FILED PURSUANT TO RULE 424(B)(5)
REGISTRATION NO. 333-12257
REGISTRATION NO. 333-49543
P R O S P E C T U S S U P P L E M E N T
(TO COMPANY PROSPECTUS AND RESALE PROSPECTUS,
EACH DATED APRIL 8, 1998)
8,030,187 SHARES
SBG
SINCLAIR BROADCAST GROUP
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
Of the 8,030,187 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, 6,000,000 shares are being offered by the Company
(the "Offering") and 2,030,187 shares are being offered by certain stockholders
of the Company (the "Selling Stockholders"). See "Selling Stockholders." The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholders. The Class A Common Stock is traded on the Nasdaq National Market
System under the symbol "SBGI." On April 7, 1998, the last reported sale price
of the Class A Common Stock as reported by Nasdaq was $59 1/8 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"), shares of Series C Preferred Stock, par
value $.01 per share (the "Series C Preferred Stock") and shares of Series D
Convertible Exchangeable Preferred Stock, par value $.01 per share (the "Series
D 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 Prospectuses) and
their Permitted Transferees (generally, related parties of a Controlling
Stockholder) 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 91.3% 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. Each share of Series B Preferred Stock has a
liquidation preference of $100, is convertible into approximately 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 Prospectuses, the Series C and Series D Preferred Stock do not
have rights to vote on matters on which holders of shares of Common Stock have a
vote. See "Description of Capital Stock" in the accompanying Prospectuses.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THE ACCOMPANYING PROSPECTUSES 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 EX-
CHANGE 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
PROSPECTUSES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2) SELLING STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ 58.25 $ 2.18 $ 56.07 $ 56.07
- -------------------------------------------------------------------------------------------------------
Total(3) $467,758,393 $17,505,808 $336,420,000 $113,832,585
=======================================================================================================
</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 the Selling Stockholders have granted the Underwriters
a 30-day option to purchase up to an additional 900,000 and 304,528
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
1,204,528 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 $537,922,149,
$20,131,679, $386,883,000 and $130,907,470, 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 April 14, 1998 at the
offices of Smith Barney Inc., 333 W. 34th Street, New York, New York 10001.
-----------
SALOMON SMITH BARNEY
BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
FURMAN SELZ
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
April 8, 1998 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
[INSERT MAP]
TELEVISION AND RADIO STATIONS THAT WILL BE OWNED OR PROVIDED PROGRAMMING
SERVICES BY THE COMPANY PURSUANT TO LMAS UPON COMPLETION OF ALL PENDING
ACQUISITIONS AND DISPOSITIONS, AND EXERCISE OF ALL OPTIONS TO
ACQUIRE (OTHER THAN THE OPTION TO ACQUIRE WSYX-TV IN
COLUMBUS, OHIO). SEE "BUSINESS OF SINCLAIR."
<PAGE>
[GRAPHIC OMITTED]
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
Prospectuses. Unless the context requires otherwise, this Prospectus Supplement
and the accompanying Prospectuses assume no exercise of the Underwriters'
over-allotment option. Unless the context otherwise indicates or unless
specifically defined otherwise, as used herein, the "Company" or "Sinclair"
means Sinclair Broadcast Group, Inc. and its direct and indirect wholly-owned
subsidiaries (collectively, the "Subsidiaries"). See "Glossary" beginning on
page S-73 for the definition of certain capitalized terms used herein.
SINCLAIR
The Company is a diversified broadcasting company that currently owns or
programs pursuant to Local Marketing Agreements ("LMAs") 35 television stations
and, upon consummation of all pending acquisitions and dispositions, will own or
program pursuant to LMAs 56 television stations. The Company owns or programs
pursuant to LMAs 52 radio stations and upon consummation of all pending
acquisitions and dispositions, the Company will own or program pursuant to LMAs
51 radio stations. The Company also has options to acquire two additional radio
stations. The Company believes that upon completion of all pending acquisitions
and dispositions it will be one of the top 10 radio groups in the United States,
when measured by the total number of radio stations owned or programmed pursuant
to LMAs.
The 35 television stations the Company currently owns or programs pursuant
to LMAs are located in 24 geographically diverse markets, with 23 of the
stations in the top 51 television designated market areas ("DMAs") in the United
States. Upon consummation of all pending acquisitions and dispositions, the
Company will own or program television stations in 37 geographically diverse
markets (with 30 of such stations in the top 51 DMAs) and will reach
approximately 22.5% of the television households in the United States. The
Company currently owns or programs 11 stations affiliated with Fox Broadcasting
Company ("Fox"), 13 with The WB Television Network ("WB"), four with ABC, two
with NBC, two with United Paramount Television Network Partnership ("UPN") and
one with CBS. Two stations operate as independents. Upon consummation of all
pending acquisitions and dispositions and the transfer of affiliations pursuant
to existing agreements, 23 of the Company's owned or programmed television
stations will be Fox affiliates, 11 will be WB affiliates, six will be UPN
affiliates, five will be ABC affiliates, three will be NBC affiliates, one will
be a CBS affiliate and seven will be operated as independents. Upon consummation
of all pending acquisitions and dispositions and transfers of affiliations
pursuant to existing agreements, the Company will own or program more stations
affiliated with Fox than any other broadcaster.
The Company's radio station group is geographically diverse with a variety
of programming formats including country, urban, news/talk/sports, rock and
adult contemporary. Of the 52 stations owned or provided programming services by
the Company, 19 broadcast on the AM band and 33 on the FM band. The Company owns
between three and eight stations in all but one of the 12 radio markets it
serves.
The Company has undergone rapid and significant growth over the course of
the last seven years. Since 1991, the Company has increased the number of
stations it owns or provides programming services to from three television
stations to 35 television stations and 52 radio stations. From 1991 to 1997, net
broadcast revenues and Adjusted EBITDA (as defined herein) increased from $39.7
million to $471.2 million, and from $15.5 million to $229.0 million,
respectively. Pro forma for pending acquisitions and dispositions described
below (except the Montecito Acquisition, the Lakeland Acquisition and the
execution of an LMA with respect to WSYX-TV), net broadcast revenue and Adjusted
EBITDA would have been $715.1 million and $344.7 million, respectively.
S-1
<PAGE>
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.
RECENT DEVELOPMENTS
PENDING ACQUISITIONS AND DISPOSITIONS
Certain information about pending acquisitions and dispositions of
television and radio stations is set forth below. There can be no assurance that
any of the pending acquisitions or dispositions will be completed. Additional
information regarding acquisitions and dispositions is set forth in "Business of
Sinclair -- Broadcasting Acquisition Strategy," "-- 1998 Acquisitions" and "--
1997 Acquisitions."
Sullivan Acquisition. In February 1998, the Company entered into an
agreement to acquire all of the capital stock of Sullivan Broadcast Holdings,
Inc. ("Sullivan Holdings") and Sullivan Broadcasting Company II, Inc. ("Sullivan
II" and, together with Sullivan Holdings, "Sullivan") for a purchase price
expected to be approximately $950 million to $1 billion, less the amount of
certain outstanding indebtedness of Sullivan Holdings assumed by the Company
(the "Sullivan Acquisition"). Upon the closing of all aspects of the Sullivan
Acquisition, the Company will own or provide programming services to 13
additional television stations in 11 separate markets. The final purchase price
will be based on a multiple of Sullivan's projected 1998 cash flow calculated at
the initial closing of the Sullivan Acquisition. As part of the total
consideration, the Company, at its option, may issue to the sellers up to $100
million of Class A Common Stock based on an average closing price of the Class A
Common Stock. Among other conditions, the Sullivan Acquisition is subject to
approval by the Federal Communications Commission ("FCC") and termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"). An initial closing, at which the Company
will acquire control of operating assets (excluding the License Assets) of, and
acquire the right to program, the 13 television stations, is expected to occur
in the second quarter of 1998. A second closing, at which the Company will
acquire control of the License Assets of six of the stations, is expected to
occur in the third quarter of 1998.
Montecito Acquisition. In February 1998, the Company entered into an
agreement to acquire all of the capital stock of Montecito Broadcasting
Corporation ("Montecito") for approximately $33 million (the "Montecito
Acquisition"). Montecito owns all of the issued and outstanding stock of Channel
33, Inc. which owns and operates KFBT-TV in Las Vegas, Nevada. Sinclair cannot
acquire Montecito unless and until FCC rules permit Sinclair to own the
broadcast license for more than one station in the Las Vegas market, or unless
Sinclair no longer owns the broadcast license for KUPN-TV in Las Vegas. The
Company currently operates KFBT-TV through an LMA.
Max Media Acquisition. In December 1997, the Company entered into
agreements to acquire all of the equity interests of Max Media Properties, LLC
("Max Media") for approximately $255 million (the "Max Media Acquisition"). Upon
the closing of the Max Media Acquisition, the Company will own or provide
programming services to nine additional television stations in six separate
markets and eight radio stations in two separate markets. Due to FCC
restrictions, the Company will be required to divest certain of the radio
stations it owns or proposes to acquire in the Norfolk, Virginia market prior to
or simultaneously with the Max Media Acquisition. The Max Media Acquisition is
subject to, among other conditions, approval by the FCC and termination of the
applicable waiting period under the HSR Act and is expected to occur in the
second quarter of 1998.
Lakeland Acquisition. In November 1997, the Company entered into an
agreement to acquire 100% of the stock of Lakeland Group Television Inc.
("Lakeland") for a purchase price of approximately $50 million (the "Lakeland
Acquisition"), plus the assumption of certain indebtedness
S-2
<PAGE>
of Lakeland not to exceed $2.5 million. Upon the closing of the Lakeland
Acquisition, the Company will own television station KLGT-TV in Minneapolis/St.
Paul, Minnesota. The Lakeland Acquisition is subject to, among other conditions,
approval by the FCC and termination of the applicable waiting period under the
HSR Act and is expected to close in the first or second quarter of 1998.
Heritage Acquisition. In July 1997, the Company entered into a purchase
agreement to acquire certain assets of the radio and television stations of
Heritage Media Group, Inc. ("Heritage") for approximately $630 million (the
"Heritage Acquisition"). Pursuant to the Heritage Acquisition, and after giving
effect to the dispositions described below and a third party's exercise of its
option to acquire radio station KCAZ in Kansas City, Missouri, the Company has
acquired or is providing programming services to three television stations in
two separate markets and 13 radio stations in four separate markets. The Company
also has the right to acquire three radio stations in the New Orleans, Louisiana
market. Acquisition of the Heritage radio stations in the New Orleans market is
subject to approval by the FCC and termination of the applicable waiting period
under the HSR Act. The Company has reached an agreement to divest certain radio
stations it owns or has the right to acquire in the New Orleans market and
expects to receive FCC approval and clearance under the HSR Act in connection
with such disposition.
The Company has entered into agreements to sell to STC Broadcasting of
Vermont, Inc. ("STC") two television stations and the Non-License Assets and
rights to program a third television station, all of which were acquired in the
Heritage Acquisition. The three television stations are in the Burlington,
Vermont and Plattsburgh, New York market and will be sold for aggregate
consideration of approximately $72 million. The Company expects to close the
sale to STC during the second quarter of 1998 subject to, among other
conditions, approval by the FCC and termination of the applicable waiting period
under the HSR Act.
The Company has also agreed to sell to Entertainment Communications, Inc.
("Entercom") seven radio stations it acquired in the Heritage Acquisition. The
seven stations are located in the Portland, Oregon and Rochester, New York
markets and will be sold for aggregate consideration of approximately $126.5
million. Subject to approval by the FCC and termination of the applicable
waiting period under the HSR Act, the Company anticipates it will close on the
sale of the Portland and Rochester radio stations to Entercom during the second
quarter of 1998. Entercom is operating these stations pursuant to an LMA pending
closing of the sale.
Columbus Option. In connection with the Company's 1996 acquisition of the
radio and television broadcasting assets of River City Broadcasting, L.P.
("River City"), the Company acquired a three-year option to purchase the assets
of WSYX-TV in Columbus, Ohio (the "Columbus Option"). The exercise price for the
Columbus Option is approximately $100 million, plus an amount of indebtedness
relating to the WSYX-TV assets on the date of exercise (such indebtedness not to
exceed $135 million). Due to the Company's ownership of another television
station in the Columbus, Ohio market, the Antitrust Division of the Department
of Justice (the "DOJ") is currently reviewing the Company's acquisition of and
the right to operate WSYX-TV pursuant to an LMA. The Company has entered into an
agreement with the DOJ pursuant to which the Company has agreed not to enter
into the LMA with respect to, or acquire the license assets of, WSYX until the
close of business on April 13, 1998. The Company understands that the DOJ is
considering filing a court action to prevent the proposed transaction. The DOJ
has until April 13, 1998 to decide whether to do so. If the DOJ files such an
action, the Company has agreed to join the DOJ in seeking a conference with the
court as promptly as possible to set a schedule for hearing the case and not to
close the transaction until the parties have conferred with the court for that
purpose.
Other Dispositions. The Company has entered into an agreement to sell three
radio stations in the Nashville, Tennessee market for approximately $35 million.
The Company expects the closing to occur by the end of 1998.
S-3
<PAGE>
Ongoing Discussions. In furtherance of its acquisition strategy, the
Company routinely reviews and conducts investigations of potential television,
radio station and related businesses acquisitions. When the Company believes a
favorable opportunity exists, the Company seeks to enter into discussions with
the owners of such businesses regarding the possibility of an acquisition,
disposition or station swap. At any given time, the Company may be in
discussions with one or more of such business owners. The Company is in serious
negotiations with various parties relating to the disposition and acquisition of
television, radio and related properties which would be disposed of and acquired
for aggregate consideration of approximately $65 million and $25 million,
respectively. 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.
Acquisition Financing. The aggregate cash consideration needed to complete
the purchase of the remaining stations under the Heritage Acquisition and to
complete the Lakeland Acquisition, the Max Media Acquisition and the Sullivan
Acquisition and to exercise the Columbus Option is expected to be approximately
$1.6 billion (net of anticipated proceeds from sales of stations involved in
these acquisitions). The Company intends to finance the acquisitions through a
combination of available cash, the net proceeds of this Offering, $100 million
of Class A Common Stock to be provided to Sullivan shareholders and available
borrowings under its bank credit facility governed by the Third 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"). The
current terms of the Company's Bank Credit Agreement do not allow the Company to
borrow an amount sufficient to finance all of the pending acquisitions. The
Company intends to begin discussions with its banks to refinance the Bank Credit
Agreement promptly upon the completion of the Offering. The Company believes
that such a refinancing can be accomplished on terms reasonably satisfactory to
the Company, but there can be no assurance that the Company will be able to
obtain such a refinancing on satisfactory terms. The indentures relating to the
Company's 8 3/4% Senior Subordinated Notes due 2007, 9% Senior Subordinated
Notes due 2007 and 10% Senior Subordinated Notes due 2005 restrict the
incurrence of additional indebtedness and the use of proceeds of an equity
issuance, but these restrictions are not expected to restrict the incurrence of
indebtedness or use of proceeds of an equity issuance to finance the pending
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
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 (i) certain stations
currently affiliated with UPN would terminate their affiliations with UPN at the
end of the affiliation term in January 1998 and would enter into 10-year
affiliation agreements with WB effective as of that date, (ii) certain stations
currently affiliated with WB would extend their affiliation agreements with WB,
(iii) certain stations currently affiliated with Fox would enter into
affiliation agreements with WB when their affiliation expires, and (iv) certain
other stations would become affiliated with WB. 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 the 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 connection with the change of affiliation, UPN has asserted that the
Company did not effectively terminate the Company's affiliations with UPN. The
Company has obtained a judicial declaration that it gave timely and proper
notice of termination, and that decision has been upheld on initial appeal. UPN
is seeking further appeal, and has also filed a separate action challenging
Sinclair's termination. The court hearing UPN's separate action has stayed that
action pending completion of appeals in the action brought by the Company. See
"Risk Factors -- Certain Network Affiliation Agreements" in the accompanying
Prospectuses and "Business of Sinclair -- Legal Proceedings."
S-4
<PAGE>
THE OFFERING
CLASS A COMMON STOCK OFFERED:
Company................ 6,000,000 shares(a)
Selling Stockholders... 2,030,187 shares(a)(b)
----------
Total................ 8,030,187 shares(a)(b)
COMMON STOCK TO BE OUTSTAND-
ING AFTER THE OFFERING 22,414,956 shares of Class A Common Stock(a)(c)
25,166,432 shares of Class B Common Stock
- ----------
47,581,388 total shares of Common Stock(a)(c)
USE OF PROCEEDS.......... The net proceeds to the Company from the Offering
will be used to repay amounts outstanding under
the Company's Bank Credit Agreement. The Company
may reborrow all of the amounts to be repaid and
expects to do so to pay a portion of the costs of
its pending acquisitions. 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 Series D Preferred Stock 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
-- Preferred Stock" in the accompanying
Prospectuses. 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
Prospectuses)). Each share of Series B Preferred
Stock may be converted at any time, at the option
of the holder thereof, into approximately 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 91.3%
of the total voting power of the capital stock of
the Company will be owned by the Controlling
Stockholders and their Permitted Transferees. See
"Risk Factors -- Voting Rights; Control by
Controlling Stockholders; Potential Anti-Takeover
Effect of Disproportionate Voting Rights" in the
accompanying Prospectuses.
- -----------
(a) Excludes up to 900,000 and 304,528 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. See
"Underwriting."
(b) Shares sold by the Selling Stockholders will be issued by the Company upon
conversion of approximately 558,302 shares of Series B Preferred Stock
currently held by the Selling Stockholders. See "Selling Stockholders."
(c) Excludes 1,520,284 shares of Class A Common Stock that may be issued upon
conversion of shares of Series B Preferred Stock outstanding after the
Offering (of which 304,528 shares of Class A Common Stock may be issued
and sold pursuant to the overallotment option granted to the Underwriters
by the Selling Stockholders) and up to 5,171,536 shares of Class A Common
Stock reserved for issuance pursuant to the Company's Incentive Stock
Option Plan, Designated Participants Stock Option Plan, Long-Term
Incentive Plan, Employee Stock Purchase Plan and the 401(k) Profit Sharing
Plan. Also excludes 3,780,822 shares of Class A Common Stock that may be
issued upon conversion of shares of the Series D Preferred Stock (based on
the conversion price at date of issuance). See "Risk Factors -- Potential
Effect on the Market Price Resulting from Shares Eligible for Future Sale"
in the accompanying Prospectuses.
S-5
<PAGE>
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. See
"Risk Factors -- Dividend Restrictions" in the
accompanying Prospectuses.
S-6
<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, 1993, 1994, 1995, 1996 and 1997 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, 1995, 1996 and 1997 are included in Sinclair's Annual Report on Form 10-K
for the period ended December 31, 1997, as amended (the "1997 Form 10-K"), which
is incorporated herein by reference. The summary pro forma statement of
operations data and other data of the Company reflect (i) completion of the
Heritage Acquisition, the Max Media Acquisition and the Sullivan Acquisition
(the "Significant Acquisitions"), (ii) the issuance of $200,000,000 in principal
amount of the Company's 9% Senior Subordinated Notes due 2007 (the "July 1997
Notes") issued on July 2, 1997 (the "July 1997 Notes Issuance"), (iii) the
issuance of $200,000,000 in liquidation amount of the Company's 11 5/8% High
Yield Trust Offered Preferred Securities (the "HYTOPS") issued on March 14, 1997
(the "HYTOPS Issuance"), (iv) the issuance of 4,345,000 shares of Class A Common
Stock in September 1997 (the "1997 Common Stock Issuance"); (v) the issuance of
3,450,000 shares of Series D Preferred Stock in September 1997 (the "1997
Preferred Stock Issuance"); (vi) the issuance of $250,000,000 in principal
amount of the Company's 8 3/4% Senior Subordinated Notes due 2007 (the "December
1997 Notes Issuance") and the December 1997 repurchase of $98.1 million in
principal amount of the Company's 10% Senior Subordinated Notes due 2003 (the
"Debt Repurchase" and, together with the July 1997 Notes Issuance, the HYTOPS
Issuance, the 1997 Common Stock Issuance, the 1997 Preferred Stock Issuance and
the December 1997 Notes Issuance, the "1997 Financings"); and (vii) the Offering
and the application of the proceeds therefrom as set forth in "Use of Proceeds,
" as though each 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, Sinclair's Consolidated
Financial Statements, included in the 1997 Form 10-K and the historical
financial statements of Heritage, Max Media and Sullivan included in the
Company's Current Report on Form 8-K/A filed April 8, 1998 (the "April 8, 1998
Form 8-K").
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1993 1994(A) 1995(A) 1996(A) 1997(A)
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ............................. $69,532 $118,611 $ 187,934 $ 346,459 $471,228
Barter revenues ....................................... 6,892 10,743 18,200 32,029 45,207
------- --------- --------- --------- --------
Total revenues ...................................... 76,424 129,354 206,134 378,488 516,435
------- --------- --------- --------- --------
Operating expenses, excluding depreciation and
amortization, deferred compensation and special
bonuses paid to executive officers .................. 32,295 50,545 80,446 167,765 236,376
Depreciation and amortization(d) ...................... 22,486 55,587 80,410 121,081 152,170
Amortization of deferred compensation ................. -- -- -- 739 1,636
Special bonuses paid to executive officers ............ 10,000 3,638 -- -- --
------- --------- --------- --------- --------
Broadcast operating income ............................ 11,643 19,584 45,278 88,903 126,253
------- -------- --------- --------- --------
Interest and amortization of debt discount expense 12,852 25,418 39,253 84,314 98,393
Interest and other income ............................. 2,131 2,447 4,163 3,478 2,228
Subsidiary trust minority interest expense(e) ......... -- -- -- -- 18,600
------- --------- --------- --------- --------
Income (loss) before (provision) benefit for in-
come taxes and extraordinary item ................... $ 922 $ (3,387) $ 10,188 $ 8,067 $ 11,488
======= ========= ========= ========= ========
Net income (loss) available to common share-
holders ............................................. $(7,945) $ (2,740) $ 76 $ 1,131 $(13,329)
======= ========= ========= ========= ========
Diluted earnings (loss) per share before ex-
traordinary items ................................... $ -- $ (0.09) $ 0.15 $ 0.03 $ (0.20)
======= ========= ========= ========= ========
Diluted earnings (loss) per share after extraor-
dinary items ........................................ $ (0.27) $ (0.09) $ -- $ 0.03 $ (0.37)
======= ========= ========= ========= ========
Diluted weighted average shares outstanding (in
thousands) .......................................... 29,000 29,000 32,205 37,381 40,078
======= ========= ========= ========= ========
OTHER DATA:
Broadcast cash flow(f) ................................ $37,498 $ 67,519 $ 111,124 $ 189,216 $243,406
Broadcast cash flow margin(g) ......................... 53.9% 56.9% 59.1% 54.6% 51.7%
Adjusted EBITDA(h) .................................... $35,406 $ 64,547 $105,750 $180,272 $229,000
Adjusted EBITDA margin(g) ............................. 50.9% 54.4% 56.3% 52.0% 48.6%
After tax cash flow(i) ................................ $20,850 $ 24,948 $ 54,645 $ 77,484 $104,884
Program contract payments ............................. 8,723 14,262 19,938 30,451 51,059
Capital expenditures .................................. 528 2,352 1,702 12,609 19,425
Corporate overhead expense ............................ 2,092 2,972 5,374 8,944 14,406
<CAPTION>
CONSOLIDATED
CONSOLIDATED HISTORICAL,
HISTORICAL, 1997 FINANCINGS,
CONSOLIDATED 1997 FINANCINGS SIGNIFICANT
HISTORICAL AND AND SIGNIFICANT ACQUISITIONS
1997 FINANCINGS ACQUISITIONS AND OFFERING
----------------- ----------------- -----------------
PRO FORMA YEAR ENDED DECEMBER 31, 1997(B)
-----------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ............................. $471,228 $715,086 $715,086
Barter revenues ....................................... 45,207 72,215 72,215
-------- -------- --------
Total revenues ...................................... 516,435 787,301 787,301
-------- -------- --------
Operating expenses, excluding depreciation and
amortization, deferred compensation and special
bonuses paid to executive officers .................. 236,376 374,867 374,867
Depreciation and amortization(d) ...................... 152,552 263,185 263,185
Amortization of deferred compensation ................. 1,636 1,636 1,636
Special bonuses paid to executive officers ............ -- -- --
-------- -------- --------
Broadcast operating income ............................ 125,871 147,613 147,613
-------- -------- --------
Interest and amortization of debt discount expense 83,428 195,634 172,375
Interest and other income ............................. 2,228 19,391 19,391
Subsidiary trust minority interest expense(e) ......... 23,250 23,250 23,250
-------- -------- --------
Income (loss) before (provision) benefit for in-
come taxes and extraordinary item ................... $ 21,421 $(51,880) $(28,621)
======== ======== ========
Net income (loss) available to common share-
holders ............................................. $(15,026) $(64,030) $(50,075)
======== ======== ========
Diluted earnings (loss) per share before ex-
traordinary items ................................... $ (0.23) $ (1.42) $ (0.90)
======== ======== ========
Diluted earnings (loss) per share after extraor-
dinary items ........................................ $ (0.38) $ (1.57) $ (1.02)
======== ======== ========
Diluted weighted average shares outstanding (in
thousands) ........................................... 42,583 44,300 50,300
======== ======== ========
OTHER DATA:
Broadcast cash flow(f) ................................ $243,406 $361,448 $361,448
Broadcast cash flow margin(g) ......................... 51.7% 50.5% 50.5%
Adjusted EBITDA(h) .................................... $229,000 $344,738 344,738
Adjusted EBITDA margin(g) ............................. 48.6% 48.2% 48.2%
After tax cash flow(i) ................................ $103,685 $129,342 $143,297
Program contract payments ............................. 51,059 67,696 67,696
Capital expenditures .................................. 19,425 32,558 32,558
Corporate overhead expense ............................ 14,406 16,710 16,710
</TABLE>
(Continued on following page)
S-7
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, AS OF
---------------------------------------------------------------------- DECEMBER 31,
1993 1994(A) 1995(A) 1996(A) 1997(A) 1997(B)
------------ ------------- ------------- --------------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND CASH
FLOW DATA:
Cash and cash equivalents .................. $18,036 $ 2,446 $112,450 $ 2,341 $ 139,327 --
Total assets ............................... 242,917 399,328 605,272 1,707,297 2,034,234 $ 3,702,511
Total debt(j) .............................. 224,646 346,270 418,171 1,288,103 1,080,722 2,083,949
Company Obligated Mandatorily Re-
deemable Security of Subsidiary
Trust Holding Solely KDSM Senior
Debentures(k) ............................. -- -- -- -- 200,000
Total stockholders' equity (deficit) ....... (11,024) (13,723) 96,374 237,253 543,288
Cash flows from operating activities(l). 11,230 20,781 55,986 69,298 96,625 200,000
Cash flows from investing activities(l)..... 1,521 (249,781) (119,320) (1,012,225) (218,990) 978,917
Cash flows from financing activities(l)..... 3,462 213,410 173,338 832,818 259,351 --
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) The Company made acquisitions in 1994, 1995, 1996 and 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 statement of operations information in this table reflects
the pro forma effect of the 1997 Financings, the completion of the
Significant Acquisitions, and the completion of the Offering and the
application of the net proceeds thereof as set forth in "Use of Proceeds"
as if such transactions occurred on January 1, 1997. The pro forma balance
sheet information gives effect to the Significant Acquisitions and the
completion of the Offering and the application of the net proceeds thereof
as set forth in "Use of Proceeds" as if such transactions occurred on
December 31, 1997. See "Pro Forma Consolidated Financial Information of
Sinclair" included elsewhere herein.
(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 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 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.
(notes continued on following page).
S-8
<PAGE>
(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) available to common
shareholders plus extraordinary losses, minus extraordinary gains (before
the effects of related tax benefits) plus depreciation and amortization of
intangibles, (excluding film amortization), amortization of deferred
compensation, amortization of excess syndicated programming, special
bonuses paid to executive officers, 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.
(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.
S-9
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Offering as contemplated hereby (net
of underwriting discounts and commissions and the estimated expenses of the
Offering) are estimated to be approximately $335.6 million ($386.1 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. The $335.6 million net proceeds to the Company from the
Offering will be used by the Company to repay amounts outstanding under the
revolving credit facility (which amount was $361.5 million as of March 31, 1998)
under the Company's Bank Credit Agreement. The Company may reborrow all of the
amounts to be repaid and intends to do so to pay a portion of the costs of its
pending acquisitions. The Bank Credit Agreement matures on December 31, 2004 and
the average interest rate thereunder as of March 31, 1998 was 6.32%.
S-10
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1997, (a) the actual
capitalization of the Company, (b) the pro forma capitalization of the Company
as adjusted to reflect the Significant Acquisitions as if such acquisitions had
occurred on December 31, 1997 and (c) the pro forma capitalization of the
Company as adjusted to reflect the items noted in (b) and the Offering and the
application of the estimated net proceeds therefrom as set forth in "Use of
Proceeds" as if such transactions had occurred on December 31, 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 Company's Consolidated Financial Statements as of
and for the year ended December 31, 1997 and related notes thereto, the
historical financial data of Heritage Media Services, Inc. -- Broadcasting
Segment, the historical financial data of Max Media Properties LLC, and the
historical financial data of Sullivan Broadcast Holdings, Inc. and Subsidiaries,
all of which have been filed with the Commission as part of (i) the 1997 Form
10-K or (ii) the April 8, 1998 Form 8-K, each of which is incorporated herein by
reference.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
(DOLLARS IN THOUSANDS)
SIGNIFICANT
SIGNIFICANT ACQUISITIONS
ACTUAL ACQUISITIONS AND OFFERING
------------- -------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents ................................. $ 139,327 $ -- $ --
========== ========== ==========
Current portion of long-term debt ......................... $ 38,288 $ 38,288 $ 38,288
========== ========== ==========
Long-term debt:
Commercial bank financing ................................ 272,011 1,610,867 1,275,238
Notes and capital leases payable to affiliates ........... 19,500 19,500 19,500
Senior subordinated notes ................................ 750,923 750,923 750,923
---------- ---------- ----------
Total long-term debt ..................................... 1,042,434 2,381,290 2,045,661
---------- ---------- ----------
Company Obligated Mandatorily Redeemable Security
of Subsidiary Trust Holding Solely KDSM Senior
Debentures ............................................... 200,000 200,000 200,000
---------- ---------- ----------
Stockholders' equity (deficit):
Series B Preferred Stock, $.01 par value, 10,000,000
shares authorized and 1,071,381 and 513,079 shares
issued and outstanding, respectively ................... 10 10 5
Series D Convertible Exchangeable Preferred Stock,
$.01 par value, 3,450,000 shares authorized and
outstanding ............................................ 35 35 35
Class A Common Stock, $.01 par value, 100,000,000
shares authorized and 13,733,430, 15,450,168, and
23,480,355 shares issued and outstanding respec-
tively ................................................. 137 154 234
Class B Common Stock, $.01 par value, 35,000,000
shares authorized and 25,436,432 issued and out-
standing ............................................... 255 255 255
Additional paid-in capital ............................... 552,949 652,932 988,486
Additional paid-in capital -- equity put options ......... 23,117 23,117 23,117
Additional paid-in capital -- deferred compensation (954) (954) (954)
Accumulated deficit ...................................... (32,261) (32,261) (32,261)
---------- ---------- ----------
Total stockholders' equity ............................. 543,288 643,288 978,917
---------- ---------- ----------
Total capitalization .................................. $1,785,722 $3,224,578 $3,224,578
========== ========== ==========
</TABLE>
S-11
<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 December 31, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1997 (the "Pro Forma Consolidated
Statement of Operations"). The unaudited Pro Forma Consolidated Balance Sheet is
adjusted to give effect to the Significant Acquisitions, and the Offering and
application of the net proceeds therefrom as set forth in "Use of Proceeds"
above as if they occurred on December 31, 1997. The unaudited Pro Forma
Consolidated Statement of Operations for the year ended December 31, 1997 is
adjusted to give effect to the 1997 Financings, the Significant Acquisitions and
the Offering and assuming application of the net proceeds of the Offering as set
forth in "Use of Proceeds" as if each occurred at the beginning of such period.
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, 1997 and related
notes thereto, the historical financial data of Heritage Media Services, Inc. --
Broadcasting Segment, the historical financial data of Max Media Properties LLC,
and the historical financial data of Sullivan Broadcast Holdings, Inc. and
Subsidiaries all of which have been filed with the Commission as part of (i) the
1997 Form 10-K; or (ii) the April 8, 1998 Form 8-K, each of which is
incorporated herein by reference. 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-12
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
HISTORICAL
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ................................ $ 139,327
Accounts receivable, net of allowance for doubtful accounts ..... 123,018
Current portion of program contract costs ....................... 46,876
Prepaid expenses and other current assets ....................... 4,673
Deferred barter costs ........................................... 3,727
Refundable income taxes ......................................... 10,581
Deferred tax asset .............................................. 2,550
----------
Total current assets .......................................... 330,752
PROGRAM CONTRACT COSTS, less current portion ..................... 40,609
LOANS TO OFFICERS AND AFFILIATES ................................. 11,088
PROPERTY AND EQUIPMENT, net ...................................... 161,714
NON-COMPETE AND CONSULTING AGREEMENTS, net........................ 200
OTHER ASSETS ..................................................... 167,895
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ..................... 1,321,976
----------
Total Assets .................................................. $2,034,234
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 5,207
Accrued liabilities ............................................. 40,532
Current portion of long-term liabilities-
Notes payable and commercial bank financing .................... 35,215
Notes and capital leases payable to affiliation ................ 3,073
Program contracts payable ...................................... 66,404
Deferred barter revenues ........................................ 4,273
----------
Total current liabilities ..................................... 154,704
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing .................... 1,022,934
Notes and capital leases payable to affiliates ................. 19,500
Program contracts payable ...................................... 62,408
Deferred tax liability ......................................... 24,092
Other long-term liabilities .................................... 3,611
----------
Total liabilities ............................................. 1,287,249
----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ................... 3,697
----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
SOLELY KDSM SENIOR DEBENTURES ................................... 200,000
----------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 and 513,079 shares issued and
outstanding ................................................... 10
Series D Preferred Stock, $.01 par value, 3,450,000 shares
authorized 3,450,000 shares issued and outstanding ............ 35
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 13,733,430, 15,450,168 and 23,480,355 re-
spectively, shares issued and outstanding ..................... 137
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 25,436,432 shares issued and outstanding........ 255
Additional paid-in capital ..................................... 552,949
Additional paid-in capital - equity put options ................ 23,117
Additional paid-in capital - deferred compensation ............. (954)
Accumulated deficit ............................................ (32,261)
----------
Total stockholders' equity .................................... 543,288
----------
Total Liabilities and Stockholders' Equity .................... $2,034,234
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNIFICANT ACQUISITIONS
-------------------------------------------------------
SULLIVAN
HERITAGE(A) MAX MEDIA(B) BROADCASTING(C)
------------------ ------------------ -----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ................................ $ (139,327)
Accounts receivable, net of allowance for doubtful accounts .....
Current portion of program contract costs ....................... 1,462 $ 2,325 $ 22,850
Prepaid expenses and other current assets .......................
Deferred barter costs ........................................... 578 640
Refundable income taxes .........................................
Deferred tax asset ..............................................
Total current assets .......................................... (137,287) 2,965 22,850
PROGRAM CONTRACT COSTS, less current portion ..................... 1,179 2,182 23,432
LOANS TO OFFICERS AND AFFILIATES .................................
PROPERTY AND EQUIPMENT, net ...................................... 32,859 25,556 39,723
NON-COMPETE AND CONSULTING AGREEMENTS, net........................
OTHER ASSETS ..................................................... (65,500) (12,817)
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ..................... 368,336 229,490 1,135,309
----------- ----------- ------------
Total Assets .................................................. $ 199,587 $ 247,376 $ 1,221,314
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................
Accrued liabilities .............................................
Current portion of long-term liabilities-
Notes payable and commercial bank financing ....................
Notes and capital leases payable to affiliation ................
Program contracts payable ...................................... $ 1,788 $ 2,431 $ 24,944
Deferred barter revenues ........................................ 350 1,026
----------- -----------
Total current liabilities ..................................... 2,138 3,457 24,944
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing .................... 196,673 (d) 242,183 (e) 900,000 (f)
Notes and capital leases payable to affiliates .................
Program contracts payable ...................................... 776 1,736 22,710
Deferred tax liability ......................................... 173,660
Other long-term liabilities ....................................
Total liabilities ............................................. 199,587 247,376 1,121,314
----------- ----------- ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ................... -- -- --
----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
SOLELY KDSM SENIOR DEBENTURES ................................... -- -- --
----------- ----------- ------------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 and 513,079 shares issued and
outstanding ...................................................
Series D Preferred Stock, $.01 par value, 3,450,000 shares
authorized 3,450,000 shares issued and outstanding ............
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 13,733,430, 15,450,168 and 23,480,355 re-
spectively, shares issued and outstanding ..................... 17
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 25,436,432 shares issued and outstanding........
Additional paid-in capital ..................................... 99,983
Additional paid-in capital - equity put options ................
Additional paid-in capital - deferred compensation .............
Accumulated deficit ............................................
Total stockholders' equity .................................... -- -- 100,000
----------- ----------- ------------
Total Liabilities and Stockholders' Equity .................... $ 199,587 $ 247,376 $ 1,221,314
=========== =========== ============
<CAPTION>
CONSOLIDATED
HISTORICAL
AND SIGNIFICANT
ACQUISITIONS
----------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ................................ $ --
Accounts receivable, net of allowance for doubtful accounts ..... 123,018
Current portion of program contract costs ....................... 73,513
Prepaid expenses and other current assets ....................... 4,673
Deferred barter costs ........................................... 4,945
Refundable income taxes ......................................... 10,581
Deferred tax asset .............................................. 2,550
----------
Total current assets .......................................... 219,280
PROGRAM CONTRACT COSTS, less current portion ..................... 67,402
LOANS TO OFFICERS AND AFFILIATES ................................. 11,088
PROPERTY AND EQUIPMENT, net ...................................... 259,852
NON-COMPETE AND CONSULTING AGREEMENTS, net........................ 200
OTHER ASSETS ..................................................... 89,578
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ..................... 3,055,111
----------
Total Assets .................................................. $3,702,511
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 5,207
Accrued liabilities ............................................. 40,532
Current portion of long-term liabilities-
Notes payable and commercial bank financing .................... 35,215
Notes and capital leases payable to affiliation ................ 3,073
Program contracts payable ...................................... 95,567
Deferred barter revenues ........................................ 5,649
----------
Total current liabilities ..................................... 185,243
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing .................... 2,361,790
Notes and capital leases payable to affiliates ................. 19,500
Program contracts payable ...................................... 87,630
Deferred tax liability ......................................... 197,752
Other long-term liabilities .................................... 3,611
----------
Total liabilities ............................................. 2,855,526
----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ................... 3,697
----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLDING
SOLELY KDSM SENIOR DEBENTURES ................................... 200,000
----------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 and 513,079 shares issued and
outstanding ................................................... 10
Series D Preferred Stock, $.01 par value, 3,450,000 shares
authorized 3,450,000 shares issued and outstanding ............ 35
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized and 13,733,430, 15,450,168 and 23,480,355 re-
spectively, shares issued and outstanding ..................... 154
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 25,436,432 shares issued and outstanding........ 255
Additional paid-in capital ..................................... 652,932
Additional paid-in capital - equity put options ................ 23,117
Additional paid-in capital - deferred compensation ............. (954)
Accumulated deficit ............................................ (32,261)
----------
Total stockholders' equity .................................... 643,288
----------
Total Liabilities and Stockholders' Equity .................... $3,702,511
==========
</TABLE>
S-13
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
HISTORICAL
AND SIGNIFICANT
ACQUISITIONS
-----------------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash, including cash equivalents ................................................... $ --
Accounts receivable, net of allowance for doubtful accounts ........................ 123,018
Current portion of program contract costs .......................................... 73,513
Prepaid expenses and other current assets .......................................... 4,673
Deferred barter costs .............................................................. 4,945
Refundable income taxes ............................................................ 10,581
Deferred tax asset ................................................................. 2,550
----------
Total current assets ............................................................. 219,280
PROGRAM CONTRACT COSTS, less current portion ........................................ 67,402
LOANS TO OFFICERS AND AFFILIATES .................................................... 11,088
PROPERTY AND EQUIPMENT, net ......................................................... 259,852
NON-COMPETE AND CONSULTING AGREEMENTS, net .......................................... 200
OTHER ASSETS ........................................................................ 89,578
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ........................................ 3,055,111
----------
Total Assets ..................................................................... $3,702,511
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................... $ 5,207
Accrued liabilities ................................................................ 40,532
Current portion of long-term liabilities-
Notes payable and commercial bank financing ....................................... 35,215
Notes and capital leases payable to affiliation ................................... 3,073
Program contracts payable ......................................................... 95,567
Deferred barter revenues ........................................................... 5,649
----------
Total current liabilities ........................................................ 185,243
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ....................................... 2,361,790
Notes and capital leases payable to affiliates .................................... 19,500
Program contracts payable ......................................................... 87,630
Deferred tax liability ............................................................ 197,752
Other long-term liabilities ....................................................... 3,611
----------
Total liabilities ................................................................ 2,855,526
----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ...................................... 3,697
----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITY
OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBEN-
TURES .............................................................................. 200,000
----------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares authorized and
1,071,381 and 513,079 shares issued and outstanding .............................. 10
Series D Preferred Stock, $.01 par value, 3,450,000 shares authorized 3,450,000
shares issued and outstanding .................................................... 35
Class A Common Stock, $.01 par value, 100,000,000 shares authorized and
13,733,430, 15,450,168 and 23,480,355 respectively, shares issued and out-
standing ......................................................................... 154
Class B Common Stock, $.01 par value, 35,000,000 shares authorized and
25,436,432 shares issued and outstanding ......................................... 255
Additional paid-in capital ........................................................ 652,932
Additional paid-in capital - equity put options ................................... 23,117
Additional paid-in capital - deferred compensation ................................ (954)
Accumulated deficit ............................................................... (32,261)
----------
Total stockholders' equity ....................................................... 643,288
----------
Total Liabilities and Stockholders' Equity ....................................... $3,702,511
==========
<CAPTION>
CONSOLIDATED
HISTORICAL,
SIGNIFICANT
ACQUISITIONS,
OFFERING(G) AND OFFERING
---------------- --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash, including cash equivalents ................................................... $ --
Accounts receivable, net of allowance for doubtful accounts ........................ 123,018
Current portion of program contract costs .......................................... 73,513
Prepaid expenses and other current assets .......................................... 4,673
Deferred barter costs .............................................................. 4,945
Refundable income taxes ............................................................ 10,581
Deferred tax asset ................................................................. 2,550
--------- ----------
Total current assets ............................................................. -- 219,280
PROGRAM CONTRACT COSTS, less current portion ........................................ 67,402
LOANS TO OFFICERS AND AFFILIATES .................................................... 11,088
PROPERTY AND EQUIPMENT, net ......................................................... 259,852
NON-COMPETE AND CONSULTING AGREEMENTS, net .......................................... 200
OTHER ASSETS ........................................................................ 89,578
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ........................................ 3,055,111
--------- ----------
Total Assets ..................................................................... $ -- $3,702,511
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................... $ 5,207
Accrued liabilities ................................................................ 40,532
Current portion of long-term liabilities-
Notes payable and commercial bank financing ....................................... 35,215
Notes and capital leases payable to affiliation ................................... 3,073
Program contracts payable ......................................................... 95,567
Deferred barter revenues ........................................................... 5,649
--------- ----------
Total current liabilities ........................................................ -- 185,243
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ....................................... $(335,629) 2,026,161
Notes and capital leases payable to affiliates .................................... 19,500
Program contracts payable ......................................................... 87,630
Deferred tax liability ............................................................ 197,752
Other long-term liabilities ....................................................... 3,611
--------- ----------
Total liabilities ................................................................ (335,629) 2,519,897
--------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ...................................... -- 3,697
--------- ----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITY
OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBEN-
TURES .............................................................................. -- 200,000
--------- ----------
STOCKHOLDERS' EQUITY:
Series B Preferred Stock, $.01 par value, 10,000,000 shares
authorized and 1,071,381 and 513,079 shares issued and outstanding ............... (5) 5
Series D Preferred Stock, $.01 par value, 3,450,000 shares authorized 3,450,000
shares issued and outstanding .................................................... 35
Class A Common Stock, $.01 par value, 100,000,000 shares authorized and
13,733,430, 15,450,168 and 23,480,355 respectively, shares issued and out-
standing ......................................................................... 80 234
Class B Common Stock, $.01 par value, 35,000,000 shares authorized and
25,436,432 shares issued and outstanding ......................................... 255
Additional paid-in capital ........................................................ 335,554 988,486
Additional paid-in capital - equity put options ................................... 23,117
Additional paid-in capital - deferred compensation ................................ (954)
Accumulated deficit ............................................................... (32,261)
--------- ----------
Total stockholders' equity ....................................................... 335,629 978,917
--------- ----------
Total Liabilities and Stockholders' Equity ....................................... $ -- $3,702,511
========= ==========
</TABLE>
S-14
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) The Heritage Acquisition column reflects the assets and liabilities
acquired in connection with the $630,000 purchase of Heritage. The Heritage
Acquisition column gives effect to the Company's definitive agreements to
sell radio stations KKSN-AM, KKSN-FM, and KKRH-FM serving the Portland,
Oregon market, radio stations, WBBF-AM, WBEE-FM, WKLX-FM, and WQRV-FM
serving the Rochester, New York market and television stations WPTZ-TV,
WNNE-TV and WFFF-TV serving the Burlington, Vermont and Plattsburgh, New
York markets (the "Dispositions"). Total acquired intangibles are
calculated as follows:
<TABLE>
<CAPTION>
HERITAGE
HERITAGE DISPOSITIONS ACQUISITION
------------ -------------- ------------
<S> <C> <C> <C>
Purchase Price ........................................... $ 630,000
Add:
Liabilities acquired--
Current portion of program contracts payable ........... $ 2,194 $ (406) 1,788
Deferred barter revenues ............................... 676 (326) 350
Long-term portion of program contracts payable ......... 857 (81) 776
Less:
Assets acquired--
Current portion of program contract costs .............. (1,704) 242 (1,462)
Deferred barter costs .................................. (880) 302 (578)
Program contract costs, less current portion ........... (1,323) 144 (1,179)
Property and equipment ................................. (45,840) 12,981 (32,859)
Proceeds from sale of stations ......................... (228,500)
----------
Acquired intangibles ................................... $ 368,336
==========
</TABLE>
(b) The Max Media Acquisition column reflects the assets and liabilities
acquired in connection with the $255,000 purchase of Max Media. The Max
Media Acquisition is subject to a number of conditions customary for
acquisitions of broadcasting properties. Total acquired intangibles are
calculated as follows:
<TABLE>
<CAPTION>
MAX MEDIA
------------
<S> <C>
Purchase Price ............................................ $ 255,000
Add:
Liabilities acquired--
Current portion of program contracts payable ............ 2,431
Deferred barter revenues ................................ 1,026
Long-term portion of program contracts payable .......... 1,736
Less:
Assets acquired--
Current portion of program contract costs ............... (2,325)
Deferred barter costs ................................... (640)
Program contract costs, less current portion ............ (2,182)
Property and equipment .................................. (25,556)
---------
Acquired intangibles .................................... $ 229,490
=========
</TABLE>
S-15
<PAGE>
(c) The Sullivan Broadcasting Acquisition column reflects the assets and
liabilities acquired in connection with the $1,000,000 purchase of 100% of
the outstanding capital stock of Sullivan Broadcast Holdings, Inc. and its
subsidiaries. Included in the total purchase price is $100,000 of Class A
Common Stock (assuming an average closing price of $58 1/4 per share),
which may be issued at the option of the Company pursuant to the Sullivan
Acquisition Agreement. The Sullivan Acquisition is subject to a number of
conditions customary for acquisitions of broadcasting properties. Total
acquired intangibles are calculated as follows:
<TABLE>
<CAPTION>
SULLIVAN
-------------
<S> <C>
Purchase Price ........................................... $1,000,000
Add:
Liabilities acquired--
Current portion of program contracts costs ............ 24,944
Long-term portion of program contract costs ........... 22,710
Deferred tax liability ................................ 173,660
Less:
Assets acquired--
Current portion of program contracts .................. (22,850)
Program contract costs, less current portion .......... (23,432)
Property and equipment ................................ (39,723)
----------
Acquired intangibles .................................. $1,135,309
==========
</TABLE>
(d) To reflect indebtedness of $196,673 incurred in connection with the
Heritage Acquisition as follows:
<TABLE>
<S> <C>
Purchase Price ........................ $ 630,000
Less:
Proceeds from dispositions ......... (228,500)
Deposits ........................... (65,500)
Cash utilized ...................... (139,327)
----------
Indebtedness incurred .............. $ 196,673
==========
</TABLE>
(e) To reflect $242,183 incurred (net of a $12,817 deposit) under the Bank
Credit Agreement in connection with the Max Media Acquisition. The Company
will need to obtain an amendment or refinancing of the Bank Credit
Agreement in order to complete all pending acquisitions. See "Prospectus
Supplement Summary -- Recent Developments."
(f) To reflect $900,000 incurred (net of $100,000 of Class A Common Stock,
which may be issued at the option of the Company pursuant to the Sullivan
Acquisition) under the Bank Credit Agreement in connection with the
Sullivan Acquisition. The Company will need to obtain an amendment or
refinancing of the Bank Credit Agreement in order to complete all pending
acquisitions. See "Prospectus Supplement Summary -- Recent Developments."
(g) To reflect the net proceeds to the Company of the Offering, net of $13,871
underwriting discounts and commissions and estimated expenses and the
application of the proceeds therefrom.
S-16
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED
HISTORICAL
--------------
<S> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ........................................ $ 471,228
Revenues realized from station barter
arrangements ....................................... 45,207
---------
Total revenues .................................. 516,435
---------
OPERATING EXPENSES:
Program and production ............................... 92,178
Selling, general and administrative .................. 106,084
Expenses realized from barter arrangements ........... 38,114
Amortization of program contract costs and net
realized value adjustments ......................... 66,290
Amortization of deferred compensation ................ 1,636
Depreciation and amortization of property and
equipment .......................................... 18,040
Amortization of acquired intangible assets, non-
compete, consult, and other .......................... 67,840
---------
Total operating expenses ............................ 390,182
---------
Broadcast operating income (loss) ................... 126,253
---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ............................................ (98,393)
Subsidiary trust minority interest expense ........... (18,600)
Interest income ...................................... 2,174
Other income ......................................... 54
---------
Income (loss) before provision (benefit) for
income taxes .................................... 11,488
PROVISION (BENEFIT) FOR INCOME
TAXES ................................................ 15,984
---------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ................................... (4,496)
EXTRAORDINARY ITEM .................................... (6,070)
---------
NET INCOME (LOSS) ..................................... $ (10,566)
=========
LOSS AVAILABLE TO COMMON SHARE-
HOLDERS .............................................. $ (13,329)
=========
Basic loss per share before extraordinary items ...... $ (0.20)
=========
Basic loss per share after extraordinary items........ $ (0.37)
=========
Basic weighted average shares outstanding ............ 35,951
=========
Diluted loss per share before extraordinary
items ................................................ $ (0.20)
=========
Diluted loss per share after extraordinary items ..... $ (0.37)
=========
Diluted weighted average shares outstanding .......... 40,078
=========
<CAPTION>
1997 FINANCINGS
---------------------------------------------------------
1997 COMMON
JULY 1997 AND
HYTOPS DEBT PREFERRED
ISSUANCE ISSUANCE STOCK ISSUANCES
------------------- ------------------- -----------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ........................................
Revenues realized from station barter
arrangements .......................................
----------- ----------- ---------
Total revenues .................................. -- -- --
----------- ----------- ---------
OPERATING EXPENSES:
Program and production ...............................
Selling, general and administrative ..................
Expenses realized from barter arrangements ...........
Amortization of program contract costs and net
realized value adjustments .........................
Amortization of deferred compensation ................
Depreciation and amortization of property and
equipment ..........................................
Amortization of acquired intangible assets, non-
compete, consult, and other ........................ $ 133 (f) $ 249 (g)
----------- ----------- ---------
Total operating expenses ......................... 133 249 --
----------- ----------- ---------
Broadcast operating income (loss) ................... (133) (249) --
----------- ----------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ............................................ 1,852 (i) (1,734) (j) $ 16,857 (k)
Subsidiary trust minority interest expense ........... (4,650)(o)
Interest income ......................................
Other income .........................................
----------- ----------- ---------
Income (loss) before provision (benefit) for
income taxes ...................................... (2,931) (1,983) 16,857
PROVISION (BENEFIT) FOR INCOME
TAXES ................................................ (1,172) (q) (793) (q) 6,743 (q)
----------- ----------- ---------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ................................... (1,759) (1,190) 10,114
----------- ----------- ---------
EXTRAORDINARY ITEM ....................................
NET INCOME (LOSS) ..................................... $ (1,759) $ (1,190) $ 10,114
=========== =========== =========
LOSS AVAILABLE TO COMMON SHARE-
HOLDERS ..............................................
Basic loss per share before extraordinary items ......
Basic loss per share after extraordinary items........
Basic weighted average shares outstanding ............
Diluted loss per share before extraordinary
items ................................................
Diluted loss per share after extraordinary items .....
Diluted weighted average shares outstanding ..........
<CAPTION>
1997 FINANCINGS SIGNIFICANT ACQUISITION
------------------ ---------------------------
TENDER OFFER
AND CONSOLIDATED
DECEMBER 1997 HISTORICAL AND
DEBT ISSUANCE 1997 FINANCINGS HERITAGE(A) MAX MEDIA(B)
------------------ ----------------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ........................................ $ 471,228 $72,383 $51,351
Revenues realized from station barter
arrangements ....................................... 45,207 3,996 5,362
--------- ---------- ------- -------
Total revenues ................................... -- 516,435 76,379 56,713
--------- ---------- ------- -------
OPERATING EXPENSES:
Program and production ............................... 92,178 27,645 10,662
Selling, general and administrative .................. 106,084 17,010 24,148
Expenses realized from barter arrangements ........... 38,114 3,474 2,334
Amortization of program contract costs and net
realized value adjustments ......................... 66,290 1,974 5,546
Amortization of deferred compensation ................ 1,636
Depreciation and amortization of property and
equipment .......................................... 18,040 4,246 4,713
Amortization of acquired intangible assets, non-
compete, consult, and other ........................ 68,222 15,083 8,028
--------- ---------- ------- -------
Total operating expenses ......................... -- 390,564 69,432 55,431
--------- ---------- ------- -------
Broadcast operating income (loss) ................... -- 125,871 6,947 1,282
--------- ---------- ------- -------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ............................................ $ (2,010)(l) (83,428) (5,940) (6,078)
Subsidiary trust minority interest expense ........... (23,250)
Interest income ...................................... 2,174
Other income ......................................... 54 8,636 8,795
--------- ---------- ------- -------
Income (loss) before provision (benefit) for
income taxes ...................................... (2,010) 21,421 9,643 3,999
PROVISION (BENEFIT) FOR INCOME
TAXES ................................................ (804)(q) 19,958 (q) 7,583 --
--------- ---------- ------- -------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ................................... (1,206) 1,463 2,060 3,999
EXTRAORDINARY ITEM .................................... (69)(r) (6,139)
--------- ---------- ------- -------
NET INCOME (LOSS) ..................................... $ (1,275) $ (4,676) $ 2,060 $ 3,999
========= ========== ======= =======
LOSS AVAILABLE TO COMMON SHARE-
HOLDERS .............................................. $ (15,026)
==========
Basic loss per share before extraordinary items ...... $ (0.23)
==========
Basic loss per share after extraordinary items........ $ (0.38)
==========
Basic weighted average shares outstanding ............ 39,112 (s)
==========
Diluted loss per share before extraordinary
items ................................................ $ (0.23)
==========
Diluted loss per share after extraordinary items ..... $ (0.38)
==========
Diluted weighted average shares outstanding .......... 42,583 (s)
==========
<CAPTION>
SIGNIFICANT ACQUISITIONS
------------------------ CONSOLIDATED
HISTORICAL,
1997 FINANCINGS
SULLIVAN ACQUISITION AND SIGNIFICANT
BROADCASTING(C) ADJUSTMENTS ACQUISITIONS OFFERING
----------------- ------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ........................................ $ 120,124 $ 715,086
Revenues realized from station barter
arrangements ....................................... 17,650 72,215
--------- ---------- ---------- ---------
Total revenues ................................... 137,774 -- 787,301 --
--------- ---------- ---------- ---------
OPERATING EXPENSES:
Program and production ............................... 17,301 147,786
Selling, general and administrative .................. 28,319 $ (9,401)(d) 166,160
Expenses realized from barter arrangements ........... 16,999 60,921
Amortization of program contract costs and net
realized value adjustments ......................... 13,198 87,008
Amortization of deferred compensation ................ 1,636
Depreciation and amortization of property and
equipment .......................................... 9,464 (1,473)(e) 34,990
Amortization of acquired intangible assets, non-
compete, consult, and other ........................ 32,756 17,098 (h) 141,187
--------- ---------- ---------- ---------
Total operating expenses ......................... 118,037 6,224 639,688 --
--------- ---------- ---------- ---------
Broadcast operating income (loss) ................... 19,737 (6,224) 147,613 --
--------- ---------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ............................................ (40,711) (59,477)(m) (195,634) $ 23,259 (n)
Subsidiary trust minority interest expense ........... (23,250)
Interest income ...................................... (280)(p) 1,894
Other income ......................................... 12 17,497
--------- ---------- ---------- ---------
Income (loss) before provision (benefit) for
income taxes ...................................... (20,962) (65,981) (51,880) 23,259
PROVISION (BENEFIT) FOR INCOME
TAXES ................................................ (5,488) (26,392)(q) (4,339) 9,304 (q)
--------- ---------- ---------- ---------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ................................... (15,474) (39,589) (47,541) 13,955
EXTRAORDINARY ITEM .................................... (6,139)
----------
NET INCOME (LOSS) ..................................... $ (15,474) $ (39,589) $ (53,680) $ 13,955
========= ========== ========== =========
LOSS AVAILABLE TO COMMON SHARE-
HOLDERS .............................................. $ (64,030)
==========
Basic loss per share before extraordinary items ...... $ (1.42)
==========
Basic loss per share after extraordinary items........ $ (1.57)
==========
Basic weighted average shares outstanding ............ 40,829 (t)
==========
Diluted loss per share before extraordinary
items .............................................. $ (1.42)
==========
Diluted loss per share after extraordinary items ..... $ (1.57)
==========
Diluted weighted average shares outstanding .......... 44,300 (t)
==========
<CAPTION>
CONSOLIDATED
HISTORICAL,
1997 FINANCINGS,
SIGNIFICANT
ACQUISITIONS
AND OFFERING
-----------------
<S> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ........................................ $ 715,086
Revenues realized from station barter
arrangements ....................................... 72,215
----------
Total revenues ................................... 787,301
----------
OPERATING EXPENSES:
Program and production ............................... 147,786
Selling, general and administrative .................. 166,160
Expenses realized from barter arrangements ........... 60,921
Amortization of program contract costs and net
realized value adjustments ......................... 87,008
Amortization of deferred compensation ................ 1,636
Depreciation and amortization of property and
equipment .......................................... 34,990
Amortization of acquired intangible assets, non-
compete, consult, and other ........................ 141,187
----------
Total operating expenses ......................... 639,688
----------
Broadcast operating income (loss) ................... 147,613
----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ............................................ (172,375)
Subsidiary trust minority interest expense ........... (23,250)
Interest income ...................................... 1,894
Other income ......................................... 17,497
----------
Income (loss) before provision (benefit) for
income taxes ...................................... (28,621)
PROVISION (BENEFIT) FOR INCOME
TAXES ................................................ 4,965
----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ................................... (33,586)
EXTRAORDINARY ITEM .................................... (6,139)
----------
NET INCOME (LOSS) ..................................... $ (39,725)
==========
LOSS AVAILABLE TO COMMON SHARE-
HOLDERS .............................................. $ (50,075)
==========
Basic loss per share before extraordinary items ...... $ (0.90)
==========
Basic loss per share after extraordinary items........ $ (1.02)
==========
Basic weighted average shares outstanding ............ 48,859 (u)
==========
Diluted loss per share before extraordinary
items ................................................ $ (0.90)
==========
Diluted loss per share after extraordinary items ..... $ (1.02)
==========
Diluted weighted average shares outstanding .......... 50,300 (u)
==========
</TABLE>
S-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Heritage column reflects the results of operations for for the period
from January 1, 1997 to December 31, 1997, less television and radio
stations the Company has definitive agreements to sell. These dispositions
include the Portland, Oregon and Rochester, New York radio stations and the
Burlington, Vermont and Plattsburgh, New York television stations.
(b) The Max Media column reflects the results of operations for Max Media for
the period from January 1, 1997 to December 31, 1997. Included within
"other income" is a one time gain on station sales of approximately $8,500.
(c) The Sullivan column reflects the results of operations for Sullivan for the
period from January 1, 1997 to December 31, 1997.
(d) To adjust operating expenses for corporate overhead (net of integration
costs the Company anticipates incurring as a result of the Significant
Acquisitions) which the Company does not expect to incur upon consummation
of the Heritage Acquisition, Max Media Acquisition and Sullivan Acquisition
on a going-forward basis.
(e) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Heritage, Max Media, and
Sullivan from January 1, 1997 to December 31, 1997. Tangible assets are to
be depreciated over lives ranging from three to 20 years, calculated as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-------------------------------------------------
HERITAGE MAX MEDIA SULLIVAN TOTAL
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets ....................... $ 5,231 $ 4,637 $ 7,082 $ 16,950
Less: Depreciation expense recorded by Heritage, Max Media and Sullivan (4,246) (4,713) (9,464) (18,423)
-------- -------- -------- ---------
Pro forma adjustment ................................................... $ 985 $ (76) $ (2,382) $ (1,473)
======== ======== ======== =========
</TABLE>
(f) To record amortization expense on other assets that relate to the HYTOPS
Issuance for one year ($7,677 over 12 years).
<TABLE>
<S> <C>
Amortization expense on other assets .................. $ 640
Amortization expense recorded by the Company .......... (507)
------
Pro Forma adjustment .................................. $ 133
======
</TABLE>
(g) To record amortization expense on other assets that relate to the July 1997
Notes Issuance for one year ($4,766 over 10 years).
<TABLE>
<S> <C>
Amortization expense on other assets .................. $ 477
Amortization expense recorded by the Company .......... (228)
------
Pro Forma adjustment .................................. $ 249
======
</TABLE>
(h) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by
Heritage, Max Media and Sullivan from January 1, 1997 to December 31, 1997.
Intangible assets are to be amortized over lives ranging from one to 40
years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
--------------------------------------------------
HERITAGE MAX MEDIA SULLIVAN TOTAL
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Amortization expense on acquired intangible assets ..................... $ 20,974 $ 12,357 $ 39,634 $ 72,965
Less: Amortization expense recorded by Heritage, Max Media and Sullivan (15,083) (8,028) (32,756) (55,867)
--------- -------- --------- ---------
Pro forma adjustment ................................................... $ 5,891 $ 4,329 $ 6,878 $ 17,098
========= ======== ========= =========
</TABLE>
(i) To record the net interest expense reduction for the year ended December
31, 1997 related to the application of the HYTOPS Issuance proceeds to the
outstanding balance under the revolving credit facility under the Bank
Credit Agreement offset by an increase in commitment fees for the available
but unused portion of the revolving credit facility.
<TABLE>
<S> <C>
Interest on adjusted borrowings on the revolving credit facility for the period from
January 1, 1997 to March 5, 1997 .................................................... $ 2,865
Commitment fee on available but unused borrowings of $250,000 for five months and
$675,000 for seven months of revolving credit facility at 1/2 of 1%.................. (2,490)
Commitment fee on available borrowings recorded by the Company ........................ 1,477
--------
Pro forma adjustment .................................................................. $ 1,852
========
</TABLE>
(j) To record the net interest expense reduction related to the application of
the net proceeds of the July 1997 Debt Issuance to repay borrowings under
the Bank Credit Agreement for the period from January 1, 1997 to June 27,
1997 offset by an increase in interest expense for the July 1997 Notes
Issuance ($200,000 at 9%) net of interest recorded by the Company.
(k) To record the interest expense reduction of $16,857 related to the
application of the net proceeds of the 1997 Common Stock Issuance and the
1997 Preferred Stock Issuance to repay borrowings under the Bank Credit
Agreement for the period from January 1, 1997 to September 17, 1997.
S-18
<PAGE>
(l) To record adjustments related to the December 1997 Notes Issuance ($250,000
at 8.75%) and the Debt Repurchase as follows:
<TABLE>
<S> <C>
Interest Adjustments:
Interest on December Debt Issuance for one year .................................. $ 21,875
Interest recorded on the 1993 Notes .............................................. (9,646)
Interest recorded on the December Debt Issuance .................................. (911)
Interest expense reduction related to the application of the net proceeds from the
December Debt Issuance .......................................................... (9,688)
--------
1,630
--------
Amortization Adjustments:
Amortization of deferred financing costs and debt discount ....................... 678
Amortization recorded by the Company ............................................. (298)
--------
380
--------
Pro forma adjustment ............................................................. $ 2,010
========
</TABLE>
(m) To record interest expense for the year ended December 31, 1997 on
acquisition financing relating to Heritage, Max Media and Sullivan of
$401,500, $242,183 and $900,000 (under the Company's Bank Credit Agreement
at 7.43%), and eliminate interest expense recorded.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------------------
HERITAGE MAX MEDIA
-------------- --------------
<S> <C> <C>
Interest expense adjustment as noted above ............................... $ (28,956) $ (17,288)
Less: Interest expense recorded by Heritage, Max Media and Sullivan ...... 5,940 6,078
---------- ----------
Pro forma adjustment ..................................................... $ (23,016) $ (11,210)
========== ==========
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------------------
SULLIVAN TOTAL
-------------- ---------------
<S> <C> <C>
Interest expense adjustment as noted above ............................... $ (65,962) $ (112,206)
Less: Interest expense recorded by Heritage, Max Media and Sullivan ...... 40,711 52,729
---------- -----------
Pro forma adjustment ..................................................... $ (25,251) $ (59,477)
========== ===========
</TABLE>
(n) To record the interest expense reduction of $24,937 related to the
application of the Offering proceeds to repay borrowings under the Bank
Credit Agreement offset by the increase in commitment fees of $1,678.
(o) To record subsidiary trust minority interest expense for the year ended
December 31, 1997 ($200,000 aggregate liquidation value of HYTOPS at
11.625%).
<TABLE>
<S> <C>
Subsidiary trust minority interest expense ........................ $ 23,250
Subsidiary trust minority interest expense recorded by the Company (18,600)
---------
Pro Forma adjustment .............................................. $ 4,650
=========
</TABLE>
(p) To eliminate interest income for the year ended December 31, 1997 on
proceeds from the December 1997 Notes Issuance due to assumed utilization
of excess cash for the Significant Acquisitions.
(q) To record tax provision (benefit) at the applicable tax rates.
(r) To record an increase in the extraordinary loss, net of the tax effect
related to the Debt Repurchase and the write-off of the deferred financing
costs related to the 1993 Notes.
(s) Weighted average shares outstanding on a pro forma basis assumes that the
4,345,000 shares of Class A Common Stock issued in the 1997 Common Stock
Issuance were outstanding as of the beginning of the period.
(t) Weighted average shares outstanding on a pro forma basis assumes that
1,716,738 shares of Class A Common Stock issuable at the option of the
Company pursuant to the Sullivan Acquisition Agreement (assuming an average
closing price of $58 1/4 per share at time of issuance) were outstanding as
of the beginning of the period.
(u) Weighted average shares outstanding on a pro forma basis assumes that the
6,000,000 shares of Class A Common Stock to be issued in the Offering and
the 2,030,187 shares of Class A Common Stock to be issued upon conversion
of approximately 558,302 shares Series B Preferred Stock to be sold by the
Selling Stockholders were outstanding as of the beginning of the period.
S-19
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Company's voting securities beneficially owned as of March 31, 1998 by the
Selling Stockholders. Except as otherwise indicated, the address of all persons
in the table is 1215 Cole Street, St. Louis, Missouri 63106. Each of the shares
offered by the Selling Stockholders pursuant to this Prospectus Supplement was
issued upon conversion of shares of Series B Preferred Stock of the Company
issued to River City Broadcasting, L.P. ("River City") and subsequently
distributed to the Selling Stockholders in connection with the Company's 1996
acquisition of the assets of River City. The shares sold by Boston Ventures
Limited Partnership IV and Boston Ventures Limited Partnership IVA are being
sold for the account of certain partners of these partnerships.
<TABLE>
<CAPTION>
AMOUNT
NAME OF RELATIONSHIP SHARES AMOUNT OWNED % OWNED
BENEFICIAL WITH AS OF MARCH OFFERED FOR AFTER THE AFTER THE
OWNER COMPANY 31, 1998 SALE OFFERING OFFERING(A)
- -------------------------------------- -------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BancBoston Investments, Inc. ......... Stockholder 546,674 475,369 71,305 *
Pyramid Ventures, Inc. ............... Stockholder 556,345 483,778 72,567 *
130 Liberty Street
New York, New York 10006
Boston Ventures Limited Partnership IV Stockholder 922,909 549,020 373,889 1.6%
One Federal Street
Boston, Massachusetts 02110-2003
Boston Ventures Limited Partnership
IVA ................................. Stockholder 519,073 386,328 132,745 *
One Federal Street
Boston, Massachusetts 02110-2003
Marcus, Mr. Larry D. ................. Stockholder 114,446 92,995 21,451 *
Marcus Investments, L.P. ............. Stockholder 49,101 42,697 6,404 *
--------- ------- ------- ---
Total ............................. 2,708,548 2,030,187 678,361 2.9%
</TABLE>
- ----------
* Less than 1%
(a) Based on 22,414,956 shares of Class A Common Stock issued and outstanding
following the Offering. Except with respect to any shares held by a Selling
Stockholder, excludes 1,520,284 shares of Class A Common Stock that may be
issued upon conversion of shares of Series B Preferred Stock outstanding
after the Offering (of which 304,528 shares of Class A Common Stock may be
issued and sold pursuant to the overallotment option granted to the
Underwriters by the Selling Stockholders) and up to 5,171,536 shares of
Class A Common Stock reserved for issuance pursuant to the Company's
Incentive Stock Option Plan, Designated Participants Stock Option Plan,
Long-Term Incentive Plan, Employee Stock Purchase Plan and the 401(k)
Profit Sharing Plan. Also excludes 3,780,822 shares of Class A Common Stock
that may be issued upon conversion of shares of the Series D Preferred
Stock (based on the conversion price at date of issuance). See "Risk
Factors -- Potential Effect on the Market Price Resulting from Shares
Eligible for Future Sale" in the accompanying Prospectuses.
S-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
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 revenue received by
the Company's stations for the periods indicated and the percentage contribution
of each type to the Company's total gross broadcast revenue:
BROADCAST REVENUE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1995 1996 1997
------------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Local/regional advertising..... $ 104,299 47.5% $ 199,029 49.4% $ 287,860 52.7%
National advertising .......... 113,678 51.7 191,449 47.6 250,445 45.9
Network compensation .......... 442 0.2 3,907 1.0 5,479 1.0
Political advertising ......... 197 0.1 6,972 1.7 1,189 0.2
Production .................... 1,115 0.5 1,142 0.3 1,239 0.2
--------- ----- --------- ----- --------- -----
Broadcast revenue ............. 219,731 100.0% 402,499 100.0% 546,212 100.0%
===== ===== =====
Less: agency commissions....... (31,797) (56,040) (74,984)
--------- --------- ---------
Broadcast revenue, net ........ 187,934 346,459 471,228
Barter revenue ................ 18,200 32,029 45,207
--------- --------- ---------
Total revenue ................. $ 206,134 $ 378,488 $ 516,435
========= ========= =========
</TABLE>
The Company's primary types of programming and their approximate
percentages of 1997 net broadcast revenue were network programming (14.9%),
children's programming (5.3%) and other syndicated programming (79.8%). The
Company's four largest categories of advertising and their approximate
percentages of 1997 net broadcast revenue were automotive (20.0%), movies
(6.7%), fast food advertising (6.4%) and retail/department stores (6.2%). No
other advertising category accounted for more than 6% of the Company's net
broadcast revenue in 1997. No individual advertiser accounted for more than 5%
of any individual Company station's net broadcast revenue in 1997.
S-21
<PAGE>
The following table sets forth certain operating data of the Company for
the years ended December 31, 1995, 1996 and 1997. Capitalized terms used in this
section and not defined elsewhere in this Prospectus Supplement are defined in
Notes to the Consolidated Financial Statements of the Company included in the
1997 Form 10-K, which is incorporated herein by reference.
OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net broadcast revenue ..................... $ 187,934 $ 346,459 $ 471,228
Barter revenue ............................ 18,200 32,029 45,207
--------- --------- ---------
Total revenue ............................. 206,134 378,488 516,435
--------- --------- ---------
Operating costs ........................... 64,326 142,576 198,262
Expenses from barter arrangements ......... 16,120 25,189 38,114
Depreciation and amortization ............. 80,410 121,081 152,170
Stock-based compensation .................. -- 739 1,636
--------- --------- ---------
Broadcast operating income ................ $ 45,278 $ 88,903 $ 126,253
========= ========= =========
BROADCAST CASH FLOW (BCF) DATA:
Television BCF ............................ $ 111,124 $ 175,212 $ 221,631
Radio BCF ................................. -- 14,004 21,775
--------- --------- ---------
Consolidated BCF .......................... $ 111,124 $ 189,216 $ 243,406
========= ========= =========
Television BCF margin ..................... 59.1% 56.7% 54.4%
Radio BCF margin .......................... -- 37.3% 34.1%
Consolidated BCF margin ................... 59.1% 54.6% 51.7%
OTHER DATA:
Adjusted EBITDA ........................... $ 105,750 $ 180,272 $ 229,000
Adjusted EBITDA margin .................... 56.3% 52.0% 48.6%
After tax cash flow ....................... $ 54,645 $ 77,484 $ 104,884
Program contract payments ................. 19,938 30,451 51,059
Corporate expense ......................... 5,374 8,944 14,406
Capital expenditures ...................... 1,702 12,609 19,425
</TABLE>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
Net broadcast revenue increased $124.7 million, or 36.0%, to $471.2 million
for the year ended December 31, 1997 from $346.5 million for the year ended
December 31, 1996. The increase in net broadcast revenue for the year ended
December 31, 1997 as compared to the year ended December 31, 1996 was comprised
of $114.5 million related to television and radio station acquisitions and LMA
transactions consummated during 1996 and 1997 (the "Acquisitions") and $10.2
million that resulted from an increase in net broadcast revenue on a same
station basis. Also on a same station basis, revenue from local and national
advertisers grew 7.7% and 4.9%, respectively, for a combined growth rate of
6.1%.
Total operating costs increased $55.7 million, or 39.1%, to $198.3 million
for the year ended December 31, 1997 from $142.6 million for the year ended
December 31, 1996. The increase in operating costs for the year ended December
31, 1997 as compared to the year ended December 31, 1996 com-
S-22
<PAGE>
prised $49.0 million related to the Acquisitions, $5.4 million from an increase
in corporate overhead expenses, and $1.3 million from an increase in operating
costs on a same station basis. On a same station basis, operating costs
increased 1.8%.
Broadcast operating income increased to $126.3 million for the year ended
December 31, 1997, from $88.9 million for the year ended December 31, 1996, or
42.1%. The increase in broadcast operating income for the year ended December
31, 1997 as compared to the year ended December 31, 1996 was primarily
attributable to the Acquisitions.
Interest expense increased to $98.4 million for the year ended December 31,
1997 from $84.3 million for the year ended December 31, 1996, or 16.7%. The
increase in interest expense for the year ended December 31, 1997 primarily
related to indebtedness incurred by the Company to finance the Acquisitions.
Subsidiary trust minority interest expense of $18.6 million for the year ended
December 31, 1997 is related to the issuance of the HYTOPS which was completed
March 12, 1997. Subsidiary trust minority interest expense was 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 $2.2 million for the year ended
December 31, 1997 from $3.5 million for the year ended December 31, 1996. This
decrease was primarily due to lower average cash balances during these periods.
For the reasons described above, net loss for the year ended December 31,
1997 was $10.6 million or $.37 per share compared to net income of $1.1 million
or $.03 per share for the year ended December 31, 1996.
Broadcast Cash Flow increased $54.2 million to $243.4 million for the year
ended December 31, 1997 from $189.2 million for the year ended December 31,
1996, or 28.6%. The increase in Broadcast Cash Flow was comprised of $45.0
million relating to the Acquisitions and $9.2 million that resulted from
Broadcast Cash Flow growth on a same station basis, which had Broadcast Cash
Flow growth of 8.2%. The Company's Broadcast Cash Flow Margin decreased to 51.7%
for the year ended December 31, 1997 from 54.6% for the year ended December 31,
1996. The decrease in Broadcast Cash Flow Margin for the year ended December 31,
1997 as compared to the year ended December 31, 1996 primarily resulted from the
lower margins related to the 1996 Acquisitions. In addition, 1996 Broadcast Cash
Flow Margin benefited from a non-recurring $4.7 million timing lag of program
contract payments relating to the River City Acquisition and certain other
acquisitions. On a same station basis, Broadcast Cash Flow Margin improved from
57.3% for the year ended December 31, 1996 to 58.9% for the year ended December
31, 1997.
Adjusted EBITDA represents broadcast cash flow less corporate expenses.
Adjusted EBITDA increased to $229.0 million for the year ended December 31, 1997
from $180.3 million for the year ended December 31, 1996, or 27.0%. The increase
in Adjusted EBITDA for the year ended December 31, 1997 as compared to the year
ended December 31, 1996 resulted from the Acquisitions and to a lesser extent,
increases in net broadcast revenues on a same station basis. The Company's
Adjusted EBITDA margin decreased to 48.6% for the year ended December 31, 1997
from 52.0% for the year ended December 31, 1996. This decrease in Adjusted
EBITDA margin resulted primarily from the circumstances affecting broadcast cash
flow margins as noted above combined with an increase in corporate expenses.
Corporate overhead expenses increased to $14.4 million for the year ended
December 31, 1997 from $8.9 million for the year ended December 31, 1996, or
61.8%. The increase in corporate expenses primarily resulted from costs
associated with managing a larger base of operations. During 1996, the Company
increased the size of its corporate staff as a result of the addition of a radio
business segment and a significant increase in the number of television stations
owned, operated or programmed. The costs associated with this increase in staff
were only incurred during a partial period of the year ended December 31, 1996.
After Tax Cash Flow increased to $104.9 million for the year ended December
31, 1997 from $77.5 million for the year ended December 31, 1996, or 35.4%. The
increase in After Tax Cash Flow for the year ended December 31, 1997 as compared
to the year ended December 31, 1996 primarily resulted
S-23
<PAGE>
from the Acquisitions, an increase in revenue on a same station basis, a Federal
income tax receivable of $10.6 million resulting from 1997 NOL carry-backs,
offset by interest expense on the debt incurred to consummate the Acquisitions
and subsidiary trust minority interest expense related to the private placement
of the HYTOPS issued during March 1997.
YEARS ENDED DECEMBER 31, 1995 AND 1996
Total revenue increased to $378.5 million, or 83.6%, for the year ended
December 31, 1996 from $206.1 million for the year ended December 31, 1995.
Excluding the effects of non-cash barter transactions, net broadcast revenue for
the year ended December 31, 1996 increased by 84.4% over the year ended December
31, 1995. The increase in broadcast revenue 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/Durham market and decreases in ratings at
WCGV and WNUV in the Milwaukee and Baltimore markets, respectively.
Operating expenses excluding depreciation, amortization of intangible
assets, stock-based compensation and excess syndicated programming costs
increased to $167.8 million, or 108.7%, for the year ended December 31, 1996
from $80.4 million for the year ended December 31, 1995. 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.
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
S-24
<PAGE>
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/Durham 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.
After Tax Cash Flow increased to $77.5 million for the year ended December
31, 1996 from $54.6 million for the year ended December 31, 1995, or 41.9%. 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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had $139.3 million in cash balances
and net working capital of approximately $176.0 million. The Company's primary
sources of liquidity are cash provided by operations and availability under the
1997 Bank Credit Agreement. As of March 31, 1998, the Company's cash balances
decreased to approximately $3.7 million as a result of closing on certain of the
Heritage television stations. Also as of March 31, 1998, approximately $180.4
million was available for borrowing under the 1997 Bank Credit Agreement. In
addition, the 1997 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 upon raising sufficient commitments to fund the additional loans.
Net cash flows from operating activities increased to $96.6 million for the
year ended December 31, 1997 from $69.3 million for the year ended December 31,
1996. The Company made income tax payments of $6.5 million for the year ended
December 31, 1997 as compared to $6.8 million for the year ended December 31,
1996. The Company made interest payments on outstanding indebtedness of $98.5
million during the year ended December 31, 1997 as compared to $82.8 million for
the year ended December 31, 1996. Additional interest payments for the year
ended December 31, 1997 as compared to the year ended December 31, 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 $17.6 million for the year ended December 31, 1997
related to the issuance of HYTOPS completed in March 1997. Program rights
payments increased to $51.1 million for the year ended December 31, 1997 from
$30.5 million for the year ended December 31, 1996, primarily as a result of the
1996 Acquisitions.
Net cash flows used in investing activities decreased to $219.0 million for
the year ended December 31, 1997 from $1.0 billion for the year ended December
31, 1996. During the year ended December 31, 1997, the Company made cash
payments of $87.5 million to acquire the license and non-license assets of
KUPN-TV in Las Vegas, Nevada, utilizing indebtedness under the 1997 Bank Credit
Agreement and existing cash balances. During the year ended December 31, 1997,
the Company incurred option exten-
S-25
<PAGE>
sion payments and other costs of $16.0 million relating to WSYX-TV in Columbus,
Ohio. The Company made purchase option exercise payments of $11.1 million during
the year ended December 31, 1997 exercising options to acquire certain FCC
licenses related to the River City Acquisition. The Company made payments for
property and equipment of $19.4 million for the year ended December 31, 1997.
During the year ended December 31, 1997, the Company made deposits and incurred
other costs relating to the Heritage Acquisition, the Max Media Acquisition and
other acquisitions of $66.1 million, $12.8 million and $3.4 million,
respectively. The Company anticipates that future requirements for capital
expenditures will include capital expenditures incurred during the ordinary
course of business (which will include costs associated with the implementation
of digital television technology) and the cost of additional acquisitions of
television and radio stations if suitable acquisitions can be identified on
acceptable terms.
Net cash flows provided by financing activities decreased to $259.4 million
for the year ended December 31, 1997 from $832.8 million for the year ended
December 31, 1996. In March 1997, the Company completed issuance of the HYTOPS.
The Company utilized $135 million of the approximately $192.8 million net
proceeds of the issuance of the HYTOPS to repay outstanding debt and retained
the remainder for general corporate purposes, which included the acquisition of
KUPN-TV in Las Vegas, Nevada. The Company made payments totaling $4.6 million to
repurchase 186,000 shares of Class A Common Stock during the year ended December
31, 1997. In May 1997, the Company made payments of $4.7 million related to the
amendment of its 1996 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 $200.0 million aggregate principal amount of 9% Senior
Subordinated Notes due 2007 and utilized $162.5 million of the approximately
$195.6 million net proceeds to repay outstanding indebtedness, retaining the
remainder to pay a portion of the $63 million cash down payment relating to the
Heritage Acquisition. In December 1997, the Company completed an issuance of
$250 million aggregate principal amount of 8 3/4% Senior Subordinated Notes due
2007. The Company received net proceeds from the issuance of $242.8 million of
which $106.2 million was used to repurchase $98.1 million aggregate principal
amount of the 10% Senior Subordinated Notes due 2003. The Company retained the
remainder of the net proceeds for general corporate purposes which included
closing the acquisition of the Heritage television stations serving the
Mobile/Pensacola and Charleston/Huntington markets in January 1998.
The Company received net proceeds from the 1997 Preferred Stock Issuance
and the 1997 Common Stock Issuance of approximately $166.9 million and $151.0
million, respectively. The Company used the majority of these funds to repay
existing borrowings under the 1997 Bank Credit Agreement. Contemporaneously with
the 1997 Preferred Stock Issuance and the 1997 Common Stock Issuance, the
Company and the lenders under the 1997 Bank Credit Agreement entered into an
amendment to the 1997 Bank Credit Agreement, the effect of which was to
recharacterize $275 million of indebtedness from the Tranche A Term Loan under
the 1997 Bank Credit Agreement to amounts owing under the revolving credit
facility under the 1997 Bank Credit Agreement. The Company used $285.7 million
of the net proceeds from the 1997 Preferred Stock Issuance and the 1997 Common
Stock Issuance to repay outstanding borrowings under the revolving credit
facility, $8.9 million to repay outstanding amounts under the Tranche A Term
Loan and the remaining net proceeds of approximately $23.3 million for general
corporate purposes.
The Company has entered into agreements to acquire additional television
stations and radio stations in the Heritage Acquisition, the Lakeland
Acquisition, the Max Media Acquisition and the Sullivan Acquisition. The Company
also has an option to acquire the assets of WSYX-TV, Columbus, Ohio. The
aggregate cash consideration needed to complete the purchase of the remaining
stations under the Heritage Acquisition and to complete the Lakeland
Acquisition, the Max Media Acquisition and the Sullivan Acquisition and to
exercise the WSYX-TV option is expected to be approximately $1.6 billion (net of
anticipated proceeds from sales of stations involved in these acquisitions).
The Company anticipates that funds from operations, existing cash balances
and availability of the revolving credit facility under the 1997 Bank Credit
Agreement will be sufficient to meet its working capital, capital expenditure
commitments (other than commitments for pending acquisitions described
S-26
<PAGE>
above) and debt service requirements for the foreseeable future. The Company
intends to finance pending acquisitions through a combination of available cash,
the net proceeds of the Offering, and available borrowings under the 1997 Bank
Credit Agreement. The current terms of the 1997 Bank Credit Agreement do not
allow the Company to borrow an amount sufficient to finance all of the pending
acquisitions. The Company intends to begin discussions with its banks to
refinance the Bank Credit Agreement promptly upon the completion of the
Offering. The Company believes that such a refinancing can be accomplished on
terms reasonably satisfactory to the Company, but there can be no assurance that
the Company will be able to obtain such an amendment on satisfactory terms. The
1997 Bank Credit Agreement and the indentures relating to the Company's 8 3/4%
Senior Subordinated Notes due 2007, 9% Senior Subordinated Notes due 2007 and
10% Senior Subordinated Notes due 2005 restrict the incurrence of additional
indebtedness and the use of proceeds of an equity issuance, but these
restrictions are not expected to restrict the incurrence of indebtedness or use
of proceeds of an equity issuance to finance the pending acquisitions.
INCOME TAXES
Income tax provision increased to $16.0 million for the year ended December
31, 1997 from a provision of $6.9 million for the year ended December 31, 1996.
The Company's effective tax rate increased to 139.1% for the year ended December
31, 1997 from 86.0% for the year ended December 31, 1996. The increase in the
Company's effective tax rate for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 primarily resulted from non-deductible goodwill
amortization resulting from certain 1995 and 1996 stock acquisitions, a tax
liability related to the dividends paid on the Company's Series C Preferred
Stock (see Note 9, sub-note (a) to the Company's Consolidated Financial
Statements), and state franchise taxes which are not based upon pre-tax income.
Management believes that pre-tax income and "earnings and profits" will increase
in future years which will result in a lower effective tax rate and utilization
of certain tax deductions related to dividends paid on the Company's Series C
Preferred Stock.
As of December 31, 1997, the Company has a net deferred tax liability of
$21.5 million as compared to a net deferred tax asset of $782,000 as of December
31, 1996. This change in deferred taxes primarily relates to deferred tax
liabilities associated with book and tax differences relating to the
depreciation and amortization of fixed assets and intangible assets, a deferred
tax liability generated as a result of a reduction in basis of Series C
Preferred Stock (see Note 9, sub-note (a) to the Company's Consolidated
Financial Statements), offset by deferred tax assets resulting from Federal and
state net operating tax losses (NOLs) incurred during 1997. During the year
ended December 31, 1997, the Company carried back certain Federal NOLs to be
applied against prior years' Federal taxes paid. These Federal NOL carry-backs
resulted in an income tax receivable of $10.6 million as of December 31, 1997.
The Company's income tax provision increased to $6.9 million for the year
ended December 31, 1996 from $5.2 million for the year ended December 31, 1995.
The Company's effective tax rate increased to 86% for the year ended December
31, 1996 from 51% for the year ended December 31, 1995. The increase for the
year ended December 31, 1996 as compared to the year ended December 31, 1995
primarily related to certain financial reporting and income tax differences
attributable to certain 1995 and 1996 Acquisitions (primarily non-deductible
goodwill resulting from stock 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.
SEASONALITY
The Company's results usually are subject to seasonal fluctuations, which
result in fourth quarter broadcast operating income typically 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 consumer spending and an increase in viewership during this
period.
S-27
<PAGE>
YEAR 2000
Certain computer programs have been written using two digits rather than
four to define the applicable year, which could result in the computer
recognizing a date using "00" as the year 1900 rather than the year 2000. This,
in turn, could result in major system failures and in miscalculations, and is
generally referred to as the "Year 2000" problem. The Company and all of its
subsidiaries have implemented computer systems which run substantially all of
the Company's principal data processing and financial reporting software
applications. The applications software used in these systems are Year 2000
compliant. Presently, the Company does not believe that Year 2000 compliance
will result in any material investments, nor does the Company anticipate that
the Year 2000 problem will have material adverse effects on the business
operations or financial performance of the Company. In addition, the Company is
not aware of any Year 2000 problems of its customers, suppliers or network
affiliates that will have a material adverse effect on the business, operations
or financial performance of the Company. There can be no assurance, however,
that the Year 2000 problem will not adversely affect the Company and its
business.
S-28
<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-1980s and provides fewer hours of prime-time and
daytime programming than the Traditional Networks. WB and UPN, the newest
television networks, provide four nights of prime-time programming each week 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 for a majority of the broadcast day 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 February 28, 1998, Fox
had 175 affiliated stations broadcasting to 96% 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 eight hours of prime-time programming per
week to its affiliates, 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 February 28, 1998, WB had 86 affiliated stations
broadcasting to 88% 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. UPN supplies its affiliates
with 8 hours per week of prime-time programming. As of February 28, 1998, UPN
had 147 affiliated stations broadcasting to 81% 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
S-29
<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 stations' local sales
staffs. 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 74% to 80%. 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 $12.8 billion in 1997, as estimated by the Veronis, Suhler &
Associates Communications Industry Forecast.
According to the Radio Advertising Bureau'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 45 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 commuters each week 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-
S-30
<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."
S-31
<PAGE>
BUSINESS OF SINCLAIR
The Company is a diversified broadcasting company that currently owns or
programs pursuant to LMAs 35 television stations and, upon consummation of all
pending acquisitions and dispositions, will own or program pursuant to LMAs 56
television stations. The Company owns or programs pursuant to LMAs 52 radio
stations and upon consummation of all pending acquisitions and dispositions, the
Company will own or program pursuant to LMAs 51 radio stations. The Company also
has options to acquire two additional radio stations. The Company believes that
upon completion of all pending acquisitions and dispositions it will be one of
the top 10 radio groups in the United States, when measured by the total number
of radio stations owned or programmed pursuant to LMAs.
The 35 television stations the Company owns or programs pursuant to LMAs
are located in 24 geographically diverse markets, with 23 of the stations in the
top 51 television DMAs in the United States. Upon consummation of all pending
acquisitions and dispositions, the Company will own or program television
stations in 37 geographically diverse markets (with 30 of such stations in the
top 51 DMAs) and will reach approximately 22.5% of the television households in
the United States. The Company currently owns or programs 11 stations affiliated
with Fox, 13 with WB, four with ABC, two with NBC, two with UPN, and one with
CBS. Two stations operate as independents. Upon consummation of all pending
acquisitions and dispositions and the transfer of affiliations pursuant to
existing agreements, 23 of the Company's owned or programmed television stations
will be Fox affiliates, 11 will be WB affiliates, six will be UPN affiliates,
five will be ABC affiliates, three will be NBC affiliates, one will be a CBS
affiliate and seven will be operated as independents. Upon consummation of all
pending acquisitions and dispositions and transfers of affiliations pursuant to
existing agreements, the Company will own or program more stations affiliated
with Fox than any other broadcaster.
The Company's radio station group is geographically diverse with a variety
of programming formats including country, urban, news/talk/sports, rock and
adult contemporary. Of the 52 stations owned or provided programming services by
the Company, 19 broadcast on the AM band and 33 on the FM band. The Company owns
between three and eight stations in all but one of the 12 radio markets it
serves.
The Company has undergone rapid and significant growth over the course of
the last seven years. Since 1991, the Company has increased the number of
stations it owns or provides programming services to from three television
stations to 35 television stations and 52 radio stations. From 1991 to 1997, net
broadcast revenues and Adjusted EBITDA (as defined herein) increased from $39.7
million to $471.2 million, and from $15.5 million to $229.0 million,
respectively. Pro forma for pending acquisitions and dispositions described
below (except the Montecito Acquisition, the Lakeland Acquisition, and the
execution of an LMA with respect to WSYX-TV), net broadcast revenue and Adjusted
EBITDA would have been $715.1 million and $344.7 million, respectively.
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.
S-32
<PAGE>
TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
MARKET
MARKET RANK(A) STATIONS STATUS(B) CHANNEL
- ------------------------------- --------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Minneapolis/St. Paul,
Minnesota .................... 14 KLGT Pending 23
Pittsburgh, Pennsylvania ...... 19 WPGH O&O 53
WCWB (u) LMA 22
Sacramento, California ........ 20 KOVR O&O 13
St. Louis, Missouri ........... 21 KDNL O&O 30
Baltimore, Maryland ........... 23 WBFF O&O 45
WNUV LMA 54
Indianapolis, Indiana ......... 25 WTTV LMA (e) 4
WTTK LMA (e)(g) 29
Raleigh/Durham,
North Carolina ............... 29 WLFL O&O 22
WRDC LMA 28
Cincinnati, Ohio .............. 30 WSTR O&O 64
Milwaukee, Wisconsin .......... 31 WCGV O&O 24
WVTV LMA 18
Kansas City, Missouri ......... 32 KSMO O&O 62
Nashville, Tennessee .......... 33 WZTV Pending (q) 17
WUXP Pending (r) 30
Columbus, Ohio ................ 34 WTTE O&O 28
Asheville, North Carolina
and Greenville/
Spartanburg/ Anderson,
South Carolina ............... 35 WFBC LMA 40
WLOS O&O 13
San Antonio, Texas ............ 38 KABB O&O 29
KRRT LMA 35
Norfolk, Virginia ............. 39 WTVZ O&O 33
Buffalo, New York ............. 40 WUTV Pending (q) 29
Oklahoma City, Oklahoma 44 KOCB O&O 34
KOKH Pending (r) 25
Greensboro/Winston-
Salem/High Point,
North Carolina ............... 46 WXLV Pending (q) 45
WUPN Pending (r) 48
Birmingham, Alabama ........... 51 WTTO O&O (m) 21
WABM LMA 68
Dayton, Ohio .................. 53 WKEF Pending (n) 22
WRGT Pending (r) 45
Charleston/Huntington,
West Virginia ................ 57 WCHS O&O 8
WVAH Pending (r) 11
Richmond, Virginia ............ 59 WRLH Pending (q) 35
Las Vegas, Nevada ............. 61 KUPN O&O 21
KFBT Pending (s) 33
Mobile, Alabama and
Pensacola, Florida ........... 62 WEAR O&O 3
WFGX LMA 35
Flint/Saginaw/Bay City,
Michigan ..................... 63 WSMH O&O 66
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
STATIONS IN STATION DATE OF
MARKET AFFILIATION THE MARKET (C) RANK(D) FCC LICENSE
- ------------------------------- ------------- ---------------- --------- -------------
<S> <C> <C> <C> <C>
Minneapolis/St. Paul,
Minnesota .................... WB 6 6 4/1/98 (f)
Pittsburgh, Pennsylvania ...... FOX 6 4 8/1/99
WB 5 8/1/99
Sacramento, California ........ CBS 7 3 12/1/98
St. Louis, Missouri ........... ABC 6 5 2/1/06
Baltimore, Maryland ........... FOX 5 4 10/1/04
WB 5 10/1/04
Indianapolis, Indiana ......... WB 8 5 8/1/05
WB 5 8/1/05
Raleigh/Durham,
North Carolina ............... FOX 7 4 12/1/04
UPN 5 12/1/04
Cincinnati, Ohio .............. WB 5 5 10/1/05
Milwaukee, Wisconsin .......... IND 6 5 12/1/97 (f)
WB 6 12/1/05
Kansas City, Missouri ......... WB 8 5 2/1/06
Nashville, Tennessee .......... FOX 6 4 8/1/05
UPN 5 8/1/05
Columbus, Ohio ................ FOX 5 4 10/1/05
Asheville, North Carolina
and Greenville/
Spartanburg/ Anderson,
South Carolina ............... IND (h) 6 5 12/1/04
ABC 6 3 12/1/04
San Antonio, Texas ............ FOX 7 4 8/1/98
WB 6 8/1/98
Norfolk, Virginia ............. FOX 6 4 10/1/04
Buffalo, New York ............. FOX 5 4 6/1/99
Oklahoma City, Oklahoma WB 5 5 6/1/98 (f)
FOX 4 6/1/98 (f)
Greensboro/Winston-
Salem/High Point,
North Carolina ............... ABC 7 4 12/1/04
UPN 5 12/1/04
Birmingham, Alabama ........... WB 6 5 4/1/05
IND (h) 6 4/1/05
Dayton, Ohio .................. NBC 4 3 10/1/05
FOX 4 10/1/05
Charleston/Huntington,
West Virginia ................ ABC 4 3 10/1/04
FOX 4 10/1/04
Richmond, Virginia ............ FOX 5 4 10/1/04
Las Vegas, Nevada ............. WB 8 5 10/1/98
IND (h) 8 10/1/98
Mobile, Alabama and
Pensacola, Florida ........... ABC 6 2 2/01/05
WB 6 2/01/05
Flint/Saginaw/Bay City,
Michigan ..................... FOX 4 4 10/1/05
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
MARKET
MARKET RANK(A) STATIONS STATUS(B) CHANNEL
- ----------------------------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
Lexington, Kentucky ......... 67 WDKY O&O 56
Des Moines, Iowa ............ 69 KDSM O&O 17
Syracuse, New York .......... 72 WSYT Pending (n) 68
WNYS Pending (o) 43
Rochester, New York ......... 75 WUHF Pending (q) 31
Paducah, Kentucky and Cape
Girardeau, Missouri ........ 79 KBSI Pending (n) 23
WDKA Pending (o) 49
Madison, Wisconsin .......... 84 WMSN Pending (q) 47
Burlington, Vermont and
Plattsburgh, New York ...... 91 WPTZ O&O (i) 5
WNNE O&O (i)(k) 31
WFFF LMA (j) 44
Tri-Cities, Tennessee/
Virginia ................... 93 WEMT Pending (n) 39
Tyler/Longview, Texas ....... 107 KETK Pending (n) 56
KLSB Pending (o) 19
Peoria/Bloomington,
Illinois ................... 110 WYZZ O&O 43
Charleston, South Carolina... 117 WMMP Pending (n) 36
WTAT Pending (r) 24
Utica, New York ............. 169 WFXV Pending (q) 33
WPNY Pending (q) 11
Tuscaloosa, Alabama ......... 187 WDBB LMA (m) 17
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
STATIONS IN STATION DATE OF
MARKET AFFILIATION THE MARKET (C) RANK(D) FCC LICENSE
- ----------------------------- ------------- ---------------- --------- ---------------
<S> <C> <C> <C> <C>
Lexington, Kentucky ......... FOX 5 4 8/1/05
Des Moines, Iowa ............ FOX 4 4 2/1/06
Syracuse, New York .......... FOX 5 4 6/1/99
UPN 5 6/1/99
Rochester, New York ......... FOX 4 4 6/1/99
Paducah, Kentucky and Cape
Girardeau, Missouri ........ FOX 5 4 2/1/06
UPN 5 (t)
Madison, Wisconsin .......... FOX 4 4 12/1/05
Burlington, Vermont and
Plattsburgh, New York ...... NBC 5 2 6/1/99
NBC 4 4/1/99
FOX (l) (l)
Tri-Cities, Tennessee/
Virginia ................... FOX 5 4 8/1/05
Tyler/Longview, Texas ....... NBC 3 2 8/1/98
NBC (p) 8/1/98
Peoria/Bloomington,
Illinois ................... FOX 4 4 12/1/05
Charleston, South Carolina... UPN 5 5 12/1/04
FOX 4 12/1/04
Utica, New York ............. FOX 4 3 6/1/99
UPN 4 6/1/98 (f)
Tuscaloosa, Alabama ......... WB 2 2 4/1/05
</TABLE>
- ----------
(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company, "LMA" refers to
stations to which the Company provides programming services pursuant to an
LMA and "Pending" refers to stations the Company has agreed to acquire. See
"-- 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 1997
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 has agreed to sell this station to a third party.
(j) The Company has agreed to assign its right to program this station to the
third party to whom the Company has agreed to sell WPTZ and WNNE.
(k) WNNE currently simulcasts the programming broadcast on WPTZ.
(l) This station began broadcast operations in August 1997 pursuant to program
test authority and does not yet have a license. This station has not yet
established a rank.
(m) WDBB simulcasts the programming broadcast on WTTO.
(n) This station will be owned upon the completion of the Max Media
Acquisition.
(o) The Company will provide programming services to this station upon the
completion of the Max Media Acquisition.
(p) KLSB simulcasts the programming broadcast of KETK.
(q) This station will be owned upon the completion of the Sullivan Acquisition.
S-34
<PAGE>
(r) The Company anticipates that it will provide programming services to this
station upon the completion of the Sullivan Acquisition.
(s) The Company has entered into an agreement to provide programming to this
station effective upon termination of the HSR Act waiting period. The
Company has also entered into an agreement to acquire this station's
licensee.
(t) This station has begun broadcast operations pursuant to program test
authority and does not yet have a license.
(u) WCWB was formerly known as WPTT.
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, NBC, 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 and UPN 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, NBC 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 or supplied by a syndicated programmer.
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
programming on competing stations. The Company believes that implementation of
this strategy enables its stations to achieve competitive rankings in households
in the 18-34, 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 and Greenville/Spartanburg/Anderson. 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 certain services with respect to the production of
news programming and on air talent on WTTE in Columbus. Pursuant to an
agreement, River City provides these services
S-35
<PAGE>
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, UPN 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, NBC, ABC and CBS broadcast certain Major League Baseball
games, NFL football games and NHL hockey games as well as the Olympics and 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 a substantial number of television stations throughout
the country, the Company believes that it is able to negotiate favorable terms
for the acquisition of programming. Moreover, the Company emphasizes control of
each of its stations' programming and operating costs through program-specific
profit analysis, detailed budgeting, tight control over staffing levels and
detailed long-term planning models.
Attract and Retain High Quality Management
- ------------------------------------------
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to regional
managers, 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.
S-36
<PAGE>
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. After giving effect to all pending acquisitions and dispositions,
the Company will provide programming services pursuant to an LMA to an
additional station in 18 of the 37 television markets in which the Company will
own or program 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.
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.
Of the 35 stations owned or provided programming services by the Company,
11 stations are Fox affiliates, 10 stations are WB affiliates, four stations are
ABC affiliates, two stations are NBC affiliates, two stations are UPN
affiliates, and one station is a CBS affiliate. 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,
Virginia and Raleigh/Durham, North Carolina 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) and WLFL-TV
(Raleigh/Durham) will terminate on 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.
On July 4, 1997, the Company entered into the WB Agreement, pursuant to
which the Company agreed that certain stations 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. With respect to the following stations, the Company did not
renew their affiliation agreements with UPN when their agreements expired on
January 15, 1998: WCWB-TV, Pittsburgh, Pennsylvania, WNUV-TV, Baltimore,
Maryland, WSTR-TV, Cincinnati, Ohio, KRRT-TV, San Antonio, Texas, KOCB-TV,
Oklahoma City, Oklahoma, KSMO-TV, Kansas City, Missouri, KUPN-TV, Las Vegas,
Nevada, WCGV-TV, Milwaukee, Wisconsin, and WABM-TV, Birmingham, Alabama.
Additionally, the Company cancelled its UPN affiliation agreement with
WTTV-TV/WTTK-TV, Indianapolis, Indiana. These stations (other than WCGV-TV and
WABM-TV, which will either operate as independents or enter into new affiliation
agreements with WB or another network) entered into ten-year affiliation
agreements with WB which became effective on January 16, 1998 (other than
WTTV-TV/
S-37
<PAGE>
WTTK-TV, which became effective on April 6, 1998, and KSMO-TV, which became
effective on March 30, 1998). Pursuant to the WB Agreement, the WB affiliation
agreements of WVTV-TV, Milwaukee, Wisconsin, and WTTO-TV, Birmingham, Alabama
(whose programming is simulcast on WDBB-TV, Tuscaloosa, Alabama), have been
extended to January 16, 2008. In addition, WFBC-TV in the Asheville, North
Carolina and Greenville/Spartanburg/Anderson, South Carolina market 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/Durham 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 the Company's 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.
The affiliation agreements relating to stations that have been acquired by
the Company are terminable by the network upon transfer to the Company of the
License Assets of the station. The Company does not seek consents of the
affected network to the transfer of License Assets in connection with its
acquisitions. As of the date of this Prospectus Supplement, no network has
terminated an affiliation agreement following transfer of License Assets to the
Company.
RADIO BROADCASTING
The following table sets forth certain information regarding the radio
stations (i) owned and/or operated by the Company or (ii) which the Company has
an option or has agreed to acquire:
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED/STATION (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 N/A 12/1/05
St. Louis, Missouri ......... 18
KPNT-FM Alternative Rock Adults 18-34 2 2/1/05
WVRV-FM Modern Adult Contemporary Adults 18-34 7 12/1/04
WRTH-AM Adult Standards Adults 25-54 23 2/1/05
WIL-FM Country Adults 25-54 1 2/1/05
KIHT-FM 70s Rock Adults 25-54 9 2/1/05
Portland, Oregon ............ 22
KFXX-AM (h) Adult Standards Adults 25-54 22 2/1/06
KKSN-FM (h)(t) 60s Oldies Adults 25-54 1 2/1/06
KKRH-FM (h)(t) 70s Rock Adults 25-54 9 2/1/06
Kansas City, Missouri ....... 29
KCAZ-AM (e)(s) Childrens N/A N/A 6/1/05
KCFX-FM 70s Rock Adults 25-54 2 2/1/05
KQRC-FM Active Rock Adults 18-34 2 6/1/05
KCIY-FM Smooth Jazz Adults 25-54 9 2/1/05
KXTR-FM Classical Adults 25-54 13 2/1/05
Milwaukee, Wisconsin ........ 32
WEMP-AM 60s Oldies Adults 25-54 24 12/1/04
WMYX-FM Adult Contemporary Adults 25-54 6 12/1/04
WAMG-FM Rhythmic Adults 25-54 11 12/1/04
Nashville, Tennessee ........ 34
WLAC-FM (h) Adult Contemporary Women 25-54 8 8/1/04
WJZC-FM (h) Smooth Jazz Women 25-54 8 8/1/04
WLAC-AM (h) News/Talk/Sports Adults 35-64 8 8/1/04
</TABLE>
S-38
<PAGE>
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED/STATION (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- -------------------------------- ------------- -------------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
New Orleans, Louisiana (q) ..... 38
WLMG-FM Adult Contemporary Women 25-54 3 6/1/04
KMEZ-FM (u) Urban Oldies Women 25-54 12 6/1/04
WWL-AM News/Talk/Sports Adults 35-64 2 6/1/04
WSMB-AM Talk/Sports Adults 35-64 17 6/1/04
WBYU-AM (g)(u) Adult Standards Adults 25-54 16 6/1/04
WEZB-FM (g)(i) Adult Contemporary Adults 25-54 9 6/1/04
WRNO-FM (g)(u) 70s Rock Adults 25-54 7 6/1/04
WLTS-FM (p) Adult Contemporary Women 25-54 5 6/1/04
WTKL-FM (p) Oldies Adults 25-54 5 6/1/04
Memphis, Tennessee ............. 40
WRVR-FM Soft Adult Contemporary Women 25-54 1 8/1/04
WJCE-AM Urban Oldies Women 25-54 19 8/1/04
WOGY-FM Country Adults 25-54 9 8/1/04
Norfolk, Virginia (q) .......... 41
WGH-AM Sports Talk Country Adults 25-54 18 10/1/03
WGH-FM Country Adults 25-54 3 10/1/03
WVCL-FM (j) 60s Oldies Adults 25-54 9 10/1/03
WFOG-FM (o) Soft Adult Contemporary Women 25-54 4 10/1/03
WPTE-FM (o) Adult Contemporary Adults 18-34 3 10/1/03
WWDE-FM (o) Adult Contemporary Women 25-54 4 10/1/03
WNVZ-FM (o) Contemporary Hit Radio Women 18-49 2 10/1/03
Buffalo, New York .............. 42
WMJQ-FM Adult Contemporary Women 25-54 3 6/1/98
WKSE-FM Contemporary Hit Radio Women 18-49 2 6/1/98
WBEN-AM News/Talk/Sports Adults 35-64 3 6/1/98
WWKB-AM Country Adults 35-64 18 6/1/98
WGR-AM Sports Adults 25-54 10 6/1/98
WWWS-AM Urban Oldies Adults 25-54 14 6/1/98
Greensboro/Winston
Salem/High Point,
North Carolina .............. 52
WMQX-FM (o) Oldies Adults 25-54 5 12/1/03
WQMG-FM (o) Urban Adult Contemporary Adults 25-54 4 12/1/03
WJMH-FM (o) Urban Adults 18-34 1 12/1/03
WQMG-AM (o) Gospel Adults 35-64 9 12/1/03
Rochester, New York ............ 53
WBBF-AM (h) Adult Standards Adults 25-54 13 6/1/98
WBEE-FM (h) Country Adults 25-54 1 6/1/98
WKLX-FM (h) 60s Oldies Adults 25-54 6 6/1/98
WQRV-FM (h) Classic Hits Adults 25-54 12 6/1/98
Asheville, North Carolina
Greenville/Spartanburg,
South Carolina ............... 60
WFBC-FM (k) Contemporary Hit Radio Women 18-49 2 12/1/03
WORD-AM (k) News/Talk Adults 35-64 8 12/1/03
WYRD-AM (k) News/Talk Adults 35-64 14 12/1/03
WSPA-AM (k) Full Service/Talk Adults 35-64 21 12/1/03
WSPA-FM (k) Soft Adult Contemporary Women 25-54 1 12/1/03
WOLI-FM (k) Oldies Adults 25-54 12 12/1/03
WOLT-FM (k) Oldies Adults 25-54 16 12/1/03
</TABLE>
S-39
<PAGE>
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED/STATION (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- ------------------------ ------------- ------------------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Wilkes-Barre/Scranton,
Pennsylvania .......... 68
WKRZ-FM (l) Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM Country Adults 25-54 3 8/1/98
WGGI-FM Country Adults 25-54 21 8/1/98
WILK-AM (m) News/Talk/Sports Adults 35-64 5 8/1/98
WGBI-AM (m) News/Talk/Sports Adults 35-64 35 8/1/98
WWSH-FM (n) Soft Hits Women 25-54 23 8/1/98
WILP-AM (m) News/Talk/Sports Adults 35-64 40 8/1/98
WWFH-FM (n) Soft Hits Women 25-54 12 8/1/98
WKRF-FM (l) Contemporary Hit Radio Adults 18-49 30 8/1/98
WILT-AM (m)(r) News/Talk/Sports Adults 35-64 40 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 Fall 1997 Arbitron Metro Area Ratings Survey (the "Fall
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, Fall 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, subject to FCC approval.
(h) The Company has agreed to sell this station to a third party, which
currently programs the station pursuant to an LMA.
(i) An application for review of the grant of this station's license renewal is
pending.
(j) EEO reporting conditions for 1997, 1998 and 1999 were placed on this
station's most recent license renewal.
(k) The Company has exercised its option to acquire Keymarket of South
Carolina, Inc. ("Keymarket" or "KSC"), which owns and operates WYRD-AM,
WORD-AM and WFBC-FM, and provides sales services pursuant to a JSA or LMA
and has an option to acquire WOLI-FM and WOLT-FM. The Company has also
agreed to acquire WSPA-AM and WSPA-FM, which KSC programs pursuant to an
LMA. FCC approval of the Company's acquisition of WYRD-AM, WORD-AM,
WFBC-FM, WSPA-AM, and WSPA-FM is pending.
(l) WKRZ-FM and WKRF-FM simulcast their programming.
(m) WILK-AM, WGBI-AM, WILP-AM and WILT-AM simulcast their programming.
(n) WWSH-FM and WWFH-FM simulcast their programming.
(o) The Company has the right to acquire this radio station in conjunction with
the Max Media Acquisition.
(p) The Company provides sales and programming services to this station
pursuant to an LMA and has an option to acquire substantially all the
assets of this station.
(q) The Company intends to sell two FM stations and one AM station in the New
Orleans market and two FM stations in the Norfolk market in order to comply
with current FCC or DOJ guidelines.
(r) The Company provides sales and programming services to this station
pursuant to an LMA.
(s) A third party has exercised their option to purchase this station, the
closing of which is subject to FCC approval.
(t) A petition to deny the transfer of the licenses of these stations was filed
with the FCC objecting to the acquisition of such licenses by the proposed
assignee.
(u) The Company has entered into an agreement to sell these radio stations to a
third party, the closing of which is subject to FCC approval.
S-40
<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 four markets and one of the top three billing station groups in each of
its markets other than Los Angeles, Milwaukee, Portland, Rochester and
Nashville. Through ownership or LMAs, the group also includes duopolies in 12 of
its 13 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 provide 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 owned 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 has presented 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.
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
S-41
<PAGE>
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, Max Media, and Sullivan Acquisitions may provide such
opportunities.
Certain terms of the Company's acquisitions in 1998 and 1997, and other
pending acquisitions, are described below.
1998 ACQUISITIONS
Sullivan Acquisition. In February 1998, the Company entered into merger
agreements by which the Company agreed to acquire all of the issued and
outstanding capital stock of Sullivan Broadcast Holdings, Inc. ("Sullivan
Holdings") and Sullivan Broadcasting Company II, Inc. ("Sullivan II" and,
together with Sullivan Holdings, "Sullivan") for an aggregate purchase price
expected to be approximately $950 million to $1 billion, less the amount of
outstanding indebtedness of Sullivan Holdings assumed by the Company (the
"Sullivan Acquisition"). The Sullivan Acquisition will be accomplished by two
separate merger closings.
At the initial closing, the Company will acquire all of the issued and
outstanding capital stock of Sullivan Holdings, after which the Company will
indirectly own all of the operating assets (excluding the License Assets) of,
and pursuant to LMAs will provide programming services to, 13 additional
television stations (the "Sullivan Stations") in the following markets:
Nashville, Tennessee; Buffalo, New York; Oklahoma City, Oklahoma;
Greensboro/Winston-Salem/High Point, North Carolina; Dayton, Ohio;
Charleston/Huntington, West Virginia; Richmond, Virginia; Las Vegas, Nevada;
Rochester, New York; Madison, Wisconsin; and Utica, New York.
The purchase price to be paid at the initial closing will be based on a
multiple of Sullivan's projected 1998 cash flow calculated as of the time of the
initial closing. As part of the total consideration to be paid at the initial
closing, the Company, at its option, may issue to the Sullivan shareholders up
to $100 million of the Company's Class A Common Stock based on an average
closing price of the Class A Common Stock. The initial closing is subject to
termination of the applicable waiting period under the HSR Act and is expected
to occur during the second quarter of 1998.
At the second closing, the Company will acquire all of the issued and
outstanding capital stock of Sullivan II. The second closing is subject to,
among other things, FCC approval and is expected to close during the third
quarter of 1998. FCC regulations require the Company to obtain waivers from the
FCC of multiple ownership rules prior to the second closing. Although the
Company is confident that it will receive FCC consents for the merger with
Sullivan II, there can be no assurance that such consents will be obtained.
After the second closing, the Company will indirectly own the License Assets of
six of the 13 Sullivan Stations, and will continue to program the remaining
seven Sullivan Stations pursuant to seven LMAs, five with Sullivan Broadcast
Company III, Inc. ("Sullivan III"), which at the time of the second closing will
hold the License Assets for such stations, and two with the existing owners of
the License Assets of such stations.
In connection with the Sullivan Acquisition, Glencairn, Ltd. ("Glencairn")
has entered into a plan of merger with Sullivan III which, if completed, would
result in Glencairn's ownership of all the issued and outstanding capital stock
of Sullivan III. After the merger, the Company intends to enter into an LMA with
Glencairn and continue to provide programming services to the five stations the
License Assets of which are acquired by Glencairn in the merger. See "Risk
Factors -- Conflicts of Interest" in the accompanying Prospectuses.
Montecito Acquisition. In February 1998, the Company entered into an
agreement to acquire all of the capital stock of Montecito for approximately $33
million. Montecito owns all of the issued and outstanding stock of Channel 33,
Inc., which owns and operates KFBT-TV in Las Vegas, Nevada.
S-42
<PAGE>
Sinclair cannot acquire Montecito unless and until FCC rules permit Sinclair to
own the broadcast license for more than one station in the Las Vegas market, or
unless Sinclair no longer owns the broadcast license for KUPN-TV in Las Vegas.
The Company currently operates KFBT-TV through an LMA.
Columbus Purchase Option. In connection with the Company's 1996 acquisition
of the radio and television broadcasting assets of River City Broadcasting, L.P.
("River City"), the Company acquired a three-year option to purchase the assets
of WSYX-TV in Columbus, Ohio (the "Columbus Option"). The exercise price for the
Columbus Option is approximately $100 million plus an amount of indebtedness
relating to the WSYX-TV assets on the date of exercise (such indebtedness not to
exceed $135 million). The exercise price is expected to be financed through
borrowings under the Company's Bank Credit Agreement. Pursuant to the Columbus
Option, the Company is required to make certain quarterly "Option Extension Fee"
payments, as defined in the Columbus Option . These fees began December 31,
1996, and continue until the exercise price on the Columbus Option is paid. The
Option Extension Fees are calculated as 8% per annum of the option exercise
price through the first anniversary of the date of grant, 15% per annum of the
option exercise price through the second anniversary of the date of grant and
25% per annum of the option exercise price thereafter. As of December 31, 1997,
the Company incurred Option Extension Fees and other costs relating to WSYX-TV
totaling $22.9 million. The Company currently intends to pay $100 million of the
option exercise price prior to May 31, 1998 (the date on which the Option
Extension Fee of 25% per annum goes into effect) in order to extinguish the
Company's obligations to make continuing Option Extension Fee payments. Due to
the Company's ownership of another television station in the Columbus, Ohio
market, the Antitrust Division of the DOJ is currently reviewing the Company's
acquisition of and the right to operate WSYX-TV pursuant to an LMA. The Company
has agreed not to enter into the LMA with respect to, or acquire the license
assets of, WSYX until the close of business on April 13, 1998. The Company
understands that the DOJ is considering filing a court action to prevent the
proposed transaction. The DOJ has until April 13, 1998 to decide whether to do
so. If the DOJ files such an action, the Company has agreed to join the DOJ in
seeking a conference with the court as promptly as possible to set a schedule
for hearing the case and not to close the transaction until the parties have
conferred with the court for that purpose.
The Company has agreed to sell the License Assets of WTTE-TV in Columbus,
Ohio 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.
Other Dispositions. The Company has entered into on agreement to sell three
radio stations in the Nashville, Tennessee market for approximately $35 million.
The Company expects the closing to occur by the end of 1998.
1997 ACQUISITIONS
Max Media Acquisition. On December 2, 1997, the Company entered into
agreements to acquire, directly or indirectly, all of the equity interests of
Max Media. As a result of this transaction, the Company will acquire, or acquire
the right to program pursuant to LMAs, nine television stations and eight radio
stations in eight markets. The television stations serve the following markets:
Dayton, Ohio; Syracuse, New York; Paducah, Kentucky and Cape Girardeau,
Missouri; Tri-Cities, Tennessee/Virginia; Tyler/Longview, Texas; and Charleston,
South Carolina. The radio stations serve the Norfolk, Virginia and
Greensboro/Winston Salem/High Point, North Carolina markets. The aggregate
purchase price is approximately $255 million payable in cash at closing (less a
deposit of $12.8 million paid at the time of signing the acquisition agreement),
a portion of which will be used to retire existing debt of Max Media at closing.
Max Media's television station WKEF-TV in Dayton, Ohio has an overlapping
service area with the Company's television stations WTTE-TV in Columbus, Ohio
and WSTR-TV in Cincinnati, Ohio as well as with Company LMA station WTTV-TV in
Indianapolis, Indiana. In addition, Max Media's television station WEMT-TV in
Tri-Cities, Tennessee/Virginia has an overlapping service area with the
Company's television station WLOS-TV in Asheville, North Carolina and
Greenville/ Spartanburg/Anderson, South Carolina and Max Media's television
station KBSI-TV in Paducah, Kentucky and Cape Girardeau, Missouri has an
overlapping service area with the Company's television
S-43
<PAGE>
station KDNL-TV in St. Louis, Missouri. Furthermore, the Company owns a
television station and three radio stations in the Norfolk, Virginia market,
where four of Max Media's radio stations are located. Consequently, the Company
has requested various waivers from the FCC to allow the Company to complete the
Max Media Acquisition. There can be no assurance that such waivers will be
granted. Comments have been filed with the FCC by a competitor of the Company
with respect to transfer of the license for WEMT-TV in Tri-Cities,
Tennessee/Virginia claiming that the Company's acquisition of WEMT-TV will
create undue concentration in that market. As a result of the Max Media
Acquisition and the Heritage Acquisition, the Company intends to dispose of two
of the FM radio stations in the Norfolk, Virginia radio market that it has
agreed to acquire from Heritage and Max Media in order to be in compliance with
the FCC regulations that limit the number of radio stations that can be owned in
a market. The Company has sought FCC approval to assign the licenses of such
radio stations and an additional radio station it presently owns in the Norfolk,
Virginia market to an independent trustee. The Max Media Acquisition is subject
to approval by the FCC and termination of the applicable waiting period under
the HSR Act, and is expected to close in the second quarter of 1998. The
transaction is expected to be financed through borrowings under the Company's
Bank Credit Agreement.
Lakeland Acquisition. On November 14, 1997, the Company entered into a
definitive agreement to acquire 100% of the stock of Lakeland Group Television,
Inc. In the Lakeland Acquisition, the Company will acquire television station
KLGT in Minneapolis/St. Paul, Minnesota. The purchase price is approximately $50
million in cash plus the assumption of certain indebtedness of Lakeland not to
exceed $2.5 million. KLGT-TV, Channel 23, is the WB affiliate in Minneapolis,
the nation's 14th largest market. The Company intends to finance the purchase
price from borrowings under the Bank Credit Agreement. The Lakeland Acquisition
is subject to, among other things, approval by the FCC and termination of the
applicable waiting period under the HSR Act, and is expected to close in the
first or second quarter of 1998.
Heritage Acquisition. On July 16, 1997, the Company entered into the
Heritage Acquisition Agreements with certain subsidiaries of Heritage. The
aggregate purchase price of the Heritage Acquisition is approximately $630
million, less deposits paid of $65.5 million and amounts paid in January 1998
relating to the closing of certain television assets of $215 million. Pursuant
to the Heritage Acquisition Agreements, the Company obtained the right to
acquire the assets of five television stations (the interests in three of which
the Company has agreed to dispose or described herein), programming rights under
LMAs with respect to two additional television stations (one of which the
Company has agreed to dispose as described herein), and the assets of 24 radio
stations (11 of which the Company has agreed to dispose as described herein).
On January 29, 1998, the Company closed on the acquisitions of the Heritage
television stations serving the Charleston/Huntington market, Mobile and
Pensacola market and the Oklahoma City market for an aggregate purchase price of
$215 million. Simultaneously with the closing, the Company disposed of
television station KOKH-TV in Oklahoma City to Sullivan Broadcasting Company,
Inc. for an aggregate sale price of $60 million. Also simultaneously with the
closing, the Company entered into purchase option agreements pursuant to which
the Company has the option to acquire KOKH-TV from Sullivan for an aggregate
purchase price of $60 million and Sullivan has the option to acquire from the
Company television station WCHS-TV in the Charleston/Huntington, West Virginia
market for an aggregate purchase price of $30 million. In consideration for the
execution of the purchase option agreements, the Company made an option grant
payment to Sullivan of $45 million and Sullivan made an option grant payment to
the Company of $15 million. In connection with the Sullivan Acquisition, the
Company will reacquire KOKH-TV. On February 27, 1998 the Company closed on its
acquisition of all of the Heritage radio stations except the three stations in
the New Orleans market. On March 6, 1998, the Company closed on the acquisition
of the Heritage television stations serving the Burlington, Vermont and
Plattsburgh, New York market for an aggregate purchase price of $75 million.
In January 1998, the Company entered into an agreement with Entercom
pursuant to which the Company will sell to Entercom the Portland, Oregon and
Rochester, New York radio stations which the Company acquired from Heritage for
an aggregate sales price of approximately $126.5 million. Subject to approval by
the FCC and termination of the applicable waiting period under the HSR Act, the
S-44
<PAGE>
Company anticipates it will close on the sale of the Portland and Rochester
radio stations to Entercom during the second quarter of 1998. Entercom is
operating these stations pursuant to an LMA pending closing of the sale.
In February 1998, the Company entered into an agreement with STC pursuant
to which STC has agreed to acquire the License and Non-License Assets of
Burlington, Vermont and Plattsburgh, New York television stations WPTZ-TV,
WNNE-TV, and the Non-License Assets of WFFF-TV for $72 million. The Company
expects to close the sale to STC during the second quarter of 1998 subject to,
among other conditions, approval by the FCC and termination of the applicable
waiting period under the HSR Act.
Acquisition of the Heritage radio stations in the New Orleans market is
conditioned on, among other things, FCC approval and the expiration of the
applicable waiting period under the HSR Act. The Company has entered into an
agreement to divest certain radio stations it owns or has the right to acquire
in the New Orleans market and expects to receive FCC approval and clearance
under the HSR Act in connection with such disposition. In addition, the Company
intends to dispose of two of the FM radio stations in the Norfolk, Virginia
radio market that it has agreed to acquire from Heritage and Max Media in order
to be in compliance with FCC regulations that limit the number of radio stations
that can be owned in a market. See "-- Max Media Acquisition." A third party has
also exercised its option to acquire from the Company radio station KCAZ in
Kansas City, Missouri.
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 approximately $87.0 million. The Company completed this acquisition
on May 30, 1997.
ONGOING DISCUSSIONS
In furtherance of its acquisition strategy, the Company routinely reviews
and conducts investigations of potential television, radio station and related
businesses acquisitions. When the Company believes a favorable opportunity
exists, the Company seeks to enter into discussions with the owners of such
businesses regarding the possibility of an acquisition, disposition or station
swap. At any given time, the Company may be in discussions with one or more such
business owners. The Company is in serious negotiations with various parties
relating to the disposition and acquisition of television, radio and related
properties which would be disposed of and acquired for aggregate consideration
of approximately $65 million and $25 million, respectively. There can be no
assurance that any of these or other negotiations will lead to definitive
agreement or, if agreements are reached, that any transactions would be
consummated.
LOCAL MARKETING AGREEMENTS
The Company currently has LMA arrangements with television stations in nine
markets in which it owns a television station: Pittsburgh, Pennsylvania (WCWB),
Baltimore, Maryland (WNUV), Raleigh/ Durham, North Carolina (WRDC), Milwaukee,
Wisconsin (WVTV), Birmingham, Alabama (WABM), San Antonio, Texas (KRRT),
Asheville, North Carolina and Greenville/Spartanburg/Anderson, South Carolina
(WFBC), Mobile, Alabama and Pensacola, Florida (WFGX), and Burlington, Vermont
and Plattsburgh, New York (WFFF). The Company will provide programming under an
LMA to a station in a tenth market where it owns a television station (KFBT, Las
Vegas) upon expiration of the applicable HSR Act waiting period. 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, Tuscaloosa, Mobile and Pensacola, Las Vegas and Burlington and
Plattsburgh, the LMA arrangement is with Glencairn and the Company owns the
Non-License Assets of the stations. The Company also has LMA arrangements with
radio stations in two markets in which it owns radio stations,
Wilkes-Barre/Scranton, Pennsylvania and New Orleans, Louisiana. In addition, the
Company entered into two LMAs with respect to WTTV and WTTK in Indianapolis,
Indiana. At the Company's request, the FCC has withheld action on an application
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) until the FCC completes its pending rulemaking proceeding
considering
S-45
<PAGE>
the cross-interest policy. In addition, in connection with the pending
acquisitions, the Company will enter into certain LMAs. See "-- 1998
Acquisitions and "-- 1997 Acquisitions."
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 many 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.
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,
although the Company may be required to incur significant additional costs in
connection therewith. The Company is currently considering plans to provide high
definition television ("HDTV"), to provide multiple channels of television
including the provision of additional broadcast programming and transmitted data
on a subscription basis, and to continue its current TV program channels on its
allocated digital television ("DTV") channels. The FCC has granted authority for
the Company to conduct experimental DTV multicasting operations in Baltimore,
Maryland. The 1996 Act allows the FCC to charge a spectrum fee to broadcasters
who use the digital spectrum to offer subscription-based services, and the FCC
has opened a rulemaking to consider the spectrum fees to be charged to
broadcasters for such use. In addition, Congress has held hearings on
broadcasters' plans for the use of their digital spectrum. The Company cannot
predict what future actions the FCC or Congress 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. DTV 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.
S-46
<PAGE>
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. The FCC is required to hold hearings on renewal
applications if it is unable to determine that renewal of a license would serve
the public interest, convenience and 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. 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) that there have been no other violations by
the licensee of the Communications Act or the rules and regulations of the FCC
that, when taken together, would constitute a pattern of abuse.
All of the stations that the Company currently owns and operates or
provides programming services to pursuant to LMAs, or intends to acquire or
provide programming services pursuant to LMAs in connection with pending
acquisitions, 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, an appropriate application 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 not subject to petitions to
deny or a mandatory waiting period, but 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 or review of that grant. Generally,
parties that do not file initial petitions to deny or informal objections
against the application face difficulty in seeking reconsideration or review 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,
S-47
<PAGE>
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 pending a 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 of 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 nonattributable equity or debt
interests in a media outlet combined with an attributable interest in another
media outlet in the same market, joint ventures, and common key employees among
competitors. The cross-interest policy does not necessarily prohibit all of
these interests, but requires that the FCC consider whether, in a particular
market, the "meaningful" relationships between competitors could have a
significant adverse effect upon economic competition and program diversity.
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, television and radio JSAs, and presently nonattributable 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 restric-
S-48
<PAGE>
tions 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 national television
viewing audience. All but six of the stations owned and operated by the Company,
or to which the Company provides programming services, are UHF. Upon completion
of all pending acquisitions and dispositions, the Company will reach
approximately 14% of U.S. television households using the FCC's method of
calculation.
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 did not eliminate the television duopoly rule, it did 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, among other options, 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. A number of television stations, including
certain of the Company's stations, have entered into what have commonly been
referred to as local marketing agreements, or 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 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
S-49
<PAGE>
responsibility for and control over the 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, television
LMAs that are entered into, renewed, or assigned 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
San Antonio, 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 LMAs with television
stations WFGX-TV in Mobile, Alabama and Pensacola, Florida and WFFF-TV in
Burlington, Vermont and Plattsburgh, New York were in existence on both the date
of enactment of the 1996 Act and November 5, 1996, but were assumed by the
Company subsequent to November 5, 1996. The Company's LMA with WFBC-TV in
Asheville, North Carolina and Greenville/Spartanburg/Anderson, 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's LMA with KFBT
in Las Vegas, Nevada (which will be effective upon expiration of the HSR waiting
period) was entered into 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 Balanced Budget Act of 1997
(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
S-50
<PAGE>
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 changes may have on its broadcasting operations. See "Risk Factors
- -- Multiple Ownership Rules and Effect on LMAs" in the accompanying
Prospectuses.
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 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 radio transactions have determined, that a particular transaction
presents antitrust concerns. Moreover, in certain recent cases the FCC has
signaled a willingness to independently examine
S-51
<PAGE>
issues of market concentration notwithstanding a transaction's compliance with
the numerical station limits. The FCC has also indicated that it may propose
further revisions to its radio multiple ownership rules.
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 (i.e., a station whose principal community contour overlaps that of
the owned station), is considered to have an attributable ownership interest in
the brokered station for purposes of the FCC's multiple ownership rules. 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. 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 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
increased their scrutiny of the television and radio industry since the adoption
of the 1996 Act, 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. For instance, the DOJ
has for some time taken the position that an LMA entered into in anticipation of
a station's acquisition with the proposed buyer of the station constitutes a
change in beneficial ownership of the station which, if subject to filing under
the HSR Act, cannot be implemented until the waiting period required by that
statute has ended or been terminated.
S-52
<PAGE>
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 remain at least
30 separately owned television and radio stations in the particular market after
the acquisition in question, 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. The Company
has pending several requests for waivers of the one to a market rule in
connection with its applications to acquire radio stations in the Max Media
Acquisition and from Keymarket of South Carolina, Inc. and Spartan Radiocasting,
Inc., in markets where the Company owns or proposes to own a television station.
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. Generally, any such waivers that are granted, and
which allow common ownership of a television station and more than two
same-service radio stations in the same market, are temporary and conditioned on
the outcome of the rulemaking proceeding. The Company obtained such temporary,
conditional waivers of the one to a market rule in connection with its
acquisition of the Heritage radio stations in the Kansas City and St. Louis
markets.
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 media
"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.
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
S-53
<PAGE>
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.
The 1996 Act requires the FCC to review its broadcast ownership rules every
two years to "determine whether any of such rules are necessary in the public
interest as the result of competition," and to repeal or modify any rules that
are determined to be no longer in the public interest. In March 1998, the FCC
initiated a rulemaking proceeding to review certain of its broadcast ownership
rules pursuant to the statutory mandate, including: (i) the rule limiting
ownership of television stations nationally to stations reaching 35% of the
national television audience; (ii) the rule attributing only 50% of television
households in a market to the audience reach of a UHF television station for
purposes of the 35% national audience reach limit; (iii) the rule prohibiting
common ownership of a broadcast station and a daily newspaper in the same
market; (iv) the rule prohibiting common ownership of a broadcast television
station and a cable system in the same market; (v) the local radio multiple
ownership rules; and (vi) the dual network rule. Additionally, the FCC stated
that its already-pending proceedings to review the television duopoly and "one
to a market" rules satisfy the 1996 Act's biennial review requirements.
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 owned or
programmed station(s) 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 the
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.
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 duplicative network programming carried
on
S-54
<PAGE>
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 examined legislation
proposals which would eliminate or severely restrict the advertising of beer and
wine. Although no prediction can be made as to whether any or all of such
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. In granting renewal of the
license for WTTV-TV and WTTK-TV, stations that the Company programs pursuant to
an LMA, the FCC imposed a fine of $15,000 on WTTV-TV and WTTK-TV's licensee
alleging that the stations had exceeded these limitations. In granting renewal
of the license for WTTE-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 impose regulations regarding 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. Recently, both the President of the United States
and the Chairman of the FCC have called for rules that would require broadcast
stations to provide free airtime to political candidates. The Company cannot
predict the effect of such a requirement on its advertising revenues.
Programming and Operation
General. The Communications Act requires broadcasters to serve the "public
interest." The FCC 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,
obscene and indecent broadcasts, and technical operations, including limits on
radio frequency 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, the grant of a renewal for a "short" (i.e., less
than the full) license term, or, for particularly egregious violations, the
denial of a license renewal application or the revocation of a license.
S-55
<PAGE>
Children's Television Programming. Pursuant to rules adopted in 1996,
television stations are 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, "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, 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 which the FCC has approved. Furthermore, also
pursuant to the 1996 Act the FCC has adopted rules requiring certain television
sets to include the so-called "V-chip," a computer chip that allows blocking of
rated programming. Under these rules, half of television receiver models with
picture screens 13 inches or greater will be required to have the "V-chip" by
July 1, 1999, and all such models will be required to have the "V-chip" by
January 1, 2000. 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. In
February 1998, the FCC made slight revisions to the DTV rules and table of
allotments in acting upon a number of appeals in the DTV proceeding. 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.
DTV channels will generally 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 (many stations affiliated with these networks in the top 10 markets have
voluntarily committed to begin digital broadcasting by November 1998), 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 television broadcasters will
cease non-digital broadcasting and return one of their two channels to the
government, allowing that spectrum to be recovered 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 ABC, CBS,
NBC or Fox in a market is not broadcasting digitally, and the FCC determines
that such stations have "exercised due diligence" in attempting to convert to
digital broadcasting; or (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, and less than 85% of the television households in the
market can receive digital signals off the air using
S-56
<PAGE>
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 concluded a separate proceeding in which it reallocated 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 allows
present UHF stations that move to DTV channels considerably less signal power
than present VHF stations that move to UHF DTV channels. Additionally, the DTV
transmission standard adopted by the FCC may not allow certain stations to
provide a DTV signal of adequate strength to be reliably received by certain
viewers using inside television set antennas. 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 and there can be no assurance that the Company's
television stations will be able to increase revenue to offset such costs. The
FCC is also considering imposing new public interest requirements on television
licensees in exchange for their receipt of DTV channels. The Company is
currently considering plans to provide HDTV, to provide multiple channels of
television, including the provision of additional broadcast programming and
transmitted data on a subscription basis, and to continue its current TV program
channels on its allocated DTV channels. The 1996 Act allows the FCC to charge a
spectrum fee to broadcasters who use the digital spectrum to offer
subscription-based services. The FCC has opened a rulemaking to consider the
spectrum fees to be charged to broadcasters for such use. In addition, Congress
has held hearings on broadcasters' plans for the use of their digital spectrum.
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
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.
S-57
<PAGE>
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities, substances
or waste that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous substances. As a result, it is possible that the Company could
become subject to environmental liabilities in the future in connection with
these facilities under applicable environmental laws and regulations. Although
the Company believes that it is in substantial compliance with such
environmental requirements, and has not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The Company's television and radio stations compete for audience share and
advertising revenue with other television and radio stations in their respective
DMAs or MSA's, 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. ABC, CBS and NBC 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 efforts of ABC, CBS and NBC 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 ABC, CBS and NBC 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 a 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 WB, and to
a lesser extent UPN, ABC, CBS and NBC. 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), 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.
S-58
<PAGE>
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 video technologies might be
considered or implemented 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 DTV 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 is currently considering plans
to provide HDTV, to provide multiple channels of television including the
provision of additional broadcast programming and transmitted data on a
subscription basis, and to continue its current TV program channels on its
allocated DTV channels. The Company has obtained FCC authority to conduct
experimental DTV multicasting operations in Baltimore, Maryland. The 1996 Act
allows the FCC to charge a spectrum fee to broadcasters who use the digital
spectrum to offer subscription-based services. The FCC has opened a rulemaking
to consider the spectrum fees to be charged to broadcasters for such use. In
addition, Congress has held hearings on broadcasters' plans for the use of their
digital spectrum. The Company cannot predict what future actions the FCC or
Congress 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. DTV technology is not currently available to the viewing public and a
successful transition from the current analog television 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.
S-59
<PAGE>
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,
its 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 attempts 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 to 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 satellite 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 December 31, 1997, the Company had approximately 2,262 employees.
With the exception of certain of the employees of KOVR-TV, KDNL-TV, WBEN-AM and
WWL-AM, none of the employees is 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.
S-60
<PAGE>
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
were 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 (the "California 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 filed an action (the "Baltimore Action") in
the Circuit Court for Baltimore City seeking declaratory relief that their
notice was effective to terminate the affiliations on January 15, 1998. On
December 9, 1997, the court in the Baltimore Action ruled that Sinclair gave
timely and proper notice to effectively terminate the affiliations as of January
15, 1998 and granted Sinclair's motion for summary judgment. Based on the
decision in the Baltimore Action, the court in the Los Angeles Superior Court
has stayed all proceedings in the California Action. Following an appeal by UPN,
the court of Special Appeals of Maryland upheld the ruling in the Baltimore
Action and UPN is seeking further appellate review by the Maryland Court of
Appeals. See "Risk Factors -- Certain Network Affiliation Agreements" in the
accompanying Prospectuses. 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.
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 ................ 47 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 .................. 45 Chief Financial Officer
Barry Drake ................... 46 Chief Operating Officer, SCI Radio
Robert Gluck .................. 39 Regional Director, SCI
Michael Granados .............. 43 Regional Director, SCI
Steven M. Marks ............... 41 Regional Director, SCI
Stuart Powell ................. 56 Regional Director, SCI
John T. Quigley ............... 54 Regional Director, SCI
Frank Quitoni ................. 53 Regional Director, SCI
Frank W. Bell ................. 42 Vice President, Programming, SCI Radio
M. William Butler ............. 45 Vice President/Group Program Director, SCI
Lynn A. Deppen ................ 40 Vice President, Engineering, SCI Radio
Michael Draman ................ 48 Vice President/TV Sales and Marketing, SCI
Stephen A. Eisenberg .......... 55 Vice President/Director of National Sales, SCI
Nat Ostroff ................... 57 Vice President/New Technology
Delbert R. Parks, III ......... 45 Vice President/Operations and Engineering, SCI
Robert E. Quicksilver ......... 43 Vice President/General Counsel, SCI
</TABLE>
S-61
<PAGE>
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Thomas E. Severson ............ 34 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, Treasurer of SCI
Lawrence E. McCanna ........... 54 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
Prospectuses.
<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 Limited Partnership IV
and Boston Ventures Limited Partnership IVA (collectively "Boston Ventures") may
select. Mr. Baker and Mr. Confer currently serve as consultants to the Company.
The Company's obligation to appoint Mr. Coppedge or another designee of Boston
Ventures will end as a result of the sale of shares by Boston Ventures in the
Offering.
Members of the Board of Directors are elected for one-year terms and until
their successors are duly elected and qualified. Executive officers are
appointed by the Board of Directors annually to serve for one-year terms and
until their successors are duly appointed and qualified.
David D. Smith has served as President, Chief Executive Officer and
Chairman of the Board since September 1990. Prior to that, he served as General
Manager of WPTT, Pittsburgh, Pennsylvania, from 1984, and assumed the financial
and engineering responsibility for the Company, including the construction of
WTTE, Columbus, Ohio, in 1984. In 1980, Mr. Smith founded Comark Television,
Inc., which applied for and was granted the permit for WPXT-TV in Portland,
Maine and which purchased WDSI-TV in Chattanooga, Tennessee. WPXT-TV was sold
one year after construction and WDSI-TV was sold two years after its
acquisition. From 1978 to 1986, Mr. Smith co-founded and served as an officer
and director of Comark Communications, Inc., a company engaged in the
manufacture of high power transmitters for UHF television stations. His
television career began with WBFF in Baltimore, where he helped in the
construction of the station and was in charge of technical maintenance until
1978. David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith
are brothers.
Frederick G. Smith has served as Vice President of the Company since 1990
and as a Director since 1986. Prior to joining the Company in 1990, Mr. Smith
was an oral and maxillofacial surgeon engaged in private practice and was
employed by Frederick G. Smith, M.S., D.D.S., P.A., a professional corporation
of which Mr. Smith was the sole officer, director and stockholder.
J. Duncan Smith has served as Vice President, Secretary and a Director of
the Company since 1988. Prior to that, he worked for Comark Communications, Inc.
installing UHF transmitters. In addition, he also worked extensively on the
construction of WPTT in Pittsburgh, WTTE in Columbus, WIIB in Bloomington and
WTTA in St. Petersburg, as well as on the renovation of the new studio, offices
and news facility for WBFF in Baltimore.
Robert E. Smith has served as Vice President, Treasurer 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.
S-62
<PAGE>
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 WCWB 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.
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 national sales
representative 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.
Stuart Powell has served as a Regional Director since December 15, 1997. As
a Regional Director, Mr. Powell is responsible for the Pittsburgh, Kansas City
and Lexington markets. Prior to joining the Company, Mr. Powell served as Vice
President and General Manager at WXIX-TV in the Cincinnati market. Prior to
joining WXIX-TV in 1992, Mr. Powell served as General Manager of WFLD in
Chicago. Before joining WFLD, Mr. Powell served in various sales and management
capacities with Scripps Howard in Phoenix and Kansas City.
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.
Frank W. Bell has served as Vice President/Radio Programming of SCI Radio
since the Company's acquisition of the assets of River City in 1996. Prior to
that time, he served in the same capacity in the Keymarket Radio Division of
River City Broadcasting since 1995, and for Keymarket Communications
S-63
<PAGE>
since 1987. From 1981 through 1987, Mr. Bell owned and operated several radio
stations in Pennsylvania and Kansas. Before that, he served two years as a
Regional Manager for the National Association of Broadcasters.
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.
Lynn A. Deppen has served as Director of Engineering/Radio Division of SCI
Radio since the Company's acquisition of the assets of River City in 1996. Prior
to that time, he served in the same position for the Keymarket Radio Division of
River City Broadcasting since 1995, and for Keymarket Communications since 1985.
Mr. Deppen has owned and operated his own technical consulting firm as well as
radio stations in Pennsylvania, New York and Ohio.
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 1984 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 was also a Lieutenant Colonel in the Maryland Army
National Guard and commanded 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.
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.
S-64
<PAGE>
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 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
S-65
<PAGE>
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. As of January 1, 1998,
Mr. Smith receives a base salary of approximately $1,386,750, subject to annual
increases of 7 1/2% on January 1 of each year. 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 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
S-66
<PAGE>
remain the Chief Executive Officer of River City and will devote a substantial
amount of his business time and energies to those services. As of January 1,
1998, Mr. Baker receives base compensation of approximately $1,155,625 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, North Carolina/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 and WTTE or WSYX in Columbus as described under
"Risk Factors -- Dependence on Key Personnel; Employment Agreements with Key
Personnel" in the accompanying Prospectuses. The Company has not taken these
actions as of the date of this Prospectus Supplement and, accordingly, Mr. Baker
is able to terminate the Baker Employment Agreement at any time.
S-67
<PAGE>
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 persons, 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 currently effective Treasury Regulations (the "Current Regulations"),
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 Treasury Regulations
issued on October 6, 1997 (the "Final Regulations"), generally effective for
payments made after December 31, 1998, a Non-U.S. Holder (including, in certain
cases of Non-U.S. Holders that are entities, the owner or owners of such
entities) will be required to satisfy certain certification requirements in
order to claim a reduced rate of withholding pursuant to an applicable income
tax treaty.
S-68
<PAGE>
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 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 United States Internal Revenue Service
requires information reporting and backup withholding of United States federal
income tax at a rate of 31% with respect to payments to certain noncorporate
Non-U.S. Holders (including individuals). Under the Current Regulations,
information reporting and backup withholding will apply unless such noncorporate
Non-U.S. Holders certify to the withholding agent that the beneficial owner of
the Note is a Non-U.S. Holder. This certification requirement will generally be
satisfied by the certification provided to avoid the 30% withholding tax
(described above). Backup withholding and information reporting generally will
apply, however, to dividends paid on shares of Class A Common Stock to a
Non-U.S. Holder at an address in the United States, if such holder fails to
establish an exemption or to provide certain other information to the payor.
Under the Current Regulations, 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 with-
S-69
<PAGE>
holding 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 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.
Under the Final Regulations, the payment of dividends or the payment of
proceeds from the disposition of Class A Common Stock to a Non-U.S. Holder may
be subject to information reporting and backup withholding unless such recipient
satisfies applicable certification requirements or otherwise establishes an
exemption.
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.
S-70
<PAGE>
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., BT
Alex. Brown Incorporated, Credit Suisse First Boston Corporation, Bear, Stearns
& Co. Inc., Furman Selz LLC, Goldman, Sachs & Co., Lehman Brothers Inc. and
NationsBanc Montgomery Securities LLC 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:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------- ------------
<S> <C>
Smith Barney Inc. .............................. 1,975,924
BT Alex. Brown Incorporated .................... 1,317,500
Credit Suisse First Boston Corporation ......... 988,200
Bear, Stearns & Co. Inc. ....................... 576,341
Furman Selz LLC ................................ 576,341
Goldman, Sachs & Co. ........................... 576,341
Lehman Brothers Inc. ........................... 289,770
NationsBanc Montgomery Securities LLC .......... 289,770
Allen & Company Incorporated ................... 160,000
CIBC Oppenheimer Corp. ......................... 160,000
A.G. Edwards & Sons, Inc. ...................... 160,000
Legg Mason Wood Walker, Incorporated ........... 160,000
Prudential Securities Incorporated ............. 160,000
Schroder & Co. Inc. ............................ 160,000
UBS Securities LLC ............................. 160,000
Wasserstein Perella Securities, Inc. ........... 160,000
Wheat First Securities, Inc. ................... 160,000
---------
Total ....................................... 8,030,187
=========
</TABLE>
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 for whom Smith Barney Inc., BT Alex. Brown Incorporated,
Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., Furman Selz
LLC, Goldman, Sachs & Co., Lehman Brothers Inc. and NationsBanc Montgomery
Securities LLC are acting as the Representatives, 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 $1.31 per share below the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $.10 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 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 900,000 and 304,528 additional shares of Class A
Common 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 Class A Common Stock offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to
S-71
<PAGE>
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 listed in such table.
The Company, its officers and directors and the holders of all of the
shares of Class B Common Stock 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.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
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 options 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 provided
and may continue to provide investment banking services to the Company for which
they have and may receive customary fees.
Because more than 10% of the net proceeds of this Offering may be received
by NASD members participating in this Offering or by affiliates of such members,
this Offering is being conducted in accordance with NASD Conduct Rule
2710(c)(8).
LEGAL MATTERS
Certain matters will be passed upon for the Underwriters by Fried, Frank,
Harris, Shriver & Jacobson (a partnership including professional corporations),
New York, New York. See "Legal Matters" in the accompanying Prospectuses for
information regarding legal matters to be passed upon for the Company.
S-72
<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, as
amended and as such agreement may be further amended, renewed, extended,
refinanced, restructured, replaced or modified.
"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.
"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 of WSYX-TV, Columbus, Ohio.
"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.
"Debt Repurchase" means the Company's repurchase of approximately $98.1
million principal amount of its 10% Senior Subordinated Notes due 2003 in
December 1997.
"December 1997 Notes Issuance" means the issuance of the December 1997
Notes.
S-73
<PAGE>
"December 1997 Notes" means the Company's 8 3/4% Senior Subordinated Notes
Due 2007.
"DBS" means direct-to-home broadcast satellite television.
"Designated Market Area" or "DMA" means one of the 211 generally-recognized
television market areas according to Nielsen.
"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 Commission.
"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.
"Heritage Acquisition" means the acquisition of license and non-license
assets of the radio and television stations of Heritage Media Group, Inc.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"HYTOPS" means the Company's 11 5/8% 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.
"July 1997 Note Issuance" means the issuance of the July 1997 Notes.
"July 1997 Notes" means the Company's 9% Senior Subordinated Notes due
2007.
"KSC" means Keymarket of South Carolina, Inc.
"Lakeland Acquisition" means the acquisition of 100% of the capital stock
of Lakeland Group Television, 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.
"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.
"Max Media Acquisition" means the acquisition of all of the equity
interests of Max Media Properties, LLC.
S-74
<PAGE>
"Montecito Acquisition" means the acquisition of all of the capital stock
of Montecito Broadcasting Corporation.
"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.
"1996 Act" means the Telecommunications Act of 1996.
"1997 Common Stock Issuance" means the issuance of 4,345,000 shares of
Class A Common Stock in September 1997.
"1997 Preferred Stock Issuance" means the issuance of 3,450,000 shares of
Series D Preferred Stock in September 1997.
"1997 Financings" means the HYTOPS Issuance, the July 1997 Note Issuance,
the 1997 Common Stock Issuance, the 1997 Preferred Stock Issuance, the December
1997 Note Issuance and the Debt Repurchase.
"Non-License Assets" means the assets relating to operation of a television
or radio station other than License Assets.
"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 owns all of the capital stock of the operating subsidiaries 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.
"Series D Preferred Stock" means the Company's Series D Preferred Stock,
par value $.01 per share.
"Significant Acquisitions" means the Heritage Acquisition, Max Media
Acquisition and the Sullivan Acquisition.
"Sinclair" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Sullivan Acquisition" means the acquisition of all of the capital stock of
Sullivan Broadcast Holdings, Inc.
S-75
<PAGE>
"Superior Acquisition" means the Company's acquisition of the stock of
Superior Communications, Inc.
"Superior" means Superior Communications, Inc.
"TBAs" means time brokerage agreements; see definition of "LMAs."
"Traditional Networks" means each of ABC, CBS or NBC, singly or
collectively.
"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-76
<PAGE>
P R O S P E C T U S
$1,071,202,500
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."
The Securities offered pursuant to this Prospectus may be issued in one or
more series or issuances and will be limited to $1,071,202,500 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
Indebtedness (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 SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 8, 1998
<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).
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, 1997, as amended, together with the report of Arthur Andersen
LLP, independent certified public accountants (the "1997 Form 10-K");
and
(b) The Company's Current Reports on Form 8-K or 8-K/A filed March 17,
1998, March 27, 1998 and April 8, 1998.
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.
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.
1
<PAGE>
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 Broadcast 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 EXCHANGE ACT. 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 currently owns or
programs pursuant to Local Marketing Agreements ("LMAs") 35 television stations
and, upon consummation of all pending acquisitions and dispositions, will own or
provide programming services pursuant to LMAs 56 television stations. The
Company owns or programs pursuant to LMAs 52 radio stations, and upon
consummation of all pending acquisitions and dispositions, the Company will own
or program pursuant to LMAs 51 radio stations. The Company believes that upon
completion of all pending acquisitions and dispositions it will be one of the
top 10 radio groups in the United States, when measured by the total number of
radio stations owned or programmed pursuant to LMAs by the Company.
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 March 31, 1998, the Company had
outstanding long-term indebtedness (including current installments) of
approximately $1.4 billion and Sinclair Capital, a subsidiary trust of the
Company (the "Trust"), had outstanding $200 million aggregate liquidation amount
of 11 5/8% High Yield Trust Offered Preferred Securities (the "HYTOPS"), which
are ultimately backed by $206.2 million liquidation amount of Series C Preferred
Stock, par value $.01 per share, 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 the Third 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"), under which
$659.8 million was outstanding as of March 31, 1998, and expects to do so to
finance its pending acquisitions, including, without limitation, the acquisition
of 100% of the stock of Lakeland Group Television, Inc., the acquisition (the
"Max Media Acquisition"), directly or indirectly, of all of the equity interests
of Max Media Properties, LLC and the acquisition (the "Sullivan Acquisition") of
100% of the stock of Sullivan Broadcasting Holdings, Inc. ("Sullivan"). The
Company also had outstanding 976,380 shares of its Series B Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), with
an aggregate liquidation preference of $97.6 million as of March 31, 1998 and
3,450,000 shares of Series D Convertible Exchangeable Preferred Stock, par value
$.01 per share (the "Series D Convertible Exchangeable Preferred Stock"), with
an aggregate liquidation preference of approximately $172.5 million as of March
31, 1998, which is exchangeable at the option of the Company in certain
circumstances for subordinated debentures of the Company with an aggregate
principal amount of approximately $172.5 million as of March 31, 1998. 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 "July 1997 Notes"), the 8 3/4% Senior Subordinated Notes due 2007 (the
"December 1997 Notes" and, together with the 1993 Notes, the 1995 Notes and the
July 1997 Notes, the "Existing Notes"), and the
3
<PAGE>
HYTOPS, and a significant amount of the Company's cash flow will be required to
service these obligations. In addition, the Company will be required to pay
dividends on the Series D Convertible Exchangeable Preferred Stock, and 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 $117.0
million for the year ended December 31, 1997. After giving pro forma effect to
acquisitions completed by the Company in 1997, the issuance of the HYTOPS, the
issuance of the July 1997 Notes and the December 1997 Notes, the acquisition
(the "Heritage Acquisition") of certain assets of Heritage Media Group, Inc.
("Heritage"), the Max Media Acquisition, the Sullivan Acquisition, and the
Company's issuance in September 1997 of 4,345,000 shares (the "1997 Common Stock
Issuance") of Class A Common Stock, and 3,450,000 shares of Series D Convertible
Exchangeable Preferred Stock (the "1997 Preferred Stock Issuance") and the
offering of 6,000,000 shares of Class A Common Stock the Company is making on or
about the date of this Prospectus, as though each occurred on January 1, 1997,
and the use of the net proceeds therefrom, the interest expense and subsidiary
trust minority interest expense would have been $196.1 million for the year
ended December 31, 1997. The weighted average interest rates on the Company's
indebtedness under the Bank Credit Agreement during the year ended December 31,
1997 was 7.43%.
The revolving credit facility available to the Company under the Bank
Credit Agreement is subject to quarterly reductions with total availability as
of March 31, 1998 of $180.4 million (subject to compliance with financial
covenants), and $472.0 million outstanding or subject to commitments under the
revolving credit facility as of March 31, 1998, and will mature on the last
business day of December 2004. Payment of portions of the $325 million term loan
under the Bank Credit Agreement began on September 30, 1997 and the term loan
must be fully repaid by December 31, 2004. In addition, the Bank Credit
Agreement provides for a Tranche C term loan in an amount up to $400 million
which can be utilized upon approval by the agent bank and upon raising
sufficient commitments to fund the additional loans. The 1993 Notes mature in
2003, the 1995 Notes mature in 2005 and the July 1997 Notes and the December
1997 Notes mature in 2007. The Series C Preferred Stock must be redeemed in
2009. Required repayment of indebtedness of the Company totaling approximately
$1.4 billion will occur at various dates through December 15, 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 HYTOPS, 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 indentures relating to the Existing Notes (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
4
<PAGE>
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 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 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 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, 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 HYTOPS) are pledged as security under
the Bank Credit Agreement. The Subsidiaries (with the exception of Cresap
Enterprises, Inc., KDSM, Inc., the Trust 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.
5
<PAGE>
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 Indebtedness (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 Indebtedness has been paid in
full in cash or cash equivalents or in any other form acceptable to the holders
of Senior Indebtedness, 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 Indebtedness (as defined
in the Supplemental Indenture relating to Subordinated Debt Securities) is not
paid when due or any other default on Designated Senior Indebtedness 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 Indebtedness, 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 Debt Securities
- -- 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 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. In
addition, KDSM, Inc.'s 11 5/8% Senior Debentures due 2009 (the "KDSM Senior
Debentures"), $206.2 million principal amount of which is outstanding, are
secured by a first priority security interest in the Series C Preferred Stock.
6
<PAGE>
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 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 in the
applicable Prospectus Supplement) will be required to be applied to the
repayment of any Senior Indebtedness 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 regulations of the Federal Communications Commission (the "FCC"), 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 Stock-
7
<PAGE>
holders 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 television
stations WRDC in Raleigh/Durham, WVTV in Milwaukee, WNUV in Baltimore, WABM in
Birmingham, KRRT in San Antonio, and WFBC in Asheville, North Carolina and
Greenville/ Spartanburg/Anderson, 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 the 1997 Form 10-K. 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. The Company also
expects to enter into LMA's with Glencairn with respect to five television
stations, the license assets of which Glencairn has the right to acquire through
merger with Sullivan Broadcasting Company II, Inc.
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 (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
an LMA relating to stations for which River City continues to own License
Assets. See "Business -- Broadcasting Acquisition Strategy" in the 1997 Form
10-K. 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
Company's Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and together with the Class A Common Stock, the "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
8
<PAGE>
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
approximately 3.64 Shares of Class A Common Stock.
The Controlling Stockholders own in the aggregate approximately 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 of Sinclair. In addition, in connection with the River City
Acquisition, the Controlling Stockholders and Barry Baker and Boston Ventures IV
Limited Partnership and Boston Ventures IVA Limited Partnership (collectively,
"Boston Ventures") have entered into a voting agreement (the "Voting Agreement")
pursuant to which the Controlling Stockholders have agreed to vote in favor of
certain specified matters including, but not limited to, the appointment of Mr.
Baker and Mr. Coppedge (or another designee of Boston Ventures) to the Company's
Board of Directors at such time as they are allowed to become directors pursuant
to FCC rules. Mr. Baker and Boston Ventures, in turn, have agreed to vote in
favor of the reappointment of each of the Controlling Stockholders to the
Company's board of directors. The Voting Agreement will remain in effect with
respect to Mr. Baker for as long as he is a director of the Company and will
remain in effect with respect to Mr. Coppedge (or another designee of Boston
Ventures) until the first to occur of (a) the later of (i) May 31, 2001 and (ii)
the expiration of the initial five-year term of Mr. Baker's employment agreement
and (b) such time as Boston Ventures no longer owns directly or indirectly
through its interest in River City at least 721,115 shares of Class A Common
Stock (including shares that may be obtained on conversion of the Series B
Preferred Stock). See "Management -- Employment Agreements" in the 1997 Form
10-K.
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 1997 Form 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.
9
<PAGE>
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 designated market area ("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. These
events have not occurred as of the date of this Prospectus and, accordingly, Mr.
Baker is able to terminate his employment agreement at any time. 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, North Carolina/ Greenville/Spartanburg, South Carolina 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
The Company has undergone rapid and significant growth over the course of
the last seven years primarily through acquisitions and the development of LMA
arrangements. Since 1991, the Company has increased the number of stations it
owns or provides programming services to from three television stations to 35
television stations and 52 radio stations. As the Company has grown, the size of
acquisitions that the Company seeks to pursue has grown and the number of
potentially attractive acquisitions has decreased, which may make it more
difficult for the Company to locate attractive acquisitions. There can be no
assurance that the Company will be able to continue to locate and complete
acquisitions on the scale of past acquisitions or larger, or in general. In
addition, acquisitions in the television and radio industry have come under
increased scrutiny from the Department of Justice, the Federal Trade Commission
and the FCC. See "Business of Sinclair--Federal Regulation of Television and
Radio Broadcasting" in the 1997 Form 10-K. Accordingly, there is no assurance
that the Company will be able to maintain its rate of growth or that the Company
will continue to be able to integrate and successfully manage such expanded
operations. Inherent in any 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.
10
<PAGE>
Eleven of the stations currently owned or programmed by the Company are
affiliated with Fox and 36.0% of the Company's revenue in 1997 on a pro forma
basis for all acquisitions completed in 1997 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, WTTO, WDBB, KLGT, WCWB, WNUV, WSTR, KRRT, KOCB, KUPN and
WFGX are 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 the 1997 Form 10-K. Two of the Company's
UPN affiliation agreements expire in January 1999. The non-renewal or
termination of affiliations with Fox or any other network could have a material
adverse effect on the Company's operations.
The affiliation agreements relating to television stations that have been
acquired by the Company are terminable by the network upon transfer of the
License Assets of the stations. The Company does not seek consents of the
affected network to the transfer of License Assets in connection with its
acquisitions. As of the date of this Prospectus, no network has terminated an
affiliation agreement following transfer of License Assets to the Company. 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.
Two stations owned or programmed by the Company are affiliated with UPN, a
network that began broadcasting in January 1995. Thirteen stations owned or
programmed by the Company are operated as affiliates of WB, a network that began
broadcasting in January 1995, and, pursuant to an agreement between the Company
and WB, two of the Company's stations affiliated with UPN will become affiliated
with WB when their current affiliations expire in January 1999. 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, in August 1997,
UPN filed an action (the "California 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. The Company filed a cross
complaint in the California Action seeking declaratory relief that the notice
was effective to terminate the affiliations on January 15, 1998. UPN sought a
preliminary injunction to prevent the termination of the affiliations on January
15, 1998. Also in August 1997, certain subsidiaries of the Company filed an
action (the "Baltimore Action") in the Circuit Court for Baltimore City seeking
declaratory relief that their notice was effective to terminate the affiliations
on January 15, 1998. UPN responded to the Baltimore Action, and filed a
counterclaim against the Company seeking the same remedies sought by UPN in the
California Action. Both the Company and UPN filed motions for summary judgment
in the Baltimore Action, and the court granted the Company's motion for summary
judgment and denied UPN's motion, holding that the Company effectively
terminated the affiliations as of January 15, 1998. Based on the decision in the
Baltimore Action, the court in the California Action has stayed all proceedings
in the California Action. Following an appeal by UPN, the court of Special
Appeals of Maryland upheld the ruling in the Baltimore Action and UPN is seeking
further appellate review by the Maryland Court of Appeals. If the court's
decision is overturned on appeal and if judgment is ultimately awarded in favor
of UPN, certain of the Company's current UPN affiliation agreements could be
extended for an additional term of three years until January 15, 2001. If these
affiliation agreements were
11
<PAGE>
extended, such stations would be unable to negotiate affiliations and
compensation agreements with any network for three years. In addition, the
Company could lose all or a portion of the cash consideration to be received by
the Company under the WB Agreement and WB may assert that the Company is in
breach of the WB Agreement and seek compensation for damages resulting from such
breach. The UPN affiliation agreements currently do not, and if extended will
not, require UPN to pay cash consideration to the Company in connection with the
UPN affiliation of such stations. See "Business of Sinclair -- Legal
Proceedings" in the 1997 Form 10-K. 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
radio service ("DARS"). In October 1997, the FCC awarded two licenses for
satellite DARS. DARS 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 the 1997 Form 10-K.
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 afforded by
the 1996 Act and the removal of previous station ownership limitations have
sharply increased the competition for and prices of stations. The 1996 Act also
frees telephone companies, cable companies and others from some of the
restrictions which have previously precluded them from involvement in the
provision of video services. The 1996 Act may also have other effects on the
competition the Company faces, either in individual markets or in making
acquisitions.
IMPACT OF NEW TECHNOLOGIES
The FCC has taken a number of steps to implement digital television ("DTV")
broadcasting service in the United States. In December 1996, the FCC adopted a
DTV broadcast standard and, in April 1997, made decisions in several pending
rulemaking proceedings that establish service rules and a plan for implementing
DTV. The FCC adopted a DTV table of allotments that provides all authorized
television stations with a second channel on which to broadcast a DTV signal. In
February 1998, the FCC made slight revisions to the DTV rules and table of
allotments in acting upon a number of appeals in the DTV proceeding. 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 ("HDTV"), 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.
12
<PAGE>
DTV channels will generally 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 ten television markets begin digital broadcasting by May
1, 1999 (the stations affiliated with these networks in the top ten 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 television broadcasters will
cease non-digital broadcasting and return one of their two channels to the
government, allowing that spectrum to be recovered by the government for other
uses. Under the Balanced Budget Act of 1997, 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 ABC, CBS, NBC or Fox in a market is not broadcasting
digitally, and the FCC determines that such stations have "exercised due
diligence" in attempting to convert to digital broadcasting; or (ii) less than
85% of the television households in the 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, and less than 85% of the television households in the market can
receive digital signals off the air using either a set-top converter 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 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 concluded a separate proceeding in
which it reallocated 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 increased interference. The FCC's DTV allotment plan allows present
UHF stations that move to DTV channels considerably less signal power than
present VHF stations that move to UHF DTV channels. Additionally, the DTV
transmission standard adopted by the FCC may not allow certain stations to
provide a DTV signal of adequate strength to be reliably received by certain
viewers using inside television set antennas. 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 and there can be no assurance that the Company's
television stations will be able to increase revenue to offset such costs. The
FCC is also considering imposing new public interest requirements on television
licensees in exchange for their receipt of DTV channels. The Company is
currently considering plans to provide HDTV, to provide multiple channels of
television, including the provision of additional broadcast programming and
transmitted data on a subscription basis, and to continue its current TV program
channels on its allocated DTV channels. The 1996 Act allows the FCC to charge a
spectrum fee to broadcasters who use the digital spectrum to offer
subscription-based services. The FCC has opened a rulemaking to consider the
spectrum fees to be charged to broadcasters for such use. In addition, Congress
has held hearings on broadcasters' plans for the use of their digital spectrum.
The Company cannot predict what future actions the FCC might take with respect
to DTV, nor can it predict the effect of the FCC's present DTV implementation
plan or such future actions on the Company's business.
Further advances in technology may also increase competition for household
audiences and advertisers. The video compression techniques now under
development for use with current cable television channels or direct broadcast
satellites which do not carry local television signals (some of which commenced
operation in 1994) are expected to reduce the bandwidth which is required for
television signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new channels
and encourage the development of increas-
13
<PAGE>
ingly 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. 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 DARS. DARS 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 satellite DARS systems. See "Business of
Sinclair--Competition" in the 1997 Form 10-K.
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 the 1997
Form 10-K.
MULTIPLE OWNERSHIP RULES AND EFFECT ON LMAS
On a national level, FCC rules and regulations generally prevent an entity
or individual from having attributable interests 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). Upon completion of all pending acquisitions and
dispositions, the Company will reach approximately 14% of U.S. television
households using the FCC's method of calculation. On a local level, the
"duopoly" rule generally prohibits 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 attributable interests 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 if the
provider of programming under an LMA owns one or more radio stations in the same
market. FCC rules also impose limitations on the ownership of a television and
one or more radio stations in the same market, though such cross-ownership is
presumptively 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 the
1997 Form 10-K.
The FCC has initiated rulemaking proceedings to consider proposals to
modify its television ownership restrictions, including proposals 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" rule currently
prevents the Company from acquiring the
14
<PAGE>
FCC licenses of television stations with which it has LMAs in those markets
where the Company owns a television station. In addition, if the FCC were to
decide that the provider of programming services under a television LMA should
be treated as the owner of the television station and if it did not relax the
duopoly rule, 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, renewed or assigned 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 but two
of the Company's television LMAs were entered into prior to the 1996 Act: one
was entered into after enactment of the 1996 Act but prior to November 5, 1996
(which LMA has a term expiring on May 31, 2006), and one (which will take effect
upon termination of the HSR waiting period and will have a term expiring ten
years after termination of such waiting period) was entered into subsequent to
November 5, 1996. Moreover, rights under certain of the Company's LMAs were
acquired by other parties either subsequent to enactment of the 1996 Act but
prior to November 5, 1996, or subsequent to November 5, 1996. The Company cannot
predict whether any or all of its LMAs will be grandfathered. See "Business of
Sinclair--Federal Regulation of Television and Radio Broadcasting" in the 1997
Form 10-K. In connection with its pending acquisitions, the Company intends to
enter into new LMAs with Sullivan. These LMAs would not be grandfathered under
the FCC's pending proposal. 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 the
withholding of action on these applications. In addition, comments have been
filed with the FCC by a competitor of the Company with respect to transfer of
the license for WEMT-TV in Tri-Cities, Tennessee/Virginia claiming that the
Company's acquisition of WEMT-TV will create undue concentration in that market.
In addition, the FCC granted the assignment applications for the Company to
acquire the License Assets of WLOS-TV and KABB-TV in the Asheville, North
Carolina/Greenville/Spartanburg, South Carolina and San Antonio, Texas markets,
respectively, and for Glencairn to acquire the License Assets of WFBC-TV and
KRRT-TV in these two markets, respectively, subject to the outcome of the FCC's
cross-interest policy rulemaking proceeding and certain other conditions
relating to certain trusts that have non-voting ownership interests in
Glencairn. The Company has acquired the License Assets of KABB-TV and WLOS-TV.
Glencairn has acquired the License Assets of KRRT-TV and WFBC-TV and the Company
provides programming services to KRRT-TV and WFBC-TV pursuant to LMAs.
Applications for review have been filed by third parties which appeal the FCC's
grants of: (i) the Company's application to acquire WLOS-TV in the Asheville,
North Carolina and Greenville/
15
<PAGE>
Spartanburg/Anderson, South Carolina market and Glencairn's application to
acquire WFBC-TV in that market; and (ii) the Company's application to acquire
KABB-TV in the San Antonio market. The Company has filed oppositions to both
applications for review. The Company also has pending several requests for
waivers of the FCC's radio-television cross-ownership, or "one to a market,"
rule, in connection with its applications to acquire radio stations in the Max
Media Acquisition and other acquisitions in markets where the Company owns or
proposes to own a television station. Certain waivers of the one to a market
rule acquired by the Company in connection with the Heritage Acquisition are
temporary and conditioned on the FCC's pending rulemaking proceeding to
reexamine the one to a market rule. In addition, certain of the television
stations to be acquired in the Max Media Acquisition and the Sullivan
Acquisition have overlapping service areas with the Company's television
stations and, therefore, the Company intends to request waivers from the FCC to
complete the Max Media Acquisition and the Sullivan Acquisition. There can be no
assurance that any or all of such waiver requests will be granted. Additionally,
the Company's acquisition of the Heritage radio stations in the New Orleans
market and the Company's acquisition of the Max Media radio stations in the
Norfolk, Virginia market would violate FCC and DOJ restrictions on ownership of
radio stations in those markets. Accordingly, the Company intends to divest one
or more stations in these markets.
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 matters 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 changes to the FCC
rules or the resolution of the above-described matters will not have a material
adverse effect upon the Company.
LMAS--RIGHTS OF PREEMPTION AND TERMINATION
All of the Company's LMAs allow, in accordance with FCC rules, regulations
and policies, preemptions of the Company's programming by the owner-operator and
FCC licensee of each station with which the Company has an LMA. In addition,
each LMA provides that under certain limited circumstances the arrangement may
be terminated by the FCC licensee. Accordingly, the Company cannot be assured
that it will be able to air all of the programming expected to be aired on those
stations with which it has an LMA or that the Company will receive the
anticipated advertising revenue from the sale of advertising spots in such
programming. Although the Company believes that the terms and conditions of each
of its LMAs should enable the Company to air its programming and utilize the
programming and other non-broadcast license assets acquired for use on the LMA
stations, there can be no assurance that early terminations of the arrangements
or unanticipated preemptions of all or a significant portion of the programming
by the owner-operator and FCC licensee of such stations will not occur. An early
termination of one of the Company's LMAs, or repeated and material preemptions
of programming thereunder, could adversely affect the Company's operations. In
addition, the Company's LMAs expire on various dates from the years 1999 to
2010, 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.
POTENTIAL EFFECT ON THE MARKET PRICE RESULTING FROM SHARES ELIGIBLE FOR FUTURE
SALE
Any shares of Class A Common Stock offered pursuant to this Prospectus will
be freely tradeable in the United States without restriction or further
registration unless purchased by affiliates of the Company. Shares of Class B
Common Stock are convertible into Class A Common Stock on a share-for-share
basis at any time at the option of the holder and are automatically converted
into Class A Common Stock upon transfer, except for transfers to certain
permitted transferees. The 25,166,432 shares of Class B Common Stock outstanding
as of March 31, 1998 (and shares of Class A Common Stock into which
16
<PAGE>
they are convertible), all of which are beneficially owned by the Controlling
Stockholders, are held by persons who may be deemed to be affiliates of the
Company and are eligible for resale under Rule 144 under the Securities Act,
subject to the volume limitations thereunder. As of the date of this Prospectus,
options to acquire 5,171,536 shares of Class A Common Stock have been granted
and reserved for issuance to certain officers or employees of the Company under
the Company's various stock option plans. Of the options granted, 1,261,743 have
vested as of the date of this Prospectus. In addition, the Company issued
1,150,000 shares of Series B Preferred Stock to River City in connection with
the River City Acquisition, of which 976,380 shares (which are convertible at
any time at the option of the holders, into an aggregate of approximately
3,550,473 shares of Class A Common Stock subject to certain adjustments) were
issued and outstanding as of March 13, 1998. All such shares are registered
under the Securities Act pursuant to a shelf registration statement and may be
sold into the public market at any time. The Company has also registered under
the Securities Act 1,382,435 shares of Class A Common Stock issuable upon
exercise of stock options held by Barry Baker, and has registered an additional
2,155,238 shares issuable upon exercise of options issued or issuable pursuant
to the Company's employee plans. Sale of substantial amounts of shares of Class
A Common Stock, or the perception that such sales could occur, may materially
adversely affect the market price of the Class A Common Stock.
NET LOSSES
The Company has experienced a net loss in two of the last four years,
including a net loss of $10.6 million in 1997. The losses include significant
interest expense as well as substantial non-cash expenses such as depreciation,
amortization and deferred compensation. Notwithstanding 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.
DIVIDEND RESTRICTIONS
The terms of the Company's Bank Credit Agreement, the Existing Indentures
and the other indebtedness of the Company restrict the Company from paying
dividends on its Common Stock. The Company does not expect to pay dividends on
its Common Stock in the foreseeable future.
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.
17
<PAGE>
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 advertising, volatility in programming costs,
the availability of suitable acquisitions on acceptable terms and the other risk
factors set forth above and the matters set forth in this Prospectus generally.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
18
<PAGE>
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 March 31, 1998 was 6.32%.
MARKET PRICE OF CLASS A COMMON STOCK
Effective June 13, 1995, the Class A Common Stock of the Company was listed
for trading on the Nasdaq Stock Market under the symbol SBGI. The following
table sets forth for the periods indicated the high and low sales prices on the
Nasdaq Stock Market.
<TABLE>
<S> <C> <C>
1995 HIGH LOW
---- ---- ---
Second Quarter (from June 13) .......... $ 29.0000 $ 23.2500
Third Quarter .......................... 31.0000 27.3750
Fourth Quarter ......................... 28.0000 16.0000
1996 HIGH LOW
---- ---- ---
First Quarter .......................... $ 26.5000 $ 16.7500
Second Quarter ......................... 43.5000 25.5000
Third Quarter .......................... 48.2500 36.0000
Fourth Quarter ......................... 44.0000 22.2500
1997 HIGH LOW
---- ---- ---
First Quarter .......................... $ 32.0000 $ 22.7500
Second Quarter ......................... 31.7500 22.7500
Third Quarter .......................... 41.5000 27.5000
Fourth Quarter ......................... 47.0000 32.6875
</TABLE>
19
<PAGE>
HISTORICAL AND PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
The Company's consolidated ratios of earnings to fixed charges for each of
the periods indicated are set forth below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
YEAR ENDED DECEMBER 31, 31, 1997
--------------------------------------- ------------------
PRO
1993 1994 1995 1996 ACTUAL FORMA(B)
--------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges: ....... 1.1x (a) 1.3x 1.1x 1.1x (c)
</TABLE>
- ----------
(a) Earnings were inadequate to cover fixed charges for the year ended December
31, 1994. Additional earnings of $3,387 would have been required to cover
fixed charges in the year 1994.
(b) The pro forma information in this table reflects the pro forma effect of
the completion of the issuance of the HYTOPS and the July 1997 Notes, the
1997 Common Stock Issuance, the 1997 Preferred Stock Issuance, the issuance
of the December 1997 Notes, the repurchase of $98.1 million principal
amount of the 1993 Notes by the Company and the pending offering by the
Company of 6,000,000 shares of Class A Common Stock, and the Heritage
Acquisition, the Max Media Acquisition and the Sullivan Acquisition, as if
such transactions had occurred on January 1, 1997.
(c) Earnings were inadequate to cover fixed charges for the pro forma year
ended December 31, 1997. Additional earnings of $28,621 would have been
required to cover fixed charges for the pro forma year ended December 31,
1997.
20
<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 Indebtedness 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;
21
<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;
22
<PAGE>
(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 applicable 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) any definition for Debt Securities of that series which are not
to be as set forth in the Indenture, including, without limitation, 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
23
<PAGE>
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.
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
(the "Register") for the applicable Debt Securities. 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
24
<PAGE>
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.
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
25
<PAGE>
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.
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, (i) 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 or (ii) there shall have occurred an Event of Default or
an event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default with respect to the Debt Securities represented
by such Registered Global Security and such Event of Default continues for a
period of 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
26
<PAGE>
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 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 applicable 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);
27
<PAGE>
(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 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
28
<PAGE>
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 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
29
<PAGE>
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 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 TIA 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 in principal amount 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, any
Guarantor and the Trustee without the consent of the Holders to: (i) cause each
Indenture to be qualified under the TIA or to add provisions expressly required
under the TIA: (ii) evidence the succession of another person to the Company,
any Guarantor or other obligor upon the Debt Securities and the assumption by
any such successor of the covenants of the Company, any Guarantor or other
obligor upon the Debt Securities under the Indenture and in the Debt Securities
of any series; (iii) add to the covenants of the Company, any Guarantor or other
obligor upon the Debt Securities for the benefit of the holders (and if such
covenants are to be for the benefit of less than all series of Debt Securities,
stating that such covenants are expressly being included solely for the benefit
of such series) 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) to
secure the Debt Securities of any series; (v) to add to or change any provisions
to such extent as necessary to facilitate the issuance or
30
<PAGE>
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 and Guarantees 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 Debt Securities of any series then outstanding with such
conversion or exchange rights which provision directly affects any such series,
including providing for the conversion or exchange of Debt Securities into
Common Stock or Preferred Stock; (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 modification or amendment may
adversely affect the interest of holders of Debt Securities of any series then
outstanding in any material respect; or (xii) if a Debt Security of any series
is guaranteed, to add a Guarantor pursuant to the requirements of the Indenture.
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
Indebtedness (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
Indebtedness (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 Securities 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
Indebtedness (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 Indebtedness after which the
Company shall resume making any and all required payments in respect of the
Subordinated Debt Securities, including any missed payments.
Unless otherwise provided in the applicable Prospectus Supplement, during
the continuance of any non-payment default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated (a
"Non-payment Default") and after the receipt by the Trustee and the Company from
a representative of the holder of any Designated Senior Indebtedness of a
written notice of such default, no payment (other than payments previously made
pursuant to 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 from a representative of the holders of any
Designated Senior Indebtedness and shall end on the earliest of (i) the first
date on which more than 179 days shall have elapsed since the receipt of such
written notice (provided such Designated Senior Indebtedness as to which notice
was given shall not theretofore have been
31
<PAGE>
accelerated), (ii) the date on which such Non-payment Default (and all
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) are cured, waived or ceased to exist or on which such
Designated Senior Indebtedness is discharged or paid in full in cash or cash
equivalents or in any other form as acceptable to the holders of Designated
Senior Indebtedness or (iii) the date on which such Payment Blockage Period (and
all Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) shall have been terminated by written notice to the Company
or the Trustee from the representative of holders of Designated Senior
Indebtedness or the holders of at least a majority of the Designated Senior
Indebtedness 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 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 Indebtedness which existed
or was continuing on the date of the commencement of any Payment Blockage Period
will be, or can be, made the basis for the commencement of a second Payment
Blockage Period, whether or not within a period of 365 consecutive days, unless
such default has been cured or waived for a period of not less than 90
consecutive days.
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 Indebtedness
must be paid in full in cash or cash equivalents or in any other manner
acceptable to the holders of Senior Indebtedness, or provision made for such
payment, before any payment or distribution (excluding distributions of certain
permitted equity or subordinated securities) is made 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 Indebtedness 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 Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash or cash equivalents or
in any other manner acceptable to the holders of Senior Indebtedness, and 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 Indebtedness (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 Indebtedness to the same extent as the
Subordinated Debt Securities are subordinated to Senior Indebtedness and during
any period when payment on the Subordinated Debt Securities is blocked by
Designated Senior Indebtedness, payment on the Guarantees will be similarly
blocked.
32
<PAGE>
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 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, (iv) the defeasance provisions of the
Indenture and (v) if the Debt Security is convertible, the right of the holder
to convert the Debt Security pursuant to the terms of the Debt Security. 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 applicable 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
33
<PAGE>
an opinion of independent counsel to the effect that (A) the trust funds will
not be subject to any rights of holders of Senior Indebtedness or Guarantor
Senior Indebtedness, 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.
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.
34
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company currently has two classes of Common Stock, each having a par
value of $.01 per share, and three 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 March 31, 1998, 39,551,201
shares of Common Stock, consisting of 14,384,769 shares of Class A Common Stock
and 25,166,432 shares of Class B Common Stock, were issued and outstanding,
976,380 shares of Series B Preferred Stock were issued and outstanding,
2,062,000 shares of Series C Preferred Stock were issued and outstanding and
3,450,000 shares of Series D Convertible Exchangeable Preferred Stock were
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
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
35
<PAGE>
Controlling Stockholders; (ii) any corporation or organization (other than the
Company or a majority-owned subsidiary of the Company) of which any of the
Controlling Stockholders is an officer or partner or is, directly or indirectly,
the beneficial owner of 10% or more of any class of voting securities or in
which any of the Controlling Stockholders has a substantial beneficial 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. As of March 31, 1998, 976,380 shares of
Series B Preferred Stock were outstanding. 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 Stock 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
36
<PAGE>
Preferred Stock allocated the amount of dividends allocated to approximately
3.64 shares of Common Stock (subject to adjustment). In addition, after the
occurrence of a Trigger Event, holders of shares of Series B 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 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 March 31, 1998, 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 KDSM Senior Debentures, all of which are held by the Trust, 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 HYTOPS 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 HYTOPS, 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 HYTOPS 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 HYTOPS. 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 HYTOPS 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 Common Stock and the 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.
37
<PAGE>
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. 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; 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), 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 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.
38
<PAGE>
Series D Convertible Exchangeable Preferred Stock. As of March 31, 1998,
the Company had issued and outstanding 3,450,000 shares of Series D Convertible
Exchangeable Preferred Stock. Each share of Series D Convertible Exchangeable
Preferred Stock has a liquidation preference of $50 plus an amount equal to any
accrued and unpaid dividends.
With respect to dividends and amounts payable upon the liquidation,
dissolution or winding up of the Company, the Series D 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 and
(iv) senior to the Company's Series B Preferred Stock except that upon a Trigger
Event the Series D 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.
Dividends on the Series D Convertible Exchangeable Preferred Stock are
cumulative and accrue from September 23, 1997, the date of issuance, and are
payable quarterly commencing on December 15, 1997, in the amount of $3.00 per
share annually, when, as and if declared by the Board of Directors out of
legally available funds.
Holders of Convertible Exchangeable Preferred Stock do not have any voting
rights in ordinary circumstances. In exercising any voting rights, each
outstanding share of Series D Convertible Exchangeable Preferred Stock will be
entitled to one vote. Whenever dividends on the Series D 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 a
majority of the Series D 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 Series D 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. Under certain
circumstances, the Company may be required to pay additional dividends if it
fails to provide for the board seats referred to above.
In addition, so long as any Series D 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 Series D
Convertible Exchangeable Preferred Stock (i) amend, alter or repeal (by merger
or otherwise) any provision of the Amended Certificate, or the By-Laws of the
Company so as to affect adversely the relative rights, preferences,
qualifications, limitations or restrictions of the Series D Convertible
Exchangeable Preferred Stock, (ii) authorize any new class of Senior Dividend
Stock (as defined), any Senior Liquidation Stock (as defined) or any security
convertible into Senior Dividend Stock or Senior Liquidation Stock, or (iii)
effect any reclassification of the Series D Convertible Exchangeable Preferred
Stock.
The shares of Series D 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
$45.625 per share of Class A Common Stock (equivalent to a conversion rate of
1.0959 shares of Class A Common Stock per share of Series D Convertible
Exchangeable Preferred Stock), subject to adjustment in certain events.
Upon the occurrence of a Change of Control (as defined), each share of
Series D 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 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) $26.42, as adjusted for
stock splits or combinations. Upon a Change of Control, the Company may
39
<PAGE>
elect to pay holders of the Series D Convertible Exchangeable Preferred Stock
exercising their special conversion rights an amount in cash equal to the $50
liquidation preference of the Series D 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 and could result in the
acceleration of all indebtedness under the Bank Credit Agreement. Moreover, the
Bank Credit Agreement prohibits the repurchase of the Series D Convertible
Exchangeable Preferred Stock by the Company. A Change of Control will also
require the Company to offer to redeem the Existing Notes and the Series C
Preferred Stock.
The Series D 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 September 20, 2000, initially at a price per share equal to 104.20% of
the liquidation preference thereof, declining ratably on or after September 15
of each year thereafter to a redemption price equal to 100% of such liquidation
preference per share on or after September 15, 2007 plus, in each case, accrued
and unpaid dividends.
Subject to certain conditions, the Company may, at its option, on any
scheduled date for the payment of dividends on the Series D Convertible
Exchangeable Preferred Stock commencing on December 15, 2000, exchange the
Series D Convertible Exchangeable Preferred Stock, in whole but not in part, for
the Company's 6% Convertible Subordinated Debentures due 2012 (the "Exchange
Debentures"). Holders of Series D 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 Series D 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 (whether or not
declared) thereon to the date of exchange. The Exchange Debentures will bear
interest payable quarterly in arrears on March 15, June 15, September 15 and
December 15 of each year, commencing on the first such payment date following
the date of exchange. Beginning on December 15, 2000, at the Company's option,
the Exchange Debentures will be redeemable, in whole or in part, at redemption
prices beginning at 104.20% of the principal amount of the Exchange Debentures
and decreasing to 100% of such principal amount on September 15, 2007, 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 Series D Convertible
Exchangeable Preferred Stock is convertible into Class A Common Stock. The
Exchange Debentures will be subordinated to all Senior Indebtedness.
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
40
<PAGE>
("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 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
41
<PAGE>
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.
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 Stock-
42
<PAGE>
holder 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 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.
43
<PAGE>
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 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
BankBoston, N.A. 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
44
<PAGE>
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.
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.
45
<PAGE>
EXPERTS
The Consolidated Financial Statements and schedules of the Company as of
December 31, 1996 and 1997 and for each of the years ended December 31, 1995,
1996 and 1997, 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 Heritage Media Services, Inc. -- Broadcasting
Segment as of December 31, 1997 and 1996 and for each of the periods in the two
year period ended December 31, 1997 incorporated by reference herein 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 consolidated financial statements of Max Media Properties LLC as of
December 31, 1997 and 1996 and for each of the years in the two year period
ended December 31, 1997 have been incorporated by reference herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Sullivan Broadcast Holdings, Inc. and
Subsidiaries as of December 31, 1997 and 1996 and for the years ended December
31, 1997 and 1996 and for the period from inception (June 2, 1995) through
December 31, 1995 and the financial statements of Sullivan Broadcasting Company,
Inc. and Subsidiaries for the year ended December 31, 1995, incorporated in this
Prospectus by reference to the Current Report on Form 8-K/A of Sinclair
Broadcast Group, Inc., dated December 2, 1997 (filed April 8, 1998), have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firms as experts in auditing and
accounting.
46
<PAGE>
======================================== ======================================
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUSES IN
CONNECTION WITH THE OFFER CONTAINED
HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT 8,030,187 SHARES
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUSES DO NOT
CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH THEY RELATE OR
AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH THEY SINCLAIR BROADCAST
RELATE IN ANY STATE TO ANY PERSON TO GROUP, INC.
WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUSES AT ANY TIME DO
NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO
THEIR RESPECTIVE DATES.
Class A Common Stock
--------------------------
TABLE OF CONTENTS
PAGE
----- SBG
SINCLAIR BROADCAST GROUP
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary ...... S-1
Use of Proceeds .................... S-10
Capitalization ..................... S-11
Pro Forma Consolidated Financial
Information of Sinclair .......... S-12
Selling Stockholders ............... S-20
Management's Discussion and Analysis --------------------------
of Financial Condition and Results
of Operations .................... S-21
Industry Overview .................. S-29
Business of Sinclair ............... S-32
Management ......................... S-61 PROSPECTUS SUPPLEMENT
Certain United States Federal Tax
Considerations for Non-U.S.
Holders of Common Stock .......... S-68
Underwriting ....................... S-71 APRIL 8, 1998
Legal Matters ...................... S-72
Glossary of Defined Terms .......... S-73
COMPANY PROSPECTUS
Available Information .............. 1
Incorporation of Certain Documents --------------------------
by Reference...................... 1
The Company ........................ 3
Risk Factors ....................... 3
Use of Proceeds .................... 19
Market Price of Class A Common Stock 19 SALOMON SMITH BARNEY
Historical and Pro Forma BT ALEX. BROWN
Ratio of Earnings to Fixed Charges 20 CREDIT SUISSE FIRST BOSTON
Description of Debt Securities ..... 21 BEAR, STEARNS & CO. INC.
Description of Capital Stock ....... 35 FURMAN SELZ
Plan of Distribution ............... 44 GOLDMAN, SACHS & CO.
Legal Matters ...................... 45 LEHMAN BROTHERS
Experts ............................ 46 NATIONSBANC MONTGOMERY SECURITIES LLC
RESALE PROSPECTUS
Available Information .............. 1
Incorporation of Certain Documents
by Reference...................... 2
The Company ........................ 3
Risk Factors ....................... 3
Use of Proceeds .................... 16
Market Price of Class A Common Stock 16
Description of Capital Stock ....... 17
Selling Stockholders ............... 25
Plan of Distribution ............... 26
Legal Matters ...................... 27
Experts ............................ 27
======================================== ======================================
