoma;
the Company is required by the agreements to dispose of its interest in that
station, and the Company has entered into a letter of intent to sell that
station for $60 million in cash. The Company intends to finance the purchase
price from some combination of the proceeds of the Common Stock Offering, the
proceeds of the Preferred Stock Offering, funds available under the Bank Credit
Agreement, and the anticipated $60 million in proceeds from the sale of the
Company's interest in the Oklahoma City station. Closing of the Heritage
Acquisition is conditioned on, among other things, FCC approval and the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
COMMON STOCK OFFERING
Concurrently with the Preferred Stock Offering, the Company and the Selling
Stockholders plan to offer 4,000,000 shares and 1,300,000 shares of Class A
Common Stock, respectively, in the Common Stock Offering. There can be no
assurance that the Common Stock Offering will be consummated. The completion of
the Preferred Stock Offering is not conditioned upon the completion of the
Common Stock Offering.
S-3
<PAGE>
THE OFFERING
SHARES OF CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK OFFERED ......... 3,000,000 shares (a)
PREFERRED AND COMMON STOCK TO BE
OUTSTANDING AFTER THE OFFERING . 1,088,904 shares of Series B Preferred Stock
2,062,000 shares of Series C Preferred Stock
3,000,000 shares of Convertible Exchangeable
Preferred Stock(a)
7,245,566 shares of Class A Common Stock(b)
27,510,581 shares of Class B Common Stock
34,756,147 total shares of Common Stock(b)
USE OF PROCEEDS ............. The net proceeds to the Company from the
Offering and the Common Stock Offering will
be used to repay certain amounts outstanding
under the revolving credit facility under the
Company's Bank Credit Agreement, with the
remainder retained for general corporate
purposes including funding the Heritage
Acquisition, which is anticipated to close in
the first quarter of 1998, and other
acquisitions if suitable acquisitions can be
identified on acceptable terms. See "Use of
Proceeds."
DIVIDENDS ...................... Dividends on the Convertible Exchangeable
Preferred Stock will be cumulative and accrue
from the date of issuance and will be payable
quarterly commencing on , 1997,
in the amount of $ per share annually,
when, as and if declared by the Board of
Directors out of legally available funds.
LIQUIDATION PREFERENCE ........ $50.00 per share, plus an amount equal to any
accrued and unpaid dividends.
CONVERSION RIGHTS ............. The shares of Convertible Exchangeable
Preferred Stock are convertible at the option
of the holder at any time, unless previously
redeemed or exchanged, into Class A Common
Stock of the Company, at a conversion price
of $ per share of Class A Common Stock
(equivalent to a conversion rate of
shares of Class A Common Stock per
share of Convertible Exchangeable Preferred
Stock), subject to adjustment in certain
events. See "Description of Convertible
Exchangeable Preferred Stock -- Conversion
Rights."
- ----------
(a) Excludes up to 450,000 shares of Convertible Exchangeable Preferred Stock
that may be sold by the Company upon exercise of the over-allotment option
granted to the Underwriters. See "Underwriting."
(b) Excludes 3,963,611 shares of Class A Common Stock that may be issued upon
conversion of shares of Series B Preferred Stock outstanding after the
Offering and up to 2,641,673 shares of Class A Common Stock reserved for
issuance pursuant to the Company's Incentive Stock Option Plan, the
Company's Designated Participants Stock Option Plan and the Company's
Long-Term Incentive Plan. Also excludes (i) 4,000,000 shares of Class A
Common Stock that are being issued in the Common Stock Offering by the
Company and 1,300,000 shares of Class A Common Stock that are being sold by
the Selling Stockholders in the Common Stock Offering (a portion of which
shares are included in shares of Class B Common Stock), (ii) 395,000 shares
and 450,000 (a portion of which shares are included in shares of Class B
Common Stock) shares of Class A Common Stock that may be sold by the
Company and the Selling Stockholders, respectively, upon exercise of the
over-allotment option granted to the Underwriters in the Common Stock
Offering and (iii) shares of Class A Common Stock that may be issued upon
conversion of the shares of Convertible Exchangeable Preferred Stock
offered hereby (based on the conversion price on the date of issuance).
S-4
<PAGE>
CHANGE OF CONTROL............. Upon the occurrence of a Change of Control
(as defined herein), each share of
Convertible Exchangeable Preferred Stock will
be convertible at the option of its holder
for a limited period into the number of
shares of Class A Common Stock determined by
dividing the $50 liquidation preference of
such share, plus accrued and unpaid
dividends, by an adjusted conversion price.
Upon a Change of Control, the Company may
elect to pay holders of the Convertible
Exchangeable Preferred Stock exercising their
special conversion rights an amount in cash
equal to the $50 liquidation preference of
the Convertible Exchangeable Preferred Stock
plus any accrued and unpaid dividends, in
which event no conversion pursuant to the
exercise of the special conversion rights
will occur, unless the Company defaults in
payments of such amounts. A Change of Control
will result in an event of default under the
Bank Credit Agreement (as defined herein) and
could result in the acceleration of all
indebtedness under the Bank Credit Agreement.
Moreover, the Bank Credit Agreement prohibits
the repurchase of the Convertible
Exchangeable Preferred Stock by the Company.
A Change of Control will also require the
Company to offer to redeem the Existing Notes
(as defined herein) and the Series C
Preferred Stock. See "Description of
Convertible Exchangeable Preferred Stock --
Change of Control."
OPTIONAL REDEMPTION ......... The Convertible Exchangeable Preferred Stock
is redeemable at the Company's option, in
whole or from time to time in part, for cash
at any time on or after , 2000,
initially at a price per share equal to %
of the liquidation preference thereof,
declining ratably on or after of
each year thereafter to a redemption price
equal to 100% of such liquidation preference
per share on or after , 2007 plus,
in each case, accrued and unpaid dividends.
See "Description of Convertible Exchangeable
Preferred Stock -- Redemption at Option of
the Company."
RANK............................ With respect to dividends and amounts payable
upon the liquidation, dissolution or winding
up of the Company, the Convertible
Exchangeable Preferred Stock will rank (i)
junior in right of payment to all
indebtedness of the Company and its
Subsidiaries, (ii) senior to the Class A
Common Stock and the Class B Common Stock,
(iii) pari passu with the Series C Preferred
Stock ($206.2 million liquidation value as of
the date hereof) and (iv) senior to the
Company's Series B Preferred Stock ($108.9
million liquidation value as of the date
hereof) except that upon the termination of
Barry Baker's employment agreement with the
Company prior to May 31, 2001 by the Company
for any reason other than "for cause" (as
defined in the employment agreement) or by
Mr. Baker under certain circumstances
described under "Management -- Employment
Agreements," then the Convertible
Exchangeable Preferred Stock will rank pari
passu with the Series B Preferred Stock in
respect of dividends and distributions upon
liquidation, dissolution and winding-up of
the Company. One such circumstance pursuant
to which Mr. Baker can terminate his
employment agreement is the failure of Mr.
Baker to be elected and continued in certain
positions at the Company before August 31,
1997, which election cannot take place prior
to the Company
S-5
<PAGE>
taking certain actions related to FCC
approval of such election. The Company will
not be able to take these actions before
August 31, 1997 and, accordingly, Mr. Baker
will be able to terminate his employment
agreement at any time after August 31, 1997.
See "Description of Convertible Exchangeable
Preferred Stock -- Liquidation Rights."
VOTING RIGHTS ................ Except as described below or as required by
law, holders of Convertible Exchangeable
Preferred Stock will not be entitled to any
voting rights. In exercising any voting
rights, each outstanding share of Convertible
Exchangeable Preferred Stock will be entitled
to one vote. Whenever dividends on the
Convertible Exchangeable Preferred Stock are
in arrears in an aggregate amount equal to at
least six quarterly dividends (whether or not
consecutive), the size of the Company's Board
of Directors will be increased by two (or, if
the size of the Board of Directors cannot be
so increased, the Company shall cause the
removal or resignation of a sufficient number
of directors), and the holders of Convertible
Exchangeable Preferred Stock, voting
separately as a class, will be entitled to
select two directors to the Board of
Directors at (i) any annual meeting of
stockholders at which directors are to be
elected held during the period when the
dividends remain in arrears or (ii) a special
meeting of stockholders called by the Company
at the request of the holders of the
Convertible Exchangeable Preferred Stock.
These voting rights will terminate when all
dividends in arrears and for the current
quarterly period have been paid in full or
declared and set apart for payment. The term
of office of the additional directors so
elected will terminate immediately upon that
payment or provision for payment. If the
Company does not provide for such directors
when required, certain penalty dividends may
accrue.
In addition, so long as any Convertible
Exchangeable Preferred Stock is outstanding,
the Company will not, without the affirmative
vote or consent of the holders of at least
662/3% of all outstanding shares of
Convertible Exchangeable Preferred Stock (i)
amend, alter or repeal (by merger or
otherwise) any provision of the Amended and
Restated Articles of Incorporation of the
Company, as amended, or the Bylaws of the
Company so as to affect adversely the
relative rights, preferences, qualifications,
limitations or restrictions of the
Convertible Exchangeable Preferred Stock,
(ii) authorize any new class of Senior
Dividend Stock (as defined herein), any
Senior Liquidation Stock (as defined herein)
or any security convertible into Senior
Dividend Stock or Senior Liquidation Stock,
or (iii) effect any reclassification of the
Convertible Exchangeable Preferred Stock. See
"Description of Convertible Exchangeable
Preferred Stock -- Voting Rights."
EXCHANGE PROVISIONS .......... Subject to certain conditions, the Company
may, at its option, on any scheduled Dividend
Payment Date (as defined herein) commencing
on _______ , 2000, exchange the Convertible
Exchangeable Preferred Stock, in whole but
not in part, for the Company's __%
Convertible Subordinated Debentures due 2012
(the "Exchange Debentures"). Holders of
Convertible Exchangeable Preferred Stock so
exchanged will be entitled to $1,000
principal amount of Exchange Debentures for
each $1,000 of liquidation preference of
Convertible Exchangeable
S-6
<PAGE>
Preferred Stock held by such holders at the
time of exchange plus an amount per share in
cash equal to all accrued but unpaid
dividends (whether or not declared) thereon
to the date of exchange. The Exchange
Debentures will bear interest payable
quarterly in arrears on , , and of each year,
commencing on the first such payment date
following the date of exchange. Beginning on
, 2000, at the Company's option, the Exchange
Debentures will be redeemable, in whole or in
part, at the redemption prices set forth
herein plus accrued and unpaid interest.
Under certain circumstances involving a
Change of Control, holders will have the
right to require the Company to purchase
their Exchange Debentures at a price equal to
100% of the principal amount thereof plus
accrued interest. The Exchange Debentures
will be convertible into Class A Common Stock
on substantially the same terms as the
Convertible Exchangeable Preferred Stock is
convertible into Class A Common Stock. The
Exchange Debentures will be subordinated to
all Senior Debt (as defined herein). As of
June 30, 1997, on a pro forma basis, after
giving effect to the Debt Issuance (as
defined herein), the sale of the Convertible
Exchangeable Preferred Stock offered hereby
and the use of the estimated net proceeds
therefrom, the aggregate amount of the Senior
Debt that would have ranked senior in right
of payment to the Exchange Debentures would
have been approximately $1.6 billion. See
"Description of Convertible Exchangeable
Preferred Stock -- Exchange Rights" and
"Description of Exchange Debentures."
FEDERAL INCOME TAX CONSIDER
ATIONS ...................... There are certain federal income tax
considerations associated with the
purchasing, holding and disposing of the
Convertible Exchangeable Preferred Stock or
the Exchange Debentures, including the fact
that the exchange of Convertible
Exchangeable Preferred Stock for Exchange
Debentures will be a taxable event. See
"Certain Federal Income Tax Considerations."
S-7
<PAGE>
SINCLAIR BROADCAST GROUP, INC. -- SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL DATA
(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 summary
historical consolidated financial data for the six months ended June 30, 1996
and 1997 and as of June 30, 1996 and 1997 are unaudited, but in the opinion of
management, such financial 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 that
period. Results for the six months ended June 30, 1996 and 1997 are not
necessarily indicative of the results for a full year. The summary pro forma
statement of operations data and other data of the Company reflect the 1996
Acquisitions (as defined in "Business of Sinclair -- Broadcasting Acquisition
Strategy"), the Heritage Acquisition, and the application of the proceeds of the
issuance of $200,000,000 in principal amount of the Company's 9% Senior
Subordinated Notes due 2007 (the "1997 Notes") issued on July 2, 1997 (the "Debt
Issuance"), the issuance of $200,000,000 in liquidation amount of the Company's
115/8% High Yield Trust Offered Preferred Securities (the "HYTOPS") issued on
March 14, 1997 (the "HYTOPS Issuance"), and the Preferred and Common Stock
Offerings and the application of the proceeds thereof as set forth in "Use of
Proceeds" as though they occurred at the beginning of the periods presented and
are derived from the pro forma consolidated financial statements of the Company
included elsewhere in this Prospectus Supplement. See "Pro Forma Consolidated
Financial Information of Sinclair" included herein. The information below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Sinclair" included herein and Sinclair's
Consolidated Financial Statements incorporated by reference herein, and
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 period ended June
30, 1997. Included elsewhere in this Prospectus Supplement under the heading
"Pro Forma Consolidated Financial Information of Sinclair" are pro forma
financial statements for the six months ended June 30, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1992 1993 1994(A) 1995(A) 1996(A)
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ........................... $ 61,081 $ 69,532 $118,611 $187,934 $ 346,459
Barter revenues .................................... 8,805 6,892 10,743 18,200 32,029
-------- -------- -------- -------- ---------
Total revenues ....................................... 69,886 76,424 129,354 206,134 378,488
-------- -------- -------- -------- ---------
Operating expenses, excluding depreciation and amor-
tization, deferred compensation and special bonuses
paid to executive officers ........................... 32,993 32,295 50,545 80,446 167,765
Depreciation and amortization(d) .................. 30,943 22,486 55,587 80,410 121,081
Amortization of deferred compensation ............... -- -- -- -- 739
Special bonuses paid to executive officers ......... -- 10,000 3,638 -- --
-------- -------- -------- -------- ---------
Broadcast operating income ........................... 5,950 11,643 19,584 45,278 88,903
-------- -------- -------- -------- ---------
Interest and amortization of debt discount expense ... 12,997 12,852 25,418 39,253 84,314
Interest and other income ........................... 1,207 2,131 2,447 4,163 3,478
Subsidiary trust minority interest expense(e) ...... -- -- -- -- --
-------- -------- -------- -------- ---------
Income (loss) before (provision) benefit for income
taxes and extraordinary item ........................ $ (5,840) $ 922 $ (3,387) $ 10,188 $ 8,067
======== ======== ======== ======== =========
Net income (loss) available to common sharehold-
ers .................................................. $ (4,651) $ (7,945) $ (2,740) $ 76 $ 1,131
======== ======== ======== ======== =========
Earnings (loss) per common share:
Net income (loss) before extraordinary item ......... $ (0.16) $ -- $ (0.09) $ 0.15 $ 0.03
Extraordinary item ................................. -- (0.27) -- (0.15) --
-------- -------- -------- -------- ---------
Net income (loss) per common share .................. $ (0.16) $ (0.27) $ (0.09) $ -- $ 0.03
======== ======== ======== ======== =========
Weighted average shares outstanding (in thousands) ... 29,000 29,000 29,000 32,205 37,381
======== ======== ======== ======== =========
OTHER DATA:
Broadcast cash flow(f) .............................. $ 28,019 $ 37,498 $ 67,519 $111,124 $ 189,216
Broadcast cash flow margin(g) ..................... 45.9% 53.9% 56.9% 59.1% 54.6%
Adjusted EBITDA(h) ................................. $ 26,466 $ 35,406 $ 64,547 $105,750 $ 180,272
Adjusted EBITDA margin(g) ........................... 43.3% 50.9% 54.4% 56.3% 52.0%
After tax cash flow(i) .............................. $ 9,398 $ 43 $ 21,310 $ 46,376 $ 74,441
After tax cash flow margin(g) ........................ 15.4% --% 18.0% 24.7% 21.5%
Program contract payments ........................... $ 10,427 $ 8,723 $ 14,262 $ 19,938 $ 30,451
Capital expenditures ................................. 426 528 2,352 1,702 12,609
Corporate overhead expense ........................... 1,553 2,092 2,972 5,374 8,944
<PAGE>
<CAPTION>
DEBT AND
HYTOPS ISSUANCES,
SIX MONTHS ENDED 1996 ACQUISITIONS AND
JUNE 30, HERITAGE ACQUISITION
-------------------------- -----------------------
PRO FORMA YEAR ENDED
1996(A) 1997(A) DECEMBER 31, 1996(B)
------------- ------------ -----------------------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ........................... $ 117,339 $219,701 $ 532,357
Barter revenues .................................... 9,571 19,870 40,179
--------- -------- ---------
Total revenues ....................................... 126,910 239,571 572,536
--------- -------- ---------
Operating expenses, excluding depreciation and amor-
tization, deferred compensation and special bonuses
paid to executive officers ........................... 52,826 114,697 274,073
Depreciation and amortization(d) .................. 45,493 76,650 177,286
Amortization of deferred compensation ............... 506 233 933
Special bonuses paid to executive officers ......... -- -- --
--------- -------- ---------
Broadcast operating income ........................... 28,085 47,991 120,244
--------- -------- ---------
Interest and amortization of debt discount expense ... 27,646 51,993 163,207
Interest and other income ........................... 3,172 1,087 7,753
Subsidiary trust minority interest expense(e) ...... -- 7,007 23,250
--------- -------- ---------
Income (loss) before (provision) benefit for income
taxes and extraordinary item ........................ $ 3,611 $ (9,922) $ (58,460)
========= ======== =========
Net income (loss) available to common sharehold-
ers .................................................. $ 1,511 $ (5,822) $ (40,553)
========= ======== =========
Earnings (loss) per common share:
Net income (loss) before extraordinary item ......... $ 0.04 $ (0.17) $ (1.04)
Extraordinary item ................................. -- -- --
--------- -------- ---------
Net income (loss) per common share .................. $ 0.04 $ (0.17) $ (1.04)
========= ======== =========
Weighted average shares outstanding (in thousands) ... 34,750 34,746 39,058
========= ======== =========
OTHER DATA:
Broadcast cash flow(f) .............................. $ 65,079 $105,600 $ 257,528
Broadcast cash flow margin(g) ..................... 55.5% 48.1% 48.4%
Adjusted EBITDA(h) ................................. $ 62,013 $ 98,615 $ 246,278
Adjusted EBITDA margin(g) ........................... 52.8% 44.9% 46.3%
After tax cash flow(i) .............................. $ 30,441 $ 32,737 $ 75,340
After tax cash flow margin(g) ........................ 26.0% 15.0% 14.2%
Program contract payments ........................... $ 12,071 $ 26,259 $ 52,185
Capital expenditures ................................. 2,114 8,286 18,512
Corporate overhead expense ........................... 3,066 6,985 11,250
<PAGE>
<CAPTION>
DEBT AND
DEBT AND HYTOPS ISSUANCES,
HYTOPS ISSUANCES, 1996 ACQUISITIONS,
1996 ACQUISITIONS, HERITAGE ACQUISITION,
HERITAGE ACQUISITION PREFERRED AND COMMON
AND PREFERRED STOCK OFFERING STOCK OFFERINGS(M)
------------------------------ ----------------------
PRO FORMA YEAR ENDED DECEMBER 31, 1996(B)
-----------------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ........................... $ 532,357 $ 532,357
Barter revenues .................................... 40,179 40,179
--------- ---------
Total revenues ....................................... 572,536 572,536
--------- ---------
Operating expenses, excluding depreciation and amor-
tization, deferred compensation and special bonuses
paid to executive officers ........................... 274,073 274,073
Depreciation and amortization(d) .................. 177,286 177,286
Amortization of deferred compensation ............... 933 933
Special bonuses paid to executive officers ......... -- --
--------- ---------
Broadcast operating income ........................... 120,244 120,244
--------- ---------
Interest and amortization of debt discount expense ... 153,327 143,903
Interest and other income ........................... 7,753 7,753
Subsidiary trust minority interest expense(e) ...... 23,250 23,250
--------- ---------
Income (loss) before (provision) benefit for income
taxes and extraordinary item ........................ $ (48,580) $ (39,156)
========= =========
Net income (loss) available to common sharehold-
ers .................................................. $ (44,000) $ (38,346)
========= =========
Earnings (loss) per common share:
Net income (loss) before extraordinary item ......... $ (1.13) $ (0.89)
Extraordinary item ................................. -- --
--------- ---------
Net income (loss) per common share .................. $ (1.13) $ (0.89)
========= =========
Weighted average shares outstanding (in thousands) ... 39,058 43,058
========= =========
OTHER DATA:
Broadcast cash flow(f) .............................. $ 257,528 $ 257,528
Broadcast cash flow margin(g) ..................... 48.4% 48.4%
Adjusted EBITDA(h) ................................. $ 246,278 $ 246,278
Adjusted EBITDA margin(g) ........................... 46.3% 46.3%
After tax cash flow(i) .............................. $ 81,268 $ 86,922
After tax cash flow margin(g) ........................ 15.3% 16.3%
Program contract payments ........................... $ 52,185 $ 52,185
Capital expenditures ................................. 18,512 18,512
Corporate overhead expense ........................... 11,250 11,250
</TABLE>
(Continued on following page)
S-8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------------------ JUNE 30,
1992 1993 1994(A) 1995(A) 1996(A) 1997(A)
---------- ------------ ------------ ------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET AND CASH
FLOW DATA:
Cash and cash equivalents .................. $ 1,823 $ 18,036 $ 2,446 $ 112,450 $ 2,341 $ 2,740
Total assets .............................. 140,366 242,917 399,328 605,272 1,707,297 1,762,505
Total debt(j) .............................. 110,659 224,646 346,270 418,171 1,288,147 1,175,783
Company Obligated Mandatorily Re-
deemable Security of Subsidiary
Trust Holding Solely KDSM Senior
Debentures(k) .............................. -- -- -- -- -- 200,000
Total stockholders' equity (deficit) ...... (3,127) (11,024) (13,723) 96,374 237,253 232,638
Cash flows from operating activities(l) ..... 5,235 11,230 20,781 55,909 68,970 42,483
Cash flows from investing activities(l) ..... (1,051) 1,521 (249,781) (119,243) (1,011,897) (112,429)
Cash flows from financing activities(l) ..... (3,741) 3,462 213,410 173,338 832,818 70,345
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) The Company made acquisitions in 1994, 1995, 1996 and the first six months
of 1997 as described in the footnotes to the Consolidated Financial
Statements incorporated herein by reference. The statement of operations
data 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) The pro forma information in this table reflects the pro forma effect of
the Debt Issuance, the HYTOPS Issuance, the 1996 Acquisitions, the
completion of the Heritage Acquisition and the completion of the Preferred
Stock Offering and the Common Stock Offering. See "Pro Forma Consolidated
Financial Information of Sinclair" included elsewhere herein. The Heritage
Acquisition is subject to a number of conditions customary for acquisitions
of broadcasting properties. See "-- Recent Developments."
(c) Net broadcast revenues are defined as broadcast revenues net of agency
commissions.
(d) 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.
(e) Subsidiary trust minority interest expense represents the distributions on
the HYTOPS.
(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.
(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) plus depreciation and
amortization (excluding film amortization), amortization of deferred
compensation, and the deferred tax provision (or minus the deferred tax
benefit). 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. (notes continued
on following page)
S-9
<PAGE>
(j) "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
$10,400 in 1993. Total debt as of December 31, 1993 included $100,000 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. $100,000 of the 1993 Notes was redeemed from the
escrow in the first quarter of 1994. Total debt does not include the HYTOPS
or the Company's preferred stock.
(k) Company Obligated Mandatorily Redeemable Security of Subsidiary Trust
Holding Solely KDSM Senior Debentures represents $200,000 aggregate
liquidation value of the HYTOPS.
(l) 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.
(m) There can be no assurance that the Common Stock Offering will be
consummated. The completion of the Preferred Stock Offering is not
conditioned upon the completion of the Common Stock Offering.
S-10
<PAGE>
HISTORICAL AND PRO FORMA RATIOS OF EARNINGS TO FIXED CHARGES
AND OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
The Company's consolidated ratios of earnings to fixed charges and earnings
to fixed charges and preferred dividends for each of the periods indicated are
set forth below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------ ------- ------- ---------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(a) ......... -- 1.1 x -- 1.3 x 1.1 x -- --
Ratio of earnings to fixed charges and preferred
stock dividends(a) ........................... -- 1.1 x -- 1.3 x 1.1 x 1.1 x --
== ===== == ===== ===== ====== ==
</TABLE>
- ----------
(a) Earnings were inadequate to cover fixed charges and preferred stock
dividends for the years ended December 31, 1992 and 1994, and for the six
months ended June 30, 1997. Additional earnings of $5,840, $3,387, and
$9,922 would have been required to cover fixed charges in the years ended
December 31, 1992 and 1994, and the six months ended June 30, 1997,
respectively.
Earnings were inadequate to cover fixed charges for the pro forma year
ended December 31, 1996 after giving effect to (i) the Debt and HYTOPS
Issuances, 1996 Acquisitions and Heritage Acquisition, (ii) such transactions
and consummation of the Preferred Stock Offering and (iii) such transactions and
consummation of the Preferred and Common Stock Offerings as if each transaction
had occurred on January 1, 1996; additional earnings of $58,460, $48,580 and
$39,156, respectively, would have been required to cover fixed charges for the
pro forma year ended December 31, 1996.
Earnings were inadequate to cover fixed charges for the pro forma six
months ended June 30, 1997 after giving effect to (i) the Debt and HYTOPS
Issuances, and the Heritage Acquisition, (ii) such transactions and consummation
of the Preferred Stock Offering and (iii) such transactions and consummation of
the Preferred and Common Stock Offerings as if each transaction had occurred on
January 1, 1997; additional earnings of $22,063, $17,123 and $12,411,
respectively, would have been required to cover fixed charges for the pro forma
six months ended June 30, 1997.
S-11
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Preferred Stock Offering as
contemplated hereby (net of underwriting discounts and commissions and the
estimated expenses of the Offering) are estimated to be approximately $145.1
million ($167.0 million, if the Underwriter's over-allotment option is exercised
in full). Concurrently with this Offering, the Company and the Selling
Stockholders are conducting the Common Stock Offering, the net proceeds of which
to the Company are estimated to be approximately $137.1 million at an assumed
price of $36 per share (the closing price for the Class A Common Stock on August
21, 1997) (such offering along with the Preferred Stock Offering, the
"Offerings"). There can be no assurance that the Common Stock Offering will be
consummated. The completion of the Preferred Stock Offering is not conditioned
upon completion of the Common Stock Offering. The Company will not receive any
of the net proceeds from the sale of Class A Common Stock by the Selling
Stockholders in the Common Stock Offering. A portion of the net proceeds to the
Company from the Offerings will be used to repay existing borrowings under the
Company's revolving credit facility under the Bank Credit Agreement (as defined
herein). These borrowings, which total $14 million as of the date of this
Prospectus Supplement, bear interest at the rate of 8.5% per annum and were used
for general corporate purposes. After such debt repayment, the Company may make
additional borrowings under the revolving credit facility until December 31,
2004. The remainder of the net proceeds to the Company from the Offerings
($268.2 million if both of the Offerings are completed and $131.1 million if
only the Preferred Stock Offering is completed) will be retained by the Company
for general corporate purposes including funding the Heritage Acquisition, which
is anticipated to close in the first quarter of 1998, and other acquisitions if
suitable acquisitions can be identified on acceptable terms.
S-12
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1997, (a) the actual
capitalization of the company, (b) the pro forma capitalization of the Company
as adjusted to reflect the consummation of the Debt Issuance consummated on July
2, 1997 and the Heritage Acquisition as if such transaction had occurred on June
30, 1997 (c) the pro forma capitalization of the Company as adjusted to reflect
the items in (b) and the Preferred Stock Offering at an offering price of $50
per share and the application of the estimated net proceeds therefrom as set
forth in "Use of Proceeds" as if such transactions had occurred on June 30, 1997
and (d) the pro forma capitalization of the Company as adjusted to reflect the
items noted in (b) and (c) and the Common Stock Offering at an assumed offering
price of $36 per share (the closing price of the Class A Common Stock on August
21, 1997) and the application of the estimated net proceeds therefrom as set
forth in "Use of Proceeds" as if such transactions had occurred on June 30,
1997. The information set forth below should be read in conjunction with "Pro
Forma Consolidated Financial Information of Sinclair" located elsewhere in this
Prospectus Supplement and the historical Consolidated Financial Statements of
the Company incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
DEBT ISSUANCE, DEBT ISSUANCE,
HERITAGE HERITAGE ACQUISITION,
DEBT ISSUANCE ACQUISITION PREFERRED AND
AND HERITAGE AND PREFERRED COMMON
ACTUAL ACQUISITION STOCK OFFERING STOCK OFFERINGS(A)
------------ --------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents .............................. $ 2,740 $ 35,740 $ 35,740 $ 35,740
========== ========== ========== ==========
Current portion of long-term debt ........................ $ 66,881 $ 66,881 $ 66,881 $ 66,881
========== ========== ========== ==========
Long-term debt:
Commercial bank financing .............................. $ 697,000 $1,104,500 $ 959,425 $ 822,345
Notes and capital leases payable to affiliates ......... 11,872 11,872 11,872 11,872
Capital leases .......................................... 30 30 30 30
Senior subordinated notes .............................. 400,000 600,000 600,000 600,000
---------- ---------- ---------- ----------
1,108,902 1,716,402 1,571,327 1,434,247
---------- ---------- ---------- ----------
Company Obligated Mandatorily Redeemable Security
of Subsidiary Trust Holding Solely KDSM Senior
Debentures ............................................. 200,000 200,000 200,000 200,000
---------- ---------- ---------- ----------
Stockholders' equity (deficit):
Series B Preferred Stock, $.01 par value, 10,000,000 shares authorized and
1,106,608 shares issued and
outstanding .......................................... 11 11 11 11
Series D Convertible Exchangeable Preferred Stock,
$.01 par value, 3,450,000 shares authorized and
3,000,000 shares issued and outstanding post Pre-
ferred Stock Offering .................................. -- -- 30 30
Class A Common Stock, $.01 par value, 100,000,000
shares authorized and 7,100,188 shares issued and
outstanding; 11,100,188 shares issued and outstand-
ing, post Common Stock Offering ........................ 71 71 71 111
Class B Common Stock, $.01 par value, 35,000,000
shares authorized and 27,591,581 shares issued and
outstanding .......................................... 277 277 277 277
Additional paid-in capital ........................... 234,812 234,812 379,857 516,897
Additional paid-in capital -- deferred compensation ..... (896) (896) (896) (896)
Additional paid-in capital -- equity put options ...... 23,117 23,117 23,117 23,117
Accumulated deficit .................................... (24,754) (24,754) (24,754) (24,754)
---------- ---------- ---------- ----------
Total stockholders' equity ........................... 232,638 232,638 377,713 514,793
---------- ---------- ---------- ----------
Total capitalization ................................. $1,541,540 $2,149,040 $2,149,040 $2,149,040
========== ========== ========== ==========
</TABLE>
- ----------
(a) There can be no assurance that the Common Stock Offering will be
consummated. The completion of the Preferred Stock Offering is not
conditioned upon the completion of the Common Stock Offering.
S-13
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR
The following Pro Forma Consolidated Financial Data include the unaudited
pro forma consolidated balance sheet as of June 30, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1996 and the six months ended June
30, 1997 (the "Pro Forma Consolidated Statement of Operations"). The unaudited
Pro Forma Consolidated Balance Sheet is adjusted to give effect to the Debt
Issuance, the Heritage Acquisition, the Preferred Stock Offering and the Common
Stock Offering as if they occurred on June 30, 1997 and assuming application of
the proceeds of the Preferred Stock Offering and the Common Stock Offering as
set forth in "Use of Proceeds" above. The unaudited Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1996 is adjusted to give
effect to the 1996 Acquisitions, the HYTOPS Issuance, the Debt Issuance, the
Heritage Acquisition, the Preferred Stock Offering and the Common Stock Offering
as if each occurred at the beginning of such period and assuming application of
the proceeds of the Preferred Stock Offering and the Common Stock Offering as
set forth in "Use of Proceeds." The unaudited Pro Forma Consolidated Statement
of Operations for the six months ended June 30, 1997 is adjusted to give effect
to the HYTOPS Issuance, the Debt Issuance, the Heritage Acquisition, and the
Preferred Stock Offering and the Common Stock Offering as if each occurred at
the beginning of such period and assuming application of the proceeds of the
Preferred Stock Offering and the Common Stock Offering as set forth in "Use of
Proceeds." The pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The Pro Forma
Consolidated Financial Data should be read in conjunction with the Company's
Consolidated Financial Statements as of and for the year ended December 31, 1996
and related notes thereto, the Company's unaudited consolidated financial
statements for the six months ended June 30, 1997 and related notes thereto, the
historical financial data of Flint T.V., Inc., the historical financial data of
Superior Communications, Inc., the historical financial data of KSMO and WSTR,
the historical financial data of River City Broadcasting, L.P. and the
historical financial data of Heritage Media Services, Inc. -- Broadcasting
Segment, all of which have been filed with the Commission as part of (i) 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; (ii) the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997; or (iii) 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 and August 26, 1997, each of which is
incorporated by reference into this Prospectus Supplement. The unaudited Pro
Forma Consolidated Financial Data do not purport to represent what the Company's
results of operations or financial position would have been had any of the above
events occurred on the dates specified or to project the Company's results of
operations or financial position for or at any future period or date.
S-14
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEBT
ISSUANCE
CONSOLIDATED DEBT HERITAGE AND HERITAGE
HISTORICAL ISSUANCE(A) ACQUISITION(B) ACQUISITION
-------------- ------------------ ---------------- -------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 2,740 $ 33,000 (e) $ 35,740
Accounts receivable, net of allowance for doubtful accounts 102,093 102,093
Current portion of program contract costs .................. 34,768 $ 926 35,694
Prepaid expenses and other current assets .................. 4,054 4,054
Deferred barter costs ....................................... 4,267 2,218 6,485
Deferred tax asset .......................................... 8,188 8,188
---------- ----------
Total current assets ....................................... 156,110 33,000 3,144 192,254
PROGRAM CONTRACT COSTS, less current portion .................. 30,778 712 31,490
LOANS TO OFFICERS AND AFFILIATES .............................. 11,241 11,241
PROPERTY AND EQUIPMENT, net ................................. 156,681 22,022 178,703
NON-COMPETE AND CONSULTING AGREEMENTS, net .................. 2,250 2,250
OTHER ASSETS ................................................ 71,970 4,500 (f) 76,470
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net .................. 1,333,475 545,969 1,879,444
---------- ------------ ----------
Total Assets ............................................. $1,762,505 $ 37,500 $ 571,847 $2,371,852
========== ============ ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 5,310 $ 5,310
Accrued liabilities .......................................... 39,023 39,023
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............... 65,500 65,500
Capital leases payable .................................... 11 11
Notes and capital leases payable to affiliates ............ 1,370 1,370
Program contracts payable ................................. 49,766 $ 1,096 50,862
Deferred barter revenues .................................... 4,458 4,458
---------- ----------
Total current liabilities ................................. 165,438 1,096 166,534
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............... 1,097,000 $ 37,500 (g) 570,000 (h) 1,704,500
Capital leases payable .................................... 30 30
Notes and capital leases payable to affiliates ............ 11,872 11,872
Program contracts payable ................................. 46,670 751 47,421
Other long-term liabilities ................................. 4,960 4,960
---------- ----------
Total liabilities .......................................... 1,325,970 37,500 571,847 1,935,317
---------- ------------ ------------ ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ............... 3,897 3,897
---------- ----------
COMPANY OBLIGATED MANDATORILY REDEEMABLE SE-
CURITY OF SUBSIDIARY TRUST HOLDING SOLELY KDSM
SENIOR DEBENTURES .......................................... 200,000 200,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ................................. 11 11
Series D Convertible Exchangeable Preferred Stock ......... -- --
Class A Common Stock ....................................... 71 71
Class B Common Stock ....................................... 277 277
Additional paid-in capital ................................. 234,812 234,812
Additional paid-in capital - deferred compensation ......... (896) (896)
Additional paid-in capital - equity put options ............ 23,117 23,117
Accumulated deficit ....................................... (24,754) (24,754)
---------- ----------
Total stockholders' equity ................................. 232,638 232,638
---------- ----------
Total Liabilities and Stockholders' Equity ............... $1,762,505 $ 37,500 $ 571,847 $2,371,852
========== ============ ============ ==========
</TABLE>
(Continued on following page)
S-15
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEBT
DEBT ISSUANCE,
ISSUANCE, HERITAGE
DEBT HERITAGE ACQUISITION,
ISSUANCE PREFERRED ACQUISITION, AND COMMON PREFERRED AND
AND HERITAGE STOCK PREFERRED STOCK STOCK COMMON STOCK
ACQUISITION OFFERING(C) OFFERING OFFERING(D) OFFERINGS(D)
-------------- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 35,740 $ 35,740 $ 35,740
Accounts receivable, net of allowance for doubtful ac-
counts ................................................ 102,093 102,093 102,093
Current portion of program contract costs ............ 35,694 35,694 35,694
Prepaid expenses and other current assets ............ 4,054 4,054 4,054
Deferred barter costs ................................. 6,485 6,485 6,485
Deferred tax asset .................................... 8,188 -- 8,188 8,188
---------- ---------- ----------- -----------
Total current assets ................................. 192,254 192,254 192,254
PROGRAM CONTRACT COSTS, less current portion 31,490 31,490 31,490
LOANS TO OFFICERS AND AFFILIATES ........................ 11,241 11,241 11,241
PROPERTY AND EQUIPMENT, net ........................... 178,703 178,703 178,703
NON-COMPETE AND CONSULTING AGREEMENTS, net .............. 2,250 2,250 2,250
OTHER ASSETS .......................................... 76,470 76,470 76,470
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ............ 1,879,444 -- 1,879,444 -- 1,879,444
---------- ---------- ----------- ---------- -----------
Total Assets ....................................... $2,371,852 $ $ 2,371,852 $ $ 2,371,852
========== ========== =========== ========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 5,310 $ 5,310 $ 5,310
Accrued liabilities .................................... 39,023 39,023 39,023
Current portion of long-term liabilities-
Notes payable and commercial bank financing ......... 65,500 65,500 65,500
Capital leases payable .............................. 11 11 11
Notes and capital leases payable to affiliates ...... 1,370 1,370 1,370
Program contracts payable ........................... 50,862 50,862 50,862
Deferred barter revenues .............................. 4,458 -- 4,458 -- 4,458
---------- ---------- ----------- ---------- -----------
Total current liabilities ........................... 166,534 166,534 166,534
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ......... 1,704,500 $ (145,075) 1,559,425 $ (137,080) 1,422,345
Capital leases payable .............................. 30 30 30
Notes and capital leases payable to affiliates ...... 11,872 11,872 11,872
Program contracts payable ........................... 47,421 47,421 47,421
Other long-term liabilities ........................... 4,960 4,960 4,960
---------- ----------- -----------
Total liabilities .................................... 1,935,317 (145,075) 1,790,242 (137,080) 1,653,162
---------- ---------- ----------- ---------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES .......... 3,897 3,897 3,897
---------- ----------- -----------
COMPANY OBLIGATED MANDATORILY RE-
DEEMABLE SECURITY OF SUBSIDIARY
TRUST HOLDING SOLELY KDSM SENIOR DE
BENTURES ............................................... 200,000 200,000 200,000
---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ........................... 11 11 11
Series D Convertible Exchangeable Preferred Stock ..... -- 30 30 30
Class A Common Stock ................................. 71 71 40 111
Class B Common Stock ................................. 277 277 277
Additional paid-in capital ........................... 234,812 145,045 379,857 137,040 516,897
Additional paid-in capital - deferred compensation..... (896) (896) (896)
Additional paid-in capital - equity put options ...... 23,117 23,117 23,117
Accumulated deficit ................................. (24,754) (24,754) (24,754)
---------- ----------- -----------
Total stockholders' equity ........................... 232,638 145,075 377,713 137,080 514,793
---------- ---------- ----------- ---------- -----------
Total Liabilities and Stockholders' Equity ......... $2,371,852 $ -- $ 2,371,852 $ -- $ 2,371,852
========== ========== =========== ========== ===========
</TABLE>
S-16
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(a) To reflect the proceeds of the Debt Issuance consummated on July 2, 1997,
net of $4,500 of underwriting discounts and commissions and estimated
expenses and the application of the proceeds therefrom.
(b) The Heritage Acquisition column reflects the assets and liabilities
acquired in connection with the $630,000 purchase of Heritage less the
$60,000 divestiture of the Heritage television station KOKH in Oklahoma
City, Oklahoma which is required pursuant to the Heritage Acquisition
Agreements and with respect to which the Company has entered into a letter
of intent. The Heritage Acquisition is subject to a number of conditions
customary for acquisitions of broadcasting properties. Total acquired
intangibles are calculated as follows:
<TABLE>
<CAPTION>
HERITAGE
HERITAGE KOKH ACQUISITION
---------- ---------- ------------
<S> <C> <C> <C>
Purchase Price .......................................... $630,000
Add:
Liabilities acquired--
Current portion of program contracts payable ......... $ 1,552 $ (456) 1,096
Long-term portion of program contracts payable ...... 860 (109) 751
Less:
Assets acquired--
Current portion of program contract costs ............ 1,603 (677) 926
Deferred barter costs .............................. 2,496 (278) 2,218
Program contract costs, less current portion ......... 1,266 (554) 712
Property and equipment .............................. 27,524 (5,502) 22,022
Sale of KOKH ....................................... 60,000
---------
Acquired intangibles ................................. $545,969
=========
</TABLE>
(c) To reflect the proceeds of the Preferred Stock Offering (at an assumed
offering price of $50 per share), net of $4,925 of underwriting discounts
and commissions and estimated expenses and the application of the proceeds
therefrom as set forth in "Use of Proceeds."
(d) To reflect the proceeds of the Common Stock Offering (at an assumed
offering price of $36 per share, the closing price of the Class A Common
Stock on August 21, 1997), net of $6,920 of underwriting discounts and
commissions and estimated expenses and the application of the proceeds
therefrom as set forth in "Use of Proceeds." There can be no assurance that
the Common Stock Offering will be consummated. The completion of the
Preferred Stock Offering is not conditioned upon the completion of the
Common Stock Offering.
(e) To record the increase in cash and cash equivalents resulting from the net
proceeds of the Debt Issuance after giving effect to the repayment of the
revolving credit facility under the Bank Credit Agreement as follows:
Offering proceeds .......................................... $ 200,000
Underwriting discounts, commissions and estimated expenses (4,500)
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................ (162,500)
----------
Pro forma adjustment ....................................... $ 33,000
==========
(f) To record underwriting discounts and commissions and estimated expenses of
$4,500.
(g) To reflect the increase in indebtedness resulting from the Debt Issuance
after giving effect to the repayment of the revolving credit facility under
the Bank Credit Agreement as follows:
Indebtedness incurred .................................... $ 200,000
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................ (162,500)
----------
Pro forma adjustment ....................................... $ 37,500
==========
(h) To reflect the incurrence of $570,000 of bank financing in connection with
the Heritage Acquisition.
S-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR
CONSOLIDATED FLINT COMMUNICATIONS
HISTORICAL TV, INC.(A) GROUP, INC.(B) KSMO(C)
-------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 346,459 $1,012 $4,431 $ 7,694
Revenues realized from station barter arrangements.. 32,029 2,321
---------- --------
Total revenues .................................... 378,488 1,012 4,431 10,015
---------- ------- ------ --------
OPERATING EXPENSES:
Program and production ........................... 66,652 101 539 1,550
Selling, general and administrative ............... 75,924 345 2,002 2,194
Expenses realized from barter arrangements ......... 25,189 2,276
Amortization of program contract costs and net
realizable value adjustments ..................... 47,797 125 736 601
Amortization of deferred compensation ............ 739
Depreciation and amortization of property and
equipment ....................................... 11,711 4 373 374
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 58,530 529
Amortization of excess syndicated programming ...... 3,043
----------
Total operating expenses ........................ 289,585 575 4,179 6,995
---------- ------- ------ --------
Broadcast operating income (loss) ............... 88,903 437 252 3,020
---------- ------- ------ --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. (84,314) (457) (823)
Interest income .................................... 3,136
Subsidiary trust minority interest expense .........
Other income (expense) ........................... 342 19 4 7
---------- ------- ------ --------
Income (loss) before provision (benefit) for
income taxes .................................... 8,067 456 (201) 2,204
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. 6,936
----------
NET INCOME (LOSS) ................................. $ 1,131 $ 456 $ (201) $ 2,204
========== ======= ====== ========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS .. $ 1,131
==========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ........................... $ 0.03
==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING ........................................ 37,381
==========
<PAGE>
<CAPTION>
RIVER CITY(E) 1996
---------------------------- ACQUISITION
WSTR(D) RIVER CITY WSYX WYZZ(F) ADJUSTMENTS
----------- ------------ --------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 7,488 $ 86,869 $ (10,783) $1,838
Revenues realized from station barter arrangements.. 1,715
---------
Total revenues .................................... 9,203 86,869 (10,783) 1,838
--------- ---------- ---------- -------
OPERATING EXPENSES:
Program and production ........................... 961 10,001 (736) 214
Selling, general and administrative ............... 2,173 39,786 (3,950) 702 $ (3,577)(h)
Expenses realized from barter arrangements ......... 1,715
Amortization of program contract costs and net
realizable value adjustments ..................... 1,011 9,721 (458) 123
Amortization of deferred compensation ............ 194 (i)
Depreciation and amortization of property and
equipment ....................................... 284 6,294 (1,174) 6 (943)(j)
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 39 14,041 (3,599) 3 4,034 (k)
Amortization of excess syndicated programming ......
Total operating expenses ........................ 6,183 79,843 (9,917) 1,048 (292)
--------- ---------- ---------- ------- -------------
Broadcast operating income (loss) ............... 3,020 7,026 (866) 790 292
--------- ---------- ---------- ------- -------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. (1,127) (12,352) (17,409)(l)
Interest income .................................... 15 195 (1,636)(m)
Subsidiary trust minority interest expense .........
Other income (expense) ........................... (149) (8)
---------- ----------
Income (loss) before provision (benefit) for
income taxes .................................... 1,908 (5,280) (874) 790 (18,753)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (7,900)(n)
-------------
NET INCOME (LOSS) ................................. $ 1,908 $ (5,280) $ (874) $ 790 $ (10,853)
========= ========== ========== ======= =============
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS...
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING ........................................
<PAGE>
<CAPTION>
DEBT ISSUANCE,
HYTOPS DEBT HYTOPS ISSUANCE
ISSUANCE ISSUANCE AND 1996 ACQUISITIONS
------------------ -------------------- ----------------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 445,008
Revenues realized from station barter arrangements.. 36,065
-----------
Total revenues .................................... 481,073
-----------
OPERATING EXPENSES:
Program and production ........................... 79,282
Selling, general and administrative ............... 115,599
Expenses realized from barter arrangements ......... 29,180
Amortization of program contract costs and net
realizable value adjustments ..................... 59,656
Amortization of deferred compensation ............ 933
Depreciation and amortization of property and
equipment ....................................... 16,929
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. $ 500 (p) $ 450 (s) 74,527
Amortization of excess syndicated programming ...... 3,043
-----------
Total operating expenses ........................ 500 450 379,149
------------- ------------- -----------
Broadcast operating income (loss) ............... (500) (450) 101,924
------------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. 11,820 (q) (18,000) (t) (122,662)
Interest income .................................... 1,710
Subsidiary trust minority interest expense ......... (23,250)(r) (23,250)
Other income (expense) ........................... 215
-----------
Income (loss) before provision (benefit) for
income taxes .................................... (11,930) (18,450) (42,063)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (4,772)(n) (7,380)(n) (13,116)
------------- ------------- -----------
NET INCOME (LOSS) ................................. $ (7,158) $ (11,070) $ (28,947)
============= ============= ===========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING ........................................
</TABLE>
(Continued on following page)
S-18
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HERITAGE(G)
DEBT ISSUANCE, -----------------------
HYTOPS ISSUANCE
AND 1996 ACQUISITIONS HERITAGE KOKH
----------------------- ------------ ----------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 445,008 $ 95,302 $(7,953)
Revenues realized from station barter arrangements ............ 36,065 4,292 (178)
----------- ---------- --------
Total revenues ............................................. 481,073 99,594 (8,131)
----------- ---------- --------
OPERATING EXPENSES:
Program and production ....................................... 79,282 20,089 (1,871)
Selling, general and administrative ........................ 115,599 31,916 (1,722)
Expenses realized from barter arrangements .................. 29,180 3,478 (70)
Amortization of program contract costs and net realizable
value adjustments ............................................. 59,656 3,165 (1,208)
Amortization of deferred compensation ........................ 933
Depreciation and amortization of property and equipment ....... 16,929 5,472 (1,022)
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ............ 74,527 8,460 (367)
Amortization of excess syndicated programming ............... 3,043
-----------
Total operating expenses .................................... 379,149 72,580 (6,260)
----------- ---------- --------
Broadcast operating income (loss) ........................... 101,924 27,014 (1,871)
----------- ---------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (122,662) (17,949) 1,025
Gain on sale of station ....................................... 6,031
Interest income ............................................. 1,710
Subsidiary trust minority interest expense .................. (23,250)
Other income (expense) ....................................... 215 (203)
----------- ----------
Income (loss) before provision (benefit) for income taxes..... (42,063) 14,893 (846)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (13,116) 7,853 (466)
----------- ---------- --------
NET INCOME (LOSS) ............................................. $ (28,947) $ 7,040 $ (380)
=========== ========== ========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE .............................................
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ..............................
<PAGE>
<CAPTION>
DEBT ISSUANCE,
HERITAGE HYTOPS ISSUANCE, PREFERRED
ACQUISITION 1996 ACQUISITIONS AND STOCK
ADJUSTMENTS HERITAGE ACQUISITION OFFERING
-------------------- ----------------------- -----------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 532,357
Revenues realized from station barter arrangements ............ 40,179
------------
Total revenues ............................................. 572,536
------------
OPERATING EXPENSES:
Program and production ....................................... 97,500
Selling, general and administrative ........................ $ (1,808) (u) 143,985
Expenses realized from barter arrangements .................. 32,588
Amortization of program contract costs and net realizable
value adjustments ............................................. 61,613
Amortization of deferred compensation ........................ 933
Depreciation and amortization of property and equipment ....... (900)(v) 20,479
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ............ 9,531 (w) 92,151
Amortization of excess syndicated programming ............... 3,043
------------
Total operating expenses .................................... 6,823 452,292
----------- ------------
Broadcast operating income (loss) ........................... (6,823) 120,244
----------- ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (23,621)(x) (163,207) $ 9,880 (y)
Gain on sale of station ....................................... 6,031
Interest income ............................................. 1,710
Subsidiary trust minority interest expense .................. (23,250)
Other income (expense) ....................................... 12
------------
Income (loss) before provision (benefit) for income taxes (30,444) (58,460) 9,880
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (12,178)(n) (17,907) 3,952 (n)
----------- ------------ ----------
NET INCOME (LOSS) ............................................. $ (18,266) $ (40,553) $ 5,928
=========== ============ ==========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................ $ (40,553)
============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE ............................................. $ (1.04)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 39,058 (o)
============
<PAGE>
<CAPTION>
DEBT ISSUANCE,
DEBT ISSUANCE, HYTOPS ISSUANCE,
HYTOPS ISSUANCE, 1996 ACQUISITIONS,
1996 ACQUISITIONS, HERITAGE ACQUISITION,
HERITAGE ACQUISITION COMMON PREFERRED AND
AND PREFERRED STOCK STOCK COMMON STOCK
OFFERING OFFERING(MM) OFFERINGS(MM)
---------------------- ----------------- ----------------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 532,357 $ 532,357
Revenues realized from station barter arrangements ............ 40,179 40,179
------------ ------------
Total revenues ............................................. 572,536 572,536
------------ ------------
OPERATING EXPENSES:
Program and production ....................................... 97,500 97,500
Selling, general and administrative ........................ 143,985 143,985
Expenses realized from barter arrangements .................. 32,588 32,588
Amortization of program contract costs and net realizable
value adjustments ............................................. 61,613 61,613
Amortization of deferred compensation ........................ 933 933
Depreciation and amortization of property and equipment ....... 20,479 20,479
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ............ 92,151 92,151
Amortization of excess syndicated programming ............... 3,043 3,043
------------ ------------
Total operating expenses .................................... 452,292 452,292
------------ ------------
Broadcast operating income (loss) ........................... 120,244 120,244
------------ ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (153,327) $ 9,424 (z) (143,903)
Gain on sale of station ....................................... 6,031 6,031
Interest income ............................................. 1,710 1,710
Subsidiary trust minority interest expense .................. (23,250) (23,250)
Other income (expense) ....................................... 12 12
------------ ------------
Income (loss) before provision (benefit) for income taxes..... (48,580) 9,424 (39,156)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (13,955) 3,770 (n) (10,185)
------------ ---------- ------------
NET INCOME (LOSS) ............................................. $ (34,625) $ 5,654 $ (28,971)
============ ========== ============
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................ $ (44,000) $ (38,346)
============ ============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE ............................................. $ (1.13) $ (0.89)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 39,058 (o) 43,058 (aa)
============ ============
</TABLE>
S-19
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HERITAGE(G)
CONSOLIDATED HYTOPS DEBT ------------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL ISSUANCE ISSUANCE HERITAGE KOKH
------------- ----------------- ----------------- --------- --------
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 219,701 $ 46,451 $ (3,706)
Revenues realized from station barter ar-
rangements .................................... 19,870 2,430 (125)
---------- --------- --------
Total revenues .............................. 239,571 48,881 (3,831)
---------- --------- --------
OPERATING EXPENSES:
Program and production ........................ 46,760 15,313 (1,150)
Selling, general and administrative ......... 51,634 9,447 (784)
Expenses realized from station barter ar-
rangements .................................... 16,303 1,849 (62)
Amortization of program contract costs and
net realizable value adjustments ............ 30,918 824 (297)
Amortization of deferred compensation ......... 233
Depreciation and amortization of property
and equipment .............................. 8,340 2,819 (445)
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets ............... 37,392 $ 88 (bb) $ 225 (ee) 4,174 (184)
---------- ------------ ------------ --------- --------
Total operating expenses ..................... 191,580 88 225 34,426 (2,922)
---------- ------------ ------------ --------- --------
Broadcast operating income (loss) ............ 47,991 (88) (225) 14,455 (909)
---------- ------------ ------------ --------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... (51,993) 2,894 (cc) (9,000)(ff) (9,979) 425
Gain of sale of station ..................... 9,401
Interest income .............................. 1,040
Subsidiary trust minority interest expense .... (7,007) (4,618)(dd)
Other income ................................. 47 (98)
---------- ---------
Income (loss) before provision (bene-
fit) for income taxes ........................ (9,922) (1,812) (9,225) 13,779 (484)
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (4,100) (725)(n) (3,690)(n) 7,262 (369)
---------- ------------ ------------ --------- --------
NET INCOME (LOSS) .............................. $ (5,822) $ (1,087) $ (5,535) $ 6,517 $ (115)
========== ============ ============ ========= ========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (5,822)
==========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE. $ (0.17)
==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,746
==========
<PAGE>
<CAPTION>
HERITAGE DEBT ISSUANCE, PREFERRED
ACQUISITION HYTOPS ISSUANCE STOCK
<S> <C> <C> <C>
ADJUSTMENTS AND HERITAGE ACQUISITION OFFERING
------------------- -------------------------- ----------------
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 262,446
Revenues realized from station barter ar-
rangements .................................... 22,175
---------
Total revenues .............................. 284,621
---------
OPERATING EXPENSES:
Program and production ........................ 60,923
Selling, general and administrative ......... $ (883) (gg) 59,414
Expenses realized from station barter ar-
rangements .................................... 18,090
Amortization of program contract costs and
net realizable value adjustments ............ 31,445
Amortization of deferred compensation ......... 233
Depreciation and amortization of property
and equipment .............................. (450) (hh) 10,264
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets ............... 4,964 (ii) 46,659
------------- ---------
Total operating expenses ..................... 3,631 227,028
------------- ---------
Broadcast operating income (loss) ............ (3,631) 57,593
------------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... (10,768) (jj) (78,421) $ 4,940 (kk)
Gain of sale of station ..................... 9,401
Interest income .............................. 1,040
Subsidiary trust minority interest expense .... (11,625)
Other income ................................. (51)
---------
Income (loss) before provision (bene-
fit) for income taxes ........................ (14,399) (22,063) 4,940
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (5,760) (n) (7,382) 1,976 (n)
------------- --------- ----------
NET INCOME (LOSS) .............................. $ (8,639) $ (14,681) $ 2,964
============= ========= ==========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (14,681)
=========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE $ (0.42)
=========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,769
=========
<PAGE>
<CAPTION>
DEBT ISSUANCE,
DEBT ISSUANCE, HYTOPS ISSUANCE,
HYTOPS ISSUANCE, HERITAGE ACQUISITION,
HERITAGE ACQUISITION COMMON PREFERRED AND
AND PREFERRED STOCK COMMON STOCK
<S> <C> <C> <C>
STOCK OFFERING OFFERING(MM) OFFERINGS(MM)
---------------------- ------------------ ----------------------
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 262,446 $ 262,446
Revenues realized from station barter ar-
rangements .................................... 22,175 22,175
--------- ------------
Total revenues .............................. 284,621 284,621
--------- ------------
OPERATING EXPENSES:
Program and production ........................ 60,923 60,923
Selling, general and administrative ......... 59,414 59,414
Expenses realized from station barter ar-
rangements .................................... 18,090 18,090
Amortization of program contract costs and
net realizable value adjustments ............ 31,445 31,445
Amortization of deferred compensation ......... 233 233
Depreciation and amortization of property
and equipment .............................. 10,264 10,264
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets ............... 46,659 46,659
--------- ------------
Total operating expenses ..................... 227,028 227,028
--------- ------------
Broadcast operating income (loss) ............ 57,593 57,593
--------- ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... (73,481) $ 4,712 (ll) (68,769)
Gain of sale of station ..................... 9,401 9,401
Interest income .............................. 1,040 1,040
Subsidiary trust minority interest expense .... (11,625) (11,625)
Other income ................................. (51) (51)
--------- ------------
Income (loss) before provision (bene-
fit) for income taxes ......................... (17,123) 4,712 (12,411)
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (5,406) 1,884 (n) (3,522)
--------- ---------- ------------
NET INCOME (LOSS) .............................. $ (11,717) $ 2,880 $ (8,889)
========= ========== ============
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (16,405) $ (13,577)
========= ============
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE. $ (0.47) $ (0.35)
========= ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,769 38,769 (aa)
========= ============
</TABLE>
S-20
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Flint T.V., Inc. ("Flint-TV") column reflects the results of operations
for WSMH for the period from January 1, 1996 to February 28, 1996, the date
the Flint Acquisition was consummated.
(b) The Superior Communications Group, Inc. column reflects the results of
operations for Superior for the period from January 1, 1996 to May 7, 1996,
the date the Superior Acquisition was consummated.
(c) The KSMO column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the transaction was consummated in July
1996.
(d) The WSTR column reflects the results of operations for the period from
January 1, 1996 to July 31, 1996 as the transaction was consummated in
August 1996.
(e) The River City column reflects the results of operations for River City
(including KRRT, Inc.) for the period from January 1, 1996 to May 31, 1996,
the date the River City Acquisition was consummated. The WSYX column
removes the results of WSYX from the results of River City for the period
as the Company has not yet acquired WSYX. See "Business of Sinclair --
Broadcasting Acquisition Strategy."
(f) The WYZZ column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the purchase transaction was
consummated in July 1996.
(g) The Heritage column reflects the results of operations for the period from
January 1, 1996 to December 31, 1996 for the year ended December 31, 1996
Pro Forma Consolidated Statement of Operations and the results of
operations for the period from January 1, 1997 to June 30, 1997 for the six
months ended June 30, 1997 Pro Forma Consolidated Statement of Operations.
The KOKH column removes the results of KOKH from the results of Heritage
for both periods to reflect the sale of KOKH, which is required pursuant to
the Heritage Acquisition Agreements and with respect to which the Company
has entered into a letter of intent. See "Business of Sinclair -- 1997
Acquisitions."
(h) To adjust River City operating expenses for non-recurring LMA payments made
to KRRT, Inc. for KRRT, Inc. debt service and to adjust River City and
Superior operating expenses for employment contracts and other corporate
overhead expenses not assumed at the time of the 1996 Acquisitions.
(i) To record compensation expense related to options granted under the
Company's Long-Term Incentive Plan:
YEAR ENDED
DECEMBER 31,
1996
-------------
Compensation expense related to the Long-Term Incentive
Plan on a pro forma basis .............................. $ 933
Less: Compensation expense recorded by the Company re-
lated to the Long-Term Incentive Plan ................... (739)
------
$ 194
======
(j) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Flint-TV, Superior, KSMO, WSTR,
River City and WYZZ from the period of January 1, 1996 through the date of
acquisition. Tangible assets are to be depreciated over lives ranging from
5 to 29.5 years, calculated as follows:
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
---------------------------------
FLINT-TV SUPERIOR KSMO
---------- ---------- -----------
<S> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 32 $ 315 $ 240
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (4) (373) (374)
----- ------ -------
Pro forma adjustment ................................. $ 28 $ (58) $ (134)
===== ====== =======
<CAPTION>
WSTR RIVER CITY WYZZ TOTAL
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 507 $ 3,965 $ 159 $ 5,218
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (284) (5,120) (6) (6,161)
------- --------- ------ ---------
Pro forma adjustment ................................. $ 223 $ (1,155) $ 153 $ (943)
======= ========= ====== =========
</TABLE>
(k) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by
Flint-TV, Superior, KSMO, WSTR, River City and WYZZ from the period of
January 1, 1996 through date of acquisition. Intangible assets are to be
amortized over lives ranging from 1 to 40 years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------------------
FLINT-TV SUPERIOR KSMO
---------- ---------- -------
<S> <C> <C> <C>
Amortization expense on acquired intangible assets $ 167 $ 827 $ 180
Deferred financing costs ...........................
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... -- (529) --
------ ------- ------
Pro forma adjustment .............................. $ 167 $ 298 $ 180
====== ======= ======
<CAPTION>
WSTR RIVER CITY WYZZ TOTAL
------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Amortization expense on acquired intangible assets $ 285 $ 12,060 $ 99 $ 13,618
Deferred financing costs ........................... 1,429 1,429
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (39) (10,442) (3) (11,013)
----- ---------- ----- ----------
Pro forma adjustment .............................. $ 246 $ 3,047 $ 96 $ 4,034
===== ========== ===== ==========
</TABLE>
S-21
<PAGE>
(l) To record interest expense for the year ended December 31, 1996 on
acquisition financing relating to Superior of $59,850 (under the Bank
Credit Agreement at 8.0% for four months), KSMO and WSTR of $10,425 and
$7,881, respectively (both under the Bank Credit Agreement at 8.0% for six
months), River City (including KRRT) of $868,300 (under the Bank Credit
Agreement at 8.0% for five months) and of $851 for hedging agreements
related to the River City financing and WYZZ of $20,194 (under the Bank
Credit Agreement at 8.0% for six months) and eliminate interest expense
recorded. No interest expense has been recorded for Flint-TV as it has been
assumed that the proceeds from the 1995 Notes were used to purchase
Flint-TV.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------------------------------------
SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
----------- --------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense adjustment as noted above ...... $ (1,596) $ (417) $ (315) $ (29,032) $ (808) $ (32,168)
Less: Interest expense recorded by Superior, KSMO,
WSTR, River City and WYZZ ........................ 457 823 1,127 12,352 -- 14,759
--------- ------- ------- --------- ------- ----------
Pro forma adjustment ........................... $ (1,139) $ 406 $ 812 $ (16,680) $ (808) $ (17,409)
========= ======= ======= ========= ======= ==========
</TABLE>
(m) To eliminate interest income for the year ended December 31, 1996 on
proceeds from the sale of the 1995 Notes due to assumed utilization of
excess cash for the following acquisitions: Flint-TV, KSMO and WSTR and
WYZZ of $34,400 (with a commercial bank at 5.7% for two months), $10,425
and $7,881 (both with a commercial bank at 5.7% for six months) and $20,194
(with a commercial bank at 5.7% for six months).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------------------------------
FLINT-TV KSMO WSTR RIVER CITY WYZZ TOTAL
---------- --------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income adjustment as noted above ...... $ (327) $ (297) $ (226) $ -- $ (576) $ (1,426)
Less: Interest income recorded by Flint-TV, KSMO,
WSTR, River City and WYZZ ..................... -- -- (15) (195) -- (210)
------- ------- ------- ------- ------- ---------
Pro forma adjustment ........................... $ (327) $ (297) $ (241) $ (195) $ (576) $ (1,636)
======= ======= ======= ======= ======= =========
</TABLE>
(n) To record tax provision (benefit) at the applicable statutory tax rates.
(o) Weighted average shares outstanding on a pro forma basis assumes that the
1,150,000 shares of Series B Preferred Stock were converted to 4,181,818
shares of Class A Common Stock and the Company's Incentive Stock Options
and Long-Term Incentive Plan Options were outstanding as of the beginning
of the period.
(p) To record amortization expense on other assets that relates to the HYTOPS
Issuance for one year ($6,000 over 12 years).
(q) To record the net interest expense reduction for 1996 related to
application of the HYTOPS Issuance proceeds to the outstanding balance
under the revolving credit facility offset by an increase in commitment
fees for the available but unused portion of the revolving credit facility
for the year ended December 31, 1996.
<TABLE>
<S> <C>
Interest on adjusted borrowing on the revolving credit facility .................. $ 12,600
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for 12 months ............................................. (1,250)
Commitment fee on available borrowings recorded by the Company .................. 470
--------
Pro forma adjustment ............................................................ $ 11,820
========
</TABLE>
(r) To record subsidiary trust minority interest expense for the year ended
December 31, 1996 ($200,000 aggregate liquidation value of HYTOPS).
(s) To record amortization expense on other assets for one year ($4,500 over 10
years). See note (f) of notes to Pro Forma Consolidated Balance Sheet.
(t) To record interest expense on the 1997 Notes for one year ($200,000 at 9%).
(u) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(v) To record depreciation expense related to acquired tangible assets of
$3,550 and eliminate depreciation expense of $4,450 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
(w) To record amortization expense related to acquired intangible assets of
$17,624 and eliminate amortization expense of $8,093 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(x) To record interest expense on acquisition financing of $570,000 (under the
Bank Credit Agreement at 71/4%), net of $780 of commitment fees for the
available but unused portion of the revolving credit facility, and
eliminated interest expense of $16,924 recorded by Heritage.
(y) To record the interest expense reduction of $10,518 related to application
of the Preferred Stock Offering proceeds to the outstanding balance under
the revolving credit facility offset by an increase in commitment fees of
$638 for the available but unused portion of the revolving credit facility.
(z) To record the interest expense reduction of $9,938 related to application
of the Common Stock Offering proceeds to the outstanding balance under the
revolving credit facility offset by an increase in commitment fees of $514
for the available but unused portion of the revolving credit facility.
S-22
<PAGE>
(aa) Weighted average shares outstanding on a pro forma basis assumes that the
4,000,000 shares of Class A Common Stock to be issued in the Common Stock
Offering were outstanding as of the beginning of the period.
(bb) To record amortization expense on other assets that resulted from the
HYTOPS Issuance for six months ($6,000 over 12 years).
Amortization expense on other assets ............... $ 250
Amortization expense recorded by the Company ...... (162)
------
Pro forma adjustment .............................. $ 88
======
(cc) To record the net interest expense reduction for 1997 related to
application of the HYTOPS Issuance proceeds to the outstanding balance
under the revolving credit facility offset by an increase in commitment
fees for the available but unused portion of the revolving credit facility
for the quarter ended June 30, 1997.
<TABLE>
<S> <C>
Interest on adjusted borrowing on the revolving credit facility ............... $3,235
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for six months .......................................... (625)
Commitment fee on available borrowings recorded by the Company .................. 284
------
Pro forma adjustment ............................................................ $2,894
======
</TABLE>
(dd) To record subsidiary trust minority interest expense for the quarter ended
June 30, 1997 ($200,000 aggregate liquidation value HYTOPS).
<TABLE>
<S> <C>
Subsidiary trust minority interest expense for six months ........................ $ (11,625)
Subsidiary trust minority interest expense made by the Company during the quarter . 7,007
---------
Pro forma adjustment ............................................................... $ (4,618)
=========
</TABLE>
(ee) To record amortization expense on other assets for six months ($4,500 over
10 years). See note (f) of notes to Pro Forma Consolidated Balance Sheet.
(ff) To record interest expense on the 1997 Notes for six months ($200,000 at
9%).
(gg) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(hh) To record depreciation expenses related to acquired tangible assets of
$1,775 and eliminate depreciation expense of $2,225 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
(ii) To record amortization expense related to acquired intangible assets of
$8,954 and eliminate amortization expense of $3,990 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(jj) To record interest expense on acquisition financing of $570,000 (under the
Bank Credit Agreement at 71/4%), net of $341 of commitment fees for the
available but unused portion of the revolving credit facility, and
eliminate interest expense of $9,554 recorded by Heritage.
(kk) To record the interest expense reduction of $5,259 related to application
of the Common Stock Offering proceeds to the outstanding balance under the
revolving credit facility offset by an increase in commitment fees of $319
for the available but unused portion of the revolving credit facility.
(ll) To record the interest expense reduction of $4,969 related to application
of the Preferred Stock Offering proceeds to the outstanding balance under
the revolving credit facility offset by an increase in commitment fees of
$257 for the available but unused portion of the revolving credit facility.
(mm) There can be no assurance that the Common Stock Offering will be
consummated. The completion of the Preferred Stock Offering is not
conditioned upon the completion of the Common Stock Offering.
S-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SINCLAIR
INTRODUCTION
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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the right to provide programming to
two additional 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 sales services to 27 radio stations, has pending
acquisitions of 24 radio stations, and has options to acquire an additional
seven radio stations.
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from television network compensation.
The Company's primary operating expenses involved in owning, operating or
programming the television and radio stations are syndicated program rights
fees, commissions on revenues, employee salaries, news-gathering and promotion.
Amortization and depreciation of costs associated with the acquisition of the
stations and interest carrying charges are significant factors in determining
the Company's overall profitability.
Set forth below are the principal types of broadcast revenues received by
the Company's stations for the periods indicated and the percentage contribution
of each type to the Company's total gross broadcast revenues:
BROADCAST REVENUES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Local/regional advertising ...... $ 67,881 48.6% $ 104,299 47.5% $ 199,029 49.4%
National advertising ............ 69,374 49.6 113,678 51.7 191,449 47.6
Network compensation ............ 302 0.2 442 0.2 3,907 1.0
Political advertising ............ 1,593 1.1 197 0.1 6,972 1.7
Production ..................... 696 0.5 1,115 0.5 1,142 0.3
--------- ------ --------- ------ --------- ------
Broadcast revenues ............... 139,846 100.0% 219,731 100.0% 402,499 100.0%
====== ====== ======
Less: agency commissions ......... (21,235) (31,797) (56,040)
--------- --------- ---------
Broadcast revenues, net ......... 118,611 187,934 346,459
Barter revenues .................. 10,743 18,200 32,029
--------- --------- ---------
Total revenues .................. $ 129,354 $ 206,134 $ 378,488
========= ========= =========
</TABLE>
The Company's primary types of programming and their approximate
percentages of 1996 net broadcast revenues were network programming (14.1%),
children's programming (7.4%) and other syndicated programming (56.7%).
Similarly, the Company's three largest categories of advertising and their
approximate percentages of 1996 net broadcast revenues were automotive (17.4%),
fast food advertising (9.2%) and movies (5.5%). No other advertising category
accounted for more than 5% of the Company's net broadcast revenues in 1996. No
individual advertiser accounted for more than 5% of any of the Company's
individual station's net broadcast revenues in 1996.
S-24
<PAGE>
The following table sets forth certain operating data of the Company for
the years ended December 31, 1994, 1995 and 1996 and the six months ended June
30, 1996 and 1997:
OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues .............................. $ 118,611 $ 187,934 $ 346,459 $ 117,339 $ 219,701
Barter revenues .................................... 10,743 18,200 32,029 9,571 19,870
---------- --------- --------- --------- ---------
Total revenues .................................... 129,354 206,134 378,488 126,910 239,571
---------- --------- --------- --------- ---------
Operating expenses, excluding depreciation and
amortization and special bonuses paid to executive
officers .......................................... 50,545 80,446 167,765 52,826 114,697
Depreciation and amortization ..................... 55,587 80,410 118,038 45,493 76,650
Amortization of deferred compensation ............... -- -- 739 506 233
Amortization of excess syndicated programming ...... -- -- 3,043 -- --
Special bonuses to executive officers ............... 3,638 -- -- -- --
---------- --------- --------- --------- ---------
Broadcast operating income ........................ $ 19,584 $ 45,278 $ 88,903 $ 28,085 $ 47,991
========== ========= ========= ========= =========
BROADCAST CASH FLOW (BCF) DATA:
Television BCF .................................... $ 67,519 $ 111,124 $ 175,212 $ 63,309 $ 98,032
Radio BCF .......................................... -- -- 14,004 1,770 7,568
---------- --------- --------- --------- ---------
Consolidated BCF (a) .............................. $ 67,519 $ 111,124 $ 189,216 $ 65,079 $ 105,600
========== ========= ========= ========= =========
Television BCF margin .............................. 56.9% 59.1% 56.7% 56.3% 51.2%
Radio BCF margin .................................... -- -- 37.3% 36.4% 26.7%
Consolidated BCF margin (b) ........................ 56.9% 59.1% 54.6% 55.5% 48.1%
OTHER DATA:
Adjusted EBITDA(c) ................................. $ 64,547 $ 105,750 $ 180,272 $ 62,013 $ 98,615
Adjusted EBITDA margin (b) ........................ 54.4% 56.3% 52.0% 52.8% 44.9%
After-tax cash flow (d) ........................... $ 21,310 $ 46,376 $ 74,441 $ 30,441 $ 32,737
Program contract payments ........................... 14,262 19,938 30,451 12,071 26,259
Corporate expense ................................. 2,972 5,374 8,944 3,066 6,985
</TABLE>
- ----------
(a) "Consolidated BCF" is defined as broadcast operating income plus corporate
overhead expenses, special bonuses paid to executive officers, depreciation
and amortization (including film amortization and amortization of deferred
compensation and excess syndicated programming), less cash payments for
program contract rights. Cash program payments represent cash payments made
for current program payables and do not necessarily correspond to program
usage. Special bonuses 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, Consolidated BCF does not
purport to represent cash provided by operating activities as reflected in
the Company's consolidated 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.
(b) "Consolidated BCF 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.
(c) "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 the Company's consolidated statements of cash
flows, is not a measure of financial performance under generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
(d) "After-tax cash flow" is defined as net income (loss) plus depreciation and
amortization (excluding film amortization), amortization of deferred
compensation, and the deferred tax provision (or minus the deferred tax
benefit). 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.
S-25
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Total revenues increased to $239.6 million for the six months ended June
30, 1997 from $126.9 million for the six months ended June 30, 1996, or 88.8%.
After excluding the effects of non-cash barter transactions, net broadcast
revenues for the six months ended June 30, 1997 increased by 87.2% over the six
months ended June 30, 1996. The increase in broadcast revenues was primarily the
result of acquisitions and LMA transactions consummated by the Company in 1996
(the "1996 Acquisitions") and, to a lesser extent, market growth in television
broadcast revenue and television broadcast revenue on a same stations basis.
Operating expenses excluding depreciation, amortization of intangible
assets and amortization of deferred compensation increased to $114.7 million for
the six months ended June 30, 1997 from $52.8 million for the six months ended
June 30, 1996, or 117.2%. The increase in expenses for the six months ended June
30, 1997 as compared to the six months ended June 30, 1996 was primarily
attributable to operating costs associated with the 1996 Acquisitions (92.9% of
increase for the six month period) and an increase in corporate overhead
expenses (6.3% of increase for the six month period) related primarily to the
additional expense of managing a larger base of operations.
Broadcast operating income increased to $48.0 million for the six months
ended June 30, 1997 from $28.1 million for the six months ended June 30, 1996,
or 70.8%. The increase in broadcast operating income for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996 was primarily
attributable to the 1996 Acquisitions.
Interest expense increased to $52.0 million for the six months ended June
30, 1997 from $27.6 million for the six months ended June 30, 1996, or 88.4%.
The increase in interest expense for the six months ended June 30, 1997
primarily related to indebtedness incurred by the Company to finance the River
City Acquisition on May 31, 1996, other subsequent 1996 acquisitions and
acquisitions consummated in 1997 (the "1997 Acquisitions"). Subsidiary Trust
Minority Interest Expense of $7.0 million for the six months ended June 30, 1997
is related to the HYTOPS. Subsidiary Trust Minority Interest Expense
distributions will be partially offset by reductions in interest expense because
a portion of the proceeds of the sale of the HYTOPS was used to reduce
indebtedness under the Company's Bank Credit Agreement.
Interest and other income decreased to $1.1 million for the six months
ended June 30, 1997 from $3.2 million for the six months ended June 30, 1996, or
65.6%. This decrease was primarily due to lower average cash balances and
related interest income.
The net deferred tax asset increased to $8.2 million as of June 30, 1997
from $782,000 at December 31, 1996. The increase in the Company's net deferred
tax asset as of June 30, 1997 as compared to December 31, 1996 primarily results
from the anticipation that the pre-tax losses incurred in the first six months
of 1997 will be used to offset future taxable income.
Net loss for the six months ended June 30, 1997 was $5.8 million or $(0.17)
per share compared to net income of $1.5 million or $0.04 per share for the six
months ended June 30, 1996.
Broadcast cash flow increased to $105.6 million for the six months ended
June 30, 1997 from $65.1 million for the six months ended June 30, 1996, or
62.2%. This increase in broadcast cash flow primarily resulted from the 1996 and
1997 Acquisitions and, to a lesser extent, increases in net broadcast revenues
on a same station basis. The Company's broadcast cash flow margin decreased to
48.1% for the six months ended June 30, 1997 from 55.5% for the six months ended
June 30, 1996. Excluding the effect of radio station broadcast cash flow,
television broadcast cash flow margin decreased to 51.2% for the six months
ended June 30, 1997 from 56.3% for the six months ended June 30, 1996. The
decrease in broadcast cash flow margins for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996 primarily resulted from the
lower margins of the acquired radio broadcasting assets and lower margins of
certain television stations acquired during 1996. For television stations owned,
operated or programmed for the six months ended June 30, 1996 and the six months
ending June 30,
S-26
<PAGE>
1997, broadcast cash flow margins increased from 55.5% to 57.0%, respectively.
This increase primarily resulted from expense savings related to synergies
realized from the 1996 Acquisitions combined with increases in net broadcast
revenue.
Adjusted EBITDA increased to $98.6 million for the six months ended June
30, 1997 from $62.0 million for the six months ended June 30, 1996, or 59.0%.
This increase in Adjusted EBITDA for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996 resulted from the 1996 and 1997
Acquisitions. The Company's Adjusted EBITDA margin decreased to 44.9% for the
six months ended June 30, 1997 from 52.8% for the six months ended June 30,
1996. The decrease in Adjusted EBITDA margin for the six months ended June 30,
1997 as compared to the six months ended June 30, 1996 primarily resulted from
operating cost structures at certain of the acquired stations and increases in
corporate overhead expenses. The Company has begun to implement and will
continue to implement operating and programming expense savings resulting from
synergies realized from the businesses acquired in and prior to 1996 and 1997
and believes that the benefits of the implementation of these methods will
result in improvement in broadcast cash flow margin and Adjusted EBITDA margin
over time.
After-tax cash flow increased to $32.7 million for the six months ended
June 30, 1997 from $30.4 million for the six months ended June 30, 1996, or
7.6%. The increase in after-tax cash flow for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996 primarily resulted from the
1996 and 1997 Acquisitions and internal growth, offset by increased interest
expense on the debt incurred to consummate the 1996 and 1997 Acquisitions and
subsidiary trust minority interest expense related to the HYTOPS Issuance during
March 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenues increased to $378.5 million for the year ended December 31,
1996 from $206.1 million for the year ended December 31, 1995, or 83.6%.
Excluding the effects of non-cash barter transactions, net broadcast revenues
for the year ended December 31, 1996 increased by 84.4% over the year ended
December 31, 1995. The increase in broadcast revenues was primarily the result
of acquisitions and LMA transactions consummated by the Company in 1995 (the
"1995 Acquisitions") and 1996. For stations owned, operated or programmed
throughout 1995 and 1996, television broadcast revenue grew 2.1% for the year
ended December 31, 1996 when compared to the year ended December 31, 1995. For
stations owned, operated or programmed throughout 1994 and 1995, television
broadcast revenue grew 12.8% for the year ended December 31, 1995 when compared
to the year ended December 31, 1994. The decrease in 1996 revenue growth as
compared to 1995 revenue growth primarily resulted from the loss in 1996 of the
Fox affiliation at WTTO in the Birmingham market, the loss of the NBC
affiliation at WRDC in the Raleigh market and decreases in ratings at WCGV and
WNUV in the Milwaukee and Baltimore markets, respectively.
Operating expenses excluding depreciation, amortization of intangible
assets and amortization of deferred compensation and excess syndicated
programming costs increased to $167.8 million for the year ended December 31,
1996 from $80.4 million for the year ended December 31, 1995, or 108.7%. The
increase in expenses for the year ended December 31, 1996 as compared to the
year ended December 31, 1995 was largely attributable to operating costs
associated with the 1995 and 1996 Acquisitions, an increase in LMA fees
resulting from LMA transactions and an increase in corporate overhead expenses.
Broadcast operating income increased to $88.9 million for the year ended
December 31, 1996, from $45.3 million for the year ended December 31, 1995, or
96.2%. The increase in broadcast operating income for the year ended December
31, 1996 as compared to the year ended December 31, 1995 was primarily
attributable to the 1995 and 1996 Acquisitions.
Interest expense increased to $84.3 million for the year ended December 31,
1996 from $39.3 million for the year ended December 31, 1995, or 114.5%. The
increase in interest expense for the year ended December 31, 1996 was primarily
related to senior bank indebtedness incurred by the Company to finance the River
City Acquisition and other acquisitions.
S-27
<PAGE>
Interest and other income decreased to $3.5 million for the year ended
December 31, 1996 from $4.2 million for the year ended December 31, 1995, or
16.7%. The decrease for the year ended December 31, 1996 was primarily due to
lower cash balances and related interest income resulting from cash payments
made in February 1996 when the Company made a $34.4 million payment relating to
the WSMH acquisition and April 1996 when the Company made a $60 million down
payment relating to the River City Acquisition. The decrease in interest income
was offset by an increase in other income resulting from the 1995 and 1996
Acquisitions.
For the reasons described above, net income for the year ended December 31,
1996 was $1.1 million or $0.03 per share compared to net income of $5.0 million
or $0.15 per share for the year ended December 31, 1995 before the extraordinary
loss on early extinguishment of debt.
Broadcast cash flow increased to $189.2 million for the year ended December
31, 1996 from $111.1 million for the year ended December 31, 1995, or 70.3%. The
increase in broadcast cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from the 1995 and 1996
Acquisitions. For stations owned, operated or programmed throughout 1995 and
1996, broadcast cash flow grew 1.3% for the year ended December 31, 1996 when
compared to the year ended December 31, 1995. For stations owned, operated or
programmed throughout 1994 and 1995, broadcast cash flow grew 23.7% for the year
ended December 31, 1995 when compared to the year ended December 31, 1994. The
decrease in 1996 broadcast cash flow growth as compared to 1995 broadcast cash
flow growth primarily resulted from the loss in 1996 of the Fox affiliation at
WTTO in the Birmingham market, the loss of the NBC affiliation at WRDC in the
Raleigh market and decreases in ratings at WCGV and WNUV in the Milwaukee and
Baltimore markets, respectively. The Company's broadcast cash flow margin
decreased to 54.6% for the year ended December 31, 1996 from 59.1% for the year
ended December 31, 1995. Excluding the effect of radio station broadcast cash
flow, television station broadcast cash flow margin decreased to 56.7% for the
year ended December 31, 1996 as compared to 59.1% for the year ended December
31, 1995. The decrease in broadcast cash flow margins for the year ended
December 31, 1996 as compared to the year ended December 31, 1995 primarily
resulted from the lower margins of the acquired radio broadcasting assets and
lower margins of certain of the acquired television stations. For stations
owned, operated or programmed throughout 1996 and 1995, broadcast cash flow
margins were unchanged when comparing the years ended December 31, 1996 and
1995. The Company believes that margins of certain of the acquired stations will
improve as operating and programming synergies are implemented.
Adjusted EBITDA increased to $180.3 million for the year ended December 31,
1996 from $105.8 million for the year ended December 31, 1995, or 70.4%. The
increase in Adjusted EBITDA for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 resulted from the 1995 and 1996 Acquisitions.
The Company's Adjusted EBITDA margin decreased to 52.0% for the year ended
December 31, 1996 from 56.3% for the year ended December 31, 1995. The decrease
in Adjusted EBITDA margins for the year ended December 31, 1996 as compared to
the year ended December 31, 1995 primarily resulted from higher operating costs
at certain of the acquired stations. The Company has begun to implement and will
continue to implement operating and programming synergies throughout the
businesses acquired in and prior to 1996. The Company believes that the benefits
of the implementation of these methods will result in improvement in broadcast
cash flow and Adjusted EBITDA margins in future periods.
After-tax cash flow increased to $74.4 million for the year ended December
31, 1996 from $46.4 million for the year ended December 31, 1995, or 60.3%. The
increase in after-tax cash flow for the year ended December 31, 1996 as compared
to the year ended December 31, 1995 primarily resulted from the 1995 and 1996
Acquisitions offset by interest expense on the debt incurred to consummate these
acquisitions.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenues increased to $206.1 million for the year ended December 31,
1995, from $129.4 million for the year ended December 31, 1994, or 59.3%. This
increase includes revenues from the acquisitions of WTVZ and WLFL and the
entering into LMA agreements with WABM and WDBB.
S-28
<PAGE>
This increase also includes the first full year of revenues from the acquisition
of WCGV and WTTO and the entering into LMA agreements with WNUV, WVTV and FSFA
(the "1994 Acquisitions"). Excluding the effect of non-cash barter transactions,
net broadcast revenues increased to $187.9 million for the year ended December
31, 1995 from $118.6 million for the year ended December 31, 1994, or 58.4%.
These increases in net broadcast revenues were primarily a result of the
1994 and 1995 Acquisitions and LMA transactions consummated by the Company, as
well as television broadcast revenue growth in each of the Company's markets.
WPGH, the Pittsburgh Fox affiliate, achieved in excess of 14% net broadcast
revenue growth for the year ended December 31, 1995 as compared to the year
ended December 31, 1994. This increase was primarily attributable to a new
metered rating service that began in May 1995 which significantly improved
WPGH's market rating. WBFF, the Fox affiliate in Baltimore and WCGV, the former
Fox affiliate, now a UPN affiliate in Milwaukee, both achieved in excess of 10%
net broadcast revenue growth as these stations began to realize the advantages
of having an LMA in these markets.
Operating expenses excluding depreciation and amortization and special
bonuses paid to executive officers increased to $80.4 million for the year ended
December 31, 1995 from $50.5 million for the year ended December 31, 1994. These
increases in expenses were primarily attributable to increases in operating
expenses relating to the 1994 and 1995 Acquisitions, including the payment of
LMA fees which increased to approximately $5.6 million for the year ended
December 31, 1995 as compared to $1.1 million for the year ended December 31,
1994. Corporate overhead expenses increased 80.8% for the year ended December
31, 1995 as compared to the year ended December 31, 1994. This increase was
primarily due to expenses associated with being a public company (i.e.,
directors and officers insurance, travel expenses and professional fees) and
executive bonus accruals for bonuses which were paid based on achieving in
excess of 20% growth percentages in pro forma broadcast cash flow for the year
1995 compared to 1994.
Broadcast operating income increased to $45.3 million for the year ended
December 31, 1995 from $19.6 million for the year ended December 31, 1994, or
131.1%. This increase in broadcast operating income was primarily a result of
the 1994 and 1995 Acquisitions and an increase in television broadcast revenues
in each of the Company's markets, partially offset by increased amortization
expenses related to these acquisitions.
Interest expense increased to $39.3 million for the year ended December 31,
1995 from $25.4 million for the year ended December 31, 1994, or 54.7%. The
major component of this increase in interest expense was increased borrowings
under the Bank Credit Agreement to finance the 1994 and 1995 Acquisitions.
During August 1995, the Company issued $300 million of Senior Subordinated Notes
and used a portion of the net proceeds to repay outstanding indebtedness under
the Bank Credit Agreement and the remainder provided an increase to the
Company's cash balances of approximately $91.4 million. The interest expense
related to these notes was approximately $10.0 million in 1995. This increase
was partially offset by the application of the net proceeds of an offering of
Class A Common Stock to reduce a portion of the indebtedness under the Bank
Credit Agreement during June 1995. Interest expense was also reduced as a result
of the application of net cash flow from operating activities to further
decrease borrowings under the Bank Credit Agreement.
Interest and other income increased to $4.2 million for the year ended
December 31, 1995 from $2.4 million for the year ended December 31, 1994, or
75.0%. This increase in interest income primarily resulted from an increase in
cash balances that remained from the proceeds of Senior Subordinated Notes
issued in August 1995. Income (loss) before benefit (provision) for income taxes
and extraordinary item increased to income of $10.2 million for the year ended
December 31, 1995 from a loss of $3.4 million for the year ended December 31,
1994.
Net income available to common shareholders improved to income of $76,000
for the year ended December 31, 1995 from a loss of $2.7 million for the year
ended December 31, 1994. In August 1995, the Company consummated the sale of
$300 million of Senior Subordinated Notes generating net proceeds to the Company
of $293.2 million. The net proceeds of this offering were utilized to repay
outstanding indebtedness under the Bank Credit Agreement of $201.8 million with
the remainder being
S-29
<PAGE>
retained for general corporate purposes including potential future acquisitions.
In conjunction with the early retirement of the indebtedness under the Bank
Credit Agreement, the Company recorded an extraordinary loss of $4.9 million net
of a tax benefit of $3.4 million, related to the write-off of deferred financing
costs under the Bank Credit Agreement.
Broadcast cash flow increased to $111.1 million for the year ended December
31, 1995 from $67.5 million for the year ended December 31, 1994, or 64.6%. This
increase in broadcast cash flow was primarily due to the 1994 and 1995
Acquisitions, growth in market revenues and a reduction in program payments as a
percentage of net broadcast revenues to 10.6% for the year ended December 31,
1995 from 12.0% for the year ended December 31, 1994.
Adjusted EBITDA increased to $105.8 million for the year ended December 31,
1995 from $64.6 million for the year ended December 31, 1994, or 63.8%,
consistent with the growth in broadcast cash flow. After tax cash flow increased
to $46.4 million for the year ended December 31, 1995 from $21.3 million for the
year ended December 31, 1994, or 117.8%.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had $2.7 million in cash balances and a
working capital deficit of approximately $9.3 million. The Company's working
capital deficit primarily results from the accelerated method of amortization of
program contract costs and the even payment streams of program contract
liabilities. Excluding the effect of current program contract costs and current
program contract liabilities, the Company's working capital at June 30, 1997,
would have been $5.7 million. The Company's primary source of liquidity is cash
provided by operations and availability under the Bank Credit Agreement. As of
August 11, 1997, the Company's cash balances were approximately $1.9 million
with approximately $254 million available for borrowing under the Bank Credit
Agreement. In addition, the Bank Credit Agreement provides for a Tranche C term
loan in the amount of up to $400 million which can be utilized upon approval by
the agent bank and the raising of sufficient commitments from banks to fund the
additional loans. In July 1997, the Company entered into a purchase agreement to
acquire the license and non-license assets of the radio and television stations
of Heritage for $630 million and made a cash down payment of $63.0 million. The
Company has entered into a letter of intent to sell one of the Heritage
television stations for $60 million (the sale of which is required pursuant to
the acquisition agreement relating to the remaining Heritage television and
radio properties). The Company anticipates that it will finance the Heritage
acquisition through additional bank financing (including a draw under Tranche C
described above) or through a combination of additional bank financing and
proceeds from an offering of securities.
Net cash flows from operating activities increased to $42.5 million for the
six months ended June 30, 1997 from $26.4 million for the six months ended June
30, 1996. The Company made income tax payments of $5.3 million for the six
months ended June 30, 1997 as compared to $5.6 million for the six months ended
June 30, 1996 due to anticipated tax benefits generated by the 1996
Acquisitions. The Company made interest payments on outstanding indebtedness of
$55.7 million during the six months ended June 30, 1997 as compared to $29.5
million for the six months ended June 30, 1996. Additional interest payments for
the six months ended June 30, 1997 as compared to the six months ended June 30,
1996 primarily related to additional interest costs on indebtedness incurred to
finance the 1996 Acquisitions. The Company made subsidiary trust minority
interest expense payments of $6.0 million for the six months ended June 30, 1997
related to the private placement of the HYTOPS completed in March 1997. Program
rights payments increased to $26.3 million for the six months ended June 30,
1997 from $12.1 million for the six months ended June 30, 1996, primarily as a
result of the 1996 Acquisitions.
Net cash flows used in investing activities decreased to $112.4 million for
the six months ended June 30, 1997 from $942.1 million for the six months ended
June 30, 1996. During January 1997, the Company purchased the license and
non-license assets of WWFH-FM and WILP-AM in Wilkes-Barre, Pennsylvania for
approximately $770,000. In January and March 1997, the Company made cash
payments of $9.0 million and $1.5 million relating to the acquisition of the
license and non-license assets of KUPN-TV and WGR-AM and WWWS-AM, respectively,
utilizing indebtedness under the Bank Credit Agreement and existing cash
balances. In May 1997, the Company made cash payments of $78 million to acquire
the
S-30
<PAGE>
license and non-license assets of KUPN-TV utilizing indebtedness under the Bank
Credit Agreement and existing cash balances. During the six months ended June
30, 1997, the Company made purchase option extension payments of $6.5 million
relating to WSYX-TV. The Company made payments totaling $8.5 million during the
six months ended June 30, 1997 in order to exercise options to acquire certain
FCC licenses. The Company made payments for property and equipment of $8.3
million for the six months ended June 30, 1997. In July 1997, the Company
entered into a purchase agreement to acquire the license and non-license assets
of the television and radio stations of Heritage and made a cash down payment of
$63.0 million. The Company anticipates that future requirements for capital
expenditures will also include other acquisitions if suitable acquisitions can
be identified on acceptable terms and capital expenditures incurred during the
ordinary course of business.
Net cash flows provided by financing activities decreased to $70.3 million
for the six months ended June 30, 1997 from $807.4 million for the six months
ended June 30, 1996. In March 1997, the Company completed a private placement of
the HYTOPS. The Company utilized $135 million of the approximately $193.4
million net proceeds of the HYTOPS Issuance to repay outstanding debt and
retained the remainder for general corporate purposes. The Company made payments
totaling $4.6 million to repurchase 186,000 shares of Class A Common Stock for
the six months ended June 30, 1997. In May 1997, the Company made payments of
$4.7 million related to the amendment of its Bank Credit Agreement. In the
fourth quarter of 1996, the Company negotiated the prepayment of syndicated
program contract liabilities for excess syndicated programming assets. In the
first quarter of 1997, the Company made final cash payments of $1.4 million
related to these negotiations. In July 1997, the Company issued the 1997 Notes
using $162.5 million of the approximately $196 million proceeds to repay
outstanding indebtedness under the revolving credit facility under the Bank
Credit Agreement and using the remainder to pay a portion of the $63 million
cash down payment relating to the Heritage Acquisition.
The Company anticipates that funds from operations, existing cash balances
and availability of the revolving credit facility under the Bank Credit
Agreement will be sufficient to meet its working capital, capital expenditure
commitments and debt service requirements for the foreseeable future. However,
to the extent such funds are not sufficient, or if the Company commits to
additional capital expenditures (including additional acquisitions), the Company
may need to incur additional indebtedness, refinance existing indebtedness or
raise funds from the sale of additional equity. The Bank Credit Agreement and
the indentures relating to the Company's 9% Senior Subordinated Notes due 2007,
10% Senior Subordinated Notes due 2003 and 10% Senior Subordinated Notes due
2005 restrict the incurrence of additional indebtedness and the use of proceeds
of an equity issuance. On August 22, 1997, the Company filed a $1 billion shelf
registration statement covering the issuance of the Company's debt securities,
preferred stock and common stock. The shares of Class A Common Stock offered in
the Common Stock Offering and the shares of Convertible Exchangeable Preferred
Stock offered in the Preferred Stock Offering are offered pursuant to such shelf
registration statement. A portion of the net proceeds to the Company from the
Offerings will be used to repay existing borrowings under the revolving credit
facility under the Bank Credit Agreement, and the remainder of the net proceeds
will be retained by the Company for general corporate purposes, including
funding the Heritage Acquisition, which is anticipated to close in the first
quarter of 1998, and other acquisitions if suitable acquisitions can be
identified on acceptable terms. See "Use of Proceeds" and "Business of Sinclair
- -- 1997 Acquisitions."
INCOME TAXES
Income tax benefit increased to $4.1 million for the six months ended June
30, 1997 from a provision of $2.1 million for the six months ended June 30,
1996. The Company's effective tax rate decreased to a benefit of 41.3% for the
six months ended June 30, 1997 from a provision of 58.2% for the six months
ended June 30, 1996. The net deferred tax asset increased to $8.2 million as of
June 30, 1997 from $782,000 at December 31, 1996. The increase in the Company's
net deferred tax asset as of June 30, 1997 as compared to December 31, 1996
primarily resulted from the anticipation that the pre-tax losses incurred in the
first six months of 1997 will be used to offset future taxable income.
The Company's income tax provision increased to $6.9 million for the year
ended December 31, 1996 from $5.2 million for the year ended December 31, 1995.
The Company's effective tax rate increased to 86% for the year ended December
31, 1996 from 51% for the year ended December 31, 1995.
S-31
<PAGE>
The increase for the year ended December 31, 1996 as compared to the year ended
December 31, 1995 primarily related to certain financial reporting and income
tax differences attributable to certain 1995 and 1996 Acquisitions, and state
franchise taxes which are independent of pre-tax income.
The net deferred tax asset decreased to $782,000 as of December 31, 1996
from $21.0 million at December 31, 1995. The decrease in the Company's net
deferred tax asset as of December 31, 1996 as compared to December 31, 1995 is
primarily due to the Company recording deferred tax liabilities of $18.1 million
relating to the acquisition of all of the outstanding stock of Superior in May
1996, adjustments related to certain 1995 acquisitions, and resulting
differences between the book and tax basis of the underlying assets.
A $1.8 million net tax provision and a $647,000 tax benefit was recognized
for the years ended December 31, 1995 and December 31, 1994, respectively. The
provision for the year ended December 31, 1995 was comprised of $5.2 million
provision relating to the Company's income before provision for income taxes and
extraordinary item offset by a $3.4 million income tax benefit relating to the
extraordinary loss on early extinguishment of debt. The $5.2 million tax
provision reflects a 51% effective tax rate for the year ended December 31,
1995, which is higher than the statutory rate primarily due to the
non-deductibility of goodwill relating to the repurchase of Common Stock in
1990. The income tax benefit for the year ended December 31, 1994 was 19.1% of
the Company's loss before income taxes, which is lower than the benefit
calculated at statutory rates primarily due to non-deductible goodwill
amortization. After giving effect to these changes the Company had net deferred
tax assets of $21.0 million at December 31, 1995 and $12.5 million at December
31, 1994, respectively.
SEASONALITY
The Company's results usually are subject to seasonal fluctuations, which
result in fourth quarter broadcast operating income usually being greater than
first, second and third quarter broadcast operating income. This seasonality is
primarily attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership during this period.
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<PAGE>
INDUSTRY OVERVIEW
TELEVISION BROADCASTING
Commercial television stations in the United States are typically
affiliated with one of six television networks, which are at different stages of
development. The networks are differentiated in part by the amount of
programming they provide their affiliates each week and by the length of time
they have been in operation. These networks are ABC, CBS, NBC, FOX, WB, and UPN.
The ABC, CBS, and NBC networks (the "Traditional Networks") have a substantial
number of affiliated stations, have been in operation for the longest time and
provide the majority of their affiliates' programming each day. Fox established
an affiliate network in the mid-`80s and provides fewer hours of prime-time and
daytime programming than the Traditional Networks. WB and UPN, the newest
television networks, will soon increase their prime-time programming from three
to four nights and also provide a number of hours of children's programming each
week. Television stations affiliated with Fox, WB, or UPN have more hours of the
day to program and consequently have more commercial inventory to sell to
advertisers.
Each Traditional Network provides the majority of its affiliates'
programming each day without charge in exchange for a substantial majority of
the available advertising time in the programs supplied. Each Traditional
Network sells this advertising time and retains the revenue. The affiliate
receives compensation from the Traditional Network and retains the revenue from
time sold during breaks in and between network programs and in programming the
affiliate produces or purchases from non-network sources.
In contrast, a station that is not affiliated with a Traditional Network
supplies over-the-air programming by acquiring rights to broadcast programs
through syndication. This syndicated programming is generally acquired by such
stations for cash and barter. Those stations that acquire a program through
syndication are usually given exclusive rights to show the program in the
station's market for either a period of years or a number of episodes agreed
upon between the station and the syndicator of the programming. Types of
syndicated programs aired on these stations include feature films, popular
series previously shown on network television and series produced for direct
distribution to television stations.
Fox has established a network of television stations that operates on a
basis similar to the Traditional Networks. However, the 15 hours per week of
prime-time programming supplied by Fox to its affiliates are significantly less
than that of the Traditional Networks and, as a result, Fox affiliates retain a
significantly higher portion of the available inventory of broadcast time for
their own use than Traditional Network affiliates. As of December 31, 1996, Fox
had 169 affiliated stations broadcasting to 95.0% of U.S. television households.
During 1994, WB established an affiliation of independent stations which
began broadcasting in January 1995 and operates on a basis similar to Fox.
However, WB currently supplies only six hours of prime-time programming per week
to its affiliates (which will increase to eight hours per week in January 1998),
which is significantly less than that of Fox and, as a result, WB affiliates
retain a significantly higher portion of the available inventory of broadcast
time for their own use than affiliates of Fox or the Traditional Networks. As of
December 31, 1996, WB had 96 affiliated stations broadcasting to 86.0% of U.S.
television households, including cable coverage provided by WGN-TV.
During 1994, UPN established an affiliation of independent television
stations that began broadcasting in January 1995. The amount of prime-time
programming supplied by UPN to its affiliates in January 1997 was six hours per
week, which will be increased in the 1997 fall season to eight hours per week.
As of December 31, 1996, UPN had 91 affiliated stations broadcasting to 73.9% of
U.S. television households, excluding secondary affiliations.
Television stations derive their revenues primarily from the sale of
national, regional and local advertising. All network-affiliated stations,
including those affiliated with Fox and others, are required to carry spot
advertising sold by their networks. This reduces the amount of advertising
available for sale directly by the network-affiliated stations. Network
affiliates generally are compensated for the broadcast of network advertising.
The compensation paid is negotiated, station-by-station, based on a fixed
formula, subject to certain adjustments. Stations directly sell all of the
remaining advertising to be
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<PAGE>
inserted in network programming and all of the advertising in non-network
programming, retaining all of the revenues received from these sales of
advertising, less any commissions paid. Through barter and cash-plus-barter
arrangements, however, a national syndicated program distributor typically
retains a portion of the available advertising time for programming it supplies,
in exchange for no or reduced fees to the station for such programming.
Advertisers wishing to reach a national audience usually purchase time
directly from the Traditional Networks, the Fox network, UPN, or WB, or
advertise nationwide on an ad hoc basis. National advertisers who wish to reach
a particular regional or local audience buy advertising time directly from local
stations through national advertising sales representative firms. Additionally,
local businesses purchase advertising time directly from the stations' local
sales staff. Advertising rates are based upon factors which include the size of
the DMA in which the station operates, a program's popularity among the viewers
that an advertiser wishes to attract, the number of advertisers competing for
the available time, demographic characteristics of the DMA served by the
station, the availability of alternative advertising media in the DMA,
aggressive and knowledgeable sales forces and the development of projects,
features and marketing programs that tie advertiser messages to programming.
Because broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, will adversely affect
the broadcast business. Conversely, increases in advertising budgets may
contribute to an increase in the revenue and operating cash flow of a particular
broadcast television station.
Information regarding competition in the television broadcast industry is
set forth under "Business of Sinclair -- Competition."
RADIO BROADCASTING
The primary source of revenues for radio stations is the sale of
advertising time to local and national spot advertisers and national network
advertisers. During the past decade, local advertising revenue as a percentage
of total radio advertising revenue in a given market has ranged from
approximately 79% to 82%. The growth in total radio advertising revenue tends to
be fairly stable and has generally grown at a rate faster than the Gross
Domestic Product ("GDP"). Total domestic radio advertising revenue reached an
all-time record of $12.3 billion in 1996, as reported by the Radio Advertising
Bureau (the "RAB").
According to the RAB's Radio Marketing Guide and Fact Book for Advertisers,
1997, radio reaches approximately 95% of all Americans over the age of 12 every
week. More than one half of all radio listening is done outside the home, in
contrast to other advertising media. The average adult listener spends
approximately three hours and 20 minutes per weekday listening to radio. Most
radio listening occurs during the morning, particularly between the time a
listener wakes up and the time the listener reaches work. This "morning drive
time" period reaches more than 80% of people over the age of 12 and, as a
result, radio advertising sold during this period achieves premium advertising
rates. Radio listeners have gradually shifted over the years from AM to FM
stations. FM reception, as compared to AM, is generally clearer and provides
greater total range and higher fidelity, except for so-called "clear channel" AM
radio stations, which have the maximum range of any type of station and can be
very successful in the news/talk/sports format. In comparison to AM, FM's
listener share is now in excess of 75%, despite the fact that the number of AM
and FM commercial stations in the United States is approximately equal.
Radio is considered an efficient, cost-effective means of reaching
specifically identified demographic groups. Stations are typically classified by
their on-air format, such as country, adult contemporary, oldies and news/talk.
A station's format and style of presentation enable it to target certain
demographics. By capturing a specific share of a market's radio listening
audience, with particular concentration in a targeted demographic, a station is
able to market its broadcasting time to advertisers seeking to reach a specific
audience. Advertisers and stations utilize data published by audience measuring
services, such as Arbitron, to estimate how many people within particular
geographical markets and demographics listen to specific stations.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format of
a particular station and the local competitive envi-
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<PAGE>
ronment. Although the number of advertisements broadcast during a given time
period may vary, the total number of advertisements broadcast on a particular
station generally does not vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station
usually will engage a firm that specializes in soliciting radio advertising
sales on a national level. National sales representatives obtain advertising
principally from advertising agencies located outside the station's market and
receive commissions based on the revenue from the advertising obtained.
Information regarding competition in the radio broadcast industry is set
forth under "Business of Sinclair -- Competition."
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<PAGE>
BUSINESS OF 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 pursuant to Local Marketing Agreements (LMAs) to 29
television stations, has pending acquisitions of four additional television
stations, and has pending acquisitions of the rights to provide programming to
two additional 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 sales services to 27 radio
stations, has pending acquisitions of 24 radio stations, and has options to
acquire an additional seven radio stations.
The 29 television stations the Company owns or programs pursuant to LMAs
are located in 21 geographically diverse markets, with 23 of the stations in the
top 51 television DMAs in the United States. The Company's television station
group is diverse in network affiliation, with ten stations affiliated with Fox,
12 with UPN, three with WB, two with ABC and one with CBS. One station operates
as an independent. The Company has recently entered into an agreement with WB
pursuant to which seven of its stations would switch affiliations to, and one
independent station would become affiliated with, WB. See "-- Television
Broadcasting -- Programming and Affiliations," below.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
album/progressive rock and adult contemporary. Of the 27 stations owned,
programmed or with which the Company has a JSA, 12 broadcast on the AM band and
15 on the FM band. The Company owns, programs or has a JSA with from two to
eight stations in all but one of the eight radio markets it serves.
The Company has undergone rapid and significant growth over the course of
the last six years. Since 1991, the Company has increased the number of stations
it owns or provides services to from three television stations to 29 television
stations and 27 radio stations. From 1991 to 1996, net broadcast revenues and
Adjusted EBITDA increased from $39.7 million to $346.5 million and from $15.5
million to $180.3 million, respectively. Pro forma for the 1996 Acquisitions and
the Heritage Acquisition, 1996 net broadcast revenues and Adjusted EBITDA would
have been $532.4 million and $246.3 million, respectively.
S-36
<PAGE>
TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET(C) RANK(D) FCC LICENSE
- ----------------------------- --------- ---------- ------------ --------- ------------- --------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pittsburgh, Pennsylvania .... 19 WPGH O&O 53 FOX 6 4 8/1/99
WPTT LMA 22 UPN 5 8/1/99
Sacramento, California ...... 20 KOVR O&O 13 CBS 8 3 2/1/99
St. Louis, Missouri ......... 21 KDNL O&O 30 ABC 7 5 2/1/98
Baltimore, Maryland ......... 23 WBFF O&O 45 FOX 5 4 10/1/04
WNUV LMA 54 UPN 5 10/1/04
Indianapolis, Indiana ...... 25 WTTV LMA(e) 4 UPN 8 4 8/1/97 (f)
WTTK LMA(e)(g) 29 UPN 4 8/1/97 (f)
Raleigh-Durham,
North Carolina ............ 29 WLFL O&O 22 FOX 5 3 12/1/04
WRDC LMA 28 UPN 5 12/1/04
Cincinnati, Ohio ............ 30 WSTR O&O 64 UPN 5 5 10/1/97 (f)
Milwaukee, Wisconsin ...... 31 WCGV O&O 24 UPN 6 4 12/1/97 (f)
WVTV LMA 18 WB 5 12/1/97 (f)
Kansas City, Missouri ...... 32 KSMO O&O 62 UPN 5 5 2/1/98
Columbus, Ohio ............ 34 WTTE O&O 28 FOX 5 4 10/1/97 (f)
Asheville, North Carolina
and Greenville/
Spartanburg/Anderson,
South Carolina ......... 35 WFBC LMA 40 IND(h) 6 5 12/1/04
WLOS O&O 13 ABC 6 3 12/0/04
San Antonio, Texas ......... 38 KABB O&O 29 FOX 7 4 8/1/98
KRRT LMA 35 UPN 6 8/1/98
Norfolk, Virginia ......... 40 WTVZ O&O 33 FOX 6 4 10/1/04
Oklahoma City,
Oklahoma .................. 43 KOCB O&O 34 UPN 7 5 6/1/98
Birmingham, Alabama ......... 51 WTTO O&O 21 WB 5 4 4/1/05
WABM LMA 68 UPN 5 4/1/05
Charleston and Hunting-
ton, West Virginia 56 WCHS Pending 8 ABC 4 3 10/10/00
Mobile, Alabama and
Pensacola, Florida ......... 61 WEAR Pending 3 ABC 6 2 2/1/02
WFGX Pending(i) 35 WB 6 4/1/02
Flint/Saginaw/Bay City,
Michigan .................. 62 WSMH O&O 66 FOX 5 4 10/1/97 (f)
Las Vegas, Nevada ......... 64 KUPN O&O 21 UPN 8 5 10/1/98
Lexington, Kentucky ......... 68 WDKY O&O 56 FOX 5 4 8/1/05
Des Moines, Iowa ............ 71 KDSM O&O 17 FOX 4 4 2/1/98
Burlington, Vermont and
Plattsburgh, New York 91 WPTZ Pending 5 NBC 4 2 1/1/99
WNNE Pending(j) 31 NBC 3 4/1/99
WFFF Pending(i) 44 FOX (k) 4/1/99
Peoria/Bloomington,
Illinois .................. 110 WYZZ O&O 43 FOX 4 4 12/1/97 (f)
Tuscaloosa, Alabama ......... 185 WDBB LMA(l) 17 WB 2 2 4/1/05
</TABLE>
(footnotes on following page)
- ----------
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<PAGE>
(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
"-- 1997 Acquisitions."
(c) Represents the number of television stations designated by Nielsen as
"local" to the DMA, excluding public television stations and stations which
do not meet the minimum Nielsen reporting standards (weekly cumulative
audience of at least 2.5%) for the Sunday-Saturday, 6:00 a.m. to 2:00 a.m.
time period.
(d) The rank of each station in its market is based upon the November 1996
Nielsen estimates of the percentage of persons tuned to each station in the
market from 6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) Non-License Assets acquired from River City Broadcasting, L.P. ("River
City") and option exercised to acquire License Assets will become owned and
operated upon FCC approval of transfer of License Assets and closing of
acquisition of License Assets.
(f) License renewal application pending.
(g) WTTK currently simulcasts all of the programming aired on WTTV and the
station rank applies to the combined viewership of these stations.
(h) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, WB or UPN.
(i) The Company will provide programming services to this station upon
completion of the Heritage Acquisition.
(j) WNNE currently simulcasts the programming broadcast on WPTZ.
(k) This station began broadcast operations in August 1997 and has not yet
established a rank.
(l) WDBB simulcasts the programming broadcast on WTTO.
Operating Strategy
The Company's television operating strategy includes the following key
elements:
Attracting Viewership
The Company seeks to attract viewership and expand its audience share
through selective, high-quality programming.
Popular Programming. The Company believes that an important factor in
attracting viewership to its stations is their network affiliations with Fox,
WB, ABC, CBS and UPN. These affiliations enable the Company to attract viewers
by virtue of the quality first-run original programming provided by these
networks and the networks' promotion of such programming. The Company also seeks
to obtain, at attractive prices, popular syndicated programming that is
complementary to the station's network affiliation. Examples of popular
syndicated programming obtained by the Company for broadcast on its Fox, WB and
UPN affiliates and Independent stations are "Mad About You," "Frasier," "The
Simpsons," "Home Improvement" and "Seinfeld." In addition to network
programming, the Company's ABC and CBS affiliates broadcast news magazine, talk
show, and game show programming such as "Hard Copy," "Entertainment Tonight,"
"Regis and Kathie Lee," "Wheel of Fortune" and "Jeopardy."
Children's Programming. The Company seeks to be a leader in children's
programming in each of its respective DMAs. The Company's nationally recognized
"Kids Club" was the forerunner and model for the Fox network-wide marketing
efforts promoting children's programming. Sinclair carries the Fox Children's
Network ("FCN") and WB's and UPN's children's programming, all of which include
significant amounts of animated programming throughout the week. In those
markets where the Company owns or programs ABC or CBS affiliates, the Company
broadcasts those networks' animated programming during weekends. In addition to
this animated programming, the Company broadcasts other forms of children's
programming, which may be produced by the Company or by an affiliated network.
Counter-Programming. The Company's programming strategy on its Fox, WB, UPN
and Independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
program-
S-38
<PAGE>
ming on competing stations. The Company believes that implementation of this
strategy enables its stations to achieve competitive rankings in households in
the 18-49 and 25-54 demographics and to offer greater diversity of programming
in each of its DMAs.
Local News. The Company believes that the production and broadcasting of
local news can be an important link to the community and an aid to the station's
efforts to expand its viewership. In addition, local news programming can
provide access to advertising sources targeted specifically to local news. The
Company carefully assesses the anticipated benefits and costs of producing local
news prior to introduction at a Company station because a significant investment
in capital equipment is required and substantial operating expenses are incurred
in introducing, developing and producing local news programming. The Company
currently provides local news programming at WBFF and WNUV in Baltimore, WLFL in
Raleigh/Durham, KDNL in St. Louis, KABB in San Antonio, KOVR in Sacramento, WPGH
in Pittsburgh and WLOS in Asheville. The Company also broadcasts news programs
on WDKY in Lexington, which are produced in part by the Company and in part
through the purchase of production services from an independent third party and
on WTTV in Indianapolis, which are produced by a third party in exchange for a
limited number of advertising spots. River City provides the Company news
production services with respect to the production of news programming and on
air talent on WTTE. Pursuant to an agreement, River City provides certain
services to the Company in return for a fee equal to approximately $416,000 per
year. The possible introduction of local news at the other Company stations is
reviewed periodically. The Company's policy is to institute local news
programming at a specific station only if the expected benefits of local news
programming at the station are believed to exceed the associated costs after an
appropriate start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's WB and UPN affiliated and independent stations generally face fewer
restrictions on broadcasting live local sporting events than do their
competitors that are affiliates of the major networks and Fox since affiliates
of the major networks and Fox are subject to prohibitions against preemptions of
network programming. The Company has been able to acquire the local television
broadcast rights for certain sporting events, including NBA basketball, Major
League Baseball, NFL football, NHL hockey, ACC basketball, Big Ten football and
basketball, and SEC football. The Company seeks to expand its sports
broadcasting in DMAs as profitable opportunities arise. In addition, the
Company's stations that are affiliated with Fox, ABC and CBS broadcast certain
Major League Baseball games, NFL football games and NHL hockey games as well as
other popular sporting events.
Innovative Local Sales and Marketing
The Company believes that it is able to attract new advertisers to its
stations and increase its share of existing customers' advertising budgets by
creating a sense of partnership with those advertisers. The Company develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to advertisers. These campaigns often involve the sponsorship by
advertisers of local promotional events that capitalize on the station's local
identity and programming franchises. For example, several of the Company's
stations stage local "Kids Fairs" which allow station advertisers to reinforce
their on-air advertising with their target audience. Through its strong local
sales and marketing focus, the Company seeks to capture an increasing share of
its revenues from local sources, which are generally more stable than national
advertising.
Control of Operating and Programming Costs
By employing a disciplined approach to managing programming acquisition and
other costs, the Company has been able to achieve operating margins that the
Company believes are among the highest in the television broadcast industry. The
Company has sought and will continue to seek to acquire quality programming for
prices at or below prices paid in the past. As an owner or provider of
programming services to 29 stations in 21 DMAs reaching approximately 15% of
U.S. television households (without giving effect to the Heritage Acquisition),
the Company believes that it is able to negotiate favorable terms for the
acquisition of programming. Moreover, the Company emphasizes control of each of
its stations' programming and operating costs through program-specific profit
analysis, detailed budgeting, tight control over staffing levels and detailed
long-term planning models.
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<PAGE>
Attract and Retain High Quality Management
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to general
managers, sales managers and other station managers is based on their achieving
certain operating results. The Company also provides its corporate and station
managers with deferred compensation plans offering options to acquire Class A
Common Stock.
Community Involvement
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employees to become
active members of their communities and to promote involvement in community and
charitable affairs. The Company believes that active community involvement by
its stations provides its stations with increased exposure in their respective
DMAs and ultimately increases viewership and advertising support.
Establish LMAs
The Company believes that it can attain significant growth in operating
cash flow through the utilization of LMAs. By expanding its presence in a market
in which it owns a station, the Company can improve its competitive position
with respect to a demographic sector. In addition, by providing programming
services to an additional station in a market, the Company is able to realize
significant economies of scale in marketing, programming, overhead and capital
expenditures. The Company provides programming services pursuant to an LMA to an
additional station in seven of the 21 television markets in which the Company
owns or programs a station.
Programming and Affiliations
The Company continually reviews its existing programming inventory and
seeks to purchase the most profitable and cost-effective syndicated programs
available for each time period. In developing its selection of syndicated
programming, the Company balances the cost of available syndicated programs with
their potential to increase advertising revenue and the risk of their reduced
popularity during the term of the program contract. The Company seeks to
purchase only those programs with contractual periods that permit programming
flexibility and which complement a station's overall programming strategy and
counter-programming strategy. Programs that can perform successfully in more
than one time period are more attractive due to the long lead time and
multi-year commitments inherent in program purchasing.
Twenty-eight of the 29 television stations owned or provided programming
services by the Company currently operate as affiliates of Fox (ten stations),
UPN (twelve stations), ABC (two stations), WB (three stations) or CBS (one
station). The networks produce and distribute programming in exchange for each
station's commitment to air the programming at specified times and for
commercial announcement time during the programming. In addition, networks other
than Fox and UPN pay each affiliated station a fee for each network-sponsored
program broadcast by the stations.
On August 21, 1996, the Company entered into an agreement with Fox (the
"Fox Agreement") which, among other things, provides that the affiliation
agreements between Fox and eight stations owned or provided programming services
by the Company (except as noted below) would be amended to have new five-year
terms commencing on the date of the Fox Agreement. Fox has the option to extend
the affiliation agreements for additional five-year terms and must extend all of
the affiliation agreements if it extends any (except that Fox may selectively
renew affiliation agreements if any station has breached its affiliation
agreement). The Fox Agreement also provides that the Company will have the right
to purchase, for fair market value, any station Fox acquires in a market
currently served by a Company-owned Fox affiliate (other than the Norfolk and
Raleigh-Durham markets) if Fox determines to terminate the affiliation agreement
with the Company's station in that market and operate the station acquired by
Fox as a Fox affiliate. The Fox Agreement confirmed that the affiliation
agreements for WTVZ-TV (Norfolk, Virginia) and WLFL-TV
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<PAGE>
(Raleigh, North Carolina) will terminate August 31, 1998. The Fox Agreement also
includes provisions limiting the ability of the Company to preempt Fox
programming except where it has existing programming conflicts or where the
Company preempts to serve a public purpose.
The Company's affiliation agreements with ABC for KDNL and WLOS in St.
Louis and Asheville, respectively, have ten-year terms expiring in 2005 and
2004, respectively. Each of the Company's current UPN affiliation agreements
expires in January 1998 unless renewed by the Company.
On July 4, 1997, the Company entered into an agreement with WB, pursuant to
which the Company agreed that certain stations currently affiliated with UPN
would terminate their affiliations with UPN at the end of the current
affiliation term in January 1998, and would enter into affiliation agreements
with WB effective as of that date. The Company has advised UPN that the
following stations owned or provided programming services by the Company will
not renew their affiliation agreements with UPN when the current agreements
expire on January 15, 1998: WPTT-TV, Pittsburgh, Pennsylvania, WNUV-TV,
Baltimore, Maryland. WSTR-TV, Cincinnati, Ohio, KRRT-TV, San Antonio, Texas, and
KOCB-TV, Oklahoma City, Oklahoma. These stations will enter into ten-year
affiliation agreements with WB beginning on January 16, 1998. Pursuant to the WB
Agreement, the WB affiliation agreements of WVTV-TV, Milwaukee, Wisconsin, and
WTTO-TV, Birmingham, Alabama (whose programming is simulcasted on WDBB-TV,
Tuscaloosa, Alabama), have been extended to January 16, 2008. In addition,
WFBC-TV in Greenville, South Carolina will become affiliated with WB on November
1, 1999 when WB's current affiliation with another station in that market
expires. WTVZ-TV, Norfolk, Virginia and WLFL-TV, Raleigh, North Carolina, will
become affiliated with WB when their affiliations with Fox expire. These Fox
affiliations are scheduled to expire on August 31, 1998.
Under the terms of the WB Agreement, WB has agreed to pay the Company $64
million in aggregate amount in monthly installments during the first eight years
commencing on January 16, 1998 in consideration for entering into affiliation
agreements with WB. In addition, WB will be obligated to pay an additional $10
million aggregate amount in monthly installments in each of the following two
years provided that WB is in the business of supplying programming as a
television network during each of those years.
In August 1997, UPN filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998.
Each of the affiliation agreements relating to stations involved in the
River City Acquisition (other than River City's Fox and ABC affiliates) is
terminable by the network upon transfer of the License Assets of the station.
Since transfer of the License Assets, no such affiliation agreement has been
terminated.
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<PAGE>
RADIO BROADCASTING
The following table sets forth certain information regarding the radio
stations (i) owned and operated by the Company, (ii) programmed by the Company,
(iii) with which the Company has a JSA, or (iv) which the Company has an option
or has agreed to acquire:
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(A) REVENUE(B) FORMAT TARGET(C) TARGET(D) LICENSE
- ------------------------- ------------ --------------------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Los Angeles, California 1
KBLA-AM(e) Korean N/A(e) N/A(e) 12/1/97(f)
St. Louis, Missouri 18
KPNT-FM Alternative Rock Adults 18-34 2 2/1/05
WVRV-FM Modern Adult Contemporary Adults 18-34 3 12/1/04
WRTH-AM(g) Adult Standards Adults 25-54 20 2/2/04
WIL-FM(g) Country Adults 25-54 7 2/2/04
KIHT-FM(g) 70s Rock Adults 25-54 11 2/1/05
Portland, Oregon 22
KKSN-AM(g) Adult Standards Adults 25-54 28 2/1/98
KKSN-FM(g) 60s Oldies Adults 25-54 5 2/1/98
KKRH-FM(g) 70s Rock Adults 25-54 7 2/1/98
Kansas City, Missouri 29
KCAZ-AM(g)(h) Children's N/A(h) N/A(h)
KCFX-FM(g) 70s Rock Adults 25-54 1 6/1/97
KQRC-FM(g) Active Rock Adults 18-34 2 6/1/97
KCIY-FM(g) Smooth Jazz Adults 25-54 11 4/2/01
KXTR-FM(g) Classical Adults 25-54 18 4/2/01
Milwaukee, Wisconsin 32
WEMP-AM(g) 60s Oldies Adults 25-54 26 12/1/00
WMYX-FM(g) Adult Contemporary Adults 25-54 6 12/1/00
WAMG-FM(g) Rhythmic Adults 25-54 15 12/1/03
Nashville, Tennessee 34
WLAC-FM Adult Contemporary Women 25-54 5 8/1/04
WJZC-FM Smooth Jazz Women 25-54 9 8/1/04
WLAC-AM News/Talk/Sports Adults 35-64 9 8/1/04
New Orleans, Louisiana 38
WLMG-FM Adult Contemporary Women 25-54 4 6/1/04
KMEZ-FM Urban Oldies Women 25-54 6 6/1/04
WWL-AM News/Talk/Sports Adults 35-64 1 6/1/04
WSMB-AM Talk/Sports Adults 35-64 17 6/1/04
WBYU-AM(g) Adult Standards Adults 25-54 19 6/1/98
WEZB-FM(g) Adult Contemporary Adults 25-54 10 6/1/05
WRNO-FM(g) 70s Rock Adults 25-54 8 6/1/01
Memphis, Tennessee 40
WRVR-FM Soft Adult Contemporary Women 25-54 2 8/1/04
WJCE-AM Urban Oldies Women 25-54 13 8/1/04
WOGY-FM Country Adults 25-54 7 8/1/04
Norfolk, Virginia 41
WGH-AM(g) Sports Talk Adults 25-54 18 12/1/01
WGH-FM(g) Country Adults 25-54 3 12/1/01
WVCL-FM(g) 60s Oldies Adults 25-54 10 12/1/01
Buffalo, New York 42
WMJQ-FM Adult Contemporary Women 25-54 2 6/1/98
WKSE-FM Contemporary Hit Radio Women 18-49 1 6/1/98
WBEN-AM News/Talk/Sports Adults 35-64 6 6/1/98
WWKB-AM Country Adults 35-64 18 6/1/98
WGR-AM Sports Adults 25-54 9 6/1/98
WWWS-AM Urban Oldies Women 25-54 11 6/1/98
(con
</TABLE>
S-42
<PAGE>
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(A) REVENUE(B) FORMAT TARGET(C) TARGET(D) LICENSE
- ------------------------ ------------ ------------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Rochester, New York 53
WBBF-AM(g) Adult Standards Adults 25-54 23 6/1/98
WBEE-FM(g) Country Adults 25-54 1 6/1/98
WKLX-FM(g) 60s Oldies Adults 25-54 7 6/1/98
WQRV-FM(g) Classic Hits Adults 25-54 9 6/1/98
Asheville/Greenville/ 60
Spartanburg, South
Carolina
WFBC-FM(i) Contemporary Hit Radio Women 18-49 4 12/1/03
WORD-AM(i) News/Talk Adults 35-64 9 12/1/03
WYRD-AM(i) News/Talk Adults 35-64 10 12/1/03
WSPA-AM(i) Full Service/Talk Adults 35-64 15 12/1/03
WSPA-FM(i) Soft Adult Contemporary Women 25-54 4 12/1/03
WOLI-FM(i) Oldies Adults 25-54 9 12/1/03
WOLT-FM(i) Oldies Adults 25-54 11 12/1/03
Wilkes-Barre/Scranton, 68
Pennsylvania
WKRZ-FM(j) Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM Country Adults 25-54 2 8/1/98
WILK-AM(k) News/Talk/Sports Adults 35-64 8 8/1/98
WGBI-AM(k) News/Talk/Sports Adults 35-64 20 8/1/98
WWSH-FM(l)(m) Soft Hits Women 25-54 7 8/1/98
WILP-AM(k) News/Talk/Sports Adults 35-64 19 8/1/98
WWFH-FM(m) Soft Hits Women 25-54 10 8/1/98
WKRF-FM(j) Contemporary Hit Radio Adults 18-49 17 8/1/98
</TABLE>
- ----------
(a) Actual city of license may differ from the geographic market served.
(b) Ranking of the principal radio market served by the station among all U.S.
radio markets by 1996 aggregate gross radio broadcast revenue according to
Duncan's Radio Market Guide -- 1997 Edition.
(c) Due to variations that may exist within programming formats, the primary
demographic target of stations with the same programming format may be
different.
(d) All information concerning ratings and audience listening information is
derived from the Spring 1997 Arbitron Metro Area Ratings Survey (the
"Spring 1997 Arbitron"). Arbitron is the generally accepted industry source
for statistical information concerning audience ratings. Due to the nature
of listener surveys, other radio ratings services may report different
rankings; however, the Company does not believe that any radio ratings
service other than Arbitron is accorded significant weight in the radio
broadcast industry. "Station Rank in Primary Demographic Target" is the
ranking of the station among all radio stations in its market that are
ranked in its target demographic group and is based on the station's
average persons share in the primary demographic target in the applicable
Metro Survey Area. Source: Average Quarter Hour Estimates, Monday through
Sunday, 6:00 a.m. to midnight, Spring 1997 Arbitron.
(e) Programming is provided to this station by a third party pursuant to an
LMA.
(f) License renewal application pending.
(g) The Company has the right to acquire the assets of this station in the
Heritage Acquisition.
(h) This station is being programmed by a third party pursuant to an LMA. The
third party has an option to acquire this station for $550,000 which
expires on September 30, 1997.
(i) The Company has an option to acquire Keymarket of South Carolina, Inc.
("Keymarket" or "KSC"). Keymarket owns and operates WYRD-AM, WORD-AM and
WFBC-FM, and has exercised its option to acquire WSPA-AM and WSPA-FM, and
provides sales services pursuant to a JSA and has an option to acquire
WOLI-FM and WOLT-FM.
(j) WKRZ-FM and WKRF-FM simulcast their programming.
(k) WILK-AM, WGBI-AM and WILP-AM simulcast their programming.
(l) The Company has agreed to acquire this station and has obtained FCC
approval to acquire the related licenses. The Company is currently
providing sales services to this station pursuant to a JSA.
(m) WWSH-FM and WWFH-FM simulcast their programming.
S-43
<PAGE>
Radio Operating Strategy
The Company's radio strategy is to operate a cluster of radio stations in
selected geographic markets throughout the country. In each geographic market,
the Company employs broadly diversified programming formats to appeal to a
variety of demographic groups within the market. The Company seeks to strengthen
the identity of each of its stations through its programming and promotional
efforts, and emphasizes that identity to a far greater degree than the identity
of any local radio personality.
The Company believes that its strategy of appealing to diverse demographic
groups in selected geographic markets allows it to reach a larger share of the
overall advertising market while realizing economies of scale and avoiding
dependence on one demographic or geographic market. The Company realizes
economies of scale by combining sales and marketing forces, back office
operations and general management in each geographic market. At the same time,
the geographic diversity of its portfolio of radio stations helps lessen the
potential impact of economic downturns in specific markets and the diversity of
target audiences served helps lessen the impact of changes in listening
preferences. In addition, the geographic and demographic diversity allows the
Company to avoid dependence on any one or any small group of advertisers.
The Company's group of radio stations includes the top billing station
group in two markets and one of the top three billing station groups in each of
its markets other than Los Angeles, St. Louis and Nashville. Through ownership
or LMAs, the group also includes duopolies in six of its seven markets and, upon
exercise of options to acquire stations in the Asheville/Greenville/Spartanburg
market, the Company will have duopolies in seven of its eight markets.
Depending on the programming format of a particular station, there are a
predetermined number of advertisements broadcast each hour. The Company
determines the optimum number of advertisements available for sale during each
hour without jeopardizing listening levels (and the resulting ratings). Although
there may be shifts from time to time in the number of advertisements available
for sale during a particular time of day, the total number of advertisements
available for sale on a particular station normally does not vary significantly.
Any change in net radio broadcasting revenue, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments made to ensure that the station effectively uses advertising
time available for sale, an increase in the number of commercials sold or a
combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in
each of its radio markets. The Company's principal goal is to utilize its sales
efforts to develop long-standing customer relationships through frequent direct
contacts, which the Company believes provides it with a competitive advantage.
Additionally, in some radio markets, duopolies permit the Company to offer
creative advertising packages to local, regional and national advertisers. Each
radio station programmed by the Company also engages a national independent
sales representative to assist it in obtaining national advertising revenues.
These representatives obtain advertising through national advertising agencies
and receive a commission from the radio station based on its gross revenue from
the advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. The 1996 Act represents the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934, as
amended (the "Communications Act"). The 1996 Act relaxes the broadcast ownership
rules and simplifies the process for renewal of broadcast station licenses.
The Company believes that the enactment of the 1996 Act presents a unique
opportunity to build a larger and more diversified broadcasting company.
Additionally, the Company expects that the opportunity to act as one of the
consolidators of the industry will enable the Company to gain additional
influence with program suppliers, television networks, other vendors, and
alternative delivery media. The additions to the Company's management team as a
result of the River City Acquisition have given it additional resources to take
advantage of these developments.
S-44
<PAGE>
In implementing its acquisition strategy, the Company seeks to identify and
pursue favorable station or group acquisition opportunities primarily in the
15th to 75th largest DMAs and Metro Service Areas ("MSAs"). In assessing
potential acquisitions, the Company examines opportunities to improve revenue
share, audience share and/or cost control. Additional factors considered by the
Company in a potential acquisition include geographic location, demographic
characteristics and competitive dynamics of the market. The Company also
considers the opportunity for cross-ownership of television and radio stations
and the opportunity it may provide for cross-promotion and cross-selling.
In conjunction with its acquisitions, the Company may determine that
certain of the acquired stations may not be consistent with the Company's
strategic plan. In such an event, the Company reviews opportunities for swapping
such stations with third parties for other stations or selling such stations
outright. The Heritage Acquisition may provide such opportunities.
Since the 1996 Act became effective, the Company has acquired, obtained
options to acquire or has acquired the right to program or provide sales
services to 18 television and 34 radio stations for an aggregate consideration
of approximately $1.3 billion. Certain terms of these acquisitions are described
below:
River City Acquisition. On May 31, 1996, pursuant to an amended and
restated asset purchase agreement, the Company acquired all of the Non-License
Assets of River City other than the assets relating to WSYX-TV in Columbus,
Ohio. Simultaneously, the Company entered into a 10-year LMA with River City
with respect to all of River City's License Assets (with the exception of the
License Assets relating to WSYX-TV). The Company has since exercised options to
acquire all of River City's License Assets other than License Assets relating to
WTTV-TV and WTTK-TV in Indianapolis, Indiana, WSYX-TV in Columbus, Ohio and
WFBC-TV in Greenville, South Carolina. Glencairn has acquired the License Assets
of WFBC-TV, and the Company provides programming services to WFBC-TV pursuant to
an LMA. The Company has a 10-year option (the "License Assets Option") to
acquire River City's License Assets relating to WTTV-TV and WTTK-TV, and a
three-year option to acquire the assets relating to WSYX-TV (both the License
and Non-License Assets, collectively the "Columbus Option"). The exercise price
for the License Assets Option for WTTV-TV and WTTK-TV is $1.9 million and the
Company is required to pay a quarterly extension fee with respect to the License
Assets Option of 15% of the option exercise price through May 3, 1998 and 25% of
the option exercise price thereafter. Acquisition of the License Assets relating
to WTTV-TV and WTTK-TV is now subject to FCC approval of transfer of such
License Assets. There can be no assurance that this approval will be obtained.
An application for transfer of the License Assets was filed in November 1996. A
petition was filed to deny this application and, at the Company's request, the
FCC has withheld action on this application. The petitioner has appealed the
withholding of action on the application.
At the time of the River City Acquisition, the Company also acquired from
another party the Non-License Assets relating to one additional television
station (KRRT-TV in Kerrville, Texas) to which River City provided programming
pursuant to an LMA. Glencairn has acquired the License Assets of KRRT-TV and the
Company provides programming services to KRRT-TV pursuant to an LMA. The Company
has also acquired or has agreed to acquire four radio stations to which River
City provided programming or sales services.
On July 17, 1997, the Company and Glencairn acquired the License Assets of
WLOS-TV and WFBC-TV, respectively. An application for review has been filed
which appeals the FCC's grants of the Company's application to acquire WLOS-TV
in the Asheville/Greenville/Spartanburg market and Glencairn's application to
acquire WFBC-TV in that market.
The Company paid an aggregate of approximately $1.0 billion for the
Non-License Assets and the options to acquire License Assets consisting of
$847.6 million in cash and 1,150,000 shares of Series A Preferred Stock of the
Company and options to acquire 1,382,435 shares of Class A Common Stock at an
exercise price of $30.11. The Series A Preferred Stock has been exchanged for
1,150,000 shares of Series B Preferred Stock of the Company, which at issuance
had an aggregate liquidation value of $115 million and are convertible at any
time, at the option of the holders, into an aggregate of 4,181,818 shares of
Class A Common Stock of the Company (which had a market value on May 31, 1996 of
approximately $125.1 million). The exercise price for the Columbus Option is
approximately $130 mil-
S-45
<PAGE>
lion plus the amount of indebtedness secured by the WSYX assets on the date of
exercise (not to exceed the amount outstanding on the date of closing of $105
million) and the Company is required to pay an extension fee with respect to the
Columbus Option as follows: (i) 8% of $130 million for the first year following
the closing of the River City Acquisition; (ii) 15% of $130 million for the
second year following the closing; and (iii) 25% of $130 million for each
following year. The extension fee accrues beginning on the date of closing, and
is payable (beginning December 31, 1996) at the end of each calendar quarter
until such time as the option is exercised or River City sells WSYX-TV to a
third party, which River City has the right to do in certain limited
circumstances. The Company paid the extension fees due March 31, 1997 and June
30, 1997. The Company has acquired all of the River City License Assets except
those related to WTTV-TV and WTTK-TV, and the Company continues to provide
programming services to WTTV-TV and WTTK-TV pursuant to an LMA with River City.
Pursuant to the LMA with River City, the Company is required to provide at least
166 hours per week of programming to WTTV-TV and WTTK-TV and, subject to certain
exceptions, River City is required to broadcast all programming provided by the
Company. The Company is required to pay River City monthly fees under the LMA
with respect to WTTV-TV and WTTK-TV in an amount sufficient to cover specified
expenses of operating the stations. The Company has the right to sell
advertising time on the stations during the hours programmed by the Company.
The Company and River City filed notification under the HSR Act, with
respect to the Company's acquisition of all River City assets prior to closing
the acquisition. After the United States Justice Department ("DOJ") indicated
that it would request additional information regarding the antitrust
implications of the acquisition of WSYX-TV by the Company in light of the
Company's ownership of WTTE-TV, the Company and River City agreed to submit
separate notifications with respect to the WSYX-TV assets and the other River
City assets. The DOJ then granted early termination of the waiting period with
respect to the transfer of the River City assets other than WSYX-TV, permitting
the acquisition of those assets to proceed. The Company and River City agreed to
notify the DOJ 30 days before entering into an LMA or similar agreement with
respect to WSYX-TV and agreed not to enter into such an agreement until 20 days
after substantially complying with any request for information from DOJ
regarding the transaction. The Company is in the process of preparing a
submission to the DOJ regarding the competitive effects of entering into an LMA
arrangement in Columbus. The Company has agreed to sell the License Assets of
WTTE-TV to Glencairn and to enter into an LMA with Glencairn to provide
programming services to WTTE-TV. The FCC has approved this transaction, but the
Company does not believe that this transaction will be completed unless the
Company acquires WSYX-TV.
In the River City Acquisition, the Company also acquired an option held by
River City to purchase either (i) all of the assets of Keymarket of South
Carolina, Inc. for the forgiveness of debt held by the Company in an aggregate
principal amount of approximately $7.4 million as of August 22, 1997, plus
payment of approximately $1,000,000 less certain adjustments or (ii) all of the
stock of KSC for $1,000,000 less certain adjustments. KSC owns and operates
three radio stations in the Asheville/Greenville/ Spartanburg, South Carolina
MSA (WFBC-FM, WFBC-AM and WORD-AM). The option to acquire the assets or stock of
KSC expire on December 31, 1997. The Company intends to exercise this option in
the fourth quarter of 1997. KSC also holds an option to acquire from Spartan
Radiocasting, Inc. certain assets relating to two additional stations (WSPA-AM
and WSPA-FM) in the Asheville/Greenville/ Spartanburg MSA which KSC currently
programs pursuant to an LMA. KSC's option to acquire these assets is exercisable
for $5.15 million and expires in January 2000, subject to extension to the
extent the applicable LMA is extended beyond that date. KSC also has an option
to acquire assets of Palm Broadcasting Company, L.P., which owns two additional
stations in the Asheville/Greenville/Spartanburg MSA (WOLI-FM and WOLT-FM) in an
amount equal to the outstanding debt of Palm Broadcasting Company, L.P. to the
Company, which was approximately $3.03 million as of March 31, 1997. This option
expires in April 2001. KSC has a JSA with Palm Broadcasting Company, L.P., but
does not provide programming for WOLI or WOLT.
Superior Acquisition. On May 8, 1996, the Company acquired WDKY-TV
(Lexington, Kentucky) and KOCB-TV (Oklahoma City, Oklahoma) by acquiring the
stock of Superior Communications Group, Inc. for approximately $63.5 million.
S-46
<PAGE>
Flint Acquisition. On February 27, 1996 the Company acquired the assets of
WSMH-TV (Flint, Michigan) for approximately $35.8 million by exercising options
granted in 1995.
Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) and on August 1, 1996, it acquired
the assets of WSTR-TV (Cincinnati, Ohio) for approximately $34.2 million.
Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) for approximately $21.2
million.
1997 ACQUISITIONS
Las Vegas Acquisition. On January 30, 1997, the Company entered into an
agreement to acquire the assets of KUPN-TV, the UPN affiliate in Las Vegas,
Nevada, for $87.0 million. The Company completed this acquisition on May 30,
1997.
Heritage Acquisition. On July 16, 1997, the Company entered into the
Heritage Acquisition Agreements with certain subsidiaries of Heritage. Pursuant
to the Heritage Acquisition Agreements, the Company has the right to acquire the
assets of five television stations (the interests in one of which the Company is
required to dispose), programming rights under LMAs with respect to two
additional television stations, and the assets of 24 radio stations. The Company
will acquire the assets of one television station serving the
Charleston/Huntington, West Virginia market, one station in the Mobile, Alabama/
Pensacola, Florida market and rights under an LMA with respect to another
station in that market, and the assets of two stations in the Burlington,
Vermont/Plattsburgh, New York market and the right to provide programming to one
station in that market. The radio stations to be acquired serve the St. Louis,
Missouri market (three stations), the Portland, Oregon market (three stations),
the Kansas City, Missouri market (five stations), the Milwaukee, Wisconsin
market (three stations), the Norfolk, Virginia market (three stations), the New
Orleans, Louisiana market (three stations) and the Rochester, New York market
(four stations). The Heritage Acquisition Agreements also provide for the
acquisition of the assets relating to the operation of a television station in
Oklahoma City, Oklahoma, but the Company is required by the agreements to
dispose of its interest in that station, and the Company has entered into a
letter of intent to sell that station for $60 million in cash.
The aggregate purchase price of the Heritage Acquisition is $630 million
payable in cash at closing, less a deposit of $63 million paid at the time of
signing the Heritage Acquisition Agreements. The Company intends to finance the
purchase price from some combination of the proceeds of the Common Stock
Offering, the proceeds of the Preferred Stock Offering, funds available under
the Bank Credit Agreement, and the expected proceeds ($60 million) from the sale
of interests in the Oklahoma City station.
The Heritage Acquisition is conditioned on, among other things, FCC
approval and the expiration of the applicable waiting period under the HSR Act.
Additional Radio Acquisitions. The Company entered into an agreement on
January 29, 1997 to acquire the assets of WGR-AM and WWWS-AM in Buffalo, New
York, for $1.5 million. The Company's acquisition of 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 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. The Company
completed this acquisition on July 31, 1997. In April 1997, the Company entered
into an agreement to acquire the assets of radio station WWSH-FM in the
Wilkes-Barre/Scranton market. The FCC has approved this acquisition and such
acquisition is expected to close shortly.
Ongoing Discussions. In furtherance of its acquisition strategy, the
Company routinely reviews, and conducts investigations of potential television
and radio station acquisitions. When the Company believes a favorable
opportunity exists, the Company seeks to enter into discussions with the owners
of such stations regarding the possibility of an acquisition by the Company. At
any given time, the Company may be in discussions with one or more such station
owners. The Company is in serious negotia-
S-47
<PAGE>
tions with various parties relating to the acquisition of television and radio
properties which would be acquired for aggregate consideration of approximately
$85 million. In addition, the Company is also in serious negotiations relating
to the disposition of certain radio properties with a value of approximately $35
million, possibly in a swap, for other radio properties which would be more
consistent with the Company's strategic plan of clustering radio stations. Such
agreements could also result in the sale of certain radio stations. There can be
no assurance that any of these or other negotiations will lead to definitive
agreements or if agreements are reached that any transactions would be
consummated.
LOCAL MARKETING AGREEMENTS
The Company currently has LMA arrangements with stations in seven markets
in which it owns a television station: Pittsburgh, Pennsylvania (WPTT),
Baltimore, Maryland (WNUV), Raleigh/Durham, North Carolina (WRDC), Milwaukee,
Wisconsin (WVTV), Birmingham, Alabama (WABM), San Antonio, Texas (KRRT) and
Asheville/Greenville/Spartanburg, South Carolina (WFBC). In addition, the
Company has an LMA arrangement with a station in the Tuscaloosa, Alabama market
(WDBB), which is adjacent to Birmingham. In each of these markets, other than
Pittsburgh and Tuscaloosa, the LMA arrangement is with Glencairn and the Company
owns the Non-License Assets of the stations. The Company owns the assets of one
radio station (KBLA-AM in Los Angeles) which an independent third party programs
pursuant to an LMA.
The Company believes that it is able to increase its revenues and improve
its margins by providing programming services to stations in selected DMAs and
MSAs where the Company already owns a station. In certain instances, single
station operators and stations operated by smaller ownership groups do not have
the management expertise or the operating efficiencies available to the Company
as a multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In cases where the Company enters into LMA arrangements in connection with
a station whose acquisition by the Company is pending FCC approval, the Company
(i) obtains an option to acquire the station assets essential for broadcasting a
television or radio signal in compliance with regulatory guidelines, generally
consisting of the FCC license, transmitter, transmission lines, technical
equipment, call letters and trademarks, and certain furniture, fixtures and
equipment (the "License Assets") and (ii) acquires the remaining assets (the
"Non-License Assets") at the time it enters into the option. Following
acquisition of the Non-License Assets, the License Assets continue to be owned
by the owner-operator and holder of the FCC license, which enters into an LMA
with the Company. After FCC approval for transfer of the License Assets is
obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
In connection with the River City Acquisition, the Company entered into
LMAs with River City and the owner of KRRT with respect to each of the nine
television and 21 radio stations with respect to which the Company acquired
Non-License Assets. The Company or Glencairn has now acquired the License Assets
of all of the television and radio stations with respect to which it initially
acquired Non-License Assets in the River City Acquisition, other than WTTV and
WTTK in Indianapolis, Indiana. The LMA with River City for these two stations is
in effect for a ten-year term, which corresponds with the term of the option the
Company holds to acquire the related River City License Assets. Pursuant to the
LMA, the Company pays River City fees in return for which the Company acquires
all of the inventory of broadcast time of the stations and the right to sell
100% of each station's inventory of advertising time. Upon grant of FCC approval
of the transfer of License Assets with respect to WTTV and WTTK, the Company
intends to acquire the License Assets, and thereafter the LMA will terminate and
the Company will operate the stations. At the Company's request, the FCC has
withheld action on the applications for the Company's acquisition of WTTV and
WTTK in Indianapolis (and a pending application for the Controlling Stockholders
to divest their attributable interests in WIIB in Indianapolis) until the FCC
completes its pending rulemaking proceeding considering the cross-interest
policy.
S-48
<PAGE>
USE OF DIGITAL TELEVISION TECHNOLOGY
The Company believes that television broadcasting may be enhanced
significantly by the development and increased availability of digital
broadcasting service technology. This technology has the potential to permit the
Company to provide viewers multiple channels of digital television over each of
its existing standard channels, to provide certain programming in a high
definition television format and to deliver various forms of data, including
data on the Internet, to home and business computers. These additional
capabilities may provide the Company with additional sources of revenue . The
Company has announced its intention to provide multiple channels of television
on its allocated portions of the broadcast spectrum. The Company plans to
provide additional broadcast programming and transmitted data on a subscription
basis, and to continue to provide its current TV program channels without
subscription fees. This digital broadcasting service technology is not currently
available to the viewing public and a successful transition from the current
analog broadcast format to a digital format may take many years. There can be no
assurance that the Company's efforts to take advantage of the new technology
will be commercially successful.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the FCC, which acts under authority granted by
the Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act, the 1996 Act and specific FCC regulations and policies.
Reference should be made to the Communications Act, the 1996 Act, FCC rules and
the public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of broadcast stations.
License Grant and Renewal. Television and radio stations operate pursuant
to broadcasting licenses that are granted by the FCC for maximum terms of eight
years.
Television and radio station licenses are subject to renewal upon
application to the FCC. During certain periods when renewal applications are
pending, competing applicants may file for the radio or television frequency
being used by the renewal applicant. During the same periods, petitions to deny
license renewal applications may be filed by interested parties, including
members of the public. Prior to the 1996 Act, the FCC was generally required to
hold hearings on renewal applications if a competing application against a
renewal application was filed, if the FCC was unable to determine that renewal
of a license would serve the public interest, convenience and necessity, or if a
petition to deny raised a "substantial and material question of fact" as to
whether the grant of the renewal application would be prima facie inconsistent
with the public interest, convenience and necessity.
The 1996 Act does not prohibit either the filing of petitions to deny
license renewals or the filing of competing applications. Under the 1996 Act,
the FCC is still required to hold hearings on renewal applications if it is
unable to determine that renewal of a license would serve the public interest,
convenience or necessity, or if a petition to deny raises a "substantial and
material question of fact" as to whether the grant of the renewal application
would be prima facie inconsistent with the public interest, convenience and
necessity. Pursuant to the 1996 Act, however, the FCC is prohibited from
considering competing applications for a renewal applicant's frequency, and is
required to grant the renewal application, if the FCC finds: (i) that the
station has served the public interest, convenience and necessity; (ii) that
there have been no serious violations by the licensee of the Communications Act
or the rules and regulations of the FCC; and (iii) there have been no other
violations by the licensee of the Communications Act or the rules and
regulations of the FCC that, when taken together, would constitute a pattern of
abuse.
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All of the stations that the Company (i) owns and operates, (ii) intends to
acquire pursuant to pending acquisitions, (iii) currently provides programming
services to pursuant to an LMA, or (iv) currently sells commercial air time on
pursuant to a JSA, are presently operating under regular licenses, which expire
as to each station on the dates set forth under "-- Television Broadcasting" and
"-- Radio Broadcasting," above. Although renewal of license is granted in the
vast majority of cases even when petitions to deny are filed, there can be no
assurance that the licenses of such stations will be renewed.
Ownership Matters
General
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including compliance with various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, appropriate applications must be filed with the
FCC. If the application involves a "substantial change" in ownership or control,
the application must be placed on public notice for a period of approximately 30
days during which petitions to deny the application may be filed by interested
parties, including members of the public. If the application does not involve a
"substantial change" in ownership or control, it is a "pro forma" application.
The "pro forma" application is nevertheless subject to having informal
objections filed against it. If the FCC grants an assignment or transfer
application, interested parties have approximately 30 days from public notice of
the grant to seek reconsideration of that grant. Generally, parties that do not
file initial petitions to deny or informal objections against the application
face difficulty in seeking reconsideration of the grant. The FCC normally has
approximately an additional 10 days to set aside such grant on its own motion.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer to any party other than the assignee or transferee specified in the
application.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has a pending rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by (i) raising the attribution stock benchmark from 5% to 10%;
(ii) raising the attribution stock benchmark for passive investors from 10% to
20%; (iii) restricting the availability of the single majority shareholder
exemption; and (iv) attributing certain interests such as non-voting stock, debt
and certain holdings by limited liability corporations in certain circumstances.
More recently, the FCC has solicited comment on proposed rules that would (i)
treat an otherwise nonattributable equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark; (ii) treat a licensee of a
television station which, under an LMA, brokers more than 15% of the time on
another television station serving the same market, as having an attributable
interest in the brokered station; and (iii) in certain circumstances, treat the
licensee of a broadcast station that sells advertising time on another station
in the same market pursuant to a JSA as having an attributable interest in the
station whose advertising is being sold.
The Controlling Stockholders hold attributable interests in two entities
owning media properties, namely: Channel 63, Inc., licensee of WIIB-TV, a UHF
television station in Bloomington, Indiana, and Bay Television, Inc., licensee
of WTTA-TV, a UHF television station in St. Petersburg, Florida. All of the
issued and outstanding shares of Channel 63, Inc. are owned by the Controlling
Stockholders. All
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the issued and outstanding shares of Bay Television, Inc. are owned by the
Controlling Stockholders (75%) and Robert L. Simmons (25%), a former stockholder
of the Company. The Controlling Stockholders have agreed to divest their
attributable interests in Channel 63, Inc. and the Company believes that, after
doing so, such holdings will not materially restrict its ability to acquire or
program additional broadcast stations.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under this
policy, the FCC may consider significant equity interests combined with an
attributable interest in a media outlet in the same market, joint ventures, and
common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests, but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial relationships such as
debt, when combined with multiple business interrelationships such as LMAs and
JSAs, raise concerns under the cross-interest policy. Moreover, in its most
recent proposals in its ongoing attribution rulemaking proceeding, the FCC has
proposed treating television LMAs, JSAs, and debt or equity interests as
attributable interests in certain circumstances without regard to the
cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. As a
result of these provisions, the licenses granted to Subsidiaries of the Company
by the FCC could be revoked if, among other restrictions imposed by the FCC,
more than 25% of the Company's stock were directly or indirectly owned or voted
by Aliens. The Company and the Subsidiaries are domestic corporations, and the
Controlling Stockholders are all United States citizens. The Amended and
Restated Articles of Incorporation of the Company (the "Amended Certificate")
contain limitations on Alien ownership and control that are substantially
similar to those contained in the Communications Act. Pursuant to the Amended
Certificate, the Company has the right to repurchase Alien-owned shares at their
fair market value to the extent necessary, in the judgment of the Board of
Directors, to comply with the Alien ownership restrictions.
Television
National Ownership Rule. Prior to the 1996 Act, FCC rules generally
prohibited an individual or entity from having an attributable interest in more
than 12 television stations nationwide, or in television stations reaching more
than 25% of the national television viewing audience. Pursuant to the 1996 Act,
the FCC has modified its rules to eliminate any limitation on the number of
television stations an individual or entity may own nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching more than 35% of the national television viewing
audience. Historically, VHF stations have shared a larger portion of the market
than UHF stations. Therefore, only half of the households in the market area of
any UHF station are included when calculating whether an entity or individual
owns television stations reaching more than 35% of the
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national television viewing audience. All but three of the stations owned and
operated by the Company, or to which the Company provides programming services,
are UHF.
Duopoly Rule. On a local level, the television "duopoly" rule generally
prohibits a single individual or entity from having an attributable interest in
two or more television stations with overlapping Grade B service areas. While
the 1996 Act has not eliminated the TV duopoly rule, it does direct the FCC to
initiate a rulemaking proceeding to determine whether to retain, modify, or
eliminate the rule. The FCC has pending a rulemaking proceeding in which it has
proposed to modify the television duopoly rule to permit the common ownership of
television stations in different DMAs, so long as the Grade A signal contours of
the stations do not overlap. Pending resolution of its rulemaking proceeding,
the FCC has adopted an interim waiver policy that permits the common ownership
of television stations in different DMAs with no overlapping Grade A signal
contours, conditioned on the final outcome of the rulemaking proceeding. The FCC
has also sought comment on whether common ownership of two television stations
in a market should be permitted (i) where one or more of the commonly owned
stations is UHF, (ii) where one of the stations is in bankruptcy or has been off
the air for a substantial period of time and (iii) where the commonly owned
stations have very small audience or advertising shares, are located in a very
large market, and/or a specified number of independently owned media voices
would remain after the acquisition.
Local Marketing Agreements. Over the past few years, a number of television
stations, including certain of the Company's stations, have entered into what
have commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed television
stations agree to enter into cooperative arrangements of varying sorts, subject
to compliance with the requirements of antitrust laws and with the FCC's rules
and policies. Under these types of arrangements, separately owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately owned television stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question. The staff of the FCC's Mass Media Bureau has held that LMAs
are not contrary to the Communications Act, provided that the licensee of the
station which is being substantially programmed by another entity maintains
complete responsibility for and control over programming and operations of its
broadcast station and assures compliance with applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules. In connection with this proceeding, the FCC has
solicited detailed information from parties to television LMAs as to the terms
and characteristics of such 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
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the FCC's proposal, television LMAs that are entered into or renewed after
November 5, 1996 would have to be terminated if LMAs are made attributable
interests and the LMA in question resulted in a violation of the television
multiple ownership rules. The Company's LMAs with television stations WPTT in
Pittsburgh, Pennsylvania, WNUV in Baltimore, Maryland, WVTV in Milwaukee,
Wisconsin, WRDC in Raleigh/Durham, North Carolina, WABM in Birmingham, Alabama,
and WDBB in Tuscaloosa, Alabama, were in existence on both the date of enactment
of the 1996 Act and November 5, 1996. The Company's LMAs with television
stations WTTV and WTTK in Indianapolis, Indiana were entered into subsequent to
the date of enactment of the 1996 Act but prior to November 5, 1996. The
Company's LMA with television station KRRT in Kerrville, Texas was in existence
on the date of enactment of the 1996 Act, but was assumed by the Company
subsequent to that date but prior to November 5, 1996. The licensee's rights
under the Company's LMA with KRRT-TV were assumed by Glencairn subsequent to
November 5, 1996. The Company's LMA with WFBC-TV in
Asheville/Greenville/Spartanburg, South Carolina, was entered into by the
Company subsequent to the date of enactment of the 1996 Act but prior to
November 5, 1996, and the licensee's rights under that LMA were assumed by
Glencairn subsequent to November 5, 1996. The Company cannot predict if any or
all of its LMAs will be grandfathered.
The Conference Agreement adopted as part of the recent Balanced Budget Act
of 1997 recently signed into law by President Clinton (the "Balanced Budget
Act") clarifies Congress' intent with respect to LMAs and duopolies. The
Conference Agreement states as follows: "The conferees do not intend that the
duopoly and television-newspaper cross-ownership relief provided herein should
have any bearing upon the [FCC's] current proceedings, which concerns more
immediate relief. The conferees expect that the [FCC] will proceed with its own
independent examination in these matters. Specifically, the conferees expect
that the [FCC] will provide additional relief (e.g., VHF/UHF combinations) that
it finds to be in the public interest, and will implement the permanent
grandfather requirement for local marketing agreements as provided in the
Telecommunications Act of 1996."
The TV duopoly rule currently prevents the Company from acquiring the
licenses of television stations with which it has LMAs in those markets where
the Company owns a television station. As a result, if the FCC were to decide
that the provider of programming services under a television LMA should be
treated as having an attributable interest in the brokered station, and if it
did not relax its television duopoly rule, the Company could be required to
modify or terminate those of its LMAs that were not in existence on the date of
enactment of the 1996 Act or on November 5, 1996. Furthermore, if the FCC adopts
its present proposal with respect to the grandfathering of television LMAs, the
Company could be required to terminate even those LMAs that were in effect prior
to the date of enactment of the 1996 Act or prior to November 5, 1996, after the
initial term of the LMA or upon assignment of the LMA. In such an event, the
Company could be required to pay termination penalties under certain of such
LMAs. Further, if the FCC were to find, in connection with any of the Company's
LMAs, that the owners/licensees of the stations with which the Company has LMAs
failed to maintain control over their operations as required by FCC rules and
policies, the licensee of the LMA station and/or the Company could be fined or
set for hearing, the outcome of which could be a monetary forfeiture or, under
certain circumstances, loss of the applicable FCC license. The Company is unable
to predict the ultimate outcome of possible changes to these FCC rules and the
impact such FCC rules may have on its broadcasting operations.
On June 1, 1995, the Chief of the FCC's Mass Media Bureau released a Public
Notice concerning the processing of television assignment and transfer of
control applications proposing LMAs. Due to the pendency of the ongoing
rulemaking proceeding concerning attribution of ownership, the Mass Media Bureau
has placed certain restrictions on the types of television assignment and
transfer of control applications involving LMAs that it will approve during the
pendency of the rulemaking. Specifically, the Mass Media Bureau has stated that
it will not approve arrangements where a time broker seeks to finance a station
acquisition and hold an option to purchase the station in the future. The
Company believes that none of the Company's LMAs fall within the ambit of this
Public Notice.
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Radio
National Ownership Rule. Prior to the 1996 Act, the FCC's rules limited an
individual or entity from holding attributable interests in more than 20 AM and
20 FM radio stations nationwide. Pursuant to the 1996 Act, the FCC has modified
its rules to eliminate any limitation on the number of radio stations a single
individual or entity may own nationwide.
Local Ownership Rule. Prior to the 1996 Act, the FCC's rules generally
permitted an individual or entity to hold attributable interests in no more than
four radio stations in a local market (no more than two of which could be in the
same service (AM or FM)), and then only if the aggregate audience share of the
commonly owned stations did not exceed 25%. In markets with fewer than 15
commercial radio stations, an individual or entity could hold an attributable
interest in no more than three radio stations in the market (no more than two of
which could be in the same service), and then only if the number of the commonly
owned stations did not exceed 50% of the total number of commercial radio
stations in the market.
Pursuant to the 1996 Act, the limits on the number of radio stations one
entity may own locally have been increased as follows: (i) in a market with 45
or more commercial radio stations, an entity may own up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than four of
which are in the same service; (iii) in a market with between 15 and 29
(inclusive) commercial radio stations, an entity may own up to six commercial
radio stations, not more than four of which are in the same service; and (iv) in
a market with 14 or fewer commercial radio stations, an entity may own up to
five commercial radio stations, not more than three of which are in the same
service, except that an entity may not own more than 50% of the stations in such
market. These numerical limits apply regardless of the aggregate audience share
of the stations sought to be commonly owned. FCC ownership rules continue to
permit an entity to own one FM and one AM station in a local market regardless
of market size. Irrespective of FCC rules governing radio ownership, however,
the DOJ and the Federal Trade Commission have the authority to determine, and in
certain recent radio transactions not involving the Company have determined,
that a particular transaction presents antitrust concerns.
Local Marketing Agreements. As in television, a number of radio stations
have entered into LMAs. The FCC's multiple ownership rules specifically permit
radio station LMAs to be entered into and implemented, so long as the licensee
of the station which is being programmed under the LMA maintains complete
responsibility for and control over programming and operations of its broadcast
station and assures compliance with applicable FCC rules and policies. For the
purposes of the multiple ownership rules, in general, a radio station being
programmed pursuant to an LMA by an entity is not considered an attributable
ownership interest of that entity unless that entity already owns a radio
station in the same market. However, a licensee that owns a radio station in a
market, and brokers more than 15% of the time on another station serving the
same market, is considered to have an attributable ownership interest in the
brokered station for purposes of the FCC's multiple ownership rules. As a
result, in a market in which the Company owns a radio station, the Company would
not be permitted to enter into an LMA with another local radio station which it
could not own under the local ownership rules, unless the Company's programming
constituted 15% or less of the other local station's programming time on a
weekly basis. The FCC's rules also prohibit a broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA
arrangement where the brokered and brokering stations serve substantially the
same area.
Joint Sales Agreements. Over the past few years, a number of radio (and
television) stations have entered into cooperative arrangements commonly known
as joint sales agreements, or JSAs. While these agreements may take varying
forms, under the typical JSA, a station licensee obtains, for a fee, the right
to sell substantially all of the commercial advertising on a separately-owned
and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming.
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The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.
Other Ownership Matters
There remain in place after the 1996 Act a number of additional
cross-ownership rules and prohibitions pertaining to licensees of television and
radio stations. FCC rules, the Communications Act, or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, a daily newspaper, or a cable television system
that is located in or serves the same market area.
Antitrust Regulation. The DOJ and the Federal Trade Commission have
recently increased their scrutiny of the television and radio industry, and have
indicated their intention to review matters related to the concentration of
ownership within markets (including LMAs and JSAs) even when the ownership or
LMA or JSA in question is permitted under the laws administered by the FCC or by
FCC rules and regulations.
Radio/Television Cross-Ownership Rule. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally prohibits a single
individual or entity from having an attributable interest in a television
station and a radio station serving the same market. However, in each of the 25
largest local markets in the United States, provided that there are at least 30
separately owned stations in the particular market, the FCC has traditionally
employed a policy that presumptively allows waivers of the one to a market rule
to permit the common ownership of one AM, one FM and one TV station in the
market. The 1996 Act directs the FCC to extend this policy to each of the top 50
markets. Moreover, the FCC has pending a rulemaking proceeding in which it has
solicited comment on whether the one to a market rule should be eliminated
altogether.
However, the FCC does not apply its presumptive waiver policy in cases
involving the common ownership of one television station, and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider waivers of the rule in such instances on a case-by-case
basis, considering (i) the public service benefits that will arise from the
joint operation of the facilities such as economies of scale, cost savings and
programming and service benefits; (ii) the types of facilities involved; (iii)
the number of media outlets owned by the applicant in the relevant market; (iv)
the financial difficulties of the stations involved; and (v) the nature of the
relevant market in light of the level of competition and diversity after joint
operation is implemented. The FCC has stated that it expects that any such
waivers that are granted will be conditioned on the outcome of the rulemaking
proceeding.
In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the following options for modifying the rule in the event
it is not eliminated: (i) extending the presumptive waiver policy to any
television market in which a specified number of independently owned voices
would remain after common ownership of a television station and one or more
radio stations is effectuated; (ii) extending the presumptive waiver policy to
entities that seek to own more than one FM and/or one AM radio station; (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated; and (iv) modifying the five-factor case-by-case
test for waivers.
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates
a previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that
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serve the same local market, the 1996 Act leaves the current FCC rule in place.
The legislative history of the Act indicates that the repeal of the statutory
ban should not prejudge the outcome of any FCC review of the rule.
Broadcast Network/Cable Cross-Ownership Rule. The 1996 Act directs the FCC
to eliminate its rules which formerly prohibited the common ownership of a
broadcast network and a cable system, subject to the provision that the FCC
revise its rules as necessary to ensure carriage, channel positioning, and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. In March 1996, the FCC issued an
order implementing this legislative change.
Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC's rules prohibit
the common ownership of a radio or television broadcast station and a daily
newspaper in the same market. The 1996 Act does not eliminate or modify this
prohibition. In October 1996, however, the FCC initiated a rulemaking proceeding
to determine whether it should liberalize its waiver policy with respect to
cross-ownership of a daily newspaper and one or more radio stations in the same
market.
Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
prohibited from merging with each other or with another network television
entity such as WB or UPN.
Expansion of the Company's broadcast operations on both a local and
national level will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Concomitantly, any further relaxation of
the FCC's ownership rules may increase the level of competition in one or more
of the markets in which the Company's stations are located, more specifically to
the extent that any of the Company's competitors may have greater resources and
thereby be in a superior position to take advantage of such changes.
Must-Carry/Retransmission Consent
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
Area of Dominant Influence, in general as defined by the Arbitron 1991-92
Television Market Guide. These must-carry rights are not absolute, and their
exercise is dependent on variables such as (i) the number of activated channels
on a cable system; (ii) the location and size of a cable system; and (iii) the
amount of programming on a broadcast station that duplicates the programming of
another broadcast station carried by the cable system. Therefore, under certain
circumstances, a cable system may decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. In October 1996, the Company elected must-carry or
retransmission consent with respect to each of its markets based on its
evaluation of the respective markets and the position of the Company's station
within the market. The Company's stations continue to be carried on all
pertinent cable systems, and the Company does not believe that its elections
have resulted in the shifting of its stations to less desirable cable channel
locations. Certain of the Company's stations affiliated with Fox are required to
elect retransmission consent because Fox's retransmission consent negotiations
on behalf of the Company resulted in agreements which extend into 1998.
Therefore, the Company will need to negotiate retransmission consent agreements
for these Fox-affiliated stations to attain carriage on those relevant cable
systems for the balance of this triennial period (i.e., through December 31,
1999). For subsequent elections beginning with the election to be made by
October 1, 1999, the must-carry market will be the station's DMA, in general as
defined by the Nielsen DMA Market and Demographic Rank Report of the prior year.
The must-carry rules have been subject to judicial scrutiny. In April 1993,
the United States District Court for the District of Columbia summarily upheld
the constitutionality of the legislative must-carry provisions under a First
Amendment challenge. However, in June 1994, the Supreme Court remanded the case
to the lower court with instructions to test the constitutionality of the
must-carry rules under an "intermedi-
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ate scrutiny" standard. In a decision issued in December 1995, a closely divided
three-judge District Court panel ruled that the record showed that there was
substantial evidence before Congress from which it could draw the reasonable
inferences that (1) the must-carry rules were necessary to protect the local
broadcast industry; and (2) the burdens on cable systems with rapidly increasing
channel capacity would be quite small. Accordingly, the District Court panel
ruled that Congress had not violated the First Amendment in enacting the
"must-carry" provisions. In March 1997, the Supreme Court, by a 5-4 majority,
affirmed the District Court's decision and thereby let stand the must-carry
rules.
Syndicated Exclusivity/Territorial Exclusivity
The FCC has imposed syndicated exclusivity rules and expanded existing
network nonduplication rules. The syndicated exclusivity rules allow local
broadcast television stations to demand that cable operators black out
syndicated non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called "superstations," which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network television affiliates to
require that cable operators black out duplicating network programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations affiliated with a network, a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market. This is not in violation of the FCC's network nonduplication rules.
However, the carriage of two network stations on the same cable system could
result in a decline of viewership adversely affecting the revenues of the
Company owned or programmed station.
Restrictions on Broadcast Advertising
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states restrict the advertising
of alcoholic beverages. Congressional committees have recently examined
legislation proposals which may eliminate or severely restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations, as well as the revenues of other stations which carry beer and wine
advertising.
The FCC has imposed commercial time limitations in children's television
programming pursuant to legislation. In television programs designed for viewing
by children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. In granting
renewal of the license for WBFF-TV, the FCC imposed a fine of $10,000 on the
Company alleging that the station had exceeded these limitations. The Company
has appealed this fine and the appeal is pending.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things, (i) stations must provide "reasonable access" for
the purchase of time by legally qualified candidates for federal office; (ii)
stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement, and daypart.
Programming and Operation
General. The Communications Act requires broadcasters to serve the "public
interest." The FCC gradually has relaxed or eliminated many of the more
formalized procedures it had developed in the past to promote the broadcast of
certain types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to their communities' issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming may be considered by the FCC when it evaluates renewal
applications of a licensee, although such complaints may be filed at any time
and
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generally may be considered by the FCC at any time. Stations also must pay
regulatory and application fees, and follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
obscene and indecent broadcasts, and technical operations, including limits on
radiofrequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application. Failure to observe these or
other rules and policies can result in the imposition of various sanctions,
including monetary forfeitures, or the grant of a "short" (i.e., less than the
full) license renewal term or, for particularly egregious violations, the denial
of a license renewal application or the revocation of a license.
Children's Television Programming. Pursuant to legislation enacted in 1991,
all television stations have been required to broadcast some television
programming designed to meet the educational and informational needs of children
16 years of age and under. In August 1996, the FCC adopted new rules setting
forth more stringent children's programming requirements. Specifically, as of
September 1, 1997, television stations will be required to broadcast a minimum
of three hours per week of "core" children's educational programming, which the
FCC defines as programming that (i) has serving the educational and
informational needs of children 16 years of age and under as a significant
purpose; (ii) is regularly scheduled, weekly and at least 30 minutes in
duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00 p.m.
Furthermore, as of January 2, 1997, "core" children's educational programs, in
order to qualify as such, are required to be identified as educational and
informational programs over the air at the time they are broadcast, and are
required to be identified in the children's programming reports required to be
placed in stations' public inspection files. Additionally, as of January 2,
1997, television stations are required to identify and provide information
concerning "core" children's programming to publishers of program guides and
listings.
Television Violence. The 1996 Act contains a number of provisions relating
to television violence. First, pursuant to the 1996 Act, the television industry
has developed a ratings system, and the FCC has recently solicited public
comment on that system. Furthermore, the 1996 Act provides that all television
sets larger than 13 inches that are manufactured one year after enactment of the
1996 Act must include the so-called "V-chip," a computer chip that allows
blocking of rated programming. In addition, the 1996 Act requires that all
television license renewal applications filed after May 1, 1995 contain
summaries of written comments and suggestions received by the station from the
public regarding violent programming.
Closed Captioning. The 1996 Act directs the FCC to adopt rules requiring
closed captioning of all broadcast television programming, except where
captioning would be "economically burdensome." The FCC has recently adopted such
rules. The rules require generally that (i) 95% of all new programming first
published or exhibited on or after January 1, 1998 must be closed captioned
within eight years, and (ii) 75% of old programming which first aired prior to
January 1, 1998 must be closed captioned within 10 years, subject to certain
exemptions.
Digital Television
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, adopted 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
volun-
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tarily 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. Under the Balanced Budget Act, however, the FCC is authorized to
extend the December 31, 2006 deadline for reclamation of a television station's
non-digital channel if, in any given case: (i) one or more television stations
affiliated with one of the four major networks in a market are not broadcasting
digitally, and the FCC determines that such stations have "exercised due
diligence" in attempting to convert to digital broadcasting; (ii) less than 85%
of the television households in the station's market subscribe to a multichannel
video service (cable, wireless cable or DBS) that carries at least one digital
channel from each of the local stations in that market; or (iii) less than 85%
of the television households in the station's market can receive digital signals
off the air using either a set-top converter box for an analog television set or
a new DTV television set. The Balanced Budget Act also directs the FCC to
auction the non-digital channels by September 30, 2002 even though they are not
to be reclaimed by the government until at least December 31, 2006. The Balanced
Budget Act also permits broadcasters to bid on the non-digital channels in
cities with populations greater than 400,000, provided the channels are used for
DTV. Thus, it is possible a broadcaster could own two channels in a market. The
FCC has opened a separate proceeding in which it has proposed to reallocate
television channels 60 through 69 to other services while protecting existing
television stations on those channels from interference during the DTV
transition period. 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 reconsideration 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.
Proposed Changes
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations, result in the loss of
audience share and advertising revenues for the Company's broadcast stations,
and affect the ability of the Company to acquire additional broadcast stations
or finance such acquisitions. In addition to the changes and proposed changes
noted above, such matters may include, for example, the license renewal process,
spectrum use fees, political advertising rates, potential restrictions on the
advertising of certain products (beer, wine and hard liquor, for example), and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry, such as direct radio
and television broadcast satellite service, the continued establishment of
wireless cable systems and low power television stations, digital television and
radio technologies, and the advent of telephone company participation in the
provision of video programming service.
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Other Considerations
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal employment opportunity,
and other matters affecting the Company's business and operations.
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities, substances
or waste that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous substances. As a result, it is possible that the Company could
become subject to environmental liabilities in the future in connection with
these facilities under applicable environmental laws and regulations. Although
the Company believes that it is in substantial compliance with such
environmental requirements, and have not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The Company's television and radio stations compete for audience share and
advertising revenue with other television and radio stations in their respective
DMAs or MSAs, as well as with other advertising media, such as newspapers,
magazines, outdoor advertising, transit advertising, yellow page directories,
direct mail and local cable and wireless cable systems. Some competitors are
part of larger organizations with substantially greater financial, technical and
other resources than the Company.
Television Competition. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. The Company's
television stations are located in highly competitive DMAs. In addition, certain
of the Company's DMAs are overlapped by both over-the-air and cable carriage of
stations in adjacent DMAs, which tends to spread viewership and advertising
expenditures over a larger number of television stations.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations, radio stations and cable system
operators serving the same market. Traditional Network programming generally
achieves higher household audience levels than Fox, WB and UPN programming and
syndicated programming aired by independent stations. This can be attributed to
a combination of factors, including the Traditional Networks' efforts to reach a
broader audience, generally better signal carriage available when broadcasting
over VHF channels 2 through 13 versus broadcasting over UHF channels 14 through
69 and the higher number of hours of Traditional Network programming being
broadcast weekly. However, greater amounts of advertising time are available for
sale during Fox, UPN and WB programming and non-network syndicated programming,
and as a result the Company believes that the Company's programming typically
achieves a share of television market advertising revenues greater than its
share of the market's audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of the Company's prime time programming is supplied by Fox and to a
lesser extent WB, UPN, ABC and CBS. In those periods, the Company's affiliated
stations are totally dependent upon the performance of the networks' programs in
attracting viewers. Non-network time periods are programmed by the station
primarily with syndicated programs
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purchased for cash, cash and barter, or barter-only, and also through
self-produced news, public affairs and other entertainment programming.
Television advertising rates are based upon factors which include the size
of the DMA in which the station operates, a program's popularity among the
viewers that an advertiser wishes to attract, the number of advertisers
competing for the available time, the demographic makeup of the DMA served by
the station, the availability of alternative advertising media in the DMA
(including radio and cable), the aggressiveness and knowledge of sales forces in
the DMA and development of projects, features and programs that tie advertiser
messages to programming. The Company believes that its sales and programming
strategies allow it to compete effectively for advertising within its DMAs.
Other factors that are material to a television station's competitive
position include signal coverage, local program acceptance, network affiliation,
audience characteristics and assigned broadcast frequency. Historically, the
Company's UHF broadcast stations have suffered a competitive disadvantage in
comparison to stations with VHF broadcast frequencies. This historic
disadvantage has gradually declined through (i) carriage on cable systems, (ii)
improvement in television receivers, (iii) improvement in television
transmitters, (iv) wider use of all channel antennae, (v) increased availability
of programming, and (vi) the development of new networks such as Fox, WB and
UPN.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have a
material effect on a television station's operations and profits. There are
sources of video service other than conventional television stations, the most
common being cable television, which can increase competition for a broadcast
television station by bringing into its market distant broadcasting signals not
otherwise available to the station's audience, serving as a distribution system
for national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling advertising time to local advertisers.
Other principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television ("DBS") entertainment services and
multichannel multipoint distribution services ("MMDS"). Moreover, technology
advances and regulatory changes affecting programming delivery through fiber
optic telephone lines and video compression could lower entry barriers for new
video channels and encourage the development of increasingly specialized "niche"
programming. The 1996 Act permits telephone companies to provide video
distribution services via radio communication, on a common carrier basis, as
"cable systems" or as "open video systems," each pursuant to different
regulatory schemes. The Company is unable to predict the effect that
technological and regulatory changes will have on the broadcast television
industry and on the future profitability and value of a particular broadcast
television station.
The FCC authorizes DBS services throughout the United States. Currently,
two FCC permitees, DirecTV and United States Satellite Broadcasting, provide
subscription DBS services via high-power communications satellites and small
dish receivers, and other companies provide direct-to-home video service using
lower powered satellites and larger receivers. Additional companies are expected
to commence direct-to-home operations in the near future. DBS and MMDS, as well
as other new technologies, will further increase competition in the delivery of
video programming.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
The Company believes that television broadcasting may be enhanced
significantly by the development and increased availability of digital
broadcasting service technology. This technology has the potential to permit the
Company to provide viewers multiple channels of digital television over each of
its existing standard channels, to provide certain programming in a high
definition television format and to deliver various forms of data, including
data on the Internet, to home and business computers. These additional
capabilities may provide the Company with additional sources of revenue. The
Company has announced its intention to provide multiple channels of television
on its allocated portions of the broadcast spectrum. The Company plans to
provide additional broadcast programming and transmitted data on a subscription
basis, and continue to provide its current TV program channels without
subscription
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fees. This digital broadcasting service technology is not currently available to
the viewing public and a successful transition from the current analog broadcast
format to a digital format may take many years. There can be no assurance that
the Company's efforts to take advantage of the new technology will be
commercially successful.
The Company also competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Company's stations compete for exclusive access to
those programs against in-market broadcast station competitors for syndicated
products. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. Public broadcasting stations generally compete with commercial
broadcasters for viewers but not for advertising dollars.
Historically, the cost of programming has increased because of an increase
in the number of new Independent stations and a shortage of quality programming.
However, the Company believes that over the past five years program prices
generally have stabilized.
The Company believes it competes favorably against other television
stations because of its management skill and experience, the ability of the
Company historically to generate revenue share greater than its audience share,
the network affiliations and its local program acceptance. In addition, the
Company believes that it benefits from the operation of multiple broadcast
properties, affording it certain nonquantifiable economies of scale and
competitive advantages in the purchase of programming.
Radio Competition. Radio broadcasting is a highly competitive business, and
each of the radio stations operated by the Company competes for audience share
and advertising revenue directly with other radio stations in its geographic
market, as well as with other media, including television, cable television,
newspapers, magazines, direct mail and billboard advertising. The audience
ratings and advertising revenue of each of such stations are subject to change,
and any adverse change in a particular market could have a material adverse
effect on the revenue of such radio stations located in that market. There can
be no assurance that any one of the Company's radio stations will be able to
maintain or increase its current audience ratings and radio advertising revenue
market share.
The Company will attempt to improve each radio station's competitive
position with promotional campaigns designed to enhance and reinforce its
identities with the listening public. Extensive market research is conducted in
order to identify specific demographic groups and design a programming format
for those groups. The Company seeks to build a strong listener base composed of
specific demographic groups in each market, and thereby attract advertisers
seeking to reach these listeners. Aside from building its stations' identities
and targeting its programming at specific demographic groups, management
believes that the Company also obtains a competitive advantage by operating
duopolies or multiple stations in the nation's larger mid-size markets.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems and by digital audio
broadcasting ("DAB"). DAB may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences. The FCC has issued licenses for two DAB systems.
Historically, the radio broadcasting industry has grown in terms of total
revenues despite the introduction of new technologies for the delivery of
entertainment and information, such as television broadcasting, cable
television, audio tapes and compact disks. There can be no assurance, however,
that the development or introduction in the future of any new media technology
will not have an adverse effect on the radio broadcast industry.
EMPLOYEES
As of August 20, 1997, the Company had approximately 2,300 employees. With
the exception of certain of the employees of KOVR-TV, KDNL-TV, WBEN-AM and
WWL-AM, none of the employees are represented by labor unions under any
collective bargaining agreement. No significant labor problems have been
experienced by the Company, and the Company considers its overall labor
relations to be good.
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LEGAL PROCEEDINGS
On July 14, 1997, Sinclair publicly announced that it had reached an
agreement for certain of its owned and/or programmed television stations which
are currently affiliated with UPN to become affiliated with WB beginning January
16, 1998. On August 1, 1997, UPN informed Sinclair that it did not believe
Sinclair or its affiliates had provided proper notice of its intention not to
extend the UPN affiliation agreements beyond January 15, 1998, and, accordingly,
that these agreements had been automatically renewed through January 15, 2001.
In August 1997, UPN filed an action in Los Angeles Superior Court against
the Company, seeking declaratory relief and specific performance or, in the
alternative, unspecified damages and alleging that neither the Company nor its
affiliates provided proper notice of their intention not to extend the current
UPN affiliations beyond January 15, 1998. Certain subsidiaries of the Company
have filed an action in the Circuit Court for Baltimore City seeking declaratory
relief that their notice was effective to terminate the affiliations on January
15, 1998. Although the Company believes that proper notice of intention not to
extend was provided to UPN, there can be no assurance that the Company and its
subsidiaries will prevail in these proceedings or that the outcome of these
proceedings, if adverse to the Company and its subsidiaries, will not have a
material adverse effect on the Company.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. Except as described above, the
Company is not a party to any lawsuit or proceeding that in the opinion of the
Company will have a material adverse effect.
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MANAGEMENT
Set forth below is certain information relating to the Company's executive
officers, directors, certain key employees and persons expected to become
executive officers, directors or key employees.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------- ----- --------------------------------------------------
<S> <C> <C>
David D. Smith ............ 46 President, Chief Executive Officer, Director and
Chairman of the Board
Frederick G. Smith ......... 48 Vice President and Director
J. Duncan Smith ............ 43 Vice President, Secretary and Director
Robert E. Smith ............ 34 Vice President, Treasurer and Director
David B. Amy ............... 44 Chief Financial Officer
Barry Drake ............... 45 Chief Operating Officer, SCI Radio
Alan B. Frank ............... 47 Regional Director, SCI
Robert Gluck ............... 39 Regional Director, SCI
Michael Granados ............ 42 Regional Director, SCI
Steven M. Marks ............ 40 Regional Director, SCI
John T. Quigley ............ 54 Regional Director, SCI
Frank Quitoni ............... 52 Regional Director, SCI
M. William Butler ......... 44 Vice President/Group Program Director, SCI
Michael Draman ............ 48 Vice President/TV Sales and Marketing, SCI
Stephen A. Eisenberg ...... 55 Vice President/Director of National Sales, SCI
Nat Ostroff ............... 56 Vice President/New Technology
Delbert R. Parks, III ...... 44 Director of Operations and Engineering, SCI
Robert E. Quicksilver ...... 42 Vice President/General Counsel, SCI
Thomas E. Severson ......... 33 Corporate Controller
Michael E. Sileck ......... 37 Vice President/Finance, SCI
Robin A. Smith ............ 41 Chief Financial Officer, SCI Radio
Patrick J. Talamantes ...... 33 Director of Corporate Finance
Lawrence E. McCanna ......... 53 Director
Basil A. Thomas ............ 82 Director
</TABLE>
In addition to the foregoing, the following persons have agreed to serve as
executive officers and/or directors of the Company as soon as permissible under
the rules of the FCC and applicable laws. See "Risk Factors -- Dependence Upon
Key Personnel; Employment Agreements with Key Personnel" in the attached
Prospectus.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------------- ----- ------------------------------------------------
<S> <C> <C>
Barry Baker ............... 45 Executive Vice President of the Company, Chief
Executive Officer of SCI and Director
Kerby Confer ............... 56 Chief Executive Officer, SCI Radio
Roy F. Coppedge, III ...... 49 Director
</TABLE>
In connection with the River City Acquisition, the Company agreed to
increase the size of the Board of Directors from seven members to nine to
accommodate the prospective appointment of each of Barry Baker and Roy F.
Coppedge, III or such other designee as Boston Ventures may select. Mr. Baker
and Mr. Confer currently serve as consultants to the Company.
Members of the Board of Directors are elected for one-year terms and until
their successors are duly elected and qualified. Executive officers are
appointed by the Board of Directors annually to serve for one-year terms and
until their successors are duly appointed and qualified.
On July 30, 1997 William E. Brock submitted and the Company accepted his
resignation from the Company's Board of Directors. Currently, no action has
been taken by the Board of Directors to identify a replacement for Mr. Brock.
David D. Smith has served as President, Chief Executive Officer and
Chairman of the Board since September 1990. Prior to that, he served as General
Manager of WPTT from 1984, and assumed the financial and engineering
responsibility for the Company, including the construction of WTTE in 1984. In
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1980, Mr. Smith founded Comark Television, Inc., which applied for and was
granted the permit for WPXT-TV in Portland, Maine and which purchased WDSI-TV in
Chattanooga, Tennessee. WPXT-TV was sold one year after construction and WDSI-TV
was sold two years after its acquisition. From 1978 to 1986, Mr. Smith
co-founded and served as an officer and director of Comark Communications, Inc.,
a company engaged in the manufacture of high power transmitters for UHF
television stations. His television career began with WBFF in Baltimore, where
he helped in the construction of the station and was in charge of technical
maintenance until 1978. David D. Smith, Frederick G. Smith, J. Duncan Smith and
Robert E. Smith are brothers.
Frederick G. Smith has served as Vice President of the Company since 1990
and as a Director since 1986. Prior to joining the Company in 1990, Mr. Smith
was an oral and maxillofacial surgeon engaged in private practice and was
employed by Frederick G. Smith, M.S., D.D.S., P.A., a professional corporation
of which Mr. Smith was the sole officer, director and stockholder.
J. Duncan Smith has served as Vice President, Secretary and a Director of
the Company since 1988. Prior to that, he worked for Comark Communications, Inc.
installing UHF transmitters. In addition, he also worked extensively on the
construction of WPTT in Pittsburgh, WTTE in Columbus, WIIB in Bloomington and
WTTA in St. Petersburg, as well as on the renovation of the new studio, offices
and news facility for WBFF in Baltimore.
Robert E. Smith has served as Vice President, Secretary and a Director of
the Company since 1988. Prior to that, he served as Program Director at WBFF
from 1986 to 1988. Prior to that, he assisted in the construction of WTTE and
also worked for Comark Communications, Inc. installing UHF transmitters.
David B. Amy has served as Chief Financial Officer ("CFO") since October of
1994. In addition, he serves as Secretary of Sinclair Communications, Inc., the
Company subsidiary which owns and operates the broadcasting operations. Prior to
his appointment as CFO Mr. Amy served as the Corporate Controller of the Company
beginning in 1986 and has been the Company's Chief Accounting Officer since that
time. Mr. Amy has over thirteen years of broadcast experience, having joined the
Company as a business manager for WPTT in Pittsburgh. Mr. Amy received an MBA
degree from the University of Pittsburgh in 1981.
Barry Drake has served as Chief Operating Officer of SCI Radio since
completion of the River City Acquisition. Prior to that time, he was Chief
Operating Officer -- Keymarket Radio Division of River City since July 1995.
Prior to that time, he was President and Chief Operating Officer of Keymarket
since 1988. From 1985 through 1988, Mr. Drake performed the duties of the
President of each of the Keymarket broadcasting entities, with responsibility
for three stations located in Houston, St. Louis and Detroit.
Alan B. Frank has served as Regional Director for the Company since May
1994. As Regional Director, Mr. Frank is responsible for the Pittsburgh and
Kansas City markets. Prior to his appointment to Regional Director, Mr. Frank
served as General Manager of WPGH beginning in September 1991.
Robert Gluck has served as Regional Director of the Company since August
1997. As Regional Director, Mr. Gluck is responsible for the Milwaukee and
Raleigh/Durham markets. Prior to joining the Company, Mr. Gluck served as
General Manager at WTIC-TV in the Hartford-New Haven market. Prior to joining
WTIC-TV in 1988, Mr. Gluck served as National Sales Manager and Local Sales
Manager of WLVI-TV in Boston. Before joining WLVI-TV, Mr. Gluck served in
various sales and management capacities with New York advertising agency firms.
Michael Granados has served as a Regional Director of the Company since
July 1996. As a Regional Director, Mr. Granados is responsible for the San
Antonio, Des Moines, Peoria and Las Vegas markets. Prior to July 1996, Mr.
Granados has served in various positions with the Company and, before the River
City Acquisition, with River City. He served as the General Sales Manager of
KABB from 1989 to 1993, the Station Manager and Director of Sales of WTTV from
1993 to 1994 and the General Manager of WTTV prior to his appointment as
Regional Director in 1996.
Steven M. Marks has served as Regional Director for the Company since
October 1994. As Regional Director, Mr. Marks is responsible for the Baltimore,
Norfolk, Flint and Birmingham markets. Prior to his appointment as Regional
Director, Mr. Marks served as General Manager for WBFF since July 1991. From
1986 until joining WBFF in 1991, Mr. Marks served as General Sales Manager at
WTTE. Prior to that time, he was national sales manager for WFLX-TV in West Palm
Beach, Florida.
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John T. Quigley has served as a Regional Director of the Company since June
1996. As Regional Director, Mr. Quigley is responsible for the Columbus,
Cincinnati, and Oklahoma City markets. Prior to that time, Mr. Quigley served as
general manager of WTTE since July 1985. Prior to joining WTTE, Mr. Quigley
served in broadcast management positions at WCPO-TV in Cincinnati, Ohio and
WPTV-TV in West Palm Beach, Florida.
Frank Quitoni has served as a Regional Director since completion of the
River City Acquisition. As Regional Director, Mr. Quitoni is responsible for
the St. Louis, Sacramento, Indianapolis and Asheville/ Greenville/Spartanburg
markets. Prior to joining the Company, he was Vice President of Operations for
River City since 1995. Mr. Quitoni had served as the Director of Operations and
Engineering for River City since 1994. Prior thereto Mr. Quitoni served as a
consultant to CBS beginning in 1989. Mr. Quitoni was the Director of Olympic
Operations for CBS Sports for the 1992 Winter Olympic Games and consulted with
CBS for the 1994 Winter Olympic Games. Mr. Quitoni was awarded the Technical
Achievement Emmy for the 1992 and 1994 CBS Olympic broadcasts.
M. William Butler has served as Vice President/Group Program Director, SCI
since 1997. From 1995 to 1997, Mr. Butler served as Director of Programming at
KCAL, the Walt Disney Company station in Los Angeles, California. From 1991 to
1995, he was Director of Marketing and Programming at WTXF in Philadelphia,
Pennsylvania and prior to that he held the same position at WLVI in Boston,
Massachusetts. Mr. Butler attended the Graduate Business School of the
University of Cincinnati from 1975 to 1976.
Michael Draman has served as Vice President/TV Sales and Marketing, SCI
since 1997. From 1995 until joining the Company, Mr. Draman served as Vice
President of Revenue Development for New World Television. From 1983 to 1995,
he was Director of Sales and Marketing for WSVN in Miami, Florida. Mr. Draman
attended The American University and The Harvard Business School and served
with the U.S. Marine Corps in Vietnam.
Stephen A. Eisenberg has served as Director of National Sales, SCI since
November 1996. Prior to joining the Company, he worked since 1975 in various
capacities at Petry Television, including most recently as Vice
President/Director of Sales with total national sales responsibility for KTTV in
Los Angeles, California, KCPQ-TV in Seattle, Washington, WTNH-TV in New Haven,
Connecticut, WKYC-TV in Cleveland, Ohio, WBIR-TV in Knoxville, Tennessee,
WKEF-TV in Dayton, Ohio and WTMJ-TV in Milwaukee, Wisconsin. Mr. Eisenberg
received an MS degree in Journalism from Northwestern's Medill School and a BA
degree from Brooklyn College.
Nat Ostroff has served as Vice President for New Technology since joining
the Company in January of 1996. From 1981 until joining the Company, he was the
President and CEO of Comark Communication Inc., a leading manufacturer of UHF
transmission equipment. While at Comark, Mr. Ostroff was nominated and awarded a
Prime Time Emmy Award for outstanding engineering achievement for the
development of new UHF transmitter technologies in 1993. In 1968, Mr. Ostroff
founded Acrodyne Industries Inc., a manufacturer of TV transmitters and a public
company and served as its first President and CEO. Mr. Ostroff holds a BSEE
degree from Drexel University and an MEEE degree from New York University. He is
a member of several industry organizations, including, AFCCE, IEEE and SBE.
Delbert R. Parks III has served as Vice President of Operations and
Engineering since the completion of the River City Acquisition. Prior to that
time, he was Director of Operations and Engineering for WBFF and Sinclair since
1985, and has been with the Company for 25 years. He is responsible for
planning, organizing and implementing operational and engineering policies and
strategies as they relate to television and computer systems. Currently, he is
consolidating facilities for Sinclair's television stations and has just
completed a digital facility for Sinclair's news and technical operation in
Pittsburgh. Mr. Parks is also a Lieutenant Colonel in the Maryland Army National
Guard and commands the 1st Battalion, 175th Infantry (Light).
Robert E. Quicksilver has served as Vice President/General Counsel, SCI
since completion of the River City Acquisition. Prior to that time he served as
General Counsel of River City since September 1994. From 1988 to 1994, Mr.
Quicksilver was a partner of the law firm of Rosenblum, Goldenhersh,
Silverstein and Zafft, P.C. in St. Louis. Mr. Quicksilver holds a B.A. from
Dartmouth College and a J.D. from the University of Michigan.
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Thomas E. Severson has served as Corporate Controller since January 1997.
Prior to that time, Mr. Severson served as Assistant Controller of the Company
since 1995. Prior to joining the Company, Mr. Severson held positions in the
audit departments of KPMG Peat Marwick LLP and Deloitte & Touche LLP from 1991
to 1995. Mr. Severson is a graduate of the University of Baltimore and is a
Certified Public Accountant.
Michael E. Sileck has served as Vice President/Finance of SCI since
completion of the River City Acquisition. Prior to that time he served as the
Director of Finance for River City since 1993. Mr. Sileck joined River City in
July 1990 as Director of Finance and Business Affairs for KDNL-TV. Mr. Sileck
is an active member of the Broadcast Cable Financial Management Association
("BCFM") and was a Director of BCFM from 1993 to 1996. Mr. Sileck, a Certified
Public Accountant, received a B.S. degree in Accounting from Wayne State
University and an M.B.A. in Finance from Oklahoma City University.
Robin A. Smith has served as Chief Financial Officer, SCI Radio since June
1996. From 1993 until joining the Company, Ms. Smith served as Vice President
and Chief Financial Officer of the Park Lane Group of Menlo Park, California,
which owned and operated small market radio stations. From 1982 to 1993, she
served as Vice President and Treasurer of Edens Broadcasting, Inc. in Phoenix,
Arizona, which owns and operates radio stations in major markets. Ms. Smith is a
graduate of the Arizona State University and is a Certified Public Accountant.
Patrick J. Talamantes has served as Director of Corporate Finance and
Treasurer of SCI since completion of the River City Acquisition. Prior to that
time, he served as Treasurer for River City since April 1995. From 1991 to 1995,
he was a Vice President with Chemical Bank, where he completed financings for
clients in the cable, broadcasting, publishing and entertainment industries. Mr.
Talamantes holds a B.A. degree from Stanford University and an M.B.A. from the
Wharton School at the University of Pennsylvania.
Lawrence E. McCanna has served as a Director of the Company since July
1995. Mr. McCanna has been a partner of the accounting firm of Gross,
Mendelsohn & Associates, P.A., since 1972 and has served as its managing
partner since 1982. Mr. McCanna has served on various committees of the
Maryland Association of Certified Public Accountants and was chairman of the
Management of the Accounting Practice Committee. He is also a former member of
the Management of an Accounting Practice Committee of the American Institute of
Certified Public Accountants. Mr. McCanna is a member of the board of directors
of Maryland Special Olympics.
Basil A. Thomas has served as a Director of the Company since November
1993. He is of counsel to the Baltimore law firm of Thomas & Libowitz, P.A. and
has been in the private practice of law since 1983. From 1961 to 1968, Judge
Thomas served as an Associate Judge on the Municipal Court of Baltimore City
and, from 1968 to 1983, he served as an Associate Judge of the Supreme Bench of
Baltimore City. Judge Thomas is a trustee of the University of Baltimore and a
member of the American Bar Association and the Maryland State Bar Association.
Judge Thomas attended the College of William & Mary and received his L.L.B. from
the University of Baltimore. Judge Thomas is the father of Steven A. Thomas, a
senior attorney and founder of Thomas & Libowitz, counsel to the Company.
Barry Baker has been the Chief Executive Officer of River City since 1989,
and is the President of the corporate general partner of River City and Better
Communications, Inc. ("BCI"). The principal business of both River City and BCI
is television and radio broadcasting. In connection with the River City
Acquisition, the Company agreed to appoint Mr. Baker Executive Vice President of
the Company and to elect him as a Director at such time as he is eligible to
hold those positions under applicable FCC regulations. He currently serves as a
consultant to the Company.
Kerby Confer served as a member of the Board of Representatives and Chief
Executive Officer -- Keymarket Radio Division of River City since July 1995.
Prior thereto, Mr. Confer served as Chairman of the Board and Chief Executive
Officer of Keymarket since its founding in December 1981. Prior to engaging in
the acquisition of various radio stations in 1975, Mr. Confer held a number of
jobs in the broadcast business, including serving as Managing Partner of a radio
station in Annapolis, Maryland from 1969 to 1975. From 1966 to 1969, he hosted a
pop music television show on WBAL-TV (Baltimore) and
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WDCA-TV (Washington, D.C.). Prior thereto, Mr. Confer served as program director
or producer/director for radio and television stations owned by Susquehanna
Broadcasting and Plough Broadcasting Company, Inc. Mr. Confer currently provides
services to the Company and is expected to become Chief Executive Officer of SCI
Radio at such time as he is eligible to hold this position under applicable FCC
regulations.
Roy F. Coppedge, III is a general partner of the general partner of each of
the Boston Ventures partnerships, limited partnerships primarily involved in the
business of investments. Mr. Coppedge is a director of Continental Cablevision,
Inc., and American Media, Inc. and a member of the Board of Representatives of
Falcon Holding Group, L.P. In connection with the River City Acquisition, the
Company agreed to elect Mr. Coppedge as a Director at such time as he is
eligible to hold that position under applicable FCC regulations.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with David D. Smith,
President and Chief Executive Officer of the Company. David Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. The Company's
Compensation Committee has approved an increase in Mr. Smith's total
compensation to $1,200,000. Mr. Smith is also entitled to participate in the
Company's Executive Bonus Plan based upon the performance of the Company during
the year. The employment agreement provides that the Company may terminate Mr.
Smith's employment prior to expiration of the agreement's term as a result of
(i) a breach by Mr. Smith of any material covenant, promise or agreement
contained in the employment agreement; (ii) a dissolution or winding up of the
Company; (iii) the disability of Mr. Smith for more than 210 days in any twelve
month period (as determined under the employment agreement); or (iv) for cause,
which includes conviction of certain crimes, breach of a fiduciary duty to the
Company or the stockholders, or repeated failure to exercise or undertake his
duties as an officer of the Company (each, a "Termination Event").
In June 1995, the Company entered into an employment agreement with
Frederick G. Smith, Vice President of the Company. Frederick Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. Under the agreement, Mr.
Smith receives a base salary of $260,000 and is also entitled to participate in
the Company's Executive Bonus Plan based upon the performance of the Company and
Mr. Smith during the year. The employment agreement provides that the Company
may terminate Mr. Smith's employment prior to expiration of the agreement's term
as a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with J.
Duncan Smith, Vice President and Secretary of the Company. J. Duncan Smith's
employment agreement has an initial term of three years and is renewable for
additional one-year terms, unless either party gives notice of termination not
less than 60 days prior to the expiration of the then current term. Under the
agreement, Mr. Smith receives a base salary of $270,000 and is also entitled to
participate in the Company's Executive Bonus Plan based upon the performance of
the Company and Mr. Smith during the year. The employment agreement provides
that the Company may terminate Mr. Smith's employment prior to expiration of the
agreement's term as a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with Robert
E. Smith, Vice President and Treasurer of the Company. Robert E. Smith's
employment agreement has an initial term of three years and is renewable for
additional one-year terms, unless either party gives notice of termination not
less than 60 days prior to the expiration of the then current term. Under the
agreement, Mr. Smith receives a base salary of $250,000 and is also entitled to
participate in the Company's Executive Bonus Plan based upon the performance of
the Company and Mr. Smith during the year. The employment agreement provides
that the Company may terminate Mr. Smith's employment prior to expiration of the
agreement's term as a result of a Termination Event.
In connection with the River City Acquisition, the Company entered into an
employment agreement (the "Baker Employment Agreement") with Barry Baker
pursuant to which Mr. Baker will become President and Chief Executive Officer of
SCI and Executive Vice President of the Company at such time as
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Mr. Baker is able to hold those positions consistent with applicable FCC
regulations. Until such time as Mr. Baker is able to become an officer of the
Company, he serves as a consultant to the Company pursuant to a consulting
agreement and receives compensation that he would be entitled to as an officer
under the Baker Employment Agreement. While Mr. Baker acts as consultant to the
Company he will not direct employees of Sinclair in the operation of its
television stations and will not perform services relating to any shareholder,
bank financing or regulatory compliance matters with respect to the Company. In
addition, Mr. Baker will remain the Chief Executive Officer of River City and
will devote a substantial amount of his business time and energies to those
services. Mr. Baker receives a base salary of approximately $1,135,200 per year,
subject to annual increases of 7 1/2% on January 1 each year. Mr. Baker is also
entitled to receive a bonus equal to 2% of the amount by which the Broadcast
Cash Flow (as defined in the Baker Employment Agreement) of SCI for a year
exceeds the Broadcast Cash Flow for the immediately preceding year. Mr. Baker
has received options to acquire 1,382,435 shares of the Class A Common Stock (or
3.33% of the common equity of Sinclair determined on a fully diluted basis as of
the date of the River City Acquisition). The option became exercisable with
respect to 50% of the shares upon closing of the River City Acquisition, and
became exercisable with respect to an additional 25% of the shares on the first
anniversary of the closing of the River City Acquisition, and will become
exercisable with respect to the remaining 25% on the second anniversary of the
closing of the River City Acquisition. The exercise price of the option is
approximately $30.11 per share. The term of the Baker Employment Agreement
extends until May 31, 2001, and is automatically extended to the third
anniversary of any Change of Control (as defined in the Baker Employment
Agreement). If the Baker Employment Agreement is terminated as a result of a
Series B Trigger Event (as defined below), then Mr. Baker shall be entitled to a
termination payment equal to the amount that would have been paid in base salary
for the remainder of the term of the agreement plus bonuses that would be paid
for such period based on the average bonus paid to Mr. Baker for the previous
three years, and all options shall vest immediately upon such termination. In
addition, upon such a termination, Mr. Baker shall have the option to purchase
from the Company for the fair market value thereof either (i) all broadcast
operations of Sinclair in the St. Louis, Missouri DMA or (at the option of Mr.
Baker) the Asheville/Greenville/Spartanburg, South Carolina DMA or (ii) all of
the Company's radio broadcast operations. Mr. Baker shall also have the right
following such a termination to receive quarterly payments (which may be paid
either in cash or, at the Company's option, in additional shares of Class A
Common Stock) equal to 5.00% of the fair market value (on the date of each
payment) of all stock options and common stock issued pursuant to the exercise
of such stock options or pursuant to payments of this obligation in shares of
Class A Common Stock and held by him at the time of such payment (except that
the first such payment shall be 3.75% of such value). The fair market value of
unexercised options for such purpose shall be equal to the market price of
underlying shares less the exercise price of the options. Following termination
of Mr. Baker's employment agreement, the Company shall have the option to
purchase the options and shares from Mr. Baker at their market value. A "Series
B Trigger Event" means the termination of Barry Baker's employment with the
Company prior to the expiration of the initial five-year term of the Baker
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 such positions with the Company or SCI
until the Company or SCI takes certain actions with respect to WTTV and WTTK in
Indianapolis or WTTE or WSYX in Columbus as described under "Risk Factors --
Dependence on Key Personnel; Employment Agreements with Key Personnel" in the
accompanying Prospectus. The Company will not be able to take these actions
prior to August 31, 1997 and accordingly Mr. Baker will be able to terminate the
Baker Employment Agreement at any time thereafter.
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DESCRIPTION OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
The following summary description of the Convertible Exchangeable Preferred
Stock is qualified in its entirety by reference to the Articles Supplementary to
the Amended and Restated Articles of Incorporation of the Company as amended
(the "Amended Certificate") governing the Convertible Exchangeable Preferred
Stock (the "Articles Supplementary"), a copy of which will be filed as an
exhibit to the registration statement of which this Prospectus Supplement is a
part. The definitions of certain capitalized terms used in the following summary
are set forth under "Certain Definitions" below. Other capitalized terms used
herein and not otherwise defined below or under "Certain Definitions" below are
defined in the Articles Supplementary.
GENERAL
The Convertible Exchangeable Preferred Stock has been authorized as a new
series of preferred stock, consisting of up to 3,450,000 shares. The Amended
Certificate authorizes the Company to issue, without any action on the part of
its stockholders, an aggregate of 10,000,000 shares of preferred stock, $.01 par
value ("Preferred Stock"). The Company's Board of Directors (the "Board of
Directors") has authority to divide the Preferred Stock into one or more series
and has broad authority to determine the relative rights and preferences of the
shares within each series, including voting rights. Subject to certain
conditions, the Convertible Exchangeable Preferred Stock will be exchangeable
for the Company's % Convertible Subordinated Debentures due 2012 (the "Exchange
Debentures") at the option of the Company on any scheduled dividend payment date
on or after , 2000. See "Certain Federal Income Tax Considerations."
The Convertible Exchangeable Preferred Stock will rank (i) junior in right
of payment to all indebtedness of the Company and the Subsidiaries; (ii) senior
in right of payment to all Common Stock of the Company; (iii) pari passu with
the Company's Series C Preferred Stock ($206.2 million liquidation value as of
the date hereof); and (iv) senior to the Company's Series B Preferred Stock
($108.9 million liquidation value as of August 25, 1997) except that upon the
termination of Barry Baker's employment agreement with the Company prior to May
31, 2001 by the Company 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 -- Existing Preferred Stock -- Series B
Preferred Stock" in the accompanying Prospectus, then the Convertible
Exchangeable Preferred Stock will rank pari passu with the Series B Preferred
Stock in respect of dividends and distributions upon liquidation, dissolution
and winding-up of the Company. One such circumstance pursuant to which Mr. Baker
can terminate his employment agreement is the failure of Mr. Baker to be elected
and continued in certain positions at the Company before August 31, 1997, which
election cannot take place prior to the Company taking certain actions related
to FCC approval of such election. The Company will not be able to take these
actions before August 31, 1997 and, accordingly, Mr. Baker will be able to
terminate his employment agreement at any time after August 31, 1997. See
"Description of Capital Stock" in the accompanying Prospectus and "Management"
herein.
The Articles Supplementary relating to the Series B Preferred Stock limit
the aggregate liquidation value of preferred stock that is senior to the Series
B Preferred Stock ("Senior Securities") to $400 million. The Series C Preferred
Stock does, and the Convertible Exchangeable Preferred Stock will, constitute
Senior Securities.
DIVIDENDS
Holders of Convertible Exchangeable Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors out of legally
available funds, cash dividends of $ per share annually, payable quarterly in
arrears on , , and
of each year, on or after , 1997 (each a
"Dividend Payment Date"). Such dividends will accrue and be cumulative from the
most recent Dividend Payment Date or, if none have been paid, from the date of
first issuance of the Convertible Exchangeable Preferred Stock and will be
payable to holders of record on the record date for each dividend payment fixed
by the Board of
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Directors. If a Dividend Payment Date is a Saturday, Sunday or legal holiday,
however, the dividend will be payable on the next business day without any
additional amounts required to be paid; provided that dividends will accrue and
be cumulative from Dividend Payment Dates and not from the date of payment.
The Convertible Exchangeable Preferred Stock will have priority as to
dividends over the Class A Common Stock, the Class B Common Stock and any other
series or class of the Company's stock that ranks junior to the Convertible
Exchangeable Preferred Stock, as to dividends ("Junior Dividend Stock"). As
described above, the Company's Series B Preferred Stock is Junior Dividend Stock
except in certain circumstances. No dividend (other than dividends payable
solely in Common Stock, any Junior Dividend Stock or warrants or other rights to
acquire such Common Stock or Junior Dividend Stock) may be paid or set apart for
payment on, and no purchase, redemption or other acquisition shall be made by
the Company of, the Common Stock or Junior Dividend Stock unless all accrued and
unpaid dividends on the Convertible Exchangeable Preferred Stock, including the
full dividend for the then-current quarterly dividend period and any Penalty
Dividends (as defined herein), shall have been paid or declared and set apart
for payment without interest.
Except as provided below, the Company may not pay dividends on any class or
series of stock having parity with the Convertible Exchangeable Preferred Stock
as to dividends ("Parity Dividend Stock") unless it has paid or declared and set
apart for payment or contemporaneously pays or declares and sets apart for
payment all accrued and unpaid dividends for all prior dividend payment periods
on the Convertible Exchangeable Preferred Stock. As described above, the
Company's Series C Preferred Stock is Parity Dividend Stock and, in certain
circumstances described above, the Series B Preferred Stock is also Parity
Dividend Stock. In addition, except as provided below, the Company may not pay
dividends on the Convertible Exchangeable Preferred Stock unless it has paid or
declared and set apart for payment or contemporaneously pays or declares and
sets apart for payment all accrued and unpaid dividends for all prior dividend
payment periods on the Parity Dividend Stock. Whenever all accrued dividends are
not paid in full on Convertible Exchangeable Preferred Stock and on any Parity
Dividend Stock, all dividends declared on the Convertible Exchangeable Preferred
Stock and the Parity Dividend Stock will be declared and made pro rata so that
the amount of dividends declared on the Convertible Exchangeable Preferred Stock
and the Parity Dividend Stock will bear the same ratio that accrued and unpaid
dividends on the Convertible Exchangeable Preferred Stock and the Parity
Dividend Stock bear to each other.
The Company may not purchase any shares of the Convertible Exchangeable
Preferred Stock or any Parity Dividend Stock (except for consideration payable
in Common Stock or Junior Dividend Stock) or redeem fewer than all the shares of
the Convertible Exchangeable Preferred Stock and Parity Dividend Stock then
outstanding if the Company has failed to pay any accrued dividend on the
Convertible Exchangeable Preferred Stock or any Parity Dividend Stock on a
stated payment date. Notwithstanding the foregoing, in such event, the Company
may purchase or redeem fewer than all the shares of the Convertible Exchangeable
Preferred Stock and Parity Dividend Stock if such repurchase or redemption is
made pro rata so that the amounts purchased or redeemed bear to each other the
same ratio that the required redemption payments on the shares of the
Convertible Exchangeable Preferred Stock and any Parity Dividend Stock then
outstanding bear to each other.
If the Company hereafter issues any series or class of stock that ranks
senior as to dividends to the Convertible Exchangeable Preferred Stock ("Senior
Dividend Stock") and fails to pay or declare and set apart for payment accrued
and unpaid dividends on any Senior Dividend Stock (except to the extent allowed
by the terms of the Senior Dividend Stock), the Company may not pay or declare
and set apart for payment any dividend on the Convertible Exchangeable Preferred
Stock unless and until all accrued and unpaid dividends on the Senior Dividend
Stock, including the full dividends for the then-current dividend period, have
been paid or declared and set apart for payment without interest. The Company
has no Senior Dividend Stock outstanding on the date of this Prospectus
Supplement.
The dividend payable on Convertible Exchangeable Preferred Stock for each
quarterly dividend period will be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and for any period shorter than a full quarterly dividend period
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will be computed on the basis of a 360-day year of twelve 30-day months. No
interest will be payable on any scheduled Convertible Exchangeable Preferred
Stock dividend that may be in arrears.
Under Maryland law, no distribution to stockholders may be made by the
Company if, after giving effect to the distribution, (i) the Company would not
be able to pay indebtedness of the Company as the indebtedness becomes due in
the usual course of business, or (ii) the Company's total assets would be less
than the sum of the Company's total liabilities plus, unless the charter permits
otherwise, the amount that would be needed, if the Company were to be dissolved
at the time of the distribution, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights on dissolution are
superior to those receiving the distribution. The Company's Amended Certificate
does not contain such a provision. The Existing Notes and Bank Credit Agreement
limit the Company's ability to pay cash dividends on its capital stock,
including the Convertible Exchangeable Preferred Stock, and future agreements
may provide the same.
Certain covenants under the Existing Indentures (as defined in the
accompanying Prospectus), the Bank Credit Agreement and the Articles
Supplementary relating to the Series C Preferred Stock restrict the amount of
dividends that may be declared and paid by the Company on its capital stock
including the Convertible Exchangeable Preferred Stock. Although the Company
presently believes it will be able to pay dividends on the Convertible
Exchangeable Preferred Stock as required, there can be no assurance that the
Company will be permitted under such restrictions to declare dividends
throughout the term of the Convertible Exchangeable Preferred Stock. The Company
may make other restricted payments or the Company's consolidated operating
performance may decline, either of which could limit the Company's ability to
declare dividends. In addition, under the terms of the Bank Credit Agreement,
the Company would not be able to pay full cash dividends on the Convertible
Exchangeable Preferred Stock beginning December 31, 1998 unless the Company's
Total Indebtedness Ratio (as defined in the Bank Credit Agreement) improves from
the Company's pro forma 1996 Total Indebtedness Ratio. As of December 31, 1996,
on a pro forma basis assuming completion on January 1, 1996 of the 1996
Acquisitions, the HYTOPS Issuance, the Debt Issuance, the Heritage Acquisition,
and the Preferred Stock Offering, this limitation would have allowed the Company
to pay up to $16.3 million in dividends on capital stock for fiscal 1996. The
Company must also satisfy other financial covenants under the Bank Credit
Agreement to pay cash dividends. See "Risk Factors -- Restrictions Imposed by
Terms of Indebtedness" in the accompanying Prospectus.
LIQUIDATION RIGHTS
In the case of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, subject to the payment in full, or until provision
has been made for the payment in full of all claims of creditors of the Company,
(i) holders of Convertible Exchangeable Preferred Stock are entitled to receive
the liquidation preference of $50.00 per share, plus an amount equal to any
accrued and unpaid dividends (including Penalty Dividends, if any), whether or
not declared, to the payment date, before any payment or distribution is made to
the holders of Common Stock or any other series or class of stock hereafter
issued that ranks junior as to liquidation rights to the Convertible
Exchangeable Preferred Stock ("Junior Liquidation Stock"), and (ii) holders of
Convertible Exchangeable Preferred Stock will not be entitled to receive the
liquidation preference of their shares until the liquidation preference of any
other series or class of stock hereafter issued that ranks senior as to
liquidation rights to the Convertible Exchangeable Preferred Stock ("Senior
Liquidation Stock"), if any, has been paid in full. The holders of Convertible
Exchangeable Preferred Stock and any series or class of stock hereafter issued
that ranks on a parity as to the liquidation rights with the Convertible
Exchangeable Preferred Stock ("Parity Liquidation Stock") are entitled to share
ratably, in accordance with the respective preferential amounts payable on their
stock, in any distribution (after payment of the liquidation preference on any
Senior Liquidation Stock) that is not sufficient to pay in full the aggregate
liquidation preference on both the Convertible Exchangeable Preferred Stock and
the Parity Liquidation Stock. As described above, the Series C Preferred Stock
is Parity Liquidation Stock and the Series B Preferred Stock is Junior
Liquidation Stock except in certain circumstances described above in which it
becomes Parity Liquidation Stock.
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After payment in full of the liquidation preference plus any accrued and
unpaid dividends (including Penalty Dividends, if any), on the Convertible
Exchangeable Preferred Stock, the holders will not be entitled to any further
participation in any distribution of assets by the Company. Neither a
consolidation or merger of the Company with another entity nor a sale or
transfer of all or part of the Company's assets for cash, securities or other
property will be considered a liquidation, dissolution or winding up of the
Company.
VOTING RIGHTS
The holders of Convertible Exchangeable Preferred Stock will have no voting
rights except as described below or as required by law. In exercising any voting
rights, each outstanding share of Convertible Exchangeable Preferred Stock will
be entitled to one vote, although shares held by the Company or any entity
controlled by the Company will have no voting rights.
Whenever dividends on the Convertible Exchangeable Preferred Stock are in
arrears in aggregate amount equal to at least six quarterly dividends (whether
or not consecutive), the size of the Company's Board of Directors will be
increased by two, and the holders of Convertible Exchangeable Preferred Stock,
voting separately as a class, will be entitled to select the two additional
directors to the Board of Directors at, subject to certain limitations, (i) any
annual meeting of stockholders at which directors are to be elected held during
the period when the dividends remain in arrears or (ii) at a special meeting of
stockholders called by the Company at the request of the holders of the
Convertible Exchangeable Preferred Stock; provided, however, that in the event
that the size of the Board of Directors cannot be increased to a size that is
sufficient to accommodate the addition of the above-referenced two directors at
the time that the holders are entitled to fill such directors' seats, the
Company will cause the removal or resignation of the appropriate number of
current directors in order to allow for the election of such holders' nominees.
These voting rights will terminate when all dividends in arrears and for the
current quarterly period have been paid in full or declared and set apart for
payment. The term of office of the additional directors so elected will
terminate immediately upon that payment or provision for payment.
The Amended Certificate currently limits the number of directors to nine
and, pursuant to the Amended Certificate, directors can only be removed from the
Board of Directors "for cause". Accordingly, unless the Amended Certificate is
amended to increase the number of directors that may be elected to the Board of
Directors or to allow directors to be removed other than "for cause" or unless
two directors resign in order to accommodate the election of directors by the
holders of Convertible Exchangeable Preferred Stock, such holders may be unable
to elect the two directors to which such holders are entitled. If the Amended
Certificate is not amended as indicated above or no directors have resigned,
both within one year of the issue date of the Convertible Exchangeable Preferred
Stock, then, as liquidated damages, default dividends (the "Penalty Dividends")
shall become payable in respect of the Convertible Exchangeable Preferred Stock.
Penalty Dividends shall accrue on the Convertible Exchangeable Preferred Stock
over and above the stated payment rates thereon at a rate of .50% per annum for
the first 90 days immediately following the first anniversary of the issue date
of the Convertible Exchangeable Preferred Stock, with such Penalty Dividend rate
increasing by an additional .25% per annum at the beginning of each subsequent
90-day period; provided, however, that the Penalty Dividend rate on any shares
of the Convertible Exchangeable Preferred Stock may not exceed 1.5% per annum;
and provided further, that when the Amended Certificate has been so amended or
such directors have resigned, Penalty Dividends shall cease to accrue.
Any Penalty Dividends will be payable in cash on the various payment dates
related to the Convertible Exchangeable Preferred Stock. The Penalty Dividends
will be determined by multiplying the applicable Penalty Dividend rate by the
liquidation preference of the Convertible Exchangeable Preferred Stock
multiplied by a fraction, the numerator of which is the number of days such
Penalty Dividend rate was applicable during such period, and the denominator of
which is 360.
In addition, so long as any Convertible Exchangeable Preferred Stock is
outstanding, the Company will not, without the affirmative vote or consent of
the holders of at least 66 2/3% of all outstanding shares of Convertible
Exchangeable Preferred Stock, (i) amend, alter or repeal (by merger or
otherwise) any provision of the Amended Certificate or the Bylaws of the Company
so as to affect adversely the
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relative rights, preferences, qualifications, limitations or restrictions of the
Convertible Exchangeable Preferred Stock, (ii) authorize any new class of Senior
Dividend Stock, any Senior Liquidation Stock or any security convertible into or
exchangeable for Senior Dividend Stock or Senior Liquidation Stock or (iii)
effect any reclassification of the Convertible Exchangeable Preferred Stock or
any reclassification of any capital stock into Senior Dividend Stock or Senior
Liquidation Stock.
REDEMPTION AT OPTION OF THE COMPANY
The Convertible Exchangeable Preferred Stock will be redeemable, at the
Company's option, in whole or from time to time in part, at any time on or after
, 2000, upon not less than 30 nor more than 60 days' prior notice by first class
mail to each holder of Convertible Exchangeable Preferred Stock to be redeemed
at its address appearing in the security register at the following redemption
prices ("Redemption Prices") plus accrued and unpaid dividends (including
Penalty Dividends, if any), expressed on a per share basis, whether or not
declared, to the date of redemption.
If redeemed during the 12-month period beginning in the year indicated, the
Redemption Price shall be:
PRICE PRICE
YEAR PER SHARE YEAR PER SHARE
- ------------ ----------- --------------------------- ----------
2000 ...... $ 2004 ..................... $
2001 ...... 2005 .....................
2002 ...... 2006 .....................
2003 ...... 2007 and thereafter ...... 50
If fewer than all the outstanding shares of Convertible Exchangeable
Preferred Stock are to be redeemed, the Company will select those shares to be
redeemed pro rata or in such other manner as the Board of Directors may
reasonably determine to be equitable. There is no mandatory redemption or
sinking fund obligation for the Convertible Exchangeable Preferred Stock. In the
event that the Company has failed to pay accrued and unpaid dividends (including
Penalty Dividends, if any) on the Convertible Exchangeable Preferred Stock, it
may not redeem less than all of the outstanding shares of the Convertible
Exchangeable Preferred Stock until all such accrued and unpaid dividends have
been paid in full.
After the redemption date, dividends will cease to accrue on the shares of
Convertible Exchangeable Preferred Stock called for redemption and all rights of
the holders of those shares will terminate, except the conversion rights to the
extent described below and the right to receive the redemption price plus
accrued and unpaid dividends (including Penalty Dividends, if any), whether or
not declared, to the redemption date, without interest. The Bank Credit
Agreement, the Existing Indentures and the Articles Supplementary relating to
the Series C Preferred Stock restrict the ability of the Company to redeem the
Convertible Exchangeable Preferred Stock and future agreements may do the same.
Shares of Convertible Exchangeable Preferred Stock 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 the Company
undesignated as to series and may with any and all other authorized but unissued
shares of preferred stock of the Company be designated or redesignated and
issued or reissued, as the case may be, as part of any series of preferred stock
of the Company, except that any issuance or reissuance of shares of preferred
stock must be in compliance with the Articles Supplementary and except that such
shares may not be reissued or sold as shares of Convertible Exchangeable
Preferred Stock.
CONVERSION RIGHTS
Each holder of Convertible Exchangeable Preferred Stock will have the
right, at the holder's option, to convert any or all shares into Class A Common
Stock at any time at a conversion price (subject to adjustment as described
below) of $ per share of the underlying Class A Common Stock. If the Convertible
Exchangeable Preferred Stock is called for redemption, the conversion right will
terminate at the close of business on the second day preceding the redemption
date fixed by the Board of Directors.
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Holders of shares of Convertible Exchangeable Preferred Stock at the close
of business on a dividend payment record date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment record
date and prior to such Dividend Payment Date. If shares of Convertible
Exchangeable Preferred Stock not called for redemption are surrendered for
conversion during the period between the close of business on any dividend
record date and the opening of business on any corresponding Dividend Payment
Date such shares so surrendered must be accompanied by payment of an amount
equal to the dividend payable on such shares on such Dividend Payment Date and
such shares will be entitled to such dividends. No such payment will be required
to accompany shares of Convertible Exchangeable Preferred Stock called for
redemption and surrendered during such period and which are not converted. A
holder of shares of Convertible Exchangeable Preferred Stock on a dividend
record date who (or whose transferee) tenders any such shares for conversion
into shares of Class A Common Stock on the corresponding Dividend Payment Date
will receive the dividend payable by the Company on such shares of Convertible
Exchangeable Preferred Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Convertible Exchangeable Preferred Stock for conversion. Except as provided
above, the Company will make no payment or allowance for accrued and unpaid
dividends, whether or not in arrears, on converted shares or for dividends on
the shares of Class A Common Stock issuable upon such conversion. No fractional
shares of Class A Common Stock will be required to be issued upon conversion
but, in lieu thereof, the Company may deliver cash in an appropriate amount
which will be paid based on the last reported sale price for the Class A Common
Stock on the day of conversion.
The conversion price will be subject to adjustment upon the occurrence of
any of the following events: (i) the subdivision, combination or
reclassification of outstanding shares of Class A Common Stock; (ii) the payment
in shares of Common Stock of a dividend or distribution on any class of capital
stock of the Company; (iii) the issuance of rights or warrants to all holders of
Class A Common Stock or Class B Common Stock or both entitling them to acquire
shares of Common Stock at a price per share less than the average of the last
reported sales price of the Class A Common Stock for the five consecutive
trading days immediately prior to such issuance; (iv) the distribution to
holders of Class A Common Stock or Class B Common stock or both of shares of
capital stock other than Common Stock, evidences of indebtedness, cash or assets
(including securities, but excluding dividends or distributions paid exclusively
in cash and dividends, distributions, rights and warrants referred to above);
(v) a distribution consisting exclusively of cash (excluding any cash
distributions referred to in (iv) above) to all holders of Class A Common Stock
or Class B Common Stock or both in an aggregate amount that, together with (A)
the aggregate amount of all other cash distributions to all holders of the Class
A Common Stock or Class B Common Stock within the 12 months preceding such
distribution and (B) any cash and the fair market value of other consideration
payable in respect of any tender offer by the Company or a Subsidiary of the
Company for Common Stock consummated within the 12 months preceding such
distribution, exceeds 12.5% of the Company's Market Capitalization (as defined
below) on the date fixed for determining the stockholders entitled to such
distribution; and (vi) the consummation of a tender offer made by the Company or
any Subsidiary of the Company for Common Stock which involves an aggregate
consideration that, together with (X) any cash and the fair market value of
other consideration payable in respect of any tender offer by the Company or a
Subsidiary for Common Stock consummated within the 12 months preceding the
consummation of such tender offer and (Y) the aggregate amount of all cash
distributions (excluding any cash distributions referred to in (iv) above) to
all holders of the Class A Common Stock or Class B Common Stock or both within
the 12 months preceding the consummation of such tender offer, exceeds 12.5% of
the Company's Market Capitalization on the date of consummation of such tender
offer. No adjustment of the conversion price will be made until cumulative
adjustments amount to one percent or more of the conversion price as last
adjusted; provided, however, that any adjustments which, by reason of the
foregoing, are not required to be made will be carried forward and taken into
account in any subsequent adjustment. All adjustments will be made successively.
"Market Capitalization" means the product of the number of issued and
outstanding shares of Common Stock multiplied by the last reported sales price
of the Class A Common Stock.
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The Company from time to time may reduce the conversion price by any amount
for any period of time if the period is at least 20 days and if the reduction is
irrevocable during the period. Whenever the conversion price is so reduced, the
Company shall mail to holders of the Convertible Exchangeable Preferred Stock a
notice of the reduction at least 15 days before the date the reduced conversion
price takes effect, stating the reduced conversion price and the period it will
be in effect.
In case of any reclassification of the Class A Common Stock, any
consolidation of the Company with, or merger of the Company into, any other
entity, any merger of any entity into the Company (other than a merger that does
not result in a reclassification, conversion, exchange or cancellation of the
outstanding shares of Class A Common Stock), any sale or transfer of all or
substantially all of the assets of the Company or any compulsory share exchange
whereby the Class A Common Stock is converted into other securities, cash or
other property, then the holder of each share of Convertible Exchangeable
Preferred Stock then outstanding shall have the right thereafter, during the
period that the Convertible Exchangeable Preferred Stock shall be convertible,
to convert that share only into the kind and amount of securities, cash and
other property receivable upon the reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of Class A
Common Stock into which one share of Convertible Exchangeable Preferred Stock
would have been convertible immediately prior to the reclassification,
consolidation, merger, sale, transfer or share exchange. The kind and amount of
securities into or for which the shares of Convertible Exchangeable Preferred
Stock will be convertible or redeemable after consummation of such transaction
will be subject to adjustment as described above following the date of
consummation of such transaction. The Company may not become a party to any such
transaction unless the terms thereof are consistent with the foregoing and the
surviving corporation in any such transaction agrees in writing to comply with
the terms of the foregoing.
CHANGE OF CONTROL
If a Change of Control (as hereinafter defined) occurs with respect to the
Company, then shares of the Convertible Exchangeable Preferred Stock may be
converted, at the option of the holder thereof, at any time from the date of
such Change of Control until the expiration of 45 days after the date of a
notice by the Company to all holders of the Convertible Exchangeable Preferred
Stock of the occurrence of the Change of Control, into the number of shares of
Class A Common Stock determined by dividing (i) the $50 liquidation preference
of the Convertible Exchangeable Preferred Stock, plus accrued and unpaid
dividends, if any, up to but excluding the date of the Change of Control by (ii)
the adjusted conversion price. The adjusted conversion price (the "Adjusted
Conversion Price") is the greater of (i) the average of the last reported sales
price per share of the Class A Common Stock for the last five trading days
before the Change of Control or (ii) 66 2/3% of the last reported sales price of
the Class A Common Stock on the day before the date of this Prospectus
Supplement (as adjusted for stock splits or combinations). The special
conversion rights will exist upon the occurrence of any Change of Control,
whether or not the transaction relating thereto has been approved by management
of the Company and may not be waived by management. Exercise of the special
conversion rights by the holder of a share of Convertible Exchangeable Preferred
Stock will be irrevocable. If the Change of Control involves a consolidation,
merger or sale of assets of the Company, the holders of Convertible Exchangeable
Preferred Stock exercising their special conversion rights will be entitled to
receive the same consideration as received for the number of shares of Class A
Common Stock into which their shares of Convertible Exchangeable Preferred Stock
would have been converted pursuant to the special conversion rights. These
special conversion rights are in addition to the regular conversion rights that
apply to the Convertible Exchangeable Preferred Stock.
The Company may, at its option, elect to pay holders of the Convertible
Exchangeable Preferred Stock exercising their special conversion rights an
amount in cash equal to the $50 liquidation preference of the Convertible
Exchangeable Preferred Stock, plus accrued and unpaid dividends, if any, up to
but excluding the date of the Change of Control, in which event no conversion
pursuant to the exercise of the special conversion rights set forth in the
preceding paragraph will occur, unless the Company defaults in making payment of
such amounts.
A Change of Control will result in an event of default under the Bank
Credit Agreement and could result in the acceleration of all indebtedness under
the Bank Credit Agreement. Moreover, the Bank
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Credit Agreement prohibits the repurchase of the Convertible Exchangeable
Preferred Stock by the Company. A Change of Control will also allow holders of
Existing Notes or holders of Series C Preferred Stock to require the Company to
redeem either the Existing Notes or the Series C Preferred Stock, as the case
may be.
The existence of these special conversion rights may deter certain mergers,
tender offers or other takeover attempts and may thereby adversely affect the
market price of the Class A Common 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 Ruled 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 the
Company, 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 the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the board of directors of the Company (together with any
new directors whose election to such board of directors, or whose nomination for
election by the shareholders of the Company, 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) the Company 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 the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company is not changed or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company) or where (A) the outstanding Voting Stock of the
Company 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 the Company as a Restricted Payment under the
terms of the indenture relating to the 1997 Notes as in effect on the date of
this Prospectus Supplement, without giving effect to any later amendments
thereto (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) the Company is liquidated or dissolved or adopts a plan of liquidation
or dissolution other than in a transaction which complies with the provisions
described under "-- Consolidation, Merger, Sale of Assets" of the Exchange
Debenture Indenture (as defined herein).
"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 or the holder thereof.
"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 of 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 any trust for the benefit of 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 the Company.
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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 Company's
state of incorporation) to represent a specific quantitative test. As a
consequence, in the event the Holders of the Convertible Exchangeable Preferred
Stock elected to exercise their rights in the event of a Change of Control under
the terms set forth above and the Company elected to contest such election,
there could be no assurance as to how a court interpreting Maryland law would
interpret the phrase.
EXCHANGE RIGHTS
Subject to certain conditions, the Company may, at its option, on any
scheduled Dividend Payment Date on or after , 2000, exchange the Convertible
Exchangeable Preferred Stock, in whole but not in part, for the Exchange
Debentures; provided that (i) on the date of such exchange there are no
accumulated and unpaid dividends (whether or not declared) (including Penalty
Dividends, if any) on the Convertible Exchangeable Preferred Stock which are not
being simultaneously paid with such exchange (including the dividend payable on
such date) or other contractual impediments to such exchange; (ii) there shall
be legally available funds sufficient for any such dividends; (iii) immediately
after giving effect to such exchange, no Default or Event of Default (each as
defined in the Exchange Debenture Indenture) would exist under the Exchange
Debenture Indenture; and (iv) no default or event of default would exist under
the Existing Indentures or the Bank Credit Agreement. See "Description of
Exchange Debentures" below for the terms of the Exchange Debentures. Holders of
Convertible Exchangeable Preferred Stock so exchanged will be entitled to
receive, subject to the second succeeding sentence $1,000 principal amount of
Exchange Debentures for each $1,000 of liquidation preference of Convertible
Exchangeable Preferred Stock held by such holders at the time of exchange plus
an amount per share in cash equal to all accrued but unpaid dividends thereon to
the date of exchange. The Company will be required to issue the Exchange
Debentures only in denominations of $1,000 and integral multiples thereof. An
amount in cash may be paid to holders for any principal amount otherwise
issuable which is less than $1,000. Following such exchange, all dividends on
the Convertible Exchangeable Preferred Stock will cease to accrue, the rights of
the holders of Convertible Exchangeable Preferred Stock as stockholders of the
Company shall cease and the person or persons entitled to receive the Exchange
Debentures issuable upon exchange shall be treated as the registered holder or
holders of such Exchange Debentures. Notice of exchange will be mailed at least
30 days but not more than 60 days prior to the date of exchange to each holder
of Convertible Exchangeable Preferred Stock.
See "Description of Exchange Debentures" below.
In addition, under applicable provisions of the federal bankruptcy law or
comparable provisions of state fraudulent transfer law, if at the time of the
Company's payment of dividends on, redemption of or exchange of Exchange
Debentures for, the Convertible Exchangeable Preferred Stock (i) the Company is
insolvent or rendered insolvent by reason thereof; (ii) the Company is engaged
in a business or transaction for which the Company's remaining assets constitute
unreasonably small capital; or (iii) the Company intends to incur or believes
that it would incur debts beyond its ability to pay such debts as they mature,
then the relevant distribution to holders of Convertible Exchangeable Preferred
Stock could be avoided in whole or in part as a fraudulent conveyance and such
holders could be required to return the same or equivalent amounts to or for the
benefit of existing or future creditors of the Company. The measure of
insolvency for purposes of the foregoing will vary depending on the law of the
jurisdiction which is being applied. Generally, the Company would be considered
insolvent if the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of its assets at a fair valuation or if the
present fair saleable value of its assets were less than the amount that would
be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature. See "Description of
Exchange Debentures -- Fraudulent Conveyance Considerations."
The Bank Credit Agreement, the Existing Indentures and the Articles
Supplementary relating to the Series C Preferred Stock restrict the Company's
ability to exchange the Convertible Exchangeable Preferred Stock for the
Exchange Debentures.
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OTHER PROVISIONS
The shares of Convertible Exchangeable Preferred Stock, and the Class A
Common Stock when issued upon conversion thereof, will be duly and validly
issued, fully paid and nonassessable.
The holders of shares of Convertible Exchangeable Preferred Stock will have
no preemptive rights with respect to any securities of the Company.
The Company intends to apply for listing of the Convertible Exchangeable
Preferred Stock on the Nasdaq National Market. Prior to the issuance of the
Convertible Exchangeable Preferred Stock, there will be no trading market for
the shares of Convertible Exchangeable Preferred Stock, and there can be no
assurance that a market will develop. See "Risk Factors -- Absence of Public
Trading Market" in the accompanying Prospectus.
If shares of the Convertible Exchangeable Preferred Stock 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 that are not included in
the trading price of the Convertible Exchangeable Preferred Stock.
The Convertible Exchangeable Preferred Stock pays dividends at a fixed
rate. The liquidation preference of the Convertible Exchangeable Preferred Stock
is not necessarily indicative of the price at which the Convertible Exchangeable
Preferred Stock will actually trade at or after the time of the issuance
thereof, and the Convertible Exchangeable Preferred Stock may trade at prices
below its liquidation preference. The market price can be expected to fluctuate
with changes in other securities that pay dividends or interest at a fixed rate
and economic conditions, the financial condition and prospects of the Company
and other factors that generally influence the market prices of debt and other
securities that pay dividends or interest at a fixed rate.
The registrar, transfer agent, conversion agent and dividend disbursing
agent for the Convertible Exchangeable Preferred Stock and the transfer agent
and registrar for the Class A Common Stock issuable upon conversion thereof is
The First National Bank of Boston.
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DESCRIPTION OF EXCHANGE DEBENTURES
The Exchange Debentures will be issued under an indenture, a copy of the
form of which will be filed as an exhibit to the registration statement of which
this Prospectus Supplement is a part (the "Exchange Debenture Indenture"),
between the Company and _______________, as trustee (the "Trustee"). The
following summaries of certain provisions of the Exchange Debenture Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Exchange Debenture
Indenture, including the definition therein of certain terms. Wherever
particular sections or defined terms of the Exchange Debenture Indenture are
referred to, such sections or defined terms are incorporated herein by
reference. For purposes of the following discussion, "Common Stock" includes any
stock of any class of the Company which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which is not subject
to redemption by the Company, including, without limitation, the Company's Class
A Common Stock and Class B Common Stock.
GENERAL
The Exchange Debentures will be unsecured obligations of the Company, will
be limited to $150 million in aggregate principal amount (plus an amount equal
to the aggregate liquidation preference of any shares of Convertible
Exchangeable Preferred Stock issued upon exercise of the Underwriters'
over-allotment option) and will mature on , 2012. The Exchange
Debentures will bear interest at the rate per annum of % from the date of
original issuance of Exchange Debentures pursuant to the Indenture, or from the
most recent interest payment date to which interest has been paid or provided
for, payable quarterly on , , and of each year (each
an "Interest Payment Date") commencing on the first such payment date following
the date of the exchange, to the Person in whose name the Exchange Debenture (or
any predecessor Exchange Debenture) is registered at the close of business on
the preceding , , and , as the case
may be. Interest on the Exchange Debentures will be paid on the basis of a
360-day year of twelve 30-day months.
Principal of, and premium, if any, and interest on, the Exchange Debentures
will be payable (i) in respect of Exchange Debentures held of record by The
Depository Trust Company ("DTC") or its nominee, in same day funds on or prior
to the payment dates with respect to such amounts and (ii) in respect of
Exchange Debentures held of record by holders other than DTC or its nominee, at
the corporate trust office of the Trustee. In addition, with respect to Exchange
Debentures held of record by holders other than DTC or its nominee, payment of
interest may be made at the option of the Company by check mailed to the address
of the persons entitled thereto as it appears in the register for the Exchange
Debentures on the regular record date for such interest (the "Regular Record
Date"). The Exchange Debentures may be surrendered for transfer, exchange or
conversion at the corporate trust office of the Trustee.
The Exchange Debentures will be issued only in registered form, without
coupons and in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any transfer or exchange of the Exchange
Debentures, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge and any other expenses (including the fees and
expenses of the Trustee) payable in connection therewith. The Company is not
required (i) to issue, register the transfer of or exchange any Exchange
Debentures during a period beginning at the opening of business 15 days before
the day of the mailing of a notice of redemption and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Exchange Debenture selected for redemption in whole or in part,
except the unredeemed portion of Exchange Debentures being redeemed in part.
All monies paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium if any and interest on any Exchange
Debenture which remain unclaimed for two years after such principal, premium or
interest become due and payable may be repaid to the Company. Thereafter, the
registered holder of such Exchange Debenture may, as an unsecured general
creditor, look only to the Company for payment thereof.
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The Exchange Debenture Indenture does not contain any provisions that would
provide protection to holders of the Exchange Debentures against a sudden and
dramatic decline in credit quality of the Company resulting from any takeover,
recapitalization or similar restructuring, except as described below under "--
Change of Control."
CONVERSION RIGHTS
The holder of any Exchange Debenture will have the right, at the holder's
option, to convert the principal amount thereof (or any portion thereof that is
an integral multiple of $1,000) into shares of Class A Common Stock at any time
prior to maturity, initially at the conversion rate in effect on the Convertible
Exchangeable Preferred Stock at the date of exchange of the Convertible
Exchangeable Preferred Stock for Exchange Debentures (subject to adjustments as
described below), except that if an Exchange Debenture is called for redemption,
the conversion right will terminate on the close of business on the second
business day preceding the date fixed for redemption. No payment of interest and
no adjustment in respect of dividends will be made upon the conversion of any
Exchange Debenture, and the holder will lose any right to payment of interest on
the Exchange Debentures surrendered for conversion. Exchange Debentures
surrendered for conversion during the period from the Regular Record Date for an
interest payment to the corresponding Interest Payment Date (except Exchange
Debentures called for redemption during that period) must be accompanied by
payment of an amount equal to the interest upon conversion. No fractional shares
will be issued upon conversion but, in lieu thereof, an appropriate amount will
be paid in cash based on the last reported sale price for the shares of Class A
Common Stock on the day of conversion. The provisions in the Exchange Debenture
Indenture for adjustment of the conversion rate (including a reduction of the
conversion rate under certain circumstances) and conversion in connection with a
reclassification, consolidation, merger, sale, transfer or share exchange will
be substantially the same as those applicable to the Convertible Exchangeable
Preferred Stock described above under the caption "Description of Convertible
Exchangeable Preferred Stock -- Conversion Rights."
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Exchange Debentures will, to the extent set forth in the Exchange Debenture
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Debt in cash or cash equivalents or in any other form acceptable to
the holders of Senior Debt. The Exchange Debentures will be subordinated
indebtedness of the Company ranking junior to all existing and future Senior
Subordinated Indebtedness of the Company and pari passu to all other existing
and future subordinated indebtedness of the Company.
As of June 30, 1997 on a pro forma basis, after giving effect to the Debt
Issuance, the sale of the Convertible Exchangeable Preferred Stock offered
hereby and the application of the estimated net proceeds thereof, the aggregate
amount of Senior Debt that ranked senior in right of payment to the Exchange
Debentures would have been approximately $1.6 billion. As the Company is a
holding company, substantially all of the Company's assets consist of the
capital stock of its Subsidiaries. Except to the extent that the Company may
itself be a creditor with recognized claims against its Subsidiaries, the claims
of the holders of the Exchange Debentures are effectively subordinated to the
claims of the direct creditors of the Subsidiaries of the Company. All of the
Senior Debt is guaranteed by substantially all of the Company's Subsidiaries.
Subject to compliance with certain limitations in the Company's debt
instruments, the Company and its Subsidiaries may incur additional indebtedness.
See "Risk Factors -- Subordination of the Subordinated Debt Securities and the
Related Guarantees; Asset Encumbrances" in the accompanying Prospectus and
"Capitalization" herein.
During the continuance of any default in the payment of any Senior Debt and
non-payment default with respect to Senior Debt pursuant to which the maturity
thereof has been accelerated, no payment or distribution of any assets of the
Company of any kind or character (excluding certain permitted equity interests
or subordinated securities) shall be made on account of the principal of,
premium, if any, or interest on the Exchange Debentures or on account of the
purchase, redemption, defeasance or other
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acquisition of the Exchange Debentures unless and until such default has been
cured, waived or has ceased to exist or such Senior Debt shall have been
discharged or paid in full in cash or cash equivalents or in any other form
acceptable to the holders of Senior Debt.
During the continuance of any non-payment default with respect to any
Designated Senior Debt pursuant to the terms of which the maturity thereof may
be accelerated (a "Non-payment Default") and after the receipt by the Trustee
from a representative of the holder of any Designated Senior Debt of a written
notice of such default, no payment or distribution of any assets of the Company
of any kind or character (excluding certain permitted equity or subordinated
securities) may be made by the Company on account of the principal of, premium,
if any, or interest on the Exchange Debentures or on account of the purchase,
redemption, defeasance or other acquisition of the Exchange Debentures 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 Trustee and the Company from a representative of
the holders of any Designated Senior Debt 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 Debt as to which notice
was given shall not therefore 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 or waived or
ceased to exist or on which such Designated Senior Debt is discharged or paid in
full in cash or cash equivalents or in any other form acceptable to the holders
of Designated Senior Debt; 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 the Company or the Trustee from the representative of holders of
Designated Senior Debt initiating such Payment Blockage Period, after which, in
the case of clauses (i), (ii) and (iii), the Company shall promptly resume
making any and all required payments in respect of the Exchange Debentures,
including any missed payments. In no event will a Payment Blockage Period extend
beyond 179 days from the date of the receipt by the Company of the 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 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,
premium, if any, or interest on the Exchange Debentures may not be made may
commence and that the duration of the Payment Blockage Period may not exceed 179
days. No Non-payment Default with respect to Designated Senior Debt 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.
If the Company fails to make any payment on the Exchange Debentures when
due or within any applicable grace period, whether or not on account of the
payment blockage provisions referred to above, such failure would constitute an
Event of Default under the Exchange Debenture Indenture and would enable the
holders of the Exchange Debentures to accelerate the Maturity thereof. See "--
Events of Default."
The Exchange 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 or proceeding in connection therewith,
relative to the Company or its assets, or any liquidation, dissolution or other
winding up of the Company, 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 the Company, all
Senior Debt must be paid in full in cash or cash equivalents or in any other
manner acceptable to the holders of Senior Debt, or provision made for such
payment, before any payment or distribution (excluding distributions of certain
permitted equity or subordinated securities) is made on account of the principal
of, premium, if any, or interest on the Exchange Debentures.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Debt may recover more,
ratably, than the holders of the Exchange Debentures, and funds which would be
otherwise payable to the holders of the Exchange Debentures will be
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paid to the holders of the Senior Debt to the extent necessary to pay the Senior
Debt in full in cash or cash equivalents or in any other manner acceptable to
the holders of Senior Debt, and the Company may be unable to meet its
obligations fully with respect to the Exchange Debentures.
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 exchange of the Convertible Exchangeable Preferred Securities for
Exchange Debentures (i) the Company was insolvent or rendered insolvent by
reason thereof, (ii) the Company was engaged, or about to engage, in a business
or transaction for which the Company's remaining assets constitute unreasonably
small capital, (iii) the Company intended to incur or believed that it would
incur debts beyond its ability to pay such debts as they mature or (iv) the
Company 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). In such case, the holders could be required to return
the Exchange Debentures to or for the benefit of existing or future creditors of
the Company. 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 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.
REDEMPTION AT OPTION OF THE COMPANY
The Exchange Debentures will be redeemable, at the Company's option, in
whole or from time to time in part, at any time on or after , 2000, upon not
less than 30 nor more than 60 days' prior notice by first class mail to each
holder of Exchange Debentures to be redeemed at its address appearing in the
security register and prior to maturity at the following redemption prices
("Redemption Prices") (expressed as percentages of the principal amount) plus
accrued interest to the Redemption Date (subject to the right of holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date).
If redeemed during the 12-month period beginning , in the year indicated,
the Redemption Price shall be:
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
------------ ------------ ------------------- -----------
2000 ...... % 2004 ............ %
2001 ...... 2005 ............
2002 ...... 2006 ............
2003 ...... 2007 and thereafter 100%
SINKING FUND
There will be no sinking fund.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions, in the aggregate, would result
in a sale, assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any other Person or group of affiliated
Persons, unless at the time and after giving effect thereto:
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(i) either (1) the Company shall be the surviving corporation or (2) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company and its Subsidiaries on a consolidated basis (the
"Surviving Entity") shall be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and such Person assumes, by a supplemental indenture in a
form reasonably satisfactory to the Trustee, all the obligations of the Company
under the Exchange Debentures and the Exchange Debenture Indenture, and the
Exchange Debenture Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii) such
transaction does not adversely effect the validity or enforceability of the
Exchange Debentures; and (iv) the Company or the Surviving Entity shall have
delivered, or caused to be delivered, to the Trustee, in form and substance
reasonably satisfactory to the Trustee, an officers' certificate and an opinion
of counsel, each to the effect that such consolidation, merger, transfer, sale,
assignment, lease or other transaction and the supplemental indenture in respect
thereto comply with the provisions of the Exchange Debenture Indenture and that
all conditions precedent provided for in the Exchange Debenture Indenture
relating to such transaction have been complied with.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the continuing corporation, the successor Person formed
or remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company, and the Company would be discharged from its
obligations under the Exchange Debenture Indenture and the Exchange Debentures.
CHANGE OF CONTROL
If a Change of Control (as defined under the caption "Description of
Convertible Exchangeable Preferred Stock -- Change of Control") shall occur at
any time, then each holder of Exchange Debentures shall have the right to
require that the Company purchase such holder's Exchange Debentures in whole or
in part in integral multiples of $1,000, at a purchase price (the "Change of
Control Purchase Price") in cash in an amount equal to 100% of the principal
amount of such Exchange Debentures, plus accrued and unpaid interest, if any, to
the date of purchase (the "Change of Control Purchase Date"), pursuant to the
offer described below (the "Change of Control Offer") and the other procedures
set forth in the Exchange Debenture Indenture.
Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to the
holder of Exchange Debentures, by first-class mail, postage prepaid, at their
addresses appearing in the security register, stating, among other things, 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 Exchange Debenture not tendered
will continue to accrue interest; that, unless the Company defaults in the
payment of the Change of Control Purchase Price, any Exchange 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 Exchange Debentures 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
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Exchange Debentures that might be delivered by
holders of the Exchange Debentures seeking to accept the Change of Control
Offer. The holders of the Existing Notes and the Series C Preferred Stock have
rights upon a Change of Control that are similar to the rights of the holders of
the Exchange Debentures. A Change of Control will also result in an event of
default under the Bank Credit Agreement and could result in the acceleration of
all indebtedness under the Bank Credit Agreement. Moreover, the Bank Credit
Agreement prohibits the repurchase of the Exchange Debentures by the Company.
The failure of the Company to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due will result in an Event of
Default under the Exchange Debenture Indenture.
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The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Exchange Debenture Indenture) to represent a specific quantitative test.
As a consequence, in the event the holders of the Exchange Debentures elected to
exercise their rights under the Exchange Debenture Indenture and the Company
elected to contest such election, there could be no assurance as to how a court
interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Exchange Debentures upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The provisions of the Exchange Debenture Indenture will not afford holders
of Exchange Debentures the right to require the Company to repurchase the
Exchange Debentures in the event of a highly leveraged transaction or certain
transactions with the Company's management or its affiliates, including a
reorganization, restructuring, merger or similar transaction (including, in
certain circumstances, an acquisition of the Company by management or its
Affiliates) involving the Company that may adversely affect holders of the
Exchange Debentures, if such transaction is not a transaction defined as a
Change of Control. A transaction involving the Company's management or its
affiliates, or a transaction involving a recapitalization of the Company, will
result in a Change of Control if it is the type of transaction specified by such
definition.
The Company will comply with tender offer rules, including Rule 14e-1 under
the Exchange Act, and any other applicable securities laws or regulations in
connection with a Change of Control Offer.
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EVENTS OF DEFAULT
An Event of Default will occur under the Exchange Debenture Indenture if:
(i) there shall be a default in the payment of any interest on any Exchange
Debenture when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Exchange Debenture at its Maturity (upon acceleration,
optional or mandatory redemption, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Exchange Debenture Indenture
(other than a default in the performance, or breach, of a covenant or agreement
which is specifically dealt with in clause (i) or (ii) or in clause (b) or (c)
of this clause (iii)) and such default or breach shall continue for a period of
60 days after written notice has been given, by certified mail, (x) to the
Company by the Trustee or (y) to the Company and the Trustee by the holders of
at least 25% in aggregate principal amount of the outstanding Exchange
Debentures; (b) there shall be a default in the performance or breach of the
provisions described in "-- Consolidation, Merger, Sale of Assets"; or (c) the
Company shall have failed to make or consummate a Change of Control Offer in
accordance with the provisions described in "-- Change of Control";
(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company or any Restricted Subsidiary
then has outstanding Indebtedness in excess of $5,000,000 in the aggregate and,
if not already matured at its final maturity in accordance with its terms, such
Indebtedness shall have been accelerated;
(v) there shall have been the entry by a court of competent jurisdiction of
(a) a decree or order for relief in respect of the Company or any Restricted
Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy
Law or (b) a decree or order adjudging the Company or any Restricted Subsidiary
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Restricted Subsidiary under
any applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company or any Restricted Subsidiary or of any substantial part of their
respective properties, or ordering the winding up or liquidation of their
affairs, and any such decree or order for relief shall continue to be in effect,
or any such other decree or order shall be unstayed and in effect, for a period
of 60 consecutive days; or
(vi) (a) the Company or any Restricted Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
Restricted Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Restricted Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (c) the Company or any
Restricted Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (d) the
Company or any Restricted Subsidiary (x) consents to the filing of such petition
or the appointment of, or taking possession by, a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or such Restricted Subsidiary or of any substantial part of their
respective property, (y) makes an assignment for the benefit of creditors or (z)
admits in writing its inability to pay its debts generally as they become due or
(e) the Company or any Restricted Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (vi).
If an Event of Default (other than as specified in clauses (v) and (vi) of
the prior paragraph) shall occur and be continuing, the Trustee or the holders
of not less than 25% in aggregate principal amount of the Exchange Debentures
outstanding may, and the Trustee at the request of such holders shall, declare
all unpaid principal of, premium, if any, and accrued interest on, all the
Exchange Debentures to be due and payable immediately by a notice in writing to
the Company (and to the Trustee if given by the holders of the Exchange
Debentures); provided that so long as the Bank Credit Agreement is in effect,
such declaration shall not become effective until the earlier of (a) five
business days after receipt of such notice of acceleration
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from the holders or the Trustee by the agent under the Bank Credit Agreement or
(b) acceleration of the Indebtedness under the Bank Credit Agreement. Thereupon
the Trustee may, at its discretion, proceed to protect and enforce the rights of
the holders of Exchange Debentures by appropriate judicial proceeding. If an
Event of Default specified in clause (v) or (vi) of the prior paragraph occurs
and is continuing, then all the Exchange Debentures shall ipso facto become and
be immediately due and payable, in an amount equal to the principal amount of
the Exchange Debentures, together with accrued and unpaid interest, if any, to
the date the Exchange Debentures become due and payable, without any declaration
or other act on the part of the Trustee or any holder. The Trustee or, if notice
of acceleration is given by the holders of the Exchange Debentures, the holders
of the Exchange Debentures shall give notice to the agent under the Bank Credit
Agreement of such acceleration.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Exchange Debentures outstanding, by
written notice to the Company and the Trustee, may rescind and annul such
declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Exchange Debenture Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Exchange Debentures, (iii) the principal of and premium,
if any, on any Exchange Debentures which have become due otherwise than by such
declaration of acceleration and interest thereon at a rate borne by the Exchange
Debentures and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Exchange Debentures; and
(b) all Events of Default, other than the non-payment of principal of the
Exchange Debentures which have become due solely by such declaration of
acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of
the Exchange Debentures outstanding may on behalf of the holders of all the
Exchange Debentures waive any past default under the Exchange Debenture
Indenture and its consequences, except a default in the payment of the principal
of, premium, if any, or interest on any Exchange Debenture, or in respect of a
covenant or provision which under the Exchange Debenture Indenture cannot be
modified or amended without the consent of the holder of each Exchange Debenture
outstanding.
The Company is also required to notify the Trustee within five business
days of the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 60 days after the end of each fiscal
quarter and not more than 120 days after the end of each fiscal year, a written
statement as to compliance with the Exchange Debenture Indenture, including
whether or not any default has occurred. The Trustee is under no obligation to
exercise any of the rights or powers vested in it by the Exchange Debenture
Indenture at the request or direction of any of the holders of the Exchange
Debentures unless such holders offer to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred thereby.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions, provided that if it acquires any conflicting interest it
must eliminate such conflict upon the occurrence of an Event of Default or else
resign. The Exchange Debenture Indenture provides that the Trustee may withhold
notice to the holders of the Exchange Debentures of any continuing default
(except in the payment of the principal of or premium, if any, or interest on
any Exchange Debentures) if the Trustee considers it in the interest of holders
of the Exchange Debentures to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
Modifications and amendments of the Exchange Debenture Indenture may be
made by the Company and the Trustee with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding Exchange
Debentures; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Exchange Debenture
affected thereby: (i) change the stated Maturity of the principal of, or any
installment of interest on, any Exchange Debenture or reduce the principal
amount thereof or the rate of interest thereon or any pre-
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mium, if any, payable upon the redemption thereof, or change the coin or
currency in which the principal of any Exchange Debenture or any premium, if
any, or the interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment after the stated Maturity thereof (or in
the case of redemption, on or after the redemption date); (ii) amend, change or
modify the obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control in accordance with the provisions
described in "-- Change of Control," including amending, changing or modifying
any definitions with respect thereto; (iii) reduce the percentage in principal
amount of outstanding Exchange Debentures, the consent of whose holders is
required for any such supplemental indenture, or the consent of whose holders is
required for any waiver or compliance with certain provisions of the Exchange
Debenture Indenture or certain defaults; (iv) modify any of the provisions
relating to supplemental indentures requiring the consent of holders or relating
to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase the percentage of outstanding Exchange Debentures required
for such actions or to provide that certain other provisions of the Exchange
Debenture Indenture cannot be modified or waived without the consent of the
holder of each Exchange Debenture affected thereby; (v) except as otherwise
permitted under "-- Consolidation, Merger, Sale of Assets," consent to the
assignment or transfer by the Company of any of its rights and obligations under
the Exchange Debenture Indenture; or (vi) amend or modify any of the provisions
of the Exchange Debenture Indenture relating to the subordination or conversion
of the Exchange Debentures in any manner adverse to the holders of the Exchange
Debentures.
The holders of a majority in aggregate principal amount of the Exchange
Debentures outstanding may waive compliance with certain restrictive covenants
and provisions of the Exchangeable Debenture Indenture.
SATISFACTION AND DISCHARGE
The Exchange Debenture Indenture will cease to be of further effect (except
as to surviving rights of registration of transfer or conversion of Exchange
Debentures, as expressly provided for in the Exchange Debenture Indenture) as to
all outstanding Exchange Debentures when (a) either (i) all of the Exchange
Debentures therefore authenticated and delivered (except lost, stolen or
destroyed Exchange Debentures which have been replaced or paid) have been
delivered to the Trustee for cancellation or (ii) all Exchange Debentures not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, or (y) will become due and payable at their stated Maturity within one
year, or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Exchange
Debentures not therefore delivered to the Trustee for cancellation, including
principal of, premium, if any, and accrued interest at such stated Maturity or
redemption date; (b) the Company has paid or caused to be paid all other sums
payable under the Exchange Debenture Indenture by the Company; and (c) the
Company has delivered to the Trustee an officers' certificate and an opinion of
counsel stating that (i) all conditions precedent under the Exchange Debenture
Indenture relating to the satisfaction and discharge of the Exchange Debenture
Indenture have been complied with and (ii) such satisfaction and discharge will
not result in a breach or violation of, or constitute a default under, the
Exchange Debenture Indenture or any other material agreement or instrument to
which the Company is a party or by which the Company is bound.
PAYMENTS OF PRINCIPAL AND INTEREST
The Exchange Debenture Indenture will require that payments in respect of
the Exchange Debentures (including principal, premium, if any, and interest)
held of record by DTC (including Exchange Debentures evidenced by the Global
Exchange Debentures) be made in same day funds. Payments in respect of the
Exchange Debentures held of record by holders other than DTC may, at the option
of the Company, be made by check and mailed to such holders of record as shown
on the register for the Exchange Debentures.
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GOVERNING LAW
The Exchange Debenture Indenture and Exchange Debentures will be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to such state's conflict of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Exchange Debenture Indenture contains certain limitations on the rights
of the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within ninety days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Exchange Debenture Indenture provides that in
case an Event of Default shall occur (which shall not be cured), the Trustee
will be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Exchange Debenture Indentures at the request of any of the holders of
the Exchange Debentures, unless they shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
OTHER PROVISIONS
The Company is under no obligation to apply for listing of the Exchange
Debentures on any securities exchange or on any automated interdealer quotation
system. If the Company did apply for any such listing, there is no assurance
that such application would be granted or that, if granted, an active trading
market would develop. See "Risk Factors -- Absence of Public Trading Market for
Certain Securities" in the accompanying Prospectus.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain terms used in the Exchange
Debenture Indenture and the Articles Supplementary:
"Bank Credit Agreement" means the Third Amended and Restated Credit
Agreement, dated as of May 20, 1997, between the Company, the Subsidiaries of
the Company 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 Indenture,
"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.
"Designated Senior Debt" is defined as (i) all Senior Debt outstanding
under the Bank Credit Agreement and (ii) any other Senior Debt which is incurred
pursuant to an agreement (or series of related agreements) simultaneously
entered into providing for Indebtedness, or commitments to lend, of at least
$25,000,000 at the time of determination and is specifically designated in the
instrument evidencing such Senior Debt or the agreement under which such Senior
Indebtedness arises as "Designated Senior Debt" by the Company.
"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 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.
"Existing Indentures" means the indentures relating to the Existing Notes.
"Existing Notes" means the Company's 10% Senior Subordinated Notes due
2003, the Company's 10% Senior Subordinated Notes due 2005, and the Company's 9%
Senior Subordinated Notes due 2007.
"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
the Company to Julian S. Smith and to Carolyn C. Smith pursuant to a stock
redemption agreement, dated June 19, 1990, among the Company, certain of its
Subsidiaries, Julian S. Smith, Carolyn C. Smith, David D. Smith, Frederick G.
Smith, J. Duncan Smith and Robert E. Smith.
"Guaranteed Debt" of any Persons 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 includ-
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ing, 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 the Company and its Subsidiaries with respect to Film Contracts entered into
in the ordinary course of business.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into from time to time by one or more financial
institutions: interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
and any obligations in respect of any Hedging Agreement, as defined in the Bank
Credit Agreement.
"Maturity," when used with respect to any Exchange Debenture, means the
date on which the principal of such Exchange Debenture becomes due and payable
as provided in the Exchange Debenture or as provided in the Exchange Debenture
Indenture, whether at stated Maturity, the offer date, or the redemption date
and whether by declaration of acceleration, offer in respect of excess proceeds,
Change of Control, call for redemption or otherwise.
"Person" means any individual, corporate, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.
"Restricted Subsidiary" means a Subsidiary subject to the covenants or
events of default under the agreements governing other indebtedness of the
Company.
"Senior Subordinated Indebtedness" means the Existing Notes and all other
Indebtedness ranking pari passu in right of payment with the Existing Notes.
"Senior Debt" 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 note
allowable as a claim in such proceeding) on any Indebtedness of the Company
(other than as otherwise provided in this definition), whether outstanding on
the date of the Exchange Debenture Indenture 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 Exchange Debentures.
Without limiting the generality of the foregoing, "Senior Debt" 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 the Company 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 Debt to the
extent that the Indebt-
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edness thereunder is by its express terms subordinate to any other Indebtedness
of the Company, (ii) Indebtedness outstanding under the Founders' Notes, (iii)
existing and future Senior Subordinated Indebtedness of the Company and (iv)
Indebtedness under Interest Rate Agreements. Notwithstanding the foregoing,
"Senior Debt" shall not include (i) Indebtedness evidenced by the Exchange
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 the Company, (iii) Indebtedness which is represented by Disqualified
Equity Interests, (iv) any liability for foreign, federal, state, local or other
taxes owed or owing by the Company, (v) Indebtedness of the Company to the
extent such liability constitutes Indebtedness to a subsidiary or any other
affiliate of the Company or any of such affiliate's subsidiaries, and (vi)
Indebtedness owed by the Company for compensation to employees or for services.
"Subsidiary" means any Person a majority of the equity ownership or the
voting stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.
"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).
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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 Banks. The Bank
Credit Agreement is comprised of two components, consisting of (i) the $400
million Revolving Credit Facility and (ii) the $600 million 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 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.
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., the
Trust and Cresap Enterprises, Inc. The subsidiaries of the Company (other than
KDSM, Inc., KDSM Licensee, Inc., Cresap Enterprises, Inc. and the Trust) 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.
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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 until May 20, 1999.
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; (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 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 4.0x by 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") and
August 28, 1995 (the "1995 Indenture" and July 2, 1997 (the "1997 Indenture" and
as amended, modified, or supplemented from time to time
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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 payable semi-annually on June 15 and December 15 of each year, the
1995 Notes bear interest at a rate of 10% per annum payable semi-annually on
September 30 and March 30 of each year and the 1997 Notes bear interest at a
rate of 9% per annum payable semi-annually on January 15 and July 15 of each
year.
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
and $200.0 million of the 1997 Notes remain outstanding.
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. The 1997
Notes are redeemable in whole or in 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 Indebtedness (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 the 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 include covenants that 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" in the accompanying Prospectus.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material federal income tax
consequences of the purchase, ownership, conversion, redemption, and disposition
of the Convertible Exchangeable Preferred Stock and the Exchange Debentures.
This summary is based upon the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the final, temporary and proposed regulations
promulgated thereunder and administrative rulings and judicial decisions now in
effect, all of which are subject to change (possibly with retroactive effect).
This summary addresses only the tax consequences of the purchase, ownership,
conversion, redemption and disposition of the Convertible Exchangeable Preferred
Stock and the Exchange Debentures by a person who is (i) for United States
federal income tax purposes a citizen or resident of the United States
(including certain former citizens and former long-term residents), (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof (except, to
the extent, in the case of a partnership, the partnership is treated as foreign
under regulations), (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust with
respect to the administration of which a court within the United States is able
to exercise primary supervision and one or more United States fiduciaries have
the authority to control all substantial decisions of the trust. This summary
does not purport to deal with all aspects of federal income taxation that may be
relevant to an investor's decision to purchase the Convertible Exchangeable
Preferred Stock, such as foreign, state and local, or estate and gift tax
consequences, and it is not intended to be applicable to all categories of
investors, some of which, such as dealers in securities, financial institutions,
insurance companies, tax-exempt organizations and foreign persons, may be
subject to special rules.
In addition, the summary is (i) limited to initial purchasers who will
acquire the Convertible Exchangeable Preferred Stock pursuant to the Offering
made by this Prospectus Supplement and any Exchange Debentures received in
exchange therefor, and (ii) assumes that the Convertible Exchangeable Preferred
Stock and Exchange Debentures will be held as capital assets (generally,
property held for investment within the meaning of Section 1221 of the Code).
Holders should note that there can be no assurance that the Internal Revenue
Service ("IRS") will take a similar view with respect to the tax consequences
described below and that no ruling has been or will be requested by the Company
from the IRS on any tax matters relating to the Convertible Exchangeable
Preferred Stock or Exchange Debentures. ALL PROSPECTIVE HOLDERS OF CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP, CONVERSION, REDEMPTION, AND DISPOSITION
OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES.
DIVIDENDS AND OTHER DISTRIBUTIONS
Distributions on the Convertible Exchangeable Preferred Stock will be
taxable as ordinary income to the extent of the Company's current or accumulated
earnings and profits, as determined for federal income tax purposes. Any
distribution in excess of current or accumulated earnings and profits will be
treated first as a nontaxable return of capital reducing the holder's tax basis
in the Convertible Exchangeable Preferred Stock. Any distribution in excess of
the holder's basis in the Convertible Exchangeable Preferred Stock will be
treated as a capital gain.
Dividends received by corporate holders of Convertible Exchangeable
Preferred Stock will qualify for the 70% dividends received deduction under
Section 243 of the Code if the holding period and other requirements for such
deduction are met, subject to the limitations in Section 246 and 246A of the
Code (although the benefits of the deductions may be reduced or eliminated by
the corporate alternative minimum tax). Under Section 246(c) of the Code the 70%
dividends received deduction is disallowed for any dividend with respect to
stock (i) that is held for 45 days or less during the 90 day period beginning 45
days before the ex-dividend date (or held 90 days or less in the 180 day period
beginning 90 days before the ex-dividend date in the case of a dividend on stock
having preference in dividends which are attributable to a period or periods
aggregating more than 366 days), or (ii) if the taxpayer is under
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an obligation to make related payments with respect to positions in
substantially similar or related property. In addition, a taxpayer's holding
period for these purposes is suspended during any period in which the taxpayer
has an option to sell, is under a contractual obligation to sell, has made (and
not closed) a short sale of, or has granted an option to buy, substantially
identical stock or securities, or holds one or more positions with respect to
substantially similar or related property that diminish the risk of loss from
holding the stock. Finally, under Section 246A of the Code, the dividends
received deduction may be reduced or eliminated if a corporate holder's shares
of Convertible Exchangeable Preferred Stock are debt financed.
Section 1059 of the Code requires a corporate holder of stock to reduce
(but not below zero) its basis in the stock by the "nontaxed portion" of any
"extraordinary dividend" if the holder has not held the stock subject to a risk
of loss for more than 2 years before the date of the announcement, declaration,
or agreement (whichever is earliest) with respect to the extraordinary dividend
or if the distribution occurs in the context of a redemption, as discussed
below.
A holder will recognize gain in the year the dividend is received to the
extent the nontaxed portion of any extraordinary dividend exceeds the holder's
adjusted tax basis for the stock. Generally, the "nontaxed portion" of an
extraordinary dividend is the amount excluded from income under Section 243 of
the Code (relating to the dividends received deduction described above). An
"extraordinary dividend" is a dividend that (i) equals or exceeds 5% of the
holder's adjusted tax basis in the stock (reduced for this purpose by the
nontaxed portion of any prior extraordinary dividend), treating all dividends
having ex-dividend dates within an 85-day period as one dividend, or (ii)
exceeds 20% of the holder's adjusted tax basis in the stock, treating all
dividends having ex-dividend dates within a 365-day period as one dividend,
provided, however, that in either case the fair market value of the stock (as of
the day before the ex-dividend date) may be substituted for stock basis if the
fair market value of the stock can be established by the holder to the
satisfaction of the IRS.
An extraordinary dividend would also include any amount treated as a
dividend in the case of a redemption (including an exchange of Convertible
Exchangeable Preferred Stock for Exchange Debentures) that is either non-pro
rata as to all stockholders or in partial liquidation of the Company, regardless
of the relative size of the dividend and regardless of the corporate holder's
holding period for the Convertible Exchangeable Preferred Stock. In addition,
"extraordinary dividend" treatment will result without regard to the period
stock is held if a redemption is treated as a dividend by reason of options
being taken into account under Section 318(a)(4) of the Code. Thus, if, as
discussed below, the exchange of Convertible Exchangeable Preferred Stock for
Exchange Debentures is treated as a dividend, any such dividend may be an
extraordinary dividend to corporate holders.
Special rules overriding the general application of Code Section 1059 apply
with respect to "qualified preferred dividends," which are defined as any fixed
dividends paid on stock that provide for a fixed preferred dividend to be paid
not less frequently than annually, provided that no such dividends were in
arrears at the time the holder acquired the stock. Where a qualified preferred
dividend exceeds the 5% or 20% limitations described above, it will be treated
as an extraordinary dividend only if (i) the actual rate of return on the stock
for the period the stock has been held by the holder receiving the dividend
exceeds 15%, or (ii) such rate of return does not exceed 15% and the holder
disposes of such stock before holding it, subject to risk of loss, for 5 years.
In the latter case, however, the amount treated as an extraordinary dividend is
generally limited to the excess of the actual rate of return over the stated
rate of return. For purposes of determining the actual or stated rate of return,
a holder should compare the actual or stated annual dividends to the lesser of
(a) the holder's adjusted tax basis for the stock, or (b) the liquidation
preference of the stock. The length of time that a taxpayer is deemed to have
held stock for purposes of Section 1059 of the Code is determined under
principles similar to those contained in Section 246(c) of the Code, described
above.
REDEMPTION PREMIUM
Under Section 305(c) of the Code and applicable Treasury Regulations, if
the Convertible Exchangeable Preferred Stock is redeemable at a premium, the
entire premium may be taxable as a constructive distribution to the holder
(treated as a dividend, a non-taxable return of capital, or capital
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gain pursuant to the rules summarized above under the caption "Dividends and
Other Distributions"). Holders would be required to recognize such redemption
premium before payment is actually received under a constant interest rate
method similar to that described below for accruing original issue discount.
The Company does not intend to treat the Convertible Exchangeable Preferred
Stock as having such a redemption premium reportable under the constant interest
rate method because the Company believes that there are no plans, arrangements,
or agreements that effectively require or are intended to compel it to redeem or
exchange the Convertible Exchangeable Preferred Stock. Were the IRS to disagree
with the Company's conclusion, holders could be required to report any
redemption premium as described above. Moreover, holders who are related to the
Company within the meaning of Treasury regulations under Section 305 may be
subject to different rules.
SALE, REDEMPTION, OR EXCHANGE OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
Sale
On the sale of shares of Convertible Exchangeable Preferred Stock, gain or
loss will be recognized by the holder in an amount equal to the difference
between (i) the amount of cash and fair market value of any property received on
such sale (less any portion thereof attributable to accumulated and declared but
unpaid dividends, which will be taxable as a dividend to the extent of the
Company's current or accumulated earnings and profits), and (ii) the holder's
adjusted tax basis in the Convertible Exchangeable Preferred Stock. Such gain or
loss will be capital gain or loss if the shares of Convertible Exchangeable
Preferred Stock are held as capital assets. For certain noncorporate holders
(including individuals), the rate of taxation of capital gains will depend upon
(i) the holder's holding period for the Convertible Exchangeable Preferred Stock
(with the lowest rate available only for Convertible Exchangeable Preferred
Stock held more than 18 months) and (ii) the holder's marginal tax rate for
ordinary income. Holders of Convertible Exchangeable Preferred Stock should
consult their tax advisors with respect to applicable rates and holding periods,
and netting rules for capital losses.
Redemption
A redemption of shares of Convertible Exchangeable Preferred Stock will be
treated under Section 302 of the Code as a distribution that is taxable at
ordinary income tax rates as a dividend, a non-taxable return of capital, or
capital gain, pursuant to the rules summarized above under the caption
"Dividends and Other Distributions" unless the redemption satisfies certain
tests set forth in Section 302(b) of the Code, in which case the redemption will
be treated as a sale or exchange of the Convertible Exchangeable Preferred
Stock, the tax treatment of which is described in the preceding paragraph. The
redemption will have satisfied such tests under Section 302(b) of the Code if it
(i) is "substantially disproportionate" with respect to the holder, (ii) results
in a "complete termination" of the holder's stock interest in the company, or
(iii) is "not essentially equivalent to a dividend" with respect to the holder.
A distribution to a holder is "not essentially equivalent to a dividend" if it
results in a "meaningful reduction" in such holder's proportionate interest in
the Company. If, as a result of the redemption of the Convertible Exchangeable
Preferred Stock, a holder, whose relative stock interest in the Company is
minimal and who exercises no control over corporate affairs, experiences a
reduction in his proportionate interest in the Company (taking into account
shares deemed owned by the holder under Sections 302(c) and 318 of the Code and,
in certain events, dispositions of stock which occur contemporaneously with the
redemption), then, based upon published IRS rulings, such holder may be regarded
as having suffered a meaningful reduction in his interest in the Company. In
determining whether any of these tests has been met, shares considered to be
owned by the holder by reason of certain constructive ownership rules set forth
in Sections 302(c) and 318 of the Code, as well as shares actually owned, must
generally be taken into account. Because the determination as to whether any of
the alternative tests of Section 302(b) of the Code will be satisfied with
respect to any particular holder of Convertible Exchangeable Preferred Stock
depends on the facts and circumstances at the time that the determination must
be made, prospective investors are advised to consult their own tax advisors to
determine such tax treatment.
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If a redemption of the Convertible Exchangeable Preferred Stock is treated
as a distribution that is taxable as a dividend, the amount of the distribution
will be measured by the amount of cash and the fair market value of property
received by the holder without any offset for the holder's basis in the
Convertible Exchangeable Preferred Stock. The holder's adjusted tax basis in the
redeemed Convertible Exchangeable Preferred Stock will be transferred to any of
the holder's remaining stock holdings in the Company. If, however, the holder
has no remaining stock holdings in the Company, such basis could be lost.
Any redemption of the Convertible Exchangeable Preferred Stock that is
treated as a dividend and that is non-pro rata as to all stockholders, including
holders of Class A Common Stock, will be subject to the "extraordinary dividend"
provisions of Code Section 1059 discussed above under the caption "Dividends and
Other Distributions."
Exchange of Convertible Exchangeable Preferred Stock for Exchange Debentures
An exchange of Convertible Exchangeable Preferred Stock for Exchange
Debentures will be a taxable event for federal income tax purposes. For the
reasons set forth below, it is unclear whether, standing alone, the exchange
would be treated as a sale or exchange of the Convertible Exchangeable Preferred
Stock or would be taxable as a dividend. This is so because an exchange of the
Convertible Exchangeable Preferred Stock will be subject to the same general
rules as a redemption for cash or property. However, since a holder of Exchange
Debentures will be treated under the constructive ownership rules of the Code as
owning the Class A Common Stock into which the Exchange Debentures are
convertible, in applying Section 302 of the Code, a redemption of the
Convertible Exchangeable Preferred Stock may not, standing alone, satisfy the
"complete termination" or the "substantially disproportionate" tests of Code
Section 302(b), as described above. Such a redemption may, therefore, be taxable
as a dividend to the extent of the Company's current or accumulated earnings and
profits, unless, based on all the facts and circumstances, it satisfies either
the "not essentially equivalent to a dividend" test or unless any of the
foregoing tests could otherwise be satisfied. Although the Company intends to
take the position that the redemption of the Convertible Exchangeable Preferred
Stock for Exchange Debentures is a sale or exchange for federal income tax
purposes that is "not essentially equivalent to a dividend," no assurance can be
given that an exchange of Convertible Exchangeable Preferred Stock for Exchange
Debentures will be treated as a sale or exchange for federal income tax
purposes. Based on published rulings, a holder who does not desire dividend
treatment and who sells or otherwise disposes of a portion of the Convertible
Exchangeable Preferred Stock or Exchange Debentures to unrelated parties
substantially contemporaneously with the exchange of the Convertible
Exchangeable Preferred Stock for Exchange Debentures may increase the likelihood
of satisfying one or more of the foregoing tests. Prospective holders should
consult their tax advisors as to whether dividend treatment might apply to them
on an exchange of Convertible Exchangeable Preferred Stock for Exchange
Debentures.
If any of the foregoing tests under Section 302 of the Code are met, the
exchange of shares of Convertible Exchangeable Preferred Stock for Exchange
Debentures will result in taxable gain or loss based on the difference between
(i) the issue price of the Exchange Debentures (less any portion thereof
attributable to accumulated and declared but unpaid dividends, which will be
taxable as a dividend to the extent of the Company's current or accumulated
earnings and profits) and (ii) the holder's adjusted tax basis in the
Convertible Exchangeable Preferred Stock surrendered in the exchange. The
determination of the issue price of the Exchange Debentures is discussed below
under the caption "Original Issue Discount."
If an exchange of the Convertible Exchangeable Preferred Stock for Exchange
Debentures is treated as a distribution that is taxable as a dividend, the
amount of the distribution will be measured by the issue price of the Exchange
Debentures received by the holder. Any amount so treated as a dividend will, in
most circumstances, be subject to the "extraordinary dividend" provisions of
Code Section 1059 applicable to corporate holders, which is discussed above
under the caption "Dividends and Other Distributions." To the extent that
dividend treatment results from the exchange, a holder's adjusted tax basis in
the exchanged Convertible Exchangeable Preferred Stock will be transferred to
such holder's remaining stock holdings, if any, in the Company. If the holder
does not retain any stock ownership in the Company, such holder's basis may be
transferred to any shares owned by a related person or to any
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Exchange Debentures received in the exchange (although some uncertainty exists
with respect to the holder's ability to apply such basis to the Exchange
Debentures) or the holder may lose such basis entirely. If such basis is
transferred to the Exchange Debentures received, it may have an effect on
subsequent calculations of original issue discount or bond premium.
STATED INTEREST ON EXCHANGE DEBENTURES
The stated interest on the Exchange Debentures will be taxable as ordinary
income when received by a holder utilizing the cash receipts and disbursements
method of tax accounting and when accrued by a holder utilizing the accrual
method of tax accounting, unless the Exchange Debentures are issued with
original issue discount or premium, in which case the rules described below will
apply.
ORIGINAL ISSUE DISCOUNT
An Exchange Debenture that is issued for an issue price that is less than
its stated redemption price at maturity will generally be considered to have
been issued with original issue discount for United States federal income tax
purposes. If the Exchange Debentures are traded on an established securities
market within the meaning of Section 1273(b) of the Code, the "issue price" of
an Exchange Debenture will equal its fair market value on the issue date. If the
Exchange Debentures are not traded on an established market and the Convertible
Exchangeable Preferred Stock is traded on an established market, the "issue
price" of an Exchange Debenture will equal the fair market value of the
Convertible Exchangeable Preferred Stock on the issue date. In the event that
neither the Convertible Exchangeable Preferred Stock nor the Exchange Debentures
are traded on an established securities market, and absent any "potentially
abusive situation," the issue price of the Exchange Debentures will be their
stated principal amount, or, in the event the Exchange Debentures do not bear
"adequate stated interest" within the meaning of Section 1274 of the Code, their
"imputed principal amount" as determined under Section 1274 of the Code using
the applicable federal rate ("AFR") in effect as of the date of the exchange.
The "stated redemption price at maturity" of an Exchange Debenture will equal
the sum of all payments required under the Exchange Debenture other than
payments of qualified stated interest. "Qualified stated interest" generally
means stated interest unconditionally payable as a series of payments in cash or
property (other than debt instruments of the Company) at least annually during
the entire term of the Exchange Debenture at a single fixed rate of interest
that appropriately takes into account the length of the interval between
payments.
An Exchange Debenture will not be considered to have original issue
discount if the difference between the Exchange Debenture's stated redemption
price at maturity and its issue price is less than a de minimis amount, i.e.
one-quarter of one percent of the stated redemption price at maturity multiplied
by the number of complete years to maturity. Holders of Exchange Debentures with
a de minimis amount of original issue discount will generally include such
original issue discount in income, as capital gain, on a pro rata basis as
principal payments are made on such Exchange Debentures.
A holder of an Exchange Debenture with original issue discount will be
required to include qualified stated interest payments in income as such
payments are received or accrued in accordance with the holder's method of
accounting for federal income tax purposes. A holder will be required to include
original issue discount in income for federal income tax purposes as it accrues,
regardless of accounting method, in accordance with a constant yield method
based on a compounding of interest. As a consequence, holders may be required to
include interest on Exchange Debentures with original issue discount in income
before receiving the corresponding interest payments.
If issued with original issue discount, the Exchange Debentures may be
subject to the provision of the Code dealing with high-yield discount
obligations, in which case a certain portion of the original issue discount may
be treated as a dividend with respect to the stock of the Company and the rules
applicable to distributions with respect to the Convertible Exchangeable
Preferred Stock may apply.
PREMIUM
If a holder's tax basis in an Exchange Debenture exceeds the amount payable
at maturity, Section 171 of the Code provides for an election whereby the excess
or premium, to the extent not attributable to the conversion privilege of the
Exchange Debenture, can be offset against (and thereby reduce)
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taxable income attributable to interest received on the Exchange Debenture. The
premium is amortized, as an offset to interest received, over the remaining term
of the Exchange Debenture. An election under Section 171 of the Code generally
is binding once made and applies to all obligations owned or subsequently
acquired by the taxpayer. In addition, if the price paid for an Exchange
Debenture is in excess of the "adjusted issue price" of the Exchange Debenture
at the time of the purchase, but less than the Exchange Debenture's stated
redemption price at maturity, the regulations allow the holder to take the
"acquisition premium" into account thereby reducing the amount of original issue
discount otherwise required to be included in income.
MARKET DISCOUNT
The market discount provisions of Sections 1276-1278 of the Code generally
provide that, subject to a statutorily-defined de minimis exception, if a holder
of an Exchange Debenture purchases it at a market discount and thereafter
recognizes gain on the disposition of the Exchange Debenture (including a gift),
the lesser of such gain (or appreciation, in the case of a gift) or the portion
of the market discount that accrued while the Exchange Debenture was held by
such holder will be treated as ordinary interest income at the time of the
disposition. For this purpose, a purchase at a market discount includes a
purchase of an Exchange Debenture with original issue discount at or after the
original issue at a price below the revised issue price. The revised issue price
equals the original issue price of the Exchange Debenture plus the aggregate
amount of original issue discount includible in income with respect to the
Exchange Debenture before the date of its purchase. The market discount rules
also provide that a holder who acquires an Exchange Debenture at a market
discount (and who does not elect to include such market discount in income on a
current basis) may be required to defer a portion of any interest incurred or
maintained to purchase or carry such debt instrument until the holder disposes
of the debt instrument in a taxable transaction.
The Exchange Debentures provide that they may be redeemed, in whole or in
part, before maturity. If some or all of the Exchange Debentures are redeemed,
each holder of an Exchange Debenture that was acquired at a market discount
would be required to treat the principal payment as ordinary interest income to
the extent of any accrued market discount on such Exchange Debenture.
A holder of an Exchange Debenture may elect to have market discount accrue
on a constant interest rate basis or a straight line basis. In addition, a
holder of an Exchange Debenture acquired at a market discount may elect to
include the market discount in income as the discount thereon accrues, either on
a straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by such holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS. If a holder of an Exchange Debenture elects to include
market discount in income in accordance with the preceding sentence, the
foregoing rules with respect to the recognition of ordinary income on a sale or
certain other disposition of such Exchange Debenture and the deferral of
interest deduction on indebtedness related to such Exchange Debenture will not
apply.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES
In general, a holder of an Exchange Debenture will recognize gain or loss
upon the sale, exchange, redemption or other taxable disposition of the Exchange
Debenture measured by the difference between (i) the amount of cash and the fair
market value of property received (except to the extent attributable to the
payment of accrued interest not previously included in income) and (ii) the
holder's tax basis in the Exchange Debenture. The tax basis of an Exchange
Debenture to a holder will generally equal its cost, or in the case of a holder
who received an Exchange Debenture in exchange for Convertible Exchangeable
Preferred Stock, the issue price of the Exchange Debenture on the date of issue
(in either case increased by any original issue discount or market discount
previously included in income by the holder and decreased by any cash payments
received, other than payments constituting qualified stated interest, and any
amortizable bond premium deducted over the term of the Exchange Debenture).
Subject to the market discount rules discussed above, any such gain or loss will
generally be capital gain or loss, the tax consequences of which are discussed
under the caption "Sale, Redemption, or Exchange of Convertible Exchangeable
Preferred Stock."
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CONVERSION OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OR EXCHANGE DEBENTURES
INTO CLASS A COMMON STOCK
In general, no gain or loss will be recognized for federal income tax
purposes upon conversion of the Convertible Exchangeable Preferred Stock or the
Exchange Debentures solely into shares of Class A Common Stock. However, if
dividends on the Convertible Exchangeable Preferred Stock were in arrears at the
time of conversion, a portion of the Class A Common Stock received in exchange
for the Convertible Exchangeable Preferred Stock would be viewed under Section
305(c) of the Code as a distribution with respect to the Convertible
Exchangeable Preferred Stock, taxable as a dividend at the time of the exchange.
Similarly, if interest on the Exchange Debentures were in arrears at the time of
conversion, a portion of the Class A Common Stock received in exchange for the
Exchange Debentures would be taxable as ordinary interest income at the time of
the exchange. In addition, a holder will recognize gain or loss on receipt of
cash in lieu of fractional shares of Class A Common Stock in an amount equal to
the difference between the amount of cash received and the holder's tax basis in
such fractional shares. Except to the extent of cash paid in lieu of fractional
shares of Class A Common Stock, the adjusted tax basis for the shares of Class A
Common Stock received upon conversion will be equal to the adjusted tax basis of
the Convertible Exchangeable Preferred Stock or the Exchange Debentures
converted, and, provided the Convertible Exchangeable Preferred Stock or the
Exchange Debentures are held as capital assets, the holding period of the shares
of Class A Common Stock will include the holding period of the Convertible
Exchangeable Preferred Stock or the Exchange Debentures converted. Any accrued
market discount not previously included in income as of the date of the
conversion of Exchange Debentures will carry over to the Class A Common Stock
received on conversion and gain realized upon the subsequent disposition of the
Class A Common Stock will be treated as ordinary income to the extent of such
market discount.
ADJUSTMENTS TO CONVERSION PRICE
Adjustments in the conversion price (or the failure to make such
adjustments) pursuant to the anti-dilution provisions of the Convertible
Exchangeable Preferred Stock or the Exchange Debentures to reflect distributions
of cash or property to holders of Class A Common Stock, or pursuant to the
optional adjustment provisions permitted to be made by the Company, may result
in constructive distributions to holders of Convertible Exchangeable Preferred
Stock or Exchange Debentures that could be taxable to them as dividends pursuant
to Section 305 of the Code. If such a constructive distribution were to occur, a
holder of Convertible Exchangeable Preferred Stock or Exchange Debentures could
be required to recognize ordinary income for tax purposes without receiving a
corresponding distribution of cash.
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
Information reporting to the IRS is required for dividends, interest
payments and original issue discount accruals for certain noncorporate holders
(including individuals). These noncorporate holders may be subject to backup
withholding at a rate of 31 percent on payments of dividends, principal, premium
and interest (including original issue discount, if any) on, and the proceeds of
a sale, exchange, or redemption of, shares of Convertible Exchangeable Preferred
Stock or the Exchange Debentures. Backup withholding will apply only if the
holder (i) fails to furnish its Taxpayer Identification Number ("TIN") which,
for an individual, would be his Social Security Number, (ii) furnishes an
incorrect TIN, (iii) is notified by the Internal Revenue Service that it has
failed to properly report payments of interest and dividends, or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments. The
application for exemption is available by providing a properly completed IRS
Form W-9. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The Company will report to the holders of Convertible Exchangeable
Preferred Stock or Exchange Debentures and the IRS the amount of any "reportable
payments" and any amount withheld with respect to the Convertible Exchangeable
Preferred Stock or Exchange Debentures during each calendar year.
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SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS
General
As used herein, a "Non-U.S. Holder" means any individual or entity other
than a holder of Convertible Exchangeable Preferred Stock that is (i) a citizen
or resident of the United States (including certain former citizens and former
residents), (ii) a partnership, corporation (including an entity treated as a
corporation or partnership for United States federal income tax purposes) or
other entity created or organized in the United States or under the laws of the
United States or of any political subdivision organized thereof (other than any
partnership treated as foreign under federal regulations), (iii) an estate the
income of which is subject to United States federal income taxation regardless
of source, or (iv) a trust with respect to the administration of which a court
within the United States is able to exercise primary supervision and which has
one or more United States fiduciaries, who have the authority to control all
substantial decisions of the trust.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (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). Resident aliens are subject
to United States federal tax as if they were United States citizens.
Dividends on Convertible Exchangeable Preferred Stock
Subject to the discussion below, any dividends paid to a Non-U.S. Holder of
Convertible Exchangeable Preferred Stock generally will be subject to
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under present law, for purposes of determining whether tax is to be
withheld at a 30% rate or a reduced rate as specified by an income tax treaty,
the Company ordinarily will presume that dividends paid to an address in a
foreign country are paid to a resident of such country absent definite knowledge
that such presumption is not warranted. A Non-U.S. Holder that is eligible for a
reduced rate of United States withholding tax pursuant to an income tax treaty
may obtain a refund of any excess amount currently withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.
Under proposed regulations, a beneficial owner who is a Non-U.S. Holder must
submit a properly completed Internal Revenue Service Form W-8 to the Company or
a qualified intermediary to be eligible for a tax treaty reduction.
If a Non-U.S. Holder is engaged in a trade or business in the United
States, and if (i) dividends on the Convertible Exchangeable Preferred Stock are
effectively connected with the conduct of such trade or business or (ii) if a
tax treaty applies, dividends are attributable to a United States permanent
establishment of the Non-U.S. Holder, the Non-U.S. Holder will generally be
subject to regular United States income tax on such effectively connected income
in the same manner as if the Non-U.S. Holder were a United States resident. Such
a Non-U.S. Holder will be required to provide the Company a properly executed
United States Revenue Service Form 4224 or successor form in order to claim an
exemption from the 30% withholding tax.
Interest on Exchange Debentures
Payments of interest (including original issue discount, if any) on the
Exchange Debentures by the Company or any agent of the Company to any Non-U.S.
Holder will not be subject to withholding of United States federal income tax,
provided that in the case of interest (including original issue discount) (1)
the Non-U.S. Holder does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of the Company
entitled to vote, (2) the Non-U.S. Holder is not (x) a controlled foreign
corporation that is related to the Company through stock ownership, or (y) a
bank receiving interest described in Section 881(c)(3)(A) of the Code, and (3)
either (A) the beneficial owner of the Exchange Debentures certifies to the
Company or its agent, under penalties of perjury, that
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it is not a "United States person" (as defined in the Code) and provides its
name and 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 Exchange
Debentures on behalf of the beneficial owner certifies to the Company or its
agent, under penalties of perjury, that such statement has been received from
the beneficial owner by it or by the financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof. The certification
requirement described in clause 3(A) will be fulfilled by the provision of
United States Internal Revenue Service Form W-8. Each Non-U.S. Holder of an
Exchange Debenture should be aware that if it does not properly provide the
required Internal Revenue Service form, or if the Internal Revenue Service form
is not properly transmitted to and received by the United States person
otherwise required to withhold United States federal income tax, interest on the
Exchange Debenture may be subject to United States withholding tax at a 30
percent rate.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest (including original issue discount, if any) on the Exchange
Debentures is effectively connected with the conduct of such trade or business
(or, if an income tax treaty applies, and the Non-U.S. Holder maintains a United
States "permanent establishment" to which the interest is generally
attributable), the Non-U.S. Holder, although exempt from the withholding tax
discussed in the preceding paragraph (provided that such holder furnishes a
properly executed IRS Form 4224 on or before any payment date to claim such
exemption), will generally be subject to United States federal income tax on
such interest in the same manner as if it were a United States person.
Ownership and Sale of Convertible Exchangeable Preferred Stock and Exchange
Debentures
In general, a Non-U.S. Holder will not be subject to United States federal
income tax with respect to any gain realized on a sale or other disposition of
Convertible Exchangeable Preferred Stock or Exchange Debentures (including any
gain realized on an exchange of Convertible Exchangeable Preferred Stock for
Exchange Debentures that is treated as a sale or exchange for United States
federal income tax purposes) unless (i) such Non-U.S. Holder is an individual
who is present in the United States for 183 days or more in the taxable year of
disposition, and either (a) such individual has a "tax home" (as defined in Code
Section 911 (d)(3)) in the United States (unless such gain is attributable to a
fixed place of business in a foreign country maintained by such individual and
has been subject to foreign tax of at least 10%) or (b) the gain is attributable
to an office or other fixed place of business maintained by such individual in
the United States; (ii) such gain is effectively connected with the conduct by
such Non-U.S. Holder of a trade or business in the United States; or (iii) in
certain cases, if the Company is or has been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code at any
time within the shorter of the five-year period preceding such disposition or
such Non-U.S. Holder's holding period. A corporation is generally a "United
States real property holding corporation" if the fair market value of its
"United States real property interests" equals or exceeds 50% of the sum of the
fair market value of its worldwide real property interests plus its other assets
used or held for use in a trade or business. Although the Company does not
believe that it has been or is or will become a "United States real property
holding corporation" in the foreseeable future, any such development could have
adverse United States tax consequences for Non-U.S. Holders.
In addition, no federal income tax will be imposed on a Non-U.S. Holder on
the conversion of the Convertible Exchangeable Preferred Stock or Exchange
Debentures for Class A Common Stock.
Further, if such Non-U.S. Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits, subject to
certain adjustments, deemed to have been repatriated from the United States. For
purposes of the branch profits tax, dividends or interest on, and any gain
recognized on the sale, exchange or other disposition of the Convertible
Exchangeable Preferred Stock or the Exchange Debentures, will be included in the
effectively connected earnings and profits of such Non-U.S. Holder if such
dividends, interest or gain, as the case may be, is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business in the United States.
S-104
<PAGE>
Federal Estate Tax
Under Section 2104 of the Code an individual Non-U.S. Holder who owns
shares of Convertible Exchangeable Preferred Stock at the time of his death will
be required to include the value thereof in his gross estate for United States
federal estate tax purposes, and may be subject to United States federal estate
tax unless an applicable extate tax treaty provides otherwise. Exchange
Debentures held by an individual Non-U.S. Holder at the time of his death will
not be included in his gross estate for United States federal estate tax
purposes, provided that the individual Non-U.S. Holder does not own, actually or
constructively, 10 percent or more of the total combined voting power of all
classes of stock of the Company entitled to vote and, at the time of such
individual Non-U.S. Holder's death, payments with respect to such Exchange
Debentures would not have been effectively connected with the conduct by such
individual Non-U.S. Holder of a trade or business in the United States.
Information Reporting and Backup Withholding
Under certain circumstances, the Internal Revenue Service requires
"information reporting" and "backup withholding" at a rate of 31% with respect
to payments of dividends and interest. Non-U.S. Holders generally would be
exempt from Internal Revenue Service reporting requirements and United States
backup withholding with respect to dividends payable on Convertible Exchangeable
Preferred Stock and interest payable on Exchange Debentures. Under proposed
regulations, however, a Non-U.S. Holder of Convertible Exchangeable Preferred
Stock that fails to certify its Non-U.S. Holder status in accordance with the
requirements of the proposed regulations, would under certain circumstances be
subject to United States backup withholding at a rate of 31% on payments of
dividends and interest. The application for exemption is available by providing
a properly completed Internal Revenue Service Form W-8.
The payment of the proceeds of the disposition of Convertible Exchangeable
Preferred Stock or Exchange Debentures by a holder to or through the United
States office of a broker or through a non-United States branch of a United
States broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of Convertible Exchangeable Preferred Stock or Exchange Debentures to or through
a non-United States office of a non-United States broker will not be subject to
backup withholding or information reporting unless the non-United States broker
has certain United States relationships.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's United States
federal income tax liability, if any) provided that the required information is
furnished to the Internal Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
OR EXCHANGE DEBENTURES SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, CONVERSION, REDEMPTION AND
DISPOSITION OF THE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OR EXCHANGE
DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
S-105
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions stated in the Underwriting
Agreement dated the date of this Prospectus Supplement, each of Smith Barney
Inc., Alex. Brown & Sons Incorporated, Credit Suisse First Boston Corporation,
Salomon Brothers Inc, Chase Securities, Inc. and Furman Selz (the
"Underwriters") has severally agreed to purchase, and the Company has agreed to
sell to each Underwriter, the number of shares of Convertible Exchangeable
Preferred Stock set forth opposite the name of such Underwriter below:
NUMBER
UNDERWRITER OF SHARES
----------- ----------
Smith Barney Inc ...........................
Alex. Brown & Sons Incorporated ............
Credit Suisse First Boston Corporation ......
Salomon Brothers Inc. ........................
Chase Securities, Inc. .....................
Furman Selz .................................
---------
Total ....................................... 3,000,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Convertible
Exchangeable Preferred Stock offered hereby (other than those covered by the
overallotment option described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares of
Convertible Exchangeable Preferred Stock directly to the public at the public
offering price set forth on the cover page of this Prospectus Supplement and
part of the shares to certain dealers at a price that represents a concession
not in excess of $________ per share below the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $________ per share to the other Underwriters or to certain other dealers.
After the initial offering of the shares to the public, the public offering
price and such concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to an aggregate
of 450,000 additional shares of Convertible Exchangeable Preferred Stock at the
public offering price set forth on the cover page of this Prospectus Supplement
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares of
Convertible Exchangeable Preferred Stock offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares of Convertible Exchangeable
Preferred Stock offered by the Underwriters hereby.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
The Company, its officers and directors and the holders of all of the
shares of Class B Common Stock to be outstanding after the Offering have agreed
that, for a period of 90 days from the date of this Prospectus Supplement, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock of the
Company or any securities convertible into, or exercisable or exchangeable for,
Common Stock of the Company.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Convertible Exchangeable
Preferred Stock than the total amount shown on the list of Underwriters which
appears above) and may effect transactions which stabilize,
S-106
<PAGE>
maintain or otherwise affect the market price of the shares of Convertible
Exchangeable Preferred Stock at levels above those which might otherwise prevail
in the open market. Such transactions may include placing bids for the
Convertible Exchangeable Preferred Stock or effecting purchases of the
Convertible Exchangeable Preferred Stock for the purpose of pegging, fixing or
maintaining the price of the Convertible Exchangeable Preferred Stock or for the
purpose of reducing a syndicate short position created in connection with the
Offering. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In addition,
the contractual arrangements among the Underwriters include a provision whereby,
if the Underwriters purchase shares of Convertible Exchangeable Preferred Stock
in the open market for the account of the underwriting syndicate and the
securities purchased can be traced to a particular Underwriter or member of the
selling group, the underwriting syndicate may require the Underwriter or selling
group member in question to purchase the shares of Convertible Exchangeable
Preferred Stock in question at the cost price to the syndicate or may recover
from (or decline to pay to) the Underwriter or selling group member in question
the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
Smith Barney Inc. and certain of the other Underwriters have and may
continue to provide investment banking services to the Company for which they
receive customary fees.
S-107
<PAGE>
GLOSSARY OF DEFINED TERMS
"ABC" means Capital Cities/ABC, Inc.
"Adjusted EBITDA" means 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.
"Adjusted EBITDA margin" means the Adjusted EBITDA divided by net
broadcast revenues.
"Amended Certificate" means the Amended and Restated Articles of
Incorporation of the Company, as amended.
"Arbitron" means Arbitron, Inc.
"Bank Credit Agreement" means the Third Amended and Restated Credit
Agreement, dated as of May 20, 1997, among the Company, the Subsidiaries,
certain lenders named therein, and The Chase Manhattan Bank, as agent.
"Broadcast cash flow margin" means broadcast cash flow divided by net
broadcast revenues.
"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.
"CBS" means CBS, 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, 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.
"DAB" means digital audio broadcasting.
"DBS" means direct-to-home broadcast satellite television.
"Debt Issuance" means the Company's private placement of the 1997 Notes, in
the principal amount of $200,000,000, on July 2, 1997.
G-1
<PAGE>
"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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commision.
"FCN" means the Fox Children's Network.
"Flint Acquisition" means the Company's acquisition of the assets of
WSMH-TV (Flint, Michigan).
"Fox" means Fox Broadcasting Company.
"Glencairn" means Glencairn, Ltd. and its subsidiaries.
"Greenville Stations" means radio stations WFBC-FM, WORD-AM, WFBC-AM,
WSPA-AM, WSPA-FM, WOLI-FM, and WOLT-FM located in the Greenville/Spartanburg,
South Carolina area.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"HYTOPS" means the Company's 115/8% High Yield Trust Offered Preferred
Securities issued pursuant to the HYTOPS Issuance.
"HYTOPS Issuance" means the Company's private placement of HYTOPS, in a
liquidation amount of $200,000,000, on March 14, 1997.
"Independent" means a station that is not affiliated with any of ABC, CBS,
NBC, FOX, UPN or WB.
"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.
"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.
"License Assets Option" means the Company's option to purchase the License
Assets of KDNL-TV, St. Louis, MO; KOVR-TV, Sacramento, CA; WTTV-TV and WTTK-TV,
Indianapolis, IN; WLOS-TV, Asheville, NC; KABB-TV, San Antonio, TX; and KDSM-TV,
Des Moines, IA, which the Company has exercised with respect to all stations
other than WTTV-TV and WTTK-TV.
"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.
"MSA" means the Metro Survey Area as defined by Arbitron.
"MMDS" means multichannel multipoint distribution services.
"NBC" means the National Broadcasting Company.
"Nielsen" means the A.C. Nielsen Company Station Index dated May 1996.
"1993 Notes" means the Company's 10% Senior Subordinated Notes due 2003.
"1995 Notes" means the Company's 10% Senior Subordinated Notes due 2005.
"1996 Acquisitions" means the 16 television and 33 radio stations that the
Company acquired, obtained options to acquire, or obtained the right to program
during 1996 for an aggregate consideration of approximately $1.2 billion.
G-2
<PAGE>
"1997 Notes" means the Company's 9% Senior Subordinated Notes due 2007,
issued pursuant to the Debt Issuance.
"Non-License Assets" means the assets relating to operation of a television
or radio station other than License Assets.
"Peoria/Bloomington Acquisition" means the acquisition by the Company of
the assets of WYZZ-TV on July 1, 1996.
"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 holds all of the broadcast operations of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Company's Series A Exchangeable
Preferred Stock, par value $.01 per share, each share of which has been
exchanged for a share of the Company's Series B Convertible Preferred Stock.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock, par value $.01 per share.
"Series C Preferred Stock" means the Company's Series C Preferred Stock,
par value $.01 per share.
"Sinclair" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Superior Acquisition" means the Company's acquisition of the stock of
Superior Communications, Inc. ("Superior").
"TBAs" means time brokerage agreements; see definition of "LMAs."
"UHF" means ultra-high frequency.
"UPN" means United Paramount Television Network Partnership.
"VHF" means very-high frequency.
"WB" and the "WB Network" mean The WB Television Network Partners.
G-3
<PAGE>
<TABLE>
<S> <C>
========================================================== ==========================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT IN THE ACCOMPANYING PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR
ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK BY ANYONE IN ANY 3,000,000 SHARES
JURISDICTION IN WHICH THE OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. SINCLAIR BROADCAST GROUP, INC.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL $ CONVERTIBLE EXCHANGEABLE
CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN PREFERRED STOCK
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THIS DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
SBG
SINCLAIR BROADCAST GROUP
PAGE NO.
---------
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary ..................... S- 1 ----------------------------
Historical and Pro Forma Ratios of Earnings to
Fixed Charges and of Earnings to Fixed Charges
and Preferred Dividends ........................ S-11
Use of Proceeds ................................. S-12 P R O S P E C T U S S U P P L E M E N T
Capitalization .................................... S-13
Pro Forma Consolidated Financial Information of
Sinclair ....................................... S-14 AUGUST , 1997
Management's Discussion and Analysis of
Financial Condition and Results of Operations of ----------------------------
Sinclair ....................................... S-24
Industry Overview ................................. S-33
Business of Sinclair .............................. S-36
Management ....................................... S-64
Description of Convertible Exchangeable Preferred
Stock .......................................... S-70
Description of Exchange Debentures ............... S-80
Certain Definitions .............................. S-90
Description of Indebtedness of Sinclair ......... S-93 SMITH BARNEY INC.
Certain Federal Income Tax Considerations ...... S-96
Underwriting .................................... S-106 ALEX. BROWN & SONS
Glossary of Defined Terms ........................ G-1 INCORPORATED
PROSPECTUS
Available Information ........................... 1 CREDIT SUISSE FIRST BOSTON
Incorporation of Certain Documents by Reference ... 1
The Company ....................................... 3 SALOMON BROTHERS INC
Risk Factors .................................... 3
Use of Proceeds ................................. 16 CHASE SECURITIES, INC.
Historical and Pro Forma Ratio of Earnings to Fixed
Charges ....................................... 16 FURMAN SELZ
Selling Stockholders .............................. 17
Description of Debt Securities .................. 18
Description of Capital Stock ..................... 32
Plan of Distribution .............................. 40
Legal Matters .................................... 41
Experts .......................................... 41
========================================================== ==========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses payable by the Company in
connection with the issuance and distribution of the securities being registered
other than any underwriting compensation.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------- -----------
<S> <C>
SEC Registration Fee .................................... $ 303,030
Nasdaq fees ............................................. 35,000
Blue Sky fees and expenses (including legal fees) ...... 35,000
Printing and engraving expenses ........................ 450,000
Legal fees and expenses ................................. 375,000
Accounting fees and expenses ........................... 300,000
Trustees and registrar fees ........................... 35,000
Miscellaneous fees and expenses ........................ 77,970
-----------
Total ................................................ $1,611,000
===========
</TABLE>
ITEM 15. 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.
II-1
<PAGE>
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.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriters of the Registrant's
directors, officers and controlling persons against certain liabilities that may
be incurred in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------
1.1* Form of Common Stock Underwriting Agreement
1.2* Form of Debt Security Underwriting Agreement
1.3* Form of Preferred Stock Underwriting Agreement
4.1 Amended and Restated certificate of Incorporation (incorporated by
reference to the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1996.)
4.2 Bylaws (incorporated by reference to the Company Registration
Statement on Form S-1, No. 33-90682)
4.3* Form of Class A Common Stock Certificate (incorporated by reference to
the Company's registration statement on Form S-1, No. 33-90682)
4.4* Form of Articles Supplementary relating to Preferred Stock issued
pursuant to this Registra- tion Statement
4.5* Form of Senior Indenture
4.6* Form of Senior Subordinated Indenture
4.7* Form of Preferred Stock Certificate
4.8* Form of Depositary Agreement
4.9* Form of Depositary Receipt
5.1* Form of Opinion of Wilmer, Cutler & Pickering (including the consent
of such firm) regard- ing legality of securities being offered
5.2* Form of Opinion of Thomas & Libowitz, P.A. (including the consent of
such firm) regarding legality of securities being offered
12.1 Statement re computation of ratios
23.1 Consent of Wilmer, Cutler & Pickering (incorporated herein by
reference to Exhibit 5.1 hereto)
23.2 Consent of Arthur Andersen LLP, independent certified public
accountants
23.3 Consent of KPMG Peat Marwick LLP, independent certified public
accountants
23.4 Consent of Price Waterhouse LLP, independent accountants, relating to
Financial Statements of Kansas City TV 62 Limited Partnership
23.5 Consent of Price Waterhouse LLP, independent accountants, relating to
financial statements of Cincinnati TV 64 Limited Partnership
23.6 Consent of Ernst & Young LLP, independent certified public accountants
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----------------------------------------------------------------------
23.7+ Consent of Barry Baker to be named as a director
23.8+ Consent of Roy F. Coppedge, III to be named as a director
24.1+ Powers of Attorney for David D. Smith, Frederick G. Smith, J. Duncan
Smith, Robert E. Smith, Basil A. Thomas, William Brock, Lawrence
McCanna and David B. Amy.
- ----------
* To be filed by amendment or as an exhibit to be incorporated by reference
herein in connection with an offering of the offered securities.
+ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES:
Incorporated by reference to Schedule II of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, as amended.
ITEM 17. UNDERTAKINGS
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 provisions described in this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
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 persons 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 of 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.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
The undersigned registrant hereby undertakes:
(1) 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
II-3
<PAGE>
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; and
(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;
Provided, however, That paragraphs (1)(i) and (1) (ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
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-3 and have duly caused this amendment to
registration statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of Baltimore, Maryland on the 26th day of
August, 1997.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ David D. Smith
------------------------------------
David D. Smith
Chief Executive Officer and
President
THE GUARANTORS LISTED BELOW
By: /s/ David D. Smith
------------------------------------
David D. Smith
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this amendment
to 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>
/s/ David D. Smith Chairman of the Board, August 26, 1997
- ------------------------- Chief Executive Officer,
David D. Smith President and Director
of the Guarantors listed below
(Principal executive officer)
/s/ David B. Amy Chief Financial Officer and August 26, 1997
- ------------------------- Director of the Guarantors listed
David B. Amy below (other than Sinclair
Communications, Inc.,) (Principal
Financial and Accounting Officer of
Sinclair Broadcast Group, Inc. and
the Guarantors listed below)
Director of Sinclair Broadcast Group, August 26, 1997
- ------------------------- Inc. and Sinclair Communications,
Frederick G. Smith Inc.
* Director of Sinclair Broadcast Group, August 26, 1997
- ------------------------- Inc. and Sinclair Communications,
J. Duncan Smith Inc.
Director of Sinclair Broadcast Group, August 26, 1997
- ------------------------- Inc. and Sinclair Communications,
Robert E. Smith Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- --------------------------------------- ----------------
<S> <C> <C>
* Director of Sinclair Broadcast Group, August 26, 1997
- ------------------------- Inc. and Sinclair Communications,
Basil A. Thomas Inc.
* Director of Sinclair Broadcast Group, August 26, 1997
- ------------------------- Inc. and Sinclair Communications,
Lawrence E. McCanna Inc.
</TABLE>
*By: /s/ David B. Amy
-------------------
David B. Amy
Attorney-in-fact
<TABLE>
<CAPTION>
GUARANTORS
<S> <C>
Chesapeake Television, Inc. Sinclair Radio of Wilkes-Barre Licensee, Inc.
Chesapeake Television Licensee, Inc. Superior Communications of Kentucky, Inc.
FSF-TV, Inc. Superior Communications of Oklahoma, Inc.
KABB Licensee, Inc. Superior KY License Corp.
KDNL Licensee, Inc. Superior OK License Corp.
KSMO, Inc. Tuscaloosa Broadcasting Inc.
KSMO Licensee, Inc. WCGV, Inc.
KUPN Licensee, Inc. WCGV Licensee, Inc.
SCI-Indiana Licensee, Inc. WDBB, Inc.
SCI-Sacramento Licensee, Inc. WLFL, Inc.
Sinclair Communications, Inc. WLFL Licensee, Inc.
Sinclair Radio of Albuquerque, Inc. WLOS Licensee, Inc.
Sinclair Radio of Albuquerque Licensee, Inc. WPGH, Inc.
Sinclair Radio of Buffalo, Inc. WPGH Licensee, Inc.
Sinclair Radio of Buffalo Licensee, Inc. WSMH, Inc.
Sinclair Radio of Greenville, Inc. WSMH Licensee, Inc.
Sinclair Radio of Greenville Licensee, Inc. WSTR, Inc.
Sinclair Radio of Los Angeles, Inc. WSTR Licensee, Inc.
Sinclair Radio of Los Angeles Licensee, Inc. WSYX, Inc.
Sinclair Radio of Memphis, Inc. WTTE, Channel 28, Inc.
Sinclair Radio of Memphis Licensee, Inc. WTTE, Channel 28 Licensee, Inc.
Sinclair Radio of Nashville, Inc. WTTO, Inc.
Sinclair Radio of Nashville Licensee, Inc. WTTO Licensee, Inc.
Sinclair Radio of New Orleans, Inc. WTVZ, Inc.
Sinclair Radio of New Orleans Licensee, Inc. WTVZ Licensee, Inc.
Sinclair Radio of St. Louis, Inc. WYZZ, Inc.
Sinclair Radio of St. Louis Licensee, Inc. WYZZ Licensee, Inc.
Sinclair Radio of Wilkes-Barre, Inc.
</TABLE>
II-6
EXHIBIT 23.2
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
Form S-3/A Amendment No. 5 to Registration Statement under the Securities Act of
1933.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
August 26, 1997
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Partners
River City Broadcasting, L.P.:
We consent to the inclusion and incorporation by reference in the Registration
Statement No. 333-12257 on Form S-3 as amended of Sinclair Broadcast Group, Inc.
of our report dated February 23, 1996 with respect to the consolidated balance
sheets of River City Broadcasting, L.P. as of December 31, 1994 and 1995 and the
related consolidated statements of operations, partners' capital (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1995 which report appears in the form 8-K/A of Sinclair Broadcast Group, Inc.
dated May 9, 1996 and to the reference to our firm under the heading "Experts"
in the prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
St. Louis, Missouri
August 26, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to incorporation by reference in the Prospectus constituting
part of this Registration Statement on Form S-3/A 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 headings "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
- ---------------------
Price Waterhouse LLP
Boston, Massachusetts
August 26, 1997
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3/A 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 Form 8-K dated May 9, 1996 (filed May 17, 1996).
We also consent to the reference to us under the headings "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
- ---------------------
Price Waterhouse LLP
Boston, Massachusetts
August 26, 1997
EXHIBIT 23.6
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 Communication Group, Inc. included in the Registration
Statement (Form S-3 Amendment No.5 333-12257) and related Prospectus of Sinclair
Broadcast Group, Inc.
/s/ Ernst & Young LLP
---------------------
Pittsburgh, Pennsylvania
August 25, 1997
