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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER:
000-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
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Maryland 52-1494660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(Address of principal executive offices)
(410) 467-5005
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, par value $.01 per share Series D
Preferred Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be files by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sale price of $14.50 per share as of March 23, 1999, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $695.2 million.
As of March 23, 1999, there were 47,941,885 shares of Class A Common stock, $.01
par value; 48,630,231 shares of Class B Common Stock, $.01 par value; 39,181
shares of Series B Preferred Stock, $.01 par value, convertible into 284,952
shares of Class A Common Stock; and 3,450,000 shares of Series D Preferred
Stock, $.01 par value, convertible into 7,561,644 shares of Class A Common Stock
of the Registrant issued and outstanding.
In addition, 2,000,000 shares of $200 million aggregate liquidation value of 11
5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital, a
subsidiary trust of Sinclair Broadcast Group, Inc., are issued and outstanding.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement to be delivered to shareholders in
connection with the 1999 Annual Meeting of Shareholders are incorporated by
reference into Part III.
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PART I
FORWARD-LOOKING STATEMENTS
The matters discussed in this report include forward-looking statements.
When used in this report, 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
in Sinclair Broadcast Group, Inc.'s (referred to herein as the "Company,"
"Sinclair," or "SBG") prospectus filed with the Securities and Exchange
Commission on April 19, 1998, pursuant to rule 424(b)(5). 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.
ITEM 1. BUSINESS
The Company is a diversified broadcasting company that owns or provides
programming services to more television stations than any other commercial
broadcasting group in the United States. The Company currently owns, or provides
programming services pursuant to Local Marketing Agreements ("LMAs") to, 57
television stations, has pending acquisitions of four additional television
stations, and has entered into an agreement to sell two television stations. The
Company believes it is also one of the top ten radio groups in the United States
when measured by the total number of radio stations owned or programmed pursuant
to LMAs. The Company owns, or programs pursuant to LMAs, 54 radio stations, two
of which the Company has exercised options to acquire, and five of which the
Company holds for sale.
The 57 television stations the Company owns or programs pursuant to LMAs
are located in 36 geographically diverse markets, with 33 of the stations in the
top 51 television designated market areas ("DMAs") in the United States. The
Company's television station group is diverse in network affiliation with 20
stations affiliated with Fox Broadcasting Company ("Fox"), 16 with The WB
Television Network ("WB"), eight with United Paramount Television Network
Partnership ("UPN"), six with ABC, three with NBC and one with CBS. Three
stations operate as independents.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
progressive rock and adult contemporary. Of the 54 stations owned or provided
programming services by the Company, 18 broadcast on the AM band and 36 on the
FM band. The Company owns between three and nine stations in all of the radio
markets it serves.
The Company has undergone rapid and significant growth over the course of
the last eight years. Since 1991, the Company has increased the number of
stations it owns or provides services to from three television stations to 57
television stations and 54 radio stations. From 1991 to 1998, net broadcast
revenues and Adjusted EBITDA (as defined herein) increased from $39.7 million to
$672.8 million, and from $15.5 million to $331.3 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.
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TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET(C) RANK(D) FCC LICENSE
- ------------------------------ --------- ---------- ----------- --------- ------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tampa, Florida ............... 14 WTTA LMA 38 IND(h)(q) 7 7 2/1/05
Minneapolis/St. Paul,
Minnesota ................... 15 KMWB O&O 23 WB 6 6 4/1/06
Pittsburgh, Pennsylvania ..... 19 WPGH O&O 53 FOX 5 4 8/1/99
WCWB LMA 22 WB 5 8/1/99
Sacramento, California ....... 20 KOVR O&O 13 CBS 6 3 12/1/06
St. Louis, Missouri .......... 21 KDNL O&O 30 ABC 5 4 2/1/06
Baltimore, Maryland .......... 24 WBFF O&O 45 FOX 5 4 10/1/04
WNUV LMA 54 WB 5 10/1/04
Indianapolis, Indiana ........ 25 WTTV LMA(e) 4 WB 8 5 8/1/05
WTTK LMA(e)(g) 29 WB 5 8/1/05
Raleigh-Durham,
North Carolina .............. 29 WLFL O&O 22 WB 7 4 ` 12/1/04
WRDC LMA 28 UPN 5 12/1/04
Nashville, Tennessee ......... 30 WZTV LMA(m) 17 FOX 6 4 8/1/05
WUXP LMA 30 UPN 5 8/1/05
Milwaukee, Wisconsin ......... 31 WCGV O&O 24 UPN 6 5 12/1/05
WVTV LMA 18 WB 6 12/1/05
Cincinnati, Ohio ............. 32 WSTR O&O 64 WB 5 5 10/1/05
Kansas City, Missouri ........ 33 KSMO O&O 62 WB 8 5 2/1/06
Columbus, Ohio ............... 34 WSYX O&O 6 ABC 5 4 10/1/05
WTTE LMA 28 FOX 3 10/1/05
Asheville, North Carolina
and Greenville/
Spartanburg/Anderson,
South Carolina .............. 35 WLOS O&O 13 ABC 6 3 12/1/04
WFBC LMA 40 IND(h)(q) 5 12/1/04
San Antonio, Texas ........... 37 KABB O&O 29 FOX 7 4 8/1/98(f)
KRRT LMA 35 WB 6 8/1/98(f)
Birmingham, Alabama .......... 39 WTTO O&O 21 WB 6 5 4/1/05
WDBB LMA(i) 17 WB 5 4/1/05
WABM LMA 68 UPN 6 4/1/05
Norfolk, Virginia ............ 40 WTVZ O&O 33 WB 6 4 10/1/04
Buffalo, New York ............ 42 WUTV LMA(m) 29 FOX 5 4 6/1/99(f)
WNEQ Pending 23 (o) 6/1/99(f)
Oklahoma City,
Oklahoma .................... 45 KOCB O&O 34 WB 5 5 6/1/98(f)
KOKH LMA 25 FOX 4 6/1/06
Greensboro/Winston-Salem,
Salem/Highpoint,
North Carolina .............. 47 WXLV LMA(m) 45 ABC 7 4 12/1/04
WUPN LMA 48 UPN 5 12/1/04
Dayton, Ohio ................. 54 WKEF LMA(p) 22 NBC 4 3 10/1/05
WRGT LMA 45 FOX 4 10/1/05
Las Vegas, Nevada ............ 56 KVWB O&O 21 WB 8 5 10/1/06
KFBT LMA 33 IND(h) 8 10/1/06(f)
Charleston and Huntington,
West Virginia ............... 58 WCHS O&O 8 ABC 4 3 10/1/04
WVAH LMA 11 FOX 4 10/1/04
Richmond, Virginia ........... 61 WRLH LMA(m) 35 FOX 5 4 10/1/04
Mobile, Alabama and
Pensacola, Florida .......... 62 WEAR O&O 3 ABC 6 2 2/1/05
WFGX LMA 35 WB 6 2/1/05
Flint/Saginaw/Bay City,
Michigan .................... 64 WSMH O&O 66 FOX 4 4 10/1/05
Lexington, Kentucky .......... 67 WDKY O&O 56 FOX 5 4 8/1/05
Des Moines, Iowa ............. 70 KDSM O&O 17 FOX 4 4 2/1/06
Syracuse, New York ........... 74 WSYT O&O 68 FOX 5 4 6/1/99(f)
WNYS LMA 43 UPN 5 6/1/99(f)
Paducah, Kentucky/
Cape Girardeau,
Missouri .................... 76 KBSI O&O 23 FOX 5 4 2/1/06
WDKA LMA 49 UPN 5 (n)
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET(C) RANK(D) FCC LICENSE
- ------------------------------- --------- ---------- ------------ -------- ------------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rochester, New York ........... 77 WUHF LMA 31 FOX 4 4 6/1/99(f)
Portland, Maine ............... 80 WGME Pending(k) 13 CBS 5 2 4/1/99(f)
Madison, Wisconsin ............ 84 WMSN LMA(m) 47 FOX 4 4 12/1/05
Tri-Cities, Tennessee ......... 92 WEMT LMA(p) 39 FOX 5 4 8/1/05
Springfield, Massachusetts .... 104 WGGB Pending(k) 40 ABC 4 2 4/1/99(f)
Tyler-Longview, Texas ......... 107 KETK O&O(l) 56 NBC 3 2 8/1/06
KLSB LMA(l) 19 NBC (j) 8/1/06
Peoria/Bloomington, Illinois .. 110 WYZZ O&O 43 FOX 4 4 12/1/05
Tallahassee, Florida .......... 114 WTWC Pending(k) 40 NBC 4 4 2/1/05
Charleston, South
Carolina ..................... 120 WMMP O&O 36 UPN 5 5 12/1/04
WTAT LMA 24 FOX 4 12/1/04
</TABLE>
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(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company, "LMA" refers
to stations to which the Company provides programming services pursuant to
an LMA and "Pending" refers to stations the Company has agreed to acquire.
See "-- 1998 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 1998
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 the Company has an option to acquire the License Assets. Will
become owned and operated by the Company upon FCC approval of transfer of
License Assets and closing of acquisition of License Assets.
(f) License renewal application pending.
(g) WTTK 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) WDBB simulcasts the programming broadcast on WTTO.
(j) KLSB simulcasts the programming broadcast of KETK.
(k) These stations will be acquired in connection with the Guy Gannett
Acquisition.
(l) An agreement has been entered into to sell KETK and transfer the LMA for
KLSB.
(m) The FCC License Assets for these stations are currently owned by Sullivan
Broadcasting Company II, Inc. and the Company intends to close on these
assets upon FCC approval.
(n) 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.
(o) This station is currently a non-commercial station and is not ranked by
Nielsen.
(p) This station will become owned and operated by the Company upon FCC
approval of transfer of License Assets and closing of acquisition of
License Assets.
(q) These stations are expected to become an affiliate of the WB in 1999.
Operating Strategy
The Company's television operating strategy includes the following key
elements:
Attracting Viewership
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The Company seeks to attract viewership and expand its audience share
through selective, high-quality programming.
Popular Programming. The Company seeks to obtain, at attractive prices,
popular syndicated programming that is complementary to the station's network
affiliation. The Company also believes that an important factor in attracting
viewership to its stations is their network affiliations with Fox, WB, ABC, CBS,
NBC 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 focuses on obtaining
popular syndicated programming for key programming periods (generally 6:00 p.m.
to 8:00 p.m.) for broadcast on its Fox, WB and UPN affiliates. Examples of this
programming include "Friends," "Frasier," "3rd Rock From the Sun," "The
Simpsons," "Drew Carey" and "Seinfeld." In addition to network programming, the
Company's network
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affiliates broadcast news magazine, talk show, and game show programming such as
"Hard Copy," "Entertainment Tonight," "Regis and Kathie Lee," "Roseanne," "Rosie
O'Donnel," "Wheel of Fortune" and "Jeopardy."
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 25 of its television stations
located in 21 separate markets. The possible introduction of local news at the
other Company stations is reviewed periodically and the Company has recently
expanded its news programming in some of the markets in which it programs a
second station pursuant to an LMA. The Company can produce news programming in
these markets at relatively low cost per hour of programming and the programming
serves the local community by providing additional news outlets in these
markets. The Company's policy is to institute local news programming at a
specific station only if the expected benefits of local news programming at the
station are believed to exceed the associated costs after an appropriate
start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's WB and UPN affiliated and independent stations generally face fewer
restrictions on broadcasting live local sporting events than do their
competitors that are affiliates of the major networks and Fox since affiliates
of the major networks and Fox are subject to certain prohibitions against
preemptions of network programming. The Company has been able to acquire the
local television broadcast rights for certain sporting events, including NBA
basketball, Major League Baseball, NFL football, NHL hockey, ACC basketball, Big
Ten football and basketball, and SEC football. The Company seeks to expand its
sports broadcasting in DMAs as profitable opportunities arise. In addition, the
Company's stations that are affiliated with Fox, ABC, NBC and CBS broadcast
certain Major League Baseball games, NFL football games and NHL hockey games as
well as other popular sporting events.
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 18-49 and 25-54 demographics and to offer greater diversity of
programming in each of its DMAs.
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 57 stations in 36 DMAs reaching approximately 23.5% of
U.S. television households (without giving effect to the Guy Gannett
Acquisition), the Company believes that it is able to negotiate favorable terms
for the acquisition of programming. Moreover, the Company emphasizes control of
each of its stations' programming and operating costs through program-specific
profit analysis, detailed budgeting, tight control over staffing levels and
detailed long-term planning models.
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Attract and Retain High Quality Management
- ------------------------------------------
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to general
managers, sales managers and other station managers is based on their achieving
certain operating results. The Company also provides its corporate and station
managers with deferred compensation plans offering options to acquire Class A
Common Stock.
Community Involvement
- ---------------------
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employees to become
active members of their communities and to promote involvement in community and
charitable affairs. The Company believes that active community involvement by
its stations provides its stations with increased exposure in their respective
DMAs and ultimately increases viewership and advertising support.
Establish LMAs
- --------------
The Company believes that it can attain significant growth in operating
cash flow through the utilization of LMAs. By expanding its presence in certain
of its markets in which it already owns a station, the Company can improve its
competitive position with respect to a demographic sector. In addition, by
providing programming services to an additional station in a market, the Company
is able to realize significant economies of scale in marketing, programming,
overhead and capital expenditures. The Company provides programming services
pursuant to an LMA to an additional station in 21 of the 36 television markets
in which the Company owns or programs another station.
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. In seven of the Company's markets, the
Company owns both television and radio stations. In these markets, the Company
can offer an advertiser an efficient means to reach its customer base. The
Company seeks to increase its share of an advertisers business by
cross-marketing radio and television time. 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.
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 and
counter-programming strategy. Programs that can perform successfully in more
than one time period are more attractive due to the long lead time and
multi-year commitments inherent in program purchasing.
Fifty-four of the 57 television stations owned or provided programming
services by the Company currently operate as affiliates of Fox (20 stations), WB
(16 stations), ABC (six stations), NBC (three stations), UPN (eight stations),
or CBS (one station). The networks produce and distribute programming in
exchange for each station's commitment to air the programming at specified times
and for commercial announcement time during the programming. In addition,
networks other than Fox, WB and UPN pay each affiliated station a fee for each
network-sponsored program broadcast by the station.
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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 then owned or provided programming
services by the Company would be amended to have new five-year terms commencing
on the date of the Fox Agreement. The eight affected stations are: WPGH-TV in
Pittsburgh, WBFF-TV in Baltimore, KABB-TV in San Antonio, WTTE-TV in Columbus,
WSMH-TV in Flint, KDSM-TV in Des Moines, WDKY-TV in Lexington and WYZZ-TV in
Peoria. 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,
during the term of the affiliation agreements, the Company will have the right
to purchase, for fair market value, any station Fox acquires in any of the
foregoing markets if Fox determines to terminate the affiliation agreement with
the Company's station in that market and operate the station being acquired by
Fox as a Fox affiliate.
The Fox-affiliated stations acquired, to be acquired or being programmed by
the Company as a result of the Sullivan Acquisition and Max Media Acquisition
continue to carry Fox programming notwithstanding the fact that their
affiliation agreements have expired. The Company is in negotiations with Fox to
secure long-term affiliation agreements. While Fox completes its revision of its
standard-form Station Affiliation Agreement, Fox has prepared to enter into
90-day rolling affiliation agreements with these stations.
On July 4, 1997, the Company entered into an agreement with WB (the "WB
Agreement"), pursuant to which the Company affiliated certain of its stations
with the WB for a ten year term expiring January 15, 2008. Under the terms of
the WB Agreement (as modified by the subsequent letter agreement entered into by
the Company and WB on May 18, 1998), WB agreed to pay the Company $64 million in
aggregate amount in monthly installments during the first eight years commencing
on January 16, 1998 in consideration for entering into affiliation agreements
with WB.
RADIO BROADCASTING
The Company owns, provides programming or sales services to, or has agreed
to acquire the following radio stations:
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- ---------------------------- ------------- --------------------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
St. Louis, Missouri ........ 18
KPNT-FM Alternative Rock Adults 18-34 5 2/1/05
KXOK-FM (e) Classic Rock Adults 25-54 8 2/1/05
WVRV-FM Modern Adult Contemporary Adults 18-34 10 12/1/04
WRTH-AM Adult Standards Adults 35-64 19 2/1/05
WIL-FM Country Adults 25-54 1 2/1/05
KIHT-FM 70s Rock Adults 25-54 13 2/1/05
Kansas City, Missouri ...... 29
KCFX-FM 70s Rock Adults 25-54 3 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 (p) Classical Adults 25-54 14 2/1/05
KUPN-AM (p) Classical Adults 25-54 14 6/1/05
Milwaukee, Wisconsin ....... 33
WEMP-AM Religious Adults 35-64 N/A 12/1/04
WMYX-FM Adult Contemporary Adults 25-54 6 12/1/04
WXSS-FM Contemporary Hit Radio Women 18-49 7 12/1/04
New Orleans, Louisiana ..... 39
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- ------------------------------ ------------- --------------------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
WLMG-FM Adult Contemporary Women 25-54 3 6/1/04
WWL-AM News/Talk/Sports Adults 35-64 1 6/1/04
WSMB-AM Talk/Sports Adults 35-64 18 6/1/04
WEZB-FM (f) Contemporary Hit Radio Women 18-49 7 6/1/04
WLTS-FM (g) Adult Contemporary Women 25-54 4 6/1/04
WTKL-FM (g) Oldies Adults 25-54 5 6/1/04
Memphis, Tennessee ........... 40
WRVR-FM Soft Adult Contemporary Women 25-54 3 8/1/04
WJCE-AM Urban Oldies Women 25-54 14 8/1/04
WOGY-FM Country Adults 25-54 11 8/1/04
Norfolk, Virginia ............ 42
WVKL-FM (h)(i) 60s Oldies Adults 25-54 6 10/1/03
WPTE-FM Modern Adult Contemporary Adults 18-34 3 10/1/03
WWDE-FM Adult Contemporary Women 25-54 2 10/1/03
WNVZ-FM Contemporary Hit Radio Adults 18-34 6 10/1/03
WGH-AM (i) Sports Talk Adults 25-54 15 10/1/03
WGH-FM (i) Country Adults 25-54 4 10/1/03
WFOG-FM (i) Soft Adult Contemporary Women 25-54 9 10/1/03
Buffalo, New York ............ 41
WMJQ-FM Adult Contemporary Women 25-54 4 6/1/06
WKSE-FM Contemporary Hit Radio Women 18-49 1 6/1/06
WBEN-AM News/Talk/Sports Adults 35-64 4 6/1/06
WWKB-AM Sports Adults 35-64 16 6/1/06
WGR-AM News/Talk Adults 25-54 7 6/1/98 (j)
WWWS-AM Urban Oldies Adults 25-54 14 6/1/06
Greensboro/Winston
Salem/High Point, North
Carolina .................... 52
WMQX-FM Oldies Adults 25-54 6 12/1/03
WQMG-FM Urban Adult Contemporary Adults 25-54 1 12/1/03
WJMH-FM Urban Adults 18-34 1 12/1/03
WEAL-AM Gospel Adults 35-64 10 12/1/03
Asheville, North Carolina/
Greenville/Spartanburg,
South Carolina .............. 61
WFBC-FM Contemporary Hit Radio Women 18-49 3 12/1/03
WORD-AM (q) News/Talk Adults 35-64 7 12/1/03
WYRD-AM (q) News/Talk Adults 35-64 7 12/1/03
WSPA-AM Full Service/Talk Adults 35-64 15 12/1/03
WSPA-FM Soft Adult Contemporary Women 25-54 1 12/1/03
WOLI-FM (k) Oldies Adults 25-54 10 12/1/03
WOLT-FM (k) Oldies Adults 25-54 10 12/1/03
Wilkes-Barre/Scranton,
Pennsylvania ................ 68
WGGI-FM (l) Country Adults 25-54 4 8/1/06
WKRZ-FM (m) Contemporary Hit Radio Adults 18-49 1 8/1/06
WGGY-FM (l) Country Adults 25-54 4 8/1/06
WILK-AM (n) News/Talk/Sports Adults 35-64 7 8/1/06
WGBI-AM (n) News/Talk/Sports Adults 35-64 7 8/1/06
WSHG-FM (o) Soft Hits Women 25-54 9 8/1/06
WILP-AM (n) News/Talk/Sports Adults 35-64 7 8/1/06
WWFH-FM (o) Soft Hits Women 25-54 9 8/1/06
WKRF-FM (m) Contemporary Hit Radio Adults 18-49 1 8/1/06
</TABLE>
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(a) Actual city of license may differ from the geographic market served.
(b) Ranking of the principal radio market served by the station among all U.S.
radio markets by 1997 aggregate gross radio broadcast revenue according to
Duncan's Radio Market Guide -- 1998 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.
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(d) All information concerning ratings and audience listening information is
derived from the Fall 1998 Arbitron Metro Area Ratings Survey (the "Fall
1998 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 1998 Arbitron.
(e) The Company has entered into an agreement to acquire the assets of the
station from WPNT, Inc. The consummation of the acquisition will occur
following FCC consent.
(f) A petition for reconsideration of the grant of this station's license
renewal is pending.
(g) The Company programs the stations pursuant to an LMA and has an option to
acquire the assets of the stations from Phase II Broadcasting.
(h) EEO reporting conditions were placed on this station's license renewals
for 1997, 1998 and 1999.
(i) These stations are owned by (or in the case of WFOG will be owned by) the
Norfolk Trust, Ralph E. Becker, Trustee. The Company is limited to four
FMs in this market under FCC rules and intends to sell WFOG, WGH (AM)/FM
to a third party and to acquire WVKL from the Trust.
(j) License renewal application pending.
(k) The Company provides sales services pursuant to a JSA and has exercised an
option to acquire WOLI-FM and WOLT-FM.
(l) WGGY-FM and WGGI-FM simulcast their programming.
(m) WKRZ-FM and WKRF-FM simulcast their programming.
(n) WILK-AM, WGBI-AM and WILP-AM simulcast their programming.
(o) WSHG-FM and WWFH-FM simulcast their programming.
(p) KXTR-FM and KUPN-AM simulcast their programming.
(q) WORD-AM and WYRD-AM simulcast their programming.
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 key
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 Milwaukee. The group has duopolies in all the markets it
operates in and owns television stations in seven of the ten radio 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
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of those instances where stations are acquired or sold, is generally the result
of pricing adjustments made to ensure that the station effectively uses
advertising time available for sale, an increase in the number of commercials
sold or a combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in
each of its radio markets. The Company's principal goal is to utilize its sales
efforts to develop long-standing customer relationships through frequent direct
contacts, which the Company believes provides it with a competitive advantage.
Additionally, our super-duopolies and cross-ownership of TV and radio stations
permit the Company to offer creative advertising packages to local, regional and
national advertisers. Each radio station owned or programmed by the Company also
engages a national independent sales representative to assist it in obtaining
national advertising revenues. These representatives obtain advertising through
national advertising agencies and receive a commission from the radio station
based on its gross revenue from the advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. The 1996 Act represented the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934, as
amended (the "Communications Act"). The 1996 Act relaxed the broadcast ownership
rules and simplified the process for renewal of broadcast station licenses.
The enactment of the 1996 Act offered the Company a unique opportunity to
build a large and diversified broadcasting company. Additionally, the Company
believes that, as one of the consolidators of the industry it has been able to
gain additional influence with program suppliers, television networks, other
vendors, and alternative delivery media.
In implementing its acquisition strategy, the Company seeks to identify and
pursue favorable station or group acquisition opportunities primarily in the
15th to 75th largest DMAs and Metro Service Areas ("MSAs"). In assessing
potential acquisitions, the Company examines opportunities to improve revenue
share, audience share and/or cost control. Additional factors considered by the
Company in a potential acquisition include geographic location, demographic
characteristics and competitive dynamics of the market. The Company also
considers the opportunity for cross-ownership of television and radio stations
and the opportunity it may provide for cross-promotion and cross-selling.
Beginning in the third quarter of 1998, the Company adjusted its
acquisition strategy to reduce its pace of acquisitions and begin to identify
and negotiate the sale of certain stations that may not be consistent with the
Company's strategic plan. The Company adjusted its acquisition strategy for the
following reasons. First, the Company intends to focus on and improve the
performance of its core station operations. By selling non-strategic stations,
management can better concentrate its resources on the core stations. Second,
the Company believes that it is appropriate at this time to reduce the financial
leverage employed in its business. The Company will continue to evaluate the
extent of the reduction in its financial leverage, but any related goals or
targets could be changed at any time.
Since the 1996 Act became effective, the Company has acquired, obtained
options to acquire or has acquired the right to program or provide sales
services to, 46 television and 61 radio stations for an aggregate consideration
of approximately $3.4 billion. The terms of the acquisitions and dispositions
entered into or completed in 1998 are described below.
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1998 ACQUISITIONS AND DISPOSITIONS
Heritage Acquisition. In July 1997, the Company entered into a purchase
agreement to acquire certain assets of the radio and television stations of
Heritage for approximately $630 million (the "Heritage Acquisition"). The
Company completed all of the acquisitions under this agreement by July 1998,
acquiring three radio stations in the New Orleans, Louisiana market and
simultaneously disposing of two of those stations (see the Centennial
Disposition below). Pursuant to the Heritage Acquisition, and after giving
effect to the STC Disposition, Entercom Disposition and Centennial Disposition
the Company has acquired or is providing programming services to three
television stations in two separate markets and 11 radio stations in four
separate markets.
1998 STC Disposition. In February 1998, the Company 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. In April 1998,
the Company closed on the sale of the non-license assets of the three television
stations in the Burlington, Vermont and Plattsburgh, New York market for
aggregate consideration of approximately $70.0 million. During the third quarter
of 1998, the Company sold the license assets of these stations for a sales price
of $2.0 million.
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. Currently, the
Company is a guarantor of Montecito indebtedness of approximately $33.0 million.
The Company cannot acquire Montecito unless and until FCC rules permit the
Company to own the broadcast license for more than one station in the Las Vegas
market, or unless the Company no longer owns the broadcast license for KVWB-TV
in Las Vegas. At any time the Company, at its option, may transfer the rights to
acquire the stock of Montecito. In April 1998 the Company began programming
KMWB-TV pursuant to an LMA.
WSYX Acquisition and Sale of WTTE License Assets. In April 1998, the
Company exercised its option to acquire the non-license assets of WSYX-TV in
Columbus, Ohio from River City Broadcasting, LP ("River City") for an option
exercise price and other costs of approximately $228.6 million. In August 1998,
the Company exercised its option to acquire the WSYX License Assets for an
option exercise price of $2.0 million. The Company acquired the options in 1996
in connection with its acquisitions of other assets of River City.
Simultaneously with the WSYX Acquisition, the Company sold the WTTE License
Assets to Glencairn for a sales price of $2.3 million and entered into an LMA
with Glencairn to program WTTE. In connection with the sale of the WTTE License
Assets, the Company recognized a $2.3 million gain.
SFX Disposition. In May 1998, the Company completed the sale of three radio
stations to SFX Broadcasting, Inc. for aggregate consideration of approximately
$35.0 million (the "SFX Disposition"). The radio stations sold are located in
the Nashville, Tennessee market. In connection with the disposition, the Company
recognized a $5.2 million gain on the sale.
Lakeland Acquisition. In May 1998, the Company acquired 100% of the stock
of Lakeland Group Television, Inc. ("Lakeland") for cash payments of
approximately $53.0 million (the "Lakeland Acquisition"). In connection with
the Lakeland Acquisition, the Company now owns television station KMUB-TV in
Minneapolis/St. Paul, Minnesota.
Entercom Disposition. In June 1998, the Company completed the sale of seven
radio stations acquired in the Heritage acquisition. The seven stations are
located in the Portland, Oregon and Rochester, New York markets and were sold
for aggregate consideration of approximately $126.9 million.
Sullivan Acquisition. In July 1998, the Company acquired 100% of the stock
of Sullivan Broadcast Holdings, Inc. and Sullivan Broadcasting Company II, Inc.
for cash payments of approximately $951.1 million (the "Sullivan Acquisition").
The Company financed the acquisition by utilizing indebtedness under the 1998
Bank Credit Agreement. In connection with the acquisition, the Company has
acquired the right to program 12 additional television stations in 10 separate
markets. In a subsequent closing, which is expected to occur during 1999, the
Company will acquire the stock of a company that owns the
10
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license assets of six of the stations. In addition, the Company has entered into
new LMA agreements with respect to six of the stations and will continue to
program two of the television stations pursuant to existing LMA agreements.
Max Media Acquisition. In July 1998, the Company directly or indirectly
acquired all of the equity interests of Max Media Properties LLC, for $252.2
million (the "Max Media Acquisition"). The Company financed the acquisition by
utilizing existing cash balances and indebtedness under the 1998 Bank Credit
Agreement. In connection with the acquisition, the Company now owns or provides
programming services to nine additional television stations in six separate
markets and seven radio stations in two separate markets.
Centennial Disposition. In July 1998, the Company completed the sale of the
assets of radio stations WRNO-FM, KMEZ-FM and WBYU-AM in New Orleans, Louisiana
to Centennial Broadcasting for $16.1 million in cash and recognized a loss on
the sale of $2.9 million. The Company acquired KMEZ-FM in connection with the
River City Acquisition in May of 1996 and acquired WRNO-FM and WBYU-AM in New
Orleans from Heritage Media Group, Inc. ("Heritage") in July 1998. The Company
was required to divest WRNO-FM, KMEZ-FM and WBYU-AM to meet certain regulatory
ownership guidelines.
Greenville Acquisition. In July 1998, the Company acquired three radio
stations in the Greenville/Spartansburg market from Keymarket Radio of South
Carolina, Inc. for a purchase price consideration involving the forgiveness of
approximately $8.0 million of indebtedness to Sinclair. Concurrently with the
acquisition, the Company acquired an additional two radio stations in the same
market from Spartan Broadcasting for a purchase price of approximately $5.2
million.
Radio Unica Disposition. In July 1998, the Company completed the sale of
KBLA-AM in Los Angeles, California to Radio Unica, Corp. for approximately
$21.0 million in cash. In connection with the disposition, the Company
recognized an $8.4 million gain.
PENDING ACQUISITIONS AND DISPOSITIONS
Buffalo Acquisition. In August 1998, the Company entered into an agreement
with Western New York Public Broadcasting Association to acquire the television
station WNEQ in Buffalo, NY for a purchase price of $33 million in cash (the
"Buffalo Acquisition"). The Company expects to close the sale upon FCC approval
and the termination of the applicable waiting period under the HSR Act. In
addition, the sale is contingent upon FCC approval of the change of the station
from a non-commercial channel to a commercial channel.
St. Louis Radio Acquisition. In August 1998, the Company entered into an
agreement to acquire radio station KXOK-FM in St. Louis, Missouri for a purchase
price of $14.1 million in cash. The purchase price is subject to be increased or
decreased, depending upon whether or not closing occurs within 210 days of the
agreement. The Company expects to close the purchase upon FCC approval.
Guy Gannett Acquisition. In September 1998, the Company agreed to acquire
from Guy Gannett Communications its television broadcasting assets for a
purchase price of $317 million in cash (the "Guy Gannett Acquisition"). As a
result of this transaction, the Company will acquire seven television stations
in six markets. The FCC must approve the Guy Gannet Acquisition, which the
Company expects to complete in the second quarter of 1999. The Company expects
to finance the acquisition with a combination of bank borrowings and the use of
cash proceeds resulting from the Company's planned disposition of certain
broadcast assets.
Ackerley Disposition. In September 1998, the Company agreed to sell WOKR-TV
in Rochester, New York to the Ackerley Group, Inc. for a sales price of $125
million (the "Ackerley Disposition"). The Company previously entered into an
agreement to acquire WOKR-TV as part of the Guy Gannett Acquisition. The FCC
must approve the disposition, which the Company expects to close in the second
quarter of 1999.
CCA Disposition. In February 1999, the Company entered into an agreement to
sell to Communications Corporation of America ("CCA") the non-license assets of
KETK-TV and KLSB-TV in Tyler-Longview, Texas for a sales price of $36 million
(the "CCA Disposition"). In addition, CCA has an option to acquire the license
assets of KETK-TV for an option purchase price of $2 million. The Company
expects to close the transaction in the second quarter of 1999.
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1999 STC Disposition. In March 1999, the Company entered into an agreement
to sell to STC the television stations WICS-TV in the Springfield, Illinois
market, WICD-TV in the Champaign, Illinois market and KGAN-TV in the Cedar
Rapids, Iowa market. The stations are being sold to STC for a sales price of
$81.0 million and are being acquired by the Company in connection with the Guy
Gannett Acquisition.
On going Discussions. In furtherance of its acquisition strategy, the
Company routinely reviews, and conducts investigations of potential television
and radio station acquisitions. In addition, the Company has announced that it
intends to enter into agreements to sell non-strategic television and radio
stations. When the Company believes a favorable opportunity exists, the Company
seeks to enter into discussions with the owners of stations or potential buyers
regarding the possibility of an acquisition, disposition or station swap. At any
given time, the Company may be in discussions with one or more parties. The
Company is currently in negotiations with various parties relating to the
disposition of television and radio properties which would be disposed of for
aggregate consideration of approximately $60 million. 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 believes that it is able to increase its revenues and improve
its margins by providing programming services to stations in selected DMAs and
MSAs where the Company already owns a station. In certain instances, single
station operators and stations operated by smaller ownership groups do not have
the management expertise or the operating efficiencies available to the Company
as a multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In cases where the Company enters into LMA arrangements in connection with
a station whose acquisition by the Company is pending FCC approval, the Company
(i) obtains an option to acquire the station assets essential for broadcasting a
television or radio signal in compliance with regulatory guidelines, generally
consisting of the FCC license, transmitter, transmission lines, technical
equipment, call letters and trademarks, and certain furniture, fixtures and
equipment (the "License Assets") and (ii) acquires the remaining assets (the
"Non-License Assets") at the time it enters into the option. Following
acquisition of the Non-License Assets, the License Assets continue to be owned
by the owner-operator and holder of the FCC license, which enters into an LMA
with the Company. After FCC approval for transfer of the License Assets is
obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
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 ("HDTV") 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 HDTV
programming, 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 Company does not believe the adoption of an
HDTV format will provide any significant economic benefits to the Company. The
FCC granted authority for the Company to conduct experimental DTV multicasting
operations in Baltimore, Maryland. In June 1998, the Company successfully linked
the bandwidths of the two Baltimore television stations it owns or programs,
demonstrating the ability to provide multiple channel options. The test
demonstrated that either manufacturers must make improvements in digital
receivers or the DTV frequency standards must be improved to achieve broadcast
parity with the analog signal.
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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
ruled that broadcasters shall be required to pay a fee of 5% of gross revenues
on all subscription services. 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 currently is available in some of the top ten
viewing markets. A successful transition from the current analog broadcast
format to a digital format may take many years. There can be no assurance that
the Company's efforts to take advantage of the new technology will be
commercially successful.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the FCC, which acts under authority granted by
the Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act, the 1996 Act and specific FCC regulations and policies.
Reference should be made to the Communications Act, the 1996 Act, FCC rules and
the public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of broadcast stations.
License Grant and Renewal. Television and radio stations operate pursuant
to broadcasting licenses that are granted by the FCC for maximum terms of eight
years and are subject to renewal upon application to the FCC. During certain
periods when renewal applications are pending, petitions to deny license
renewals can be filed by interested parties, including members of the public.
The FCC will generally grant a renewal application if it 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
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GENERAL
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including compliance with various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, appropriate applications must be filed with the
FCC. If the application involves a "substantial change" in ownership or control,
the application must be placed on public notice for a period of approximately 30
days during which petitions to deny the application may be filed by interested
parties, including members of the public. If the application does not involve a
"substantial change" in ownership or control, it is a "pro forma" application.
The "pro forma" application is not subject to petitions to deny
13
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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 the 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, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has a pending rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by (i) raising the attribution stock benchmark from 5% to 10%;
(ii) raising the attribution stock benchmark for passive investors from 10% to
20%; (iii) restricting the availability of the single majority shareholder
exemption; and (iv) attributing certain interests such as non-voting stock, debt
and certain holdings by limited liability corporations in certain circumstances.
More recently, the FCC has solicited comment on proposed rules that would (i)
treat an otherwise nonattributable equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark; (ii) treat a licensee of a
television station which, under an LMA, brokers more than 15% of the time on
another television station serving the same market, as having an attributable
interest in the brokered station; and (iii) in certain circumstances, treat the
licensee of a broadcast station that sells advertising time on another station
in the same market pursuant to a JSA as having an attributable interest in the
station whose advertising is being sold. The Company cannot predict the outcome
of this proceeding or how it will affect the business. However, if the proposal
were adopted without excluding existing LMAs and JSAs, the proposals could
require the Company to dispose or otherwise alter its LMA and JSA relationships.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under this
policy, the FCC may consider significant equity interests combined with an
attributable interest in a media outlet in the same market, joint ventures, and
common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests, but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial relationships such as
debt, when combined with multiple business interrelationships such as LMAs and
JSAs, raise concerns under the cross-interest policy. Moreover, in its most
recent proposals in its ongoing attribution rulemaking proceeding, the FCC has
proposed treating television LMAs, 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 Company cannot
predict the outcome of this rulemaking.
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
14
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controlled by any other corporation of which more than 25% of the capital stock
is owned of record or voted by Aliens. The Company has been advised that the FCC
staff has interpreted this provision to require a finding that such grant or
holding would be in the public interest before a broadcast license may be
granted to or held by any such corporation and that the FCC staff has made such
a finding only in limited circumstances. The FCC has issued interpretations of
existing law under which these restrictions in modified form apply to other
forms of business organizations, including partnerships. As a result of these
provisions, the licenses granted to Subsidiaries of the Company by the FCC could
be revoked if, among other restrictions imposed by the FCC, more than 25% of the
Company's stock were directly or indirectly owned or voted by Aliens. The
Company and the Subsidiaries are domestic corporations, and the members of the
Smith family (who together hold over 90% of the common voting rights of the
Company) 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. Pursuant to the 1996 Act 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 seven 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 TV 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.
The Company cannot predict the outcome of the proceeding in which such changes
are being considered.
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,
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under which a licensee of a station sells blocks of time on its station to an
entity or entities which program the blocks of time and which sell their own
commercial advertising announcements during the time periods in question. The
staff of the FCC's Mass Media Bureau has held that LMAs are not contrary to the
Communications Act, provided that the licensee of the station which is being
substantially programmed by another entity maintains complete responsibility for
and control over programming and operations of its broadcast station and assures
compliance with applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules. If a brokered station is deemed to be
attributable, the presence of a station brokered by the owner of another station
in the market would violate the FCC's duopoly rule.
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 adopt
rules that would make such interests attributable without modifying its current
prohibitions against the ownership of more than one television station in a
market, the Company could be prohibited from entering into such arrangements
with other stations in markets in which it owns television stations and could be
required to terminate existing LMA arrangements. The FCC has proposed that LMAs
in force prior to November 5, 1996 would be permitted to continue until the
original term of the agreement expires. Of the Company's 22 LMAs in markets
where the Company owns or is expected to acquire another station, 15 were
entered into after adoption of the 1996 Act (and two additional LMAs were
assumed by the Company after adoption of the Act) and 12 were entered into after
November 5, 1996 (and the license rights under one additional LMA were assumed
by a third party after November 5, 1996). However, the FCC currently is
reviewing its LMA policy, and while Congress, pursuant to the 1996 Act, stated
that existing LMAs should generally be grandfathered, the Company cannot predict
whether any of its LMAs will be grandfathered. 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. In such an event, the Company could
be required to pay termination penalties under certain of such LMAs. Further, if
the FCC were to find, in connection with any of the Company's LMAs, that the
owners/licensees of the stations with which the Company has LMAs failed to
maintain control over their operations as required by FCC rules and policies,
the licensee of the LMA station and/or the Company could be fined or set for
hearing, the outcome of which could be a monetary forfeiture or, under certain
circumstances, loss of the applicable FCC license. The Company is unable to
predict the ultimate outcome of possible changes to these FCC rules and the
impact such FCC rules may have on its broadcasting operations.
RADIO
National Ownership Rule. Pursuant to the 1996 Act, there are no limits on
the number of radio stations a single individual or entity may own nationwide.
Local Ownership Rules. Pursuant to the 1996 Act, the limits on the number
of radio stations one entity may own locally are 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
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Trade Commission have the authority to determine, and in certain recent radio
transactions have determined, that a particular transaction presents antitrust
concerns. Moreover, in certain recent cases the FCC has publicly announced that
it will independently examine 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 market), is considered to have an attributable ownership interest in
the brokered station for purposes of the FCC's multiple ownership rules. As a
result, in a market in which the Company owns a radio station, the Company would
not be permitted to enter into an LMA with another local radio station which it
could not own under the local ownership rules, unless the Company's programming
constituted 15% or less of the other local station's programming time on a
weekly basis. The FCC's rules also prohibit a broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA
arrangement where the brokered and brokering stations serve substantially the
same area.
Joint Sales Agreements. 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
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<PAGE>
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.
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
the implementation of this policy and 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 (1) its applications to acquire a
television station in the Sullivan Acquisition in a market where the Company
owns radio stations and (2) its application to acquire a radio station from
WPNT, Inc. in a market where the Company owns 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. Waiver requests involving the common ownership of more
than two same service radio stations in the same market generally are granted,
but 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 connection with its acquisition of the Max
Media radio stations in the Norfolk market, and in connection with its
acquisition of Keymarket and Spartan Broadcasting stations in the
Greenville/Spartanburg market.
In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the following options for modifying the rule in the event
it is not eliminated: (i) extending the presumptive waiver policy to any
television market in which a specified number of independently owned voices
would remain after common ownership of a television station and one or more
radio stations is effectuated; (ii) extending the presumptive waiver policy to
entities that seek to own more than one FM and/or one AM radio station; (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated; and (iv) modifying the five-factor case-by-case
test for waivers.
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates
a previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that serve the same local market, the 1996
Act leaves the current FCC rule in place. The legislative history of the Act
indicates that the repeal of the statutory ban should not prejudge the outcome
of any FCC review of the rule.
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.
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Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
prohibited from merging with each other or with another network television
entity such as WB or UPN.
Expansion of the Company's broadcast operations on both a local and
national level will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Concomitantly, any further relaxation of
the FCC's ownership rules may increase the level of competition in one or more
of the markets in which the Company's stations are located, more specifically to
the extent that any of the Company's competitors may have greater resources and
thereby be in a superior position to take advantage of such changes.
Must-Carry/Retransmission Consent
- ---------------------------------
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
Area of Dominant Influence, in general as defined by the Arbitron 1991-92
Television Market Guide. These must-carry rights are not absolute, and their
exercise is dependent on variables such as (i) the number of activated channels
on a cable system; (ii) the location and size of a cable system; and (iii) the
amount of programming on a broadcast station that duplicates the programming of
another broadcast station carried by the cable system. Therefore, under certain
circumstances, a cable system may decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. In October 1996, the Company elected must-carry or
retransmission consent with respect to each of its non-Fox affiliated stations
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. The Company's stations
affiliated with Fox granted Fox their proxies to negotiate retransmission
consent with the cable systems. The agreements negotiated by Fox extend only
through May of 1999. Therefore, subject to Fox's approval, the Company will need
to negotiate retransmission consent agreements for these Fox-affiliated stations
to attain carriage on those relevant cable systems for the balance of this
triennial period (i.e., through December 31, 1999). For subsequent elections
beginning with the election to be made by October 1, 1999, the must-carry market
will be the station's DMA, in general as defined by the Nielsen DMA Market and
Demographic Rank Report of the prior year.
The FCC has initiated a rulemaking proceeding to consider whether to apply
must-carry rules to require cable companies to carry both the analog and digital
signals of local broadcasters during the DTV transition period between 2002 and
2006 when television stations will be broadcasting both signals. If the FCC does
not require DTV must-carry, cable customers in the Company's broadcast markets
may not receive the station's digital signal, which could have an adverse affect
on the Company.
Syndicated Exclusivity/Territorial Exclusivity
- ----------------------------------------------
The FCC has imposed syndicated exclusivity rules and expanded existing
network nonduplication rules. The syndicated exclusivity rules allow local
broadcast television stations to demand that cable operators black out
syndicated non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called "superstations," which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network television affiliates to
require that cable operators black out duplicating network programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations affiliated with a network, a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market. This is not in violation of the FCC's network nonduplication rules.
However, the carriage of two network stations on the same cable system could
result in a decline of viewership adversely affecting the revenues of the
Company owned or programmed station.
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Restrictions on Broadcast Advertising
- -------------------------------------
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states restrict the advertising
of alcoholic beverages. Congressional committees have recently examined
legislation proposals which may eliminate or severely restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations, as well as the revenues of other stations which carry beer and wine
advertising.
The FCC has imposed commercial time limitations in children's television
programming pursuant to legislation. In television programs designed for viewing
by children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. In granting
renewal of the license for WBFF-TV, the FCC imposed a fine of $10,000 on the
Company alleging that the station had exceeded these limitations. The Company
has appealed this fine and the appeal is pending. 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 exceed these limitations.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things, (i) stations must provide "reasonable access" for
the purchase of time by legally qualified candidates for federal office; (ii)
stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement, and daypart. 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. Certain of the FCC's rules that required licensees to
develop and implement affirmative action programs designed to promote equal
employment opportunities and the annual submission of reports to the FCC with
respect to those matters were found unconstitutional by the U.S. Court of
Appeals. The FCC has initiated a rulemaking to revise these rules.
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.
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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 FCC has adopted rules that require generally that
(i) 100% 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 DTV broadcasting service
in the United States. In December 1996, the FCC adopted a DTV broadcast standard
and, in April 1997, adopted decisions in several pending rulemaking proceedings
that establish service rules and a plan for implementing DTV. The FCC adopted a
DTV Table of Allotments that provides all authorized television stations with a
second channel on which to broadcast a DTV signal. The FCC 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 and further subject to the
requirement that broadcasters pay a fee of 5% of gross revenues on all DTV
subscription services.
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, that affiliates of these networks in markets 11 through 30 begin
digital broadcasting by November 1999 and that all other stations begin digital
broadcasting by May 1, 2002. The majority of the Company's stations are required
to commence digital operations by May 1, 2002. Applications for such facilities
are required to be filed by November 1, 1999. The Company has already filed
these applications for five of its stations and plans to begin broadcasting
digital signals at four of its stations in Baltimore, Sacramento, St. Louis and
Pittsburgh by the end of 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 direct-to-home broadcast satellite television
("DBS")) that carries at least one digital channel from each of the local
stations in that market; or (iii) less than 85% of the television households in
the market can receive digital signals off the air using either a set-top
converter box for an analog television set or a new DTV television set. The
Balanced Budget Act also directs the FCC to auction the non-digital channels by
September 30, 2002 even though they are not to be reclaimed by the government
until at least December 31, 2006. The Balanced Budget Act also permits
broadcasters to bid on the non-digital channels in cities with populations
greater than 400,000, provided the channels are used for DTV. Thus, it is
possible a broadcaster could own two channels in a market. The FCC has initiated
separate proceedings to consider the surrender of existing television channels
and how these frequencies will be used after they are eventually recovered from
broadcasters. Additionally, the FCC has initiated a separate proceeding to
consider to what extent the cable must-carry requirements will apply to DTV
signals.
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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. While the 1998 orders
of the FCC present current UHF stations with some options to overcome this
disparity, it is unknown whether the Company will benefit from such options.
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 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 ruled
that broadcasters are subject to the requirement to pay a fee of 5% of gross
revenues on all subscription services. The FCC is also considering imposing new
public interest requirements on television licensees in exchange for their
receipt of DTV channels. In addition, Congress has held hearings on
broadcasters' plans for the use of their digital spectrum.A governmental
commission was appointed to consider whether additional public service
obligations should be imposed on television broadcasters. The commission issued
its report in December 1998 making several non-binding recommendations,
including that broadcasters voluntarily provide five minutes of free air time
per evening to political candidates for thirty days prior to an election. The
Company cannot predict the impact of such recommendations or 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, the Internet 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.
22
<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 MSAs, as well as with other advertising media, such as newspapers,
magazines, outdoor advertising, transit advertising, yellow page directories,
direct mail and local cable and wireless cable systems. Some competitors are
part of larger organizations with substantially greater financial, technical and
other resources than the Company.
Television Competition. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. The Company's
television stations are located in highly competitive DMAs. In addition, certain
of the Company's DMAs are overlapped by both over-the-air and cable carriage of
stations in adjacent DMAs, which tends to spread viewership and advertising
expenditures over a larger number of television stations.
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations, radio stations, cable channels, and
cable system operators serving the same market. Traditional network programming
generally achieves higher household audience levels than Fox, WB and UPN
programming and syndicated programming aired by independent stations. This can
be attributed to a combination of factors, including the traditional networks'
efforts to reach a broader audience, generally better signal carriage available
when broadcasting over VHF channels 2 through 13 versus broadcasting over UHF
channels 14 through 69 and the higher number of hours of traditional network
programming being broadcast weekly. However, greater amounts of advertising time
are available for sale during Fox, UPN and WB programming and non-network
syndicated programming, and as a result the Company believes that the Company's
programming typically achieves a share of television market advertising revenues
greater than its share of the market's audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of the Company's prime time programming is supplied by Fox and to a
lesser extent WB, UPN, ABC, NBC and CBS. In those periods, the Company's
affiliated stations are totally dependent upon the performance of the networks'
programs in attracting viewers. Non-network time periods are programmed by the
station primarily with syndicated programs purchased for cash, cash and barter,
or barter-only, and also through self-produced news, public affairs and other
entertainment programming.
Television advertising rates are based upon factors which include the size
of the DMA in which the station operates, a program's popularity among the
viewers that an advertiser wishes to attract, the number of advertisers
competing for the available time, the demographic makeup of the DMA served by
the station, the availability of alternative advertising media in the DMA
including radio and cable, 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.
23
<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, DBS
entertainment services and multichannel multipoint distribution services
("MMDS"). DBS and cable operators in particular are competing more aggressively
than in the past for advertising revenues in our TV stations' markets. This
competition could adversely affect our stations' revenues and performance in the
future. 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 what
other video technologies might be considered in the future, or 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 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 ruled that
broadcasters are required to pay a fee of 5% of gross revenues in all
subscription services. 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. While DTV technology is currently available
in some of the top ten viewing markets, a successful transition from the current
analog broadcast format to a digital format may take many years. There can be no
assurance that the Company's efforts to take advantage of the new technology
will be commercially successful.
The Company also competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Company's stations compete for exclusive access to
those programs against in-market broadcast station competitors for syndicated
products. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have
24
<PAGE>
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 at specific demographic groups, management believes
that the Company also obtains a competitive advantage by operating duopolies or
multiple stations in the nation's larger mid-size markets.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems and by digital audio
broadcasting ("DAB"). DAB may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences. Also, new technology has introduced the broadcast of radio
programming over the Internet. This new capability may provide an additional
source of competition in some of the Company's markets. 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. In addition, the FCC has initiated a rulemaking proceeding
proposing to create a new lower power FM radio service, which may create new
competition in some of our radio markets. 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, 1998, the Company had approximately 4,200 employees.
With the exception of certain of the employees of KOVR-TV, KDNL-TV, WSYX-TV,
WCHS-TV, and certain employees at radio stations in New Orleans and two radio
stations in St. Louis, 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.
25
<PAGE>
ITEM 2. PROPERTIES
Generally, each of the Company's stations has facilities consisting of
offices, studios and tower sites. Transmitter and tower sites are located to
provide maximum signal coverage of the stations' markets. The following table
generally describes the Company's principal owned and leased real property in
each of its markets of operation:
<TABLE>
<CAPTION>
APPROXIMATE
TELEVISION PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ------------------------ -------------------------------------------------------- ----------------------------- -------------------
<S> <C>
Pittsburgh Market Station Site for WPGH Leased (expires 10/01/2028) 44,000
Space on WPGH Tower Site Leased (expires 02/23/2039) On site of station
Baltimore Market WBFF Studio and Company Offices Leased (expires 12/31/2010) 39,000
WBFF Parking Lot Leased (monthly) N/A
Space on Main WBFF Tower for Antenna Leased (expires 06/01/2007) N/A
Space on Main WBFF Tower for Transmission Disks Leased (expires 04/01/2011) N/A
Space on Main WBFF Tower for Receivers Leased (expires 08/01/2012) N/A
Milwaukee Market WVTV Owned 37,800
Studio Site WVTV Transmitter Leased (expires 01/30/2030) N/A
Site Land WVTV Transmitter Site Building Owned 6,200
WCGV Transmitter Land & Bldg. Leased (expires 12/31/2029) N/A
Raleigh/Durham Market WLFL/ WRDC Studio Site Leased (expires 07/29/2021) 26,600
WLFL Tower Site Land Leased (expires 12/31/2018) 1,800
Columbus Market WTTE Studio Site Leased (expires 12/31/2002) 14,400
WTTE Office Space Leased (expires 06/01/2003) 4,500
WTTE Tower Site Leased (monthly) 1,000
WSYX Studio & Office Site Owned 51,680 (bldg.)/
1.126/1.901 acres
(land
WSYX Main Transmitter (tower & bldg.) Owned 1,344
WSYX Main Transmitter (land) Leased (expires 4/28/2002) 20 acres
WSYX Repeater Site (1) Leased (expires 7/31/1999) N/A
WSYX Repeater Site (2) Leased (Monthly) N/A
Norfolk Market WTVZ Studio Site Leased (expires 07/31/1999) 15,000
Space on WHRD Tower Leased (expires 09/30/1999) N/A
Birmingham Market WTTO Tower and Old WTTO Studio Owned 9,500
WTTO Studio Site Leased (expires 1/31/2016) 9,750
WABM Studio Site Leased (expires 1/31/2016) 9,750
WABM Tower/Lot Owned 35 acres
WDBB Transmitter Site Leased (monthly) 678
WDBB Tower/Lot Owned 160 acres
Flint/Saginaw/Bay City WSMH Studio & Office Site Owned 13,800
Market WSMH Transmitter Site Leased (expires 11/13/2004) N/A
Kansas City Market KSMO Studio & Office Site Leased (expires 02/28/2011) 11,055
KSMO Transmitter Building Leased (expires 12/10/2020) 1,200
Cincinnati Market WSTR Studio & Office Site Owned 14,800
WSTR Transmitter Site Leased (monthly) 6,600
W66AQ Translator Owned N/A
Peoria Market WYZZ Studio & Office Site Owned 6,000
WYZZ Transmitter Site -- real property only Leased (expires 12/01/2001) N/A
WYZZ Transmitter Site -- tower, transmitter, Owned 1,100 (bldg.)
building, and equipment
WYZZ Sales Office Leased (expires 8/31/1999) 1,800
Oklahoma City Market KOCB Studio & Office Site Owned 12,000
<PAGE>
<CAPTION>
APPROXIMATE
TELEVISION PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ------------------------------ ----------------------------------------- ----------------------------- --------------------------
<S> <C> <C> <C>
KOCB Transmitter Site Owned Included above
KOKH Studio, Office & Transmitter Site Owned 27,000
KOCB/KOKH Relay and Translator Site 4 Leased (expires 12/31/2004) N/A
Lexington Market WDKY Studio & Office Site Leased (expires 12/31/2010) 12,771
WDKY Transmitter Site Owned 2,900
Indianapolis Market WTTV/WTTK Studio & Office Site (bldg.) Owned 19,900
WTTV/WTTK Studio & Office Site (lot) Owned 18.5 acres
WTTV Transmitter Site/lot Owned 2,730/41.25 acres
WTTK Transmitter Site/lot Owned 800/30 acres
Bloomington microwave site (bldg.) Owned 216
Bloomington microwave site (land) Leased (expires 07/05/2077) 216
Sacramento Market KOVR Studio & Office Site Owned 42,600
KOVR Stockton Office Site Leased (expires 03/31/1999) 1,000
KOVR Transmitter Site 50% Ownership N/A
KOVR Back-up Transmitter Site 1/3 Ownership N/A
Mt. Oso Microwave Site Leased (expires 02/28/2001) N/A
Volmer Peak Microwave Site Leased (expires 06/30/2000) N/A
Downtown Sacramento Microwave Site Leased (expires 05/31/1999) N/A
Elverta Microwave Site Leased (expires 07/31/1999) N/A
San Antonio Market KABB/KRRT Studio & Office Site Owned by KABB 22,460
KABB Transmitter bldg/tower/land Owned by KABB 1200/1200/
35.562 acres
KRRT Transmitter land Leased (expires 06/30/2007) 103.854 acres
Asheville/Spartanburg Market WFBC/WLOS Studio & Office Site Owned by WLOS 28,000
WLOS Transmitter tower, bldg, land Leased (expires 12/31/2001) 2,625 (bldg.)/3.5
acres (land)
WFBC Transmitter Site Owned by WFBC 45.6 acres
St. Louis Market KDNL Studio & Office (Lot) Owned 53,550
KDNL Studio & Office (building) Owned 41,372 (TV)
KDNL Transmitter Site (2 buildings) Owned 1,600 & 1,330
Des Moines Market KDSM Studio & Office Site Owned 13,000
KDSM Transmitter bldg/tower Owned 2,000
KDSM Transmitter land Leased (expires 11/08/2034) 40 acres
KDSM Translator tower/shed Leased (expires 12/31/1998) 48
Las Vegas Market KVWB Studio & Office Site Leased (expires 6/26/99) 14,000
KVWB Transmitter Site Owned .04 acres
KVWB Microwave Relay Site (1) Leased (expires 1/31/2002) N/A
KVWB Microwave Relay Site (2) Leased (expires 10/01/2006) N/A
KVWB Microwave Relay Site (3) Leased (expires 10/31/2002) N/A
KVWB Translator Site Leased (expires 6/30/2000) N/A
KFBT Transmitter Site Leased (expires 4/01/2008) N/A
Minneapolis Market KMWB Studio & Office Site Leased (expires 11/30/2002) 21,000
KMWB Transmitter Site Owned 1,984 (bldg.)
Nashville Market WZTV Studio & Office Site Owned 20,000 (bldg.)/2.60
acres (land)
WZTV Transmitter Site Leased (expires 1/12/2003) 2,050 (bldg.)
WUXP Studio & Office Site (same as WZTV)
WUXP Transmitter Site Land Leased (expires 1/12/2003) 45.49 acres
WUXP Transmitter Site Building Owned 900
Buffalo Market WUTV Studio, Office & Transmitter Site Owned 14,750 (bldg.)/
20.40 acres (land)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
TELEVISION PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED(A) SIZE (SQ. FEET)
- ------------------------------ ------------------------------------------ ----------------------------- --------------------------
<S> <C> <C> <C>
WUTV Transmitter Land & Building Owned 25 acres (land)/
1,150 (bldg)
Greensboro/Winston- WXLV/WUPN Studio & Office Site Leased (expires 10/31/2003) 9,700 (bldg.)/
Salem/Highpoint Market .625acres (land)
WXLV/WUPN Business & Sales Offices Leased (expires 10/31/2005) 5,000 (bldg.)/
1.261 acres (land)
WXLV Transmitter Site Building Owned 1,830
WXLV Transmitter Site Land Leased (expires 10/31/2003) 9.4 acres
WXLV Microwave Relay Site Leased (expires 9/30/2000) N/A
WUPN Transmitter Site Leased (expires 4/26/2001) N/A
Dayton Market WKEF Studio, Office and Transmitter Site Owned 2.940/37.970 acres (land)
WRGT Studio, Office & Transmitter Site Owned 20 acres (land)
Charleston/Huntingdon Market WCHS Studio & Office Site Owned 41,892 (bldg.)/
1.25 acres (land)
WCHS Sales Office Leased (expires 6/1999) 2,000
WCHS Transmitter Site Owned 42.5 acres
WVAH Studio & Office Site Owned 8.848 (bldg.)/
3.1546 acres (land)
WVAH Transmitter Site Owned 1,230 (bldg.)/
29.0287 acres (land)
Richmond Market WRLH Studio & Office Site Leased (expires 2/28/2005) 13,798
WRLH Transmitter Site Owned 1,250 (bldg.)/
25acres (land)
Mobile/Pensacola Market WEAR Studio & Office Site Owned 22,000 (bldg.)/
8.41 acres (land)
WEAR Transmitter Site Owned 37 acres
WEAR Microwave Relay Site Owned 12.95 acres
WEAR Sales Office Leased (expires 6/1/1999) 1,164
WFGX Studio, Office & Transmitter Site Leased (expires 4/2000) 5,200
Syracuse Market WSYT/WNYS Studio & Office Site Owned 22,000 (bldg.)/
.86 acres(land)
WSYT/WNYS Transmitter Site (land) Leased (expires 12/31/2004) 1 acre
WSYT/WNYS Transmitter Site (bldg.) Owned 925
Paducah/Cape KBSI/WDKA Studio & Office Site Owned 10,320 (bldg.)/
Girardeau Market 1.26 acres (land)
KBSI Transmitter Site Owned 900 (bldg.)/
60 acres (land)
WDKA Transmitter Site (land) Leased (expires 8/31/2006) 40 acres
WDKA Transmitter Site (bldg.) Leased (expires 12/31/1999) 1,440
KBSI/WDKA Sales Office Owned 1,000
Rochester Market WUHF Studio & Office Site Leased (expires 5/2004) 15,000
WUHF Transmitter Site Leased (expires 12/2029 1,000 (bldg.)
Madison Market WMSN Studio & Office Site Leased (expires 12/31/2000) 12,000
WMSN Transmitter Site Leased (expires 10/15/2015) 1,200
Tri-Cities Market WEMT Studio & Office Site Leased (expires 1/2008) 10,000
WEMT Transmitter Site Owned 750 (bldg.)
WEMT Translator Site Leased (expires 12/31/2001 N/A
Tyler-Longview Market KETK Studio & Office Site Owned 13,000 (bldg.)/
1.261/.52 acres (land)
KETK Transmitter Site (tower) Owned N/A
KETK Transmitter Site (land) Leased (expires 6/01/2001) N/A
KETK Transmission Tower Space (Longview) Leased (expires 7/31/1999) N/A
KLSB Office Site Leased (expires 3/31/2001)0 10,000
KLSB Sales Office (Lufkin) Leased (expires 9/30/1999) N/A
KLSB Transmitter Site Leased (expires 3/31/2001) N/A
Charleston Market WMMP Studio & Office Site Leased (expires 10/31/2002) 10,000
WMMP Transmitter Site Leased (expires 10/31/2002) 1,000 (bldg.)
note: trans. bldg. owned
WTAT Studio & Office Site Leased (expires 6/30/2000) 10,521
WTAT Transmitter Site Leased (expires 6/30/2000) 1,625 (bldg)
note: trans. bldg. owned
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
RADIO PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED SIZE (SQ. FEET)
- ------------------------------ ------------------------------------------ ------------------------------- ----------------
<S> <C> <C> <C>
Buffalo Market WWKB/WKSE/WGR/WWWS Studio & Office Site Leased (expires 10/01/2000) 5,000
WMJQ/WKSE Office Site Leased (expires 09/30/2001) 5,200
WBEN Studio & Office Site Leased (expires 12/31/1998 - 7,750
lease negotiation in progress)
WBEN Transmitter Site Owned 2,000
WGR/WWKB Transmitter Site Owned 3,500
WKSE Transmitter Site Owned 6,722
WWWS Transmitter Site Leased (expires 5/23/2001) 100
WWKB/WGR/WBEN Office Site Leased (expires 6/01/2002) 2,907
Memphis Market WJCE/WRVR/WOGY Studio & Office Site Owned 10,000
WJCE Transmitter Site Leased (expires 03/27/2035) 2,262
WRVR Transmitter Site Leased (expires 12/31/2003) 169
WOGY Transmitter Site (on 4.5 acres) Owned 340
New Orleans Market WWL/WSMB/WTKL Studio & Office Site Leased (expires 08/31/2002) 11,553
WWL Transmitter Site (on 64.62 acres) Owned 2,300
WSMB Transmitter Site (on 3,600 sq. ft) Owned 3,600
WLMG Transmitter Site Leased (expires 10/27/2024) N/A
WEZB Transmitter Site Leased (expires 10/27/2014) N/A
WLMG/WLTS/WEZB Studio & Office Site Leased (expires 9/2004) 9,977
WLTS Transmitter Site Owned 330
WTKL Transmitter Site Leased (expires 10/27/2014) N/A
Wilkes-Barre/Scranton Market WILK/WGBI/WGGY/WKRZ Studio & Office Site Owned 14,000
WILK Transmitter Site Leased (expires 08/31/2000) 1,000
WGBI Transmitter Site Leased (expires 02/28/2007) 1,000
WGGY Transmitter Site Leased (expires 02/28/2007) 300
WKRZ Transmitter Site Owned 4,052 (bldg)
WILT/WKRF Studio & Office Site Leased (expires 2/28/1999) 100
WWSH Transmitter Site Owned 140
WKRF Transmitter Site Leased (expires 5/2000) 4,000
WILP Transmitter Site Owned 3,200 (bldg)
WWFH Transmitter Site Owned 33,000
WGGI Transmitter Site Owned 120 (bldg)/
.2 acres (land)
WGGI/WILP Studio Site Leased (expires 1/2001) 120
WGGI/WILP Parking Lot Leased (open) 7,000
WGGI Booster (bldg) Leased (expires 12/2008) 104
WGGY Booster (roof) Leased (expires 12/2008) 4
St. Louis Market KPNT/WVRV/KXOK Studio & Office Site Owned 6,452
KPNT Transmitter Site Owned 7450
WVRV Transmitter Site Owned 9,757
WVRV back up building Owned 240
KXOK Transmitter Site (Ofallon) Leased (expiration unknown) N/A
WRTH/WIL/KIHT Studio & Office Site Leased (expires 3/14/2011) 10,900
WRTH Transmitter Site Owned 900 (bldg)/
10 acres (land)
WIL Transmitter Site Leased (expires 7/18/2008) 380
KIHT Transmitter Site Leased (expires 9/28/2015) 400
KIHT Auxiliary Transmitter Site Leased (expires 3/14/2011) 1,500
Kansas City Market KUPN Transmitter Land Owned 16.2 acres
KUPN Studio & Office Site Owned 2,772
KCFX/KCIY/KXTR/KARC Studio & Office Site Leased (expires 2/28/2018) 20,514
KCFX Transmitter Site Leased (expires 6/24/2010) 200
KQRC Transmitter Site Leased (expires 1/31/2003) 600
KXTR Transmitter Site Leased (expires 3/1/2012) 600
KCIY Transmitter Site Leased (expires 3/1/2007) 200
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
RADIO PROPERTIES TYPE OF FACILITY AND USE OWNED OR LEASED SIZE (SQ. FEET)
- ------------------------------ ------------------------------------- ----------------------------- -------------------
<S> <C> <C> <C>
Milwaukee Market WXSS/WEMP/WMYX Studio & Office Owned 9,600
WEMP/WXSS/WMYX Transmitter Site Owned 3,700
WMYX Transmitter Site Leased (expires 9/1999) 100
Norfolk Market WFOG Transmitter Site Owned 1,623
WPTE/WWDE/WNVZ Studio & Office Site Leased (expires 4/30/2007) 14,136
WPTE Transmitter Site Leased (expires 9/30/2012) 620
WWDE Transmitter Site Leased (expires 12/30/2034) 300
WNVZ Transmitter Site Leased (expires 6/30/2005) 1,200
Greensboro/Winston-Salem/High
Point Market
WEAL Transmitter Site Owned 120
WMQX/WJMH/WQMG Studio & Office Site Leased (expires 3/31/2004) 9,000
WQMG Transmitter Site Owned 150
WMQX/WJMH Transmitter Site Leased (expires 11/30/2002) 700
Asheville, NC & Greenville/ WFBC/WORD Studio & Office Site Owned 11,098
Spartanburg, SC
WFBC-FM Transmitter Site Leased expires 2/28/2023) N/A
WYRD Transmitter Site Owned 782 (bldg.)/
20 acres (land)
WORD Transmitter Site Owned 500 (bldg.)/
14.97 acres (land)
WSPA-AM Transmitter Site Owned 1,265 (bldg)/
14.37 acres (land)
WSPA-AM Studio Site -- Spartanburg Leased (expires 6/30/2002) N/A
WOLI Transmitter Site Owned 225 (bldg)/
4.51 acres (land)
WOLT Transmitter Site Leased (expires 10/30/2000) N/A
WSPA-FM Transmitter Site Leased (expires 8/29/2004) N/A
</TABLE>
- ----------
(a) Lease expiration dates assume exercise of all renewal options of the
lessee.
The Company believes that all of its properties, both owned and leased, are
generally in good operating condition, subject to normal wear and tear, and are
suitable and adequate for the Company's current business operations.
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1998.
30
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A Common stock of the Company is 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.
1997 HIGH LOW
- -------------------------------- ------------ ------------
First Quarter ........... $ 15.500 $ 11.500
Second Quarter .......... 15.438 11.625
Third Quarter ........... 20.188 14.250
Fourth Quarter .......... 23.313 16.813
1998 HIGH LOW
- -------------------------------- ------------ ------------
First Quarter ........... $ 29.250 $ 21.438
Second Quarter .......... 31.125 23.313
Third Quarter ........... 30.125 15.875
Fourth Quarter .......... 20.000 6.750
As of March 23, 1999, there were approximately 103 stockholders of record
of the common stock of the Company. This number does not include beneficial
owners holding shares through nominee names. Based on information available to
it, the Company believes it has more than 5,000 beneficial owners of its Class A
Common Stock.
The Company generally has not paid a dividend on its common stock and does
not expect to pay dividends on its common stock in the foreseeable future. The
1998 Bank Credit Agreement and certain subordinated debt of the Company
generally prohibit the Company from paying dividends on its common stock. Under
the indentures governing the Company's 10% Senior Subordinated Notes due 2005,
9% Senior Subordinated Notes due 2007 and 8 3/4% Senior Subordinated Notes due
2007, the Company is not permitted to pay dividends on its common stock unless
certain specified conditions are satisfied, including that (i) no event of
default then exists under the indenture or certain other specified agreements
relating to indebtedness of the Company and (ii) the Company, after taking
account of the dividend, is in compliance with certain net cash flow
requirements contained in the indenture. In addition, under certain senior
unsecured debt of the Company, the payment of dividends is not permissible
during a default thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended December 31,
1994, 1995, 1996, 1997 and 1998 have been derived from the Company's audited
Consolidated Financial Statements. The Consolidated Financial Statements for the
years ended December 31, 1996, 1997 and 1998 are included elsewhere in this Form
10-K.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere in this Form 10K.
31
<PAGE>
STATEMENT OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------- ------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(a) ............................. $ 118,611 $ 187,934 $ 346,459 $ 471,228 $ 672,806
Barter revenues ....................................... 10,743 18,200 32,029 45,207 63,998
---------- ---------- ------------ ---------- ------------
Total revenues ........................................ 129,354 206,134 378,488 516,435 736,804
---------- ---------- ------------ ---------- ------------
Operating costs(b) .................................... 41,338 64,326 142,576 198,262 287,141
Expenses from barter arrangements ..................... 9,207 16,120 25,189 38,114 54,067
Depreciation and amortization(c) ...................... 55,587 80,410 121,081 152,170 199,928
Stock-based compensation .............................. -- -- 739 1,636 3,282
Special bonuses paid to executive officers ............ 3,638 -- -- -- --
---------- ---------- ------------ ---------- ------------
Broadcast operating income ............................ 19,584 45,278 88,903 126,253 192,386
Interest expense ...................................... (25,418) (39,253) (84,314) (98,393) (138,952)
Subsidiary trust minority interest expense(d) ......... -- -- -- (18,600) (23,250)
Gain on sale of broadcast assets ...................... -- -- -- -- 12,001
Unrealized loss on derivative instrument .............. -- -- -- -- (9,050)
Interest and other income ............................. 2,447 4,163 3,478 2,228 6,706
---------- ---------- ------------ ---------- ------------
Income (loss) before (provision) benefit for
income taxes and extraordinary items ................. $ (3,387) $ 10,188 $ 8,067 $ 11,488 $ 39,841
========== ========== ============ ========== ============
Net income (loss) ..................................... $ (2,740) $ 76 $ 1,131 $ (10,566) $ (16,880)
========== ========== ============ ========== ============
Net income (loss) available to common
shareholders ......................................... $ (2,740) $ 76 $ 1,131 $ (13,329) $ (27,230)
========== ========== ============ ========== ============
OTHER DATA:
Broadcast cash flow(e) ................................ $ 67,519 $ 111,124 $ 189,216 $ 243,406 $ 350,122
Broadcast cash flow margin(f) ......................... 56.9 % 59.1 % 54.6 % 51.7 % 52.0 %
Adjusted EBITDA(g) .................................... $ 64,547 $ 105,750 $ 180,272 $ 229,000 $ 331,329
Adjusted EBITDA margin(f) ............................. 54.4 % 56.3 % 52.0 % 48.6 % 49.2 %
After tax cash flow(h) ................................ $ 24,948 $ 54,645 $ 77,484 $ 104,884 $ 149,759
Program contract payments ............................. 14,262 19,938 30,451 51,059 64,267
Corporate overhead expense ............................ 2,972 5,374 8,944 14,406 18,793
Capital expenditures .................................. 2,352 1,702 12,609 19,425 19,426
Cash flows from operating activities .................. 20,781 55,986 69,298 96,625 150,480
Cash flows from investing activities .................. (249,781) (119,320) (1,019,853) (218,990) (1,812,682)
Cash flows from financing activities .................. 213,410 173,338 840,446 259,351 1,526,143
PER SHARE DATA:
Basic net income (loss) per share before
extraordinary items .................................. $ (.05) $ .08 $ .02 $ (.10) $ (.17)
Basic net income (loss) per share after
extraordinary items .................................. $ (.05) $ -- $ .02 $ (.19) $ (.29)
Diluted net income (loss) per share before
extraordinary items .................................. $ (.05) $ .08 $ .02 $ (.10) $ (.17)
Diluted net income (loss) per share after
extraordinary items .................................. $ (.05) $ -- $ .02 $ (.19) $ (.29)
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 2,446 $ 112,450 $ 2,341 $ 139,327 $ 3,268
Total assets .......................................... 399,328 605,272 1,707,297 2,034,234 3,854,582
Total debt(i) ......................................... 346,270 418,171 1,288,103 1,080,722 2,327,221
HYTOPS(j) ............................................. -- -- -- 200,000 200,000
Total stockholders' equity (deficit) .................. (13,723) 96,374 237,253 543,288 816,043
</TABLE>
32
<PAGE>
- ----------
(a) "Net"Net broadcast revenues" are defined as broadcast revenues net of
agency commissions.
(b) Operating costs include program and production expenses and selling,
general and administrative expenses.
(c) Depreciation and amortization includes amortization of program contract
costs and net realizable value adjustments, depreciation and amortization
of property and equipment, and amortization of acquired intangible
broadcasting assets and other assets including amortization of deferred
financing costs and costs related to excess syndicated programming.
(d) Subsidiary trust minority interest expense represents the distributions on
the HYTOPS (see footnote j).
(e) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, special bonuses paid to executive officers,
stock-based compensation depreciation and amortization (including film
amortization and amortization of deferred compensation), less cash
payments for program rights. Cash program payments represent cash payments
made for current programs payable and do not necessarily correspond to
program usage. The Company has presented broadcast cash flow data, which
the Company believes is comparable to the data provided by other companies
in the industry, because such data are commonly used as a measure of
performance for broadcast companies; however, there can be no assurance
that it is comparable. 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. Management believes the presentation of broadcast cash flow
(BCF) is relevant and useful because 1) BCF is a measurement utilized by
lenders to measure the Company's ability to service its debt, 2) BCF is a
measurement utilized by industry analysts to determine a private market
value of the Company's television and radio stations and 3) BCF is a
measurement industry analysts utilize when determining the operating
performance of the Company.
(f) "BCF cash flow margin" is defined as broadcast cash flow divided by net
broadcast revenues. "Adjust EBITDA margin" is defined as Adjusted EBITDA
divided by net broadcast revenues.
(g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast
companies. The Company has presented Adjusted EBITDA data, which the
Company believes is comparable to the data provided by other companies in
the industry, because such data are commonly used as a measure of
performance for broadcast companies; however, there can be no assurances
that it is comparable. 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.
Management believes the presentation of Adjusted EBITDA is relevant and
useful because 1) Adjusted EBITDA is a measurement utilized by lenders to
measure the Company's ability to service its debt, 2) Adjusted EBITDA is a
measurement utilized by industry analysts to determine a private market
value of the Company's television and radio stations and 3) Adjusted
EBITDA is a measurement industry analysts utilize when determining the
operating performance of the Company.
(h) "After tax cash flow" is defined as net income (loss) available to common
shareholders, plus extraordinary items (before the effect of related tax
benefits) plus depreciation and amortization (excluding film
amortization), stock-based compensation, unrealized loss on derivative
instrument, the deferred tax provision (or minus the deferred tax benefit)
and minus the gain on sale of assets. The Company has presented after tax
cash flow data, which the Company believes is comparable to the data
provided by other companies in the industry, because such data are
commonly used as a measure of performance for broadcast companies;
however, there can be no assurances that it is comparable. 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. Management believes the presentation of after tax cash flow
(ATCF) is relevant and useful because ATCF is a measurement utilized by
industry analysts to determine a private market value of the Company's
television and radio stations and ATCF is a measurement analysts utilize
when determining the operating performance of the Company.
(i) "Total debt" is defined as long-term debt, net of unamortized discount,
and capital lease obligations, including current portion thereof. Total
debt does not include the HYTOPS or the Company's preferred stock.
(j) HYTOPS represents Company Obligated Mandatorily Redeemable Security of
Subsidiary Trust Holding Solely KDSM Senior Debentures representing
$200,000 aggregate liquidation value.
33
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
As of December 31, 1998, the Company owned, operated, or programmed 56
television stations in 36 geographically diverse markets and 51 radio stations
in 10 geographically diverse markets in the United States. As of the date
hereof, the Company owns, or provides programming services pursuant to LMAs to,
57 television stations, has pending acquisitions of four television stations and
has entered into an agreement to sell two television stations. The Company owns,
or programs pursuant to LMAs to, 56 radio stations, two of which the Company has
options to acquire and five of which the Company holds for sale.
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from political advertisers and
television network compensation. The Company's revenues from local advertisers
have continued to trend upward and revenues from national advertisers have
continued to trend downward when measured as a percentage of total broadcast
revenue. The Company believes this trend is primarily resulting from an increase
in the number of media outlets providing national advertisers a means by which
to advertise their goods and services. The Company's efforts to mitigate this
trend include continuing its efforts to increase local revenues and the
development of innovative marketing strategies to sell traditional and
non-traditional services to national advertisers.
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, and news-gathering and station
promotional costs. Amortization and depreciation of costs associated with the
acquisition of the stations and interest carrying charges are significant
factors in determining the Company's overall profitability.
Set forth below are the principal types of broadcast revenues received by
the Company's stations for the periods indicated and the percentage contribution
of each type to the Company's total gross broadcast revenues:
BROADCAST REVENUE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1995 1996 1997
------------------------ ------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Local/regional advertising..... $ 199,029 49.4% $ 287,860 52.7% $ 418,100 53.8%
National advertising .......... 191,449 47.6% 250,445 45.9% 316,547 40.7%
Network compensation .......... 3,907 1.0% 5,479 1.0% 18,536 2.5%
Political advertising ......... 6,972 1.7% 1,189 0.2% 21,279 2.7%
Production .................... 1,142 0.3% 1,239 0.2% 2,617 0.3%
--------- ----- --------- ----- ---------- -----
Broadcast revenues ............ 402,499 100.0% 546,212 100.0% 777,079 100.0%
===== ===== =====
Less: agency commissions....... (56,040) (74,984) (104,273)
--------- --------- ----------
Broadcast revenues, net ....... 346,459 471,228 672,806
Barter revenues ............... 32,029 45,207 63,998
--------- --------- ----------
Total revenues ................ $ 378,488 $ 516,435 $ 736,804
========= ========= ==========
</TABLE>
The Company's primary types of programming and their approximate
percentages of 1998 net broadcast revenues were syndicated programming (64.0%),
network programming (23.2%), direct advertising programming (5.2%), sports
programming (4.0%) and children's programming (3.6%). Similarly, the Company's
four largest categories of advertising and their approximate percentages of 1998
net broadcast revenues were automotive (20.0%), fast food advertising (7.3%),
retail/department stores (6.6%) and professional services (5.9%). No other
advertising category accounted for more than 5% of the Company's net broadcast
revenues in 1998. No individual advertiser accounted for more than 2% of the
Company's consolidated net broadcast revenues in 1998.
34
<PAGE>
The following table sets forth certain operating data of the Company for
the years ended December 31, 1996, 1997 and 1998. For definitions of items, see
footnotes on page 38 of this document.
OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
--------------- ------------- ---------------
<S> <C> <C> <C>
Net broadcast revenues ............................ $ 346,459 $ 471,228 $ 672,806
Barter revenues ................................... 32,029 45,207 63,998
Total revenues .................................... 378,488 516,435 736,804
Operating costs ................................... 142,576 198,262 287,141
Expenses from barter arrangements ................. 25,189 38,114 54,067
Depreciation and amortization ..................... 121,081 152,170 199,928
Stock-based compensation .......................... 739 1,636 3,282
Broadcast operating income ........................ $ 88,903 $ 126,253 $ 192,386
Net income (loss) ................................. $ 1,131 $ (10,566) $ (16,880)
Net income (loss) available to common shareholders $ 1,131 $ (13,329) $ (27,230)
BROADCAST CASH FLOW (BCF) DATA:
Television BCF .................................... $ 175,212 $ 221,631 $ 305,305
Radio BCF ......................................... 14,004 21,775 44,817
Consolidated BCF .................................. $ 189,216 $ 243,406 $ 350,122
Television BCF margin ............................. 56.7% 54.4% 54.1%
Radio BCF margin .................................. 37.3% 34.1% 41.5%
Consolidated BCF margin ........................... 54.6% 51.7% 52.0%
OTHER DATA:
Adjusted EBITDA ................................... $ 180,272 $ 229,000 $ 331,329
Adjusted EBITDA margin ............................ 52.0% 48.6% 49.2%
After tax cash flow ............................... $ 77,484 $ 104,884 $ 149,759
Program contract payments ......................... 30,451 51,059 64,267
Corporate expense ................................. 8,944 14,406 18,793
Capital expenditures .............................. 12,609 19,425 19,426
Cash flows from operating activitities ............ 69,298 96,625 150,480
Cash flows from investing activities .............. (1,019,853) (218,990) (1,812,682)
Cash flows from financing activities .............. 840,446 259,351 1,526,143
</TABLE>
35
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997.
Net broadcast revenue increased $201.6 million to $672.8 million for the
year ended December 31, 1998 from $471.2 million for the year ended December 31,
1997, or 42.8%. The increase in net broadcast revenue for the year ended
December 31, 1998 as compared to the year ended December 31, 1997 comprised
$194.3 million related to businesses acquired or disposed of by the Company in
1998 (the "1998 Transactions") and $7.3 million resulted from an increase in net
broadcast revenues on a same station basis, representing a 1.5% increase over
prior year's net broadcast revenue for these stations. On a same station basis,
revenues were negatively impacted by a decrease in revenues in the Baltimore,
Milwaukee, Norfolk and Raleigh markets. The Company's television stations in
these markets experienced a decrease in ratings which resulted in a loss in
revenues and market revenue share. In the Raleigh and Norfolk television
markets, the Company's affiliation agreements with Fox expired on August 31,
1998 which further contributed to a decrease in ratings and revenues. In the
Baltimore market, the addition of a new UPN affiliate competitor contributed to
a loss in ratings and market revenue share. An additional factor which
negatively impacted station revenues for the year was the loss of General Motors
advertising revenues caused by a strike of its employees. These decreases in
revenue on a same station basis were offset by revenue growth at certain of the
Company's other television and radio stations combined with an increase in
network compensation revenue and political advertising revenue.
Total operating costs increased $88.8 million to $287.1 million for the
year ended December 31, 1998 from $198.3 million for the year ended December 31,
1997, or 44.8%. The increase in operating costs for the year ended December 31,
1998 as compared to the year ended December 31, 1997 comprised $81.3 million
related to the 1998 Transactions, $4.4 million related to an increase in
corporate overhead expenses, and $3.1 million related to an increase in
operating costs on a same station basis, representing a 1.8% increase over prior
year's operating costs for those stations. The increase in corporate overhead
expenses for the year ended December 31, 1998 primarily resulted from an
increase in legal fees and an increase in salary costs incurred to manage a
larger base of operations.
Depreciation and amortization increased $47.7 million to $199.9 million for
the year ended December 31, 1998 from $152.2 million for the year ended December
31, 1997. The increase in depreciation and amortization related to fixed asset
and intangible asset additions associated with businesses acquired during 1997
and 1998.
Broadcast operating income increased $66.1 million to $192.4 million for
the year ended December 31, 1998, from $126.3 million for the year ended
December 31, 1997, or 52.3%. The net increase in broadcast operating income for
the year ended December 31, 1998 as compared to the year ended December 31, 1997
was primarily attributable to the 1998 Transactions.
Interest expense increased $40.6 million to $139.0 million for the year
ended December 31, 1998 from $98.4 million for the year ended December 31, 1997,
or 41.3%. The increase in interest expense for the year ended December 31, 1998
primarily related to indebtedness incurred by the Company to finance the
Acquisitions. Subsidiary trust minority interest expense of $23.3 million for
the year ended December 31, 1998 is related to the private placement of the $200
million aggregate liquidation value 11 5/8% High Yield Trust Offered Preferred
Securities (the "HYTOPS") completed March 12, 1997. The increase in subsidiary
trust minority interest expense for the year ended December 31, 1998 as compared
to the year ended December 31, 1997 related to the HYTOPS being outstanding for
a partial period during 1997.
Interest and other income increased to $6.7 million for the year ended
December 31, 1998 from $2.2 million for the year ended December 31, 1997. This
increase was primarily due to higher average cash balances during these periods.
However, cash balances were lower at December 31, 1998 than at December 31,
1997.
Net loss for the year ended December 31, 1998 was $16.9 million or $.29 per
share compared to net loss of $10.6 million or $.19 per share for the year ended
December 31, 1997. Net loss increased for the year ended December 31, 1998 as
compared to the year ended December 31, 1997 due to an increase in operating
expenses, depreciation and amortization, interest expense, subsidiary trust
minority interest
36
<PAGE>
expense, the recognition of an unrealized loss of $9.1 million on a derivative
instrument and the recognition of an extraordinary loss offset by an increase in
total revenues, a gain on the sale of broadcast assets and an increase in
interest and other income. The Company's extraordinary loss of $11.1 million net
of a related tax benefit of $7.4 million resulted from the write-off of debt
acquisition costs associated with indebtedness replaced by the 1998 Bank Credit
Agreement. As noted above, the Company's net loss for the year ended December
31, 1998 included recognition of a loss of $9.1 million on a treasury option
derivative instrument. Upon execution of the treasury option derivative
instrument, the Company received a cash payment of $9.5 million. The treasury
option derivative instrument will require the Company to make five annual
payments equal to the difference between 6.14% minus the interest rate yield on
five-year treasury securities on September 30, 2000 times the $300 million
notional amount of the instrument. If the yield on five-year treasuries is equal
to or greater than 6.14% on September 30, 2000, the Company will not be required
to make any payment under the terms of this instrument. If the rate is below
6.14% on that date, the Company will be required to make payments, as described
above, and the size of the payment will increase as the rate goes down. Each
year, the Company recognizes an expense equal to the change in the projected
liability under this arrangement based on interest rates at the end of the year.
The loss recognized in the year ended December 31, 1998 reflects an adjustment
of the Company's liability under this instrument to the present value of future
payments based on the two-year forward five-year treasury rate as of December
31, 1998. If the yield on five-year treasuries at September 30, 2000 were to
equal the two year forward five year treasury rate on December 31, 1998 (4.6%),
Sinclair would be required to make five annual payments of approximately $4.6
million each. If the yield on five-year treasuries declines further in periods
before September 30, 2000, Sinclair will be required to recognize further
losses. In any event, Sinclair will not be required to make any payments until
September 30, 2000.
Broadcast Cash Flow increased $106.7 million to $350.1 million for the year
ended December 31, 1998 from $243.4 million for the year ended December 31,
1997, or 43.8%. The increase in Broadcast Cash Flow related to the 1998
Transactions and Broadcast Cash Flow on a same station basis remained relatively
unchanged for the periods. The Company's Broadcast Cash Flow Margin increased to
52.0% for the year ended December 31, 1998 from 51.7% for the year ended
December 31, 1997. The increase in Broadcast Cash Flow Margin for the year ended
December 31, 1998 as compared to the year ended December 31, 1997 primarily
resulted from a lag in program contract payments for certain of the television
broadcasting assets acquired during 1998 of approximately $4.3 million and an
increase in radio broadcast cash flow margins. On a same station basis,
Broadcast Cash Flow Margin decreased from 51.8% for the year ended December 31,
1997 to 50.9% for the year ended December 31, 1998. This decrease in Broadcast
Cash Flow Margin primarily resulted from an increase in film payments combined
with a disproportionate increase in net broadcast revenue.
Adjusted EBITDA represents broadcast cash flow less corporate expenses.
Adjusted EBITDA increased $102.3 million to $331.3 million for the year ended
December 31, 1998 from $229.0 million for the year ended December 31, 1997, or
44.7%. The increase in Adjusted EBITDA for the year ended December 31, 1998 as
compared to the year ended December 31, 1997 resulted from the 1998 Transactions
offset by a $4.4 million increase in corporate overhead expenses, as described
above. The Company's Adjusted EBITDA margin increased to 49.2% for the year
ended December 31, 1998 from 48.6% for the year ended December 31, 1997. This
increase in Adjusted EBITDA margin resulted primarily from the circumstances
affecting broadcast cash flow margins as noted above offset by an increase in
corporate expenses.
After Tax Cash Flow increased $44.9 million to $149.8 million for the year
ended December 31, 1998 from $104.9 million for the year ended December 31,
1997, or 42.8%. The increase in After Tax Cash Flow for the year ended December
31, 1998 as compared to the year ended December 31, 1997 primarily resulted from
a net increase in broadcast operating income relating to the 1998 Transactions
offset by an increase in interest expense and subsidiary trust minority interest
expense relating to the HYTOPS.
YEARS ENDED DECEMBER 31, 1997 AND 1996.
Net broadcast revenue increased $124.7 million to $471.2 million for the
year ended December 31, 1997 from $346.5 million for the year ended December 31,
1996 or 36.0%. The increase in net broadcast
37
<PAGE>
revenue for the year ended December 31, 1997 as compared to the year ended
December 31, 1996 comprised $114.5 million related to television and radio
station acquisitions and LMA transactions consummated during 1996 and 1997 (the
"1996 and 1997 Acquisitions") and $10.2 million resulted from an increase in net
broadcast revenues on a same station basis. Also on a same station basis,
revenues 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 to $198.3 million for the
year ended December 31, 1997 from $142.6 million for the year ended December 31,
1996 or 39.1%. The increase in operating costs for the year ended December 31,
1997 as compared to the year ended December 31, 1996 comprised $49.0 million
related to the 1996 and 1997 Acquisitions, $5.4 million resulted from an
increase in corporate overhead expenses, and $1.3 million resulted from an
increase in operating costs on a same station basis. Also on a same station
basis, operating costs increased 1.8%.
Depreciation and amortization increased $31.1 million to $152.2 million for
the year ended December 31, 1997 from $121.1 million for the year ended December
31, 1996. The increase in depreciation and amortization related to fixed asset
and intangible asset additions associated with businesses acquired during 1996
and 1997.
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 1996 and 1997 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 1996 and 1997
Acquisitions. Subsidiary trust minority interest expense of $18.6 million for
the year ended December 31, 1997 is related to the HYTOPS offering 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 1997 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.
Net loss for the year ended December 31, 1997 was $10.6 million or $.19 per
share compared to net income of $1.1 million or $.02 per share for the year
ended December 31, 1996. Net loss increased for the year ended December 31, 1997
as compared to the year ended December 31, 1996 due to an increase in operating
expenses, depreciation and amortization, interest expense, subsidiary trust
minority interest expense not incurred in 1996 and recognition of an
extraordinary loss offset by an increase in total broadcast revenue. The
Company's extraordinary loss of $6.1 million net of a related tax benefit of
$4.0 million resulted from the write-off of debt acquisition costs resulting
from the redemption of substantially all of the 1993 Notes.
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 comprised $45.0 million
relating to the 1996 and 1997 Acquisitions and $9.2 million 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%. These
increases in Adjusted EBITDA for the year ended December 31,
38
<PAGE>
1997 as compared to the year ended December 31, 1996 resulted from the 1996 and
1997 Acquisitions and to a lesser extent, increases in net broadcast revenues on
a same station basis. The Company's 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%. These increases in corporate expenses
primarily result 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 from the 1996 and 1997
Acquisitions, an increase in revenues 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 1996 and 1997
Acquisitions and subsidiary trust minority interest expense related to the
private placement of the HYTOPS issued during March 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operations
and availability under the 1998 Bank Credit Agreement. As of December 31, 1998,
the Company had $3.3 million in cash balances and net working capital of
approximately $55.8 million. The Company's net decrease in cash to $3.3 million
at December 31, 1998 from $139.3 million at December 31, 1997 primarily resulted
from the 1998 Transactions. As of December 31, 1998, the remaining balance
available under the Revolving Credit Facility was $197.0 million. Based on pro
forma trailing cash flow levels for the twelve months ended December 31, 1998,
the Company had approximately $75.2 million available of current borrowing
capacity under the Revolving Credit Facility. The 1998 Bank Credit Agreement
also provides for an incremental term loan commitment in the amount of up to
$400 million which can be utilized upon approval by the Agent bank and the
raising of sufficient commitments from banks to fund the additional loans.
The Company has current acquisition commitments of approximately $122.0
million net of proceeds totaling $242.0 million anticipated from the sale of
television stations related to the Ackerley Disposition, the 1999 STC
Disposition and the CCA Disposition (collectively, the "Pending Transactions").
In order to complete the Pending Transactions during the second quarter of 1999
and also remain in compliance with certain of its debt covenants, the Company
estimates that it would be required to generate proceeds from station
dispositions of approximately $30 million or alternatively raise proceeds from
common or preferred stock securities issuances of approximately $15 million. The
Company announced in the fourth quarter of 1998 that it intended to enter into
agreements to sell selected television and radio stations not central to its
business strategy. As of March 22, 1999, the Company has entered into agreements
to sell stations for aggregate consideration of approximately $140 million and
was actively planning to sell an additional $35 million in properties. The
Company intends to evaluate whether further divestitures are appropriate after
completing these sales. The Company's other primary sources of liquidity are
cash provided by operations and availability under the 1998 Bank Credit
Agreement.
The Company anticipates that funds from operations, existing cash balances,
the availability of the Revolving Credit Facility under the 1998 Bank Credit
Agreement and the proceeds from the sale of certain stations will be sufficient
to meet its working capital, capital expenditure commitments, debt service
requirements and current acquisition commitments.
Net cash flows from operating activities increased to $150.5 million for
the year ended December 31, 1998 from $96.6 million for the year ended December
31, 1997. The Company made income tax payments of $3.6 million for the year
ended December 31, 1998 as compared to $6.5 million for the year ended
39
<PAGE>
December 31, 1997. The Company made interest payments on outstanding
indebtedness and payments for subsidiary minority interest expense totaling
$140.9 million during the year ended December 31, 1998 as compared to $116.2
million for the year ended December 31, 1997. Additional interest payments for
the year ended December 31, 1998 as compared to the year ended December 31, 1997
primarily related to additional interest costs on indebtedness incurred to
finance businesses acquired during 1998. Program rights payments increased to
$64.3 million for the year ended December 31, 1998 from $51.1 million for the
year ended December 31, 1997. This increase in program rights payments comprised
$8.8 million related to the 1998 Transactions and $4.4 million related to an
increase in programming costs on a same station basis, which increased 8.7%.
Net cash flows used in investing activities increased to $1.8 billion for
the year ended December 31, 1998 from $219.0 million for the year ended December
31, 1997. For the year ended December 31, 1998, the Company made cash payments
of approximately $2.1 billion related to the acquisition of television and radio
broadcast assets primarily by utilizing available indebtedness under the 1998
Bank Credit Agreement. These payments included $232.9 million related to the
WSYX Acquisition, $53.0 million related to the Lakeland Acquisition, $571.3
million related to the Heritage Acquisition, $951.0 million related to the
Sullivan Acquisition, $239.4 million related to the Max Media Acquisition and
$10.4 million related to other acquisitions. For the year ended December 31,
1998, the Company received approximately $273.3 million of cash proceeds related
to the sale of certain television and radio broadcast assets which was primarily
utilized to repay indebtedness under the 1998 Bank Credit Agreement. These cash
proceeds included $126.9 million related to the Entercom Disposition, $72.0
million related to the STC Disposition, $35.0 million related to the SFX
Disposition, $21.0 million related to the Radio Unica Disposition, $16.1 million
related to the Centennial Disposition and $2.3 million related to the sale of
other broadcast assets. For the year ended December 31, 1998, the Company made
cash payments related to the Buffalo Acquisition of $3.3 million and made cash
payments of $6.9 million for deposits and other costs related to other future
acquisitions. During 1998, the Company made equity investments in Acrodyne
Communications, Inc. and USA Digital Radio, Inc. of approximately $7.1 million
and $1.5 million, respectively. The Company made payments for property and
equipment of $19.4 million for the year ended December 31, 1998. The Company
expects that expenditures for property and equipment will increase for the year
ended December 31, 1999 as a result of a larger number of stations owned by the
Company. In addition, the Company anticipates that future requirements for
capital expenditures will include capital expenditures incurred during the
ordinary course of business and additional strategic station acquisitions and
equity investments if suitable investments can be identified on acceptable
terms.
Net cash flows provided by financing activities increased to $1.5 billion
for the year ended December 31, 1998 from $259.4 million for the year ended
December 31, 1997. In April 1998, the Company and certain Series B Preferred
stockholders of the Company completed a public offering of 12,000,000 and
4,060,374 shares, respectively of Class A Common Stock. The shares were sold for
an offering price of $29.125 per share and generated proceeds to the Company of
$335.1 million, net of underwriters' discount and other offering costs of
approximately $14.4 million. The Company utilized proceeds to repay indebtedness
under the 1997 Bank Credit Agreement. In May 1998, the Company entered into the
1998 Bank Credit Agreement in order to expand its borrowing capacity for future
acquisitions and obtain more favorable terms with its banks. A portion of the
proceeds of the initial borrowing under the 1998 Bank Credit Agreement was used
to repay all outstanding indebtedness related to the 1997 Bank Credit Agreement.
In addition, during September 1998, the Company repurchased 1,505,000 shares of
its Class A Common Stock for an aggregate purchase price of $26.7 million, an
average share price of $17.72. For the year ended December 31, 1998, the Company
also made option premium payments of $14.0 million related to equity put and
call options entered into during 1998.
INCOME TAXES
The income tax provision increased to $45.7 million for the year ended
December 31, 1998 from a provision of $16.0 million for the year ended December
31, 1997. The Company's effective tax rate decreased to 114.6% for the year
ended December 31, 1998 from 139.1% for the year ended December 31, 1997. The
decrease in the Company's effective tax rate for the year ended December 31,
1998 as compared to the year ended December 31, 1997 primarily resulted from a
decrease in the deferred tax
40
<PAGE>
liability associated with dividends paid on the Company's Series C Preferred
Stock (see Note 8, sub-note (a) to the Company's Consolidated Financial
Statements). Management believes that pre-tax income and "earnings and profits"
will increase in future years which will further 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, 1998, the Company has a net deferred tax liability of
$165.5 million as compared to a net deferred tax liability of $21.5 million as
of December 31, 1997. During 1998, the Company acquired the stock of Sullivan
Broadcast Holdings, Inc. (Sullivan), Lakeland Group Television, Inc. (Lakeland)
and the direct and indirect interests of Max Media Properties LLC (Max Media).
The Company recorded net deferred tax liabilities resulting from these purchases
of approximately $114.0 million. These net deferred tax liabilities primarily
relate to the permanent differences between financial reporting carrying amounts
and tax basis amounts measured upon the purchase date.
The 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 8, sub-note (a) to the Company's Consolidated
Financial Statements), and state franchise taxes which are not based upon
pre-tax income. During the year ended December 31, 1997, the Company carried
back certain Federal NOL's to be applied against prior years Federal taxes paid.
These Federal NOL carry-backs resulted in a Federal income tax refund of $9.3
million during 1998.
SEASONALITY
The Company's results usually are subject to seasonal fluctuations, which
result in fourth quarter broadcast operating income being greater usually than
first, second and third quarter broadcast operating income. This seasonality is
primarily attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership during this period. In
addition, revenues from political advertising tend to be higher in even numbered
years.
YEAR 2000
The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, broadcast equipment and ancillary equipment that are date
dependent. The process involves four phases: Phase I - Inventory and Data
Collection. This phase involves an identification of all items that are date
dependent. Sinclair commenced this phase in the third quarter of 1998, and
Management estimates it has completed approximately 50% of this phase as of the
date hereof. The Company expects to complete this phase by the end of the second
quarter of 1999.
Phase II - Compliance Requests. This phase involves requests to information
technology systems vendors for verification that the systems identified in Phase
I are Year 2000 compliant. Sinclair will identify and begin to replace items
that cannot be updated or certified as compliant. Sinclair has completed the
compliance request phase of its plan as of the date hereof. In addition,
Sinclair has verified that its accounting, traffic, payroll, and local and wide
area network hardware and software systems are compliant. In addition, Sinclair
is currently in the process of ascertaining that all of its personal computers
and PC applications are compliant. Sinclair is currently reviewing its news-room
systems, building control systems, security systems and other miscellaneous
systems. The Company expects to complete this phase by the end of the second
quarter of 1999.
Phase III - Test, Fix and Verify. This phase involves testing all items
that are date dependent and upgrading all non-compliant devices. Sinclair
expects to complete this phase during the first, second and third quarters of
1999.
41
<PAGE>
Phase IV - Final Testing, New Item Compliance. This phase involves review
of all inventories for compliance and retesting as necessary. During this phase,
all new equipment will be tested for compliance. Sinclair expects to complete
this phase by the end of the third quarter of 1999.
The Company has developed a contingency/emergency plan to address Year 2000
worst case scenarios. The contingency plan includes, but is not limited to,
addressing (i) regional power facilities, (ii) interruption of satellite
delivered programming, (iii) replacement or repair of equipment not discovered
or fixed during the year 2000 compliance process and (iv) local security
measures that may become necessary relating to the Company's properties. The
contingency plan involves obtaining alternative sources if existing sources of
these goods and services are not available. Although the contingency plan is
designed to reduce the impact of disruptions from these sources, there is no
assurance that the plan will avoid material disruptions in the event one or more
of these events occurs.
To date, Sinclair believes that its major systems are Year 2000 compliant.
This substantial compliance has been achieved without the need to acquire new
hardware, software or systems other than in the ordinary course of replacing
such systems. Sinclair is not aware of any non-compliance that would be material
to repair or replace or that would have a material effect on Sinclair's business
if compliance were not achieved. Sinclair does not believe that non-compliance
in any systems that have not yet been reviewed would result in material costs or
disruption. Neither is Sinclair aware of any non-compliance by its customers or
suppliers that would have a material impact on Sinclair's business.
Nevertheless, there can be no assurance that unanticipated non-compliance will
not occur, and such non-compliance could require material costs to repair or
could cause material disruptions if not repaired.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. To
manage its exposure to changes in interest rates, the Company enters into
interest rate derivative hedging agreements. The Company has entered into an
additional derivative instrument to monetize the benefit of a call option on a
portion of its outstanding indebtedness at interest rates prevailing at the time
the Company entered into the instrument. This derivative instrument (the
"Treasury Option Derivative Instrument") exposes the Company to market risk from
a further decrease in interest rates, but the Company believes that this risk is
offset by the benefit to the Company from reduced interest rate expense on a
portion of its floating rate debt and the ability to call some of its
indebtedness and replace it with debt at the lower prevailing interest rates.
Finally, the Company has entered put and call option derivative instruments
relating to the Company's Class A Common Stock in order to hedge against the
possible dilutive effects of employees exercising stock options pursuant to the
Company's stock option plans.
The Company does not enter into derivative instruments for speculative
trading purposes. With the exception of the Company's Treasury Option Derivative
Instrument (described below), the Company does not reflect the changes in fair
market value related to derivative instruments in the accompanying financial
statements.
INTEREST RATE RISKS
The Company is exposed to market risk from changes in interest rates, which
arises from its floating rate debt. As of December 31, 1998, the Company was
obligated on $1.6 billion of indebtedness carrying a floating interest rate. The
Company enters into interest rate derivative agreements to reduce the impact of
changing interest rates on its floating rate debt. The 1998 Bank Credit
Agreement, as amended and restated, requires the Company to enter into Interest
Rate Protection Agreements at rates not to exceed 10% per annum as to a notional
principal amount at least equal to 60% of the Term Loan, Revolving Credit
Facility and Senior Subordinated Notes scheduled to be outstanding from time to
time.
As of December 31, 1998, the Company had several interest rate swap
agreements which expire from July 7, 1999 to July 15, 2007. The swap agreements
effectively set fixed rates on the Company's floating rate debt in the range of
5.5% to 8.1%. Floating interest rates are based upon the three month London
Interbank Offered Rate (LIBOR) rate, and the measurement and settlement is
performed quarterly.
42
<PAGE>
Settlements of these agreements are recorded as adjustments to interest expense
in the relevant periods. The notional amounts related to these agreements were
$1.1 billion at December 31, 1998, and decrease to $200 million through the
expiration dates. In addition, the Company entered into floating rate
derivatives with notional amounts totaling $200 million. Based on the Company's
currently hedged position, $1.7 billion or 73% of the Company's outstanding
indebtedness is hedged.
Based on the Company's debt levels and the amount of floating rate debt not
hedged as of December 31, 1998, a 1% increase in the LIBOR rate would result in
an increase in annualized interest expense of approximately $10.5 million.
TREASURY OPTION DERIVATIVE INSTRUMENT
In August 1998, the Company entered into a treasury option derivative
contract (the "Option Derivative"). The Option Derivative contract provides for
1) an option exercise date of September 30, 2000, 2) a notional amount of $300
million and 3) a five-year treasury strike rate of 6.14%. If the interest rate
yield on five year treasury securities is less than the strike rate on the
option exercise date, the Company would be obligated to pay five consecutive
annual payments in an amount equal to the strike rate less the five year
treasury rate multiplied by the notional amount beginning September 30, 2001
through September 30, 2006. If the interest rate yield on five year treasury
securities is greater than the strike rate on the option exercise date, the
Company would not be obligated to make any payments.
Upon the execution of the Option Derivative contract, the Company received
a cash payment representing an option premium of $9.5 million which was recorded
in "Other long-term liabilities" in the accompanying balance sheets. The Company
is required to periodically adjust its liability to the present value of the
future payments of the settlement amounts based on the forward five year
treasury rate at the end of an accounting period. The fair market value
adjustment for 1998 resulted in an income statement charge (unrealized loss) of
$9.1 million for the year ended December 31, 1998. If the yield on five year
treasuries at September 30, 2000 were to equal the two year forward five year
treasury rate on December 31, 1998 (4.6%), Sinclair would be required to make
five annual payments of approximately $4.6 million each. If the yield on
five-year treasuries at September 30, 2000 decreased by 1% from the two-year
forward five-year rate of December 31, 1998 (i.e., to 3.6%) then Sinclair would
be required to make five annual payments of approximately $7.6 million each.
The Company has the ability to call the 1995 Notes on September 15, 2000.
The value of this call is determined by new issuance yields for senior
subordinated debt at that time. The value of this call rises when yields fall
and falls when yields rise. New issuance yields are based on a spread over
treasury yields. If the yield on five-year treasuries remains below 6.14% until
September 30, 2000, the Company expects to be able to call the 1995 Notes and
refinance at the lower prevailing rates, thus offsetting the effect of the
payments required under the Treasury Option Derivative. There can be no
assurance, however, that the Company would be able to refinance the 1995 Notes
at such time at favorable interest rates.
Senior Subordinated Notes The Company is also exposed to risk from a change
in interest rates to the extent it is required to refinance existing fixed rate
indebtedness at rates higher than those prevailing at the time the existing
indebtedness was incurred. As of December 31, 1998, the Company has Senior
Subordinated Notes totaling $1.9 million, $300 million and $450 million expiring
in the years 2003, 2005 and 2007, respectively. Based upon the quoted market
price, the fair value of the Notes was $781.4 million as of December 31, 1998.
Generally, the fair market value of the Notes will decrease as interest rates
rise and increase as interest rates fall. The Company estimates that a 1%
increase from prevailing interest rates would result in a decrease in fair value
of the Notes by approximately $43.6 million as of December 31, 1998.
EQUITY PUT OPTION DERIVATIVES
The Company is exposed to market risk relating to its equity put option
derivative instruments (the "Equity Puts"). The contract terms relating to these
instruments provide for settlement on the expiration date. The Equity Puts
require the Company to make a settlement payment to the counterparties to these
contracts (payable in either cash or shares of the Company's Class A Common
stock) in an amount that
43
<PAGE>
is approximately equal to the put strike price minus the price of the Company's
Class A Common Stock as of the termination date. If the put strike price is less
than the price of the Company's Class A Common Stock as of the termination date,
the Company would not be obligated to make a settlement payment. In addition,
certain of these contracts include terms allowing the put option to become
immediately exercisable upon the Company's Class A Common Stock trading at
certain levels. The following table summarizes the Company's position relating
to the Equity Puts and illustrates the market risk associated with these
instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------
EQUITY PUT PUT TERMINATION TRIGGER SETTLEMENT SENSITIVITY-SETTLEMENT
OPTIONS OUTSTANDING STRIKE PRICE DATE PRICE (A) ASSUMING TERMINATION (B) ASSUMING TERMINATION (C)
- ----------------------- -------------- ------------------- ----------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
641,200 $ 13.94 May 31, 1999 -- -- $ 606,703
700,000 16.0625 September 9, 1999 $ 5.00 $1,137,500 2,148,090
1,100,000 (d) 12.892 January 13, 2000 9.00 (850,190) (55,990)
2,700,000 (e) 28.931 July 2, 2001 5.00 7,811,370 7,811,370
---------- -----------
$8,098,680 $10,510,173
========== ===========
</TABLE>
- ----------
(a) If the Company's Class A Common Stock reaches a market price equal to
"Trigger Price," the equity put options will become immediately
exercisable.
(b) This column represents the settlement costs that would be incurred
(payable in either cash or shares of the Company's Class A Common Stock)
if equity put options were terminated on December 31, 1998 and assuming a
market price of $14.4375 (the closing price on March 18, 1999).
(c) This column represents the settlement costs that would be incurred
(payable in either cash or shares of the Company's Class A Common Stock)
if equity put options were terminated on December 31, 1998 and assuming a
market price of $12.9938 (the closing price on March 18, 1999 minus 10%).
(d) The Company has entered into offsetting equity call options related to
these equity put options that would provide proceeds to the Company of
$850,190 and $55,990, respectively, in scenario (b) and (c) described
above.
(e) The settlement of these equity put options is limited to a maximum of
$2.8931 per option outstanding, or $7,811,370.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement and supplementary data of the Company required by
this item are filed as exhibits hereto, are listed under Item 14(a)(1) and (2),
and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
None
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be included in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Directors and Executive Officers" which will be filed with the Securities and
Exchange Commission no later than 120 days after the close of the fiscal year
ended December 31, 1998, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Executive Compensation" which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the fiscal year ended
December 31, 1998, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Security Ownership of Certain Beneficial Owners and Management" which will be
filed with the Securities and Exchange Commission no later than 120 days after
the close of the fiscal year ended December 31, 1998, and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in the Company's
Proxy Statement for the 1999 Annual Meeting of Shareholders under the caption
"Certain Relationships and Related Transactions" which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal year ended December 31, 1998, and is incorporated herein by reference.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Public Accountants ....................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 ................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1997 and 1998 ................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1996, 1997 and 1998 ....................................................... F-5, F-6, F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1997 and 1998 ................................................................. F-8, F-9
Notes to Consolidated Financial Statements ..................................... F-10
</TABLE>
(a) (2) Financial Statements Schedules
The following financial statements schedules required by this item are submitted
on pages S-1 through S-3 of this Report.
PAGE
-----
Index to Schedules ...................................... S-1
Report of Independent Public Accountants ................ S-2
Schedule II -- Valuation and Qualifying Account ......... S-3
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements of the notes
thereto.
(a) (3) Exhibits
The Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of the fiscal year ended December 31, 1998.
(c) Exhibits
The exhibits required by this Item are listed in the Index of Exhibits.
(d) Financial Statements Schedules
The financial statement schedules required by this Item are listed under Item
14 (a) (2).
46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 14 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on March
30, 1999.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ DAVID D. SMITH
---------------------------------
David D. Smith
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints David D. Smith and
David B. Amy as his or her true and lawful attorneys-in-fact each acting alone,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities to sign any or all
amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully for all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- ------------------------------ ---------------
<S> <C> <C>
/s/ DAVID D. SMITH Chairman of the Board Chief March 30, 1999
- ------------------------------- and Executive Officer
David D. Smith (principal executive officer)
/s/ DAVID B. AMY Vice President and Chief March 30, 1999
- ------------------------------- Financial Officer (principal
David B. Amy financial and accounting
officer)
/s/ FREDERICK G. SMITH Director March 30, 1999
- -------------------------------
Frederick G. Smith
/s/ J. DUNCAN SMITH Director March 30, 1999
- -------------------------------
J. Duncan Smith
/s/ ROBERT E. SMITH Director March 30, 1999
- -------------------------------
Robert E. Smith
/s/ BASIL A. THOMAS Director March 30, 1999
- -------------------------------
Basil A. Thomas
/s/ LAWRENCE E. MCCANNA Director March 30, 1999
- -------------------------------
Lawrence E. McCanna
</TABLE>
47
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants ......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 ..................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997
and 1998 ....................................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996, 1997 and 1998 ............................................................ F-5, F-6, F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997
and 1998 ....................................................................... F-8, F-9
Notes to Consolidated Financial Statements ....................................... F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sinclair
Broadcast Group, Inc. (a Maryland corporation) and Subsidiaries as of December
31, 1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Sinclair Broadcast Group, Inc. and
Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 9, 1999, except
for Note 17, as to which
the date is March 16, 1999
F-2
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1997 1998
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash .................................................................................... $ 139,327 $ 3,268
Accounts receivable, net of allowance for doubtful accounts of
$2,920 and $5,169 respectively ......................................................... 123,018 196,880
Current portion of program contract costs ............................................... 46,876 60,795
Prepaid expenses and other current assets ............................................... 4,673 5,542
Deferred barter costs ................................................................... 3,727 5,282
Refundable income taxes ................................................................. 10,581 --
Broadcast assets held for sale .......................................................... -- 33,747
Deferred tax assets ..................................................................... 2,550 19,209
---------- ----------
Total current assets .................................................................. 330,752 324,723
PROGRAM CONTRACT COSTS, less current portion ............................................. 40,609 45,608
LOANS TO OFFICERS AND AFFILIATES ......................................................... 11,088 10,041
PROPERTY AND EQUIPMENT, net .............................................................. 161,714 280,391
OTHER ASSETS ............................................................................. 168,095 93,404
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net of accumulated
amortization of $138,061 and $231,821, respectively ..................................... 1,321,976 3,100,415
---------- ----------
Total Assets .......................................................................... $2,034,234 $3,854,582
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................................ $ 5,207 $ 18,065
Accrued liabilities ..................................................................... 40,532 96,350
Current portion of long-term liabilities--
Notes payable and commercial bank financing ............................................ 35,215 50,007
Notes and capital leases payable to affiliates ......................................... 3,073 4,063
Program contracts payable .............................................................. 66,404 94,780
Deferred barter revenues ................................................................ 4,273 5,625
---------- ----------
Total current liabilities ............................................................. 154,704 268,890
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............................................. 1,022,934 2,254,108
Notes and capital leases payable to affiliates .......................................... 19,500 19,043
Program contracts payable ............................................................... 62,408 74,802
Deferred tax liability .................................................................. 24,092 184,736
Other long-term liabilities ............................................................. 3,611 33,361
---------- ----------
Total liabilities ..................................................................... 1,287,249 2,834,940
---------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ........................................... 3,697 3,599
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES .................................. 200,000 200,000
---------- ----------
STOCKHOLDERS' EQUITY:
Series B Preferred stock, $.01 par value, 10,000,000 shares authorized and
none 1,071,381 and 39,581 issued and outstanding ....................................... 11 --
Series D Preferred stock, $.01 par value, 3,450,000 shares authorized and
3,450,000 shares issued and outstanding ................................................ 35 35
Class A Common stock, $.01 par value, 200,000,000 and 500,000,000 shares authorized and
27,466,860 and 47,445,731 shares issued and outstanding, respectively .................. 274 474
Class B Common stock, $.01 par value, 70,000,000 and 140,000,000 shares authorized
and 50,872,864 and 49,075,428 shares issued and outstanding ............................ 509 491
Additional paid-in capital .............................................................. 552,557 768,648
Additional paid-in capital -- equity put options ........................................ 23,117 113,502
Additional paid-in capital -- deferred compensation ..................................... (954) (7,616)
Accumulated deficit ..................................................................... (32,261) (59,491)
---------- ----------
Total stockholders' equity ............................................................ 543,288 816,043
---------- ----------
Total Liabilities and Stockholders' Equity ............................................ $2,034,234 $3,854,582
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
REVENUE:
Station broadcast revenues, net of agency commissions of
$56,040, $74,984 and $104,273, respectively ..................... $ 346,459 $ 471,228 $ 672,806
Revenues realized from station barter arrangements ................ 32,029 45,207 63,998
--------- --------- ----------
Total broadcast revenues ........................................ 378,488 516,435 736,804
--------- --------- ----------
OPERATING EXPENSES:
Program and production ............................................ 66,652 92,178 139,143
Selling, general and administrative ............................... 75,924 106,084 147,998
Expenses realized from station barter arrangements ................ 25,189 38,114 54,067
Amortization of program contract costs and net
realizable value adjustments .................................... 47,797 66,290 72,403
Stock-based compensation .......................................... 739 1,636 3,282
Depreciation and amortization of property and equipment ........... 11,711 18,040 29,153
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets .......... 58,530 67,840 98,372
Amortization of excess syndicated programming ..................... 3,043 -- --
--------- --------- ----------
Total operating expenses ........................................ 289,585 390,182 544,418
Broadcast operating income ...................................... 88,903 126,253 192,386
--------- --------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ................ (84,314) (98,393) (138,952)
Subsidiary trust minority interest expense ........................ -- (18,600) (23,250)
Net gain on sale of broadcast assets .............................. -- -- 12,001
Unrealized loss on derivative instrument .......................... -- -- (9,050)
Interest income ................................................... 3,136 2,174 5,672
Other income ...................................................... 342 54 1,034
--------- --------- ----------
Income before provision benefit for income
taxes and extraordinary item ................................... 8,067 11,488 39,841
PROVISION FOR INCOME TAXES. ........................................ 6,936 15,984 45,658
--------- --------- ----------
Net income (loss) before extraordinary item ..................... 1,131 (4,496) (5,817)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related income tax
benefit of $4,045 and $7,370, respectively. ..................... -- (6,070) (11,063)
--------- --------- ----------
NET INCOME (LOSS) .................................................. $ 1,131 $ (10,566) $ (16,880)
========= ========= ==========
NET INCOME (LOSS) AVAILABLE TO COMMON SHARE-
HOLDERS ........................................................... $ 1,131 $ (13,329) $ (27,230)
========= ========= ==========
BASIC EARNINGS PER SHARE:
Income (loss) per share before extraordinary item ................. $ .02 $ (.10) $ (.17)
========= ========= ==========
Net income (loss) per share ....................................... $ .02 $ (.19) $ (.29)
========= ========= ==========
Average shares outstanding ........................................ 69,496 71,902 94,321
========= ========= ==========
DILUTED EARNINGS PER SHARE:
Income (loss) per share before extraordinary item ................. $ .02 $ (.10) $ (.17)
========= ========= ==========
Net income (loss) per share ....................................... $ .02 $ (.19) $ (.29)
========= ========= ==========
Average shares outstanding ........................................ 74,762 80,156 95,692
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
PAGE 1 OF 3
-----------
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B CLASS A CLASS B
PREFERRED PREFERRED COMMON COMMON
STOCK STOCK STOCK STOCK
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 .................. $ -- $-- $ 59 $ 290
Two-for-one stock split .................... -- -- 59 289
------ --- ---- -----
BALANCE, December 31, 1995, as adjusted...... -- -- 118 579
Class B Common Stock converted into Class
A Common Stock ............................ -- -- 22 (22)
Issuance of Series A Preferred Stock ....... 12 -- -- --
Series A Preferred Stock converted into
Series B Preferred Stock .................. (12) 12 -- --
Repurchase and retirement of 30,000 shares
of Class A Common Stock ................... -- -- -- --
Stock option grants ........................ -- -- -- --
Equity put options ......................... -- -- -- --
Amortization of deferred compensation. ..... -- -- -- --
Income tax benefit related to deferred
compensation .............................. -- -- -- --
Net income ................................. -- -- -- --
------ --- ---- -----
BALANCE, December 31, 1996 .................. $ -- $12 $140 $ 557
------ --- ---- -----
<CAPTION>
ADDITIONAL
ADDITIONAL PAID-IN CAPITAL - TOTAL
PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION DEFICIT EQUITY
------------ ------------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 .................. $116,088 $ -- $ (20,063) $ 96,374
Two-for-one stock split .................... (348) -- -- --
-------- -------- --------- --------
BALANCE, December 31, 1995, as adjusted...... 115,740 -- (20,063) 96,374
Class B Common Stock converted into Class
A Common Stock ............................ -- -- -- --
Issuance of Series A Preferred Stock ....... 125,067 -- -- 125,079
Series A Preferred Stock converted into
Series B Preferred Stock .................. -- -- -- --
Repurchase and retirement of 30,000 shares
of Class A Common Stock ................... (748) -- -- (748)
Stock option grants ........................ 25,784 (1,868) -- 23,916
Equity put options ......................... (8,938) -- -- (8,938)
Amortization of deferred compensation. ..... -- 739 -- 739
Income tax benefit related to deferred
compensation .............................. (300) -- -- (300)
Net income ................................. -- -- 1,131 1,131
-------- -------- --------- --------
BALANCE, December 31, 1996 .................. $256,605 $ (1,129) $ (18,932) $237,253
-------- -------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
PAGE 2 OF 3
-----------
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B SERIES D CLASS A CLASS B ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN
STOCK STOCK STOCK STOCK CAPITAL
----------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ...................... $12 $-- $140 $ 557 $256,605
Repurchase and retirement of
186,000 shares of Class A Common Stock -- -- (4) -- (4,595)
Class B Common Stock converted into Class
A Common Stock ................................ -- -- 48 (48) --
Series B Preferred Stock converted into
Class A Common Stock .......................... (1) -- 4 -- (3)
Issuance of Class A Common Stock, net of
related issuance costs of $7,572 .............. -- -- 86 -- 150,935
Issuance of Series D Preferred Stock, net of
related issuance costs of $5,601 .............. -- 35 -- -- 166,864
Dividends payable on Series D Preferred
Stock ......................................... -- -- -- -- --
Equity put options ............................. -- -- -- -- (14,179)
Equity put options premium ..................... -- -- -- -- (3,365)
Stock option grants ............................ -- -- -- -- 430
Stock option grants exercised .................. -- -- -- -- 105
Amortization of deferred compensation .......... -- -- -- -- --
Income tax benefit related to deferred
compensation .................................. -- -- -- -- (240)
Net loss ....................................... -- -- -- -- --
----- --- ----- ----- ----------
BALANCE, December 31, 1997 ...................... $11 $35 $274 $ 509 $552,557
----- --- ----- ----- ----------
<CAPTION>
ADDITIONAL
PAID-IN ADDITIONAL
CAPITAL- PAID-IN CAPITAL - TOTAL
EQUITY PUT DEFERRED ACCUMULATED STOCKHOLDERS'
OPTIONS COMPENSATION DEFICIT EQUITY
------------ ------------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 ...................... $ -- $ (1,129) $ (18,932) $ 237,253
Repurchase and retirement of
186,000 shares of Class A Common Stock -- -- -- (4,599)
Class B Common Stock converted into Class
A Common Stock ................................ -- -- -- --
Series B Preferred Stock converted into
Class A Common Stock .......................... -- -- -- --
Issuance of Class A Common Stock, net of
related issuance costs of $7,572 .............. -- -- -- 151,021
Issuance of Series D Preferred Stock, net of
related issuance costs of $5,601 .............. -- -- -- 166,899
Dividends payable on Series D Preferred
Stock ......................................... -- -- (2,763) (2,763)
Equity put options ............................. 23,117 -- -- 8,938
Equity put options premium ..................... -- -- -- (3,365)
Stock option grants ............................ -- (430) -- --
Stock option grants exercised .................. -- -- -- 105
Amortization of deferred compensation .......... -- 605 -- 605
Income tax benefit related to deferred
compensation .................................. -- -- -- (240)
Net loss ....................................... -- -- (10,566) (10,566)
------- -------- --------- ---------
BALANCE, December 31, 1997 ...................... $23,117 $ (954) $ (32,261) $ 543,288
------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
PAGE 3 OF 3
-----------
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B SERIES D CLASS A CLASS B ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN
STOCK STOCK STOCK STOCK CAPITAL
----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 as adjusted ..... $ 11 $35 $ 274 $ 509 $ 552,557
Class B Common Stock converted into Class
A Common Stock ........................... -- -- 18 (18) --
Series B Preferred Stock converted into
Class A Common Stock ..................... (11) -- 75 -- (64)
Dividends payable on Series D Preferred
Stock .................................... -- -- -- -- --
Stock option grants ....................... -- -- -- -- 8,383
Stock option grants exercised ............. -- -- 1 -- 1,143
Class A Common Stock shares issued
pursuant to employee benefit plans ....... -- -- 1 -- 1,989
Equity put options ........................ -- -- -- -- (90,385)
Repurchase and retirement of 1,505,000
shares of Class A Common Stock ........... -- -- (15) -- (26,650)
Equity put option premiums ................ -- -- -- -- (12,938)
Issuance of Class A Common Stock .......... -- -- 120 -- 335,003
Amortization of deferred compensation ..... -- -- -- -- --
Income tax benefit relating to deferred
compensation ............................. -- -- -- -- (390)
Net loss .................................. -- -- -- -- --
------ --- ----- ----- ---------
BALANCE, December 31, 1998 ................. $ -- $35 $ 474 $ 491 $ 768,648
------ --- ----- ----- ---------
<CAPTION>
ADDITIONAL ADDITIONAL
PAID-IN CAPITAL- PAID-IN CAPITAL - TOTAL
EQUITY PUT DEFERRED ACCUMULATED STOCKHOLDERS'
OPTIONS COMPENSATION DEFICIT EQUITY
------------------ ------------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 as adjusted ..... $ 23,117 $ (954) $ (32,261) $ 543,288
Class B Common Stock converted into Class
A Common Stock ........................... -- -- -- --
Series B Preferred Stock converted into
Class A Common Stock ..................... -- -- -- --
Dividends payable on Series D Preferred
Stock .................................... -- -- (10,350) (10,350)
Stock option grants ....................... -- (8,383) -- --
Stock option grants exercised ............. -- -- -- 1,144
Class A Common Stock shares issued
pursuant to employee benefit plans ....... -- -- 1,990
Equity put options ........................ 90,385 -- -- --
Repurchase and retirement of 1,505,000
shares of Class A Common Stock ........... -- -- -- (26,665)
Equity put option premiums ................ -- -- (12,938)
Issuance of Class A Common Stock .......... -- -- -- 335,123
Amortization of deferred compensation ..... -- 1,721 -- 1,721
Income tax benefit relating to deferred
compensation ............................. -- -- -- (390)
Net loss .................................. -- -- (16,880) (16,880)
--------- -------- ---------- ---------
BALANCE, December 31, 1998 ................. $ 113,502 $ (7,616) $ (59,491) $ 816,043
--------- -------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
PAGE 1 OF 2
-----------
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 1,131 $ (10,566) $ (16,880)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities--
Extraordinary loss ................................................. -- 10,115 18,433
(Gain) loss on sale of broadcast assets ............................ -- 226 (12,001)
Loss on derivative instrument ...................................... -- -- 9,050
Amortization of debt discount ...................................... -- 4 98
Depreciation and amortization of property and equipment ............ 11,711 18,040 29,153
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other
assets ............................................................ 58,530 67,840 98,372
Amortization of program contract costs and net realizable
value adjustments ................................................. 50,840 66,290 72,403
Amortization of deferred compensation .............................. 739 1,636 1,721
Deferred tax provision (benefit) ................................... 2,330 20,582 30,700
Net effect of change in deferred barter revenues
and deferred barter costs ......................................... (908) 591 (624)
Decrease in minority interest ...................................... (121) (183) (98)
Changes in assets and liabilities, net of effects of acquisitions
and dispositions--
Increase in accounts receivable, net ............................... (41,310) (9,468) (68,207)
Increase in prepaid expenses and other
current assets .................................................... (217) (591) (2,475)
(Increase) decrease in refundable income taxes ..................... -- (10,581) 10,581
Increase (decrease) in accounts payable and accrued liabilities..... 16,727 (5,330) 44,038
Increase (decrease) in other long-term liabilities ................. 297 (921) 483
Payments on program contracts payable ................................ (30,451) (51,059) (64,267)
--------- --------- ---------
Net cash flows from operating activities ........................... $ 69,298 $ 96,625 $ 150,480
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
F-8
<PAGE>
PAGE 2 OF 2
-----------
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
--------------- ------------ ---------------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES .......................... $ 69,298 $ 96,625 $ 150,480
------------ ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............................ (12,609) (19,425) (19,426)
Payments for acquisitions of television and radio stations ....... (1,007,572) (202,910) (2,058,015)
Deposits and other costs related to future acquisitions .......... -- -- (10,243)
Proceeds from assignment of FCC purchase option .................. -- 2,000 --
Distributions from (investments in) joint ventures ............... (380) 380 665
Proceeds from sale of broadcast assets ........................... -- 470 273,290
Loans to officers and affiliates ................................. (854) (1,199) (2,073)
Repayments of loans to officers and affiliates ................... 1,562 1,694 3,120
------------ ---------- ------------
Net cash flows used in investing activities.. .................. (1,019,853) (218,990) (1,812,682)
------------ ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank
financing ...................................................... 982,500 126,500 1,822,677
Repayments of notes payable, commercial bank
financing and capital leases ................................... (110,657) (693,519) (578,285)
Repayments of notes and capital leases to affiliates ............. (1,867) (2,313) (1,798)
Payments of costs related to bank financings ..................... (21,294) (5,181) (11,138)
Prepayments of excess syndicated program contract liabilities..... (7,488) (1,373) --
Repurchases of the Company's Class A Common Stock ................ (748) (4,599) (26,665)
Payments relating to redemption of 1993 Notes .................... -- (106,508) --
Dividends paid on Series D Preferred Stock ....................... -- (2,357) (10,350)
Proceeds from exercise of stock options .......................... -- 105 1,144
Payment received upon execution of derivative instrument ......... -- -- 9,450
Payment of equity put option premiums ............................ -- (507) (14,015)
Net proceeds from issuances of Senior Subordinated Notes ......... -- 438,427 --
Net proceeds from issuances of Class A Common Stock .............. -- 151,021 335,123
Net proceeds from issuance of Series D Preferred Stock ........... -- 166,899 --
Net proceeds from subsidiary trust securities offering ........... -- 192,756 --
------------ ---------- ------------
Net cash flows from financing activities ....................... 840,446 259,351 1,526,143
------------ ---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... (110,109) 136,986 (136,059)
CASH AND CASH EQUIVALENTS, beginning of period .................... 112,450 2,341 139,327
------------ ---------- ------------
CASH AND CASH EQUIVALENTS, end of period .......................... $ 2,341 $ 139,327 $ 3,268
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
- ---------------------
The accompanying consolidated financial statements include the accounts of
Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other
consolidated subsidiaries, which are collectively referred to hereafter as "the
Company, Companies or SBG." The Company owns and operates television and radio
stations throughout the United States. Additionally, included in the
accompanying consolidated financial statements are the results of operations of
certain television stations pursuant to local marketing agreements (LMAs) and
radio stations pursuant to joint sales agreements (JSAs).
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company and
all its wholly-owned and majority-owned subsidiaries. Minority interest
represents a minority owner's proportionate share of the equity in two of the
Company's subsidiaries. In addition, the Company uses the equity method of
accounting for 20% to 50% ownership investments. All significant intercompany
transactions and account balances have been eliminated.
CASH AND USE OF ESTIMATES
- -------------------------
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from those estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
PROGRAMMING
- -----------
The Companies have agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as an asset and a liability
at an amount equal to its gross contractual commitment when the license period
begins and the program is available for its first showing. The portion of
program contracts which become payable within one year is reflected as a current
liability in the accompanying consolidated balance sheetsfinancial statements.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value. Estimated net realizable values are based upon management's expectation
of future advertising revenues net of sales commissions to be generated by the
program material. Amortization of program contract costs is generally computed
under either a four year accelerated method or based on usage, whichever yields
the greater amortization for each program. Program contract costs, estimated by
management to be amortized in the succeeding year, are classified as current
assets. Payments of program contract liabilities are typically paid on a
scheduled basis and are not affected by adjustments for amortization or
estimated net realizable value.
BARTER ARRANGEMENTS
- -------------------
Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming is excluded from these calculations.
F-10
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used, consumed or
received. Deferred barter revenues are recognized as the related advertising is
aired.
OTHER ASSETS
- ------------
Other assets as of December 31, 1997 and 1998 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Unamortized costs relating to securities issuances ................ $ 43,011 $30,854
Equity interest investments ....................................... 2,850 4,003
Notes and accrued interest receivable ............................. 11,102 44,893
Purchase option ................................................... 27,826 2,000
Deposits and other costs relating to future acquisitions .......... 82,275 11,283
Other ............................................................. 1,031 371
-------- -------
$168,095 $93,404
======== =======
</TABLE>
ACQUIRED INTANGIBLE BROADCASTING ASSETS
- ---------------------------------------
Acquired intangible broadcasting assets are being amortized on a straight-line
basis over periods of 1 to 40 years. These amounts result from the acquisition
of certain television and radio station license and non-license assets. The
Company monitors the individual financial performance of each of the stations
and continually evaluates the realizability of intangible and tangible assets
and the existence of any impairment to its recoverability based on the projected
undiscounted cash flows of the respective stations. As of December 31, 1998,
Management believes that the carrying amounts of the Company's tangible and
intangible assets have not been impaired.
Intangible assets as of December 31, 1997 and 1998, consist of the following (in
thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1997 1998
--------------- ------------- -------------
<S> <C> <C> <C>
Goodwill ................................ 40 years $ 755,858 $1,475,666
Intangibles related to LMAs ............. 15 years 128,080 454,181
Decaying advertiser base ................ 15 years 95,657 113,854
FCC licenses ............................ 25 years 400,073 760,482
Network affiliations .................... 25 years 55,966 477,732
Other ................................... 1 -- 40 years 24,403 50,321
---------- ----------
1,460,037 3,332,236
Less-- Accumulated amortization ......... (138,061) (231,821)
---------- ----------
$1,321,976 $3,100,415
========== ==========
</TABLE>
ACCRUED LIABILITIES
- -------------------
Accrued liabilities consist of the following as of December 31, 1997 and 1998
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Compensation ........................................... $10,608 $19,108
Accrued taxes payable .................................. -- 10,788
Interest ............................................... 18,359 44,761
Other accruals relating to operating expenses .......... 11,565 21,693
------- -------
$40,532 $96,350
======= =======
</TABLE>
F-11
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
SUPPLEMENTAL INFORMATION -- STATEMENT OF CASH FLOWS
- ---------------------------------------------------
During 1996, 1997 and 1998 the Company incurred the following transactions (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
- - Purchase accounting adjustments related to deferred taxes $ 18,051 $ -- $113,950
======== ======= ========
- - Capital lease obligations incurred ...................... $ -- $10,927 $ 3,807
======== ======= ========
- - Issuance of Series A Preferred Stock .................... $125,079 $ -- $ --
======== ======= ========
- - Income taxes paid ....................................... $ 6,837 $ 6,502 $ 3,588
======== ======= ========
- - Subsidiary trust minority interest payments ............. $ -- $17,631 $ 23,250
======== ======= ========
- - Interest paid ........................................... $ 82,814 $98,521 $117,658
======== ======= ========
</TABLE>
LOCAL MARKETING AGREEMENTS
- --------------------------
The Company generally enters into LMAs, JSAs and similar arrangements with
stations located in markets in which the Company already owns and operates a
station, and in connection with acquisitions, pending regulatory approval of
transfer of License Assets. Under the terms of these agreements, the Company
makes specified periodic payments to the owner-operator in exchange for the
grant to the Company of the right to program and sell advertising on a specified
portion of the station's inventory of broadcast time. Nevertheless, as the
holder of the Federal Communications Commission (FCC) license, the
owner-operator retains control and responsibility for the operation of the
station, including responsibility over all programming broadcast on the station.
Included in the accompanying consolidated statements of operations for the years
ended December 31, 1996, 1997 and 1998, are net revenues of $153.0 million,
$135.0 million and $207.8 million, respectively, that relate to LMAs and JSAs.
BROADCAST ASSETS HELD FOR SALE
- ------------------------------
Broadcast assets held for sale primarily comprise four radio stations in the
Norfolk, Virginia market acquired in connection with the Heritage Acquisition
and Max Media Acquisition (see Note 11). The Company is required to divest of
certain of these radio stations due to FCC ownership guidelines. The Company is
currently engaged in discussions with potential buyers with respect to three of
these stations and expects to complete the sale of these stations during 1999.
The Company capitalized interest relating to the carrying cost associated with
these radio stations of $1.6 million for the year ended December 31, 1998.
RECLASSIFICATIONS
- -----------------
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
F-12
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
2. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements .............................. 10 -- 35 years
Station equipment ....................................... 5 -- 10 years
Office furniture and equipment .......................... 5 -- 10 years
Leasehold improvements .................................. 10 -- 31 years
Automotive equipment .................................... 3 -- 5 years
Property and equipment and autos under capital leases ... Shorter of 10 years
or the lease term
</TABLE>
Property and equipment consisted of the following as of December 31, 1997 and
1998 (in thousands):
1997 1998
------------ ------------
Land and improvements ........................... $ 10,225 $ 14,365
Buildings and improvements ...................... 41,436 58,415
Station equipment ............................... 130,586 230,221
Office furniture and equipment .................. 14,037 26,083
Leasehold improvements .......................... 8,457 11,516
Automotive equipment ............................ 4,090 9,122
--------- ---------
208,831 349,722
Less-- Accumulated depreciation and amortization (47,117) (69,331)
--------- ---------
$ 161,714 $ 280,391
========= =========
3. DERIVATIVE INSTRUMENTS:
The Company enters into derivative instruments primarily for the purpose of
reducing the impact of changing interest rates and to monitize the benefits
associated with a historically low interest rate environment. In addition, the
Company has entered into put and call option derivative instruments relating to
the Company's Class A Common Stock in order to hedge the possible dilutive
effect of employees exercising stock options pursuant to the Company's stock
option plans. The Company does not enter into derivative instruments for
speculative trading purposes. With the exception of the Company's Treasury
Option Derivative Instrument (described below), the Company does not reflect the
changes in fair market value related to derivative instruments in the
accompanying financial statements.
During 1998, FASB issued SFAS 133 "Accounting for Derivative Instruments and for
Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative investments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. SFAS 133 is
effective for the Company beginning January 1, 2000. The Company is evaluating
its eventual impact on its financial statements.
INTEREST RATE HEDGING DERIVATIVE INSTRUMENTS
- --------------------------------------------
The Company enters into interest rate derivativeinterest rate hedging agreements
to reduce the impact of changing interest rates on its floating rate debt. The
1998 Bank Credit Agreement, as amended and
F-13
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
restated, requires the Company to enter into Interest Rate Protection Agreements
at rates not to exceed 10% per annum as to a notional principal amount at least
equal to 60% of the Term Loan, Revolving Credit Facility and Senior Subordinated
Notes scheduled to be outstanding from time to time.
As of December 31, 1998, the Company had several interest rate swap agreements
which expire from July 7, 1999 to July 15, 2007. The swap agreements set rates
in the range of 5.5% to 8.1%. Floating interest rates are based upon the three
month London Interbank Offered Rate (LIBOR) rate, and the measurement and
settlement is performed quarterly. Settlements of these agreements are recorded
as adjustments to interest expense in the relevant periods. The notional amounts
related to these agreements was were $1.1 billion at December 31, 1998, and
decrease to $200 million through the expiration dates. In addition, the Company
has entered into floating rate derivatives with notional amounts totaling $200
million. Based on the Company's currently hedged position, $1.7 billion or 73%
of the Company's outstanding indebtedness is hedged.
The Company has no intentions of terminating these instruments prior to their
expiration dates unless it were to prepay a portion of its bank debt. The
counter parties to these agreements are international financial institutions.
The Company estimates the fair value of these instruments at December 31, 1997
and 1998 to be $0.7 million and $3.0 million, respectively. The fair value of
the interest rate hedging derivative instruments is estimated by obtaining
quotations from the financial institutions which are a party to the Company's
derivative contracts (the "Banks"). The fair value is an estimate of the net
amount that the Company would pay at December 31, 1998 if the contracts were
transferred to other parties or canceled by the Banks.
TREASURY OPTION DERIVATIVE INSTRUMENT
- -------------------------------------
In August 1998, the Company entered into a treasury option derivative contract
(the "Option Derivative"). The Option Derivative contract provides for 1) an
option exercise date of September 30, 2000, 2) a notional amount of $300 million
and 3) a five-year treasury strike rate of 6.14%. If the interest rate yield on
five year treasury securities is less than the strike rate on the option
exercise date, the Company would be obligated to pay five consecutive annual
payments in an amount equal to the strike rate less the five year treasury rate
multiplied by the notional amount beginning September 30, 2001 through September
30, 2006. If the interest rate yield on five year treasury securities is greater
than the strike rate on the option exercise date, the Company would not be
obligated to make any payments.
Upon the execution of the Option Derivative contract, the Company received a
cash payment representing an option premium of $9.5 million which was recorded
in "Other long-term liabilities" in the accompanying balance sheets. The Company
is required to periodically adjust its liability to the present value of the
future payments of the settlement amounts based on the forward five year
treasury rate at the end of an accounting period. The fair market value
adjustment for 1998 resulted in an income statement charge (unrealized loss) of
$9.1 million for the year ended December 31, 1998.
EQUITY PUT AND CALL OPTION DERIVATIVE INSTRUMENTS
- -------------------------------------------------
1996 OPTIONS
During December 1996, the Company entered into put and call option contracts
related to the Company's common stock. These option contracts were entered into
for the purpose of hedging the dilution of the Company's common stock upon the
exercise of stock options granted and can either be physically settled in cash
or net physically settled in shares, at the election of the Company. The Company
entered into 500,000 call options for common stock and 641,200 put options for
common stock, with a strike price of $18.875 and $13.94 per common share,
respectively.
F-14
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
1997 OPTIONS
In April 1997, the Company entered into additional put and call option contracts
related to its common stock for the purpose of hedging the dilution of the
common stock upon the exercise of stock options granted. The Company entered
into 1,100,000 European style (that is, exercisable on the expiration date only)
put options for common stock with a strike price of $12.89 per share which
provide for settlement in cash or in shares, at the election of the Company. The
Company entered into 1,100,000 American style (that is, exercisable any time on
or before the expiration date) call options for common stock with a strike price
of $12.89 per share which provide for settlement in cash or in shares, at the
election of the Company.
1998 OPTIONS
In July 1998, the Company entered into put and call option contracts related to
the Company's common stock (the "July Options"). In September 1998, the Company
entered into additional put and call option contracts related to the Company's
common stock (the "September Options"). These option contracts allow for
settlement in cash or net physically in shares, at the election of the Company.
The Company entered into these option contracts for the purpose of hedging the
dilution of the Company's common stock upon the exercise of stock options
granted. The July Options included 2,700,000 call options for common stock and
2,700,000 put options for common stock, with a strike price of $33.27 and $28.93
per common share, respectively. The September Options included 467,000 call
options for common stock and 700,000 put options for common stock, with a strike
price of $28.00 and $16.0625 per common share, respectively. For the year ended
December 31, 1998, option premium payments of $12.2 million and $0.7 million
were made relating to the July and September Options, respectively. The Company
recorded these premium payments as a reduction of additional paid-in capital. To
the extent that the Company entered into put options related to its common
stock, the additional paid-in capital amounts were reclassified accordingly and
reflected as Equity Put Options in the accompanying balance sheet as of December
31, 1998.
4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
1996 BANK CREDIT AGREEMENT
- --------------------------
In order to finance the acquisition of the non-license assets of River City and
potential future acquisitions, the Company amended and restated its Bank Credit
Agreement on May 31, 1996 (the "1996 Bank Credit Agreement"). The 1996 Bank
Credit Agreement consisted of three classes: Tranche A Term Loan, Tranche B Term
Loan and a Revolving Credit Commitment.
The Tranche A Term Loan was a term loan in a principal amount not to exceed $550
million and was scheduled to be paid in quarterly installments beginning
December 31, 1996 through December 31, 2002. The Tranche B Term Loan was a term
loan in a principal amount not to exceed $200 million and was scheduled to be
paid in quarterly installments beginning December 31, 1996 through November
2003. The Revolving Credit Commitment was a revolving credit facility in a
principal amount not to exceed $250 million and was scheduled to have reduced
availability quarterly beginning March 31, 1999 through November 30, 2003.
The applicable interest rate for the Tranche A Term Loan and the Revolving
Credit Commitment was either LIBOR plus 1.25% to 2.5% or the alternative base
rate plus zero to 1.25%. The applicable interest rate for the Tranche A Term
Loan and the Revolving Credit Commitment was adjusted based on the ratio of
total debt to four quarters trailing earnings before interest, taxes,
depreciation and amortization. The applicable interest rate for Tranche B was
either LIBOR plus 2.75% or the base rate plus 1.75%. The weighted average
interest rates for outstanding indebtedness relating to the 1996 Bank Credit
Agreement
F-15
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
during 1996 and as of December 31, 1996, were 8.08% and 8.12%, respectively.
Interest expense relating to the 1996 Bank Credit Agreement was $40.4 million
for the year ended December 31, 1996. The Company amended and restated the
1997 BANK CREDIT AGREEMENT
- --------------------------
In order to expand its capacity and obtain more favorable terms with its
syndicate of banks, the Company amended and restated the 1996 Bank Credit
Agreement in May 1997 (the "1997 Bank Credit Agreement"). Contemporaneously with
the 1997 Preferred Stock Offering and the 1997 Common Stock Offering (see Note
12) consummated in September 1997, the Company amended its 1997 Bank Credit
Agreement. The 1997 Bank Credit Agreement, as amended, consisted of two classes:
Tranche A Term Loan Term loan and a Revolving Credit Commitment.
The Tranche A Term Loan was a term loan in a principal amount not to exceed $325
million and was scheduled to be paid in quarterly installments through December
31, 2004. The Revolving Credit Commitment was a revolving credit facility in a
principal amount not to exceed $675 million and was scheduled to have reduced
availability quarterly through December 31, 2004. As of December 31, 1997,
outstanding indebtedness under the Tranche A Term Loan and the Revolving Credit
Commitment were $307.1 million and $-0- respectively.
The applicable interest rate for the Tranche A Term Loan and the Revolving
Credit Commitment was either LIBOR plus 0.5% to 1.875% or the alternative base
rate plus zero to 0.625%. The applicable interest rate for the Tranche A Term
Loan and the Revolving Credit Commitment was to be adjusted based on the ratio
of total debt to four quarters' trailing earnings before interest, taxes,
depreciation and amortization. The weighted average interest rates for
outstanding indebtedness relating to the 1997 Bank Credit Agreement during 1997
and as of December 31, 1997 were 7.4% and 8.5%, respectively. The interest
expense relating to the 1997 Bank Credit Agreement was $46.7 million for the
year ended December 31, 1997. The Company replaced the 1997 Bank Credit
Agreement with the 1998 Bank Credit Agreement in May 1998 as discussed below.
1998 BANK CREDIT AGREEMENT
- --------------------------
In order to expand its borrowing capacity to fund future acquisitions and obtain
more favorable terms with its syndicate of banks, the Company obtained a new
$1.75 billion senior secured credit facility (the "1998 Bank Credit Agreement").
The 1998 Bank Credit Agreement was executed in May of 1998 and includes (i) a
$750.0 million Term Loan Facility repayable in consecutive quarterly
installments commencing on March 31, 1999 and ending on September 15, 2005; and
(ii) a $1.0 billion reducing Revolving Credit Facility. Availability under the
Revolving Credit Facility reduces quarterly, commencing March 31, 2001 and
terminating on September 15, 2005. Not more than $350.0 million of the Revolving
Credit Facility will be available for issuances of letters of credit. The 1998
Bank Credit Agreement also includes a standby uncommitted multiple draw term
loan facility of $400.0 million. The Company is required to prepay the term loan
facility and reduce the revolving credit facility with (i) 100% of the net
proceeds of any casualty loss or condemnation; (ii) 100% of the net proceeds of
any sale or other disposition by the Company of any assets in excess of $100.0
million in the aggregate for any fiscal year, to the extent not used to acquire
new assets; and (iii) 50% of excess cash flow (as defined) if the Company's
ratio of debt to EBITDA (as defined) exceeds a certain threshold. The 1998 Bank
Credit Agreement contains representations and warranties, and affirmative and
negative covenants, including among other restrictions, limitations on
additional indebtedness, customary for credit facilities of this type. The 1998
Bank Credit Agreement is secured only by a pledge of the stock of each
subsidiary of the Company other than KDSM, Inc., KDSM Licensee, Inc., Cresap
Enterprises, Inc. and Sinclair Capital. The Company is required to maintain
certain debt covenants in connection with the 1998 Bank Credit Agreement. As of
December 31, 1998, the Company is in compliance with all debt covenants.
F-16
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
The applicable interest rate for the Term Loan Facility and the Revolving Credit
Facility is either LIBOR plus 0.5% to 1.875% or the alternative base rate plus
zero to 0.625%. The applicable interest rate for the Term Loan Facility and the
Revolving Credit Facility is adjusted based on the ratio of total debt to four
quarters' trailing earnings before interest, taxes, depreciation and
amortization. As of December 31, 1998, the Company's applicable interest rate
for borrowings under the 1998 Bank Credit Agreement is either LIBOR plus 1.5% or
the alternative base rate plus .25%.
As a result of entering into the Company's 1998 Bank Credit Agreement, the
Company incurred debt acquisition costs of $11.1 million and recognized an
extraordinary loss of $11.1 million net of a tax benefit of $7.4 million. The
extraordinary loss represents the write-off of debt acquisition costs associated
with indebtedness replaced by the new facility. The weighted average interest
rates for outstanding indebtedness relating to the 1998 Bank Credit Agreement
during 1998 and as of December 31, 1998 were 6.8% and 6.3%, respectively.
Combined interest expense relating to the 1997 and 1998 Bank Credit Agreements
was $66.1 million for year ended December 31, 1998.
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
- -----------------------------------------
In December 1997, the Company completed an issuance of $250 million aggregate
principal amount of 8 3/4% Senior Subordinated Notes due 2007 (the "8 3/4%
Notes") pursuant to a shelf registration statement and generated net proceeds to
the Company of $242.8 million. Of the net proceeds from the issuance, $106.2
million was utilized to tender the Company's 1993 Notes with the remainder
retained for general corporate purposes which may include payments relating to
future acquisitions.
Interest on the 8 3/4% Notes is payable semiannually on June 15 and December 15
of each year, commencing June 15, 1998. Interest expense for the year ended
December 31, 1997 and 1998 was $0.9 million and $21.9 million, respectively. The
8 3/4% Notes are issued under an Indenture among SBG, its subsidiaries (the
guarantors) and the trustee. Costs associated with the offering totaled $5.8
million, including an underwriting discount of $5.0 million. These costs were
capitalized and are being amortized over the life of the debt.
Based upon the quoted market price, the fair value of the 8 3/4% Notes as of
December 31, 1997 and 1998 was $250.6 million and $254.4 million, respectively.
9% SENIOR SUBORDINATED NOTES DUE 2007
- -------------------------------------
In July 1997, the Company completed an issuance of $200 million aggregate
principal amount of 9% Senior Subordinated Notes due 2007 (the "9% Notes"). The
Company utilized $162.5 million of the approximately $195.6 million net proceeds
of the issuance to repay outstanding revolving credit indebtedness under the
1997 Bank Credit Agreement and utilized the remainder to fund acquisitions.
Interest on the 9% Notes is payable semiannually on January 15 and July 15 of
each year, commencing January 15, 1998. Interest expense for the years ended
December 31, 1997 and 1998 was $9.0 million and $18.0 million, respectively. The
9% Notes are issued under an Indenture among SBG, its subsidiaries (the
guarantors) and the trustee. Costs associated with the offering totaled $4.8
million, including an underwriting discount of $4.0 million. These costs were
capitalized and are being amortized over the life of the debt.
Based upon the quoted market price, the fair value of the 9% Notes as of
December 31, 1997 and 1998 was $206.4 million and $205.3 million, respectively.
10% SENIOR SUBORDINATED NOTES DUE 2005
- --------------------------------------
In August 1995, the Company completed an issuance of $300 million aggregate
principal amount of 10% Senior Subordinated Notes (the "1995 Notes"), due 2005,
generating net proceeds to the Company of $293.2 million. The net proceeds of
this offering were utilized to repay outstanding indebtedness under the then
existing Bank Credit Agreement of $201.8 million with the remainder being
retained and eventually utilized to make payments related to certain
acquisitions consummated during 1996.
F-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
Interest on the Notes is payable semiannually on notes is due March 30 and
September 30 of each year, commencing March 30, 1996. Interest expense was $30.0
million for each of the three years ended December 31, 1996, 1997 and 1998. The
notes are issued under an indenture among SBG, its subsidiaries (the guarantors)
and the trustee. Costs associated with the offering totaled $6.8 million,
including an underwriting discount of $6.0 million and are being amortized over
the life of the debtinterest.
Based upon the quoted market price, the fair value of the 1995 Notes as of
December 31, 1997 and 1998 was $322.2 million and $319.8 million, respectively.
10% SENIOR SUBORDINATED NOTES DUE 2003 AND 1997 TENDER OFFER
- ------------------------------------------------------------
In December 1993, the Company completed an issuance of $200 million aggregate
principal amount of 10% Senior Subordinated Notes (the "1993 Notes"), due 2003
(the Notes). Subsequently, the Company determined that a redemption of $100.0
million was required. This redemption and a refund of $1.0 million of fees from
the underwriters took place in the first quarter of 1994.
In December 1997, the Company completed a tender offer of $98.1 million
aggregate principal amount of the 1993 Notes (the "Tender Offer"). Total
consideration per $1,000 principal amount note tendered was $1,082.08 resulting
in total consideration paid to consummate the Tender Offer of $106.2 million. In
conjunction with the Tender Offer, the Company recorded an extraordinary loss of
$6.1 million, net of a tax benefit of $4.0 million.
Interest on the Notes not tendered is payable semiannually ondue June 15 and
December 15 of each year. Interest expense for the years ended December 31,
1996, 1997 and 1998, was $10.0 million, $9.6 million and $0.2 million,
respectively. The Notes are issued under an Indenture among SBG, its
subsidiaries (the guarantors) and the trustee.
Based upon the quoted market price, the fair value of the 1993 Notes as of
December 31, 1998 is $2.0 million.
SUMMARY
- -------
Notes payable and commercial bank financing consisted of the following as of
December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Bank Credit Agreement, Term Loan ...................................... $ 307,125 $ 750,000
Bank Credit Agreement, Revolving Credit Facility ...................... -- 803,000
8 3/4% Senior Subordinated Notes, due 2007 ............................ 250,000 250,000
9% Senior Subordinated Notes, due 2007 ................................ 200,000 200,000
10% Senior Subordinated Notes, due 2003 ............................... 1,899 1,899
10% Senior Subordinated Notes, due 2005 ............................... 300,000 300,000
Installment note for certain real estate interest at 8.0% ............. 101 94
---------- ----------
1,059,125 2,304,993
Less: Discount on 8 3/4% Senior Subordinated Notes, due 2007 .......... (976) (878)
Less:Current portion .................................................. (35,215) (50,007)
---------- ----------
$1,022,934 $2,254,108
========== ==========
</TABLE>
F-18
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
Indebtedness under the 1998 Bank Credit Agreement and notes payable as of
December 31, 1998, mature as follows (in thousands):
<TABLE>
<S> <C>
1999 ................................................................ $ 50,007
2000 ................................................................ 75,008
2001 ................................................................ 100,009
2002 ................................................................ 203,009
2003 ................................................................ 276,909
2004 and thereafter ................................................. 1,600,051
----------
2,304,993
Less: Discount on 8 3/4% Senior Subordinated Notes, due 2007 ........ (878)
----------
$2,304,115
==========
</TABLE>
Substantially all of the Company's stock in its wholly owned subsidiaries has
been pledged as security for notes payable and commercial bank financing.
5. NOTES AND CAPITAL LEASES PAYABLE TO AFFILIATES:
Notes and capital leases payable to affiliates consisted of the following as of
December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Subordinated installment notes payable to former majority owners,
interest at 8.75%, principal payments in varying amounts due annually
beginning October 1991, with a balloon payment due at maturity in
May 2005 ............................................................... $ 9,574 $ 8,636
Capital lease for building, interest at 17.5% ............................ 1,198 972
Capital leases for broadcasting tower facilities, interest rates
averaging 10% ........................................................... 3,720 3,566
Capitalization of time brokerage agreements, interest at 6.73% to 8.25% . 6,611 8,943
Capital leases for building and tower, interest at 8.25% ................. 1,470 989
-------- --------
22,573 23,106
Less:Current portion ..................................................... (3,073) (4,063)
-------- --------
$ 19,500 $ 19,043
======== ========
</TABLE>
Notes and capital leases payable to affiliates, as of December 31, 1998, mature
as follows (in thousands):
<TABLE>
<S> <C>
1999 ............................................................. $ 5,868
2000 ............................................................. 5,811
2001 ............................................................. 5,262
2002 ............................................................. 4,091
2003 ............................................................. 2,782
2004 and thereafter .............................................. 5,967
--------
Total minimum payments due ....................................... 29,781
Less: Amount representing interest ............................... (6,675)
--------
Present value of future notes and capital lease payments ......... $ 23,106
========
</TABLE>
F-19
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
6. PROGRAM CONTRACTS PAYABLE:
Future payments required under program contracts payable as of December 31,
1998, are as follows (in thousands):
1999 ................................................... $ 94,780
2000 ................................................... 44,805
2001 ................................................... 22,364
2002 ................................................... 5,679
2003 ................................................... 1,246
2004 and thereafter .................................... 708
---------
169,582
Less: Current portion .................................. (94,780)
---------
Long-term portion of program contracts payable ......... $ 74,802
=========
Included in the current portion amounts are payments due in arrears of $20.7
million. In addition, the Companies have entered into noncancelable commitments
for future program rights aggregating $153.0 million as of December 31, 1998.
The Company has estimated the fair value of its program contract payables and
noncancelable commitments at approximately $118.9 million and $46.7 million,
respectively, as of December 31, 1997, and $148.9 million and $126.3 million,
respectively, at December 31, 1998. These estimates are based on future cash
flows discounted at the Company's current borrowing rate.
7. RELATED PARTY TRANSACTIONS:
In connection with the start-up of an affiliate in 1990, certain SBG Class B
Stockholders issued a note allowing them to borrow up to $3.0 million from the
Company. This note was amended and restated June 1, 1994, to a term loan bearing
interest of 6.88% with quarterly principal payments beginning March 31, 1996
through December 31, 1999. As of December 31, 1993, 1997 and 1998, the balance
outstanding was approximately $1.3 and $0.7 million, respectively.
During the year ended December 31, 1993, the Company loaned Gerstell Development
Limited Partnership (a partnership owned by Class B Stockholders) $2.1 million.
The note bears interest at 6.18%, with principal payments beginning on November
1, 1994, and a final maturity date of October 1, 2013. As of December 31, 1997
and 1998, the balance outstanding was approximately $1.9 million and $1.8
million, respectively.
Concurrently with the Company's initial public offering, the Company acquired
options from certain stockholders of Glencairn, LTD (Glencairn) that will grant
the Company the right to acquire, subject to applicable FCC rules and
regulations, up to 97% of the capital stock of Glencairn. The Glencairn option
exercise price is based on a formula that provides a 10% annual return to
Glencairn. Glencairn is the owner-operator and FCC licensee of WNUV in
Baltimore, WVTV in Milwaukee, WRDC in Raleigh/Durham, WABM in Birmingham, KRRT
in Kerrville, WFBC in Asheville/Greenville/Spartanburg and WTTE in Columbus. The
Company has entered into five-year LMA agreements (with five-year renewal terms
at the Company's option) with Glencairn pursuant to which the Company provides
programming to Glencairn for airing on WNUV, WVTV, WRDC, WABM, KRRT, WFBC and
WTTE. During the years ended December 31, 1996, 1997 and 1998, the Company made
payments of $7.3 million, $8.4 million and $9.8 million, respectively, to
Glencairn under these LMA agreements.
F-20
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
During the years ended December 31, 1996, 1997 and 1998, the Company from time
to time entered into charter arrangements to lease aircraft owned by certain
Class B stockholders. During the years ended December 31, 1996, 1997 and 1998,
the Company incurred expenses of approximately $0.3 million, $0.7 million and
$0.6 million related to these arrangements, respectively.
In May 1996, the Company acquired certain assets from River City, obtained
options to acquire other assets from River City and entered into an LMA to
provide programming services to certain television and radio stations, of which
River City is the owner of the License Assets. Certain individuals who are
direct or indirect beneficial owners of equity interests in River City are
affiliates of the Company. During the years ended December 31, 1996, 1997 and
1998, the Company incurred LMA expenses relating to River City of $1.4 million,
$.9 million and $.2 million, respectively.
An individual who is an affiliate of the Company is the owner of 100% of the
common stock of Keymarket of South Carolina, Inc. ("KSC"). The Company exercised
its option to acquire the assets of KSC for consideration of forgiveness of
approximately $8.0 million of KSC debt. During 1997, the Company also purchased
two properties from this affiliate for an aggregate purchase price of
approximately $1.75 million as required by certain leases assigned to the
Company in connection with the River City acquisition.
Certain assets used by the Company's operating subsidiaries are leased from
Cunningham, KIG and Gerstell (entities owned by the Class B Stockholders). Lease
payments made to these entities were $1.3 million, $1.4 million, and $1.5
million for the years ended December 31, 1996, 1997 and 1998, respectively.
8. INCOME TAXES:
The Company files a consolidated federal income tax return and separate company
state tax returns. The provision (benefit) for income taxes consists of the
following as of December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------------- ----------
<S> <C> <C> <C>
Provision for income taxes before extraordinary item .......... $6,936 $ 15,984 $ 45,658
Income tax effect of extraordinary item ....................... -- (4,045) (7,370)
------ --------- --------
$6,936 $ 11,939 $ 38,288
====== ========= ========
Current:
Federal ...................................................... $ 127 $ (10,581) $ 3,953
State ........................................................ 4,479 1,938 3,635
------ --------- --------
4,606 (8,643) 7,588
------ --------- --------
Deferred:
Federal ...................................................... 2,065 18,177 26,012
State ........................................................ 265 2,405 4,688
------ --------- --------
2,330 20,582 30,700
------ --------- --------
$6,936 $ 11,939 $ 38,288
====== ========= ========
</TABLE>
F-21
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
The following is a reconciliation of federal income taxes at the applicable
statutory rate to the recorded provision:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income taxes ............................................ 35.0% 35.0% 35.0%
Adjustments--
State income and franchise taxes, net of federal effect .................. 16.7 6.3 9.5
Goodwill amortization .................................................... 24.3 17.0 17.2
Non-deductible expense items ............................................. 6.1 8.5 3.2
Tax liability related to dividends on Parent Preferred Stock (a) ......... -- 70.3 43.8
Other .................................................................... 3.9 2.0 5.9
---- ----- -----
Provision for income taxes ................................................ 86.0% 139.1% 114.6%
==== ===== =====
</TABLE>
- ----------
(a) In March 1997, the Company issued the HYTOPS securities. In connection with
this transaction, Sinclair Broadcast Group, Inc. (the "Parent") issued
$206.2 million of Series C Preferred Stock (the "Parent Preferred Stock") to
KDSM, Inc., a wholly owned subsidiary. Parent Preferred Stock dividends paid
to KDSM, Inc. are considered taxable income for Federal tax purposes and not
considered income for book purposes. Also for Federal tax purposes, KDSM,
Inc. is allowed a tax deduction for dividends received on the Parent
Preferred Stock in an amount equal to Parent Preferred Stock dividends
received in each taxable year limited to the extent that the Parent's
consolidated group has "earnings and profits." To the extent that dividends
received by KDSM, Inc. are in excess of the Parent's consolidated group
earnings and profits, the Parent will reduce its tax basis in the Parent
Preferred Stock which gives rise to a deferred tax liability (to be
recognized upon redemption) and KDSM, Inc.'s dividend income is treated as a
permanent difference between taxable income and book income. During the
years ended December 31, 1997 and 1998, the Parent did not generate
"earnings and profits" in an amount greater than or equal to dividends paid
on the Parent Preferred Stock. This resulted in a reduction in basis of the
Parent's Series C Preferred Stock and generated a related deferred tax
liability.
Temporary differences between the financial reporting carrying amounts and the
tax basis of assets and liabilities give rise to deferred taxes. The Company had
a net deferred tax liability of $21.5 million and $165.5 million as of December
31, 1997 and 1998, respectively. The realization of deferred tax assets is
contingent upon the Company's ability to generate sufficient future taxable
income to realize the future tax benefits associated with the net deferred tax
asset. Management believes that deferred assets will be realized through future
operating results.
The Company has total available Federal NOL's of approximately $58.5 million as
of December 31, 1998, which expire during various years from 2001 to 2012. These
NOL's are recorded in the deferred tax accounts in the accompanying Consolidated
Balance Sheet as of December 31, 1998. Of these NOL's, $49.1 million are limited
to use within a specific entity and subject to annual limitations under Internal
Revenue Code Section 382 and similar state provisions.
Total deferred tax assets and deferred tax liabilities as of December 31, 1997
and 1998, including the effects of businesses acquired, and the sources of the
difference between financial accounting and tax bases of the Company's assets
and liabilities which give rise to the deferred tax assets and deferred tax
liabilities and the tax effects of each are as follows (in thousands):
1997 1998
--------- ---------
Deferred Tax Assets:
Accruals and reserves .................... $ 3,015 $ 7,238
Loss on disposal of fixed assets ......... 148 1,551
Net operating losses ..................... 10,435 28,809
Program contracts ........................ 3,410 1,283
Tax credits .............................. -- 3,110
Treasury option derivative ............... -- 3,601
Other .................................... 903 2,433
------- -------
$17,911 $48,025
======= =======
F-22
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Deferred Tax Liabilities:
FCC license ........................................................... $ 5,346 $ 23,394
Parent Preferred Stock deferred tax liability [see (a) above] ......... 8,388 25,833
Fixed assets and intangibles .......................................... 23,572 160,759
Capital lease accounting .............................................. 1,647 1,998
Investment in partnerships ............................................ 420 734
Other ................................................................. 80 834
------- --------
$39,453 $213,552
======= ========
</TABLE>
During 1998, the Company acquired the stock of Sullivan Broadcast Holdings, Inc.
(Sullivan), Lakeland Group Television, Inc. (Lakeland) and the direct and
indirect interests of Max Media Properties LLC (Max Media). The Company recorded
net deferred tax liabilities resulting from these purchases of approximately
$114.0 million under the purchase accounting guidelines of APB 16 and in
accordance with SFAS 109. These net deferred tax liabilities primarily relate to
the permanent differences between financial reporting carrying amounts and tax
basis amounts measured upon the purchase date.
9. EMPLOYEE BENEFIT PLAN:
The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the
"SBG Plan") covers eligible employees of the Company. Contributions made to the
SBG Plan include an employee elected salary reduction amount, company matching
contributions and a discretionary amount determined each year by the Board of
Directors. The Company's 401(k) expense for the years ended December 31, 1996,
1997 and 1998, was $0.7 million, $1.0 million and $1.6 million, respectively.
There were no discretionary contributions during these periods. During December
1997, the Company registered 800,000 shares of its Class "A" Common Stock with
the Securities and Exchange Commission (the "Commission") to be issued as a
matching contribution for the 1997 plan year and subsequent plan years.
10. CONTINGENCIES AND OTHER COMMITMENTS:
LITIGATION
- ----------
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.
OPERATING LEASES
- ----------------
The Company has entered into operating leases for certain property and equipment
under terms ranging from three to ten years. The rent expense under these
leases, as well as certain leases under month-to-month arrangements, for the
years ended December 31, 1996, 1997 and 1998, aggregated approximately $3.1
million, $3.9 million and $6.8 million, respectively.
F-23
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
Future minimum payments under the leases are as follows (in thousands):
1999 ........................ $ 7,211
2000 ........................ 5,312
2001 ........................ 4,340
2002 ........................ 3,611
2003 ........................ 2,662
2004 and thereafter ......... 13,023
-------
$36,159
=======
11. ACQUISITIONS:
1996 ACQUISITIONS
- -----------------
RIVER CITY ACQUISITION
In May 1996, the Company acquired certain non-license assets of River City for a
purchase price of $967.1 million, providing as consideration 1,150,000 shares of
Series A Convertible Preferred Stock with a fair market value of $125.1 million,
1,382,435 stock options with a fair market value of $23.9 million and cash
payments totaling $818.1 million. The Company utilized indebtedness under its
Bank Credit Agreement to finance the transaction. The acquisition was accounted
for under the purchase method of accounting whereby the purchase price was
allocated to property and programming assets, acquired intangible broadcasting
assets and other intangible assets for $82.8 million, $375.6 million and $508.7
million, respectively, based upon an independent appraisal. Intangible assets
are being amortized over 1 to 40 years.
In May 1996, the Company also entered into option agreements to purchase certain
license assets for an aggregate option exercise price of $20 million. During
1996 and 1997, the Company exercised its options to acquire the FCC licenses for
option exercise prices totaling $18.2 million and now owns all of the license
assets of the television and radio stations with respect to which it acquired
non-license assets from River City, other than WTTV-TV and WTTK-TV in
Indianapolis, Indiana. In addition, the Company entered into an option agreement
to purchase the license and non-license assets of WSYX-TV in Columbus, Ohio.
During 1998, the Company exercised its option to acquire the non-license assets
of WSYX (see discussion below).
In connection with the River City acquisition, the Company consummated the
following transactions concurrent with or subsequent to the closing:
1. Series A Preferred Stock -- As partial consideration for the acquisition of
the non-license assets of River City, the Company issued 1,150,000 shares of
Series A Preferred Stock. In June 1996, the Board of Directors of the Company
adopted, upon approval of the stockholders by proxy, an amendment to the
Company's amended and restated charter at which time Series A Preferred Stock
was exchanged for and converted into Series B Preferred Stock. The Company
recorded the issuance of Series A Preferred Stock in an amount equal to its
fair market value on the date the River City acquisition was announced.
2. 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 7.27 shares of
Series A Common Stock. The Company may redeem shares of Series B Preferred
Stock only after the occurrence of certain events. If the Company seeks to
redeem shares of Series B Preferred Stock and the stockholder elects to
retain the shares, the shares will automatically be
F-24
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
converted into common stock on the proposed redemption date. All shares of
Series B Preferred stock remaining outstanding as of May 31, 2001, will
automatically convert into Class A Common Stock. Series B Preferred Stock is
entitled to 7.27 votes on all matters with respect to which Class A Common
Stock has a vote.
3. The Baker Agreement -- In connection with the acquisition of River City, the
Company entered into a five year agreement (the "Baker Agreement") with Barry
Baker (the Chief Executive Officer of River City) pursuant to which Mr. Baker
served as a consultant to the Company until terminating such services
effective March 8, 1999 (the "Termination Date"). Under the terms of the
Baker Agreement, until such time as Mr. Baker was able to become an officer
of the Company, he was to serve as a consultant to the Company and receive
compensation that he would be entitled to as an officer under the Baker
Agreement. Additionally, if the Company terminated the Baker Agreement other
than for cause (as defined) or Mr. Baker terminated the Baker Agreement for
good cause (constituting certain occurrences specified in the agreement), Mr.
Baker would be entitled to certain termination payments primarily
representing consulting fees which would have been paid under the remaining
term of the Baker Agreement.
As of February 8, 1999, the conditions to Mr. Baker becoming an officer of the
Company had not been satisfied, and on that date Mr. Baker and the Company
entered into a termination agreement with effect on March 8, 1999. Mr. Baker
has certain rights as a consequence of the termination of the Baker Agreement.
These rights included entitlement to the termination payments described above
and the right to purchase at fair market value the television and radio
stations owned by the Company serving the St. Louis, Missouri market or the
Greenville/Spartanburg/Ashville, South Carolina market (the "Broadcast
Option"). Mr. Baker has 180 days from the Termination Date to exercise the
Broadcast Option. Additional rights under the Baker Agreement also include
allowing Mr. Baker to convert his Class A Common Stock into a class of
preferred stock. Mr. Baker's Class A Common Stock would be convertible into
preferred stock at a liquidation value conversion rate of $13.75 per share and
would begin accruing a dividend beginning 180 days from the Termination Date.
Mr. Baker has 160 days from the Termination Date to elect conversion of his
Class A Common Stock.
Also, in conjunction with the River City acquisition, the Company entered into
an agreement to purchase the non-license assets of KRRT, Inc., a television
station in San Antonio, Texas, for a purchase price of $29.5 million. The
acquisition was accounted for under the purchase method of accounting whereby
the purchase price was allocated to property and programming assets, acquired
intangible broadcasting assets and other intangible assets for $3.8 million,
$0.4 million and $25.3 million, respectively, based upon an independent
appraisal.
OTHER 1996 ACQUISITIONS
- -----------------------
WSMH ACQUISITION. In May 1995, the Company entered into option agreements to
acquire all of the license and non-license assets of WSMH-TV in Flint, Michigan
(WSMH). In July 1995, the Company paid the $1.0 million option exercise price to
exercise its option and in February 1996, the Company consummated the
acquisition for a purchase price of $35.4 million. The acquisition was accounted
for under the purchase method of accounting whereby the purchase price was
allocated to property and programming assets, acquired intangible broadcasting
assets and other intangible assets for $1.9 million, $6.0 million and $27.5
million, respectively, based upon an independent appraisal.
SUPERIOR ACQUISITION. In March 1996, the Company entered into an agreement to
acquire the outstanding stock of Superior Communications, Inc. (Superior) which
owns the license and non-license assets of the television stations KOCB in
Oklahoma City, Oklahoma and WDKY in Lexington, Kentucky. In May 1996, the
Company consummated the acquisition for a purchase price of $63.5 million. The
acquisition
F-25
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
was accounted for under the purchase method of accounting whereby the purchase
price was allocated to property and programming assets, acquired intangible
broadcasting assets and other intangible assets for $7.3 million, $20.4 million
and $35.8 million, respectively, based upon an independent appraisal.
WYZZ ACQUISITION. In January 1996, the Company entered into an agreement to
acquire license and non-license assets of the television station WYZZ in Peoria,
Illinois. In July 1996, the Company consummated the acquisition for a purchase
price of $21.1 million. The acquisition was accounted for under the purchase
method of accounting whereby the purchase price was allocated to property and
programming assets, acquired intangible broadcasting assets and other intangible
assets for $2.2 million, $4.3 million and $14.6 million, respectively, based
upon an independent appraisal.
KSMO ACQUISITION. In July 1996, the Company entered into an agreement to acquire
license and non-license assets of the television station KSMO in Kansas City,
Missouri through the exercise of its options described in Note 13 for a total
purchase price of $10.0 million. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets and acquired intangible broadcasting assets for
$4.6 million and $5.4 million, respectively, based upon an independent
appraisal.
WSTR ACQUISITION. In August 1996, the Company acquired the license and
non-license assets of the television station WSTR in Cincinnati, Ohio for a
total purchase price of $8.7 million. The acquisition was accounted for under
the purchase method of accounting whereby the purchase price was allocated to
property and programming assets and acquired intangible broadcasting assets for
$6.2 million and $2.5 million, respectively, based upon an independent
appraisal.
1997 ACQUISITION
- ----------------
KUPN ACQUISITION. In January 1997, the Company entered into a purchase agreement
to acquire the license and non-license assets of KUPN-TV, the UPN affiliate in
Las Vegas, Nevada, for a purchase price of $87.5 million. Under the terms of
this agreement, the Company made cash deposit payments of $9.0 million and in
May 1997, the Company closed on the acquisition making cash payments of $78.5
million for the remaining balance of the purchase price and other related
closing costs. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and programming
assets, acquired intangible broadcasting assets and other intangible assets for
$1.6 million, $17.9 million and $68.0 million, respectively, based upon an
independent appraisal. The Company financed the transaction by utilizing
proceeds from the HYTOPS offering combined with indebtedness under the 1997 Bank
Credit Agreement.
1998 ACQUISITIONS AND DISPOSITIONS
- ----------------------------------
HERITAGE ACQUISITION. In July 1997, the Company entered into a purchase
agreement to acquire certain assets of the radio and television stations of
Heritage for approximately $630 million (the "Heritage Acquisition"). Pursuant
to the Heritage Acquisition, and after giving effect to the STC Disposition,
Entercom Disposition and Centennial Disposition 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. In July
1998, the Company acquired three radio stations in the New Orleans, Louisiana
market and simultaneously disposed of two of those stations (see the Centennial
Disposition below). The acquisition was accounted for under the purchase method
of accounting whereby the net purchase price for stations not sold was allocated
to property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $22.6 million, $222.8 million and $102.6 million,
respectively, based on an independent appraisal.
F-26
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
1998 STC DISPOSITION. In February 1998, the Company 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. In April 1998, the Company
closed on the sale of the non-license assets of the three television stations in
the Burlington, Vermont and Plattsburgh, New York market for aggregate
consideration of approximately $70.0 million. During the third quarter of 1998,
the Company sold the license assets for a sales price of $2.0 million.
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. Currently, the Company is a
Guarantor of Montecito Indebtedness of approximately $33.0 million. The Company
cannot acquire Montecito unless and until FCC rules permit SBG to own the
broadcast license for more than one station in the Las Vegas market, or unless
the Company no longer owns the broadcast license for KVWB-TV in Las Vegas. At
any time the Company, at its option, may transfer the rights to acquire the
stock of Montecito. In April 1998 the Company began programming KFBT-TV through
an LMA upon expiration of the applicable HSR Act waiting period.
WSYX ACQUISITION AND SALE OF WTTE LICENSE ASSETS. In April 1998, the Company
exercised its option to acquire the non-license assets of WSYX-TV in Columbus,
Ohio from River City Broadcasting, LP ("River City") for an option exercise
price and other costs of approximately $228.6 million. In August 1998, the
Company exercised its option to acquire the WSYX License Assets for an option
exercise price of $2.0 million. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $14.6 million, $179.3 million and $61.4 million,
respectively based on an independent appraisal. Simultaneously with the WSYX
Acquisition, the Company sold the WTTE license assets to Glencairn for a sales
price of $2.3 million. In connection with the sale of the WTTE license assets,
the Company recognized a $2.3 million gain.
SFX DISPOSITION. In May 1998, the Company completed the sale of three radio
stations to SFX Broadcasting, Inc. for aggregate consideration of approximately
$35.0 million (the "SFX Disposition"). The radio stations sold are located in
the Nashville, Tennessee market. In connection with the disposition, the Company
recognized a $5.2 million gain on the sale.
LAKELAND ACQUISITION. In May 1998, the Company acquired 100% of the stock of
Lakeland Group Television, Inc. ("Lakeland") for cash payments of approximately
$53.0 million (the "Lakeland Acquisition"). In connection with the Lakeland
Acquisition, the Company now owns television station KLGT-TV in Minneapolis/St.
Paul, Minnesota. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and programming
assets, acquired intangible broadcasting assets and other intangible assets for
$5.1 million, $35.1 million and $29.4 million, respectively, based on an
independent appraisal.
ENTERCOM DISPOSITION. In June 1998, the Company completed the sale of seven
radio stations acquired in the Heritage acquisition. The seven stations are
located in the Portland, Oregon and Rochester, New York markets and were sold
for aggregate consideration of approximately $126.9 million.
SULLIVAN ACQUISITION. In July 1998, the Company acquired 100% of the stock of
Sullivan Broadcast Holdings, Inc. for cash payments of approximately $951.0
million (the "Sullivan Acquisition"). The Company financed the acquisition by
utilizing indebtedness under the 1998 Bank Credit Agreement. In connection with
the acquisition, the Company has acquired the right to program 12 additional
television stations in 10 separate markets. In a subsequent closing, which is
expected to occur during 1999, the Company will acquire the stock of a company
that owns the license assets of six of the stations. In
F-27
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
addition, the Company expects to enter into new LMA agreements with respect to
four of the stations and will continue to program two of the television stations
pursuant to existing LMA agreements. The acquisition was accounted for under the
purchase method of accounting whereby the purchase price was allocated to
property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $58.2 million, $336.8 million and $637.6 million,
respectively, based on an independent appraisal.
MAX MEDIA ACQUISITION. In July 1998, the Company directly or indirectly acquired
all of the equity interests of Max Media Properties LLC, for $252.2 million (the
"Max Media Acquisition"). The Company financed the acquisition by utilizing
existing cash balances and indebtedness under the 1998 Bank Credit Agreement. In
connection with the acquisition, the Company now owns or provides programming
services to nine additional television stations in six separate markets and
eight radio stations in two separate markets. The acquisition was accounted for
under the purchase method of accounting whereby the purchase price was allocated
to property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $37.1 million, $144.3 million and $89.6 million,
respectively, based on an independent appraisal.
CENTENNIAL DISPOSITION. In July 1998, the Company completed the sale of the
assets of radio stations WRNO-FM, KMEZ-FM and WBYU-AM in New Orleans, Louisiana
to Centennial Broadcasting for $16.1 million in cash and recognized a loss on
the sale of $2.9 million. The Company acquired KMEZ-FM in connection with the
River City Acquisition in May of 1996 and acquired WRNO-FM and WBYU-AM in New
Orleans from Heritage Media Group, Inc. ("Heritage") in July 1998. The Company
was required to divest WRNO-FM, KMEZ-FM and WBYU-AM to meet certain regulatory
ownership guidelines.
GREENVILLE ACQUISITION. In July 1998, the Company acquired three radio stations
in the Greenville/Spartansburg market from Keymarket Radio of South Carolina,
Inc. for a purchase price consideration involving the forgiveness of
approximately $8.0 million of indebtedness to Sinclair. Concurrently with the
acquisition, the Company acquired an additional two radio stations in the same
market from Spartan Broadcasting for a purchase price of approximately $5.2
million. The acquisition was accounted for under the purchase method of
accounting whereby the purchase price was allocated to property and acquired
intangible broadcasting assets for $5.0 million and $10.1 million, respectively,
based on an independent appraisal.
RADIO UNICA DISPOSITION. In July 1998, the Company completed the sale of
KBLA-AM in Los Angeles, California to Radio Unica, Corp. for approximately
$21.0 million in cash. In connection with the disposition, the Company
recognized a $8.4 million gain.
PENDING ACQUISITIONS AND DISPOSITIONS
- -------------------------------------
BUFFALO ACQUISITION. In August 1998, the Company entered into an agreement with
Western New York Public Broadcasting Association to acquire the television
station WNEQ in Buffalo, NY for a purchase price of $33 million in cash (the
"Buffalo Acquisition"). The Company expects to close the sale upon FCC approval
and the termination of the applicable waiting period under the HSR Act. In
addition, the sale is contingent upon FCC de-reservation of the station for
commercial use.
ST. LOUIS RADIO ACQUISITION. In August 1998, the Company entered into an
agreement to acquire radio station KXOK-FM in St. Louis, Missouri for a purchase
price of $14.1 million in cash. The purchase price is subject to be increased or
decreased, depending upon whether or not closing occurs within 210 days of the
agreement. The Company expects to close the purchase upon FCC approval.
GUY GANNETT ACQUISITION. In September 1998, the Company agreed to acquire from
Guy Gannett Communications its television broadcasting assets for a purchase
price of $317 million in cash (the "Guy Gannett Acquisition"). As a result of
this transaction, the Company will acquire seven television stations
F-28
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
in six markets. The FCC must approve the Guy Gannet Acquisition, which the
Company expects to complete in the first quarter of 1999. The Company expects to
finance the acquisition with a combination of bank borrowings and the use of
cash proceeds resulting from the Company's planned disposition of certain
broadcast assets.
ACKERLEY DISPOSITION. In September 1998, the Company agreed to sell WOKR-TV in
Rochester, New York to The Ackerley Group, Inc. for a sales price of $125
million (the "Ackerley Disposition"). The Company previously entered into an
agreement to acquire WOKR-TV as part of the Guy Gannett Acquisition. The FCC
must approve the disposition, which the Company expects to close in the second
quarter of 1999.
12. SECURITIES ISSUANCES AND COMMON STOCK SPLIT:
COMMON STOCK SPLIT
- ------------------
On April 30, 1998, the Company's Board of Directors approved a two-for-one stock
split of its Class A and Class B Common Stock to be distributed in the form of a
stock dividend. As a result of this action, 23,963,013 and 24,984,432 shares of
Class A and Class B Common Stock, respectively, were issued to shareholders of
record as of May 14, 1998. The stock split has been retroactively reflected in
the accompanying consolidated financial statements and related notes thereto.
1997 COMMON STOCK OFFERING
- --------------------------
In September 1997, the Company and certain stockholders of the Company completed
a public offering of 8,690,000 and 3,500,000 shares, respectively of Class A
Common Stock (the "1997 Common Stock Offering"). The shares were sold pursuant
to the Shelf Registration for an offering price of $18.25 per share and
generated proceeds to the Company of $151.0 million, net of underwriters'
discount and other offering costs of $7.6 million. The Company utilized a
significant portion of the 1997 Common Stock Offering proceeds to repay
indebtedness under the 1997 Bank Credit Agreement.
1997 PREFERRED STOCK OFFERING
- -----------------------------
Concurrent with the 1997 Common Stock Offering, the Company completed a public
offering of 3,450,000 shares of Series D Convertible Exchangeable Preferred
Stock (the "1997 Preferred Stock Offering"). The shares were sold pursuant to
the Shelf Registration at an offering price of $50 per share and generated
proceeds to the Company of $166.9 million, net of underwriters' discount and
other offering costs of $5.0 million.
The Convertible Exchangeable Preferred Stock have a liquidation preference of
$50 per share and a stated annual dividend of $3.00 per share payable quarterly
out of legally available funds and are convertible into shares of Class A Common
Stock at the option of the holders thereof at a conversion price of $22.813 per
share, subject to adjustment. The shares of Convertible Exchangeable Preferred
Stock are exchangeable at the option of the Company, for 6% Convertible
Subordinated Debentures of the Company, due 2012, and are redeemable at the
option of the Company on or after September 20, 2000 at specified prices plus
accrued dividends.
The Company received total net proceeds of $317.9 million from the 1997
Preferred Stock Offering and the 1997 Common Stock Offering. The Company
utilized $285.7 million of the net proceeds from the 1997 Preferred Stock
Offering and the 1997 Common Stock Offering to repay outstanding borrowings
under the revolving credit facility, $8.9 million to repay outstanding amounts
under the Tranche A term loan of the 1997 Bank Credit Agreement and retained the
remaining net proceeds of approximately $23.3 million for general corporate
purposes.
F-29
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
1997 OFFERING OF COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
In March 1997, the Company completed a private placement of $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities (the "HYTOPS") of Sinclair Capital, a subsidiary trust of the
Company. The HYTOPS were issued March 12, 1997, mature March 15, 2009, and
provide for quarterly distributions to be paid in arrears beginning June 15,
1997. The HYTOPS were sold to "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act of 1933, as amended) and a limited number of
institutional "accredited investors" and the offering was exempt from
registration under the Securities Act of 1933, as amended ("the Securities
Act"), pursuant to Section 4(2) of the Securities Act and Rule 144A thereunder.
The Company utilized $135 million of the approximately $192.8 million net
proceeds of the private placement to repay outstanding debt and retained the
remainder for general corporate purposes, which included the acquisition of
KUPN-TV in Las Vegas, Nevada.
Pursuant to a Registration Rights Agreement entered into in connection with the
private placement of the HYTOPS, the Company offered holders of the HYTOPS the
right to exchange the HYTOPS for new HYTOPS having the same terms as the
existing securities, except that the exchange of the new HYTOPS for the existing
HYTOPS has been registered under the Securities Act. On May 2, 1997, the Company
filed a registration statement on Form S-4 with the Commission for the purpose
of registering the new HYTOPS to be offered in exchange for the aforementioned
existing HYTOPS issued by the Company in March 1997 (the "Exchange Offer"). The
Company's Exchange Offer was closed and became effective August 11, 1997, at
which time all of the existing HYTOPS were exchanged for new HYTOPS.
Amounts payable to the holders of HYTOPS are recorded as "Subsidiary trust
minority interest expense" in the accompanying financial statements and were
$18.6 million and $23.3 million for the years ended December 31, 1997 and 1998,
respectively.
1998 COMMON STOCK OFFERING
- --------------------------
On April 14, 1998, the Company and certain stockholders of the Company completed
a public offering of 12,000,000 and 4,060,374 shares, respectively, of Class A
Common Stock (the "1998 Common Stock Offering"). The shares were sold for an
offering price of $29.125 per share and generated proceeds to the Company of
$335.1 million, net of underwriters' discount and other offering costs of
approximately $14.4 million. The Company utilized the proceeds to repay
indebtedness under the 1997 Bank Credit Agreement.
13. STOCK-BASED COMPENSATION PLANS:
-------------------------------
STOCK OPTION PLANS
- ------------------
DESIGNATED PARTICIPANTS STOCK OPTION PLAN -- In connection with the Company's
initial public offering in June 1995 (the "IPO"), the Board of Directors of the
Company adopted an Incentive Stock Option Plan for Designated Participants (the
Designated Participants Stock Option Plan) pursuant to which options for shares
of Class A common stock were granted to certain key employees of the Company.
The Designated Participants Stock Option Plan provides that the number of shares
of Class A Common Stock reserved for issuance under the Designated Participants
Stock Option Plan is 136,000. Options granted pursuant to the Designated
Participants Stock Option Plan must be exercised within 10 years following the
grant date. As of December 31, 1998, all 136,000 available options have been
granted.
LONG-TERM INCENTIVE PLAN -- In June 1996, the Board of Directors adopted, upon
approval of the stockholders by proxy, the 1996 Long-Term Incentive Plan of the
Company (the "LTIP"). The purpose of the LTIP is to reward key individuals for
making major contributions to the success of the Company
F-30
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
and its subsidiaries and to attract and retain the services of qualified and
capable employees. Options granted pursuant to the LTIP must be exercised within
10 years following the grant date. A total of 14,000,000 shares of Class A
Common Stock are reserved for awards under the plan. As of December 31, 1998,
8,754,370 shares have been granted under the LTIP and 5,879,880 shares are
available for future grants.
INCENTIVE STOCK OPTION PLAN -- In June 1996, the Board of Directors adopted,
upon approval of the stockholders by proxy, an amendment to the Company's
Incentive Stock Option Plan (the "ISOP"). The purpose of the amendment was (i)
to increase the number of shares of Class A Common Stock approved for issuance
under the plan from 800,000 to 1,000,000, (ii) to lengthen the period after date
of grant before options become exercisable from two years to three and (iii) to
provide immediate termination and three-year ratable vesting of options in
certain circumstances. Options granted pursuant to the ISOP must be exercised
within 10 years following the grant date. As of December 31, 1998, 714,200
shares have been granted under the ISOP and 464,834 shares are available for
future grants.
A summary of changes in outstanding stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE EXERCISABLE PRICE
------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Outstanding at end of 1995 ......... 136,000 $ 10.50 -- --
1996 Activity:
Granted ........................... 3,809,570 15.75 -- --
Exercised ......................... -- -- -- --
Forfeited ......................... (7,500) 10.50 -- --
--------- -------- -- --
Outstanding at end of 1996 ......... 3,938,070 15.58 1,472,436 $ 15.06
--------- -------- --------- --------
1997 Activity:
Granted ........................... 548,900 16.87 -- --
Exercised ......................... (10,000) 10.50 -- --
Forfeited ......................... (252,400) 17.85 -- --
--------- -------- --------- --------
Outstanding at end of 1997 ......... 4,224,570 17.10 2,428,152 14.91
--------- -------- --------- --------
1998 Activity:
Granted ........................... 5,352,500 25.08
Exercised ......................... (86,666) 12.96
Forfeited ......................... (820,284) 23.19
--------- --------
Outstanding at end of 1998 ......... 8,670,120 $ 20.76 3,245,120 $ 15.01
========= ======== ========= ========
</TABLE>
F-31
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
Additional information regarding stock options outstanding at December 31, 1998,
is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
REMAINING REMAINING WEIGHTED-
VESTING CONTRACTUAL AVERAGE
EXERCISE PERIOD LIFE EXERCISE
OUTSTANDING PRICE (IN YEARS) (IN YEARS) EXERCISABLE PRICE
- ------------- --------------- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
58,500 $ 10.50 -- 6.44 58,500 $ 10.50
3,387,870 15.06 0.24 7.49 3,173,620 15.06
527,500 17.81-18.88 1.44 7.94 -- --
37,000 20.94 1.96 8.97 -- --
18,000 22.88-24.18 3.77 9.61 -- --
3,268,750 24.20 3.64 9.13 13,000 24.20
352,500 24.25-27.73 3.76 9.41 -- --
1,020,000 28.08-28.42 4.18 9.69 -- --
---------- ------------ ---- ---- --------- --------
8,670,120 $ 20.76 2.21 8.48 3,245,120 $ 15.01
========== ============ ==== ==== ========= ========
</TABLE>
PRO FORMA INFORMATION RELATED TO STOCK-BASED COMPENSATION
- ---------------------------------------------------------
As permitted under SFAS 123, "Accounting for Stock-Based Compensation," the
Company measures compensation expense for its stock-based employee compensation
plans using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and provides pro
forma disclosures of net income and earnings per share as if the fair
value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense.
Had compensation cost for the Company's 1995, 1996, and 1997 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's net income, net income applicable to common share before extraordinary
items, and net income per common share for these years would approximate the pro
forma amounts below (in thousands except per share data):
Additional information regarding stock options outstanding at December 31, 1997,
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------- --------------------------- ---------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) before
extraordinary item ................... $ 1,131 $ (1,639) $ (4,496) $ (5,871) $ (5,817) $ (13,629)
======= ======== ========= ========= ========= =========
Net income (loss)shareholders ......... $ 1,131 $ (1,639) $ (10,566) $ (11,941) $ (16,880) $ (24,692)
======= ======== ========= ========= ========= =========
Net income (loss) available to
common shareholders .................. $ 1,131 $ (1,639) $ (13,329) $ (14,704) $ (27,230) $ (35,042)
======= ======== ========= ========= ========= =========
Basic net income per share before
extraordinary items .................. $ .02 $ (.02) $ (.10) $ (.12) $ (.17) $ (.25)
======= ======== ========= ========= ========= =========
Basic net income per share after
extraordinary items .................. $ .02 $ (.02) $ (.19) $ (.20) $ (.29) $ (.37)
======= ======== ========= ========= ========= =========
Diluted net income per share before
extraordinary items .................. $ .02 $ (.02) $ (.10) $ (.12) $ (.17) $ (.25)
======= ======== ========= ========= ========= =========
Diluted net income per share after
extraordinary items .................. $ .02 $ (.02) $ (.19) $ (.20) $ (.29) $ (.37)
======= ======== ========= ========= ========= =========
</TABLE>
F-32
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
The Company has computed for pro forma disclosure purposes the value of all
options granted during 1996, 1997, and 1998 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following weighted average
assumptions:
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
---------- -------------- -------------
Risk-free interest rate 6.66% 5.66 - 6.35% 4.54 - 5.68%
Expected lives 5 years 5 years 6 years
Expected volatility 35% 35% 41%
Adjustments are made for options forfeited prior to vesting.
14. EARNINGS PER SHARE:
-------------------
The Company adopted SFAS 128 "Earnings per Share" which requires the restatement
of prior periods and disclosure of basic and diluted earnings per share and
related computations.
<TABLE>
<CAPTION>
THE YEARS ENDED
-----------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Weighted-average number of common shares ........................... 69,496 71,902 94,321
Dilutive effect of outstanding stock options ....................... 340 238 1,083
Dilutive effect of conversion of preferred shares .................. 4,926 8,016 288
------ ------ ------
Weighted-average number of common equivalent shares
outstanding ....................................................... 74,762 80,156 95,692
====== ====== ======
Net income (loss) before extraordinary item ........................ $ 1,131 $ (4,496) $ (5,817)
======== ========= =========
Net income (loss) .................................................. $ 1,131 $ (10,566) $ (16,880)
Preferred stock dividends payable .................................. -- (2,763) (10,350)
-------- --------- ---------
Net income (loss) available to common shareholders ................. $ 1,131 $ (13,329) $ (27,230)
======== ========= =========
Basic net income (loss) per share before extraordinary items ....... $ .02 $ (.10) $ (.17)
======== ========= =========
Basic net income (loss) per share after extraordinary items ........ $ .02 $ (.19) $ (.29)
======== ========= =========
Diluted net income (loss) per share before extraordinary items ..... $ .02 $ (.10) $ (.17)
======== ========= =========
Diluted net income (loss) per share after extraordinary items ...... $ .02 $ (.19) $ (.29)
======== ========= =========
</TABLE>
F-33
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
15. FINANCIAL INFORMATION BY SEGMENT:
The Company consists of two principal business segments - television
broadcasting and radio broadcasting. As of December 31, 1998 the Company owns or
provides programming services pursuant to LMAs to 56 television stations located
in 36 geographically diverse markets in the continental United States. The
Company owns 51 radio stations in ten geographically diverse markets.
Substantially all revenues represent income from unaffiliated companies.
<TABLE>
<CAPTION>
TELEVISION
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net broadcast revenues .......................................... $ 407,410 $ 564,727
Barter revenues ................................................. 42,468 59,697
---------- ----------
Total revenues .................................................. 449,878 624,424
---------- ----------
Station operating expenses ...................................... 153,935 220,537
Expenses from barter arrangements ............................... 38,114 54,067
Depreciation, program amortization and stock-based compensation . 80,799 97,578
Amortization of intangibles and other assets .................... 57,897 82,555
---------- ----------
Station broadcast operating income .............................. $ 119,133 $ 169,687
========== ==========
Total assets .................................................... $1,736,149 $3,293,809
========== ==========
Capital expenditures ............................................ $ 16,613 $ 15,694
========== ==========
Payments of program contracts payable ........................... $ 48,609 $ 61,107
========== ==========
</TABLE>
<TABLE>
<CAPTION>
RADIO
YEARS ENDED DECEMBER 31,
------------------------
1997 1998
---------- -----------
<S> <C> <C>
Net broadcast revenues .......................................... $ 63,818 $108,079
Barter revenues ................................................. 2,739 4,301
-------- --------
Total revenues .................................................. 66,557 112,380
-------- --------
Station operating expenses ...................................... 44,327 66,604
Depreciation, program amortization and stock-based compensation . 5,167 7,260
Amortization of intangibles and other assets .................... 9,943 15,817
-------- --------
Station broadcast operating income .............................. $ 7,120 $ 22,699
======== ========
Total assets .................................................... $298,085 $560,773
======== ========
Capital expenditures ............................................ $ 2,812 $ 3,732
======== ========
Payments of program contracts payable ........................... $ 2,450 $ 3,160
======== ========
</TABLE>
F-34
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 - (CONTINUED )
16. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS:
The following unaudited pro forma summary presents the consolidated results of
operations for the years ended December 31, 1997 and 1998 as if significant
acquisitions and dispositions completed through December 31, 1998 had occurred
at the beginning of 1997. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had significant acquisitions and dispositions been made as of that date
or of results which may occur in the future.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
1997 1998
------------- --------------
<S> <C> <C>
Net revenues ............................................... $ 715,086 $ 761,977
========== ==========
Net income before extraordinary item ....................... $ 2,544 $ (11,431)
========== ==========
Net loss ................................................... $ (3,595) $ (22,494)
========== ==========
Basic and diluted loss per common share before extraordinary
item ...................................................... $ (0.09) $ (0.22)
========== ==========
Net loss available to common shareholders .................. $ (13,945) $ (32,844)
========== ==========
Basic and diluted loss per common share .................... $ (0.15) $ (0.34)
========== ==========
</TABLE>
17. SUBSEQUENT EVENTS:
In February 1999, the Company entered into an agreement to sell to
Communications Corporation of America ("CCA") the non-license assets of KETK-TV
and KLSB-TV in Tyler-Longview, Texas for a sales price of $34 million (the "CCA
Disposition"). In addition, the Company sold a purchase option for the License
Assets of KETK-TV for $2 million and CCA can exercise its option for an option
exercise price of $2 million. The Company expects to close the transaction in
the second quarter of 1999 and closing is subject to Department of Justice
approval.
In March 1999, the Company entered into an agreement to sell to STC the
television stations WICS-TV in the Springfield, Illinois market and KGAN-TV in
the Cedar Rapids, Iowa market. In addition, the Company agreed to sell the
Non-License Assets and rights to program WICD in the Springfield, Illinois
market. The stations are being sold to STC for a sales price of $81.0 million
and are being acquired by the Company in connection with the Guy Gannett
Acquisition.
F-35
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
Report of Independent Public Accountants ................. S - 2
Schedule II -- Valuation and Qualifying Accounts ......... S - 3
All schedules except those listed above are omitted as not applicable or not
required or the required information is included in the consolidated financial
statements or in the notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements balance sheets, statements of operations, changes in
stockholders' equity and cash flows of Sinclair Broadcast Group, Inc. and
Subsidiaries included in this Form 10-K and have issued our report thereon dated
February 9, 1999. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedules listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Baltimore, Maryland, February 9, 1999, except for Note 17, as to which the date
is March 16, 1999
S-2
<PAGE>
SCHEDULE II
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGES BALANCE
BEGINNING COSTS AND TO OTHERS AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ---------------------------------- ------------ ------------ --------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts .. $1,066 $1,563 $ 575 (1) $ 732 $2,472
1997
Allowance for doubtful accounts .. 2,472 2,655 - 2,207 2,920
1998
Allowance for doubtful accounts .. 2,920 3,234 1,279 (1) 2,264 5,169
</TABLE>
- ----------
(1) Amount represents allowance for doubtful account balances related to the
acquisition of certain television stations during 1996 and 1998.
S-3
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------------------------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 By-laws (2)
4.1 Indenture, dated as of December 9, 1993, among Sinclair Broadcast Group,
Inc., its wholly-owned subsidiaries and First Union National Banks of
North Carolina, as trustee. (2)
4.2 Indenture, dated as of August 28, 1995, among Sinclair Broadcast Group,
Inc., its wholly-owned subsidiaries and the United States Trust Company of
New York as trustee. (2)
4.3 Subordinated Indenture, dated as of December 17, 1997 among Sinclair
Broadcast Group, Inc. and First Union National Bank, as trustee. (3)
4.4 First Supplemental Indenture, dated as of December 17,1997 among Sinclair
Broadcast Group, Inc. the Guarantors named therein and First Union
National Bank, as trustee, including Form of Note. (3)
10.4 Stock Option Agreement, dated April 10, 1996 by and between Sinclair
Broadcast Group, Inc. and Barry Baker. (4)
10.5 Employment Agreement, dated as of April 10, 1996, with Barry Baker. (5)
10.6 Indemnification Agreement, dated as of April 10, 1996, with Barry Baker.
(5)
10.7 Time Brokerage Agreement, dated as of May 31, 1996, by and among Sinclair
Communications, Inc., River City Broadcasting, L.P. and River City License
Partnership and Sinclair Broadcast Group, Inc. (5)
10.8 Registration Rights Agreement, dated as of May 31, 1996, by and between
Sinclair Broadcast Group, Inc. and River City Broadcasting, L.P. (5)
10.9 Time Brokerage Agreement, dated as of August 3, 1995, by and between River
City Broadcasting, L.P. and KRRT, Inc. and Assignment and Assumption
Agreement, dated as of May 31, 1996 by and among KRRT, Inc., River City
Broadcasting, L.P. and KABB, Inc. (as Assignee of Sinclair Broadcast
Group, Inc.). (5)
10.10 Letter Agreement, dated August 20, 1996, between Sinclair Broadcast Group,
Inc., River City Broadcasting, L.P. and Fox Broadcasting Company. (6)
10.11 Promissory Note, dated as of May 17, 1990, in the principal amount of
$3,000,000 among David D. Smith, Frederick G. Smith, J. Duncan Smith and
Robert E. Smith (as makers) and Sinclair Broadcast Group, Inc., Channel
63, Inc., Commercial Radio Institute, Inc., WTTE, Channel 28, Inc. and
Chesapeake Television, Inc. (as holders). (7)
10.12 Term Note, dated as of September 30, 1990, in the principal amount of
$7,515,000 between Sinclair Broadcast Group, Inc. (as borrower) and Julian
S. Smith (as lender). (8)
10.13 Replacement Term Note, dated as of September 30, 1990 in the principal
amount of $6,700,000 between Sinclair Broadcast Group, Inc. (as borrower)
and Carolyn C. Smith (as lender) (2)
10.14 Note, dated as of September 30, 1990 in the principal amount of $1,500,000
between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E.
Smith (as borrowers) and Sinclair Broadcast Group, Inc. (as lender) (7)
10.15 Amended and Restated Note, dated as of June 30, 1992 in the principal
amount of $1,458,489 between Frederick G. Smith, David D. Smith, J. Duncan
Smith and Robert E. Smith (as borrowers) and Sinclair Broadcast Group,
Inc. (as lender) (7)
10.16 Term Note, dated August 1, 1992 in the principal amount of $900,000
between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E.
Smith (as borrowers) and Commercial Radio Institute, Inc. (as lender) (7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C>
10.17 Promissory Note, dated as of December 28, 1986 in the principal amount of
$6,421,483.53 between Sinclair Broadcast Group, Inc. (as maker) and
Frederick H. Himes, B. Stanley Resnick and Edward A. Johnston (as
representatives for the holders) (7)
10.18 Term Note, dated as of March 1, 1993 in the principal amount of $6,559,000
between Julian S. Smith and Carolyn C. Smith (as makers-borrowers) and
Commercial Radio Institute, Inc. (as holder-lender) (7)
10.19 Restatement of Stock Redemption Agreement by and among Sinclair Broadcast
Group, Inc. and Chesapeake Television, Inc., et al., dated June 19, 1990
(7)
10.20 Corporate Guaranty Agreement, dated as of September 30, 1990 by Chesapeake
Television, Inc., Commercial Radio, Inc., Channel 63, Inc. and WTTE,
Channel 28, Inc. (as guarantors) to Julian S. Smith and Carolyn C. Smith
(as lenders) (7)
10.21 Security Agreement, dated as of September 30, 1990 among Sinclair
Broadcast Group, Inc., Chesapeake Television, Inc., Commercial Radio
Institute, Inc., WTTE, Channel 28, Inc. and Channel 63, Inc. (as borrowers
and subsidiaries of the borrower) and Julian S. Smith and Carolyn C. Smith
(as lenders) (7)
10.22 Term Note, dated as of September 22, 1993, in the principal amount of
$1,900,000 between Gerstell Development Limited Partnership (as
maker-borrower) and Sinclair Broadcast Group, Inc. (as holder-lender) (7)
10.23 Credit Agreement, dated as of May 28, 1998, by and among Sinclair
Broadcast Group, Inc., Certain Subsidiary Guarantors, Certain Lenders, the
Chase Manhattan Bank as Administrative Agent, Nations Bank of Texas, N.A.
as Documentation Agent and Chase Securities Inc. as Arranger. (1)
10.24 Incentive Stock Option Plan for Designated Participants. (2)
10.25 Incentive Stock Option Plan of Sinclair Broadcast Group, Inc. (2)
10.26 First Amendment to Incentive Stock Option Plan of Sinclair Broadcast
Group, Inc., adopted April 10, 1996. (4)
10.27 Second Amendment to Incentive Stock Option Plan of Sinclair Broadcast
Group, Inc., adopted May 31, 1996. (4)
10.28 1996 Long Term Incentive Plan of Sinclair Broadcast Group, Inc. (4)
10.29 First Amendment to 1996 Long Term Incentive Plan of Sinclair Broadcast
Group, Inc. (9)
10.30 Amended and Restated Asset Purchase Agreement by and between River City
Broadcasting, L.P. and Sinclair Broadcast Group, Inc., dated as of April
10, 1996 and amended and restated as of May 31, 1996 (10)
10.31 Group I Option Agreement by and among River City Broadcasting, L.P. and
Sinclair Broadcast Group, Inc., dated as of May 31, 1996 (10)
10.32 Asset Purchase Agreement, dated April 10, 1996 by and between KRRT, Inc.
and SBGI, Inc. (11)
10.33 Stock Purchase Agreement, dated as of March 1, 1996 by and among Sinclair
Broadcast Group, Inc. and PNC Capital Corp., Primus Capital Fund II, Ltd.,
Albert M. Holtz, Perry A. Sook, Richard J. Roberts, George F. Boggs,
Albert M. Holtz, as Trustee for the Irrevocable Deed of Trust for Tara
Ellen Holtz, dated December 6, 1994, and Albert M. Holtz as trustee for
the Irrevocable Deed of Trust for Meghan Ellen Holtz, dated December 6,
1994 (8)
10.34 Primary Television Affiliation Agreement, dated as of March 24, 1997 by
and between American Broadcasting Companies, Inc., River City
Broadcasting, L.P. and Chesapeake Television, Inc. (12)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
10.35 Primary Television Affiliation Agreement, dated as of March 24, 1997 by
and between American Broadcasting Companies, Inc., River City
Broadcasting, L.P. and WPGH, Inc. (12)
10.36 Assets Purchase Agreement by and among Entertainment Communications, Inc.,
Tuscaloosa Broadcasting, Inc., Sinclair Radio of Portland Licensee, Inc.
and Sinclair Radio of Rochester Licensee, Inc., dated as of January 26,
1998. (12)
10.37 Time Brokerage Agreement by and among Entertainment Communications, Inc.,
Tuscaloosa Broadcasting, Inc., Sinclair Radio of Portland Licensee, Inc.
and Sinclair Radio or Rochester Licensee, Inc., dated as of January 26,
1998. (12)
10.38 Stock Purchase Agreement by and among the sole stockholders of Montecito
Broadcasting Corporation, Montecito Broadcasting Corporation and Sinclair
Communications, Inc., dated as of February 3, 1998. (12)
10.39 Stock Purchase Agreement by and among Sinclair Communications, Inc., the
stockholders of Max Investors, Inc., Max Investors, Inc. and Max Media
Properties LLC., dated as of December 2, 1997 (12)
10.40 Asset Purchase Agreement by and among Sinclair Communications, Inc., Max
Management LLC and Max Media Properties LLC., dated as of December 2,
1997. (12)
10.41 Asset Purchase Agreement by and among Sinclair Communications, Inc., Max
Television Company, Max Media Properties LLC and Max Media Properties II
LLC., dated as of December 2, 1997. (12)
10.42 Asset Purchase Agreement by and among Sinclair Communications, Inc., Max
Television Company, Max Media Properties LLC and Max Media Properties II
LLC., dated as of January 21, 1998. (12)
10.43 Asset Purchase Agreement by and among Tuscoloosa Broadcasting, Inc., WPTZ
Licensee, Inc., WNNE Licensee, Inc., and STC Broadcasting of Vermont,
Inc., dated as of February 3, 1998. (12)
10.44 Stock Purchase Agreement by and among Sinclair Communications, Inc. and
the stockholders of Lakeland Group Television, Inc., dated as of November
14, 1997. (12)
10.45 Stock Purchase Agreement by and among Sinclair Communications, Inc., the
stockholders of Max Radio, Inc., Max Radio Inc. and Max Media Properties
LLC, dated as of December 2, 1997. (12)
10.46 Agreement and Plan of Merger among Sullivan Broadcasting Company II, Inc.,
Sinclair Broadcast Group, Inc., and ABRY Partners, Inc. Effective as of
February 23, 1998. (12)
10.47 Agreement and Plan of Merger among Sullivan Broadcast Holdings, Inc.,
Sinclair Broadcast Group, Inc., and ABRY Partners, Inc. Effective as of
February 23, 1998. (12)
10.48 Employment Agreement by and between Sinclair Broadcast Group, Inc. and
Frederick G. Smith, dated June 12, 1998. (13)
10.49 Employment Agreement by and between Sinclair Broadcast Group, Inc. and J.
Duncan Smith, dated June 12, 1998. (13)
10.50 Employment Agreement by and between Sinclair Broadcast Group, Inc. and
David B. Amy, dated September 15, 1998. (13)
10.51 Employment Agreement by and between Sinclair Communications, Inc. and
Kerby Confer, dated December 10, 1998.
10.52 Employment Agreement by and between Sinclair Communications, Inc. and
Barry Drake, dated February 21, 1997.
10.53 First Amendment to Employment Agreement, by and between Sinclair Broadcast
Group, Inc. and Barry Baker, dated May, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<S> <C>
10.54 Termination Agreement by and between Sinclair Broadcast Group, Inc. and
Barry Baker, dated February 8, 1999.
10.55 Purchase Agreement by and between Sinclair Communications, Inc. and STC
Broadcasting, Inc. dated as of March 5, 1999.
10.56 Purchase Agreement by and between Guy Gannett Communications and Sinclair
Communications, Inc., dated as of September 4, 1998. (13)
10.57 Purchase Agreement by and between Sinclair Communications, Inc., and the
Ackerly Group, Inc., dated as of September 25, 1998. (13)
11 Statement re computation of per share earnings (included in financial
statements)
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
25 Power of attorney (included in signature page)
27 Financial Data Schedule
</TABLE>
- ----------
(1) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended June 30, 1998
(2) Incorporated by reference from the Company's Registration Statement on
Form S-1, No. 33-90682
(3) Incorporated by reference from the Company's Current Report on Form 8-K,
dated as of December 16, 1997.
(4) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1996.
(5) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended June 30, 1996.
(6) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended September 30, 1996.
(7) Incorporated by reference from the Company's Registration Statement on
Form S-1, No. 33-69482
(8) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1995.
(9) Incorporated by reference from the Company Proxy Statement for the 1998
Annual Meeting filed on Schedule 14A.
(10) Incorporated by reference from the Company's Amended Current Report on
Form 8-K/A, filed May 9, 1996.
(11) Incorporated by reference from the Company's Current Report on Form 8-K,
filed May 17, 1996.
(12) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1997.
(13) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended September 30, 1998.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 1998,
and effective as of the first day of January, 1999 (the "Effective Date"),
between Sinclair Communications, Inc., a Maryland corporation ("SCI"), and Kerby
Confer ("Employee").
R E C I T A L S
- - - - - - - -
A. The radio division of SCI, through its wholly-owned subsidiaries,
owns and/or programs radio broadcast stations.
B. Employee has served as a consultant to the radio division of SCI.
C. SCI desires to employ Employee as Chairman of the radio division of
SCI, and Employee desires to accept such employment.
D. SCI and Employee desire to set forth the terms of employment of
Employee with SCI as Chairman of the radio division of SCI (including the
granting to Employee of Stock Options).
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES
1.1. Duties Upon Employment. Upon the terms and subject to the other
provisions of this Agreement, commencing on the Effective Date, Employee will be
employed by SCI in Baltimore, Maryland as Chairman of the radio division of SCI.
As Chairman of the radio division, Employee will
(a) report to the Chief Executive Officer of SCI; and
(b) have such responsibilities and perform such duties as may
from time to time be established by the Chief Executive Officer of SCI.
1.2. FULL-TIME EMPLOYMENT. While an employee of SCI, Employee agrees
to devote Employee's full working time, attention, and best efforts exclusively
to the business of the radio division of SCI.
2. TERM. The term of Employee's employment as the Chairman of the radio
division of SCI under this Agreement (the "Employment Term") will begin on the
Effective Date and continue until December 31, 2001 unless terminated earlier in
accordance with Section 4. As
<PAGE>
used in this Agreement, an "employment year" is a twelve (12) month period
beginning on January 1 and ending an the next following December 31.
3. COMPENSATION AND BENEFITS.
3.1. COMPENSATION. Employee shall be entitled during each employment
year to the compensation at the rate of Three Hundred Fifty Thousand Dollars
($350,000) per annum.
3.2. OPTIONS. Contingent upon Employee's execution of this Agreement,
the Company will recommend to the Stock Option Committee of the Board of
Directors of Sinclair Broadcast Group, Inc. ("SBG"), the parent corporation of
SCI, that Employee be granted options to acquire Fifty Thousand (50,000) shares
of stock of SBG, subject to the terms and conditions contained in the Long-Term
Incentive Plan of SBG and pursuant to a Non-Qualified Stock Option Agreement,
the form of which has been or is being provided to Employee.
3.3. VACATION. While employed by SCI, Employee shall be entitled to
two weeks of paid vacation leave during each calendar quarter.
3.4. HEALTH INSURANCE AND OTHER BENEFITS. During the Employment Term,
Employee shall be eligible to participate in health insurance programs that may
from time to time be provided by SCI for its employees generally, and Employee
shall be eligible to participate in other employee benefits plans that may from
time to time be provided by SCI to its employees generally.
3.5. TAX ISSUES. To the extent taxable to Employee, Employee will be
responsible for accounting for and payments of taxes on the benefits provided to
Employee by SCI, and Employee will keep such records regarding uses of these
benefits as SCI reasonably requires and will furnish SCI all such information as
may be reasonably requested by SCI with respect to such benefits.
3.6. EXPENSES. SCI will pay or reimburse Employee from time to time
for all expenses incurred by Employee during the Employment Term on behalf of
SCI in accordance with corporate policies established by SCI; provided, that (i)
such expenses must be reasonable business expenses, and (ii) Employee supplies
to SCI itemized accounts or receipts in accordance with SCI's procedures and
policies with respect to reimbursernent of expenses in effect from time to time.
4. Employment Termination.
4.1. Termination of Employment.
(a) The Employment Term will end, and the parties will not have
any rights or obligations under this Agreement (except for the rights and
obligations under those
2
<PAGE>
Sections of this Agreement which are continuing and will survive the end of the
Employment Terms, as specified in Section 8.10 of this Agreement) on the
earliest to occur of the following events (the "Termination Date"):
(i) the death of Employee;
(ii) the Disability (as defined in Section 4.1(b) below) of
Employee;
(iii) the termination of Employee's employment by Employee
upon at least six (6) months prior written notice to Employer;
(iv) the termination of Employee's employment by SCI for
Cause (as defined in Section 4.1(c) below); or
(v) the termination of Employee's employment by SCI without
Cause upon at least six (6) months prior written notice to Employee.
(b) For the purposes of this Agreement, "Disability" means
Employee's inability, whether mental or physical, to perform the normal duties
of Employee's position for ninety (90) days (which need not be consecutive)
during any twelve (12) consecutive month period, and the effective date of such
Disability shall be the day next following such ninetieth (90th) day. If SCI and
Employee are unable to agree as to whether Employee is disabled, the question
will be decided by a physician to be paid by SCI and designated by SCI, subject
to the approval of Employee (which approval may not be unreasonably withheld)
whose determination will be final and binding on the parties.
(c) For the purposes of this Agreement, "Cause", means any of the
following: (i) the wrongful appropriation for Employee's own use or benefit of
property or money entrusted to Employee by SCI, (ii) the commission of any act
involving moral turpitude, (iii) Employee's continued willful disregard of
Employee's duties and responsibilities hereunder after written notice of such
disregard, (iv) Employees continued violation of SCI policy after written notice
of such violations (such policy may include policies as to drug or alcohol
abuse), (v) any action by Employee which is reasonably likely to jeopardize a
Federal Communications Commission license of any broadcast station owned
directly or indirectly by SCI, (vi) insubordination of Employee and/or
Employee's repeated failure to follow the reasonable directives of Employee's
superiors.
4.2. Termination Payments.
(a) if Employee's employment with SCI terminates Pursuant to
Sections 4.1(a)(1), 4.1(a)(2),4.1(a)(3), or 4.1(a)(5), Employee (or in the event
of the death of Employee, the person or persons designated by Employee in a
written instrument delivered to SCI prior to
3
<PAGE>
Employee's death or, if no such written designation has been made, Employee's
estate) will be entitled to receive, and SCI will pay to the same, all of the
following:
(i) the salary payable to Employee through the Termination
Date;
(ii) a payment in respect of unutilized vacation time that
has accrued through the Termination Date (determined in accordance with
corporate policies established by SCI); and
(iii) the benefits, if any, set forth in the Long-Term
Incentive Plan, upon the terms and conditions set forth therein, but only to the
extent that Employee is entitled to such benefits pursuant to the provisions of
the Long-Term Incentive Plan; provided, if Employee's employment with SCI
terminates pursuant to Section 4.1(a) (5), in consideration of the survival of
the covenants (including, without limitation, the covenant not to compete) set
forth in Section 5 hereof, all of the options issued to Employee pursuant to
Section 3.2 hereof shall become exercisable immediately prior to such
termination.
(b) if Employee's employment with SCI terminates Pursuant to
Section 4.1(a)(4), Employee will be entitled to receive, and SCI will pay to
Employee, only the salary payable to Employee through the Termination Date (and
Employee shall not be entitled to any benefits under the Long-Term Incentive
Plan).
(c) The termination payments described in this Section 4 will be
in lieu of any termination or severance payments required by SCI policy or, to
the fullest extent permissible thereunder, applicable law (including
unemployment compensation) and will constitute Employee's exclusive rights and
remedies with respect to termination of Employee's employment.
5. CONFIDENTIALITY AND NON-COMPETITION.
5.1. Confidential Information.
(a) Employee will:
(i) keep all Confidential Information in trust for the use
and benefit of SCI and any affiliate or subsidiary of SCI (collectively, the
"SCI Entities") and broadcast stations owned or operated directly or indirectly
by any of the SCI Entities;
(ii) not, except as required by Employee's duties under this
Agreement, authorized by the General Counsel of SCI or as required by law or any
order, rule, or regulation of any court or governmental agency (but only after
notice to SCI of such requirement), at any time during or after the termination
of Employee's employment with SCI,
4
<PAGE>
directly or indirectly, use, publish, disseminate, distribute, or otherwise
disclose any Confidential Information (as defined below);
(iii) take all reasonable steps necessary, or reasonably
requested by any of the SCI Entities, to ensure that all Confidential
Information is kept confidential for the use and benefit of the SCI Entities;
and
(iv) upon termination of Employee's employment or at any
other time any of the SCI Entities in writing so request, promptly deliver to
such SCI Entity all materials constituting Confidential Information relating to
such SCI Entity (including all copies) that are in Employees possession or under
Employees control. If requested by any of the SCI Entities to return any
Confidential Information, Employee will not make or retain any copy of or
extract from such materials.
(b) For purposes of this Section 5.1, Confidential Information
means any proprietary or confidential information of or relating to any of the
SCI Entities that is not generally available to the public. Confidential
Information includes all information developed by or for any of the SCI Entities
concerning marketing used by any of the SCI Entities, suppliers, any customers
(including advertisers) with which any of the SCI Entities has dealt prior to
the Termination Date, plans for development of new services and expansion into
now areas or markets, internal operations, financial information, operations,
budgets, and any trade secrets or proprietary information of any type owned by
any of the SCI Entities, together with all written, graphic, other materials
relating to all or any of the same, and any trade secrets as defined in the
Maryland Uniform Trade Secrets Act, as amended from time to time.
5.2. Non-Competition.
(a) During the Employment Term and for twelve (12) months
thereafter, if Employee's employment is terminated for any reason other than
pursuant to section 4.1 (a)(5), Employee will not, directly or indirectly,
engage in the following conduct within any Designated Market Area (as defined
below) or any Metro Survey Area (as defined below) in which any of the SCI
Entities owns or operates a broadcast television or radio station immediately
prior to such termination:
(i) participate in any activity involved in the ownership or
operation of a broadcast television or radio station (other than, during the
term, broadcast television or radio stations owned or operated by any of the SCI
Entities); provided, the restriction set forth in this clause (i) shall not
apply with respect to those broadcast stations in which (and to the extent)
Employee participates as of the date hereof
(ii) hire, attempt to hire, or to assist any other person or
entity in hiring or attempting to hire any employee of any of the SCI Entities
or any person who was an employee of any of the SCI Entities within the prior
one (1) year period; or
5
<PAGE>
(iii) solicit, in competition with any of the SCI Entities,
the business of any customer of any of the SCI Entities or my entity whose
business any of the SCI Entities solicited during the one (1) year period prior
to Employee's termination.
(b) Notwithstanding anything else contained in this Section 5.2,
Employee may own, for investment purposes only, up to five percent (5%) of the
stock of any publicly-held corporation whose stock is either listed on a
national stock exchange or on the NASDAQ National Market System if Employee is
not otherwise affiliated with such corporation.
(c) As used herein, "participate" means lending ones name to,
acting as consultant or advisor to, being employed by or acquiring any direct or
indirect interest in any business or enterprise, whether as a stockholder,
partner, officer, director, employee, consultant, or otherwise.
(d) In the event that (i) SCI places all or substantially all of
its broadcast radio stations up for sale within one (1) year after termination
of Employee's employment hereunder, or (ii) Employee's employment is terminated
in connection with the disposition of all or substantially all of such radio
stations (whether by sale of assets, equity, or otherwise), Employee agrees to
be bound by, and to execute such additional instruments as may be necessary or
desirable to evidence Employee's agreement to be bound by, the terms and
conditions of any non-competition provisions relating to the purchase and sale
agreement for such radio stations, without any consideration beyond that
expressed in this Agreement provided that the purchase and sale agreement is
negotiated in good faith with customary terms and provisions, and the
transaction contemplated thereby is consummated. Notwithstanding the foregoing,
in no event shall Employee be bound by, or obligated to enter into, any
non-competition provisions referred to in this Section 5.2(d) which extend
beyond twelve (12) months (including following a termination pursuant to Section
4. 1 (a)(5)), in each case from the date of termination of Employee's employment
hereunder or whose scope extends the scope of the non-competition provisions set
forth in Section 5.2(a) (as limited by Sections 5.2(b) and (c) above).
(e) The twelve (12) month time period referred to above shall be
tolled on a day-for-day basis for each day during which Employee participates in
any activity in violation of this Section 5.2 of this Agreement, so that
Employee is restricted from engaging in the conduct referred to in this Section
5.2 for a full twelve (12) months.
(f) For purposes of this Section 5.2, designated market area
shall mean the Designated Market Area ("DMA") as defined by The A.C. Nielsen
Company (or such other similar term as is used from time to time in the
television broadcast community).
(g) For purposes of this Section 5.2, Metro Survey Area shall
mean the Metro Survey Area ("MSA"), as defined from time to time by the Arbitron
Company (or such other similar term as is used from time to time in the radio
broadcast community).
6
<PAGE>
(h) Notwithstanding anything to the contrary contained herein,
the restrictions set forth in clause (a) of this Section 5.2 shall not apply
following termination more than four months after the date hereof, if the
options referred in Section 3.2 have not been granted prior to such termination.
5.3. ACKNOWLEDGMENT. Employee acknowledges and agrees that this
Agreement (including, without limitation, the provisions of Sections 5 and 6) is
a condition of Employee's being employed by SCI, Employee's having access to
Confidential Information, Employee's being eligible to receive the items
referred to in Section 3 (including, without limitation, Employee's eligibility
to participate in the Long-Term Incentive Plan), Employee's advancement at SCI,
and Employee being eligible to receive other special benefits at SCI; and
further, that this Agreement is entered into, and is reasonably necessary, to
protect the SCI Entities' investment in Employee's training and development, and
to protect the goodwill and other business interests of the SCI Entities.
6. REMEDIES.
6.1. INJUNCTIVE RELIEF. The covenants and obligations contained in
Section 5 relate to matters which are of a special, unique, and extraordinary
character and a violation of any of the terms of such Section will cause
irreparable injury to the SCI Entities, the amount of which will be impossible
to estimate or determine and which cannot be adequately compensated. Therefore,
the SCI Entities will be entitled to an injunction, restraining order or other
equitable relief from any court of competent jurisdiction (subject to such terms
and conditions that the court determines appropriate), restraining any violation
or threatened violation of any of such terms by Employee and such other persons
as the court orders. The parties acknowledge and agree that judicial action,
rather than arbitration, is appropriate with respect to the enforcement of the
provisions of Section 5. The forum for any litigation hereunder shall be the
Circuit Court of Baltimore County or the United States District Court (Northern
Division) sitting in Baltimore, Maryland.
6.2. CUMULATIVE RIGHTS AND REMEDIES. Rights and remedies provided by
Sections 5 and 6 are cumulative and an in addition to any other rights and
remedies any of the SCI Entities may have at law or equity.
7. ABSENCE OF RESTRICTIONS. Employee warrants and represents that
Employee is not a party to or bound by any agreement, contact, or understanding,
whether of employment or otherwise, with any third person or entity which would
in any way restrict or prohibit Employee from undertaking or performing
employment with SCI in accordance with the terms and conditions of this
Agreement.
8. MISCELLANEOUS.
7
<PAGE>
8.1. ATTORNEYS' FEES. In any action, litigation, or proceeding
(collectively, "Action") between the parties arising out of or in relation to
this Agreement, the prevailing party in the Action will be awarded, in addition
to any damages, injunctions, or other relief, and without regard to whether such
Action is prosecuted to final appeal, such party's costs and expenses, including
reasonable attorneys' fees.
8.2. HEADINGS. The descriptive headings of the Sections of this
Agreement are inserted for convenience only, and do not constitute a part of
this Agreement.
8.3. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given upon (a) oral or written
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery of
a standard overnight courier or when delivered by hand, or (c) the expiration of
five (5) business days after the date mailed, postage prepaid, to the parties at
the following addresses:
If to SCI to: Sinclair Communications, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: Chief Executive Officer
If to Employee to: Kerby Confer
2000 W. 41st Street
Baltimore, Maryland 21211
or to such other address as will be furnished in writing by any party. Any such
notice or communication will be deemed to have been given as of the date so
mailed.
8.4. ASSIGNMENT. SCI may assign this Agreement to any of the SCI
Entities, and Employee hereby consents and agrees to be bound by any such
assignment by SCI. Employee may not assign, transfer, or delegate Employee's
rights or obligations under this Agreement and any attempt to do so is void.
This Agreement is binding on and inures to the benefit of the parties, their
successors and assigns, and the executors, administrators, and other legal
representatives of Employee. No other third parties, other than SCI Entities,
shall have, or are intended to have, any rights under this Agreement.
8.5. COUNTERPARTS. This Agreement may be signed in one or more
counterparts.
8.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MARYLAND (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO
8
<PAGE>
ALL MATTERS (INCLUDING VALIDITY, CONSTRUCTION, EFFECT, AND PERFORMANCE.)
8.7. SEVERABILITY. If the scope of any provision contained in
this Agreement is too broad to permit enforcement of such provision to its full
extent, then such provision shall be enforced to the maximum extent permitted by
law, and Employee hereby consents that such scope may be reformed or modified
accordingly, and enforced as reformed or modified, in any proceeding brought to
enforce such provision. Subject to the immediately preceding sentence, whenever
possible, each provision of this Agreement will be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such
provision, to the extent of such prohibition or invalidity, shall not be deemed
to be a part of this Agreement, and shall not invalidate the remainder of such
provision or the remaining provisions of this Agreement.
8.8. ENTIRE AGREEMENT. This Agreement, the Non-Qualified Stock
Option Agreement, the Long-Term incentive Plan and the Stock Option Agreement,
dated as of May 31, 1996, between SBG and Employee constitute the entire
agreement, and supersede all prior agreements and understandings, written or
oral, among the parties with respect to the subject matter of this Agreement and
the Long-Term Incentive Plan. This Agreement may not be amended or modified
except by agreement in writing, signed by the party against whom enforcement of
any waiver, amendment, modification, or discharge is sought.
8.9. INTERPRETATION. This Agreement is being entered into among
competent and experienced business professionals (who have had an opportunity to
consult with counsel), and any ambiguous language in this Agreement will not
necessarily be construed against any particular party as the drafter of such
language.
8.10. CONTINUING OBLIGATIONS. The following provisions of this
Agreement will continue and survive the termination of this Agreement: 4.2, 5,
6, 7 and 8.
8.11. TAXES. SCI may withhold from any payments under this
Agreement all applicable federal, state, city, or other taxes required by
applicable law to be so withheld.
8.12. ARBITRATION AND EXTENSION OF TIME. Except as specifically
provided in Section 6, any dispute or controversy arising out of or relating to
this Agreement shall be determined and settled by arbitration in Baltimore,
Maryland in accordance with the Commercial Rules of the American Arbitration
Association then in effect, the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq.,
and the Maryland Uniform Arbitration Act, and judgment upon the award rendered
by the arbitrator(s) may be entered in any court of competent jurisdiction. The
expenses of the arbitration shall be borne by the non-prevailing party to the
arbitration, including, but not limited to, the cost of experts, evidence, and
legal counsel. Whenever any action is required to be taken under this Agreement
within a specified period of time and the taking of such action is materially
affected by a matter submitted to arbitration, such period shall automatically
be
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extended by the number of days, plus ten (10) that are taken for the
determination of that matter by the arbitrator(s). Notwithstanding the
foregoing, the parties agree to use their best reasonable efforts to minimize
the costs and frequency of arbitration hereunder.
THIS AGREEMENT CONTAINS A WAIVER OF YOUR RIGHT TO A TRIAL BY COURT OR JURY
IN EMPLOYMENT DISPUTES.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
SINCLAIR COMMUNICATIONS, INC.
By: /s/ David B. Amy
-----------------------------------
Its: Secretary
-----------------------------------
/s/ Kerby Confer
-----------------------------------
Kerby Confer
10
EXHIBIT 10.52
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of this 21st
day of February, 1997, between Sinclair Communications, Inc., a Maryland
corporation ("SCI"), and Barry Drake ("Employee").
RECITALS
A. SCI through its wholly-owned subsidiaries, owns or operates
television and radio broadcast stations.
B. SCI desires to employ Employee as Chief Operating Officer/Radio
of SCI, and Employee desires to accept such employment.
C. SCI and Employee desire to set forth the terms of employment of
Employee with SCI as Chief Operating Officer/Radio.
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES.
1.1. DUTIES UPON EMPLOYMENT. Upon the terms and subject to the other
provisions of this Agreement, commencing on the date hereof (the "Effective
Date"), Employee will be employed by SCI in Baltimore, Maryland as Chief
Operating Officer/Radio of SCI. As the Chief Operating Officer/Radio, Employee
will
(a) report to the Chief Executive Officer and such other
officer(s) of SCI as the Chief Executive Officer of SCI designates; and
(b) have such responsibilities and perform such duties as may
from time to time be established by the Chief Executive Officer or such other
senior officers.
1.2 FULL-TIME EMPLOYMENT. While an employee of SCI, Employee agrees
to devote Employee's full working time, attention, and best efforts exclusively
to the business of SCI.
2. TERM
2.1. TERM. The term of Employee's employment as the Chief Operating
Officer/Radio of SCI under this Agreement (the "Employment Term") will begin on
the
<PAGE>
Effective Date and continue until employment is terminated in accordance with
Section 5. As used in this Agreement, an "employment year" is a twelve (12)
month period beginning on January 1 and ending on the next following December
31; provided, however, that the first "employment year" shall begin on the
Effective Date and shall end on December 31, 1997.
2.2. AT WILL EMPLOYMENT. Notwithstanding anything else in this
Agreement, including, without limitation, the provisions of Section 2.1. of this
Agreement and Schedule A attached hereto regarding the employment term,
compensation of Employee, or benefits of Employees respectively, the employment
of Employee is not for a specified period of time, and SCI or Employee may
terminate the employment of Employee with or without Cause (as defined below) at
any time for any reason. There is not, nor will there be, unless in a writing
signed by all of the parties to this Agreement, any express or implied agreement
as to the continued employment of Employee.
3. COMPENSATION AND BENEFITS. Employee is entitled to the compensation
and benefits described on Schedule A attached hereto on the terms and conditions
stated therein. Contingent upon Employee's execution of this Agreement, Employee
will also be granted options to acquire share of stock of Sinclair Broadcast
Group, Inc. ("Parent"), subject to the terms and conditions contained in the
Long Term Incentive Plan of Parent and the Stock Option Agreement attached
hereto as Schedule B.
4. EMPLOYMENT TERMINATION
4.1. TERMINATION OF EMPLOYMENT.
(a) The Employment Term will end, and the parties will not have
any rights or obligations under this Agreement (except for the rights and
obligations under those Sections of this Agreement which are continuing and will
survive the end of the Employment Term, as specified in Section 8.10 of this
Agreement) on the earliest to occur of the following events (the "Termination
Date"):
(1) the death of Employee;
(2) the Disability (as defined in Section 4.1(b) below) of
Employee;
(3) the termination of Employee's employment by Employee;
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(4) the termination of Employee's employment by SCI for
Cause (as defined in Section 4.1(c) below); or
(5) the termination of Employee's employment by SCI
without Cause.
(b) For the purposes of this Agreement, "Disability" means
Employee's inability, whether mental or physical, to perform the normal duties
of Employee's position for ninety (90) days (which need not be consecutive)
during any twelve (12) consecutive month period, and the effective date of such
Disability shall be the day next following such ninetieth (90th ) day. If SCI
and Employee are unable to agree as to whether Employee is disabled, the
question will be decided by a physician to be paid by SCI and designated by SCI,
subject to the approval of Employee (which approval may not be unreasonably
withheld) whose determination will be final and binding on the parties.
(c) For the purposes of this Agreement, "Cause" means any of the
following: (i) the wrongful appropriation for Employee's own use or benefit of
property or money entrusted to Employee by SCI, (ii) the commission of any act
involving moral turpitude, (iii) Employee's continued disregard of directions of
the Chief Executive Officer or other senior management of SCI after written
notice of such disregard, (iv) Employee's continued violation of SCI policy
after written notice of such violations (such policy may include policies as to
drug or alcohol abuse), or (v) any action by Employee which is reasonably likely
to jeopardize a Federal Communications Commission license of any broadcast
station owned directly by SCI.
4.2 TERMINATION PAYMENTS.
(a) If Employee's employment with SCI terminates pursuant to
Sections 4.1(a)(1), 4.1(a)(2), 4.1(a)(3), or 4.1(a)(5), Employee (or in the
event of the death of Employee, the person or persons designated by Employee in
a written instrument delivered to SCI prior to Employee's death or, if no such
written designation has been made, Employee's estate) will be entitled to
receive, and SCI will pay to the same, all of the following:
(1) the salary payable to Employee through the Termination
Date;
(2) a payment in respect of unutilized vacation time that
has accrued through the Termination Date (determined in accordance with
corporate policies established by SCI and consistent with Schedule A hereof);
and
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<PAGE>
(3) the benefits set forth in the Stock Option Agreement,
upon the terms and conditions set forth therein.
(b) If Employee's employment with SCI terminates pursuant to
Section 4.1(a)(5), prior to August 31, 1998, Employee will be entitled to
receive, and SCI will pay to the same, in addition to any amount owed pursuant
to Section 4.2(a), Employees' base salary (but no bonuses or other benefits,
other than those which may be required by law) through and including such date,
such payment (i) to be made in accordance with SCI's regular payroll procedures
and (ii) to be reduced by 50% of any compensation earned by Employee from any
other source during the period such payments are to be made.
(c) If Employee's employment with SCI terminates pursuant to
Section 4.1(a)(4), Employee will be entitled to receive, and SCI will pay to
Employee, only the salary payable to Employee through the Termination Date.
(d) The termination payments described in this Section 4 will be
in lieu of any termination or severance payments required by SCI policy or, to
the fullest extent permissible thereunder, applicable law (including
unemployment compensation) and will constitute Employee's exclusive rights and
remedies with respect to termination of Employee's employment.
5. CONFIDENTIALITY AND NON-COMPETITION.
5.1. CONFIDENTIAL INFORMATION.
(a) Employee will:
(1) keep all Confidential Information in trust for the
use and benefit of SCI and its subsidiaries, and (ii) broadcast stations owned
or operated directly or indirectly by SCI or its subsidiaries (collectively, SCI
Entities");
(2) not, except as required by Employee's duties under
this Agreement, authorized by the General Counsel of SCI or as required by law
or any order, rule, or regulation or any court or governmental agency (but only
after notice to SCI of such requirement), at any time during or after the
termination of Employee's employment with SCI, directly or indirectly, use,
publish, disseminate, distribute, or otherwise disclose any Confidential
Information;
(3) take all reasonable steps necessary, or reasonably
requested by any of the SCI Entities, to ensure that all Confidential
Information is kept confidential for the use and benefit of the SCI Entities;
and
(4) upon termination of Employee's employment or any
other time any for the SCI Entities in writing so request, promptly deliver to
such SCI Entity all materials constituting Confidential Information relating to
such SCI Entity (including all copies) that are in Employee's possession or
under Employee's control. If requested by any of the SCI Entities to return any
Confidential Information, Employee will not make or retain any copy of or
extract from such materials.
4
<PAGE>
(b) For purposes of this Section 5.1, Confidential Information
means any proprietary or confidential information of or relating to any of the
SCI Entities that is not generally available to the public. Confidential
Information includes all information developed by or for any of the SCI Entities
concerning marketing used by any of the SCI Entities, suppliers, any customers
(including advertisers) with which any of the SCI Entities has dealt prior to
the Termination Date, plans for development of new services and expansion into
new areas or markets, internal operations, financial information, operations,
budgets, and any trade secrets or proprietary information of any type owned by
any of the SCI Entities, together with all written, graphic, other materials
relating to all or any of the same, and any trade secrets as defined in the
Maryland Uniform Trade Secrets Act, as amended from time to time.
5.2. NON-COMPETITION.
(a) During the Employment Term and for one (1) year thereafter,
if Employee's employment is terminated for any reason other than pursuant to
Section 4.1(a)(5), Employee will not, directly or indirectly, engage in the
following conduct within any Metro Survey Area (as defined below) in which any
of the SCI Entities owns or operates a broadcast station immediately prior to
such termination:
(1) participate in any activity involved in the ownership or
operation of any broadcast radio station (other than, during the Employment
Term, broadcast radio stations owned or operated by any of the SCI Entities);
(2) hire, attempt to hire, or to assist any other person or
entity in hiring or attempting to hire any employee of any of the SCI Entities
or any person who was an employee of any of the SCI Entities within the prior
one (1) year period; or
(3) solicit, in competition with any of the SCI Entities,
the business of any customer of any of the SCI Entities or any entity whose
business any of the SCI Entities solicited during the one (1) year period to
Employee's termination.
(b) Notwithstanding anything else contained in this Section 5.2,
Employee may own, for investment purposes only, up to five percent (5%) of the
stock of any publicly-held corporation whose stock is either listed on a
national stock exchange
5
<PAGE>
or on the NASDAQ National Market System if Employee is not otherwise affiliated
with such corporation.
(c) As used herein, "participate" means lending one's name to,
acting as consultant or advisor to, being employed by or acquiring any direct or
indirect interest in any business or enterprise, whether as a stockholder,
partner, officer, director, employee, consultant, or otherwise.
(d) In the event that (i) SCI places all or substantially all of
its broadcast stations up for sale within one (1) year after termination of
Employee's employment hereunder, or (ii) Employee's employment is terminated in
connection with the disposition of all or substantially all of such radio
stations (whether by sale of assets, equity, or otherwise), Employee agrees to
be bound by, and to execute such additional instruments as may be necessary or
desirable to evidence Employee's agreement to be bound by, the terms and
conditions of any non-competition provisions relating to the purchase and sale
agreement for such radio stations, without any consideration beyond that
expressed in this Agreement, provided that the purchase and sale agreement is
negotiated in good faith with customary terms and provisions, and the
transaction contemplated thereby is consummated and closed not later than one
(1) year after the date on which such SCI Entity first put the stations up for
sale. Notwithstanding the foregoing, in no event shall Employee be bound by, or
obligated to enter into, any non-competition provisions referred to in this
Section 5.2(d) which extend beyond one (1) year from the date of termination of
Employee's employment hereunder or whose scope extends the scope of the
non-competition provisions set forth in Section 5.1(a) (as limited by Sections
5.1(b) and (c) above).
(e) The one (1) year time period referred to above shall be
tolled on a day-for-day basis for each day during which Employee participates in
any activity in violation of Section 5.2 of this Agreement so that Employee is
restricted from engaging in the conduct referred to in Section 5.2 for a full
one (1) year.
(f) For purposes of this Section 5.2, Metro Survey Area shall
mean the Metro Survey Area ("MSA"), as defined from time to time by the Arbitron
Company (or such similar term as used from time to time in the radio broadcast
community.
6
<PAGE>
5.3. ACKNOWLEDGMENT. Employee acknowledges and agrees that this
Agreement (including without limitation, the provisions of Section 5 and 6) is a
condition of Employee being employed by SCI, Employee having access to
Confidential Information, being eligible to receive the items referred to in
Schedule A (including, without limitation, Employee's eligibility to participate
in the Long Term Incentive Plan, Employee's advancement at SCI, and Employee
being eligible to receive other special benefits at SCI; and further, that this
Agreement is entered into, and is reasonably necessary, to protect the SCI
Entities' investment in Employee's training and development, and to protect the
good will and other business interests of the SCI Entities.
6. REMEDIES.
6.1. INJUNCTIVE RELIEF. The covenants and obligations contained in
Section 5 relate to matters which are of a special, unique, and extraordinary
character and a violation of any of the terms of such Section will cause
irreparable injury to the SCI Entities, the amount of which will be impossible
to estimate or determine and which cannot be adequately compensated. Therefore,
SCI Entities will be entitled to an injunction restraining order or other
equitable relief from any court of competent jurisdiction (subject to such terms
and conditions that the court determines appropriate), restraining any violation
or threatened violation of any of such terms by Employee and such other persons
as the court orders. The parties acknowledge and agree that judicial action,
rather than arbitration, is appropriate with respect to the enforcement of the
provisions of Section 5. The forum for any litigation hereunder shall be the
Circuit Court of Baltimore County or the United States District Court (Northern
Division) sitting in Baltimore, Maryland.
6.2. CUMULATIVE RIGHTS AND REMEDIES. Rights and remedies provided by
Section 5 are cumulative and are in addition to any other rights and remedies
any of the SCI Entities may have at law or equity.
7. ABSENCE OF RESTRICTIONS. Employee warrants and represents that
Employee is not a party to or bound by any agreement, contract, or
understanding, whether of employment or otherwise, with any third person or
entity which would in any way restrict or prohibit Employee from undertaking or
performing employment with SCI in accordance with the terms and conditions of
this Agreement.
8. MISCELLANEOUS.
8.1. ATTORNEYS' FEES. In any action, litigation, or proceeding
(collectively, "Action") between the parties arising out of or in relation to
this Agreement, the prevailing party in the Action will be awarded, in addition
to any damages, injunctions,
7
<PAGE>
or other relief, and without regard to whether such Action is prosecuted to
final appeal, such party's costs and expenses, including reasonable attorneys'
fees.
8.2. HEADINGS. The descriptive headings of the Sections of this
Agreement are inserted for convenience only, and do not constitute a part of
this Agreement.
8.3. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given upon (a) oral or written confirmation of a
receipt of a facsimile transmission, (b) confirmed delivery of a standard
overnight courier or when delivered by hand, or (c) the expiration of five (5)
business days after the date mailed, postage prepaid, to the parties at the
following addresses:
If to SCI to: Sinclair Communications, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: President
CONFIDENTIAL
With a copy to: Steven A. Thomas, Esquire
Thomas & Libowitz, P.A.
USF&G Tower, Suite 1100
100 Light Street
Baltimore, Maryland 21202
If to Employee to: Barry Drake
2000 W. 41st Street
Baltimore, Maryland 21211
or to such other address as will be furnished in writing by any party. Any such
notice or communication will be deemed to have been given as of the date so
mailed.
8.4. ASSIGNMENT. SCI may assign this Agreement to any parent of SCI,
and Employee hereby consents and agrees to be bound by any such assignment by
SCI. Employee may not assign, transfer, or delegate Employee's rights or
obligations under this Agreement and any attempt to do so is void. This
Agreement is binding on and inures to the benefit of the parties, their
successors and assigns, and the executors, administrators, and other legal
representatives of Employee. No other third parties, other than SCI Entities,
shall have, or are intended to have, any rights under this Agreement.
8
<PAGE>
8.5. COUNTERPARTS. This Agreement may be signed in one or more
counterparts.
8.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF MARYLAND (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER
PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS (INCLUDING VALIDITY,
CONSTRUCTION, EFFECT, AND PERFORMANCE.)
8.7. SEVERABILITY. If the scope of any provision contained in this
Agreement is too broad to permit enforcement of such provision to its full
extent, then such provision shall be enforced to the maximum extent permitted by
law, and Employee hereby consents that such scope may be reformed or modified
accordingly, and enforced as reformed or modified, in any proceeding brought to
enforce such provision. Subject to the immediately preceding sentence, whenever
possible, each provision of this Agreement will be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such
provision, to the extent of such prohibition or invalidity, shall not be deemed
to be a part of this Agreement, and shall not invalidate the remainder of such
provision or the remaining provisions of this Agreement.
8.8. ENTIRE AGREEMENT. This Agreement, including the Schedules
attached hereto, and the Stock Option Plan constitute the entire agreement, and
supersede all prior agreements and understandings, written or oral, among the
parties with respect to the subject matter of this Agreement and the Stock
Option Plan. This Agreement may not be amended or modified except by agreement
in writing, signed by the party against whom enforcement of any waiver,
amendment, modification, or discharge is sought.
8.9. INTERPRETATION. This Agreement is being entered into among
competent and experienced businessmen (who have had an opportunity to consult
with counsel), and any ambiguous language in this Agreement will not necessarily
be construed against any particular party as the drafter of such language.
8.10. CONTINUING OBLIGATION. The provisions in the following sections
of this Agreement will continue and survive the termination of this Agreement:
4.2, 5, 6 and 8.
8.11. TAXES. SCI may withhold from any payments under this Agreement
all applicable federal, state, city or other taxes required by applicable law to
be so withheld.
9
<PAGE>
8.12. ARBITRATION AND EXTENSION OF TIME. Except as specifically
provided in Section 6, any dispute or controversy arising out of or relating to
this Agreement shall be determined and settled by arbitration in Baltimore,
Maryland in accordance with the Commercial Rules of the American Arbitration
Association then in effect, and the Federal Arbitration Act, 9 U.S.C. Section 1
et seq., and judgment upon the award rendered by the arbitrator(s) may be
entered in any court of competent jurisdiction. The expenses of the arbitration
shall be borne by the non-prevailing party to the arbitration, including, but
not limited to, the cost of experts, evidence, and legal counsel. Whenever any
action is required to be taken under this Agreement within a specified period of
time and the taking of such action is materially affected by a matter submitted
to arbitration, such period shall automatically be extended by the number of
days, plus ten (10) that are taken for the determination of that matter by the
arbitrator(s). Notwithstanding the foregoing, the parties agree to use their
best reasonable efforts to minimize the costs and frequency of arbitration
hereunder.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
SINCLAIR COMMUNICATIONS, INC.
By: /s/ David D. Smith
--------------------------
Its: President
--------------------------
/s/ Barry Drake
------------------------------
Barry Drake
10
EXHIBIT 10.53
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment ("First Amendment") dated as of May , 1998 to the
Agreement, dated as of April 10, 1996 (the "Original Agreement"), between
Sinclair Broadcast Group, Inc., a Maryland corporation ("Sinclair"), and Barry
Baker ("Executive").
WHEREAS, Sinclair and Executive have entered into the Original
Agreement, which provides among other things the terms and conditions on which
Sinclair and Executive agree that Executive will serve as President and Chief
Executive Officer of Sinclair Communications, Inc. ("SCI"), Executive Vice
President of Sinclair, and a member of the Board of Directors of each of
Sinclair and SCI;
WHEREAS, Sinclair and Executive desire, pursuant to this First
Amendment, to amend the Original Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations contained herein, the parties agree, intending to be
legally bound, as follows:
1. Section 1.2 of the Original Agreement is hereby amended so that the
first sentence thereof is replaced in its entirety with the following:
The term of this Agreement (the "Agreement Term"), shall commence on
the date hereof and terminate on December 31, 2001, unless extended as
provided in Section 8 or sooner terminated pursuant to the provisions
of Section 9 or Section 10; provided, however, that Executive shall not
be an employee, officer or director of Sinclair, SCI or any of their
subsidiaries until the Effective Date (as hereinafter defined). (As
used elsewhere herein, the term "First Closing" shall mean the Closing
(as defined in the Purchase Agreement)).
2. Section 10.3.1 of the Original Agreement is hereby amended so that
clause (g) thereof is replaced in its entirety with the following:
(g) the Effective Date shall not have occurred by December 3, 1998,
unless such failure is solely due to actions or failure to take actions
on the part of Executive (other than the failure of Executive to
elminate his attributable ownership interest in RCB and RCLP).
<PAGE>
3. Section 10.4.1 of the Original Agreement is hereby amended so that the
second sentence thereof is replaced in its entirety with the following:
The "Broadcast Option" is an option of Executive to require Sinclair
and SCI to sell and assign to Executive, or any one or more persons or
entities designated by Executive (collectively, the "Transferee"), free
and clear of any and all Indebtedness and Liens (other than Permitted
Liens (as hereinafter defined)), for an aggregate purchase price in
cash equal to the fair market value thereof, (i) all (and not less than
all) radio and/or television broadcasting stations (including all
broadcasting assets, licenses, permits and programming contracts) then
owned or held directly or indirectly by Sinclair or SCI (or their
affiliates), at the option of Executive, in or substantially serving
either (but not both of) the St. Louis, Missouri or the
Greenville-Spartanburg, S.C.-Asheville, N.C.-Anderson, S.C. Designated
Market Areas and (ii) all (and not less than all) rights of Sinclair,
SCI or any of their affiliates to provide programming services with
respect to all television or radio stations in such selected Designated
Marketing Area, including all local marketing, time brokerage or
similar management services agreements, for an aggregate purchase price
equal to the fair market value thereof.
4. Section 10.4.2 of the Original Agreement is hereby amended so that the
first sentence thereof is replaced in its entirety with the following:
Executive may exercise the Broadcast Option by providing Sinclair and
SCI, within the 180-day period referred to above, written notice of
Executive's intent to do so and the Designated Market Area to which it
applies.
5. Section 10.4.4 of the Original Agreement is hereby replaced in its
entirety with the following:
10.4.4 INTENTIONALLY OMITTED.
6. Terms used herein but not defined herein shall have the meaning given
them in the Original Agreement.
7. Except as expressly provided herein, all of the terms of the Original
Agreement shall continue in full force and effect.
8. Section 12.1 of the Original Agreement is hereby replaced in its
entirety with the following:
-2-
<PAGE>
If to Executive:
Barry Baker
28 Merry Hill Court
Baltimore, Maryland 21208
with a copy to:
Andrew M. Baker, Esq.
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
9. This First Amendment shall be governed by and construed and enforced in
accordance with the laws of the State of Maryland applicable to agreements made
and to be performed entirely in Maryland.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SINCLAIR BROADCASTING GROUP, INC.
By: /s/ David Smith
------------------------------
Name: David D. Smith
----------------------------
Title: President/CEO
---------------------------
BARRY BAKER
By: /s/ Barry Baker
------------------------------
-3-
Exhibit 10.54
TERMINATION AGREEMENT
Termination Agreement dated as of February 8, 1999 ("Agreement") between
Sinclair Broadcast Group, Inc., a Maryland corporation ("Sinclair") and Barry
Baker ("Baker").
Whereas, Sinclair and Baker have entered into an Employment Agreement dated
as of April 10, 1996 (the "Original Employment Agreement"), as amended by a
First Amendment to Employment Agreement dated as of May , 1998 (the "First
Amendment" and the Original Employment Agreement, as amended by the First
Amendment, being referred hereto as the "Amended Employment Agreement");
Whereas, Sinclair and Baker have entered into a Consulting Agreement dated
as of April 10, 1996 (the "Consulting Agreement");
Whereas, pursuant to Section 10.3.1 (g) of the Amended Employment
Agreement, Baker has the right to terminate the Agreement Term (as defined
therein) in the event that the Effective Date (as defined therein) shall not
have occurred by December 31, 1998, unless such failure is solely due to actions
or failure to take actions on the part of Baker (other than the failure of Baker
to eliminate his attributable interest in RCB and RCLP (each as defined
therein);
Whereas, the Effective Date has not occurred by December 31, 1998, and such
failure has not been as a result of actions or the failure to take actions on
the part of Baker;
Whereas, Baker desires to terminate the Amended Employment Agreement
pursuant to Section 10.3.1(g) of the Amended Employment Agreement;
Whereas, pursuant to Section 1.2 of the Consulting Agreement, the term of
Baker's engagement as a consultant to Sinclair terminates upon the termination
of the Agreement Term (as defined therein);
Whereas, Sinclair and Baker desire to confirm and clarify their agreements
regarding termination of Baker's employment and Baker's engagement as a
consultant, as well as to provide for certain additional matters set forth
herein;
Now, therefore, in consideration of the foregoing, Sinclair and Baker agree
as follows:
1. The Agreement Term, and Baker's engagement as a consultant pursuant to
the Consulting Agreement, (collectively referred to as "Baker's
employment with Sinclair") shall end on a date between March 8 and
April 8, 1999. At any time either Sinclair or Baker may specify in
writing to the other a date between March 8 and April 8, 1999 at which
the Agreement Term and Baker's employment with Sinclair shall end. If
neither Sinclair nor Baker specify in writing to the other such a
date, the Agreement Term shall end
<PAGE>
on April 8, 1999. If either Sinclair or Baker specify in writing a
date between March 8 and April 8, 1999, the Agreement Term and Baker's
employment with Sinclair shall terminate on the date specified. If
Sinclair and Baker both specify a date, the Agreement Term and Baker's
employment with Sinclair shall terminate on the earlier of the two
dates specified. The date on which the Employment Term terminates is
referred to herein as the "Employment Termination Date". Baker shall
not receive Base Salary under Section 4.1 of the Amended Employment
Agreement after March 8, 1999.
2. On March 8, 1999, Sinclair shall comply with its obligations under
clauses (a) and (b) of Section 10.3.2 of the Amended Employment
Agreement by wire transferring to Baker (to an account to be specified
by Baker to Sinclair in writing no later than March 6, 1999)
immediately available funds in an amount equal to $5,802,303.40 which
includes an amount equal to $575,615.00 which is the Bonus payable to
Baker in respect of 1998 under Section 4.2.4 of the Employment
Agreement. An agreed calculation of such amount is set forth in
Exhibit A. Baker waives his rights to payments of Bonus with respect
to the period from January 1, 1999 through the Employment Termination
Date under Section 4.2.4 of the Amended Employment Agreement.
3. Except as expressly provided otherwise hereunder, Sinclair and Baker
each hereby acknowledge and confirm that they will strictly perform
all of their obligations according to their terms under the Amended
Employment Agreement and the Consulting Agreement. Without limitation
of the foregoing, Sinclair shall strictly perform all of its other
obligations referred to under Sections 6.3(a), 7, 10.3.2, 10.4, 15 and
Section 16.7 of the Amended Employment Agreement in respect of a
termination of Employment under Section 10.3.1(g). Any amounts
credited to Baker's account under any Sinclair deferred compensation
plan shall be paid to Baker as provided in such plan.
4. On or prior to the Employment Termination Date, Sinclair shall pay in
full all remaining amounts for the membership and dues assessments of
Baker as Cave's Valley Golf Club so that the membership of Baker in
such club is paid in full. Sinclair shall also thereafter cooperate to
take such additional actions, if any, as may be necessary to fully
transfer such membership to Baker.
5. Sinclair and Baker agree that Article VI. (Exchange Rights) of the
Registration Rights Agreement dated as of May 31, 1996, as amended as
of October 31, 1996 ("Registration Rights Agreement"), provides
Holders (as defined therein), including without limitation Baker, (i)
the right to sell from time to time less than all of such Holder's
Class A Common Stock that was converted from Series B Preferred Stock
and (ii) to present the remainder of such shares to the Company for
conversion into Series B Preferred Stock of Sinclair in accordance
with the terms of the Registration Rights Agreement and the Company's
charter.
2
<PAGE>
6. Notwithstanding the provisions of the Registration Rights Agreement,
Barry Baker shall have 160 days from the Employment Termination Date
to present the remainder of the shares referred to in Section 5 of
this Agreement to the Company for conversion into Series B Preferred
Stock. Baker acknowledges that the Series B Preferred Stock referred
to in this Section 6 may, if necessary as a result of the provisions
of the Articles of Incorporation and Maryland law, be a class of
preferred stock of Sinclair identical in all respects to the
attributes of the Series B Preferred Stock. With respect to any shares
of Class A Common Stock referred to in Section 5 of this Agreement
that Baker presents to Sinclair for conversion into Series B Preferred
Stock, and which have not been presented for conversion within 120
days of the Employment Termination Date, Baker agrees that Sinclair
may, if it desires, fix the date and give notice of a redemption of
such shares to occur 180 days after the Employment Termination Date
not less than 170 days after such Employment Termination Date, and
Baker waives the 30 day advance notice provision in Section 5(i) of
the Articles Supplementary relating to the Series B Preferred Stock to
the extent (and only to the extent) inconsistent with the other
provisions of this sentence.
7. Baker agrees that, regardless of whether Sinclair or Baker shall have
notified the other of a date pursuant to Section 1 of this Agreement,
Baker shall support Sinclair's business entertainment activities in
Park City, Utah scheduled for February 13, 1999 through March 8, 1999,
including by making Baker's house in Park City available for such
activities.
8. Sinclair and Baker agree to the press release set forth as Exhibit B.
9. On or prior to February 18, 1999, Sinclair shall take or cause to be
taken all commercially reasonable actions (including actions by its
board of directors or compensation committee or both) as is necessary
to permit Baker to transfer all or a portion of his employee stock
options in Sinclair, and all rights associated therewith, to any
member of his immediate family or one or more entities established for
the benefit of any member of Baker's immediate family.
10. Baker shall have the same rights with respect to any dispute or
disagreement arising hereunder or related hereto as is set forth in
Section 16.7 of the Amended Employment Agreement with respect to any
dispute or disagreement arising out of the Amended Employment
Agreement.
11. Except with respect to the provisions of Section 5, nothing in this
Agreement, express or implied, is intended to confer on any person
other than the parties hereto or their respective successors and
permitted assigns, any rights remedies, obligations or liabilities
under or by reason of this Agreement. The
3
<PAGE>
Holders referred to in Section 5 hereof are express third party
beneficiaries of the provisions of Section 5 of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ David Smith
------------------------------------
David Smith
BARRY BAKER
/s/ Barry Baker
----------------------------------------
5
EXHIBIT 10.55
PURCHASE AGREEMENT
BY AND BETWEEN
SINCLAIR COMMUNICATIONS, INC.
AND
STC BROADCASTING, INC.
DATED AS OF MARCH 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
ARTICLE 1. SALE OF ASSETS; ASSUMPTION OF LIABILITIES........................................................1
1.1 Assets to Be Acquired..........................................................................1
1.2 Excluded Assets................................................................................4
1.3 Assumption of Liabilities......................................................................4
1.4 Non-License Transfer; Closing..................................................................5
1.5 Additional Closing Deliveries..................................................................7
1.6 Due Diligence, Delivery of Disclosure Schedule and Purchaser Termination Right.................9
ARTICLE 2. PURCHASE PRICE..................................................................................10
2.1 Escrow Deposit................................................................................10
2.2 Purchase Price................................................................................10
2.3 Payment of Purchase Price.....................................................................11
2.4 Post-Closing Adjustment.......................................................................11
2.5 Allocation of the Purchase Price..............................................................13
ARTICLE 3. REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY..........................................13
3.1 Organization and Standing.....................................................................13
3.2 Binding Agreement.............................................................................14
3.3 Absence of Conflicting Agreements or Required Consents........................................14
3.4 Equity Investments............................................................................15
3.5 Financial Statements..........................................................................15
3.6 Title to Assets; Related Matters..............................................................15
3.7 Absence of Certain Changes, Events and Conditions.............................................16
3.8 Litigation....................................................................................17
3.9 Insurance.....................................................................................18
3.10 Material Contracts...........................................................................18
3.11 Permits and Licenses; Compliance with Law....................................................19
3.12 FCC Licenses.................................................................................19
3.13 Environmental Matters........................................................................20
3.14 Employee Benefit Matters.....................................................................20
3.15 Labor Relations..............................................................................22
3.16 Intellectual Property........................................................................23
3.17 Taxes........................................................................................23
3.18 Commissions..................................................................................24
3.19 Affiliate Transactions.......................................................................24
3.20 Gannett Purchase Agreement...................................................................24
3.21 Accuracy and Completeness of Representations and Warranties..................................25
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................................................25
4.1 Organization and Standing.....................................................................25
<PAGE>
4.2 Binding Agreement.............................................................................25
4.3 Absence of Conflicting Agreements or Required Consents........................................26
4.4 Litigation....................................................................................26
4.5 Commissions...................................................................................27
4.6 Financing.....................................................................................27
4.7 Purchaser's Qualification.....................................................................27
4.8 Accuracy and Completeness of Representations and Warranties...................................27
ARTICLE 5. COVENANTS AND AGREEMENTS........................................................................27
5.1 Conduct of the Business Prior to Closing; Access..............................................27
5.2 Post-Closing Covenants and Agreement, and Other Employee Benefit Matters......................32
5.3 Cooperation...................................................................................35
5.4 Confidentiality...............................................................................38
5.5 Public Announcements..........................................................................38
5.6 No Solicitation...............................................................................38
5.7 Employees.....................................................................................39
5.8 No Additional Representations.................................................................39
5.9 Certain Payments..............................................................................39
5.10 Bulk Sales Laws..............................................................................40
5.11 Control of the Stations......................................................................40
5.12 Use of Certain Names.........................................................................41
5.13 News Sharing Arrangements....................................................................41
5.14 Rights Under the Gannett Purchase Agreement..................................................42
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF PURCHASER..........................................................43
6.1 Representations and Warranties................................................................43
6.2 Performance by the Company....................................................................44
6.3 Certificates..................................................................................44
6.4 Consents; No Objections.......................................................................44
6.5 No Proceedings or Litigation..................................................................45
6.6 FCC Consent...................................................................................45
6.7 No Material Adverse Change....................................................................45
6.8 Opinions of Counsel...........................................................................45
6.9 Certain Certified Matters.....................................................................45
6.10 Good Standing Certificate....................................................................46
6.11 No Transmission Defects......................................................................46
6.12 Closing on the Gannett Purchase Agreement....................................................46
6.13 Deliveries...................................................................................46
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF THE COMPANY........................................................47
7.1 Representations and Warranties................................................................47
7.2 Performance by Purchaser......................................................................47
7.3 Certificate...................................................................................47
7.4 Consents; No Objections.......................................................................47
7.5 No Proceedings or Litigation..................................................................47
ii
<PAGE>
7.6 FCC Consent...................................................................................48
7.7 Certain Certified Matters.....................................................................48
7.8 Good Standing Certificate.....................................................................48
7.9. Closing on Gannett Purchase Agreement........................................................48
7.10 Deliveries...................................................................................49
ARTICLE 8. INDEMNIFICATION.................................................................................49
8.1 Indemnification by the Company................................................................49
8.2 Indemnification by Purchaser..................................................................49
8.3 Limitations on Indemnification Claims and Liability; Termination of Indemnification...........50
8.4 Computation of Claims and Damages.............................................................51
8.5 Notice of Claims..............................................................................52
8.6 Defense of Third Party Claims.................................................................52
8.7 Third Party Beneficiaries.....................................................................53
ARTICLE 9. DEFINITIONS.....................................................................................53
ARTICLE 10. MISCELLANEOUS PROVISIONS.......................................................................67
10.1 Termination Rights...........................................................................67
10.2 Litigation Costs.............................................................................69
10.3 Expenses.....................................................................................69
10.4 Notices......................................................................................70
10.5 Benefit and Assignment.......................................................................71
10.6 Waiver.......................................................................................72
10.7 Severability.................................................................................73
10.8 Amendment....................................................................................73
10.9 Effect and Construction of this Agreement....................................................73
10.10 Transfer and Conveyance Taxes...............................................................74
10.11 Specific Performance........................................................................74
10.12 Survival of Representations, Warranties and Covenants.......................................74
ARTICLE 11. NO PERSONAL LIABILITY FOR REPRESENTATIVES, STOCKHOLDERS, DIRECTORS OR OFFICERS.................75
</TABLE>
iii
<PAGE>
EXHIBIT
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of this
5th day of March, 1999, by and between SINCLAIR COMMUNICATIONS, INC., a Maryland
corporation (the "COMPANY"), and STC BROADCASTING, INC., a Delaware corporation
("PURCHASER").
WHEREAS, the Company and Guy Gannett Communications ("GANNETT") entered
into that certain Purchase Agreement dated September 4, 1998 (the "GANNETT
PURCHASE AGREEMENT"), pursuant to which the Company agreed to purchase
substantially all of the assets of the Gannett Television Stations, including
television broadcast stations WICS-TV, Channel 20, Springfield, Illinois;
WICD-TV, Channel 15, Champaign, Illinois; and KGAN-TV, Channel 2, Cedar Rapids,
Iowa (each a "STATION" and collectively, the "STATIONS"); and
WHEREAS, the Company desires to sell, assign and transfer to Purchaser
the assets and business of the Stations as described below, and Purchaser
desires to purchase and acquire the assets and business of the Stations as
described below, on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties, intending legally to be bound, agree as follows:
[A LIST OF DEFINED TERMS IS PROVIDED IN ARTICLE 9 HEREOF.]
ARTICLE 1. SALE OF ASSETS; ASSUMPTION OF LIABILITIES.
1.1 ASSETS TO BE ACQUIRED.
Upon the terms and subject to the satisfaction of the
conditions set forth herein, the Company shall sell, convey, assign, transfer
and deliver to Purchaser, and Purchaser shall purchase, acquire, accept and pay
for, all right, title and interest of the Company and Gannett in and to all of
the real, personal and mixed properties, assets and other rights, both tangible
and intangible (other than the Excluded Assets), owned or leased by, or licensed
to or used or useful by, the Company and Gannett in connection with the Business
and the Stations (collectively, the "ASSETS"), which Assets shall consist of all
of the Assets relating to the Stations that the Company (and its successors and
assigns) have acquired or have the right to acquire, pursuant to the Gannett
Purchase Agreement.
Without limiting the generality of the foregoing, the Assets
shall include the following:
<PAGE>
(a) the FCC Licenses;
(b) the Equipment;
(c) all translators, earth stations and other auxiliary
facilities, and all applications therefor;
(d) the Real Property and Leased Property as set forth in
Section 1.1(d) of the Disclosure Schedule;
- --------------
(e) all orders and agreements for the sale of advertising time
on the Stations for cash, and all trade, barter and similar agreements,
excluding Program Contracts (which are provided for below), for the sale of
advertising time on the Stations for any property or services in lieu of or in
addition to cash, and any other orders and agreements relating to the Stations
and entered into (other than in violation of this Agreement or the Gannett
Purchase Agreement) between the date of the Gannett Purchase Agreement and the
Transfer Date;
(f) all film and program licenses and contracts under which
the Company or Gannett has the right to broadcast film product or programs on
the Stations ("PROGRAM CONTRACTS"), including all cash and non-cash (barter)
program contracts and including, without limitation, the Program Contracts set
forth in Section 3.10 of the Disclosure Schedule and any other Program Contracts
relating to the Stations and entered into (other than in violation of this
Agreement or the Gannett Purchase Agreement) between the date of the Gannett
Purchase Agreement and the Transfer Date;
(g) all other contracts and agreements related to the
Business, including, without limitation, network affiliation agreements, all
employment contracts entered into with television talent and other Business
Employees, all collective bargaining agreements with respect to any Business
Employees, any time brokerage agreements and all national or local advertising
representation agreements for the Stations, including, without limitation, the
contracts and agreements set forth in Section 3.10 of the Disclosure Schedule,
and any other such contracts and agreements relating to the Stations and entered
into (other than in violation of this Agreement or the Gannett Purchase
Agreement) between the date of the Gannett Purchase Agreement and the Transfer
Date;
(h) the Intellectual Property, including, without limitation,
the Call Letters;
(i) all programs and programming materials used in connection
with the Business, whether recorded on tape or any other media or intended for
live
2
<PAGE>
performance, and whether completed or in production, and all related common law
and statutory copyrights owned by or licensed to the Company or Gannett and used
or useful in connection with the Business;
(j) all FCC logs and other records that relate to the
operation of the Stations;
(k) except as set forth in Section 1.2 hereof, all files,
books and other records relating to the Business, including, without limitation,
written technical information, data, specifications, research and development
information, engineering, drawings, manuals, computer programs, tapes and
software relating directly to the Business, other than duplicate copies of
account books of original entry and duplicate copies of such files and records,
if any, that are maintained at the corporate offices of the Company or Gannett
for tax and accounting purposes;
(l) all of the goodwill in, and "going concern" value of, the
Business;
(m) all accounts, notes and accounts receivable of the
Business and the Stations relating to or arising out of the business and
operations of the Stations and the Business during the period prior to the
Transfer Date;
(n) all deposits, reserves and prepaid expenses of the
Business (other than those relating to Excluded Assets or Liabilities that are
not Assumed Liabilities);
(o) to the extent transferable under applicable law, all
franchises, approvals, permits, licenses, orders, registrations, certificates,
exemptions, variances and similar rights obtained from Governmental Authorities
(other than the FCC Licenses) in any jurisdiction that had issued or granted
such items to the Company or Gannett, or that the Company or Gannett otherwise
owns or uses, in each case relating to the Business, and all pending
applications therefor; and
(p) except as set forth in Section 1.2 hereof, all insurance
proceeds and claims therefor arising out of or related to (i) damage,
destruction or loss of any property or asset used or useful in connection with
the Business to the extent of any damage or destruction that remains unrepaired,
or to the extent any property or asset remains unreplaced, at the Non-License
Transfer Date or the Closing Date, as applicable, and (ii) any other matters
related to, or involving the Business, including, without limitation, employment
practices.
3
<PAGE>
1.2 EXCLUDED ASSETS.
Notwithstanding anything to the contrary herein, all of the
assets listed on Schedule 1.2 to this Agreement or defined in the Gannett
Purchase Agreement as Excluded Assets (collectively, the "EXCLUDED Assets")
shall be excluded from the Assets.
1.3 ASSUMPTION OF LIABILITIES.
(a) On and after the Non-License Transfer Date, Purchaser will
assume and agree to perform and fully discharge when due, except to the extent
that such Liabilities constitute Retained Liabilities, the following Liabilities
of the Company or Gannett: (i) those solely related to or solely arising from or
in connection with the Assets or the Business (other than the License Assets);
and (ii) those partly related to any contract or agreement for the Stations that
are also related to other Gannett Television Stations, but not related to any
other assets or business of Gannett or the Company (any such contract or
agreement being a "GROUP CONTRACT"), but only to the extent the Liabilities
under any such Group Contract relate to or arise from or are in connection with
the Assets or the Business, whether such Liabilities specified in clause (i) or
(ii) are incurred or arise prior to, on or after the Non-License Transfer Date,
including, without limitation, those obligations of the Company relating to the
Business to be assumed by Purchaser pursuant to Section 5.2 hereof.
(b) On and after the Closing Date, to the extent not assumed
by Purchaser at the Non-License Transfer, Purchaser will assume and agree to
perform and fully discharge when due, except to the extent that any Liabilities
constitute Retained Liabilities, the following Liabilities of the Company or
Gannett: (i) those solely related to or solely arising from or in connection
with the Assets or the Business; (ii) those partly related to any Group
Contract, but only to the extent the Liabilities under any such Group Contract
relate to or arise from or are in connection with the Assets or the Business,
and (iii) those solely related to or solely arising from or in connection with
the License Assets listed in Section 1.4 of the Disclosure Schedule, whether
such Liabilities specified in clause (i), (ii) or (iii) are incurred or arise
prior to, on or after the Closing Date, including, without limitation, those
obligations of the Company relating to the Business to be assumed by Purchaser
pursuant to Section 5.2 hereof (the Liabilities assumed by Purchaser pursuant to
Sections 1.3(a) and (b) hereof shall be collectively be referred to herein as
the "ASSUMED LIABILITIES").
(c) Except for the Assumed Liabilities and except as otherwise
expressly provided in this Agreement, Purchaser will assume no other Liabilities
or
4
<PAGE>
any kind of description (collectively, the "RETAINED LIABILITIES"). The Retained
Liabilities include, without limitation, any of the following Liabilities:
(i) any of the Liabilities defined in the Gannett
Purchase Agreement as "Retained Liabilities";
(ii) any of the Company's obligations hereunder;
(iii) any Liability for federal, state or local
income taxes of Gannett or the Company,
their respective stockholders or any other
Person;
(iv) any Liabilities relating to the Corporate
Office except for the Purchaser's
reimbursement obligation pursuant to Section
5.9(b) hereof;
(v) any Liabilities relating to current, former
or inactive Corporate Office Employees;
(vi) any Liabilities under any Employee Benefit
Plans of Gannett or the Company except to
the extent assumed by Purchaser pursuant to
Section 5.2 and Section 5.9 hereof;
(vii) any Liability of Gannett or the Company
arising from Indebtedness or any overdrafts
on any bank accounts of Gannett or the
Company;
(viii) any Liability for dividends; and
(ix) any Liability with respect to the Gannett
Television Stations (other than the
Stations) under any Group Contract or
otherwise.
(d) The Company shall retain, and shall continue to be
responsible after the Transfer Date for, all Retained Liabilities and all other
Liabilities of the Company and Gannett that are not Assumed Liabilities.
1.4 NON-LICENSE TRANSFER; CLOSING.
(a) Unless this Agreement shall have been terminated and the
transactions herein shall have been terminated pursuant to Section 10.1 hereof,
provided that the conditions set forth in Article 6 (except for Section 6.6) and
Article 7 (except for Section 7.6) shall have been satisfied and the Closing
shall not have occurred, there shall be a closing (the "NON-LICENSE TRANSFER")
for the
5
<PAGE>
purchase and sale of all of the Assets (other than the Assets which are listed
in Section 1.4 of the Disclosure Schedule (the "LICENSE ASSETS"), at 10:00 a.m.
New York City time on a date specified by Purchaser that is within the later of
(i) ten (10) days after the date on which all applicable waiting periods under
the HSR Act shall have expired or terminated, or (ii) the date, time and place
of the closing under the Gannett Purchase Agreement as long as Purchaser shall
have received at least ten (10) days prior written notice from the Company of
the date of the Gannett closing (the date on which the Non-License Transfer
shall occur pursuant to this Section 1.4(a) is referred to herein as the
"NON-LICENSE TRANSFER DATE"); provided, however, that the Company and Purchaser
shall take such reasonable actions as may be necessary to hold the Non-License
Transfer simultaneously with the closing of the Gannett Purchase Agreement. If
the Non-License Transfer shall occur simultaneously with the closing under the
Gannett Purchase Agreement, then the Non-License Transfer shall occur at the
place of the closing under the Gannett Purchase Agreement, or at such other
place as the parties shall agree in writing. Otherwise, the Non-License Transfer
shall occur at the offices of Hogan & Hartson L.L.P., 8300 Greensboro Drive,
Suite 1100, McLean, Virginia 22102, or at such other place as the Company and
Purchaser shall agree in writing. At the Non-License Transfer, each of the
parties hereto shall take, or cause to be taken, all such actions and deliver,
or cause to be delivered, all such documents, instruments, certificates and
other items as may be required under this Agreement or otherwise, in order to
perform or fulfill all covenants and agreements on its part to be performed at
or prior to the Non-License Transfer. The Non-License Transfer shall be
effective as of 12:01 a.m., New York City time, on the day of the Non-License
Transfer Date.
(b) Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been terminated pursuant to Section
10.1 hereof, the closing (the "CLOSING") of the transactions herein contemplated
shall take place at 10:00 a.m., New York City time, on a date specified by
Purchaser that is within ten (10) days following the satisfaction or waiver of
the conditions set forth in Articles 6 and 7 hereof, or at such other time and
date as the Company and Purchaser shall agree in writing (such time and date of
the Closing being referred to herein as the "CLOSING DATE"), at the offices of
Hogan & Hartson L.L.P., 8300 Greensboro Drive, Suite 1100, McLean, Virginia
22102, or at such other place as the Company and Purchaser shall agree in
writing. At the Closing, each of the parties hereto shall take, or cause to be
taken, all such actions and deliver, or cause to be delivered, all such
documents, instruments, certificates and other items as may be required under
this Agreement or otherwise, in order to perform or fulfill all covenants and
agreements on its part to be performed at or prior to the Closing. The Closing
shall be effective as of 12:01 a.m., New York City time, on the day of the
Closing Date.
6
<PAGE>
(c) In the event that the closing of the Company's acquisition
of the Stations pursuant to the Gannett Purchase Agreement does not occur
simultaneously with the Transfer Date hereunder, the Company and Purchaser
acknowledge and agree that (i) the representations, warranties, covenants and
agreements made by Gannett under the Gannett Purchase Agreement which relate to
the Stations shall be deemed (A) incorporated by reference into the terms
hereof, and (B) restated by the Company for the benefit of Purchaser as of the
Transfer Date as though the Company was Gannett under the Gannett Purchase
Agreement; provided, that, without limiting the Company's representations,
warranties, covenants and agreements hereunder, such additional representations,
warranties, covenants and agreements from the Gannett Purchase Agreement shall
apply only with respect to the period of ownership of the Stations and the
Assets by the Company and the Company's successors and assigns; (ii) on or prior
to the fifth (5th) Business Day prior to the Transfer Date, the Disclosure
Schedule hereto shall be updated and amended by the Company to reflect the
updates and amendments to the Disclosure Schedule that are necessary in order
for the Company to restate such representations and warranties hereunder as of
the Transfer Date; provided, however, no such updates or amendments shall be
made which would constitute a violation of this Agreement or the Gannett
Purchase Agreement; and (iii) in addition to the Assets described in Section 1.1
hereof, the "Assets" shall include the Assets of the Business and the Stations
with respect to which the Company and the Company's successors and assigns shall
have acquired from and after the closing under the Gannett Purchase Agreement.
1.5 ADDITIONAL CLOSING DELIVERIES.
(a) At the Non-License Transfer and the Closing, as
applicable, the Company shall deliver to Purchaser:
(i) a duly executed counterpart of the Bill of Sale,
Assignment and Assumption Agreement substantially in
the form set forth in Exhibit A hereto (the "BILL OF
SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT");
(ii) at the Closing only, a duly executed counterpart of the
Assignment of FCC Licenses, substantially in the form
set forth in Exhibit B hereto (the "ASSIGNMENT OF FCC
LICENSES");
(iii)instruments of assignment with respect to all of the
Company's rights and interests in the Leased Property
and special warranty deeds (of a type equivalent to
that known in New York as a "bargain and sale deed with
covenants against grantor's actions") with respect to
all of the Company's rights and interests in the Real
Property, in recordable form sufficient to convey to
Purchaser all of the Company's rights and interests or
rights and interest in the Leased
7
<PAGE>
Property and the Real Property acquired by the Company
from Gannett pursuant to the Gannett Purchase
Agreement;
(iv) an owner's affidavit, gap indemnity and such other
customary documents and certificates as may be
reasonably required by Purchaser's title insurance
company with respect to Purchaser's title insurance of
the Real Property and any Leased Property;
(v) evidence reasonably satisfactory to Purchaser that the
third-party insurance policies listed in Section 3.9 of
the Disclosure Schedule are in full force and effect
with respect to the period prior to the Transfer Date
(together with appropriate evidence showing loss
payable and/or additional insured clauses or
endorsements, as reasonably requested by Purchaser, in
favor of Purchaser);
(vi) a certificate, dated as of the Transfer Date, executed
on behalf of the Company by the Company's duly
authorized officers that, except as disclosed in
Section 3.8 of the Disclosure Schedule (or otherwise
disclosed pursuant to such certificate) (a) there are
no Actions against the Company or, to the Company's
knowledge, Gannett relating to the Business or the
Assets pending, or, to the Company's Knowledge,
threatened to be brought by or before any Governmental
Authority, and (b) neither the Company nor, to the
Company's Knowledge, Gannett is subject to any
Governmental Orders (nor, are there any such
Governmental Orders threatened to be imposed by any
Governmental Authority) relating to the Business or the
Assets;
(vii)domain name transfer agreements in form and substance
reasonably satisfactory to Purchaser to perfect the
transfer to Purchaser of all of the domain names of the
Stations;
(viii) all other instruments of conveyance and transfer
sufficient to convey the Assets to Purchaser;
(ix) at the Non-License Transfer only, a duly executed
counterpart of the Time Brokerage Agreement,
substantially in the form set forth in Exhibit C hereto
(the "TIME BROKERAGE AGREEMENT"); and
(x) all other documents, instruments and writings required
to be delivered by the Company at or prior to the
Closing Date or the Non-License Transfer Date, as
applicable, pursuant to this Agreement.
(b) At the Non-License Transfer and the Closing, as
applicable, Purchaser shall deliver to Company:
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(i) the Purchase Price in accordance with Section 2.3
hereof;
(ii) a duly executed counterpart of the Bill of Sale,
Assignment and Assumption Agreement;
(iii)at the Closing only, a duly executed counterpart of the
Assignment of FCC Licenses;
(iv) at the Non-License Transfer only, a duly executed
counterpart of the Time Brokerage Agreement; and
(v) all other documents, instruments and writings required
to be delivered by Purchaser at or prior to the Closing
Date or the Non-License Transfer Date, as applicable,
pursuant to this Agreement.
(c) Purchaser shall, at any time prior to, at or after the
Transfer Date, take or cause to be taken such further actions, and execute,
deliver and file or cause to be executed, delivered and filed such further
documents and instruments, as may be reasonably requested by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. The Company shall, at any time prior to, at or after the Transfer
Date, take or cause to be taken such further actions, and execute, deliver and
file or cause to be executed, delivered and filed such further documents and
instruments, as may be reasonably requested by Purchaser in connection with the
consummation of the transactions contemplated by this Agreement.
1.6 DUE DILIGENCE, DELIVERY OF DISCLOSURE SCHEDULE AND PURCHASER
TERMINATION RIGHT.
The Company hereby acknowledges and agrees that neither the
Company nor Gannett has delivered all due diligence materials or the Disclosure
Schedule with respect to the Stations to Purchaser prior to the date hereof.
Subject to the receipt of any required prior approvals from Gannett, the
parties, therefore, acknowledge and agree that (a) Purchaser shall be permitted
to conduct a due diligence review of the Business and Assets upon, and at all
times after the execution and delivery of this Agreement pursuant to the terms
and conditions of this Agreement, and (b) the Company shall deliver to Purchaser
and to Purchaser's counsel a complete set of the Disclosure Schedule for the
Stations (and copies of all materials identified on the Disclosure Schedule, as
reasonably required to support such Disclosure Schedule or as otherwise
reasonably requested by Purchaser) as soon as possible after the execution and
delivery of this Agreement. Purchaser shall have the right, in its sole and
absolute discretion and for any reason, to terminate this Agreement at any time
prior to 5:00 p.m. (New York City time) on the date
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which is the tenth (10th) Business Day after the date hereof (the "Diligence
Termination Deadline") pursuant to Section 10.1(a)(ii) hereof. Such termination
right of Purchaser is in addition to, and shall not limit or diminish, any other
termination rights or other remedies available to Purchaser hereunder or at law
or in equity.
ARTICLE 2. PURCHASE PRICE.
2.1 ESCROW DEPOSIT.
For and in partial consideration of the execution and delivery
of this Agreement, provided, that this Agreement shall not have been terminated
and the transactions herein contemplated shall not have been terminated pursuant
to Sections 10.1(a)(ii) or 10.1(a)(iii) hereof, Purchaser shall deposit within
twelve (12) Business Days after the execution and delivery of this Agreement
with the Deposit Escrow Agent an original, irrevocable letter of credit in a
form reasonably acceptable to the Company (the "LETTER OF CREDIT"), issued for
the benefit of the Company and the Deposit Escrow Agent by The Chase Manhattan
Bank for an amount equal to Eight Million One Hundred Thousand Dollars
($8,100,000) (the "ESCROW DEPOSIT"), such Letter of Credit to be dealt with in
accordance with the terms and provisions of the Deposit Escrow Agreement, dated
as of the date of the delivery of the Letter of Credit to the Deposit Escrow
Agent, among the Company, Purchaser and the Deposit Escrow Agent, in the form
attached hereto as Exhibit D (the "DEPOSIT ESCROW AGREEMENT"). Purchaser and the
Company shall cause the Letter of Credit to be returned to Purchaser on the
Transfer Date.
2.2 PURCHASE PRICE.
(a) In consideration of the sale of the Assets and the
Business hereunder, Purchaser shall (i) pay the Company in cash the aggregate
amount of Eighty One Million Dollars ($81,000,000) (the "BASE PURCHASE PRICE"),
plus (if the Estimated Net Financial Assets are greater than zero) or minus (if
the Estimated Net Financial Assets are less than zero), as the case may be, the
Estimated Net Financial Assets (the Base Purchase Price, as adjusted by the Net
Financial Assets, the "PURCHASE PRICE") and (ii) assume the Assumed Liabilities.
(b) As promptly as possible but no later than three (3)
Business Days prior to the Transfer Date, the Company shall deliver to Purchaser
a statement setting forth the amount estimated in good faith by the Company to
be the amount of the Net Financial Assets as of the Transfer Date (the
"ESTIMATED NET FINANCIAL ASSETS").
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2.3 PAYMENT OF PURCHASE PRICE.
(a) At the Non-License Transfer, Purchaser shall pay to the
Company the sum of Seventy-Six Million Dollars ($76,000,000) of the Base
Purchase Price plus (if the Estimated Net Financial Assets are greater than
zero) or minus (if the Estimated Net Financial Assets are less than zero), as
the case may be, the Estimated Net Financial Assets, by wire transfer in
immediately available funds to an account or accounts which shall be designated
by the Company not less than three (3) Business Days prior to the Transfer Date.
(b) The Purchase Price (less any amounts of the Purchase Price
paid to the Company at the Non-License Transfer) shall be paid by Purchaser to
the Company at the Closing by wire transfer of immediately available funds to an
account or accounts which shall be designated by the Company not less than three
(3) Business Days prior to the Closing Date.
2.4 POST-CLOSING ADJUSTMENT.
(a) The parties agree that no later than seventy-five (75)
days after the Transfer Date (or such later date on which such statement
reasonably can be prepared and delivered in light of the compliance of Purchaser
and the Company with their obligations set forth in next two succeeding
sentences), the Company shall deliver to Purchaser, in the form received by the
Company from Gannett (i) a statement of the actual Net Financial Assets as of
11:59 p.m., New York City time, on the day immediately preceding the Transfer
Date (the "CLOSING STATEMENT") certified by PriceWaterhouseCoopers L.L.P.,
independent accountants for Gannett, to be prepared (except as otherwise
provided in Section 9 of the Disclosure Schedule to the Gannett Purchase
Agreement) in conformity with GAAP and on a basis consistent with the basis used
in preparing the Unaudited Financial Statements as of, and for the year ended,
December 27, 1997, referred to in Section 3.5 of the Gannett Purchase Agreement
except to the extent of any position taken as the result of such statements
being prepared on a consolidated basis, and (ii) a determination of the amount
by which the actual Net Financial Assets are less than or greater than the
Estimated Net Financial Assets. Purchaser shall provide the Company and Gannett,
and Gannett's independent accountants, access at all reasonable times to the
relevant personnel, properties, books and records of the Business for such
purposes and to assist the Company and Gannett, and Gannett's independent
accountants, in preparing the Closing Statement. Purchaser's assistance shall
include, without limitation, the closing of the books of the Business as of the
Transfer Date, the preparation of schedules supporting the amounts set forth in
the general ledger and other books and records of the Business, and such other
assistance as the Company, Gannett or Gannett's independent accountants
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may reasonably request. During the twenty-five (25) day period following the
delivery by the Company of the Closing Statement referred to in the first
sentence of this Section 2.4(a), Purchaser and its independent accountants will
be permitted to review the working papers of the Company and of Gannett and its
independent accountants relating to the preparation of the Closing Statement to
the same extent as such working papers have been made available to the Company
by Gannett pursuant to the Gannett Purchase Agreement. If, within twenty-five
(25) days after delivery by the Company of the Closing Statement, Purchaser
notifies the Company that it disagrees with the Closing Statement, the Company
shall attempt to resolve the disagreement with Gannett. In the event the Company
and Purchaser cannot agree with respect to the Closing Statement within five (5)
days of the notice of disagreement provided by Purchaser to the Company, then
the determination shall be submitted for resolution promptly to an independent
nationally recognized accounting firm (the "ACCOUNTING FIRM"), jointly selected
by the Company and Purchaser, whose determination (the "ACCOUNTING FIRM
DETERMINATION") shall be instructed by the parties to be made within twenty (20)
days and be binding upon all parties hereto, and the fees and expenses of which
shall be borne equally by Purchaser and the Company to the extent that such fees
and expenses are allocable to the transactions contemplated by this Agreement.
The Purchaser agrees that the accounting firm selected by Gannett and the
Company pursuant to Section 2.3(a) of the Gannett Purchase Agreement shall be
the Accounting Firm hereunder as long as such firm has not been engaged by
Gannett or the Company during the three (3) year period prior to the date
hereof. In the event that (whether expressly or by failure of Purchaser to
provide notice of any disagreement within the applicable period) Purchaser
agrees with the determination of the final Net Financial Assets set forth in the
Closing Statement without submitting the matter for an Accounting Firm
Determination, the Net Financial Assets set forth in the Closing Statement shall
be the final determination of the Net Financial Assets. The amount of Net
Financial Assets as of 11:59 p.m., New York City time, on the day immediately
preceding the Closing Date, as definitively determined pursuant to this Section
2.4(a) is referred to herein as the "ACTUAL NET FINANCIAL ASSETS".
(b) If the Actual Net Financial Assets are greater than the
Estimated Net Financial Assets, then Purchaser shall pay the Company in cash,
within two (2) Business Days following the determination of the Actual Net
Financial Assets, an amount equal to such difference, plus interest on the
amount of such difference at the rate of eight percent (8%) per annum from the
Transfer Date to the date of such payment to the Company. If the Actual Net
Financial Assets are less than the Estimated Net Financial Assets, then the
Company shall pay the Purchaser in cash within two (2) Business Days following
the determination of the Actual Net Financial Assets, an amount equal to such
difference, plus interest on the amount of such difference at the rate of eight
percent (8%) per annum from the
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Transfer Date to the date of such payment to Purchaser. The amounts paid
pursuant to this Section 2.4(b) shall be by wire transfer of immediately
available funds for credit to the recipient at a bank account identified by such
recipient in writing.
2.5 ALLOCATION OF THE PURCHASE PRICE.
The Company and Purchaser agree to allocate the Base Purchase
Price among the Stations for all purposes (including financial, accounting and
tax purposes) in accordance with Schedule 2.7 hereto. The Company and Purchaser
agree to engage Bond & Pecaro, a nationally recognized appraisal firm, to
appraise the classes of Assets of each Station in accordance with the allocation
for the Stations set forth on Schedule 2.7 and in accordance with Section 1060
of the Code and the Treasury Regulations promulgated thereunder (the
"ALLOCATION"). The Allocation shall be binding upon Purchaser and the Company,
and none of the parties hereto shall file, or cause to be filed, any Tax Return,
Internal Revenue Service Form 8594 or other form, or take a position with any
Tax authority or jurisdiction, that is inconsistent with the Allocation without
obtaining the prior written consent of the Company or Purchaser, as the case may
be. The fees and disbursements of the appraiser engaged in connection with the
Allocation as to the Assets of the Stations shall be paid one-half (1/2) by
Purchaser and one-half (1/2) by the Company.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY.
The Company represents and warrants to Purchaser as follows:
3.1 ORGANIZATION AND STANDING.
The Company is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Maryland. The
Company and, to the Company's Knowledge, Gannett have all requisite corporate
power and authority to own, lease and operate their respective properties and
assets and to conduct their business as it is now being conducted. The Company
is and, to the Company's Knowledge, Gannett is, duly qualified to do business as
a foreign corporation and is in good standing under the laws of each state in
which the operation of its business or ownership of its assets makes such
qualification necessary, except where the failure to so qualify or be in good
standing would not reasonably be expected to have a Material Adverse Effect.
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3.2 BINDING AGREEMENT.
The Company has all requisite corporate power and authority to
enter into this Agreement, to execute and deliver this Agreement and the other
Transaction Documents, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Transaction Documents by the
Company and the consummation by the Company of its obligations hereunder and
thereunder have been duly and validly authorized by all necessary corporate and
stockholder action on the part of the Company. This Agreement has been, and on
the Non-License Transfer Date and on the Closing Date the other Transaction
Documents will be, duly executed and delivered on behalf of the Company and,
assuming the due authorization, execution and delivery by Purchaser, constitutes
a legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to applicable bankruptcy and similar laws affecting the
rights of creditors generally and to general principles of equity (whether
applied at law or equity).
3.3 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS.
Except as set forth in Section 3.3 of the Disclosure Schedule,
the execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents (and to the extent that the Assets are transferred
directly from Gannett to the Purchaser, to the Company's Knowledge, Gannett) do
not and will not (a) violate, conflict with or result in the breach or default
of any provision of the articles of incorporation or bylaws of the Company, (b)
conflict with or violate in any material respect any material Law or material
Governmental Order applicable to the Company or any of its properties or assets
or to the Assets or the Business, (c) except for (i) the notification
requirements of the HSR Act and (ii) such filings with, and orders of, the FCC
as may be required under the Communications Act and the FCC's rules and
regulations in connection with this Agreement and the transactions contemplated
hereby, require any material consent, approval, authorization or other order of,
action by, registration or filing with or declaration or notification to any
Governmental Authority, or (d) conflict with, result in any violation or breach
of, constitute a default (or event which with the giving of notice, or lapse of
time or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Assets, or result in the imposition or acceleration of any payment,
time of payment, vesting or increase in the amount of compensation or benefit
payable, pursuant to any Material Contract.
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3.4 EQUITY INVESTMENTS.
The Assets do not include any capital stock of any corporation or any
equity interest in any Person.
3.5 FINANCIAL STATEMENTS.
(a) The Company has furnished, or prior to the Diligence
Termination Deadline will furnish, to Purchaser the balance sheets for each of
the Stations as of December 31, 1994, December 31, 1995, December 31, 1996,
December 31, 1997, and December 31, 1998, and statements of operations for each
of the Stations for the years then ended (such financial statements are
collectively referred to herein as the "UNAUDITED FINANCIAL STATEMENTS"). Except
as otherwise disclosed in Section 3.5 of the Disclosure Schedule, to the
Company's Knowledge, the Unaudited Financial Statements (including any notes
thereto) present fairly, in all material respects, the financial position of the
Stations, as of the dates thereof and the results of operations for the Stations
for the periods then ended and have been prepared in conformity with GAAP.
(b) Except as set forth in Section 3.5 of the Disclosure
Schedule, to the Company's Knowledge, there are no liabilities or obligations,
secured or unsecured (whether absolute, accrued, contingent or otherwise, and
whether due or to become due), of any Station of a nature required by GAAP to be
reflected in a corporate balance sheet, except such liabilities and obligations
(i) that are adequately accrued or reserved against in the Unaudited Financial
Statements or disclosed in the notes thereto, (ii) that were incurred after
December 31, 1998, either in the ordinary course of business consistent with
past practice or in connection with the transactions contemplated by this
Agreement, or (iii) that are immaterial in amount.
3.6 TITLE TO ASSETS; RELATED MATTERS.
To the Company's Knowledge, except for Permitted Exceptions or
as disclosed in Section 3.6 of the Disclosure Schedule (a) Gannett has good,
valid and marketable title (as measured in the context of their current uses)
to, or, in the case of leased or subleased assets, valid and subsisting
leasehold interests (as measured in the context of their current uses) in, or
otherwise has the right to use, all of the Assets, free and clear of all
Encumbrances (except for any assets sold or otherwise disposed of, or with
respect to which the lease, sublease or other right to use such Asset has
expired or has been terminated, in each case after the date hereof solely to the
extent permitted under Section 5.1(a) hereof), (b) each lease or sublease
pursuant to which any Leased Property is leased by Gannett is, to the Company's
Knowledge, legal, valid and binding on Gannett and the Company (as the case may
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be) and, to the Company's Knowledge, the other parties thereto and grants the
leasehold interest it purports to grant, including, without limitation, any
rights to nondisturbance and peaceful and quiet enjoyment that may be contained
therein and, to the Company's Knowledge, Gannett and each other party thereto is
in compliance in all material respects with the provisions of such leases and
subleases, (c) to the Company's Knowledge, the Assets, together with the
Excluded Assets, constitute all the assets and rights of Gannett and its
Affiliates used in or necessary for the operation of the Business as currently
conducted, (d) to the Company's Knowledge, except for Equipment scheduled to be
replaced by Gannett's capital expenditure budget, the Real Property, Leased
Property and Equipment is, in all material respects, in good operating condition
and repair (ordinary wear and tear excepted) taking into account the age
thereof, (e) to the Company's Knowledge, there are no contractual or legal
restrictions to which Gannett or the Company is a party or by which the Real
Property is otherwise bound that preclude or restrict in any material respect
Gannett's ability to use the Real Property for the purposes for which it is
currently being used and (f) no portion of the Real Property or Leased Property
is the subject of, or affected by, any condemnation, eminent domain or inverse
condemnation proceeding currently instituted or, to the Company's Knowledge,
threatened. At each of the Non-License Transfer and the Closing, as applicable,
the Company (or Gannett) shall sell, convey, assign, transfer and deliver to
Purchaser all of the Company's (or Gannett's) right, title and interest in and
to all of the Assets, free and clear of all Encumbrances other than Permitted
Exceptions and Encumbrances arising from Purchaser's acts. Section 1.1(d) of the
Disclosure Schedule contains a true and correct list of all Real Property owned
by Gannett used in the Business (other than the Excluded Assets).
3.7 ABSENCE OF CERTAIN CHANGES, EVENTS AND CONDITIONS.
To the Company's Knowledge, since June 30, 1998, except as
otherwise provided in or contemplated by this Agreement or as disclosed in
Section 3.7 of the Disclosure Schedule:
(a) other than in the ordinary course of business consistent
with past practice neither the Company nor Gannett has sold, transferred,
leased, subleased, licensed or otherwise disposed of any material assets used in
the Business, other than the sale of obsolete Equipment;
(b) (i) neither the Company nor Gannett has granted any
increase, or announced any increase, in the wages, salaries, compensation,
bonuses, incentives, pension or other benefits payable to any of the Business
Employees, including, without limitation, any increase or change pursuant to any
Employee Benefit Plan, or (ii) established, increased or accelerated the payment
or vesting of any benefits under any Employee Benefit Plan with respect to
Business Employees,
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in either case except (A) as required by Law, (B) that involve only increases
consistent with the past practices of Gannett or (C) as required under any
existing agreement or arrangement;
(c) neither the Company nor Gannett has made any material
change in any method of accounting or accounting practice or policy used by
Gannett or the Company with respect to the Stations, other than changes required
by Law or under GAAP;
(d) neither the Company nor Gannett has suffered any
extraordinary casualty loss or damage with respect to any material assets used
in the Business, whether or not covered by insurance;
(e) there has not been any Material Adverse Effect;
(f) except in connection with the transactions contemplated
hereby, the Business has been conducted in all material respects only in the
ordinary and usual course consistent with past practice;
(g) neither the Company nor Gannett has created, incurred,
assumed or guaranteed any Indebtedness, except for net borrowings under existing
lines of credit;
(h) other than in the ordinary course of business, neither the
Company nor Gannett has compromised, settled, granted any waiver or release
relating to, or otherwise adjusted any Action, material Liabilities or any other
material claims or material rights of the Business; and
(i) neither the Company nor Gannett has entered into any
agreement, contract, commitment or arrangement to do any of the foregoing.
3.8 LITIGATION.
Except as disclosed in Section 3.8 of the Disclosure Schedule,
as of the date hereof, (a) there are no Actions against the Company or, to the
Company's Knowledge, Gannett relating to the Business or the Assets pending, or,
to the Company's Knowledge, threatened to be brought by or before any
Governmental Authority, (b) neither the Company nor, to the Company's Knowledge,
Gannett is subject to any Governmental Orders (nor, are there any such
Governmental Orders threatened to be imposed by any Governmental Authority)
relating to the Business or the Assets, and (c) there is no Action pending or,
to the Company's Knowledge, threatened to be brought before any Governmental
Authority, that seeks to
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question, delay or prevent the consummation of the transactions contemplated
hereby.
3.9 INSURANCE.
Section 3.9 of the Disclosure Schedule lists all insurance
policies as of the date hereof relating to the Assets or the Business (the
"INSURANCE POLICIES"). Except as set forth in either Section 3.9 or Section 3.14
of the Disclosure Schedule, (a) to the Company's Knowledge, all insurance
policies relating to the Assets or Business to which the Company or Gannett is a
party or under which the Assets or the Business is covered (or replacement
policies therefor) are in full force and effect and, to the Company's Knowledge,
all premiums due have been paid and are not in default, (b) to the Company's
Knowledge, no notice of cancellation or non-renewal with respect to, or
disallowance of any claim under, any such policy has been received by either the
Company or Gannett, and (c) to the Company's Knowledge, neither the Company nor
Gannett has been refused insurance with respect to the Business or Assets, nor,
to the Company's Knowledge, has coverage with respect to the Business or Assets
been previously canceled or limited by an insurer to which Gannett or the
Company has applied for such insurance or with which the Company or, to the
Company's Knowledge, Gannett has held insurance within the last three years.
3.10 MATERIAL CONTRACTS.
Section 3.10 of the Disclosure Schedule sets forth all
Material Contracts relating to the Stations, including, without limitation, all
amendments thereof, as of the date hereof. To the extent received by the Company
from Gannett, complete and accurate copies of all written Material Contracts
listed in Section 3.10 of the Disclosure Schedule and accurate summaries of the
material terms of all oral contracts and agreements (which would be Material
Contracts if in writing) have been delivered or made available to Purchaser
(except as otherwise noted therein). Except as set forth in Section 3.10 of the
Disclosure Schedule, to the Company's Knowledge, (a) each Material Contract and
each other contract or agreement that is material to the Business is legal,
valid and binding on Gannett and, to the Company's Knowledge, the other parties
thereto, (b) to the Company's Knowledge, neither the Company nor Gannett is in
default under any Material Contract or other contract or agreement that is
material to the Business and no event has occurred or failed to occur that, with
or without the giving of notice or the lapse of time or both, would result in
such a default and (c) to the Company's Knowledge, no other party to any
Material Contract or other contract or agreement that is material to the
Business has breached or is in default thereunder.
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3.11 PERMITS AND LICENSES; COMPLIANCE WITH LAW.
(a) Except as disclosed in Section 3.11 of the Disclosure
Schedule, (i) to the Company's Knowledge, Gannett currently holds all the
material permits, licenses, authorizations, certificates, exemptions and
approvals of Governmental Authorities or other Persons including, without
limitation, Environmental Permits, necessary for the current operation and the
conduct (as it is being conducted prior to the Transfer Date) of the Business,
other than the FCC Licenses (which are provided for in Section 3.12 hereof)
(collectively, "PERMITS"), and all material Permits are in full force and
effect, (ii) to the Company's Knowledge, since November 1, 1996, Gannett has not
received any written notice from any Governmental Authority revoking, canceling,
rescinding, modifying or refusing to renew any material Permit and, (iii) to the
Company's Knowledge, Gannett is in material compliance with the requirements of
all material Permits.
(b) Except as disclosed in Section 3.11 of the Disclosure
Schedule, to the Company's Knowledge, (i) Gannett is in compliance in all
material respects with all Laws and Governmental Orders, other than the FCC
Licenses, the Communications Act and the rules and regulations of the FCC (which
are provided for in Section 3.12 hereof), applicable to the conduct of the
Business as it is being conducted prior to the Transfer Date, and (ii) Gannett
has not been charged, since November 1, 1996, by any Governmental Authority with
a violation of any Law or any Governmental Order relating to the Stations, which
charge has not been fully resolved and, to the extent required, accounted for.
3.12 FCC LICENSES.
Except as disclosed in Section 3.12 of the Disclosure
Schedule, (a) to the Company's Knowledge, Gannett holds, and immediately prior
to the Closing the Company will hold, the FCC Licenses listed in Section 3.12 of
the Disclosure Schedule, which FCC Licenses expire on the respective dates set
forth in Section 3.12 of the Disclosure Schedule; (b) to the Company's
Knowledge, Section 3.12 of the Disclosure Schedule sets forth a true and
complete list of any and all pending applications filed with the FCC by Gannett,
true and complete copies of which (to the extent received from Gannett by the
Company) have been delivered to Purchaser or made available for inspection by
Purchaser; (c) to the Company's Knowledge, the FCC Licenses listed in Section
3.12 of the Disclosure Schedule constitute all of the licenses and
authorizations required under the Communications Act and the current rules and
regulations of the FCC in connection with the operation of the Stations as
currently operated; (d) to the Company's Knowledge, the FCC Licenses are in full
force and effect through the dates set forth in Section 3.12 of the Disclosure
Schedule, and there is not pending or, to the Company's Knowledge, threatened
any action by or before the FCC to
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revoke, suspend, cancel, rescind, modify, or refuse to renew in the ordinary
course any of the FCC Licenses; (e) to the Company's Knowledge, the Stations are
operating in compliance with the FCC Licenses and in compliance in all material
respects with the Communications Act and the current rules and regulations of
the FCC and have been assigned digital television frequencies; and (f) to the
Company's Knowledge, there exist no facts, conditions or events relating to
Gannett or the Company that would reasonably be expected to cause the revocation
of FCC Licenses or denial by the FCC of the application for consent to the
assignment of the FCC Licenses as provided in this Agreement or the Gannett
Purchase Agreement. To the Company's Knowledge, Gannett has filed all reports,
forms and statements, including, without limitation, construction permit
applications for digital television channels required to be filed by Gannett
with the FCC and maintained in its public files in accordance with the rules and
regulations of the FCC.
3.13 ENVIRONMENTAL MATTERS.
Except as disclosed in Section 3.13 of the Disclosure
Schedule, to the Company's Knowledge, (a) Hazardous Materials have not been
Released on any Real Property except in material compliance with applicable Law;
(b) there have been no events related to the Business or the Real Property that
would reasonably be expected to give rise to any material liability under any
Environmental Law; (c) the Business, the Real Property and the Leased Property
is now, and for the past five (5) years has been, in material compliance with
all applicable Environmental Laws and there are no extant conditions that would
reasonably be expected to constitute an impediment to such compliance in the
future; (d) the Business has disposed of all wastes arising from or otherwise
relating to its business, including those wastes containing Hazardous Materials,
in material compliance with all applicable Environmental Laws (including the
filing of any required reports with respect thereto) and Environmental Permits
and (e) there are no pending or, to the Company's Knowledge, threatened
Environmental Claims against Gannett relating to the Real Property.
3.14 EMPLOYEE BENEFIT MATTERS.
The Company has made available to Purchaser copies of all
material Employee Benefit Plans (including, without limitation, all plans
governed by ERISA, providing pension benefits or providing health, life
insurance or disability benefits) relating to the Stations), which plans are set
forth in Section 3.14 of the Disclosure Schedule. To the Company's Knowledge and
except as set forth in Section 3.14 of the Disclosure Schedule, all such
Employee Benefit Plans are in compliance with the terms of the applicable plan
and the requirements prescribed by applicable law currently in effect with
respect thereto (including Sections 4980B
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and 5000 of the Code) and, to the Company's Knowledge, Gannett has performed in
all material respects all obligations required to be performed by it under, and
is not in default under or in violation of, any of the terms of such Employee
Benefit Plans where any such noncompliance, nonperformance, default or violation
would, individually or in the aggregate, be reasonably expected to result in
liability in excess of Twenty-Five Thousand Dollars ($25,000). To the Company's
Knowledge, Gannett has no post-retirement welfare obligations with respect to
the Business. To the Company's Knowledge, Gannett has not incurred, and, to the
Company's Knowledge, no event, transaction or condition has occurred or exists
which is reasonably expected to result in the occurrence of any liability to the
Pension Benefit Guaranty Corporation (other than contributions to the plan and
premiums to the Pension Benefit Guaranty Corporation which, in either event, are
not in default) or any "withdrawal liability" within the meaning of Section 4201
of ERISA, or any other liability pursuant to Title I or IV of ERISA or the
penalty, excise tax or joint and several liability provisions of the Code
relating to employee benefit plans, in any such case relating to any Employee
Benefit Plan or any pension plan maintained by any company that during the last
five years was or currently would be treated as a single employer with the
Company or Gannett, as the case may be, under Section 4001 of ERISA or Section
414 of the Code (an "ERISA AFFILIATE"), where individually or in the aggregate,
in any of such events, any such liability would be in excess of Twenty-Five
Thousand Dollars ($25,000). To the Company's Knowledge, except as set forth in
Section 3.14 of the Disclosure Schedule and except for such matters that would
not, individually or in the aggregate, reasonably be expected to result in
liability in excess of Twenty-Five Thousand Dollars ($25,000), each Employee
Benefit Plan relating to the Stations intended to be "qualified" within the
meaning of Section 401(a) of the Code has received a favorable determination
letter that such plan is so qualified and the trusts maintained thereunder are
exempt from taxation under Section 501(a) of the Code and, to the Company's
Knowledge, is so qualified, and no such Employee Benefit Plan holds employer
securities. To the Company's Knowledge and except as set forth in Section 3.14
of the Disclosure Schedule, neither Gannett nor any ERISA Affiliate has ever
made or been obligated to make, or reimbursed or been obligated to reimburse
another employer for, contributions to any multiemployer plan (as defined in
ERISA Section 3(37)). To the Company's Knowledge and except as set forth in
Section 3.14 of the Disclosure Schedule, the Employee Benefit Plans are not
presently under audit or examination (and have not received notice of a
potential audit or examination) by any governmental authority, and no matters
are pending with respect to the Qualified Plan under any governmental compliance
programs. To the Company's Knowledge, with respect to each Employee Benefit Plan
of the Stations, there have been no violations of Code Section 4975 or ERISA
Sections 404 or 406 as to which successful claims would, individually or in the
aggregate, result in liability in excess of Twenty-Five Thousand Dollars
($25,000) for Gannett, the
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Company or any Person required to be indemnified by either of them. To the
Company's Knowledge, except as set forth in Section 3.14 of the Disclosure
Schedule, and except as expressly provided in this Agreement, the consummation
of the transactions contemplated by this Agreement will not (i) entitle any
current or former employee or officer of the Business to severance pay,
unemployment compensation or other payment, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such employee
or officer. To the Company's Knowledge, there are no pending or threatened or
anticipated claims by or on behalf of any Employee Benefit Plan relating to the
Stations, by any employee or beneficiary covered under any such plan, or
otherwise involving any such plan (other than routine claims for benefits) where
any such pending, threatened or anticipated claims would, individually or in the
aggregate, reasonably be expected to result in liability in excess of
Twenty-Five Thousand Dollars ($25,000). The Twenty-Five Thousand Dollars
($25,000) liability threshold in this Section 3.14 is intended to apply only to
this Section 3.14, and is in no way intended to be used in defining materiality
anywhere in this Agreement.
3.15 LABOR RELATIONS.
To the Company's Knowledge, Section 3.15 of the Disclosure
Schedule sets forth a list of all labor organizations recognized as representing
the employees of the Business. Complete and accurate copies of all collective
bargaining agreements and other labor union contracts relating to employees of
the Stations and any such labor organizations have been delivered or made
available to Purchaser. Except as disclosed in Section 3.8 or Section 3.15 of
the Disclosure Schedule, (a) to the Company's Knowledge, there are no collective
bargaining agreements or other labor union contracts applicable to employees of
the Business, (b) to the Company's Knowledge, there are no strikes, slowdowns or
work stoppages pending or, to the Company's Knowledge, threatened between
Gannett and any employees of the Business, and Gannett has not experienced any
such strike, slowdown, or work stoppage within the past two (2) years, in each
case, as of the date of the Gannett Purchase Agreement, (c) to the Company's
Knowledge, there are no pending or threatened grievance or arbitration
proceedings arising under any collective bargaining agreements or labor
contracts affecting any employees of the Business, (d) to the Company's
Knowledge, there are no unfair labor practice complaints pending or, to the
Company's Knowledge, threatened against the Business relating to employees of
the Business before the National Labor Relations Board or any other Governmental
Authority or, to the Company's Knowledge, any current union representation
questions involving employees of the Business, (e) to the Company's Knowledge,
Gannett is in compliance in all material respects with its obligations under all
Laws and Governmental Orders governing its employment practices with respect to
employees of the Business, including, without limitation,
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provisions relating to wages, hours and equal opportunity, employment
discrimination, workers' compensation, family and medical leave, the Immigration
Reform and Control Act, and occupational safety and health requirements, (f) to
the Company's Knowledge, all Persons classified by Gannett as independent
contractors with respect to the Business do satisfy the requirements of law to
be so classified, and, to the Company's Knowledge, Gannett has fully and
accurately reported their compensation on IRS Forms 1099 when required to do so,
and (g) to the Company's Knowledge, there is no charge or compliance proceeding
actually pending or, to the Company's Knowledge, threatened against the Company
or Gannett with respect to employees of the Business before the Equal Employment
Opportunity Commission or any state, local, or foreign agency responsible for
the prevention of unlawful employment practices.
3.16 INTELLECTUAL PROPERTY.
To the Company's Knowledge, Section 3.16 of the Disclosure
Schedule includes a complete list of all call letters of the Stations (the "CALL
LETTERS"). Except as disclosed in Section 3.16 of the Disclosure Schedule, to
the Company's Knowledge, (a) the rights of Gannett, and immediately prior to the
Transfer Date, the Company, in or to the Call Letters and, to the Company's
Knowledge, the other Intellectual Property do not conflict with or infringe on
the rights of any other Person, (b) the Company has not and, to the Company's
Knowledge, Gannett has not, received any claim from any Person that the rights
of Gannett or the Company in or to the Intellectual Property conflict with or
infringe on the rights of any other Person and, to the Company's Knowledge, no
such claim is threatened, (c) to the Company's Knowledge, Gannett owns (free and
clear of any Encumbrances other than Permitted Exceptions), is licensed or
otherwise has the right to use all Intellectual Property necessary for the
conduct of the Business as currently conducted by Gannett (free and clear of any
Encumbrances other than Permitted Exceptions), except where the failure to have
such rights would not reasonably be expected to impair the operations of the
Business in any material respect and (d) to the Company's Knowledge, no other
Person is infringing or diluting the rights of Gannett with respect to the
Intellectual Property.
3.17 TAXES.
Except as disclosed in Section 3.17 of the Disclosure Schedule
and except relating exclusively to the Gannett Maine Media Business, to the
Company's Knowledge (a) all material Tax Returns required to be filed by Gannett
(or to the extent required to be filed by the Company) relating to the Business
have been timely filed and all such Tax Returns are correct and complete in all
material respects; (b) all Taxes required to be paid by Gannett (or to the
extent required to be paid by the Company) relating to the Business, whether or
not shown as due on
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such Tax Returns, have been timely paid other than such Taxes, if any, as are
described in Section 3.17 of the Disclosure Schedule and are being contested in
good faith; (c) there is no action, suit, proceeding, investigation, audit or
claim pending or, to the Company's Knowledge, threatened with respect to Taxes
of Gannett or the Company relating to the Stations or for which Gannett or the
Company may be liable, and no adjustment relating to such Taxes of Gannett or
the Company relating to the Stations has been proposed in writing by any Tax
authority and remains unresolved; (d) there are, and immediately prior to the
Transfer Date there will be, no Tax liens on any of the assets of the Business
(other than liens for Taxes that are not yet due and payable); and (e) all Taxes
that the Business is required to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Tax
authority.
3.18 COMMISSIONS.
There is no broker or finder or other Person who has any valid
claim against the Company, Purchaser, or any of their respective Affiliates or
any of their respective assets for a commission, finders' fee, brokerage fee or
other similar fee in connection with this Agreement, or the transactions
contemplated hereby, by virtue of any actions taken by on or behalf of the
Company, its stockholders or the Company's officers, employees or agents.
3.19 AFFILIATE TRANSACTIONS.
Except as set forth in Section 3.19 of the Disclosure Schedule
or as expressly otherwise provided or permitted in this Agreement, to the
Company's Knowledge, since December 27, 1997, Gannett has not engaged in any
transaction with any Affiliate thereof that was material to the Business, and,
to the Company's Knowledge, Gannett is not a party to any material agreements or
arrangements relating to the Stations with any Affiliates that will continue in
effect after the Transfer Date for the Purchaser that are not immediately
terminable by the Purchaser without payment of any penalty or premium.
3.20 GANNETT PURCHASE AGREEMENT.
The Company and its Affiliates have not waived any of their
rights or conditions under the Gannett Purchase Agreement related to the
Stations. Neither the Company nor Gannett is in material breach of, and has not
defaulted under, any of the terms of the Gannett Purchase Agreement. The Gannett
Purchase Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to applicable
bankruptcy and similar laws affecting the rights of creditors generally and to
general principles of equity (whether applied at law or equity). The Company is
not and, to Company's Knowledge, Gannett is not, subject to any judgment, award,
order, writ, injunction, arbitration decision or decree which prohibits the
performance of the Gannett Purchase Agreement or the consummation of any
transaction contemplated under the Gannett Purchase Agreement. There is no
Action (a) pending or, to the Company's Knowledge, threatened against or
affecting the Company or (b) to the Company's
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Knowledge, pending or threatened against or affecting Gannett in any federal,
state or local court, or before any Governmental Authority or arbitrator that
would adversely affect the ability of the Company or Gannett to consummate, or
that would prohibit, the transactions contemplated under the Gannett Purchase
Agreement related to the Stations.
3.21 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES.
No representation or warranty made by the Company in this
Article 3, to the Company's Knowledge, contains any untrue statement of a
material fact or omits a material fact necessary in order to make the
representation or warranty not misleading.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to the Company as follows:
4.1 ORGANIZATION AND STANDING.
Purchaser is a corporation duly incorporated, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and assets and to conduct its business.
4.2 BINDING AGREEMENT.
Purchaser has all requisite corporate power and authority to
enter into this Agreement, to execute and deliver this Agreement and the other
Transaction Documents, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Transaction Documents by Purchaser
and the consummation by Purchaser of its obligations hereunder and thereunder
have been duly and validly authorized by all necessary corporate and stockholder
action on the part of Purchaser. This Agreement has been and, on the Non-License
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Transfer Date and the Closing Date, the other Transaction Documents will be,
duly executed and delivered on behalf of Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Purchaser enforceable in accordance with its terms,
subject to applicable bankruptcy and similar laws affecting the rights of
creditors generally and to general principles of equity (whether applied at law
or equity).
4.3 ABSENCE OF CONFLICTING AGREEMENTS OR REQUIRED CONSENTS.
The execution, delivery and performance by Purchaser of this
Agreement and the other Transaction Documents do not and will not (a) violate,
conflict with or result in the breach or default of any provision of the
certificate or articles of incorporation or by-laws of Purchaser, (b) materially
conflict with or materially violate any material Law or material Governmental
Order applicable to Purchaser or any of its properties or assets, (c) except for
(i) the notification requirements of the HSR Act, (ii) such filings with, and
orders of, the FCC as may be required under the Communications Act and the FCC's
rules and regulations in connection with this Agreement and the transactions
contemplated hereby as provided for in Section 4.7 hereof (including Section 4.7
of the Disclosure Schedule) or otherwise hereunder, and (iii) such matters that
would not reasonably be expected to materially impair or delay the consummation
of the transactions contemplated hereby, require any consent, approval,
authorization or other order of, action by, registration or filing with or
declaration or notification to any Governmental Authority or any other Person or
(d) except for such matters that would not reasonably be expected to materially
impair or delay the consummation of the transaction contemplated hereby,
conflict with, result in any violation or breach of, constitute a default (or
event which with the giving of notice, or lapse of time or both, would become a
default) under, require any consent under, or give to others any rights of
termination, amendment, acceleration, suspension, revocation or cancellation of,
or result in the creation of any Encumbrance on any of the Purchaser's assets
pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license or permit, or franchise to which Purchaser is a party or by
which its assets are bound.
4.4 LITIGATION.
Except as described in Section 4.4 of the Disclosure Schedule,
there are no Actions pending or, to Purchaser's knowledge, threatened to be
brought by or before any Governmental Authority, against Purchaser or any of its
Affiliates that (a) seek to question, delay or prevent the consummation of the
transactions contemplated hereby or (b) would reasonably be expected to affect
adversely the ability of Purchaser to fulfill its obligations hereunder,
including without limitation, Purchaser's obligations under Articles 1 and 2
hereof.
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4.5 COMMISSIONS.
There is no broker or finder or other Person who has any valid
claim against the Company, Purchaser, any of their respective Affiliates or any
of their respective assets for a commission, finders' fee, brokerage fee or
other similar fee in connection with this Agreement, or the transactions
contemplated hereby, by virtue of any actions taken by on or behalf of
Purchaser, or its officers, employees or agents.
4.6 FINANCING.
Purchaser will at the Non-License Transfer and the Closing
have sufficient funds to pay the amounts of the Purchase Price payable at the
Non-License Transfer and the Closing pursuant to this Agreement and otherwise to
satisfy its obligations hereunder.
4.7 PURCHASER'S QUALIFICATION.
Except as set forth in Section 4.7 of the Disclosure Schedule,
(a) Purchaser does not know of any fact or circumstance that could reasonably be
expected to result in a finding by the FCC that Purchaser is not qualified
legally, financially or otherwise to be the licensee of the Stations as its
operations are now being conducted and (b) except for the FCC's Duopoly Rule, a
waiver of which will be requested by Purchaser (or Purchaser shall be
restructured to comply with), Purchaser does not know of any policy, rule,
regulation or ruling of the FCC that could reasonably be expected to be violated
by the acquisition of the Stations by Purchaser.
4.8 ACCURACY AND COMPLETENESS OF REPRESENTATIONS AND WARRANTIES.
No representation or warranty made by Purchaser in this
Article 4, to the Purchaser's Knowledge, contains any untrue statement of a
material fact or omits a material fact necessary in order to make the
representation or warranty not misleading.
ARTICLE 5. COVENANTS AND AGREEMENTS.
5.1 CONDUCT OF THE BUSINESS PRIOR TO CLOSING; ACCESS.
The Company covenants as follows:
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(a) Between the date hereof and the Closing, except as
contemplated by this Agreement or as described in Section 5.1 of the Disclosure
Schedule, or except with the written consent of Purchaser (which consent shall
not be unreasonably withheld), the Company will (or will cause Gannett to the
extent possible under the Gannett Purchase Agreement) operate the Business in
the ordinary course of business consistent with past practice and shall use
commercially reasonable efforts to (i) preserve intact the Business and preserve
the Business's relationships with customers, suppliers, licensees, licensors,
the networks with whom the Stations are affiliated and others having business
dealings with the Stations; (ii) maintain the Business's inventory of supplies,
parts and other materials and keep its books of account, records and files, in
each case in the ordinary course of business consistent with past practice;
(iii) maintain the material items of Real Property, Leased Property and
Equipment substantially in their present condition, ordinary wear and tear
excepted; (iv) pay or discharge all cash and barter obligations in the ordinary
course of business; (v) bring current as of the day immediately preceding the
Transfer Date all payments due and payable under Program Contracts in accordance
with their terms as in effect on the date hereof (with respect to Program
Contracts existing as of the date hereof) or on the date originally entered into
(with respect to Program Contracts entered into after the date hereof); and (vi)
maintain its corporate existence.
(b) Without limiting the generality of Section 5.1(a), between
the date hereof and the Closing, except as contemplated by this Agreement or as
described in Section 5.1 of the Disclosure Schedule, or except with the written
consent of Purchaser (which consent shall not be unreasonably withheld, except
in the case of any consent relating to the entering into of any Program Contract
providing for payments in excess of Thirty Thousand Dollars ($30,000) or having
a term greater than one (1) year (other than any Program Contract that will be
fully satisfied, discharged and performed prior to the Closing), in which case
Purchaser may grant or withhold its consent in Purchaser's absolute discretion
(and the parties hereto further agree that no such consent unreasonably withheld
shall be taken into account in any determination of whether a Material Adverse
Effect has occurred), and any consent shall be deemed given unless withheld in
writing no later than three (3) Business Days after Purchaser's receipt of a
written request for such consent), the Company will not (and, to the extent
provided for in the Gannett Purchase Agreement, will cause Gannett not to, to
the extent possible under the Gannett Purchase Agreement) with respect to the
Business:
(i) create, assume or subject any of the assets of the
Business to any Encumbrance, other than Permitted Exceptions and Encumbrances
that will be released at or prior to the Non-License Transfer and the Closing;
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(ii) make any material changes in the operations of the
Business;
(iii) other than, in each case, in the ordinary course of
business consistent with past practice, sell, transfer, lease, sublease, license
or otherwise dispose of any material assets of the Business, other than the sale
of obsolete Equipment that has been or is replaced with Equipment of like kind;
(iv) (A) grant any increase, or announce any increase, in
the wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable to any of the officers or key employees of the Business,
including, without limitation, any increase or change pursuant to any Employee
Benefit Plan, or (B) establish or increase or promise to increase or accelerate
the payment or vesting of any benefits under any Employee Benefit Plan with
respect to officers or employees of the Business, in the case of either (A) or
(B) except (I) as required by Law, (II) that involve only increases consistent
with the past practices of the Company or Gannett (or as otherwise required or
allowed under the Gannett Purchase Agreement, as the case may be, but in no
event more than five percent (5%), (III) as required under any existing
agreement or arrangement, (IV) that involve increases related to promotions to
the extent such increases result in the compensation and benefits of the
relevant employee being consistent with the compensation and benefits provided
to the holder of such position in the past or (V) that relate to the
supplemental executive retirement plans identified in Section 3.14 of the
Disclosure Schedule;
(v) make any change in any method of accounting or
accounting practice or policy used by the Company or Gannett in respect of the
Business, other than as required by law or under GAAP;
(vi) fail to maintain in full force and effect all of its
existing casualty, liability or other insurance relating to the Stations through
the Non-License Transfer and the Closing in amounts at least equal to those in
effect on the date hereof;
(vii) (A) amend the payment terms of any Program Contract
to provide that payments that would otherwise be made prior to the Non-License
Transfer or the Closing are made after the Non-License Transfer or the Closing
or (B) acquire, enter into, modify, change or extend the term of (x) any Program
Contract providing for payments in excess of Ten Thousand Dollars ($10,000) or
with a term greater than one year or (y) Program Contracts not subject to clause
(x) that in the aggregate provide for payments in excess of Two Hundred Thousand
Dollars ($200,000);
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(viii) acquire, enter into, modify, change or extend the
term of any Material Contract, provided that this clause (viii) will not apply
to the acquisition or entering into of any new Material Contract not otherwise
subject to clauses (i) to (vii) or clauses (ix) to (xv) of this Section 5.1(b)
with respect to which all Liabilities of the Company thereunder relating to the
Stations will be fully satisfied, discharged and performed prior to the Transfer
Date with no adverse effect on Purchaser;
(ix) compromise, settle, grant any waiver or release
relating to, or otherwise adjust, any material Action, material Liabilities or
any other material claims or material rights relating to the Stations;
(x) enter into any new agreement, contract, commitment or
arrangement with any Affiliate of the Company that will be binding upon
Purchaser, the Assets or the Stations after the Non-License Transfer or the
Closing Date;
(xi) apply to the FCC for any construction permit that
would adversely affect the Stations present operations, or make any material
change in the Stations buildings, leasehold improvements, or fixtures;
(xii) except with respect to promotion during ratings
sweep periods (which shall not be subject to this clause (xii)), enter into any
trade, barter or similar agreements (other than Program Contracts) for the sale
of advertising time that would be binding on the Stations or Purchaser after the
Non-License Transfer or the Closing for any property or services in lieu of or
in addition to cash that requires the provision of broadcast time having a value
that exceeds Ten Thousand Dollars ($10,000) in any individual agreement or Two
Hundred Thousand Dollars ($200,000) in the aggregate;
(xiii) take any action, or refrain from taking any action,
that would constitute a material breach of, constitute a default (or event which
with the giving of notice, or lapse of time or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, any Material Contract;
(xiv) enter into or renew any time sales agreement except
in the ordinary course of business for a term not exceeding twelve (12) months;
or
(xv) enter into any agreement, contract, commitment or
arrangement to do any of the foregoing.
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(c) Pending the Non-License Transfer and the Closing, the
Company shall:
(i) to the extent allowed by Gannett under the Gannett
Purchase Agreement or otherwise, give to Purchaser and its representatives
reasonable access during normal business hours to all of the employees,
properties, books and records of Gannett or the Company that relate to the
Stations and, to the extent available from, or allowed by, Gannett pursuant to
the Gannett Purchase Agreement or otherwise, furnish Purchaser and its
representatives with such information concerning the Stations as Purchaser may
reasonably require, including such access and cooperation as may be necessary to
allow Purchaser and its representatives to interview the employees, to examine
the books and records of the Stations, and to inspect the Real Property and
Equipment (which right of access shall not be exercised in any way which would
unreasonably interfere with the normal operations, business or activities of the
Stations);
(ii) to the extent allowed by Gannett under the Gannett
Purchase Agreement or otherwise, cooperate in all reasonable respects with
Purchaser's request to conduct an audit of the financial information of the
Stations as Purchaser may reasonably determine is necessary to satisfy
Purchaser's senior lenders and Purchaser's public company reporting requirements
pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934
including, without limitation, (A) using commercially reasonable efforts to
obtain the consent of the auditors of Gannett and/or the Company to permit
Purchaser and Purchaser's auditors to have access to such auditors' work papers,
(B) consenting to such access by Purchaser and (C) using commercially reasonable
efforts to cause Gannett to execute and deliver to Purchaser's independent
auditors such customary management representation letters as the auditors may
require as a condition to such auditors ability to deliver an unqualified report
upon the audited financial statements of the Stations;
(iii) to the extent provided by Gannett pursuant to the
Gannett Purchase Agreement or otherwise, furnish to Purchaser within twenty (20)
days after the end of each month ending between the date of this Agreement and
the Transfer Date an unaudited statement of income and expense and a balance
sheet for the Stations for the month just ended; and
(iv) to the extent provided by Gannett pursuant to the
Gannett Purchase Agreement or otherwise, from time to time, furnish to Purchaser
such additional information (financial or otherwise) concerning the Stations as
Purchaser may reasonably request (which right to request information shall not
be exercised in any way which would unreasonably interfere with the normal
operations, business or activities of the Stations).
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(d) The Company will deliver to Purchaser, within ten (10)
Business Days after delivery or receipt, copies of any reports, applications or
communications to or from the FCC or its staff related to the Stations which are
delivered or received between the date of the Gannett Purchase Agreement and the
Transfer Date.
5.2 POST-CLOSING COVENANTS AND AGREEMENT, AND OTHER EMPLOYEE
BENEFIT MATTERS.
(a) Purchaser shall at all reasonable times after reasonable
notice to Purchaser from and after the Transfer Date, make available without
cost, for inspection and/or copying by the Company and any Person that was a
stockholder of Gannett during any of the tax years (or portions thereof)
immediately preceding the closing under the Gannett Purchase Agreement for which
the relevant statute of limitations (including any waiver thereof) has not
expired, or their respective representatives, the books and records of the
Business transferred to Purchaser from the Company at the Non-License Transfer
or the Closing, as the case may be. Such books and records shall be preserved by
Purchaser until the later of the closing by tax audit of, or the expiration of
the relevant statute of limitations (including any waiver thereof) with respect
to, all open tax periods of Gannett and such stockholders prior to and including
the time immediately prior to the Transfer Date. After the period set forth
above, Purchaser may destroy the books and records in its possession unless,
before expiration of such notice period the Company objects in writing to the
destruction of any or all of such books and records, in which case, such books
and records shall be delivered to the Company. Notwithstanding the foregoing,
Purchaser shall continue to preserve and, at all reasonable times after the
Transfer Date, to make available without cost, for inspection and/or copying by
any Person that was a trustee or other fiduciary under the Employee Benefit
Plans identified in Section 5.2 of the Disclosure Schedule, the books and
records of such Employee Benefit Plan transferred to Purchaser from the Company
at the Non-License Transfer or the Closing, as the case may be, and the books
and records of the Business relating thereto.
(b) At least five (5) Business Days prior to the Transfer
Date, the Company shall provide to Purchaser a true and complete list of the
names, titles and annual compensation of each of the employees (including
inactive employees) of the Stations. Effective as of the Transfer Date, except
for such employees of the Stations which are retained by the Company pursuant to
the terms of the Time Brokerage Agreement who shall be offered employment by
Purchaser as of the Closing Date, and the employees identified in Section 5.2(b)
of the Disclosure Schedule (the "EXCLUDED EMPLOYEES"), Purchaser shall offer
employment to all then employees of the Stations, on such terms and conditions
as Purchaser shall
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establish (except that base cash compensation shall be comparable to their
existing base cash compensation), subject to the terms of any collective
bargaining agreement assumed by Purchaser under Section 5.2(e) and any
employment agreements with specific Business Employees, and shall assume
responsibility for all inactive employees of the Stations, subject to the terms
of this Section 5.2 and the collective bargaining agreements assumed by
Purchaser under Section 5.2(e); provided, however, that any employee of the
Stations who is not actively employed on the Transfer Date shall be offered
employment by Purchaser following the end of any inactive period (whether on
account of leave, layoff, injury or disability) but only to the extent that the
Company would have been obligated to offer active employment to such person upon
the end of such inactive period under the Gannett Purchase Agreement.
Notwithstanding the foregoing, Purchaser shall not have any obligation to offer
employment to any employees of the Corporate Office ("CORPORATE OFFICE
EMPLOYEES"), as described in Section 5.2(b) of the Disclosure Schedule. Nothing
in this Section 5.2(b) is intended to limit the ability of Purchaser to
terminate the employment of any employee after the Transfer Date.
(c) Subject to applicable law and the terms of any collective
bargaining agreement assumed pursuant to this Agreement, if any, Purchaser shall
establish and maintain for a period of one (1) year after the Transfer Date or
the term of their employment by Purchaser, whichever is less, for employees of
the Stations as of the Transfer Date, benefits that, in the aggregate, are no
less favorable than the benefits maintained by the Purchaser for similarly
situated employees of Purchaser, provided that the foregoing will not prohibit
or in any manner restrict Purchaser from terminating or changing the individual
terms of employment of any Business Employee or require Purchaser to maintain
any specific benefits or Employee Benefit Plans. Purchaser shall give employees
of the Stations as of the Transfer Date and former and inactive Business
Employees credit for their service with the Company and Gannett or any of their
Subsidiaries prior to the Transfer Date, to the same extent that such service
would have been credited by Purchaser (if they had been employed by Purchaser
for such period of service), for all purposes under all employee benefit plans
or arrangements maintained by Purchaser for current, former and inactive
Business Employees (including any waiting periods). In addition, Purchaser
shall, if applicable, (i) cause any pre-existing condition limitation to be
waived and (ii) give effect, in determining any deductible and maximum
out-of-pocket limitations, to claims incurred and amounts paid by, and amounts
reimbursed to current, former and inactive Business Employees with respect to
similar plans maintained by the Company or Gannett prior to the Transfer Date.
(d) Purchaser will assume and indemnify and hold harmless the
Company Indemnified Parties against all Liabilities with respect to severance
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benefits arising in connection with or following the Transfer Date pursuant to
the agreements set forth in Sections 3.14.1 and 3.14.2 of the Disclosure
Schedule (subject to the right of recovery set forth in Section 5.9), or
pursuant to any collective bargaining agreement or other agreements with
Business Employees assumed either pursuant to this Agreement or by operation of
law. With respect to all current and inactive Business Employees immediately
prior to the Transfer Date not covered by the agreements referenced in the
immediately preceding sentence, (i) for a period ending not less than one year
after the Transfer Date, Purchaser will provide such Business Employees with the
same severance benefits as Purchaser provides for similarly situated employees
of Purchaser (which benefits, as of the date hereof, are described in Section
5.2(d) of the Disclosure Schedule) and (ii) Purchaser will assume and indemnify
and hold harmless the Company Indemnified Parties against all Liabilities with
respect to severance benefits of Purchaser arising in connection with or
following the Transfer Date.
(e) From and after the Transfer Date, Purchaser shall assume
all of the collective bargaining agreements and labor union contracts described
in Section 5.2(e) of the Disclosure Schedule (including, without limitation,
pursuant to the specified provisions of the collective bargaining agreements set
forth in Section 5.2(e) of the Disclosure Schedule) with respect to any Business
Employees existing immediately prior to the Transfer Date.
(f) From and after the Transfer Date, Purchaser shall assume
responsibilities of all Employee Benefits Plans described in Section 5.2(f) of
the Disclosure Schedule that provide post-retirement life insurance or health,
or short-term or long-term disability benefits and be responsible for any
benefits under such Employee Benefit Plans (i) to which any current, former or
inactive Business Employee, or a beneficiary or dependent of any current, former
or inactive Business Employee ("BENEFICIARY"), has already become entitled, or
(ii) to which any current, former or inactive Business Employee has already
become qualified by reason of age and years of service as of the Transfer Date,
to the extent such persons are identified in Section 5.2(f) of the Disclosure
Schedule (which section shall be updated, if necessary, at the Non-License
Transfer or the Closing, as applicable). From and after the Transfer Date,
Purchaser shall also pay to the Business Employees listed in Section 5.2(f) of
the Disclosure Schedule the supplemental retirement benefits provided under the
applicable Gannett supplemental retirement plan.
(g) From and after the Transfer Date, Purchaser shall assume
and be responsible for any workers' compensation benefits payable to a Business
Employee, Beneficiary or dependent of a Business Employee on or after the
Transfer Date, including any such benefits that are attributable to any injury
or
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illness that occurred or existed prior to the Transfer Date to the extent not
covered by the Company's workers' compensation insurance policy.
(h) For a period of ninety (90) days after the Transfer Date,
Purchaser shall not implement any employment terminations, layoffs or hours
reductions or take any other action which could result in a "plant closing" or
"mass layoff", as those terms are defined in the Worker Adjustment and
Retraining Notification Act of 1988 ("WARN") or similar events under applicable
state law, affecting in whole or in part any facility, site of employment or
operating unit, or any employee employed by the Stations, or which could require
either Purchaser or the Company to give notice or take any other action required
by WARN or applicable state law.
(i) From and after the Transfer Date, Purchaser shall assume
the Company's and Gannett's obligations and liabilities with respect to COBRA
continuation coverage under Section 4980B of the Code and Section 601 of ERISA
("CONTINUATION COVERAGE") with respect to Business Employees and shall provide
Continuation Coverage to the Business Employees under Purchaser's health and
medical plans (A) with respect to any Business Employees who remain employed
with either the Company or Gannett through the Transfer Date, for a period of
eighteen (18) months after the Transfer Date or, if earlier, until becoming
eligible for comparable coverage from another employer and (B) with respect to
any Business Employees whose employment shall have terminated prior to the
Transfer Date, for remainder of the period with respect to which Continuation
Coverage would otherwise have been available to them had the Company or Gannett,
as the case may be, continued to maintain a group health plan; provided, that
consistent with the Continuation Coverage, Purchaser shall have the right to
charge each Business Employee for such Business Employee's portion of any
Continuation Coverage.
5.3 COOPERATION.
Following the execution of this Agreement, Purchaser and the
Company agree as follows:
(a) The parties and their Affiliates shall each use their
reasonable efforts, and shall cooperate fully with each other in preparing,
filing, prosecuting, and taking any other actions with respect to, any filings
(other than filings with the FCC, which are provided for in clause (b) below),
applications, requests, or actions which are or may be necessary to obtain the
consents, approvals, authorizations or other orders of any Governmental
Authority which are or may be necessary in order to accomplish the transactions
contemplated by this Agreement; and, without limiting the generality of the
foregoing, the parties and their Affiliates shall use
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their respective reasonable efforts to prepare and file as promptly as
practicable, but in any event no later than five (5) Business Days after the
date hereof (unless the Company designates in writing that the filing shall be
delayed to a date no later than the first (1st) Business Day after the Diligence
Termination Deadline), all of the information called for in the Notification and
Report Form required under the HSR Act and to prepare and file any supplemental
information, also in a timely fashion, which may be required by the United
States Department of Justice or the Federal Trade Commission pursuant to such
Notification and Report Form Filings, and otherwise to use their respective
reasonable efforts to obtain the requisite clearances.
(b) The parties and their Affiliates shall cooperate fully
with each other in preparing, filing, prosecuting, and taking any other actions
with respect to filings with the FCC related to the transactions contemplated by
this Agreement, including, without limitation, preparation of an application for
the assignment of all of the FCC Licenses to Purchaser and any filings by
Purchaser requesting temporary waivers for no more than nine (9) months of the
FCC's applicable ownership rules necessary to permit the parties to consummate
the transactions contemplated by this Agreement. As promptly as practicable, but
in any event not later than ten (10) Business Days after the Diligence
Termination Deadline, the Company and Purchaser shall jointly file the
application with the FCC requesting the FCC Consent, including, without
limitation, requesting, consenting to, and taking and otherwise seeking any
action in connection with a conditional waiver of the FCC's Duopoly Rule. The
Company and Purchaser shall use their respective reasonable best efforts,
diligently take all necessary and proper actions and provide any additional
information requested by the FCC in order to obtain promptly the FCC Consent.
Notwithstanding the foregoing or any other provision of this Agreement, neither
Purchaser nor its officers, directors or Affiliates shall request a permanent
waiver of the FCC's applicable ownership rules or request, consent to, take or
otherwise seek or pursue any action that is inconsistent with the transactions
contemplated by this Agreement or that reasonably could be expected to
materially impede or materially delay the FCC Consent or otherwise materially
impede or materially delay the consummation of the transactions contemplated by
this Agreement; and the receipt of any permanent waiver of the foregoing FCC
rules shall not be a condition to the obligation of Purchaser to consummate the
transactions contemplated hereby. Neither Purchaser nor any of its officers,
directors or Affiliates will take any action that would result in any change in
the matters set forth in Section 4.7 hereof that would reasonably be expected to
materially delay or otherwise materially impair Purchaser's ability to
consummate the transactions contemplated hereby. After the date hereof,
Purchaser or its Affiliates may enter into transactions that implicate the FCC
multiple ownership
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rules so long as such transactions would not reasonably be expected to
materially impede or materially delay the Closing
(c) (i) If Purchaser (or its Affiliates) or the Company
receives an administrative or other order or notification relating to any
violation or claimed violation of the rules and regulations of the FCC, or of
any Governmental Authority, that could affect Purchaser's or the Company's
ability to consummate the transactions contemplated hereby, or (ii) should
Purchaser (or its Affiliates) become aware of any fact (including any change in
law or regulations (or any interpretation thereof by the FCC)) relating to the
qualifications of Purchaser (and its controlling persons) that reasonably could
be expected to cause the FCC to withhold the FCC Consent, Purchaser (in the case
of clauses (i) and (ii)) or the Company (in the case of clause (i)) shall
promptly notify the other party or parties thereof and shall use its reasonable
best efforts to take such steps as may be necessary to remove any such
impediment to the transactions contemplated by this Agreement; and no such
notification shall affect the representations or warranties of the parties or
the conditions to their respective obligations hereunder.
(d) The parties shall each use their reasonable best efforts
to obtain as promptly as reasonably practical all consents that may be required
in connection with the assignment to the Purchaser at the Non-License Transfer
and the Closing, as applicable, of all the Company's right, title and interest
in and to all Material Contracts as such are acquired by the Company pursuant to
the Gannett Purchase Agreement and all other agreements of the Business to which
the Company or Gannett is a party, provided that (i) neither the Company nor
Purchaser shall be required to make any payment to any party to any such
Material Contract or other agreement in order to obtain any such consent (except
the Company agrees to pay any amounts outstanding as of the Transfer Date under
any such Material Program Contracts as provided for in Section 5.1(a)(v).
(e) To the extent that there are third-party insurance
policies maintained by Gannett covering any Claims or Damages relating to the
assets, business, operations, conduct and employees (including, without
limitation, former employees) of the Business arising out of or relating to
occurrences prior to the Transfer Date, the Company shall use all reasonable
efforts to cause Purchaser to be named as an additional insured with respect to
such policies.
(f) Subject to the terms and conditions of this Agreement,
each of the parties agrees to use its reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the Non-License Transfer and the
Closing and the other transactions contemplated hereby as soon as practicable.
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5.4 CONFIDENTIALITY.
(a) The terms of the Confidentiality Agreement by and between
Purchaser and the Company are herewith incorporated by reference and shall
continue in full force and effect as between Purchaser and the Company at all
times prior to the Transfer Date, and shall remain in effect as between
Purchaser and the Company in accordance with its terms even if this Agreement is
terminated.
(b) Before and after the Transfer Date, each of the parties
shall maintain the confidentiality of the financial and tax information of the
Persons other than the Company in the possession of the Company under terms
similar to those set forth in the Confidentiality Agreement by and between
Purchaser and the Company with respect to "Evaluation Material" as though such
terms continued after the Transfer Date.
5.5 PUBLIC ANNOUNCEMENTS.
Except as otherwise required by law or the rules of any stock
exchange, the form and substance of the initial public announcement of this
Agreement and the transactions contemplated hereby, and the time of such
announcement, shall be approved in advance by the parties and the parties shall
not issue any other report, statement or press release or otherwise make any
public announcement with respect to this Agreement and the transactions
contemplated hereby without prior consultation in good faith with the other
party hereto; provided, however, no public announcement shall be made prior to
the Diligence Termination Deadline.
5.6 NO SOLICITATION.
The Company shall not, and shall cause its officers,
directors, representatives, affiliates and associates not to, (a) initiate
contact with, solicit, encourage or respond to any inquiries or proposals by, or
(b) enter into any discussions or negotiations with, or disclose, directly or
indirectly, any information concerning, the Business, the Assets or the
Stations, or afford any access to the Company's or Gannett's properties, books
and records to any Person in connection with any possible proposal for the
acquisition (directly or indirectly, whether by purchase, merger, consolidation
or otherwise) of all or substantially all of the Business, the Assets or the
Stations. The Company agrees to terminate immediately any such discussions or
negotiations.
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5.7 EMPLOYEES.
From and after the date hereof to the first anniversary of the
Transfer Date, neither the Company, nor any of its Affiliates shall solicit or
offer employment to or hire or employ or otherwise compensate any employee or
former employee (who is an employee of a Station as of the date hereof) of the
Stations (including any individual who may become employed during the one (1)
year period following the Transfer Date) at any other location; provided,
however, that the foregoing shall not apply to the Excluded Employees, or to any
employee of a Station who is terminated by Purchaser without cause after the
Transfer Date.
5.8 NO ADDITIONAL REPRESENTATIONS.
Purchaser acknowledges that it and its representatives have
been permitted access to books and records, facilities, equipment, tax returns,
contracts and agreements, insurance policies (or summaries thereof), and other
properties and assets of the Stations and that they and their representatives
have had an opportunity to meet with the officers and employees of the Company
to discuss the Stations and the Business, properties and assets. PURCHASER
ACKNOWLEDGES THAT NEITHER THE COMPANY NOR ANY OTHER PERSON HAS MADE ANY
REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AS TO THE ACCURACY OR
COMPLETENESS OF ANY INFORMATION REGARDING THE STATION OR THE BUSINESS FURNISHED
OR MADE AVAILABLE TO PURCHASER AND ITS REPRESENTATIVES EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT.
5.9 CERTAIN PAYMENTS.
(a) Pursuant to the terms of the Gannett Purchase Agreement,
the Company has certain rights and obligations with respect to the Severance
Agreements listed in Sections 3.14.1 and 3.14.2 of the Disclosure Schedule of
the Gannett Purchase Agreement, which Severance Agreements include those listed
in Sections 3.14.1 and 3.14.2 of the Disclosure Schedule hereto (the "STC
SCHEDULED SEVERANCE AGREEMENTS"). Promptly, but in no event later than five (5)
Business Days prior to any payment due under the STC Scheduled Severance
Agreements to any employee of the Stations terminated by Purchaser prior to
ninety (90) days after the closing date under the Gannett Purchase Agreement,
Purchaser shall notify the Company of the amount to be paid to such employee,
and the Company shall make the payment to such terminated employee as provided
by the STC Scheduled Severance Agreements (a "STC SEVERANCE PAYMENT"); provided
that the maximum amount that the Company shall be required to pay for all
Business Employees as defined hereunder pursuant to this Section 5.9, after
reimbursement from the Purchaser in the succeeding sentence, shall be the
greater of (i) Two
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Hundred Twenty Two Thousand Ninety-Seven Dollars ($222,097.00), or (ii) Eight
Hundred Fifty Thousand Dollars ($850,000.00) minus all amounts reimbursed by
Gannett to the Company pursuant to Section 5.8(a) of the Gannett Purchase
Agreement for all the Gannett Television Stations other than the Stations.
Within five (5) Business Days after the Company makes an STC Severance Payment,
Purchaser shall reimburse the Company for fifty percent (50%) of the amount of
such payment. In addition to any reimbursement by Purchaser under this Section
5.9, to the extent provided by Section 5.8(a) of the Gannett Purchase Agreement,
the Company will be entitled to reimbursement as provided by the Gannett
Purchase Agreement, and nothing in this Agreement or the Gannett Purchase
Agreement shall be construed to give Purchaser any right of recovery to
Purchaser pursuant to Section 5.8(a) of the Gannett Purchase Agreement.
(b) Pursuant to Section 5.8(b) of the Gannett Purchase Agreement,
Gannett will cease operations and vacate the Gannett Corporate Offices, and the
Company has agreed that it will pay, indemnify, and hold harmless Gannett from
and against fifty percent (50%) of all Claims and Damages (including, without
limitation, all rent or other payments made under the Corporate Office Lease
arising out of or relating to the Corporate Office Lease) to the extent such
Claims and Damages arise out of or relate to (x) the termination of the
Corporate Office Lease or (y) the post-closing period after the date in which
the Corporate Office Employees cease using the Corporate Office. Such payments
by the Company thereunder are required under the Gannett Purchase Agreement to
be made by the Company as the related Claims and Damages are incurred. To the
extent the Company is required to make any such payments, Purchaser shall
reimburse and pay over to the Company 26.13% of all such payments made by the
Company (up to the maximum amount of $52,258). Purchaser acknowledges and agrees
that Gannett may terminate the Corporate Office Lease on such terms as Gannett
shall determine and otherwise take such action as Gannett determines in
connection with Gannett vacating the Corporate Office.
5.10 BULK SALES LAWS.
The parties agree to waive compliance with the provisions of
the bulk sales law of any jurisdiction. The Company will indemnify and hold
harmless Purchaser from and against any and all Liabilities which may be
asserted by third parties against Purchaser as a result of such noncompliance.
5.11 CONTROL OF THE STATIONS.
Prior to the Closing Date, control of the Stations (including,
without limitation, control over their finances, personnel and programming)
shall remain with the Company or Gannett, as the case may be. The Company and
Purchaser
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acknowledge and agree that neither Purchaser nor any of its employees, agents or
representatives, directly or indirectly, shall, or shall have any right to,
control, direct or otherwise supervise the Stations, it being understood that
supervision of all programs, equipment, operations and other activities of the
Stations shall be the sole responsibility of, and at all times prior to the
Closing Date remain under the complete control and direction of, the Company or,
if prior to the closing under the Gannett Purchase Agreement, Gannett.
5.12 USE OF CERTAIN NAMES.
After the Transfer Date, neither Purchaser nor any of its
Affiliates shall use "Sinclair", "Sinclair Broadcast", "Sinclair Television",
"Sinclair Communications", "Guy Gannett", "Gannett", or any name or term
confusingly similar to the "Sinclair" names in any corporate name or in
connection with the operation of any business.
5.13 NEWS SHARING ARRANGEMENTS.
(a) The Company and Purchaser shall use commercially
reasonable and good faith efforts to enter into a news sharing agreement with
Purchaser for sharing of news operations between television station WEYI-TV,
Flint, Michigan, and WSMH-TV, Flint, Michigan in a form of agreement to be
mutually agreed upon by Purchaser and the Company prior to the Diligence
Termination Deadline and consistent with Section 5.13 of the Disclosure
Schedule. If prior to the Diligence Termination Deadline the parties cannot
agree on a form of a mutually acceptable news share agreement for WSMH-TV, (i)
the Company shall be entitled, in the Company's sole and absolute discretion, to
terminate this Agreement pursuant to Section 10.1(a)(iii), and (ii) the
Purchaser shall be entitled, in the Purchaser's sole and absolute discretion, to
terminate, upon written notice to the Company, the Purchaser's obligations under
this Section 5.13 (a) or otherwise to provide news sharing arrangements for
WSMH-TV as provided herein.
(b) The Company and Purchaser shall use commercially
reasonable and good faith efforts to enter into a mutually acceptable news
sharing agreement for sharing of news operations between WUHF-TV, Rochester, New
York, and WROC-TV, Rochester, New York, in a form of agreement to be mutually
agreed upon by Purchaser and the Company prior to the Diligence Termination
Deadline and consistent with Section 5.13 of the Disclosure Schedule. If prior
to the Diligence Termination Deadline the parties cannot agree on a form of a
mutually acceptable news share agreement for WUHF-TV, (i) the Company shall be
entitled, in the Company's sole and absolute discretion, to terminate this
Agreement pursuant to Section 10.1(a)(iii), and (ii) the Purchaser shall be
entitled, in the Purchaser's sole and absolute discretion, to terminate, upon
written notice to the
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Company, the Purchaser's obligations under this Section 5.13 (b) or otherwise to
provide news sharing arrangements for WUHF-TV as provided herein.
5.14 RIGHTS UNDER THE GANNETT PURCHASE AGREEMENT.
The Company covenants and agrees with Purchaser as follows
with respect to the Company's rights and obligations under the Gannett Purchase
Agreement:
(a) The Company shall enforce all of the Company's rights
under the Gannett Purchase Agreement or any opinions of counsel delivered
pursuant thereto at Purchaser's request as such rights pertain to the Stations
and the Assets, including, without limitation, causing Gannett to act in
conformity with the Gannett Purchase Agreement and requiring Gannett to conduct
the business of the Stations in the ordinary course of business in accordance
with the terms of the Gannett Purchase Agreement (including, without limitation,
the provisions of Section 5.1 of the Gannett Purchase Agreement), and to the
extent consistent with the foregoing, in the same manner in which the same have
heretofore been conducted with the intent of preserving the ongoing operations
and business of the Stations. This covenant shall survive the Non-License
Transfer and the Closing for the period that the Company has any rights under
the Gannett Purchase Agreement or any opinions of counsel delivered pursuant
thereto.
(b) The Company shall use the Company's reasonable best
efforts to close the transactions contemplated by the Gannett Purchase Agreement
as they pertain to the Stations in a timely fashion consistent with the terms of
such agreement and shall notify Purchaser in writing of the date, time and place
of the closing under the Gannett Purchase Agreement at least ten (10) days prior
to the date of such closing; provided, however, that the Company shall not waive
any of its rights or conditions under the Gannett Purchase Agreement as they
pertain to any of the Stations (including, without limitation, any conditions to
the obligations of the Company to consummate the transactions under the Gannett
Purchase Agreement), or enter into any amendment or modification to any
provisions of the Gannett Purchase Agreement that affects the Company's rights
or conditions thereunder with respect to any of the Stations. The Company shall
enforce the Company's rights to the fullest extent possible under the Gannett
Purchase Agreement as such rights pertain to the Stations, unless otherwise
directed by Purchaser.
(c) To the extent that the Company receives notifications or
information from Gannett with respect to the Stations under the Gannett Purchase
Agreement or otherwise becomes aware of any breach of any representation,
warranty, covenant or agreement in the Gannett Purchase Agreement, in each case
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with respect to the Stations, the Company shall promptly notify Purchaser and
provide such information to Purchaser, and thereafter use reasonable best
efforts to enforce, perform or waive any provision of the Gannett Purchase
Agreement pertaining to the Stations as may reasonably be requested by
Purchaser; provided, that the Company shall not be obligated to take any action
at Purchaser's request inconsistent with its rights and obligations under the
Gannett Purchase Agreement.
(d) Any proceeds received by the Company from the exercise of
the Company's rights which relate to the Stations against Gannett and its
respective Affiliates shall be paid over to Purchaser within five (5) Business
Days of receipt by the Company, less any reasonable costs and expenses of
enforcement incurred by the Company in such exercise.
(e) Subject to the provisions of the Time Brokerage Agreement,
the Company shall cooperate with Purchaser in connection with the Company's
review, analysis and monitoring of the Assets, the Business and the operations
of the Stations to the end that an efficient transfer of the Assets and the
Business may be made at the Non-License Transfer and the Closing and the
operations and the business of the Stations may continue on an uninterrupted
basis. The Company shall obtain Purchaser's consent prior to the exercise of the
Company's rights under the Gannett Purchase Agreement as such rights pertain to
the Stations (other than the right to consummate the acquisition of the Stations
upon satisfaction of all conditions thereto). In addition to providing
information required hereunder or reasonably requested, the Company agrees to
promptly notify Purchaser of any material problems or developments of which the
Company becomes aware with respect to any Assets or the Business.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement to occur at the Non-License Transfer and the
Closing are, at its option, subject to satisfaction of each of the following
conditions:
6.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained
herein shall be true and correct at and as of the Non-License Transfer Date or
the Closing Date, as applicable, as though each such representation and warranty
were made at and as of such time, other than such representations and warranties
as are made as of a specific date, in each case except for changes that are
expressly contemplated by this Agreement and except for such failures to be true
and correct that would not reasonably be expected to have a Material Adverse
Effect.
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6.2 PERFORMANCE BY THE COMPANY.
All of the covenants and agreements to be complied with and
performed by the Company on or before the Non-License Transfer Date or the
Closing Date, as applicable, shall have been complied with or performed, except
for such failures to comply with or perform that would not reasonably be
expected to have a Material Adverse Effect.
6.3 CERTIFICATES.
The Company shall have delivered to Purchaser (a) a
certificate, dated as of the Non-License Transfer Date or the Closing Date, as
applicable, executed on behalf of the Company by its duly authorized officers to
the effect of Sections 6.1, 6.2 and 6.12; and (b) a certificate, dated as of the
Non-License Transfer Date or the Closing Date, as applicable, executed on behalf
of the Company by its duly authorized officers that (i) the Company has not
waived any of the Company's rights or any conditions under the Gannett Purchase
Agreement, (ii) the Company has not breached the Gannett Purchase Agreement in
any material respect and, to the Company's knowledge, Gannett has not breached
the Gannett Purchase Agreement in any material respect, and (iii) the
acquisition of the Stations by the Company from Gannett has been consummated in
accordance with the terms and conditions of the Gannett Purchase Agreement.
6.4 CONSENTS; NO OBJECTIONS.
(a) The applicable waiting periods under the HSR Act shall
have expired or been terminated;
(b) The parties shall have received all the authorizations,
consents, orders and approvals from Governmental Authorities and consents from
third parties, in each case listed or described in Section 6.4 of the Disclosure
Schedule (which Section includes all of the real estate leases for the towers,
transmitters and television broadcasting studios of the Stations and all of the
network affiliation agreements of the Stations); and
(c) The parties shall have received all authorizations,
consents, orders and approvals from Governmental Authorities necessary to
transfer the material Permits relating to the operation of the towers,
transmitters and television broadcasting studios of the Stations, as such
facilities are operating on the date hereof, except in each case where the
failure to receive such authorizations, consents, orders or approvals would not
reasonably be expected to materially adversely affect the operations of such
facilities, or where such authorizations,
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consents, orders or approvals are customarily obtained after the closing of a
transaction of this nature.
6.5 NO PROCEEDINGS OR LITIGATION.
No preliminary or permanent injunction or other order or
decree issued by any United States federal or state Governmental Authority, nor
any Law promulgated or enacted by any United States federal or state
Governmental Authority, that restrains, enjoins or otherwise prohibits the
transactions contemplated hereby or limits the ability in any material respect
of the rights of the Company or Purchaser to hold the Assets (excluding the FCC
Licenses) and conduct the Business as it is being conducted as of the
Non-License Transfer Date or the Closing Date, as applicable, or imposes civil
or criminal penalties on any stockholder, director or officer of Purchaser if
such transactions are consummated, shall be in effect.
6.6 FCC CONSENT.
The FCC Consent shall have been issued with respect to the
Stations without any conditions that are materially adverse to Purchaser and
such FCC Consent shall have become a Final Order; provided, however, that there
shall be no requirement that the FCC Order shall have been issued as of the
Non-License Transfer Date.
6.7 NO MATERIAL ADVERSE CHANGE.
Since the date of the Gannett Purchase Agreement through the
Non-License Transfer Date or the Closing Date, as applicable, there shall not
have occurred any Material Adverse Effect.
6.8 OPINIONS OF COUNSEL.
Purchaser shall have received an opinion of Fisher, Wayland,
Cooper, Leader & Zaragoza L.L.P., dated the Non-License Transfer Date or the
Closing Date, as applicable, substantially in the form of Exhibit E hereto.
6.9 CERTAIN CERTIFIED MATTERS.
Purchaser shall have received a copy of (i) the resolutions of
the board of directors of the Company, certified as being correct and complete
and then in full force and effect, authorizing the execution, delivery and
performance of this Agreement and the other the documents, instruments and
writings to be delivered by the Company at or prior to Closing Date or the
Non-License Transfer Date, as applicable, and the consummation of the
transactions contemplated hereby and
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thereby and (ii) a copy of the Certificate of Incorporation and Bylaws of the
Company, certified by a duly authorized officer of the Company as being true,
correct and complete as of the Closing Date.
6.10 GOOD STANDING CERTIFICATE.
Purchaser shall have received a certificate as to the
formation and good standing of the Company issued by the Secretary of State of
Maryland, dated not more than five (5) days before the Non-License Transfer Date
or the Closing Date, as applicable, and for the states of Illinois and Iowa, a
certificate as to the good standing of the Person transferring the Stations to
Purchaser as of such date, issued by the Secretary of State of such
jurisdiction, dated not more than five (5) days before the Non-License Transfer
Date or the Closing Date, as applicable.
6.11 NO TRANSMISSION DEFECTS.
There shall not exist any loss or damage at any Station which
has resulted in the regular broadcast transmission of such Station (including
such Station's effective radiated power) to be diminished in any material
respect; provided, that if any such loss or damage does exist, then either or
both of the Company and Purchaser shall be entitled, by written notice to the
other, to postpone the Non-License Transfer Date or the Closing Date, as
applicable, for a period of up to sixty (60) days to resume such Station's
broadcast transmission.
6.12 CLOSING ON THE GANNETT PURCHASE AGREEMENT.
The closing, as defined in the Gannett Purchase Agreement,
with respect to all of the Gannett Television Stations shall have occurred or
occur simultaneously with the Non-License Transfer, in accordance with the terms
and conditions of the Gannett Purchase Agreement; and the representations and
warranties of the Company set forth in Section 3.20 hereof shall be true and
correct in all respects at and as of the Non-License Transfer Date or the
Closing Date, as applicable, as though each such representation and warranty
were made at and as of such time (except for representations and warranties that
speak of a specific date or time other than the Non-License Transfer Date or the
Closing Date, as applicable, which need only be true and correct in all material
respects as of such date or time).
6.13 DELIVERIES.
The Company (or Gannett, if applicable) shall have delivered
to the Purchaser all contracts, agreements, instruments and documents required
to be delivered by the Company to Purchaser pursuant to Section 1.5.
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ARTICLE 7. CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to consummate the transactions
contemplated by this Agreement to occur at the Non-License Transfer or the
Closing are, at its option, subject to satisfaction of each of the following
conditions:
7.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Purchaser contained
herein shall be true and correct in all material respects at and as of the
Non-License Transfer Date or the Closing Date, as applicable, as though each
such representation and warranty were made at and as of such time, other than
such representations and warranties as are made as of a specific date, in each
case except for changes that are expressly contemplated by this Agreement.
7.2 PERFORMANCE BY PURCHASER.
All of the covenants and agreements to be complied with and
performed by Purchaser on or prior to the Non-License Transfer Date or the
Closing Date, as applicable, shall have been complied with or performed, in all
material respects, except for such failures to comply with or perform that would
not, individually or in the aggregate, reasonably be expected to be materially
adverse to the Company.
7.3 CERTIFICATE.
Purchaser shall have delivered to the Company a certificate,
dated as of the Non-License Transfer Date or the Closing Date, as applicable,
executed on behalf of Purchaser by its duly authorized officers or
representatives to the effect of Sections 7.1 and 7.2.
7.4 CONSENTS; NO OBJECTIONS.
(a) The applicable waiting periods under the HSR Act shall
have expired or been terminated; and
(b) The parties shall have received all the authorizations,
consents, orders and approvals from Governmental Authorities and consents from
third parties, in each case listed or described on Section 7.4 to the Disclosure
Schedule.
7.5 NO PROCEEDINGS OR LITIGATION.
No preliminary or permanent injunction or other order or
decree issued by any United States federal or state Governmental Authority, nor
any Law
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promulgated or enacted by any United States federal or state Governmental
Authority, that restrains, enjoins or otherwise prohibits the transactions
contemplated hereby, or imposes civil or criminal penalties on any stockholder,
director or officer of the Company if such transactions are consummated, shall
be in effect.
7.6 FCC CONSENT.
The FCC Consent shall have been issued with respect to the
Stations, notwithstanding that it may not have yet become a Final Order;
provided, however, that there shall be no requirement that the FCC Order shall
have been issued as of the Non-License Transfer Date..
7.7 CERTAIN CERTIFIED MATTERS.
The Company shall have received a copy of (i) the resolutions
of the board of directors of Purchaser, certified as being correct and complete
and then in full force and effect, authorizing the execution, delivery and
performance of this Agreement and the other the documents, instruments and
writings to be delivered by Purchaser at or prior to Closing Date or the
Non-License Transfer Date, as applicable, and the consummation of the
transactions contemplated hereby and thereby and (ii) a copy of the Certificate
of Incorporation and Bylaws of Purchaser, certified by a duly authorized officer
of Purchaser as being true, correct and complete as of the Closing Date.
7.8 GOOD STANDING CERTIFICATE.
The Company shall have received a certificate as to the
formation and good standing of Purchaser issued by the Secretary of State of
Delaware, dated not more than five (5) days before the Non-License Transfer Date
or the Closing Date, as applicable, and for the states of Illinois and Iowa as
to the good standing of Purchaser issued by the Secretary of State of such
jurisdiction, dated not more than five (5) days before the Non-License Transfer
Date or the Closing Date, as applicable.
7.9. CLOSING ON GANNETT PURCHASE AGREEMENT.
The closing, as defined in the Gannett Purchase Agreement,
shall have occurred or occur simultaneously with the Non-License Transfer or the
Closing, as applicable, hereunder.
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7.10 DELIVERIES.
The Purchaser shall have delivered to the Company all
contracts, agreements, instruments and documents required to be delivered by the
Purchaser to the Company pursuant to Section 1.5.
ARTICLE 8. INDEMNIFICATION.
8.1 INDEMNIFICATION BY THE COMPANY.
Subject in all respects to the provisions of this Article 8,
the Company hereby agrees to indemnify and hold harmless on and after the
Transfer Date, Purchaser and its stockholders and Affiliates and their
respective officers, directors, employees and agents, and their respective and
successors and permitted assigns (the "PURCHASER INDEMNIFIED PARTIES") from and
against any Claims and Damages asserted against or incurred by them, directly or
indirectly, in connection with, arising out of or relating to (a) any breach on
the part of the Company of any representation or warranty made by the Company in
this Agreement or any Transaction Document or in any certificate delivered
pursuant to this Agreement, (b) any breach on the part of Gannett of any
representation or warranty made by Gannett in the Gannett Purchase Agreement
with respect to the Stations or the Assets, (c) any breach on the part of the
Company of any covenant or agreement made by the Company in this Agreement or
any Transaction Document, (d) any breach on the part of Gannett of any covenant
or agreement made by Gannett in the Gannett Purchase Agreement with respect to
the Stations or the Assets, or (e) any Retained Liabilities.
8.2 INDEMNIFICATION BY PURCHASER.
Subject in all respects to the provisions of this Article 8,
Purchaser hereby agrees to indemnify and hold harmless on and after the Transfer
Date, the Company and its stockholders and Affiliates and their respective
officers, directors, employees and agents, and their respective successors and
permitted assigns (collectively the "COMPANY INDEMNIFIED PARTIES"), from and
against any Claims and Damages asserted against or incurred by them, directly or
indirectly, in connection with, arising out of or relating to (a) any breach on
the part of Purchaser of any representation or warranty made by Purchaser in
this Agreement or any Transaction Document or in any certificate delivered
pursuant to this Agreement, (b) any breach on the part of Purchaser of any
covenant or agreement made by the Purchaser in this Agreement or any Transaction
Document, or (c) any Assumed Liabilities. The parties acknowledge and agree that
none of Gannett, any of its stockholders or Affiliates, or any of their
respective officers, directors, employees,
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agents, successors or assigns shall be "Company Indemnified Parties" or
"Beneficiaries" for any purposes of this Agreement or any other Transaction
Document.
8.3 LIMITATIONS ON INDEMNIFICATION CLAIMS AND LIABILITY;
TERMINATION OF INDEMNIFICATION.
(a) The obligations to indemnify and hold harmless a Person
pursuant to Sections 8.1(a), (b), (c) and (d) and Sections 8.2(a) and 8.2(b)
shall terminate when the applicable representation, warranty, covenant or
agreement terminates pursuant to Section 10.12; provided, however, that the
obligation to indemnify and hold harmless under such Sections shall not
terminate with respect to any claim as to which the Person to be indemnified
shall have, before the termination of the applicable representation, warranty,
covenant or agreement, previously made a claim for indemnification by delivering
a notice to the indemnifying party in accordance with Section 8.5. The
obligations to indemnify and hold harmless a Person pursuant to Section 8.1(e)
and Section 8.2(c) shall not terminate.
(b) The Company shall not be obligated to indemnify or hold
harmless any Purchaser Indemnified Party under Section 8.1(a), (b), (c) and (d),
unless and until all Claims and Damages exceed in the aggregate Two Hundred
Thousand Dollars ($200,000) (the "BASKET AMOUNT"), in which case the Company
will (subject to the other provisions of this Article 8) only be obligated to
indemnify and hold harmless the Purchaser Indemnified Parties for all of such
Claims or Damages under Section 8.1(a), (b), (c) or (d) in the aggregate in
excess of One Hundred Thousand Dollars ($100,000); provided that the provisions
of this Section 8.3(b) will not apply to any breach of any Post-Closing
Agreements; provided further that the Basket Amount shall not be applicable to
any amounts owed in connection with the determination of the Actual Net
Financial Assets pursuant to Section 2.4, to the payment and reimbursement
obligations set forth in Section 5.9 or to the indemnities set forth in Section
8.1(e).
(c) The maximum aggregate liability of the Company with
respect to all claims for indemnification under Section 8.1(a), (b), (c) or (d)
will be limited to the amount of Three Million Dollars ($3,000,000).
(d) Notwithstanding anything to the contrary in this Agreement
and except for fraud, the indemnifications in Sections 8.1 and 8.2 hereof will
be the sole and exclusive remedies available to Purchaser and the Company and
their respective stockholders and Affiliates and all of their respective
officers, directors, employees, agents, successors and assigns, after the
Transfer Date for any claims arising out of or relating to any breaches of any
representations or warranties or
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any covenants or agreements contained in this Agreement, or any certificate
delivered pursuant to this Agreement or otherwise in connection with this
Agreement. Any claim for indemnification must be made as provided in Sections
8.5 and 8.6 hereof.
8.4 COMPUTATION OF CLAIMS AND DAMAGES.
Whenever the Indemnitor is required to indemnify and hold
harmless the Indemnitee from and against and hold the Indemnitee harmless from,
or to reimburse the Indemnitee for, any item of Claim or Damage, the Indemnitor
will, subject to the provisions of this Article 8, pay the Indemnitee the amount
of the Claim or Damage (a) reduced by any amounts to which the Indemnitee is
entitled from third parties in connection with such Claim or Damage
("REIMBURSEMENTS"), (b) reduced by the Net Proceeds of any insurance policy
payable to the Indemnitee with respect to such Claim or Damage and (c) reduced
appropriately to take into account any Tax Benefit to the Indemnitee with
respect to such Claim or Damage through and including the tax year in which the
indemnification payment is made, net of all income Taxes resulting or that will
result from the indemnification payment. For purposes of this Section 8.4, (i)
"NET PROCEEDS" shall mean the insurance proceeds payable, less any deductibles,
co-payments, premium increases, retroactive premiums or other payment
obligations (including attorneys' fees and other costs of collection) that
relates to or arises from the making of the claim for indemnification and (ii)
"TAX BENEFIT" shall mean any benefit to be recognized by the Indemnitee in
connection with the Claim or Damage based upon the highest blended (federal,
state, local and foreign) marginal income Tax rate applicable to the Indemnitee
during the taxable year for which a return was most recently filed with the
Internal Revenue Service (based on the date of the claim for indemnification).
The Indemnitor shall use commercially reasonable efforts (the expenses of which
shall be considered Claims and Damages for purposes of the relevant indemnity
claim) to pursue Reimbursements or Net Proceeds that may reduce or eliminate
Claims and Damages. If any Indemnitee receives any Reimbursement, Tax Benefit or
Net Proceeds after an indemnification payment is made which relates thereto or
if any Indemnitee receives a Tax Benefit arising after the tax year in which an
indemnification payment is made which relates thereto, the Indemnitee shall
promptly repay to the Indemnitor such amount of the indemnification payment as
would not have been paid had the Reimbursement, Tax Benefit or Net Proceeds
reduced the original payment (any such repayment shall be a credit against any
applicable indemnification threshold or limitation set forth in Section 8.3(b)
hereof) at such time or times as and to the extent that such Reimbursement, Tax
Benefit or Net Proceeds is actually received.
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8.5 NOTICE OF CLAIMS.
Upon obtaining knowledge of any Claim or Damage which has
given rise to, or could reasonably give rise to, a claim for indemnification
hereunder, the Person seeking indemnification (the "INDEMNITEE") shall, as
promptly as reasonably practicable (but in no event later than thirty (30) days)
following the date the Indemnitee has obtained such knowledge, give written
notice (a "NOTICE OF CLAIM") of such claim to the other party (the
"INDEMNITOR"). The Indemnitee shall furnish to the Indemnitor in good faith and
in reasonable detail such information as the Indemnitee may have with respect to
such indemnification claim (including copies of any summons, complaint or other
pleading which may have been served on it and any written claim, demand,
invoice, billing or other document evidencing or asserting the same). No failure
or delay by the Indemnitee in the performance of the foregoing shall reduce or
otherwise affect the obligation of the Indemnitor to indemnify and hold the
Indemnitee harmless, except to the extent that such failure or delay shall have
adversely affected the Indemnitor's ability to defend against, settle or satisfy
any liability, damage, loss, claim or demand for which such Indemnitee is
entitled to indemnification hereunder. For purposes of this Section 8.5, a
Notice of Claim given in good faith must include a good faith estimate of the
amount of the claim to the extent it is reasonably practicable to determine such
estimate.
8.6 DEFENSE OF THIRD PARTY CLAIMS.
If any claim set forth in the Notice of Claim given by an
Indemnitee pursuant to Section 8.5 hereof is a claim asserted by a third party,
the Indemnitor shall have thirty (30) days after the date that the Notice of
Claim is given by the Indemnitee to notify the Indemnitee in writing of the
Indemnitor's election to defend such third party claim on behalf of the
Indemnitee. If the Indemnitor elects to defend such third party claim, the
Indemnitee shall make available to the Indemnitor and its agents and
representatives all witnesses, pertinent records, materials and information in
the Indemnitee's possession or under the Indemnitee's control as is reasonably
required by the Indemnitor and shall otherwise cooperate with and assist the
Indemnitor in the defense of such third party claim, and so long as the
Indemnitor is defending such third party claim in good faith, the Indemnitee
shall not pay, settle or compromise such third party claim. If the Indemnitor
elects to defend such third party claim, the Indemnitee shall have the right to
participate in the defense of such third party claim, at the Indemnitee's own
expense. In the event, however, that the Indemnitee reasonably determines that
representation by counsel to the Indemnitor of both the Indemnitor and the
Indemnitee may present such counsel with a conflict of interest, then such
Indemnitee may employ separate counsel to represent or defend it in any such
action or proceeding and the
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Indemnitor will, subject to the provisions of this Article 8, pay the reasonable
fees and disbursements of such counsel. If the Indemnitor does not elect to
defend such third party claim or does not defend such third party claim in good
faith, the Indemnitee shall have the right, in addition to any other right or
remedy it may have hereunder, at the Indemnitor's expense, to defend such third
party claim; provided, however, that such Indemnitee's defense of or its
participation in the defense of any such third party claim shall not in any way
diminish or lessen the indemnification obligations of the Indemnitor under this
Article 8. If the Indemnitor shall assume the defense of a third party claim, it
shall not settle such claim without the prior written consent of the Indemnitee
(a) unless such settlement includes as an unconditional term thereof the giving
by the claimant of a release of the Indemnitee from all Liability with respect
to such claim or (b) if such settlement involves the imposition of equitable
remedies or the imposition of any obligations on such Indemnitee other than
financial obligations for which such Indemnitee will be indemnified hereunder.
If the Indemnitee is defending a third party claim it will not settle such claim
without prior written consent of the Indemnitor, which will not be unreasonably
withheld or delayed.
8.7 THIRD PARTY BENEFICIARIES.
Each of the Purchaser Indemnified Parties and the Company
Indemnified Parties shall be third party beneficiaries and entitled to enforce
the provisions of this Article 8; provided, however, that none of the Business
Employees shall be third party beneficiaries of any provision of this Agreement
or any other Transaction Document, including, without limitation, the provisions
of Section 5.2 of this Agreement.
ARTICLE 9. DEFINITIONS.
Unless otherwise stated in this Agreement, the following capitalized
terms have the following meanings:
Accounting Firm has the meaning set forth in Section 2.4(a). Accounting
Firm Determination has the meaning set forth in Section 2.4(a).
Action means any action, suit, claim, arbitration, or proceeding or
investigation (of which the Company has knowledge) commenced by or pending
before any Governmental Authority.
Actual Net Financial Assets has the meaning set forth in Section 2.4(a)
hereof.
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Affiliate means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with such specified Person.
Agreement or this Agreement means this Purchase Agreement dated as of
the date first above written (including the Exhibits hereto and the Disclosure
Schedule) and all amendments hereto made in accordance with the provisions of
Section 10.8 hereof.
Allocation has the meaning set forth in Section 2.7 hereof.
Assets has the meaning set forth in Section 1.1 hereof.
Assignment of FCC Licenses has the meaning set forth in Section
1.5(a)(ii) hereof.
Assumed Liabilities means the Liabilities assumed by Purchaser pursuant
to Sections 1.3(a) and (b) hereof.
Base Purchase Price has the meaning set forth in Section 2.2(a).
Basket Amount has the meaning set forth in Section 8.3(b).
Beneficiary has the meaning set forth in Section 5.2(f) hereof.
Bill of Sale, Assignment and Assumption Agreement has the meaning set
forth in Section 1.5(a)(i) hereof.
Business means all of the Company's business, operations and activities
of the Stations acquired by the Company from Gannett pursuant to the Gannett
Purchase Agreement or otherwise used by the Company in the business, operations
and activities of the Stations.
Business Day means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City of
New York.
Business Employees means all current, former and inactive employees of
the Stations. For the avoidance of doubt, Corporate Office Employees will not be
considered Business Employees.
Call Letters has the meaning set forth in Section 3.16 hereof.
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CERCLA means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended.
Claims and Damages means, after taking into account amounts received by
Purchaser under Section 5.14(d) hereof, any and all losses, claims, demands,
liabilities, obligations, actions, suits, orders, statutory or regulatory
compliance requirements, or proceedings asserted by any Person (including,
without limitation, Governmental Authorities), and all damages, costs, expenses,
assessments, judgments, recoveries and deficiencies, including interest,
penalties, investigatory expenses, consultants' fees, and reasonable attorneys'
fees and costs (including, without limitation, costs incurred in enforcing the
applicable indemnity), of every kind and description, contingent or otherwise,
incurred by or awarded against a party, provided that "Claims and Damages" shall
not include any indirect, consequential, incidental, exemplary or punitive
damages or other special damages or lost profits (except to the extent payable
to a third party as a result of a third party claim).
Closing has the meaning set forth in Section 1.4(b) hereof.
Closing Date has the meaning set forth in Section 1.4(b) hereof.
Closing Statement has the meaning set forth in Section 2.4(a) hereof.
Code means the Internal Revenue Code of 1986, as amended.
Communications Act means the Communications Act of 1934, as amended.
Company has the meaning specified in the introductory paragraph to this
Agreement.
Company Indemnified Parties shall have the meaning set forth in Section
8.2.
Company Permitted Assignee has the meaning set forth in Section 10.5(a)
hereof.
Continuation Coverage has the meaning set forth in Section 5.2(i)
hereof.
Control (including the terms "controlled by" and "under common control
with"), with respect to the relationship between or among two or more Persons,
means the possession, directly or indirectly, of the power to direct or to cause
the direction of the affairs or management of a Person, whether through the
ownership of voting securities, by contract or otherwise, including, without
limitation, the
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ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
Corporate Office means the corporate office of Gannett located at One
City Center, Portland, Maine, that provides certain support to the Business and
the Maine Media Business.
Corporate Office Employees has the meaning set forth in Section 5.2(b).
Corporate Office Lease means the Lease dated as of February 16, 1989,
between Gannett and One City Center Associates, and all addenda and amendments
thereto and memoranda relating thereto.
Deposit Escrow Agent means United Bank, 1667 K Street, N.W.,
Washington, D.C. 20006.
Deposit Escrow Agreement has the meaning set forth in Section 2.1
Diligence Termination Deadline has the meaning set forth in Section
1.6.
Disclosure Schedule means the Disclosure Schedule, dated as of the date
hereof, delivered to Purchaser by the Company in connection with this Agreement.
Employee Benefit Plans means all "employee benefit plans" within the
meaning of Section 3(3) of ERISA, all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
employee benefit plans, programs, policies or arrangements, employment
agreements, severance agreements, severance pay policies, plant closing
benefits, executive compensation arrangements, sick leave, vacation pay, salary
continuation for disability, consulting, or other compensation arrangements,
worker's compensation, hospitalization, medical insurance, life insurance,
tuition reimbursement or scholarship programs, employee discounts, employee
loans, employee banking privileges, any plans subject to Section 125 of the
Code, and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion thereof, in each
case with respect to any present or former employees, directors, or agents and
without regard to whether the plan or arrangement was previously terminated (if
potential liabilities remain) or compensation agreements, in each case for the
benefit of, or relating to, any current employee or former employee of the
Business.
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Encumbrance means any security interest, pledge, mortgage, lien
(including, without limitation, tax liens), charge, encumbrance, easement,
adverse claim, preferential arrangement, restriction or defect in title.
Environmental Claims means any and all actions, suits, demands, demand
letters, claims, liens, notices of non-compliance or violation, investigations,
proceedings, consent orders or consent agreements relating in any way to any
Environmental Law, any Environmental Permit, Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the environment,
including, without limitation (a) by Governmental Authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages and (b) by any
Person for damages, contributions, indemnification, cost recovery, compensation
or injunctive relief.
Environmental Law means any Law relating to the environment, health,
safety or Hazardous Materials, in force and effect on the date hereof or, in the
case of the Company's certificate to be delivered in accordance with the
provisions of Section 6.3 hereof, on the Closing Date (exclusive of any
amendments or changes to such Law or any regulations promulgated thereunder or
orders, decrees or judgments issued pursuant thereto which are enacted,
promulgated or issued after the date hereof, or in the case of such certificate,
on or after the Closing Date), including but not limited to CERCLA; the Resource
Conservation and Recovery Act of 1986 and Hazardous and Solid Waste Amendments
of 1984, 42 U.S.C. ss.ss.6901 et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. ss.ss.6901 et seq.; the Clean Water Act, 33 U.S.C. ss.ss.1251 et
seq.; the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss.2601 et seq.;
the Clean Air Act of 1966, as amended, 42 U.S.C. ss.ss.7401 et seq.; the Safe
Drinking Water Act, 42 U.S.C. ss.ss.300f et seq.; the Atomic Energy Act, 42
U.S.C. ss.ss.2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. ss.ss.136 et seq.; and the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. ss.ss.1101 et seq.
Environmental Permits means all permits, approvals, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.
Equipment means all of the tangible personal property, machinery,
equipment, vehicles, rolling stock, furniture, and fixtures of every kind and
description in which the Company has an interest or which the Company acquires
from Gannett pursuant to the Gannett Purchase Agreement by ownership or lease,
and used or useful in connection with the Business, together with any
replacements thereof or additions thereto, made in the ordinary course of
business between the date of the Gannett Purchase Agreement and the Transfer
Date.
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ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
ERISA affiliate has the meaning set forth in Section 3.14.
Escrow Deposit has the meaning set forth in Section 2.1.
Estimated Net Financial Assets has the meaning set forth in Section
2.2(b) hereof.
Excluded Assets has the meaning set forth in Section 1.2 hereof.
FCC means the Federal Communications Commission.
FCC Consent means a public notice of the FCC, or of the Chief, Mass
Media Bureau or Video Services Division, acting under delegated authority,
consenting to the assignment of the FCC Licenses to Purchaser.
FCC Licenses means all licenses, permits and other authorizations
issued by the FCC to the Company used for or in connection with the Stations,
and all applications therefor, together with any renewals, extensions or
modifications thereof and additions thereto between the date of the Gannett
Purchase Agreement and the Closing.
Final Order means the FCC Consent as to which the time for filing a
request for administrative or judicial review, or for instituting administrative
review sua sponte, shall have expired without any such filing having been made
or notice of such review having been issued; or, in the event of such filing or
review sua sponte, as to which such filing or review shall have been disposed of
favorably to the grantee and the time for seeking further relief with respect
thereto shall have expired without any request for such further relief having
been filed.
GAAP means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the
periods involved.
Gannett has the meaning set forth in the recitals to this Agreement.
Gannett Corporate Office means the corporate office of Gannett located
at One City Center, Portland, Maine, that provides certain support to Gannett
and its business.
Gannett FCC Licenses means all licenses, permits and other
authorizations issued by the FCC to Gannett used for or in connection with the
Gannett Television
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Stations and all applications therefor, together with any renewals, extensions,
or modifications thereof and additions thereto between the date of the Gannett
Purchase Agreement and the Closing.
Gannett Maine Media Business means the newspaper publishing business
which publishes the Portland Press Herald and Maine Sunday Telegram, the
Kennebec Journal and the Central Maine Morning Sentinel, and certain related
businesses in Maine (including, without limitation, the "New Media Development
Group", an Internet-based media business; "Voice Information Services", a
telephone information and marketing service; "Guy Gannett Direct", a direct
marketing operation; a telephone directory business; an integrated marketing
group; and the Coastal Journal, a controlled circulation weekly), and all
assets, liabilities, operations and activities of, and all rights of, Gannett in
the operations of such businesses.
Gannett Purchase Agreement shall have the meaning set forth in the
Recitals.
Gannett Television Stations means the following television broadcasting
station properties: WOKR-TV, Rochester, New York; WICS-TV, Springfield,
Illinois; WICD-TV, Champaign, Illinois; WGGB-TV, Springfield, Massachusetts;
WGME-TV, Portland, Maine; KGAN-TV, Cedar Rapids, Iowa; WTWC-TV, Portland, Maine;
and WTWC-TV, Tallahassee, Florida.
Governmental Authority means any United States federal, state or local
government or any foreign government, any governmental, regulatory, legislative,
executive or administrative authority, agency or commission or any court,
tribunal, or judicial body.
Governmental Order means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority. Governmental Orders shall not include Permits.
Group Contract has the meaning set forth in Section 1.3(a) hereof.
Hazardous Materials means wastes, substances, materials (whether
solids, liquids or gases), petroleum and petroleum products, byproducts or
breakdown products, radioactive materials, and any other chemicals that are
deemed hazardous, toxic, pollutants or contaminants, or substances designated,
classified or regulated as being "hazardous" or "toxic", or words of similar
import, under any Environmental Law.
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HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
Indebtedness means obligations with regard to borrowed money and shall
expressly not include either accounts payable or accrued liabilities that are
incurred in the ordinary course of business or obligations under operating
leases regardless of how such leases may be classified or accounted for on
financial statements.
Indemnitee has the meaning set forth in Section 8.5 hereof.
Indemnitor has the meaning set forth in Section 8.5 hereof.
Intellectual Property means all patents, trademarks, trade names,
domain names, service marks, copyrights and other similar intangible assets, and
applications, registrations, extensions and renewals for any of the foregoing,
and other intellectual property owned, leased or used by the Company in the
operation of the Stations or acquired by the Company from Gannett under the
Gannett Purchase Agreement and used in the Business, including, without
limitation, Call Letters, computer software and programs, of the Company used in
the Business or acquired by the Company from Gannett under the Gannett Purchase
Agreement and used in the Business, whether owned or used by, or licensed to,
the Company or acquired by the Company from Gannett under the Gannett Purchase
Agreement.
Knowledge with respect to the Company means the actual knowledge of the
officers and employees of the Company regarding (a) information relating to the
Stations disclosed by Gannett to the Company in the Gannett Purchase Agreement
or any Schedule, Exhibit or documents delivered to the Company in connection
therewith, and (b) information relating to the Stations that the Company has
been made aware of since September 4, 1998.
Law means any federal, state, local or foreign statute, law, ordinance,
regulation, rule, code, order or other requirement or rule of law including,
without limitation zoning laws and housing, building, safety or fire ordinances
or codes.
Leased Property means all real property of every kind and description
leased by the Company or rights to such leases or leased property acquired by
the Company from Gannett pursuant to the Gannett Purchase Agreement and used in
connection with the Business, together (to the extent leased by the Company or
obtained from Gannett pursuant to the Gannett Purchase Agreement) with all
buildings and other structures, towers, antennae, facilities or improvements
currently or hereafter located thereon, all fixtures, systems, equipment and
items of personal property of the Company or acquired by the Company from
Gannett pursuant to the Gannett Purchase Agreement attached or appurtenant
thereto and
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all easements, licenses, rights and appurtenances relating to the foregoing,
including, without limitation, the leased property referred to in Section 1.1(c)
of the Disclosure Schedule.
Letter of Credit has the meaning set forth in Section 2.1.
Liabilities means as to any Person all debts, adverse claims,
liabilities and obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured, determined or determinable, known or unknown, including,
without limitation, those arising under any federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order, writ, stipulation or
other governmental requirement (including, without limitation, any environmental
law), action, suit, arbitration, proceeding or investigation or governmental
permit, license, authorization, certificate or approval and those arising under
any contract, agreement, arrangement, commitment or undertaking.
License Assets has the meaning set forth in Section 1.4 hereof..
Material Adverse Effect means any circumstance, change in, or effect on
the Company or the Stations that has a material adverse effect on the business,
results of operations or financial condition of the Stations, taken as a whole;
provided, however, that Material Adverse Effect shall not include adverse
effects resulting from (or, in the case of effects that have not yet occurred,
reasonably likely to result from) (i) general economic or industry conditions
that have a similar effect on other participants in the industry, (ii) regional
economic or industry conditions that have a similar effect on other participants
in the industry in such region, (iii) the fact that the Purchaser unreasonably
withheld Purchaser's consent with respect to any Program Contract pursuant to
Section 5.1 of the Agreement, or (iv) any act of Purchaser.
Material Contracts means the written agreements (including, without
limitation, amendments thereto), contracts, policies, plans, mortgages,
understandings, arrangements or commitments relating to the Business, to which
Gannett or the Company is a party or by which its assets are bound as described
below:
(i) any agreement or contract providing for payments to any Person in
excess of Fifty Thousand Dollars ($50,000) per year or Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate over the five (5) year period
commencing on the date hereof;
(ii) all time brokerage agreements and affiliation agreements with
television networks;
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(iii) any license or contract pursuant to which Gannett or the Company
is authorized to broadcast film or taped programming supplied by others in
excess of Ten Thousand Dollars ($10,000) or having a term of more than one (1)
year;
(iv) any employment agreement, consulting agreement or similar contract
providing for payments to any individual in excess of Fifty Thousand Dollars
($50,000) per year or One Hundred Thousand Dollars ($100,000) in the aggregate
over the five (5) year period commencing on the date hereof;
(v) any retention or severance agreement or contract with respect to
any Person who is to be employed by Purchaser following the Closing;
(vi) all collective bargaining agreements or other union contracts;
(vii) (A) any lease of Equipment or license with respect to
Intellectual Property (other than licenses granted in connection with the
purchase of equipment or other assets) by Gannett or the Company from another
Person providing for payments to another Person in excess of Twenty-Five
Thousand Dollars ($25,000) per year or Seventy-Five Thousand Dollars ($75,000)
in the aggregate over the five (5) year period commencing on the date hereof; or
(B) any lease of Real Property by Gannett or the Company from another Person;
(viii) any lease of Equipment or Real Property or license with respect
to Intellectual Property (other than licenses granted in connection with the
purchase of equipment or other assets) by Gannett or the Company to another
Person providing for payments to Gannett or the Company in excess of Twenty
Thousand Dollars ($20,000) per year or Fifty Thousand Dollars ($50,000) in the
aggregate over the five (5) year period commencing on the date hereof;
(ix) any joint venture, partnership or similar agreement or contract;
(x) any agreement or contract under which Gannett or the Company has
loaned any money in excess of One Million Dollars ($1,000,000) or issued or
received any note, bond, indenture or other evidence of indebtedness in excess
of One Million Dollars ($1,000,000);
(xi) any agreement or contract under which Gannett or the Company has
directly or indirectly guaranteed Indebtedness in an amount in excess of One
Million Dollars ($1,000,000);
(xii) any agreement or contract under which Gannett or the Company has
directly or indirectly guaranteed liabilities or obligations of others which do
not constitute Indebtedness;
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(xiii) any covenant not to compete or contract or agreement,
understanding, arrangement or any restriction whatsoever limiting in any respect
the ability of the Company to compete in any line of business or with any Person
or in any area; and
(xiv) any agreement or contract between Gannett or the Company and any
officer, director, stockholder or employee of the Business or any of their
family members providing for payments in excess of Five Thousand Dollars
($5,000) (other than agreements covered in clause iv) (or that would have been
covered in clause (iv) but for the monetary limits thereunder) or agreements or
contracts containing terms substantially similar to terms available to employees
generally).
Material Contracts shall not include any and all (w) contracts,
purchase orders, purchase commitments, leases and agreements entered into in the
ordinary course of business and relating to the Company (other than those
described in clauses (v), (vii), (viii) or (ix) above) that (A) are terminable
at will without payment of premium or penalty by the Company or (B) are
terminable on not more than sixty (60) days' written notice without payment of
premium or penalty and do not involve the obligation of the Company to make
payments in excess of Ten Thousand Dollars ($10,000) during the sixty (60) day
period commencing on the Closing; (x) contracts with respect to time sales (or
other promotion or sponsorship sales) to advertisers or advertising agencies
(including, without limitation, "trade" or "barter" agreements), sales agency or
advertising representation contracts, and barter obligations or commitments to
suppliers of programming; and (y) contracts with respect to the sale of
production time and/or production services relating to advertising or with
respect to other services.
Net Financial Assets means the result of (i) the aggregate amount of
current assets of the Business to be assigned to Purchaser under this Agreement,
excluding for purposes of this calculation, the current portion of rights under
Program Contracts (except as provided otherwise herein), less (ii) the aggregate
amount of current liabilities of the Business to be assumed by Purchaser under
this Agreement, excluding for purposes of this calculation the current portion
of obligations under Program Contracts (except as provided otherwise herein),
less (iii) the aggregate amount of the Company's liability for supplemental
retirement and deferred compensation under the Employee Benefit Plans relating
to the Business Employees set forth in Section 9 of the Disclosure Schedule to
the extent not paid by Gannett prior to the Transfer Date and excluding the
current portion of such liability, if any, to the extent such portion is
included as a current liability in clause (ii), in each case as of the relevant
date of calculation and calculated (except as otherwise provided in Section 9 of
the Disclosure Schedule) in conformity with GAAP. Net Financial Assets expressly
shall not include, as either assets or liabilities, the rights and obligations
under Program Contracts; provided, however,
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that notwithstanding any prior practice or lack thereof relating thereto, (x)
any programming downpayments made in advance of customary payment terms, to the
extent not amortized as of the relevant date of calculation as more fully
described in the example set forth in Section 9 of the Disclosure Schedule of
the Gannett Purchase Agreement, shall be expressly included in the current
assets, (y) any regularly scheduled payments due and unpaid as of the day
immediately preceding the Transfer Date under Program Contracts in accordance
with their terms as in effect on the date hereof (with respect to Program
Contracts existing on the date hereof) or on the date originally entered into
(with respect to Program Contracts entered into after the date hereof) shall be
expressly included in the current liabilities and (z) any prepayments of
regularly scheduled amounts due on or after the Transfer Date, but made prior to
the Transfer Date under Program Contracts shall be expressly included in the
current assets. Without limiting the generality of the foregoing and subject to
the immediately preceding sentence, for purposes of determining the amount of
Net Financial Assets, all revenues and all expenses arising from the operation
of the Stations, including, without limitation, tower rental, business and
license fees, utility charges, real and personal property taxes and assessments
levied against the Assets, property and equipment rentals, applicable copyright
or other fees, sales and service charges, Taxes (except for Taxes arising from
the transfer of the Assets under this Agreement which shall be apportioned
between Purchaser and the Company pursuant to Section 10.10 hereof), employee
compensation, including wages, salaries, commissions, music license fees and
similar prepaid and deferred items, shall be prorated as of the relevant date of
calculation in accordance with GAAP.
Net Proceeds has the meaning set forth in Section 8.4 hereof.
Non-License Assets means the Assets, other than the License Assets.
Non-License Transfer has the meaning set forth in Section 1.4(a).
Non-License Transfer Date has the meaning set forth in Section 1.4(a).
Notice of Claim has the meaning set forth in Section 8.5 hereof.
Permits has the meaning set forth in Section 3.11(a) hereof.
Permitted Exceptions means each of the following:
(i) liens for taxes, assessments and governmental charges or levies not
yet due and payable or the validity of which is being contested in good faith by
appropriate proceedings;
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(ii) Encumbrances imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar liens, arising in
the ordinary course of business;
(iii) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations;
(iv) survey exceptions, rights of way, easements, reciprocal easement
agreements and other Encumbrances on title to real property set forth in Section
1.1(d) of the Disclosure Schedule or that do not, individually or in the
aggregate, materially adversely affect the use of such property in the conduct
of the Company's business as it is being conducted prior to the Transfer Date;
(v) zoning laws and other land use restrictions that do not in any
material respect (a) detract from or impair the value or the use of the property
subject thereto, or (b) impair the operation of the Stations as it is being
conducted prior to the Closing in accordance with the provisions of the Gannett
Purchase Agreement;
(vi) security interests in favor of suppliers of goods for which
payment has not been made in the ordinary course of business consistent with
past practice;
(vii) Encumbrances on the interests of the lessors of properties used
by the Stations in which the Company or Gannett holds a leasehold interest; and
(viii) any and all other Encumbrances that do not materially detract
from or materially impair the value or the use of the property subject thereto
for the purposes currently utilized in the operation of the Stations.
Person means any individual, partnership, firm, corporation, limited
liability company, association, trust, unincorporated organization or other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Post-Closing Agreements means those covenants and agreements required
by this Agreement to be performed after the Non-License Transfer or the Closing,
as applicable.
Program Contracts has the meaning set forth in Section 1.1(f) hereof.
Purchase Price has the meaning set forth in Section 2.2(a).
Purchaser has the meaning specified in the introductory paragraph to
this Agreement.
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Purchaser Indemnified Parties has the meaning set forth in Section 8.1
hereof.
Purchaser Permitted Assignee has the meaning set forth in Section
10.5(b) hereof.
Real Property means all real property of every kind and description and
related mineral rights owned by the Company or acquired by the Company from
Gannett pursuant to the Gannett Purchase Agreement and used in connection with
the Business, together with all buildings and other structures, towers,
antennae, facilities or improvements currently or hereafter located thereon, all
fixtures, systems, equipment and items of personal property of the Company or
acquired by the Company from Gannett pursuant to the Gannett Purchase Agreement
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing, including, without limitation, the
owned property set forth in Section 1.1(d) of the Disclosure Schedule.
Reimbursements has the meaning set forth in Section 8.4 hereof.
Release means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like
into or upon any land or water or air or otherwise entering into the
environment.
Stations shall have the meaning set forth in the Recitals.
Subsidiary of any Person means (i) any corporation more than fifty
percent (50%) of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
is owned by such Person directly or indirectly, through Subsidiaries and (ii)
any partnership, limited partnership, limited liability company, associates,
joint venture or other entity in which such Person directly or indirectly
through Subsidiaries has more than a fifty percent (50%) equity interest.
Tax or Taxes means any and all taxes, fees, withholdings, levies,
duties, tariffs, imposts, and other charges of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth, taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added or gains taxes,
license, registration and documentation fees, and customs duties, tariffs and
similar charges.
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Tax Benefit has the meaning set forth in Section 8.4 hereof.
Tax Return means any report, return, document, declaration or other
information or filing required to be supplied to any Tax authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
Termination Date has the meaning set forth in Section 10.1(a)(iv)
hereof.
Time Brokerage Agreement has the meaning set forth in Section
1.5(a)(ix).
Transaction Documents mean this Agreement; the Bill of Sale, Assignment
and Assumption Agreement; the Assignment of FCC Licenses; the Time Brokerage
Agreement; and the Deposit Escrow Agreement.
Transfer Date means the earlier of the Non-License Transfer and the
Closing Date.
STC Scheduled Severance Agreements has the meaning set forth in Section
5.9.
STC Severance Payment has the meaning set forth in Section 5.9.
Unaudited Financial Statements has the meaning set forth in Section
3.5(a) hereof.
WARN has the meaning set forth in Section 5.2(h).
ARTICLE 10. MISCELLANEOUS PROVISIONS.
10.1 TERMINATION RIGHTS.
(a) This Agreement may be terminated:
(i) by mutual consent of the parties; (ii) by
Purchaser by written notice of termination delivered to the Company pursuant to
Section 1.6 prior to the Diligence Termination Deadline;
(iii) by the Company by written notice of termination
delivered to Purchaser prior to the Diligence Termination Deadline, if the
parties
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hereto cannot agree on the forms of news share agreement as provided for in
Section 5.13.
(iv) by either the Company or Purchaser, provided
such party is not then in material default hereunder, upon written notice to the
other party, if the Transfer Date has not occurred on or before the date that is
one (1) year after the date of this Agreement (the "TERMINATION DATE");
(v) by either the Company or Purchaser, upon written
notice to the other party, if any Governmental Authority shall have issued a
statute, rule, regulation, order, decree or injunction or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Closing
hereunder or the closing under the Gannett Purchase Agreement and such statute,
rule, regulation, order, decree or injunction or other action shall have become
final and nonappealable, provided that this clause (v) will not be applicable to
actions of the FCC subject to clause (vi) below;
(vi) by either the Company or Purchaser, upon written
notice to the other party, if (i) the FCC, or the Chief, Mass Media Bureau of
the FCC, acting under delegated authority, shall have denied the application for
assignment of the Gannett FCC Licenses to the Company, (ii) the FCC, or the
Chief, Mass Media Bureau of the FCC, acting under delegated authority, shall
have denied the application for assignment of the FCC Licenses to Purchaser,
(iii) the parties' request for administrative or judicial review, or the FCC's
administrative review sua sponte, shall not have been disposed of favorably to
the parties and (iv) the parties have no further relief available to them;
(vii) by Purchaser, by written notice to the Company,
if there has been a material breach by the Company of any representation,
warranty, covenant or agreement set forth in this Agreement such that the
conditions precedent set forth in Section 6.1 or 6.2 hereof would not be
satisfied, which breach has not been cured within twenty (20) Business Days
following receipt by the Company of written notice of such breach from
Purchaser;
(viii) by the Company by written notice to Purchaser
if there has been a material breach by Purchaser of any representation,
warranty, covenant or agreement set forth in this Agreement such that the
conditions precedent set forth in Section 7.1 or 7.2 hereof would not be
satisfied, which breach has not been cured within twenty (20) Business Days
following receipt by Purchaser of written notice of such breach from the
Company;
(ix) by Purchaser by written notice to the Company,
if the FCC has revoked the Company's or Gannett's FCC License for the Stations;
or
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(x) automatically without further action by the
parties upon the termination of the Gannett Purchase Agreement in accordance
with its terms.
(b) If this Agreement is terminated pursuant to Section
10.1(a)(i), (iv), (v), (vi), (vii), (ix) or (x) hereof, Purchaser shall receive
the immediate return of the Letter of Credit.
(c) If this Agreement is terminated pursuant to Section
10.1(a)(i), (ii), (iii), (iv), (v), (vi), (vii), (ix) or (x) hereof this
Agreement shall thereupon become void and of no further effect whatsoever, and
the parties shall be released and discharged of all obligations under this
Agreement, except (i) to the extent of a party's liability for willful material
breaches of this Agreement prior to the time of such termination, and (ii) the
obligations of each party for its own expenses incurred in connection with the
transactions contemplated by this Agreement as provided herein.
(d) If this Agreement is terminated pursuant to Section
10.1(a)(viii) hereof, the Company's sole and exclusive remedy under this
Agreement shall be to receive the Escrow Deposit by drawing down on the Letter
of Credit (without setoff deduction or counterclaim) as liquidated damages, and
upon such payment, Purchaser shall be discharged from all further liability
under this Agreement.
10.2 LITIGATION COSTS.
If any litigation with respect to the obligations of the
parties under this Agreement results in a final nonappealable order of a court
of competent jurisdiction that results in a final disposition of such
litigation, the prevailing party, as determined by the court ordering such
disposition, shall be entitled to reasonable attorneys' fees as shall be
determined by such court. Contingent or other percentage compensation
arrangements shall not be considered reasonable attorneys' fees.
10.3 EXPENSES.
Except as otherwise specifically provided in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Non-License Transfer or
the Closing shall have occurred, provided that the Company and Purchaser shall
each be responsible and pay fifty percent (50%) of the HSR Act filing fee
(unless this Agreement is terminated by Purchaser prior to the Diligence
Termination Deadline whereupon the Company shall be responsible for the entire
HSR Act filing
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fee) and the filing fees payable to the FCC in connection with the filing of the
application for assignment of the FCC Licenses.
10.4 NOTICES.
Any notice, demand, claim, notice of claim, request or
communication required or permitted to be given under the provisions of this
Agreement shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered in person, (ii) on the next Business Day after the
date of mailing if mailed by registered or certified mail, postage prepaid and
return receipt requested, (iii) on the next Business Day after the date of
delivery to a national overnight courier service, or (iv) upon transmission by
facsimile (if such transmission is confirmed by the answerback of the facsimile
machine of the addressee) if delivered through such services to the following
addresses, or to such other address as any party may request by notifying in
writing all of the other parties to this Agreement in accordance with this
Section 10.4.
If to Purchaser:
STC Broadcasting, Inc.
3839 4th Street North
Suite 420
St. Petersburg, Florida 33703
Attn: David Fitz
Fax: (727) 821-8092
with copies to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attn: Lawrence D. Stuart, Jr., Esq.
Fax: (214) 740-7355
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and
Hogan & Hartson L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, Virginia 22102
Attn: Richard T. Horan, Jr., Esq.
Fax: (703) 610-6200
If to Company:
Sinclair Communications, Inc.
2000 West 41st Street
Baltimore, Maryland 21211-1420
Attn: President
Fax: (410) 467-5043
with copy to:
Sinclair Communications, Inc.
2000 West 41st Street
Baltimore, Maryland 21211-1420
Attn: General Counsel
Fax: (410) 662-4707
and
Thomas & Libowitz, P.A.
100 Light Street
Suite 1100
Baltimore, Maryland 21202-1053
Attn: Steven A. Thomas, Esq.
Fax: (410) 752-2046
Any such notice shall be deemed to have been received on the
date of personal delivery, the date set forth on the Postal Service return
receipt, or the date of delivery shown on the records of the overnight courier,
as applicable.
10.5 BENEFIT AND ASSIGNMENT.
(a) The Company shall not assign this Agreement, in whole or
in part, whether by operation of law or otherwise, without the prior written
consent of
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Purchaser and any purported assignment contrary to the terms hereof shall be
null, void and of no force and effect; provided, however, the Company shall be
entitled, without the consent of Purchaser, to assign the Company's rights
hereunder to any direct or indirect wholly-owned subsidiaries of the Company to
which the Company shall have assigned the rights of the Company to the Assets of
the Stations under the Gannett Purchase Agreement in accordance with the terms
of the Gannett Purchase Agreement (each a "COMPANY PERMITTED ASSIGNEE");
provided, that the Company gives Purchaser written notice thereof and any such
Company Permitted Assignee shall be responsible for all representations,
covenants and agreements of the Company hereunder as if such Company Permitted
Assignee was a party hereto, and any such assignment shall not relieve the
Company of any of its Liabilities hereunder (including, without limitation, any
obligation pursuant to Article 8 hereof).
(b) Purchaser shall not assign this Agreement, in whole or in
part, whether by operation of law or otherwise, without the prior written
consent of the Company and any purported assignment contrary to the terms hereof
shall be null, void and of no force and effect; provided, however, Purchaser
shall be entitled, without the consent of the Company, to assign Purchaser's
rights and interests hereunder (in whole or in part as to any Station) (i) prior
to the Transfer Date, to any Affiliate of Purchaser (each a "PURCHASER PERMITTED
ASSIGNEE"); provided, that Purchaser gives the Company written notice thereof
and such Purchaser Permitted Assignee shall be responsible for all
representations, covenants and agreements of Purchaser hereunder as if such
assignee was a party hereto, and any such assignment shall not relieve Purchaser
of any of its Liabilities hereunder (including, without limitation, any
obligation pursuant to Article 8 hereof), and (ii) from and after the Transfer
Date, to any Person.
(c) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns as
permitted hereunder. Except as set forth in Section 8.7, no Person, other than
the parties hereto and their respective successors and assigns as permitted
hereunder, is or shall be entitled to bring any action to enforce any provision
of this Agreement against any of the parties hereto. Except as set forth in
Section 8.7, the covenants and agreements set forth in this Agreement shall be
solely for the benefit of, and shall be enforceable only by, the parties hereto
or their respective successors and assigns as permitted hereunder.
10.6 WAIVER.
Any party to this Agreement may (a) extend the time for the
performance of any of the obligations or other acts of any other party, (b)
waive any inaccuracies in the representations and warranties of any other party
contained
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herein or in any document delivered by any other party pursuant hereto or (c)
waive compliance with any of the agreements or conditions of any other party
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby. Any waiver
of any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any
other term or condition, of this Agreement. The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any such rights.
10.7 SEVERABILITY.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any Law or public policy, all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
10.8 AMENDMENT.
This Agreement may not be amended or modified except (a) by an
instrument in writing signed by, or on behalf of, the Company and Purchaser or
(b) by a waiver in accordance with Section 10.6 hereof.
10.9 EFFECT AND CONSTRUCTION OF THIS AGREEMENT.
This Agreement embodies the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior agreements, arrangements and understandings, whether written or oral,
relating to matters provided for herein. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual agreement, and this Agreement shall not be deemed to have been prepared
by any single party hereto. Disclosure of any fact or item in the Disclosure
Schedule referenced by a particular paragraph or section in this Agreement
shall, should the existence of the fact or item or its contents be relevant to
any other paragraph or section, be deemed to be disclosed with respect to that
other paragraph or section whether or not a specific cross reference appears, if
the disclosure in respect of the one paragraph or section is reasonably
sufficient to inform the reader of the information required to be disclosed in
respect such other paragraph or section.
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Disclosure of any fact or item in the Disclosure Schedule shall not necessarily
mean that such item or fact, individually or in the aggregate, is material to
the business, results of operations or financial condition of the Stations. Time
shall be of the essence in enforcing and applying the covenants and conditions
set forth in this Agreement. The headings of the sections and subsections of
this Agreement are inserted as a matter of convenience and for reference
purposes only and in no respect define, limit or describe the scope of this
Agreement or the intent of any section or subsection. This Agreement may be
executed in one or more counterparts and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement. This Agreement and the rights and duties of the parties hereunder
shall be governed by, and construed in accordance with, the laws of the State of
New York, without giving effect to the conflicts of law principles thereof
(other than Section 5-1401 of the New York General Obligations Law).
10.10 TRANSFER AND CONVEYANCE TAXES.
Purchaser and the Company shall each be liable for and shall
pay one-half of all applicable sales, transfer, recording, deed, stamp and other
similar non-income taxes, imposed in connection with transfers and conveyances
of the Assets, including, without limitation, any real property transfer or
gains taxes (if any), resulting from the consummation of the transactions
contemplated by this Agreement.
10.11 SPECIFIC PERFORMANCE.
Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement
in any action instituted in any state or federal court having jurisdiction
thereover.
10.12 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The respective representations, warranties, covenants and
agreements of the Company and Purchaser contained herein or in any certificate
and any and all covenants and agreements herein or therein shall survive the
Non-License Transfer Date or the Closing Date, as applicable, and shall remain
in full force and effect to the following extent: (a) representations and
warranties with respect to
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the Non-License Assets shall survive for a period of twelve (12) months after
the Non-License Transfer Date; (b) representations and warranties with respect
to the License Assets shall survive for a period of twelve (12) months after the
Closing Date; (c) the covenants and agreements with respect to the Non-License
Assets which by their terms survive the Non-License Transfer Date shall continue
in full force and effect until fully discharged; (d) the covenants and
agreements with respect to the License Assets which by their terms survive the
Closing Date shall continue in full force and effect until fully discharged; (e)
the Company's obligations with respect to all obligations and liabilities not
assumed by Purchaser shall survive until such obligations and liabilities have
been paid, performed or discharged in full; (f) Purchaser's obligations with
respect to all obligations and liabilities assumed by Purchaser hereunder shall
survive until such obligations and liabilities have been paid, performed or
discharged in full; (g) the covenants and agreements in Article 8 shall continue
in full force and effect until fully discharged; and (h) any representation,
warranty, covenant or agreement that is the subject of a claim which is asserted
prior to the expiration of the survival period set forth in this Section 10.12,
shall survive with respect to such claim or dispute until the final resolution
thereof; provided, however, that unless Purchaser shall notify the Company of
any Claim or Damages at least ten (10) days prior to the expiration of the
survival period set forth in clause (a) or (b) above, the Company shall have no
obligation to indemnify Purchaser under Section 8.1(a) with respect to such
Claim or Damages.
ARTICLE 11. NO PERSONAL LIABILITY FOR REPRESENTATIVES, STOCKHOLDERS, DIRECTORS
OR OFFICERS.
(a) Purchaser understands, acknowledges and agrees that the directors
and officers and consultants of the Company and Gannett and the trustees under
the Employee Benefit Plans have performed, or may perform, certain acts required
or permitted under this Agreement on behalf of the Company or Gannett to
facilitate the transactions among the parties to this Agreement contemplated
herein. Notwithstanding anything to the contrary contained herein, no
stockholder, director or officer of the Company or Gannett, any such consultant,
or any such trustee (or any Affiliate of the foregoing) shall, under any
circumstances, have, and the Purchaser hereby absolves all such Persons from,
any personal liability to the Purchaser (and each of their Affiliates) for such
acts to the extent deemed to be actions by or on behalf of the Company or
Gannett.
(b) The Company understands, acknowledges and agrees that the directors
and officers and consultants of Purchaser have performed, or may perform,
certain acts required or permitted under this Agreement on behalf of Purchaser
to facilitate the transactions among the parties to this Agreement contemplated
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herein. Notwithstanding anything to the contrary contained herein, no
stockholder, director or officer of Purchaser or any such consultant (or any
Affiliate of the foregoing) shall, under any circumstances, have, and the
Company hereby absolves all such Persons from, any personal liability to the
Company (and each of their Affiliates) for such acts to the extent deemed to be
actions by or on behalf of Purchaser.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the day and year first above written.
SINCLAIR COMMUNICATIONS, INC.
By: /s/ David B. Amy
-------------------------------
Name: David B. Amy
-----------------------------
Title: Secretary
----------------------------
STC BROADCASTING, INC.
By: /s/ David A. Fitz
-------------------------------
Name: David A. Fitz
-----------------------------
Title: Chief Financial Officer
----------------------------
<PAGE>
EXHIBITS
Exhibit A Bill of Sale, Assignment and Assumption Agreement
Exhibit B Assignment of FCC Licenses
Exhibit C Time Brokerage Agreement
Exhibit D Deposit Escrow Agreement
Exhibit E FCC Opinion
<PAGE>
DISCLOSURE SCHEDULE
Section 1.1(d) Real Property
Section 1.2 Excluded Assets
Section 1.4 License Assets
Section 2.5 Allocation of Base Purchase Price
Section 3.3. Absence of Conflicting Agreements or Required Consents
Section 3.5. Financial Statements
Section 3.6. Title to Assets; Related Matters
Section 3.7. Absence of Certain Changes, Events and Conditions
Section 3.8. Litigation
Section 3.9. Insurance
Section 3.10. Material Contracts
Section 3.11 Permits
Section 3.12 FCC Licenses
Section 3.13 Environmental Matters
Section 3.14 Employee Benefits
Section 3.14.1 Non-Corporate Employees (other than division heads)
Section 3.14.2 Severance and Retention Agreements - Division Heads
Section 3.15 Labor Relations
Section 3.16 Intellectual Property
Section 3.17 Taxes
Section 3.19 Affiliate Transactions
Section 4.4 Purchaser Litigation
Section 4.7 Purchaser's Qualification
Section 5.1 Conduct of Business Prior to Closing
Section 5.2 Post-Closing Covenants and Agreements
Section 5.13 News Share Arrangements
Section 6.4 Material Consents Required as a Condition of the Purchaser's
Obligation to Close
Section 7.4 Material Consents Required as a Condition of the Company's
Obligation to Close
<PAGE>
EXHIBIT C
FORM OF TIME BROKERAGE AGREEMENT
THIS TIME BROKERAGE AGREEMENT (this "Agreement") is entered into as of the
___ day of , 1999, by and among [SINCLAIR COMMUNICATIONS, INC., a Maryland
corporation] ("Owner"), and STC BROADCASTING, INC. a Delaware corporation
("Programmer").
RECITALS:
WHEREAS, Owner is the licensee, pursuant to authorizations issued by the
Federal Communications Commission ("FCC"), of television broadcast station
WICS-TV, Channel 20, Springfield, Illinois ("WICS"), television broadcast
station WICD-TV, Channel 15, Champaign, Illinois ("WICD") and television
broadcast station KGAN-TV, Channel 2, Cedar Rapids, Iowa ("KGAN") (each, a
"Station" and collectively, the "Stations");
WHEREAS, Programmer and Owner entered into a Purchase Agreement dated
as of March 5, 1999 (the "Purchase Agreement"), pursuant to which Owner has
agreed to sell and Programmer has agreed to acquire substantially all of the
assets of the Stations (the "Assets"), including, without limitation, the FCC
licenses held by Owner in connection with its ownership and operation of the
Stations;
WHEREAS, Programmer is experienced in broadcast ownership and operation;
WHEREAS, during the term of this Agreement, Owner wishes to retain
Programmer to provide programming and related services for the Stations, all in
conformity with Station policies and procedures, FCC rules and policies for time
brokerage arrangements, and the provisions hereof;
WHEREAS, Programmer agrees to use the Stations to broadcast such
programming of its selection that is in conformity with all rules, regulations
and policies of the FCC, subject to Owner's full authority to manage and control
the operation of the Stations;
WHEREAS, Programmer and Owner agree to cooperate to make this Agreement
work to the benefit of the public and both parties and as contemplated by the
terms set forth herein; and
WHEREAS, all capitalized terms used herein but not otherwise defined
have the meaning ascribed to such terms in the Purchase Agreement.
<PAGE>
AGREEMENT:
NOW, THEREFORE, in consideration of the above recitals, and mutual promises
and covenants contained herein, the parties intending to be legally bound, agree
as follows:
SECTION 1 USE OF STATION AIR TIME.
1.1 Scope. During the term of this Agreement, Owner shall make available to
Programmer broadcast time on the Stations as set forth in this Agreement.
Programmer shall deliver such programming, at its expense, to the Stations'
transmitters or other authorized remote control points designated by Owner.
Programmer shall provide such programming of Programmer's selection complete
with commercial matter, news, public service announcements and other suitable
programming to the Stations for at least one hundred sixty-six (166) hours per
week. Except as otherwise provided in this Agreement, Owner agrees to broadcast
such programming in its entirety, including commercials at the times specified,
on the facilities of the Stations without interruption, deletion, or addition of
any kind. Owner may use such time as Owner may require up to two (2) hours per
week, for the broadcast of its own regularly-scheduled news, public affairs, and
other nonentertainment programming on the Stations, to be scheduled at mutually
agreeable times. Owner may elect to set aside additional air time (up to two (2)
hours per week) (the "Additional Time") to be scheduled at a mutually agreeable
time, for the broadcast of specific non-entertainment programming on issues of
importance to the local community. Owner shall provide Programmer with as much
notice as possible, but in no event less than three (3) weeks' notice, of its
intention to set aside such Additional Time. All program time not reserved by or
designated for Owner shall be available for use by Programmer. Owner agrees that
Programmer may sell, or engage a third party to sell, commercial time during the
programming provided by Programmer to the Stations for Programmer's account.
1.2 Term. This Agreement shall commence on the date of the Non-License
Transfer as contemplated in the Purchase Agreement (the "Effective Date"), and
end on the Closing Date (the "Term"), unless terminated earlier pursuant to any
of the provisions of Section 5 hereof.
SECTION 2 STATION OPERATIONS.
2.1 Owner Control Over Station Operations.
(a) Owner shall retain full authority, power and control over the
management and operations of the Stations during the Term, including
specifically, control over the personnel, programming and finances of the
Stations.
(b) Subject to Owner's full authority, power and control over the
management and operations of the Stations, Programmer agrees to provide
programming and related services to the Stations. Such related services shall
include: (i) the sale of advertising time on the Stations; (ii) coordination of
traffic and billing functions; (iii) maintenance, repair and replacement of the
Stations' transmitting or studio equipment and the other Assets, and (iv) other
administrative or operational functions as Owner and Programmer may agree to,
consistent with
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FCC rules and regulations relating to time brokerage agreements. Programmer
shall provide and perform Programmer's obligations hereunder, including all
related services, diligently and in a manner consistent with broadcast industry
practices.
(c) When on the Owner's premises, all employees of Programmer used to
provide Programmer's programming or other services to the Stations shall be
subject to the overall supervision of Owner's management personnel.
2.2 Station Expenses. During the Term, Programmer shall be responsible for
and shall reimburse Owner within fifteen (15) days following receipt of a
request for reimbursement by Owner for any direct out-of-pocket costs incurred
by Owner as necessary to preserve and maintain the FCC Licenses and other Assets
of the Stations then owned by Owner (including the expenses of Owner as a result
of Section 2.1(c) above).
2.3 Consideration.
(a) Monthly Fee. As consideration for the air time made available hereunder
and the other agreements of the parties made hereunder, Programmer agrees to pay
Owner the payments set forth in Attachment 2.3 hereto. Notwithstanding any
provision of this Agreement to the contrary, in the event of a preemption by
Owner of Programmer's programming under Sections 1.1 (with respect to the
Additional Time only), 3.2, 4.1 or 4.2 of this Agreement, the Monthly Payment as
defined in Attachment 2.3 shall be reduced by an amount equal to (a) the amount
of the Monthly Payment multiplied by (b) a fraction the numerator of which is
the number of minutes of Programmer's programming preempted by Owner during such
month and the denominator of which is one hundred sixty-six (166).
(b) Expense Reimbursement. On the fifteenth (15th) day of each month during
the Term, Programmer shall reimburse Owner for the salaries of the two employees
retained by Owner at each Station.
SECTION 3 STATION PUBLIC INTEREST OBLIGATIONS.
3.1 Owner Authority. Owner shall be responsible for the Stations'
compliance with all applicable provisions of the Communications Act of 1934, as
amended (the "Act"), the rules, regulations and policies of the FCC and all
other applicable laws. Programmer shall cooperate with Owner, at Programmer's
expense, in taking such actions as Owner may reasonably request to assist Owner
in maintaining the Stations' compliance with the Act, rules, regulations and
policies of the FCC and all other applicable laws. Notwithstanding any other
provision of this Agreement, Programmer recognizes that Owner has certain
obligations to operate the Stations in the public interest, and to broadcast
programming to meet the needs and interests of the Stations' communities of
license and service area. From time to time Owner shall air, or if Owner
requests, Programmer shall air, programming on issues of importance to the local
community. Nothing in this Agreement shall abrogate or limit the unrestricted
authority of Owner to discharge Owner's obligations to the public and to comply
with the Act and the rules, regulations and policies of the FCC, and Owner shall
have no liability or obligation to Programmer, for
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taking any action that Owner deems necessary or appropriate to discharge such
obligations or comply with such laws, rules, regulations or policies.
3.2 Additional Owner Obligations. Although both Owner and Programmer shall
cooperate in the broadcast of emergency information over the Stations, Owner
shall retain the right, without any liability or obligation to Programmer, to
interrupt Programmer's programming in case of an emergency or for programming
which, in the good faith judgment of Owner, is of greater local or national
public importance. In all such cases, Owner shall use Owner's commercially
reasonable efforts to provide Programmer notice of Owner's intention to
interrupt Programmer's programming. Owner shall coordinate with Programmer each
Station's hourly station identification and any other announcements required to
be aired by FCC rules or regulations. Owner shall (a) continue to maintain and
staff a main studio in compliance with the rules of the FCC, (b) maintain each
Station's local public inspection file within each Station's community of
license or at each Station's main studio, and (c) prepare and place in such
inspection file in a timely manner all material required by Section 73.3526 of
the FCC's Rules, including without limitation each Station's quarterly issues
and program lists and FCC Form 398. Programmer shall, upon request by Owner,
promptly provide Owner with such information concerning Programmer's programs
and advertising as is necessary to assist Owner in the preparation of such
information or to enable Owner to verify independently the Stations' compliance
with any other laws, rules, regulations or policies applicable to the Stations'
operation. Owner shall also maintain the station logs, receive and respond to
telephone inquiries, and control and oversee any remote control point for the
Stations.
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SECTION 4 STATION PROGRAMMING & OPERATIONAL POLICIES.
4.1 Broadcast Station Programming Policy Statement. Owner has adopted a
Broadcast Station Programming Policy Statement (the "Policy Statement"), a copy
of which appears as Attachment 4.1 hereto and which may be amended from time to
time in order to comply with the rules and regulations of the FCC by Owner upon
written notice to Programmer. Programmer agrees and covenants to comply in all
material respects with the Policy Statement, with all rules and regulations of
the FCC, and with all changes subsequently made by Owner or the FCC. Programmer
shall furnish or cause to be furnished the artistic personnel and material for
the programs as provided by this Agreement and all programs shall be prepared
and presented in conformity with the rules, regulations and policies of the FCC
and with the Policy Statement. All advertising spots and promotional material or
announcements shall comply with all applicable federal, state and local
regulations and policies and the Policy Statement, and shall be produced in
accordance with quality standards established by Programmer. If Owner determines
that a program, commercial announcement or promotional material supplied by
Programmer is for any reason, in Owner's reasonable discretion, unsatisfactory
or unsuitable or contrary to the public interest, or does not comply with the
Policy Statement Owner may, upon written notice to Programmer (to the extent
time permits such notice), and without any liability or obligation to Programmer
suspend or cancel such program, commercial announcement or promotional material
and substitute its own programming or, if Owner requests, Programmer shall
provide promptly suitable programming, commercial announcement or other
announcement or promotional material.
4.2 Owner Control of Station Programming. Notwithstanding any contrary
provision contained in this Agreement, and consistent with Owner's obligations
pursuant to the Act and the rules and regulations of the FCC, Owner shall have
the right, without any liability or obligation to Programmer to delete any
material contained in any programming or commercial matter furnished by
Programmer for broadcast over the Stations that Owner determines is unsuitable
for broadcast or the broadcast of which Owner believes would be contrary to the
public interest. Owner shall have the right, without any liability or obligation
to Programmer to broadcast Owner's own programming in place of such deleted
material.
4.3 [INTENTIONALLY OMITTED].
4.4 Political Advertising. Owner shall oversee and shall take ultimate
responsibility for the Stations' compliance with the political broadcasting
rules of the FCC and Sections 312 and 315 of the Act, including but not limited
to, the provision of equal opportunities, compliance with lowest unit charge
requirements, and the provision of reasonable access to federal political
candidates. Programmer shall cooperate with Owner, at Programmer's expense, to
assist Owner in complying with the political broadcasting rules of the FCC.
Programmer shall supply such information promptly to Owner as may be necessary
to comply with the lowest unit charge and other applicable political broadcast
requirements of federal law. To the extent that Owner deems necessary or
appropriate, Programmer shall release advertising availabilities to Owner to
permit Owner to comply with the political broadcasting rules of the FCC and
Sections 312 and 315 of the Act. Programmer shall be entitled to all revenues
received by Owner for such advertising.
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4.5 Advertising of Credit Terms. To the extent prohibited by the rules of
the Federal Trade Commission, no advertising of credit terms shall be made over
broadcast material supplied hereunder by Programmer beyond mention of the fact
that credit terms are available.
4.6 Payola/Plugola. In order to enable Owner to fulfill Owner's obligations
under Section 317 of the Act, Programmer, in compliance with Section 507 of the
Act, will, in advance of any scheduled broadcast by the Stations, disclose to
Owner any information of which Programmer has knowledge or which has been
disclosed to Programmer as to any money, service, or other valuable
consideration that any person has paid or accepted, or has agreed to pay or to
accept, for the inclusion of any matter as a part of the programming or
commercial matter to be supplied to Owner pursuant to this Agreement. Programmer
will cooperate with Owner, at Programmer's expense, as necessary to ensure
compliance with this provision. Commercial matter with obvious sponsorship
identifications shall not require disclosure in addition to that contained in
the commercial copy.
4.7 Programmer Compliance with Copyright Act. Programmer represents and
warrants that Programmer will have full authority to broadcast the programming
on the Stations; that Programmer shall not broadcast any material in violation
of the Copyright Act; and the performing rights to all music contained in
broadcast material supplied hereunder by Programmer are licensed by BMI, ASCAP,
or SESAC, are in the public domain, are controlled by Programmer, or are cleared
at the source by Programmer.
SECTION 5 TERMINATION.
5.1 Termination by Programmer.
Unless terminated pursuant to the provisions of Section 1.2, this Agreement
may be terminated by Programmer by written notice to Owner, if Programmer is not
then in material default or breach hereof, upon the occurrence of either of the
following:
(a) five (5) days following the date of termination of the Purchase
Agreement; or
(b) Owner is in material breach of Owner's representations or Owner's
material obligations hereunder or under the Purchase Agreement and has failed to
cure such breach within thirty (30) days of written notice from Programmer.
5.2 Termination by Owner. Unless terminated pursuant to the provisions of
Section 1.2, this Agreement may be terminated by Owner by written notice to
Programmer, if Owner is not then in material default or breach hereof, upon the
occurrence of any of the following:
(a) five (5) days following the date of termination of the Purchase
Agreement; or
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(b) Programmer is in material breach of Programmer's representations or
Programmer's material obligations hereunder or under the Purchase Agreement and
has failed to cure such breach within thirty (30) days of notice from Owner.
5.3 Termination. If not otherwise earlier terminated, this Agreement will
terminate, upon the first to occur of any of the following:
(a) this Agreement is declared invalid or illegal in whole or substantial
part by an order or decree of an administrative agency or court of competent
jurisdiction and such order or decree has become final and no longer subject to
further administrative or judicial review, unless as a result of actions taken
by Programmer in violation of the terms hereof;
(b) there has been a material change in FCC rules or policies that would
cause this Agreement to be in violation thereof and such change is in effect and
not the subject of an appeal or further administrative review, provided that in
such event the parties shall first negotiate in good faith and attempt to agree
on an amendment to this Agreement that will provide the parties with a valid,
binding and enforceable agreement that conforms to the new FCC rules, policies
or precedent; or
(c) the mutual, written consent of both parties.
5.4 Severability. The parties hereto intend that the transactions
contemplated hereunder comply in all respects with the Act and all applicable
rules, regulations, and policies of the FCC. If any provision of this Agreement
shall be declared void, illegal, or invalid by any governmental authority with
jurisdiction thereof, the remainder of this Agreement shall remain in full force
and effect without such offending provision so long as such remainder
substantially reflects the original agreement of the parties hereunder.
Furthermore, in such event, the parties shall use their commercially reasonable
efforts to reach agreement promptly on lawful substitute provisions in place of
said offending provision so as to effectuate more closely their intent as
expressed hereunder. If any governmental authority grants to any other entity or
individual rights which are not contained in this Agreement, then the parties
shall use their commercially reasonable efforts to amend this Agreement to
provide the parties hereto such lawful provisions which comport with any rules,
regulations and policies adopted after the date of this Agreement.
5.5 Force Majeure. Any failure or impairment of the Assets or any delay or
interruption in the broadcast of programs, or failure at any time to furnish
facilities, in whole or in part, for broadcast, due to Acts of God, restrictions
by any governmental authority, civil riot, floods or any other similar cause not
reasonably within the control of Owner, shall not constitute a breach of this
Agreement and Owner will not be liable to Programmer for any liability or
obligation with respect thereto.
5.6 Insurance; Risk of Loss.
(a) From the date hereof through the end of the Term, Owner shall maintain
with reputable insurance companies reasonably acceptable to Programmer,
commercially reasonable amounts of insurance as is conventionally carried by
broadcasters operating television
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stations in the area comparable to those of the Stations, including replacement
cost insurance and general liability insurance, with respect to the Assets and
shall cause Programmer to be named as an additional insured on Owner's policies.
The risk of any loss, damage, impairment, confiscation, or condemnation of any
equipment or other personal property owned and used by Owner in the business and
operations of the Stations ("Risk of Loss") shall be borne by Owner at all times
throughout the Term, to the extent of, but solely to the extent of, Owner's
receipt of insurance proceeds in respect thereof and in no event shall Owner
have any liability or obligation to Programmer in respect of any such loss,
damage, impairment, confiscation or condemnation. The Risk of Loss beyond that
specifically borne by the Owner in accordance with the immediately preceding
sentence shall be borne by Programmer. Owner shall use such proceeds of
insurance to repair or replace any such equipment or such other personal
property of Owner to the extent of such proceeds. At Owner's request and subject
to Owner's supervision and direction, Programmer shall effect in a timely
fashion any repairs to or replacement of any of Owner's damaged equipment or
property.
(b) From the date hereof through the end of the Term, Programmer shall
maintain with reputable insurance companies reasonably acceptable to Owner,
insurance in such amounts and with respect to such risks, as reasonably
requested by Owner, including broadcast liability insurance, naming Owner as an
additional insured, and general comprehensive insurance, also naming Owner as an
additional insured, each with a commercially reasonable amount of coverage as is
conventionally carried by broadcasters operating television stations in the area
comparable to those of the Stations. The risk of any loss, damage, impairment,
confiscation, or condemnation of any equipment or other personal property owned
or leased and used by Programmer in the performance of its obligations hereunder
shall be borne by Programmer at all times throughout the Term.
SECTION 6 INDEMNIFICATION.
6.1 Indemnification by Programmer. Programmer shall indemnify and hold
harmless Owner from and against any and all claims, losses, costs, liabilities,
damages, expenses, including any FCC fines or forfeitures (including reasonable
legal fees and other expenses incidental thereto), of every kind, nature and
description (collectively "Damages") arising or resulting from or relating to
(a) Programmer's breach of any representation, covenant, agreement or other
obligation of Programmer contained in this Agreement, (b) any action taken by
Programmer or Programmer's employees and agents with respect to the Stations, or
any failure by Programmer or Programmer's employees and agents to take any
action with respect to the Stations, including, without limitation, Damages
relating to violations of the Act, or any rule, regulation or policy of the FCC,
slander, defamation or other claims relating to programming provided by
Programmer or Programmer's broadcast and sale of advertising time on the
Stations, or (c) the business or operations of the Stations by Programmer
(except where Damages are caused by Owner's negligence, recklessness, willful
misconduct, or a breach of Owner's representations or obligations under this
Agreement or the Purchase Agreement) from and after the date of this Agreement.
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6.2 Indemnification by Owner. Owner shall indemnify and hold harmless
Programmer from and against any and all Damages arising or resulting from or
relating to (a) Owner's breach of any representation, covenant, agreement or
other obligation of Owner contained in this Agreement, (b) any action taken by
Owner or Owner's employees and agents with respect to the Stations, or any
failure by Owner or Owner's employees and agents to take any action with respect
to the Stations, including, without limitation, Damages relating to violations
of the Act, or any rule, regulation or policy of the FCC, slander, defamation or
other claims relating to programming provided by Owner or Owner's broadcast and
sale of advertising time on the Stations, or (c) the business or operations of
the Stations by Owner (except where Damages are caused by Programmer's
negligence, recklessness, willful misconduct, or a breach of Programmer's
representations or obligations under this Agreement or the Purchase Agreement)
from and after the date of this Agreement.
6.3 Indemnification Procedure. Neither Owner nor Programmer shall be
entitled to indemnification pursuant to this Section 6.3 unless (a) such claim
for indemnification is asserted in writing delivered to the other party,
together with a statement as to the factual basis for the claim and the amount
of the claim and (b) such claim, in the aggregate with all other claims made by
such party under this Agreement and the Purchase Agreement, exceeds Two Hundred
Thousand Dollars ($200,000), and then only to the extent of the excess over the
amount of One Hundred Thousand Dollars ($100,000); provided, however, that the
aggregate dollar amount of claims under this Agreement and the Purchase
Agreement shall not exceed Three Million Dollars ($3,000,000). The party making
the claim (the "Claimant") shall make available to the other party (the
"Indemnitor") the information relied upon by the Claimant to substantiate the
claim. The Indemnitor under this Section 6.3 shall have the right to conduct and
control through counsel of such Indemnitor's own choosing the defense of any
third party claim, action or suit (and the Claimant shall cooperate fully with
the Indemnitor), but the Claimant may, at its election, participate in the
defense of any such claim, action or suit at its sole cost and expense; provided
that, if the Indemnitor shall fail to defend any such claim, action or suit,
then the Claimant may defend through counsel of its own choosing such claim,
action or suit, and (so long as it gives the Indemnitor at least fifteen (15)
days' notice of the terms of the proposed settlement thereof and permits the
Indemnitor to then undertake the defense thereof) settle such claim, action or
suit, and to recover from the Indemnitor the amount of such settlement or of any
judgment and the costs and expenses of such defense. The Indemnitor shall not
compromise or settle any third party claim, action or suit without the prior
written consent of the Claimant, which consent will not be unreasonably withheld
or delayed.
6.4 Arbitration. To the fullest extent not prohibited by law, any
controversy, claim or dispute arising out of or relating to this Agreement,
including the determination of the scope or applicability of this Agreement to
arbitrate, shall be settled by final and binding arbitration in accordance with
the rules then in effect of the American Arbitration Association ("AAA"), as
modified or supplemented under this section, and subject to the Federal
Arbitration Act, 9 U.S.C. ss.ss. 1-16. The decision of the arbitrators shall be
final and binding provided that, where a remedy for breach is prescribed
hereunder or limitations on remedies are prescribed, the arbitrators shall be
bound by such restrictions, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
-9-
<PAGE>
If any series of claims arising out of the same or related transactions
shall involve claims which are arbitrable under the preceding paragraph and
claims which are not, the arbitrable claims shall first be finally determined
before suit may be instituted upon the others and the parties will take such
action as may be necessary to toll any statutes of limitations, or defenses
based upon the passage of time, that are applicable to such nonarbitrable claims
during the period in which the arbitrable claims are being determined. In the
event of any controversy, claim or dispute that is subject to arbitration under
this Section 6.4, any party thereto may commence arbitration hereunder by
delivering notice to the other party or parties thereto; provided, in advance of
the commencement of any arbitration each of the parties agrees to participate in
a non-binding mediation effort (not to exceed thirty (30) days) in an attempt to
resolve such controversy, claim or dispute. The arbitration panel shall consist
of three (3) arbitrators, appointed in accordance with the procedures set forth
in this paragraph. Within ten (10) business days of delivery of the notice of
commencement of arbitration referred to above, Owner, on the one hand, and
Programmer, on the other hand, shall each appoint one arbitrator, and the two
arbitrators so appointed shall within ten (10) business days of their
appointment mutually agree upon and appoint one additional arbitrator (or, if
such arbitrators cannot agree on an additional arbitrator, the additional
arbitrator shall be appointed by the AAA as provided under its rules); provided,
that persons eligible to be selected as arbitrators shall be limited to
attorneys at law who (a) are on the AAA's Large, Complex Case Panel, (b) have
practiced law for at least fifteen (15) years as an attorney specializing in
either general commercial litigation or general corporate and commercial
matters, and (c) are experienced in matters involving the broadcasting industry.
The arbitration hearing shall be held in Washington, D.C. and shall
commence no later than thirty (30) business days after the completion of the
selection of the arbitrators. Consistent with the intent of the parties hereto
that the arbitration be conducted as expeditiously as possible, the parties
agree that (a) discovery shall be limited to the production of such documents
and the taking of such depositions as the arbitrators determine are reasonably
necessary to the resolution of the controversy, claim or dispute and (b) the
arbitrators shall limit the presentation of evidence by each side in such
arbitration to not more than ten (10) full days' (equivalent thereof) or such
shorter period as the arbitrators shall determine to be necessary in order to
resolve the controversy, claim or dispute. The arbitrators shall be instructed
to render a decision within ten (10) business days of the close of the
arbitration hearing. If arbitration has not been completed within ninety (90)
days of the commencement of such arbitration, any party to the arbitration may
initiate litigation upon ten (10) days' written notice to the other party(ies);
provided, however, that if one party has requested the other to participate in
an arbitration and the other has failed to participate, the requesting party may
initiate litigation before the expiration of such ninety (90) day period; and
provided further, that if any party to the arbitration fails to meet any of the
time limits set forth in this Section 6.4 or set by the arbitrators in the
arbitration, any other party may provide ten (10) days' written notice of its
intent to institute litigation with respect to the controversy, claim or dispute
without the need to continue or complete the arbitration and without awaiting
the expiration of such ninety (90) day period. The parties hereto further agree
that if any of the rules of the AAA are contrary to or in conflict with any of
the time periods provided for hereunder, or with any other aspect of the matters
set forth in this Section 6.4, that
-10-
<PAGE>
such rules shall be modified in respects necessary to accord with the provisions
of this Section 6.4 (and the arbitrators shall be so instructed by the parties).
The arbitrators shall base their decision on the terms of this Agreement
and applicable law and judicial precedent in the State of New York, and shall
render their decision in writing and include in such decision a statement of the
findings of fact and conclusions of law upon which the decision is based. Each
party agrees to cooperate fully with the arbitrator(s) to resolve any
controversy, claim, or dispute. The arbitrators shall not be empowered to award
punitive damages or damages in excess of actual damages.
6.5 Damages; Specific Performance.
(a) In the event of a material breach by Owner of Owner's obligations
hereunder, Programmer shall be entitled to seek monetary damages against Owner.
The parties recognize, however, that given the unique nature of the Stations and
this Agreement, monetary damages alone will not be adequate to compensate
Programmer for any injury resulting from Owner's breach. Programmer shall
therefore be entitled, as an alternative to the right to seek and collect
monetary damages, to obtain specific performance of the terms of this Agreement.
(b) In the event of a material breach by Programmer of its obligations
hereunder, Owner shall be entitled to seek monetary damages against Programmer.
SECTION 7 REPRESENTATIONS, WARRANTIES, AND COVENANTS.
7.1 Representations, Warranties, and Covenants of Owner. Owner represents,
warrants, and covenants that:
(a) Owner is legally qualified, empowered, and authorized to enter into
this Agreement, and that the execution, delivery and performance hereof shall
not constitute a breach or violation of any agreement, contract or other
obligation to which Owner is subject or by which Owner is bound.
(b) Owner is now, and for so long as this Agreement shall be in effect,
will be the holder of the FCC Licenses necessary for the operation of WICS, WICD
and KGAN as then being operated.
(c) Owner does not know of any current or prospective governmental
investigation having a material adverse effect on the Stations, their properties
or business.
(d) As of this date, Owner does not know of any facts which would cause the
Commission to refuse to renew the FCC Licenses.
(e) Owner shall not take any action or omit to take any action which would
have a materially adverse impact upon Owner, the Assets, the Stations or upon
Owner's ability to perform this Agreement.
-11-
<PAGE>
(f) This Agreement constitutes the legal, valid and binding obligation of
Owner, enforceable in accordance with its terms, except to the extent that the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, or similar law affecting creditors' rights and
remedies generally, and (ii) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
7.2 Representations, Warranties and Covenants of Programmer. Programmer
represents, warrants, and covenants that:
(a) Programmer is legally qualified, empowered, and authorized to enter
into this Agreement, and that the execution, delivery and performance hereof
shall not constitute a breach or violation of any agreement, contract or other
obligation to which Programmer is subject or by which Programmer is bound.
(b) This Agreement constitutes the legal, valid and binding obligation of
Programmer, enforceable in accordance with its terms, except to the extent that
the enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganizations, moratorium or similar laws affecting creditors' rights and
remedies generally, and (ii) general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
SECTION 8: MISCELLANEOUS.
8.1 Assignment. This Agreement shall not be assigned by any party hereto
without the prior written consent of the other party, which consent shall not be
unreasonably withheld, except that Programmer may assign its rights and
interests hereunder to any reputable broadcasting entity provided, that (a)
Programmer gives Owner written notice of any such assignment; (b) such
assignment shall not relieve Programmer of any of its obligations or liabilities
hereunder; and (c) such assignment would not violate any applicable laws, rules,
regulations or policies of any applicable governmental authority. It is
understood and agreed that nothing herein shall be deemed to expand the rights
granted hereunder to any permitted assignee, which rights shall be in
combination with, and not in addition to, the rights of Programmer. This
Agreement shall be binding on the parties' respective heirs and permitted
assigns.
8.2 Entire Agreement; Amendments. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and, except for the Purchase Agreement, and documents delivered pursuant
thereto, supersedes any and all prior agreements, broadcasting commitments, or
any other understandings between Programmer and Owner with respect to such
subject matter. No provision of this Agreement shall be changed or modified, nor
shall this Agreement be discharged in whole or in part, except by an agreement
in writing signed by the party against whom the change, modification, or
discharge is claimed or sought to be enforced, nor shall any waiver of any of
the conditions or provisions of this Agreement be effective and binding unless
such waiver shall be in writing and signed by the party against whom the waiver
is asserted, and no waiver of any provision of this Agreement shall be deemed to
be a waiver of any preceding or succeeding breach of the same or any other
provision.
-12-
<PAGE>
8.3 Further Assurances. Owner and Programmer shall use commercially
reasonable efforts in the performance and fulfillment of the terms and
conditions of this Agreement in effectuating the intent of such parties as
expressed under this Agreement. From time to time, without further
consideration, Owner and Programmer shall execute and deliver such other
documents and take such other actions as either party hereto reasonably may
request to effectuate such intent.
8.4 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each such counterpart
were upon the same instrument.
8.5 Notices. All notices, demands and other communications which may or
are required to be given hereunder or with respect hereto shall be in writing,
shall be delivered personally or sent by nationally recognized overnight
delivery service, charges prepaid, or by registered or certified mail,
return-receipt requested, or by facsimile transmission, and shall be deemed to
have been given or made when personally delivered, the next business day after
delivery to such overnight delivery service, when receipt is confirmed by
facsimile transmission, five (5) days after deposited in the mail, first class
postage prepaid, addressed as follows:
(a) If the notice is to Programmer:
STC Broadcasting, Inc.
3839 4th Street North
Suite 420
St. Petersburg, Florida 33703
Attn: David Fitz
Fax: (727) 821-8092
with copies (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, Virginia 22102
Attn: Richard T. Horan, Jr., Esq.
Fax: (703) 610-6200
and to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attn: Lawrence D. Stuart, Jr.
Fax: (214) 740-7355
-13-
<PAGE>
or to such other address as Programmer may from time
to time designate.
(b) If to Owner:
Sinclair Broadcast Group, Inc.
2000 West 41st Street
Baltimore, Maryland 21211
Attn: David D. Smith, President
Fax: (410) 467-5043
with copies (which shall not constitute notice) to:
Thomas & Libowitz, P.A.
100 Light Street
Suite 1100
Baltimore, Maryland 21202
Attn: Steven A. Thomas, Esq.
Fax: (410) 752-2046
and to:
Sinclair Communications, Inc.
2000 West 41st Street
Baltimore, Maryland 21211
Attn: General Counsel
Fax: (410) 662-4707
or to such other address as Owner may from time to
time designate.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to its choice
of law rules (other than Section 5-1401 of the New York General Obligations
Law).
8.7 Taxes. Owner and Programmer shall each pay its own ad valorem taxes, if
any, which may be assessed on such party's personal property for the periods
that such items are owned by such party.
8.8 No Joint Venture or Partnership. Programmer shall act as an independent
contractor in rendering its services hereunder. Neither party shall have any
power or authority to act for or on behalf of the other or to bind the other in
any manner whatsoever, except as and to the extent expressly provided for in
this Agreement. The parties hereto agree that nothing herein shall constitute a
joint venture or partnership between them.
8.9 Mandatory Carriage/Retransmission Consent. Owner shall consult with
Programmer prior to making any election of mandatory carriage rights or
retransmission consent
-14-
<PAGE>
pursuant to Section 76.64 of the FCC's rules and regulations and the provisions
of the Cable Television Consumer Protection and Competition Act of 1992.
8.10 Digital Spectrum. The FCC has authorized an additional 6 MHZ of
spectrum for digital television service ("DTV Spectrum") to Owner for each of
its Stations. Programmer shall have the right to utilize the Digital Spectrum in
accordance with the rules and regulations of the FCC. In the event that the FCC
assesses Owner with any spectrum fees or other charges for the use of the DTV
Spectrum by Programmer, Programmer agrees to reimburse Owner for such FCC
spectrum fees or other charges.
8.11 Headings. The headings in this Agreement are for convenience only and
will not affect or control the meaning or construction of the provisions of this
Agreement.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Time Brokerage
Agreement as of the date first above written.
PROGRAMMER:
STC BROADCASTING, INC.
By:_____________________________
Name:___________________________
Title:__________________________
OWNER:
[SINCLAIR COMMUNICATIONS, INC.]
By:_____________________________
Name:___________________________
Title:__________________________
EXHIBIT 12
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996, 1997, AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Income (loss) before provision (benefit)
for income taxes and extraordinary
items ....................................... $ (3,387) $ 10,188 $ 8,067 11,488 39,841
Fixed charges(a) ............................. 25,418 39,253 84,314 98,393 138,952
-------- -------- -------- ------ -------
Earnings available for fixed charges ......... 22,031 49,441 92,381 109,881 178,793
Fixed charges ................................ 25,418 39,253 84,314 98,393 138,952
-------- -------- -------- ------- -------
Ratio of earnings to fixed charges ........... -- 1.3 x 1.1 x 1.1 x 1.3 x
</TABLE>
- ----------
(a) Fixed charges consist of interest expense, which includes interest on all
debt and amortization of debt discount, and deferred financing costs.
EXHIBIT 21
SINCLAIR BROADCAST GROUP, INC.
LIST OF SUBSIDIARIES AS OF MARCH 15, 1999
-----------------------------------------
ACRODYNE COMMUNICATIONS, INC. (no subsidiaries)
SINCLAIR ACQUISITION II INC. (no subsidiaries)
SINCLAIR COMMUNICATIONS, INC.
WLFL, Inc.
WLFL Licensee, LLC
FSF-TV, Inc.
Sinclair Radio of Greenville Licensee, Inc.
Sinclair Media I, Inc.
WPGH Licensee, LLC
KDNL Licensee, LLC
Sinclair Media III, Inc.
WSTR Licensee, Inc.
Sinclair Radio of Kansas City Licensee, LLC
WCHS Licensee, LLC
KDSM, Inc.
KDSM Licensee, LLC
Sinclair Capital
KSMO, Inc.
KSMO Licensee, Inc.
WYZZ, Inc.
WYZZ Licensee, Inc.
WSMH, Inc.
WSMH Licensee, LLC
WTVZ, Inc.
WTVZ Licensee, LLC
KLGT, Inc.
KLGT Licensee, LLC
WGME, Inc.
WGME Licensee, LLC
Sinclair Acquisition IV, Inc.
KGAN Licensee, LLC
WOKR Licensee, LLC
WICD Licensee, LLC
WICS Licensee, LLC
WTTO, Inc.
WTTO Licensee, LLC
<PAGE>
WCGV, Inc.
WCGV Licensee, LLC
Sinclair Radio of Milwaukee Licensee, LLC
Sinclair Media II, Inc.
WTTE, Channel 28 Licensee, Inc.
SCI-Indiana Licensee, LLC
KUPN Licensee, LLC
WEAR Licensee, LLC
WSYX Licensee, Inc.
Chesapeake Television, Inc.
Chesapeake Television Licensee, LLC
SCI-Sacramento Licensee, LLC
KABB Licensee, LLC
WLOS Licensee, LLC
Sinclair Radio of St. Louis, Inc.
Sinclair Radio of St. Louis Licensee, LLC
Sinclair Radio of Los Angeles, Inc.
Sinclair Radio of Los Angeles Licensee, Inc.
WGGB, Inc.
WGGB Licensee, LLC
Sinclair Radio of Buffalo, Inc.
Sinclair Radio of Buffalo Licensee, LLC
Sinclair Radio of Wilkes-Barre, Inc.
Sinclair Radio of Wilkes-Barre Licensee, LLC
Sinclair Radio of Nashville, Inc.
Sinclair Radio of Nashville Licensee, Inc.
Sinclair Radio of New Orleans, LLC
Sinclair Radio of New Orleans Licensee, LLC
Sinclair Radio of Memphis, Inc.
Sinclair Radio of Memphis Licensee, Inc.
KOCB, Inc.
KOCB Licensee, LLC
WDKY, Inc.
WDKY Licensee, LLC
Tuscaloosa Broadcasting, Inc.
Tuscaloosa Broadcasting Licensee, Inc.
WNNE Licensee, Inc.
Sinclair Radio of Portland Licensee, Inc.
WPTZ Licensee, Inc.
Sinclair Radio of Norfolk Licensee, LLC
Sinclair Radio of Rochester Licensee, Inc.
Sinclair Communications of Portland, Inc.
WTWC, Inc.
WTWC Licensee, LLC
Sinclair Holdings I, Inc.
<PAGE>
Sinclair Holdings II, Inc.
Sinclair Holdings III, Inc.
Sinclair Properties, LLC
Sinclair Radio of Norfolk/Greensboro Licensee, L.P.
KBSI Licensee L.P.
KETK Licensee L.P.
WMMP Licensee L.P.
WSYT Licensee L.P.
Max Television of Dayton L.P.
Max Television of Tri-Cities, L.P.
SINCLAIR COMMUNICATIONS II, INC.
Sinclair Television Company, Inc.
Sinclair Television of Nevada, Inc.
Sinclair Television License Holder, Inc.
Sinclair Television of Dayton, Inc.
Sinclair Television of Oklahoma, Inc.
Sinclair Television of Charleston, Inc.
Sinclair Television of Nashville, Inc.
Sinclair Television of Tennessee, Inc.
Cascom International, Inc.
Sinclair Media V, Inc.
Sinclair Television of Buffalo, Inc.
Sinclair Television of Utica, Inc.
Sinclair Media IV, Inc.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,268
<SECURITIES> 0
<RECEIVABLES> 202,049
<ALLOWANCES> 5,169
<INVENTORY> 0
<CURRENT-ASSETS> 324,723
<PP&E> 349,722
<DEPRECIATION> 69,331
<TOTAL-ASSETS> 3,854,582
<CURRENT-LIABILITIES> 268,890
<BONDS> 751,899
200,000
35
<COMMON> 965
<OTHER-SE> 815,043
<TOTAL-LIABILITY-AND-EQUITY> 3,854,582
<SALES> 0
<TOTAL-REVENUES> 736,804
<CGS> 0
<TOTAL-COSTS> 544,418
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,952
<INCOME-PRETAX> 39,841
<INCOME-TAX> 45,658
<INCOME-CONTINUING> (5,817)
<DISCONTINUED> 0
<EXTRAORDINARY> (11,063)
<CHANGES> 0
<NET-INCOME> (16,880)
<EPS-PRIMARY> (0.29)<a>
<EPS-DILUTED> (0.29)<a>
<FN>
a) This information has been prepared in accordance with SFAS No 128, Earnings
per Share. The basic and diluted EPS calculations have been entered in
place of primary and diluted, respectively.
</FN>
</TABLE>
