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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
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33-98436
Commission file number 33-98434
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SULLIVAN BROADCASTING COMPANY, INC.
AND
SULLIVAN BROADCAST HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
58-1719496
Delaware 04-3289279
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
18 Newbury Street, Boston, MA 02116
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(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code (617) 369-7755
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No __.
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Sullivan Broadcasting Company, Inc. has 10 1/4% senior subordinated notes (which
were originally issued under the name A-3 Acquisition, Inc.) and 9 5/8% senior
subordinated notes (which were originally issued the name Act III Broadcasting,
Inc.) which have been registered under the Securities and Exchange Act of 1933
(the "Securities Act"). Sullivan Broadcasting Company, Inc. does not have any
equity securities registered under the Securities Act. As of March 15, 1998,
Sullivan Broadcasting Company, Inc. was a wholly owned subsidiary of Sullivan
Broadcast Holdings, Inc. The capital stock of Sullivan Broadcasting Company,
Inc. is not publicly traded and does not have a quantifiable market value.
Sullivan Broadcast Holdings, Inc. has 13 1/4% senior accrual debentures (which
were originally issued under the name A-3 Holdings, Inc.) which have been
registered under the Securities Act. As of March 15, 1998 Sullivan Broadcast
Holdings, Inc. had the following capital stock outstanding: 1,201,577 shares of
Class B-1 Common Stock, 6,158,211 shares of Class B-2 Common Stock and 1,021,872
shares of Class C Common Stock. The capital stock of Sullivan Broadcast
Holdings, Inc. is not publicly traded and does not have a quantifiable market
value.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. BUSINESS 3
Item 2. DESCRIPTION OF PROPERTIES 23
Item 3. LEGAL PROCEEDINGS 24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 24
Item 6. SELECTED FINANCIAL DATA 25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 26
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 35
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 35
Item 11. EXECUTIVE COMPENSATION 36
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 41
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 43
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 43
SIGNATURES 46
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ITEM 1. BUSINESS
OVERVIEW
All of the outstanding capital stock of Act III Broadcasting, Inc., a Delaware
corporation ("Act III"), was acquired by A-3 Acquisition, Inc., a Delaware
corporation ("A-3"), on January 4, 1996 (the "Acquisition"). As described
further below, Sullivan Broadcasting Company, Inc. is the successor by merger to
A-3 and Act III.
Sullivan Broadcast Holdings, Inc., a Delaware corporation, formerly
known as A-3 Holdings, Inc. ("Holdings"), and its wholly-owned subsidiary, A-3,
were formed by ABRY Broadcast Partners II, L.P. ("ABRY") to acquire all of the
outstanding stock of Act III pursuant to a stock purchase agreement dated as of
June 19, 1995 (as amended, the "Stock Purchase Agreement") by and among A-3, Act
III, Act III Communications, Inc. and certain other stockholders of Act III.
Upon the consummation of such Acquisition, A-3 merged (the "Merger") with Act
III, with Act III surviving such Merger (the "Surviving Company"). In the
Merger, the name of the Surviving Company was changed from Act III Broadcasting,
Inc. to Sullivan Broadcasting Company, Inc. ("SBC"). Holdings currently owns
100% of the outstanding capital stock of SBC.
On February 23, 1998, Holdings entered into a Plan of Merger with Sinclair
Broadcast Group, Inc. (the "Sinclair Merger"). Under the terms of the Sinclair
Merger, 100% of the issued and outstanding common stock of Holdings will be
acquired by means of a merger. The Sinclair Merger is subject to approval of the
FCC and is expected to close prior to August 1998.
This integrated Form 10-K is filed pursuant to the Securities Exchange
Act of 1934, as amended, for each of Sullivan Broadcast Holdings, Inc., a
Delaware corporation, and its wholly owned subsidiary, Sullivan Broadcasting
Company, Inc., a Delaware corporation. Unless the context requires otherwise,
references to the "Company" refer to both Sullivan Broadcast Holdings, Inc. and
Sullivan Broadcasting Company, Inc. Sullivan Broadcast Holdings, Inc. is a
holding company with minimal separate operations from its operating subsidiary,
Sullivan Broadcasting Company, Inc. Separate financial information has been
provided for each entity, and, where appropriate, separate disclosures.
THE COMPANY
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The Company owns, operates and/or programs nine television stations affiliated
with the Fox Broadcasting Co. ("Fox") (collectively, the "Fox Stations"), one
television station affiliated with the American Broadcasting Companies, Inc.
("ABC") (the "ABC Station"), one low power television station affiliated with
the United Paramount Network ("UPN") (collectively, "the Owned Stations") and
two independent television stations that the Company programs under Local
Marketing Agreements ("LMA"), also referred to as the Time Brokerage Agreements,
(collectively, the "Stations"). With its nine owned Fox affiliates, the Company
is one of the largest owners of Fox-affiliated stations in the United States.
During 1997, four of the nine Fox affiliated stations also received programming
from UPN under secondary affiliation agreements, while the one owned independent
station and the two stations programmed pursuant to LMAs remained primary UPN
affiliates. In addition, the Company operates the only U.S. television station
to broadcast Fox programming into the Toronto, Ontario market (WUTV). The
following are the Stations and their respective markets:
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PRIMARY/
SECONDARY
Station MARKET AFFILIATION
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OWNED STATIONS
WUTV Buffalo, NY/Toronto, Ontario Fox/UPN
WZTV Nashville, TN Fox
WXLV Greensboro/Winston Salem/High Point, NC ABC
WRGT Dayton, OH Fox/UPN
WVAH Charleston/Huntington, WV Fox/UPN
WRLH Richmond, VA Fox
WUHF Rochester, NY Fox/UPN
WTAT Charleston, SC Fox
WMSN Madison, WI Fox
WPNY Utica, NY UPN
WFXV Utica, NY Fox
LMA STATIONS
WUPN Greensboro/Winston Salem/High Point, NC UPN
WUXP Nashville, TN UPN
The Company selected and acquired the Stations based on the size and growth of
their respective markets and their broadcast revenues, number of competitors,
retail sales and programming inventory, as well as availability of other
programming in the market. Specifically, the Company sought and acquired
independent stations in designated market area ("DMA") markets ranked generally
between 30 and 100. See "Ratings." Each of the Stations broadcast over-the-air
and transmit over the cable systems operating within its market. Approximately
68%, in the aggregate, of the television households within the Stations' U.S.
markets are served by cable.
STRATEGY
The Company's selective acquisition of strong, independent stations in medium-
sized markets, combined with its experienced management, has provided the
Company with a strong market niche in television broadcasting. The Company's
strategy is centered upon the following:
Operate in Markets with Limited Competition. In seven of the Company's
ten markets, the Company competed against only three or fewer other commercial
television stations as set forth in the Nielsen Station Index dated November
1997. As a result, the Company believes it achieves higher advertising revenues
and lower programming costs due to less competition for programming, viewers and
advertising sales. In addition, since there are four major commercial networks
(ABC, CBS, NBC and Fox), the Company believes that should there be network
affiliation changes within any market, the Company would not be left without a
major network affiliation in such market even if its present affiliation was
terminated. In six of the Company's ten
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markets, the Company's Station(s) is the only viable commercial UHF station.
Therefore, in the event of regulatory changes allowing common ownership of VHF
and UHF stations in the same market, the Company's UHF station may be a part of
any combination of UHF and VHF stations in such market, either by virtue of the
Company's acquiring a VHF station or selling its UHF station.
Develop Programming Franchises and Station Identities. In order to
maximize its share of advertising revenues in each of its markets, the Company
seeks to create distinctive identities for each of the Stations by developing
programming franchises targeted to specific demographic groups which the Company
believes are attractive to its advertising clients. Both Fox and UPN provide
programming which is designed to attract young adults, teens and children. The
Company also seeks to improve its ratings among key demographic groups by
broadcasting high quality off-network and first-run syndicated programming.
With respect to non-network programming, the Company focuses on acquiring cost
efficient programs which provide good ratings and, therefore, high advertising
revenues, relative to the cost per show. Independent and Fox-affiliated
stations are typically the largest consumers of syndicated programming.
Therefore, because the Company's Fox-affiliated stations are predominantly in
markets without a competing commercial independent station, there is little or
no competition for the purchase of such programming in such markets, which the
Company believes results in lower costs for such programming.
Pursue In-Market LMAs and Acquisitions. In its existing markets, the
Company believes that it can attain significant growth in its share of market
revenues and in operating cash flow through the utilization of LMAs and, if
current law is changed to allow ownership of more than one television station in
a market, through acquisitions. There can be no assurance that there will be
any such change in law. By programming more than one station in a market, the
Company believes it will be able to increase its revenues by attracting new
advertisers and increasing its share of existing customers' advertising budgets
by offering attractive sales packages that combine the programming strengths and
commercial inventories of both stations. In addition, the Company believes it
will be able to realize economies of scale in marketing, programming, overhead
and capital expenditures. The Company currently programs television stations in
the Greensboro/Winston Salem/High Point, North Carolina market (WUPN) and in the
Nashville, Tennessee market (WUXP) under LMAs (the "WUPN LMA" and the "WUXP
LMA", respectively). The Company will consider acquisitions that would help to
further diversify revenues and operating cash flow. The Company will seek
television stations which operating performance management believes it can
improve through the application of its business strategies.
Emphasize Local Sales. The Company's advertising sales strategy centers
upon increasing its sales of local, and in the case of WUTV, Canadian,
advertising. As compared to revenues from national advertising, revenues from
local advertising generally are more stable and, due to a lower cost of sales,
more profitable. The Company seeks both to attract new advertisers to
television and to increase the amount of advertising by existing local
advertisers by operating experienced local sales forces with strong community
ties, producing commercials for local clients and targeting small businesses
with potential for growth. From 1993 through 1997, the percentage of the
Company's total gross advertising revenues from local sales increased from 55.6%
to 59.6%.
Maximize Group Efficiencies. With operations presently in ten markets,
the Company has been and will continue to achieve certain efficiencies with
respect to programming purchases, advertising sales and operating costs. In
addition, group marketing ad sales enable each
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Station to expand its base of advertisers and to obtain attractive terms from
national sales representatives. See "Advertising Sales." The Company controls
overall operating costs by maintaining a centralized corporate management
structure, which provides programming, financial and marketing support to each
Station.
Capitalize on Changes in Method of Audience Measurement. A.C. Nielsen
Co. uses one of two methods to measure a television station's actual viewership.
In larger DMAs, ratings are determined by a combination of meters connected
directly to selected television sets and periodic surveys ("Sweeps" or "Ratings
Periods") of television viewers through a manual diary system. In smaller DMAs,
only periodic surveys are completed. Typically, viewership of Fox affiliates
and independent stations is under-reported in "diary markets" because members of
the target audience of these stations (children, teens and young adults) do not,
on a regular basis, maintain an accurate diary of the programs they watch as
well as older viewers. A switch from diary measurement to metered measurement
in a market generally results in a significant increase in reported viewership
for Fox affiliates and independent stations. Nielsen has announced that it is
in the process of converting diary markets to metered markets, generally in
order of market size. Metering commenced in Nashville in July 1997 and the
Company has entered into an agreement with Nielsen to commence metering in the
Greensboro/Winston- Salem/High Point markets in April 1998. As a result of this
switch, the Company has experienced a significant increase in reported
viewership for its Nashville stations.
PROGRAMMING
Fox provides each Fox Station with approximately 15 hours of prime-time
programming per week, including Melrose Place, King of the Hill, The Simpsons
and The X-Files. In addition, Fox provides each Fox Station with approximately
25 hours per week of non-prime time programming, including National Football
League games, National Hockey League games, Major League Baseball and children's
programming via the Fox Children's Network ("FCN"). ABC provides the ABC
station with approximately 22 hours of prime-time programming and approximately
35 hours of non-prime-time programming per week. Prime-time programming
provided by ABC includes Monday Night Football, Home Improvement, The Drew Carey
Show and NYPD Blue, while non-prime-time programming includes Good Morning
America, ABC World News Tonight, ABC College Football and All My Children.
The Company, through its affiliation with FCN, acquires television programming
for children, including animated programs, for broadcast on the Fox Stations.
Each of the Fox Affiliation Agreements (as defined, see "Network Affiliation
Agreements") includes the right to broadcast FCN programs, generally for morning
and afternoon children's programming. The Company believes FCN programs have
been successful in these periods, thereby increasing the Fox Station's overall
ratings. The Company also broadcasts Disney animated programming for children
on some of its Stations.
The Company has secondary affiliation agreements with UPN for a five-year term
ending on January 15, 2000, pursuant to which UPN may provide up to 10 hours
(and is currently providing six hours) of prime-time quality programming per
week. Such secondary UPN Affiliates are WUTV (Buffalo), WRGT (Dayton), WVAH
(Charleston/Huntington) and WUHF (Rochester). In Nashville (WUXP),
Greensboro/Winston-Salem/Highpoint (WUPN) and Utica (WPNY), the Company has
primary UPN affiliation agreements.
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Non-network programming hours at the Stations are programmed with a mix
(customized for each market) of syndicated off-network reruns and first-run
shows, movies, sports, talk shows, and other entertainment programs. In 1997,
WTAT (Charleston), WRLH (Richmond), WZTV (Nashville) and WUHF (Rochester) were
the four Fox Stations broadcasting local newscasts. WTAT and WRLH's newscasts
are produced by the CBS and NBC affiliated stations, respectively, in those
markets, WZTV's newscast is produced by the Nashville ABC affiliate, and WUHF's
newscast, which launched in December 1997 is self produced. WXLV, being an ABC
affiliate, broadcasts daily local news programming in the morning, early evening
and at 11 p.m.
Non-network programming is purchased by the Stations from various program
suppliers such as Paramount Communications, Inc., Time Warner Entertainment
Company, L.P., Twentieth Century Fox Film Corporation, Sony Pictures
Entertainment, Inc., and The Walt Disney Company. The Company believes it has
been able to improve its ratings among key demographic groups due to the
availability of high quality off-network and first-run syndicated programming.
UPN and Fox-affiliated stations are the largest consumers of syndicated
programming which, based on there not being additional competing commercial
independent stations in most of the Company's markets, results in there being
less competition for the purchase of syndicated programming.
The Company's agreements for programming, other than that received from Fox,
ABC and UPN, typically have a four to five-year license term with payments
generally made over the same term. Such agreements are either licensed for cash
only, barter only or a combination of cash and barter. Under a barter
agreement, in exchange for the right to air the program, the program supplier
retains a percentage of the advertising time as consideration for telecasting
rights for the program, which it then sells for its own account, and the Company
retains the remainder of the advertising units in the program.
NETWORK AFFILIATION AGREEMENTS
Fox. Each of the Fox Stations is affiliated with Fox pursuant to a
substantially identical affiliation agreement (the "Fox Affiliation
Agreements"). Each Fox Affiliation Agreement provides the specified Fox Station
with the right to broadcast all programs transmitted by Fox, including NFL
football, NHL hockey, Major League Baseball and FCN programming. The amount of
programming provided by Fox to its affiliates has increased from a total of five
hours on two nights per week in July 1987 to 40 hours on seven days and nights
per week (including 15 hours of prime-time programming) in 1997. Fox prime-time
programming is intended to appeal to a target audience of 18 to 49 year old
adults. In exchange for the right to broadcast its programs, Fox has the right
to sell nationally approximately 60% of the advertising inventory in such
network programs and to retain the advertising revenues from the sale of that
time. The Fox Stations are entitled to sell the remainder of the advertising
time and retain the associated advertising revenues.
Each Fox Affiliation Agreement is for a term ending on July 15, 1998, except
for WUTV's and WFXV's Fox Affiliation Agreements, which end on December 1, 1998
and October 3, 1998, respectively. Each Fox Affiliation Agreement is renewable
for five years at the discretion of Fox and upon acceptance by the specified Fox
Station. The Fox Affiliation Agreement for each Fox Station may be terminated
generally: (a) by Fox upon (i) a material change in such Fox Station's
transmitter location, power, frequency, programming format or hours of
operation, with 30 days written notice, (ii) acquisition by Fox of a television
station in the same market, with 60 days written notice, (iii) assignment or
attempted assignment by such Fox Station of the Fox Affiliation Agreement in a
manner contrary to the terms thereof, with 30 days written notice, (iv) three or
more unauthorized preemption's of Fox programming within a 12-month period, with
30 days
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written notice, or (v) failure by Fox and such Fox Station to agree upon
retransmission consent terms or "must carry" status with respect to cable
television companies, with 30 days written notice; or (b) by either Fox or such
Fox Station upon occurrence of a force majeure event which substantially
interrupts Fox's ability to provide programming or such Fox Station's ability to
broadcast the programming.
ABC. WXLV entered into a 10-year affiliation agreement with ABC (the "ABC
Affiliation Agreement") on March 23, 1995. Under the ABC Affiliation Agreement,
WXLV has the right to broadcast all programs transmitted by ABC. In exchange for
ABC network provided programming, ABC has the right to sell nationally (and
retain the revenues therefrom) approximately 50% of the advertising time for
non-primetime network provided programming, and 70% of the advertising time for
network provided primetime programming. The ABC Station sells the remainder of
the advertising time and retains the revenues therefrom. WXLV is compensated by
ABC depending on the quantity of network programming it airs "in pattern" (i.e.,
within ABC prescribed time-periods). The ABC Affiliation Agreement provides for
annual network compensation payments of $350,000.
The ABC Affiliation Agreement may be terminated by ABC upon (i) a material
change in the ABC Station's transmitter location, power, frequency, programming
format or hours of operation, with 30 days written notice; (ii) an assignment or
attempted assignment by the ABC Station in a manner contrary to the terms
thereof, with 30 days written notice; or (iii) unauthorized preemptions of ABC
programming which exceed 50 half-hours per year, after receiving written notice
of such unacceptable preemptions from ABC and failing to comply within 90 days
after such notice.
UPN. WUTV, WRGT, WVAH and WUHF maintain secondary affiliation agreements with
UPN, and WUXP, WUPN and WPNY have primary affiliation agreements (all
hereinafter collectively referred to as the "UPN Affiliation Agreements"). UPN
provides six hours of primetime quality programs (two hours per night for three
nights per week), including the newest Star Trek series - Star Trek: Voyager.
The secondary UPN Affiliation Agreements are for five years through January 15,
2000, however WUTV's UPN secondary affiliation will terminate in April of 1998,
and permit UPN to provide up to 10 hours of primetime quality programming per
week over its term.
ADVERTISING SALES
General. Television station revenues are primarily derived from local,
national and, in the case of WUTV, from Canadian advertising. Advertising rates
are based upon a program's popularity among the viewers time sold (see
"Ratings"), the number of advertisers competing for available time, the size and
demographic composition of the respective daypart desired and the availability
of alternative advertising media in the market area. Declines in advertising
budgets, particularly in recessionary periods, adversely affect the broadcast
industry, and as a result may contribute to a decrease in the revenues of
broadcast television stations. The Company seeks to manage its advertising spot
inventory efficiently and effectively in order to maximize advertising revenues
and the return on programming costs. Subject to availability, Stations can sell
advertising time up to 52 weeks in advance. The Company's advertising sales
strategy centers upon increasing its sales of local advertising. As compared to
revenues from national advertising, revenues from local advertising are
generally more stable and, due to a lower cost of sales, more profitable. From
1993 through 1997, the percentage of the Company's total gross advertising
revenues from local sales increased from 55.6% to 59.6%.
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National Sales. Approximately 40.4% of the Company's total gross advertising
revenues in 1997 came from national advertisers. Typical national advertisers
include General Mills, Inc., Hasbro, Inc. and General Motors Corporation. The
Company can provide advertising time on all of the Stations to national
advertisers, offering bulk buying power and an attractive geographic and
demographic package to such sponsors. National advertising time is sold through
representation agencies retained by the Company. All of the Stations except WUHF
are currently represented by Seltel, Inc. ("Seltel") pursuant to substantially
identical agreements. The Company believes that the representation of its
Stations by the same agency increases the Company's ability to effectively sell
national advertising. Blair Television currently represents WUHF as its
exclusive national sales representative under an agreement that is scheduled to
expire one year from notice of cancellation by WUHF.
Local Sales. Approximately 59.6% of the Stations gross advertising revenues
in 1997 came from local advertisers. Typical local advertisers include car
dealerships, retail stores and restaurants. The Company seeks to both attract
new advertisers to television and to increase the amount of advertising by
existing local advertisers by operating experienced local sales forces with
strong community ties, producing commercials for local clients and targeting
small businesses with potential for growth. Local advertising time is sold by
account executives at each Station. The Company places a strong emphasis on the
size and experience of its local sales staff and maintains a comprehensive, on-
going training program for account executives and managers and utilizes
performance-based compensation plans and sales contests. In addition, the
Company strives to increase local advertising by increasing the Stations'
presence in their respective local communities through participation in various
co-promotions with community businesses, such as sponsorship of children's
expos, children's clubs and other high-profile promotional tie-ins.
THE COMPANY'S TELEVISION STATIONS
The following table sets forth general information for each of the Stations as
of November 30, 1997 unless otherwise noted:
<TABLE>
<CAPTION>
Approximate Total Weekly
Approximate Market Commercial Evening Date of
Market Market Television Broadcasters Ratings/ Acquisition/ Channel
Station DMA(1) Area Population Households(2) in Market(3) Share(4) LMA Number(5)
- - - --------- ------ ---------------- ----------- -------------- --------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WUTV 39(6) Buffalo, NY 1,577,000 633,000 5 2/5 6/90 29
Toronto, Ontario 5,912,000 2,174,000 12
WZTV/ 33 Nashville, TN 1,918,000 783,000 5 3/8 6/88 17
WUXP 2/4 2/96 30
WXLV/ 46 Greensboro/ 1,376,000 568,000 6 2/8 12/86 45
WUPN Winston Salem/ 1/3 7/96 48
High Point, NC
WRGT 53 Dayton, OH 1,277,000 503,000 4 2/6 2/88 45
WVAH 56 Charleston/ 1,232,000 483,000 4 2/6 2/88 11
Huntington, WV
WRLH 59 Richmond, VA 1,144,000 461,000 4 3/8 9/88 35
WUHF 74 Rochester, NY 923,000 367,000 4 3/9 3/89 31
WMSN 84 Madison, WI 785,000 313,000 4 3/12 7/96 47
WTAT 109 Charleston, SC 601,000 224,000 5 2/7 11/87 24
WFXV/ 166 Utica, NY 242,000 96,000 3 2/5 7/96 33
WPNY 1/2 7/96 11
</TABLE>
Source -- The November 1997 Nielsen Station Index (other than information with
respect to Toronto).
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(1) DMA is defined by A.C. Nielsen Co. ("Nielsen") as a station's "designated
market area".
(2) Each of the Stations broadcasts over-the-air and is carried on cable
systems operating within its market. Approximately 68%, in the aggregate, of the
television households within the Stations' markets are served by cable.
(3) Total number of commercial broadcast television stations, including the
Stations, designated by Nielsen as "local" to the DMA delivering at least 1% of
the 7:00 a.m. to 1:00 a.m., Sunday through Saturday audiences. As used
throughout this Form 10-K report, references to the number of independent
stations in a DMA exclude public television stations and other stations that are
not reportable stations.
(4) Represents average share in the market from 7:00 a.m. to 1:00 a.m., daily,
Sunday through Saturday as estimated by Nielsen for the most recent rating
period ended November 1996. The ratings and shares shown are statistical
estimates.
(5) Each of the Stations, other than WVAH and WPNY, broadcast on the UHF band
and consequently have not been assigned channel numbers above 2 through 13,
which are reserved for VHF transmission. WVAH and WPNY broadcast on the VHF
band, and consequently their channel position (both 11) is within the 2 through
13 VHF band.
(6) If the combined markets of Buffalo and Toronto were considered a single
market, they would constitute approximately the sixth largest television market
in the U.S.
DESCRIPTION OF THE STATIONS
The following is a description of the history and characteristics of each of
the Stations.
WUTV (BUFFALO, NEW YORK/TORONTO, ONTARIO)
The Company acquired WUTV, a UHF station, in June 1990. WUTV is the dominant
independent television station in the Buffalo market and is the only U.S.
independent television Fox affiliate station to broadcast in the Toronto market.
WUTV is carried on Toronto area cable systems as part of the basic cable service
provided to the Toronto market. WUTV enjoys a "grandfathered" status in Canada
due to the fact that the Station's commencement of operations in 1970 pre-dated
formal cable regulation in Canada. WUTV capitalizes on its unique ability to
offer Fox and independent U.S. programming in Toronto by selling advertising
time to Canadian advertisers while obtaining syndicated programming based on
prices appropriate for the Buffalo market. WUTV competes effectively against the
Buffalo network affiliates, which also are carried in Toronto via cable, due to
its ability to offer a greater variety of syndicated U.S. programming other than
that provided by the three major networks. The major three network affiliates'
programming has limited appeal in Toronto since a large number of the networks'
programs are syndicated to Canadian broadcasters. The Company began replacing
WUTV's transmitter, tower and antenna in 1996 to increase its power and
broadcast area. This project is expected to be completed by mid-1998.
WZTV (NASHVILLE, TENNESSEE)
The Company acquired WZTV, a UHF station, in June 1988. The Company believes
that WZTV has obtained a strong position in the market which has further been
solidified with the
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metering of the Nashville market by Nielsen in July of 1997. WZTV operates
production facilities which it utilizes to produce commercials and originate
community oriented programming. WZTV also leases the production facilities to
third parties. In addition, WZTV launched a 9:00 p.m. newscast in July of 1997
which is produced by the ABC affiliate in Nashville.
WUXP (NASHVILLE, TENNESSEE)
The Company began programming WUXP under the WUXP LMA in February 1996. With
the Company's emphasis on local sales and the continued reductions in operating
costs, including marketing, programming and overhead, resulting from economies
of scale and with the positive impact of metering, WUXP has strengthened the
Company's position within the market while providing improved operating results.
WXLV (GREENSBORO/WINSTON-SALEM/HIGH POINT, NORTH CAROLINA)
The Company acquired WXLV, a UHF station, in December 1986. On March 23, 1995,
in anticipation of the termination by Fox of its affiliation with WXLV as a
result of the acquisition by a Fox-related company of a material ownership
interest in a television station in the Greensboro/Winston-Salem/High Point,
North Carolina market, the Company entered into the ABC Affiliation Agreement.
WXLV's affiliation change from Fox to ABC became effective as of September 3,
1995. Under the ABC Affiliation Agreement, WXLV has the right to broadcast all
ABC programming. As a result of the change in network affiliation, WXLV has
access to approximately seven additional hours of prime-time and twenty-five
additional hours of non-prime time network programming per week as compared to
its prior arrangement with Fox. The ABC Affiliation Agreement provides for a
term of ten years and the Company receives network compensation of approximately
$350,000 per year for each year of such term.
Historically, WXLV operated at a competitive disadvantage because of sub-
standard transmission facilities. In order to address this issue, in September
1991, the Company entered into a LMA with Guilford Telecasters, Inc.
("Guilford"), owner of WGGT (the "Original WGGT LMA"), the only independent
television station in the market. Pursuant to the Original WGGT LMA, WXLV
simulcast substantially all of its programming over WGGT, thereby increasing
WXLV's audience reach. During 1994, WXLV replaced its old transmitter and
antenna. These new transmission facilities resulted in improved signal quality
and audience reach. As a result, the Original WGGT LMA became obsolete.
On June 30, 1995, the Company and Guilford entered into a revised LMA (the
"Second WGGT LMA"), which is an amendment to the Original WGGT LMA. Pursuant to
the Second WGGT LMA, the Company paid Guilford $6.0 million in exchange for
certain broadcast time on WGGT through September 30, 2001 and the Company's
obligation to pay Guilford 25% of WXLV's cash flow was terminated. Under the
Second WGGT LMA, the Company had the right to have WGGT rebroadcast the signal
of WXLV or to broadcast other programming designated by the Company, subject to
certain rights of Guilford.
As part of the Second WGGT LMA, the Company also paid Guilford $1.0 million
and Guilford granted to a third party an option to purchase certain assets of
WGGT for an additional $1.0 million (the "WGGT Option"). Such third party
granted the right to the Company to require such third party to assign the WGGT
Option to the Company or another third party designated by the Company and such
option was assigned and exercised in March 1996. In conjunction with the
exercise of the WGGT Option by a third party, WGGT changed its call letters to
WUPN, and the
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Second WGGT LMA was assigned to such third party (hereafter, the "WUPN LMA").
The Company began providing a separate program feed to WUPN in September 1996
using WXLV's excess programming as a result of its affiliation switch to ABC
from Fox. Such programming will satisfy WUPN's needs for up to three years at
very little incremental cost.
WXLV is active in community involvement through such events as the Dixie Class
Fair in Winston-Salem and the Fridays at Five in Greensboro. Additionally, WXLV
is the media sponsor of the Juvenile Diabetes Foundation, as well as the
flagship station for the United Cerebral Palsy Telethon.
WRGT (DAYTON, OHIO)
The Company acquired WRGT, a UHF station, in February 1988. WRGT is the only
independent television station in the Dayton, Ohio market. The Station's
promotion and production departments have earned 17 regional Emmy awards, as
well as a Gold and Silver Medal from The International Film and Television
Festival of New York.
WVAH (CHARLESTON/HUNTINGTON, WEST VIRGINIA)
The Company acquired WVAH, a VHF station, in February 1988. WVAH is the only
independent television station in the Charleston/Huntington market, and WVAH is
the only Fox affiliate located in West Virginia. WVAH has its own production
department doing business as an independent production company.
WRLH (RICHMOND, VIRGINIA)
The Company acquired WRLH, a UHF station, in September 1988. WRLH is the
dominant independent television station in the Richmond, Virginia market. WRLH
added local news to its programming in 1994, making it, WTAT, WZTV and WUHF the
four Fox Stations of the Company which provide news programming. Pursuant to a
multi-year agreement effective September 1994, WWBT-TV, the NBC affiliate in
Richmond, provides WRLH with a fully produced half hour seven day-a-week
newscast for broadcast from 10:00 p.m. to 10:30 p.m. In exchange, WRLH pays
WWBT-TV $8,333 per month plus a percentage of the net cash flow resulting from
the newscast.
WUHF (ROCHESTER, NEW YORK)
The Company acquired WUHF, a UHF station, in March 1989. WUHF is the only
independent television station in the Rochester, New York market. In serving its
clients, WUHF's production unit features a state-of-the-art facility that
specializes in long form corporate videos, plus documentaries that have aired
nationally on PBS. WUHF's locally produces a children's program, Doctor's Rock's
Dinosaur Adventure. In addition, WUHF launched a self-produced 10:00 p.m. seven
day-a-week newscast in December 1997.
WTAT (CHARLESTON, SOUTH CAROLINA)
The Company acquired WTAT, a UHF station, in November 1987. WTAT is the
dominant independent television station in the Charleston, South Carolina
market. WTAT provides news programming pursuant to an agreement (which has been
extended through December 1999) under which WCSC-TV, the CBS affiliate in
Charleston, provides WTAT with a fully-produced
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half-hour newscast for broadcast weekdays from 10:00 p.m. to 10:30 p.m. In
exchange, WTAT pays WCSC-TV $8,333 per month plus a percentage of the net cash
flow resulting from the newscast.
WMSN (MADISON, WISCONSIN)
The Company acquired WMSN, a UHF station, in July 1996. WMSN is the only
independent station in the Madison market, a market which is consistently rated
one of the best places in America in which to live. Madison maintains a very
low unemployment rate and an average per capita income significantly higher than
the U.S. average.
WFXV AND WPNY (UTICA, NEW YORK)
The Company acquired WFXV, a Fox affiliate, and WPNY, a low power UPN
affiliate, in July 1996. Although a relatively small market, given the overall
size of the Company, the station benefits greatly from the Company's group
buying power in programming and other related costs.
RATINGS
The price which television stations can charge for advertising spots is
determined in part by a station's overall ratings and share in a given market,
as well as a station's rating and share among a particular demographic group
which an advertiser may be targeting in specific time periods. There are
approximately 211 generally-recognized television DMA's in the U.S. that are
ranked in size according to various factors based upon actual or potential
audience. Each market is defined as an exclusive geographic area consisting of
all counties in which the in-market commercial stations receive the greatest
percentage of total viewing hours. Currently, Nielsen periodically publishes
data on estimated audiences. The estimates are expressed in terms of the
percentage of the total potential audience in the market viewing a station (a
station's "rating") and of the station's percentage of the total potential
audience actually watching television during the time-period measured (a
station's "share").
Nielsen uses one of two methods to measure a station's actual viewership, In
large DMA's, ratings are determined by a combination of meters connected
directly to selected household television sets and periodic surveys of the
television viewers through a manual diary system. Nashville began metering in
July 1997 and the Greensboro/Winston-Salem/High Point market will be metered in
April 1998. In smaller DMA's, only periodic surveys during preset ratings
periods ("sweep months") are used.
COMPETITION
Competition in the television industry takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include signal coverage and assigned
frequency. The broadcasting industry is continually faced with technological
change and innovation, the possible rise in popularity of competing
entertainment and communications media, and governmental restrictions or actions
of federal regulatory bodies, including the FCC and the Federal Trade Commission
("FTC"), any of which could have a material effect on the Company's operations.
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Audience. Stations compete for audience on the basis of program
popularity, which has a direct effect on advertising rates. A portion of the
Company's daily programming is supplied by Fox. Likewise, a portion of the
Company's daily programming at its ABC Station is supplied by ABC. In those
time periods, the Fox Stations are totally dependent upon the performance of the
Fox programs in attracting viewers and the ABC Station is totally dependent upon
the performance of the ABC programs in attracting viewers. Four of the nine Fox
Stations have a secondary affiliation agreement with UPN and the two stations
programmed under LMA's, WUPN and WUXP, in addition to WPNY, are primary
affiliates of UPN. Non-network time periods are programmed by the Stations with
syndicated programs purchased for cash, cash and barter, or barter only. The
Stations also air sports, talk shows, public affairs and other entertainment
programming.
The development of methods of transmission of video programming other than
over-the-air television broadcasting, and in particular the growth of cable
television, has significantly altered competition for audience in the television
industry. These other transmission methods can increase competition for a
broadcasting station by bringing into its market distant broadcasting signals
not otherwise available off the air to the station's audience and also by
serving as a distribution system for non-broadcast programming distributed by
the cable system. As the technology of satellite program delivery to cable
systems advanced in the late 1970's, development of programming for cable
television accelerated dramatically, resulting in the emergence of multiple,
national-scale program alternatives and the rapid expansion of cable television
and higher subscriber growth rates.
Other sources of competition include direct broadcast satellite, home
entertainment systems (including video cassette recorder and playback systems,
videodiscs and television game devices), multichannel and multipoint
distribution systems (a.k.a. wireless cable), satellite master antenna
television systems, and low power television stations. Television stations also
face competition for market share and advertising revenues from radio stations,
newspapers, periodicals and other entertainment media. Additional competition
may be provided if the telephone companies begin to offer video programming,
either through multi-channel video services such as cable TV or as part of so-
called "open video system" (OVS) services.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable television delivery systems or direct broadcast
satellites are expected to reduce the bandwidth required for television signal
transmission allowing the delivery of potentially more channels of programming.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly targeted
audiences. Reduction in the cost of creating additional channel capacity could
lower entry barriers for new channels and encourage the development of
increasingly specialized "niche" programming for highly targeted audiences. This
ability to provide additional channels of programming and to reach very defined
audiences may alter the competitive dynamics for advertising expenditures. The
Company is unable to predict the effect that technological changes will have on
the broadcast television industry or the future results of the Company's
operations.
Programming. Competition for programming involves negotiating with
national program distributors or syndicators which sell first-run and rerun
packages of programming. The Stations compete against other broadcast stations
in their market for the exclusive right to broadcast off-network reruns (such as
Seinfeld and Home Improvement) and first-run product (such as Ricki
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Lake). Cable systems generally do not compete with local stations for
programming, although various national cable networks have acquired programs
that would have otherwise been offered in syndication to local television
stations.
Time Warner, Inc. and Viacom, Inc., each of which has launched new television
networks (WB and UPN, respectively), also own or control a major production
studio. Outside production companies are still the primary source of
programming for the traditional three networks and Fox. It is uncertain in the
future as to how much studio produced programming, which is generally licensed
by the studios and production companies to the four networks under short-term (1
year) agreements, will be moved to the UPN and WB networks. The Company has
entered into secondary and primary affiliation agreements with UPN.
Advertising. The Stations compete for local advertising revenues with
other television stations in their respective markets, as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems. Competition for advertising dollars in the broadcasting industry
occurs primarily in individual markets. Generally, a television station in a
market does not compete with stations in other market areas for local revenue.
REGULATION OF TELEVISION BROADCASTING
Overview. The ownership, operation, programming, purchase and sale of
television stations in the U.S. are subject to the jurisdiction of the FCC,
which acts under authority granted by the Communications Act of 1934, as
recently amended (the "Communications Act"). Pursuant to the Communications
Act, the FCC, among other things, determines stations' frequencies, locations
and power; issues, revokes, modifies and renews station licenses; approves the
transfer or assignment of such licenses; imposes fees; regulates certain terms
of network affiliation agreements; regulates the equipment used by stations;
adopts rules and regulations governing the operation and ownership of broadcast
stations and implements the Communications Act's provisions, including the
implementation of rulemaking proceedings for the recently enacted
telecommunications legislation; and imposes penalties for violations of the
Communications Act or FCC regulations. As discussed below, the Company and the
Stations may from time to time be subject to investigative and enforcement
proceedings initiated by the FCC concerning their broadcast operations, and FCC
proceedings generally affecting the broadcast industry. The Company is not aware
of any investigative or enforcement proceedings against any of its Stations
except as disclosed below and believes that no such matters exist which would
have a material effect on the licenses of the Stations operated by the Company.
The following is a brief summary of certain provisions of the Communications
Act and of specific FCC regulations and policies. Reference should be made to
the Communications Act, the FCC's rules and the public notices and rulings of
the FCC for further information concerning the nature and extent of FCC
regulation of broadcast stations.
License Renewal. Until recently, television broadcasting licenses were
granted for maximum terms of five years. The Telecommunications Act of 1996
(hereinafter the "1996 Act") gave the FCC authorization to extend TV stations'
license terms to eight years. In 1997, the FCC changed its rules so as to
extend license terms to eight years. Broadcast station licenses are subject to
renewal upon application to the FCC. During certain periods when renewal
applications are pending, petitions to deny the license renewal application can
be filed by interested parties, including members of the public. Such petitions
may raise various issues before the FCC. The
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FCC is required to hold evidentiary, trial-type hearings on renewal applications
if the FCC is unable to determine that renewal of a license would serve the
public interest, convenience and necessity; or if a petition to deny renewal of
such license is filed and the petition raises a "substantial and material
question of fact" as to whether the grant of the renewal application would be
prima facie inconsistent with the public interest, convenience and necessity. In
the vast majority of cases, broadcast station licenses are renewed by the FCC
even when petitions to deny have been filed against the license renewal
application.
The expiration dates for the FCC licenses of the Stations are as follows:
WXLV: December 1, 2004; WUTV: June 1, 1999; WUHF: June 1, 1999; WRLH: October 1,
2004; WVAH: October 1, 2004; WUPN-TV: October 1, 2004; WTAT: December 1, 2004;
WZTV and WUXP: August 1, 2005; WRGT: October 1, 2005; WFXV: June 1, 1999; WMSN:
December 1, 2005; W31BP, WPNY-LP, and W53AM: June 1, 1998; and W34BX: October
1, 2004. Licenses for Stations whose renewal applications are pending are
continued by statute until the FCC takes action on such applications.
FCC Ownership Regulation. FCC rules generally prohibit any single person or
entity from owning, controlling or having an interest deemed "attributable"
under such rules in (i) two television stations that provide service to
specified overlapping areas; (ii) both a radio station and a television station
that provide service to specified overlapping areas (although the FCC permits
waivers of this restriction in the 25 largest television markets if there are a
sufficient number of broadcast stations owned by other entities, in situations
involving failed or distressed stations, or in other circumstances where the FCC
determines on a case-by-case basis that waiver is appropriate (pursuant to the
requirements of the 1996 Act, the FCC has proposed to expand the application of
this waiver policy to the top 50 markets); (iii) a commonly owned group of
television stations that reach more than 35% of the national audience, as
determined by market rankings of the percentage of national television
households contained in each market, crediting UHF stations with only 50% of
their markets' television households (this limit can be increased to 40% of the
national audience if more than a 50% interest in the additional stations causing
ownership to exceed 35% is held by members of certain minority groups); (iv) a
television station and a daily newspaper published in a community encompassed
within that station's predicted Grade A service contour (as defined by the FCC);
and (v) a television station and a cable television system if the cable
television system is located within the television station's predicted Grade B
service contour (as defined by the FCC).
Interests generally deemed "attributable" for purposes of the FCC's ownership
restrictions include, in the case of corporations holding broadcast licenses,
the interests of officers, directors and those who, directly or indirectly, have
the right to vote 5% or more of the corporation's voting stock (or 10% or more
of such stock in the case of insurance companies, certain regulated investment
companies and bank trust departments that are holding stock for investment
purposes only); and, in the case of partnerships, general partners, and certain
limited partners not "insulated" from "material involvement" in the media-
related activities of the partnership under FCC policies. The FCC presently
treats limited liability companies similar to limited partnerships in
determining whether a member of such a company has an attributable interest.
The FCC has initiated rulemaking proceedings to consider proposals to
eliminate or modify its television ownership restrictions, including proposals
to permit the ownership in some circumstances of two television stations with
overlapping service areas. The FCC has initiated another rulemaking to consider
modification of its definitions of interests which are considered
"attributable," including possible treatment of non-voting stock and debt
instruments as attributable
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interests. The Company is unable to predict the ultimate outcome of possible
changes in these FCC rules and the impact such changes might have on its
broadcasting operations.
LMAs. The FCC has held that programming a television station under an LMA
does not constitute an interest attributable in such station under the
Communications Act or the FCC's rules (including its multiple ownership rules)
as long as the licensee of the station that is being substantially programmed by
another entity maintains ultimate responsibility for, and control over, the
operations of its broadcast station and otherwise ensures compliance with
applicable FCC rules and policies. In accordance with policies of the FCC, the
owner-licensee of each station that is programmed under an LMA retains the right
to preempt programming supplied by the LMA programmer. Typically, in order to
comply with FCC policy, LMAs also provide that the owner-licensee may terminate
the LMA under certain circumstances. The FCC is presently considering what rules
it should apply to LMAs as part of its television ownership and attribution
rulemaking proceedings described above. Any rules hereafter adopted by the FCC
for LMAs could require the Company to restructure or discontinue the WUXP and
WUPN LMAs and could adversely affect the Company's ability to enter into LMAs in
other markets in which it owns or has an attributable interest in a television
station.
In connection with entering into an LMA, the LMA programmer may make a loan to
the owner-licensee or be granted an option to purchase the station's license and
other broadcasting assets. As an interim policy to govern the processing of
television station sales applications which involve LMAs, the FCC issued a
public notice on June 1, 1995. The public notice sets forth certain guidelines
concerning arrangements pursuant to which an entity programming a television
station pursuant to an LMA also supplies financing to and/or holds an option to
purchase the station. The FCC stated that it would not approve a sale of a TV
station where the station being sold will be under an LMA with another TV
station in the same market and the LMA programmer has both made a loan for part
of the purchase price and has an option to acquire the station; and that any
television acquisitions involving LMAs would be subject to future action of the
FCC in its pending rulemaking dealing with the FCC's ownership attribution
rules. The FCC also is considering specific rules to govern television LMAs in a
separate rulemaking dealing with the FCC's television ownership rules.
Alien Ownership Restrictions. The Communications Act prohibits the issuance
of broadcast licenses to, or the holding of a broadcast license by, non-U.S.
citizens or their representatives or by a foreign government or a representative
thereof, or by any corporation organized under the law of a foreign country
(collectively, "Aliens"), and to any corporation of which more than 20% of the
capital stock is owned of record or voted by Aliens. (Such 20% limit is
increased to 25% if the Aliens hold their interest through a U.S. corporation.)
As the result of these provisions, the licenses granted to the subsidiaries of
the Company by the FCC could be rescinded if, among other restrictions imposed
by the FCC, more than 25% of Holding's stock is owned or voted by Aliens.
Regulatory Fees. Pursuant to the Omnibus Budget Reconciliation Act of 1993,
the FCC collects annual "regulatory fees." These fees vary with the size of a
television station's market and whether it is a VHF or UHF station. The Company
does not believe that the obligation to pay such fees will have a material
adverse effect on the Stations.
Children's Television. In October 1990, Congress enacted the Children's
Television Act of 1990 ("1990 Children's TV Act"), which directed the FCC to
adopt rules limiting the amount of commercial matter that television stations
may air during children's programming. The 1990
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Children's TV Act also directed the FCC to consider, in its review of television
station license renewal applications, the extent to which licensees have
complied with such commercial limits and have served "the educational and
informational needs of children through the licensee's overall programming,
including programming specifically designed to serve such needs." Subsequently,
the FCC enacted rules which limit the amount of commercial matter which may be
aired during children's programming (10.5 minutes per hour on weekends and 12
minutes per hour on weekdays); such rules became effective on January 1, 1992.
The FCC also clarified its long-standing policy that a program associated with a
product in which commercials for that product are aired would cause the entire
program to be counted as commercial time (a "program length commercial").
Since February 1, 1992, the FCC has reviewed television station license
renewal applications for compliance with the FCC's children's television rules
and policies promulgated pursuant to the 1990 Children's TV Act. In 1997 the
FCC granted the Company's request and canceled a proposed forfeiture (proposed
forfeiture) against WTAT in connection with the FCC's review of the WTAT license
renewal application. Although the Company seeks to comply with the FCC's
children's television rules and policies, there can be no assurance that the FCC
will not take action with regard to children's programming when the FCC reviews
the Company's pending or future renewal of license applications for the
Stations.
In August 1996 the FCC modified its policies, specifying new requirements for
the broadcast of childrens' television. Under the new policy television
stations demonstrating the broadcast of three hours of regularly scheduled
educational "core" programming each week, where the programs are at least 30
minutes in length and broadcast between 7:00 AM and 10:00 PM, are presumed to
have met the FCC's requirements. "Core" programming is defined of which has a
"significant purpose" of serving "educational and informational needs of
children". If less than three hours is aired, a station would still satisfy
childrens' TV renewal requirements if it "demonstrates a level of commitment to
educating and informing children that is at least equivalent to airing three
hours per week of core programming". It may do this through the provision of
other services to children such as regularly schedules non-weekly programs,
public service announcements, specials and short segment programming. If a
station fails to meet these children's programming requirements the FCC may
impose sanctions which, depending on the severity of the offense, include an
admonition, reporting requirements, forfeitures, short-term license renewals
and, in extreme cases, designation for hearing of the renewal application to
determine whether a license renewal is warranted.
The majority of the television industry has adopted a ratings system
patterned after the age-based rating system used by the movie industry, which
also indicates whether the show earned the rating due to violence, sexual
content, or for other reasons. The networks with which the Company's stations
are affiliated have adopted this system. Pursuant to the requirements of the
1996 Act the FCC, evaluating and has requested comment on the proposed system.
Other FCC Regulations. The FCC regulates other aspects of broadcast station
operation, including maintenance of certain records concerning programming and
operations, political advertising, sponsorship identification, advertisement of
contests and lotteries, obscene and indecent broadcasts, equal employment
opportunity and technical matters.
The 1992 Cable Act. Certain provisions of the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") have a direct
effect on television broadcasting,
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including signal carriage, retransmission consent and equal employment
opportunity provisions. The FCC has adopted various rules and regulations to
implement the 1992 Cable Act.
The signal carriage, or "must carry," provisions of the 1992 Cable Act
generally require cable system operators to carry the signals of local
commercial and non-commercial television stations and certain low power
television stations. The 1992 Cable Act also includes a retransmission consent
provision that prohibits cable operators and other multi-channel video
programming providers from carrying broadcast stations without obtaining their
consent in certain circumstances. Television stations, on a cable system-by-
cable system basis, must make a choice once every three years whether to proceed
under the must carry rules or whether to waive that right to mandatory, but
uncompensated, carriage and instead negotiate a grant of retransmission consent
permitting the cable system to carry the stations' signals, in most cases in
exchange for some form of consideration from the cable operator. The Fox
Stations have granted Fox the right to negotiate with most cable operators in
their respective markets for retransmission consent agreements.
On April 8, 1993, a special three-judge panel of the U.S. District Court for
the District of Columbia upheld the constitutionality of the must carry
provisions of the 1992 Cable Act. On June 27, 1994, the U.S. Supreme Court, in
a five to four decision, vacated such judgment and remanded the case to the
District Court for further proceedings. Although the Supreme Court found the
must carry rules to be content-neutral and supported by legitimate governmental
interest under appropriate constitutional tests, it also found that genuine
issues of material fact still remained. On remand, the District Court again
upheld the must carry provisions. In 1997, in a five to four decision, the
Supreme Court upheld the must carry rules as constitutional.
The 1992 Cable Act also codified the FCC's basic equal employment opportunity
("EEO") rule and the use of certain EEO reporting forms currently filed by
television broadcast stations. In addition, pursuant to the 1992 Cable Act's
requirements, the FCC has adopted rules providing for a review of the EEO
performance of each television station at the mid-point in its license term (in
addition to review which occurs in conjunction with station license renewal
applications). The FCC is currently considering proposed changes to its EEO
policies.
Distribution of Video Services by Telephone Companies. Recent actions by
the FCC, Congress and the courts all indicate the potential significant future
involvement by telephone companies in the provision of video services. The
Company cannot predict either the timing or the extent of such involvement. The
1996 Act allows telephone companies to provide video services within their
telephone service areas, by means of traditional cable TV systems, "wireless"
cable TV systems and "open video systems" ("OVS"). OVS is a new type of service
which combines features of traditional cable TV and common carrier services.
OVS is not subject to the same degree of federal, state and local regulation as
are traditional cable TV systems. However, the FCC must certify a provider
before it may begin offering OVS service.
Establishment of and Transition to ATV Services. In 1997, the FCC adopted
rules and procedures for the implementation of a new digital advance television
("ATV") service, including high definition television. Implementation of ATV
service is expected to improve the technical quality of television and enable
broadcasters to provide other digital transmission services in addition to
television service. Whereas the current analog NTSC service allows each station
to provide only one channel of analog television service, digital ATV
potentially allows each station to provide four to five channels of standard
definition programming (similar to the current quality of NTSC service) or one
channel of high definition programming, plus ancillary services. Ancillary
services may include but are not limited to subscription
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television, distribution of computer software, data transmission, teletext,
interactive services and audio signals.
The FCC's rules and procedures are intended to provide for a transition of the
television broadcast industry from NTSC service to ATV service. Initial
eligibility for ATV channels is limited to authorized full power television
licensees and permittees. Low power television and television translator
stations are not initially eligible to receive ATV channels. During the
transition period television licensees will operate using both their NTSC and
new ATV channels. At the end of the transition period television stations will
cease operating on and return one of those channels to the FCC, and thereafter
provide only an ATV service on their remaining channel.
The FCC's rules require that stations complete construction of their ATV
transmission system no later than a specified date which depends on the size of
the market in which a station is located and whether the station has a network
affiliation with ABC, CBS, Fox, or NBC. Affiliates of those networks which are
located in the ten largest markets must complete ATV construction no later than
May 1, 1999. Affiliates of those networks in markets 11-30 must complete ATV
construction no later than November 1, 1999. All other commercial stations
must complete construction no later than May 1, 2002. Because all of the
Company's stations are located in markets smaller than the 30th market, May 1,
2002, is the ATV construction deadline applicable to all of the Company's
stations. All of the Company's stations must file with the FCC no later than
November 1, 1999, a construction permit application for the new ATV transmission
system that each station proposes to build. After a station completes
construction of its ATV facility it will then begin broadcasting an ATV service
in addition to its existing NTSC service.
The FCC has assigned to each television station a specific channel, operating
power and antenna height which the station is to use to provide ATV service
during the transition period, and which are intended to replicate, to the extent
possible, each station's current NTSC service. Based on the FCC's calculation's,
the ATV facilities that the FCC specified for the Company's stations' will
allow all of the stations to replicate 98% to 100% of their NTSC service, except
for WRGT, Dayton, which will replicate 95% of its NTSC service. The Company
believes, however, that the operating power level that the FCC assigned to each
of the Company's stations for ATV service is an important consideration beyond
the FCC's predicated replications of NTSC service that potentially affects the
ability of consumers to receive ATV broadcasts using standards indoor television
antennas. The Company believes that a low operating power will have an adverse
affect on the reception of a station's ATV broadcast. Except for WTAT-TV,
Charleston, the FCC assigned to the Company's stations an operating power which
the Company believes may be too low to assure full reception of the ATV signal
by standard indoor television antennas throughout each station's market. The
FCC recently adopted rules that may allow the Company to increase significantly
the operating power for the Company's stations if such a power increase is
consistent with certain technical parameters the FCC also adopted. The Company
has not completed an engineering analysis of the FCC's new rules to determine
how they will affect the Company's stations and its ability to increase the
stations' operating power.
The implementation of ATV service will require each television station to
incur substantial costs to construct a second transmission system to broadcast
on the ATV channel, and then to provide both their existing NTSC broadcasts and
new ATV broadcasts during the transition period. The construction costs for
each station will depend on numerous variables, including the cost of ATV
equipment at the time of construction, the type of equipment required, whether
the station must acquire a new transmitter site or construct a new antenna tower
to accommodate the ATV transmission facility, and whether the station will
originate ATV programming or only pass through ATV programming received from
other sources (including network broadcasts and syndicated programming). THE
COMPANY CANNOT PREDICT THE COSTS IT WILL INCUR TO CONSTRUCT AND OPERATE NEW ATV
TRANSMISSION FACILITIES FOR ITS STATION.
20
<PAGE>
The FCC has limited the number of channels it will use for ATV service
compared to the channels which are now used for NTSC service. Thus, only
Channels 2 through 51 will be used for permanent ATV service (the "Core ATV
Channels") whereas NTSC services is provided on Channels 2 through 69. Because
there are fewer Core ATV Channels available and because new ATV channels must
co-exist with current NTSC station operations and minimize interference caused
to existing NTSC service during the transition period, the FCC initially
assigned to many stations for use during the transition period new ATV channels
that are outside the Core ATV Channel. When the transition period ends,
stations will operate only on a Core ATV Channel. Stations that provide ATV
service on a channel that is outside the Core ATV Channels during the transition
will need to change their ATV service to a Core ATV Channel at the end of the
transition, which will require such stations to incur additional ATV transition
costs. All of the Company's stations (excluding its low power and television
translator station) were assigned new ATV channels that are within the Core ATV
Channels.
All television stations that provide ATV service are required to provide a
minimum service that consists of a free over-the-air digital television program
service of a quality at least comparable to the present NTSC service and which
is provided during the same hours each day that a station provides NTSC service.
Beyond this minimum requirement, stations have the discretion to determine how
to program their new ATV service (for example, whether to provide one or more
channels of standard definition programming or a high definition program
service, plus other possible ancillary services). However, the FCC has
established a requirement that by April 2003, all stations must simulcast on
their ATV channel 50% of the programming carried on their NTSC channel (i.e.,
broadcast the same programming at the same time). This increases to a 75%
simulcast requirement by April 2004, and a 100% requirement by April 2005. By
December 31, 2006, all stations must terminate their NTSC broadcasts and provide
only ATV service, subject to an FCC authorized extension if certain conditions
exists in a station's market. If these conditions exist (which were
established in the Balanced Budget Act of 1997 and generally relate to the
degree to which the transition to ATV has taken place in a given market), then
the FCC may extend the transition period for any station in that market that
requests such an extension, thereby delaying the date when the station must
terminate its NTSC operation. The Company cannot predict how the transition to
ATV will progress in any of the markets in which the Company has a station, or
whether any of the Company's stations would require or request an extension of
the transition period.
Under the FCC rules, low power television and television translator stations
are considered secondary services and cannot cause any interference to the
operation of a full power television station, including its new ATV service.
Because low power television and television translator stations are not
initially eligible for ATV channels, and because of their secondary status, it
is expected that many low power television and television translator stations
will have to cease operating when full power stations begin to provide ATV
service. Although the FCC allows low power television and television translator
stations that are subject to potential termination to relocate to a new
channel, the allocation of the new ATV channels, will make it more difficult to
locate a channel to which a low power television or television translator
stations could relocate. After the transition period when each television
station has returned to the FCC one of its channels, more channels will then be
available for the relocation of dislocated low power television and television
translator stations. The Company does not presently know whether its low power
television or translator stations will be subject to possible termination and
whether, if so dislocated, an alternate channel can be found on which they may
operate, particularly during the transition period.
The FCC has pending or plans to initiate several rule making proceedings to
consider numerous issues related to the initiation of ATV service. These issues
include the applicability to ATV broadcasts of cable systems' must carry
obligations to carry the signals of local broadcast stations, the public service
obligations that television licensees must meet in the context of providing ATV
broadcasts, the regulatory
21
<PAGE>
fees that station licensees will pay if they use their ATV facility to provide
pay services in addition to traditional free over-the-air broadcasting, and the
impact of state and local zoning and other ordinances on the ability of stations
to rapidly construct new ATV facilities. The results of several of these
proceedings could have a significant impact on the implementation schedule and
consumer acceptance of the new ATV service.
The Company cannot predict the specific effects that the new ATV service will
have on the Company's business.
Proposed Changes. Congress and the FCC have under consideration, and in
the future may enact, new laws, regulations and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation,
ownership, programming, competitive position, and profitability of the Stations,
result in loss of audience share and advertising revenues for the Stations, or
affect network-affiliate relationships or the Company's ability to acquire
additional broadcast stations or to finance such acquisitions. The Company
cannot predict whether or when any proposed changes will be adopted or what
other matters might be considered in the future or the effect of any such
changes or matters on the Company.
Other Considerations. The foregoing summary does not purport to be a
complete discussion of all provisions of the Communications Act or the
regulations and policies of the FCC thereunder. Additionally, other federal,
state and local laws, regulations and policies may affect the Company's
operations. All such laws, regulations and policies may be changed from time to
time, and the Company cannot predict the nature of such changes or their impact
on its operations. Also, various of the foregoing matters are now, or may
become, the subject of court litigation, and the Company cannot predict the
outcome of any such litigation or its impact on its broadcast business.
HOLDINGS
- - - --------
A-3 was formed to acquire all of the outstanding capital stock of Act III
pursuant to the Stock Purchase Agreement. A-3 conducted no other activities
other than in connection with the negotiations, financing and consummation of
the Acquisition.
Approximately $374.3 million in cash was required to purchase all of the
outstanding capital stock of Act III. Funds obtained by A-3 and Holdings to
purchase the Act III stock, retire outstanding indebtedness of Act III and pay
fees and expenses associated with such transactions were provided from (i)
proceeds of approximately $115.0 million and $68.5 million from the issuance and
sale of Holdings preferred and common stock, respectively, (ii) proceeds of
$35.0 million from the sale in a public offering of 35,000 units consisting of
$1,000 principal amount of Holdings 13 1/4% senior accrual debentures due 2006
and 16 shares of Holdings class B-1 common stock, (iii) proceeds of $125.0
million from the sale in a public offering of A-3 10 1/4% senior subordinated
notes due 2005 (which notes are now obligations of SBC) and (iv) initial
borrowings by A-3 of $224.0 million under a bank credit agreement, with the
obligations under such bank credit agreement now being the obligations of SBC.
As of December 31, 1995, only the Holdings 35,000 units and the A-3 senior
subordinated notes due 2005 were outstanding.
22
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company employed approximately 541 people. The
Company is not a party to any collective bargaining agreements. The Company
considers its employee relationships to be very good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's headquarters are located at 18 Newbury Street, Boston,
Massachusetts 02116. The Company reimburses ABRY Partners, Inc., the management
company for all investments of ABRY, $1,789 per month, representing the
Company's allocable share of rent paid by ABRY under its lease, which expires
March 31, 2001. The lease covers approximately 4,112 square feet of office
space.
The types of properties required to support each of the Owned Stations include
offices, studios, transmitter sites and antenna sites. A Station's studios are
generally housed with its offices in downtown or business districts. The
transmitter sites and antenna sites are generally located so as to provide
maximum market coverage. The following table contains certain information
describing the general character of the Company's properties:
STATION, OWNED ACREAGE EXPIRATION
METROPOLITAN OR APPROXIMATE OF
AREA AND USE LEASED SIZE LEASE
------------ ------ ----------- ----------
WUTV - Buffalo, NY/
Toronto, Ontario
Office - Studio Owned 15,000 Sq. Ft N/A
Tower/Transmitter Site Owned 44.5 Acres N/A
WZTV - Nashville, TN
Office - Studio Owned 22,500 Sq. Ft. N/A
Tower/Transmitter Site Leased 1,750 Sq.Ft.(a) 01/11/03
WXLV - Greensboro/
Winston Salem/
High Point, NC
Office - Studio Owned 10,000 Sq. Ft. N/A
Office - Studio Leased 5,650 Sq. Ft. 10/31/03
Tower/Transmitter Site Leased 9.4 Acres 10/31/05
WRGT - Dayton, OH
Office - Studio Owned 12,000 Sq. Ft. N/A
Tower/Transmitter Site Owned 15 Acres N/A
WVAH - Charleston/
Huntington, WV
Office - Studio Owned 10,500 Sq. Ft. N/A
Tower/Transmitter Site Owned 18.2 Acres N/A
23
<PAGE>
WRLH - Richmond, VA
Office - Studio Leased 13,798 Sq. Ft. 03/01/00
Tower/Transmitter Site Owned 25 Acres N/A
WUHF - Rochester, NY
Office - Studio Leased 11,300 Sq. Ft. 05/31/99
Tower/Transmitter Site Leased 950 Sq. Ft. 12/31/29
WTAT - Charleston, SC
Office - Studio Leased 10,521 Sq. Ft. 06/30/00
Tower/Transmitter Site Leased 1,200 Sq. Ft.(a) 05/31/00
WMSN - Madison, WI
Office - Studio Leased 12,000 Sq. Ft. 12/31/00
Tower/Transmitter Site Leased 1,600 Sq. Ft.(a) 10/14/05
WFXV - Rome, NY
Office - Studio Owned 3,500 Sq. Ft. N/A
Tower/Transmitter Site Leased 5 Acres 9/1/02
Tower/Transmitter Site Leased 7 Acres 8/31/14
Repeater Site Leased 5 Acres 4/30/97
(a) Represents square feet for its transmitter building. Station also leases
space on a tower for its antenna.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any lawsuit or proceeding which, in the opinion
of management, is likely to have a material adverse effect on the financial
position or results of operations of the respective entity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during
the quarter ended December 31, 1997.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON EQUITY
The Company does not have a class of equity securities registered pursuant to
the Securities Act of 1933, and consequently there is no established public
trading market for the Company or Holdings common stock. As March 15, 1998,
Holdings owned 100% of the Company's common stock. As of March 15, 1998, there
were 47 stockholders of Holding's Class B-1 Common Stock, two stockholders of
Holding's Class B-2 Common Stock and 15 stockholders of Holding's Class C Common
Stock. Holdings has never declared any dividends on any class of its common
stock. Additionally, certain of Holding's debt instruments restrict payment of
dividends on its common stock.
24
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
THE COMPANY
- - - -----------
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Sullivan Sullivan
Broadcasting Broadcast
Predecessor Predecessor Predecessor Company, Inc. Holdings, Inc.
1993 1994 1995 1996 (6) 1996 (6)
INCOME STATEMENT DATA: ------------ ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenue (1) $ 74,929 $ 83,828 $ 92,125 $107,714 $107,714
Trade and barter revenues 9,035 7,942 7,876 14,808 14,808
--------- --------- -------- -------- --------
Total net revenue (1) 83,964 91,770 100,001 122,522 122,522
Operating expenses $ 9,211 $ 8,518 $ 11,136 $ 15,005 $ 15,005
Selling, general and administrative 21,928 23,243 23,447 23,402 23,921
Depreciation and amortization (2) 37,738 33,494 29,813 74,724 74,724
--------- --------- -------- -------- --------
Operating income 15,087 26,515 35,605 9,391 8,872
Interest expense 17,648 18,587 17,777 34,411 41,187
Net income (loss) (3) (15,883) 4,364 22,343 (17,899) (22,272)
OTHER FINANCIAL DATA:
Broadcast Cash Flow (4) $ 35,044 $ 45,318 $ 53,985 $ 64,049 $ 64,049
Amortization of programming rights 23,088 20,367 18,033 26,673 26,673
Payments for programming rights 12,369 10,341 8,368 9,087 9,087
Trade expense 363 320 304 928 928
Corporate expense 3,260 3,272 4,507 2,901 3,420
Capital expenditures 1,525 4,518 5,560 3,105 3,105
OTHER DATA:
Number of stations (5) 8 8 8 13 13
BALANCE SHEET DATA:
Total assets $ 132,903 $ 121,848 $134,826 $735,340 $737,544
Total long-term debt 182,207 176,355 138,898 377,602 407,743
Other long-term liabilities 11,209 10,535 12,992 107,097 109,458
Senior redeemable preferred stock 21,532 23,868 26,386 0 111,483
Stockholders' equity (deficit) (102,453) (108,491) (88,513) 187,850 53,073
<CAPTION>
Sullivan Sullivan
Broadcasting Broadcast
Company, Inc. Holdings, Inc.
1997 1997
INCOME STATEMENT DATA: -------------- --------------
<S> <C> <C>
Net revenue (1) $120,124 $120,124
Trade and barter revenues 17,650 17,650
-------- --------
Total net revenue (1) 137,774 137,774
Operating expenses $ 17,301 $ 17,301
Selling, general and administrative 27,516 28,319
Depreciation and amortization (2) 72,417 72,417
-------- --------
Operating income 20,540 19,737
Interest expense 35,057 40,711
Net income (loss) (3) (11,918) (15,474)
OTHER FINANCIAL DATA:
Broadcast Cash Flow (4) $ 67,895 $ 67,895
Amortization of programming rights 30,197 30,197
Payments for programming rights 11,820 11,820
Trade expense 815 815
Corporate expense 3,593 4,396
Capital expenditures 4,439 4,439
OTHER DATA:
Number of stations (5) 13 13
BALANCE SHEET DATA:
Total assets $708,000 $710,316
Total long-term debt 356,505 386,828
Other long-term liabilities 110,386 115,236
Senior redeemable preferred stock 0 133,185
Stockholders' equity (deficit) 175,932 15,855
</TABLE>
(1) Net "revenues" and "Total net revenue" are shown net of agency
communications.
(2) This amount includes amortization of programming rights reflected below in
"Other Financial Data".
(3) Net loss for the year ended December 31, 1993 includes an extraordinary item
of $12,619,000 resulting from a prepayment premium and other losses from
early extinguishment of certain debt.
(4) "Broadcast Cash Flow" is defined as operating income plus (i) noncash
expenses, including depreciation and amortization expenses and program
amortization expense, plus (ii) corporate expenses, net less (iii) payments
for programming rights and net barter revenues (expenses). The Company has
included Broadcast Cash Flow data because it understands such data is used
by certain investors to measure a Company's ability to service debt.
Broadcast Cash Flow does not purport to represent cash provided by operating
activities as reflected in the Company's consolidated financial statements,
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.
25
<PAGE>
(5) "Number of stations" represents stations either owned or programmed under a
LMA arrangement.
(6) Data for 1996 includes the results of the Company after giving effect to
the Acquisition and other acquisitions made during 1996.
(DOLLARS IN THOUSANDS)
A-3 HOLDINGS
1995 1995
---- ----
INCOME STATEMENT DATA:
Net revenues $ - $ -
Selling, general and administrative 1,116 1,601
Operating income (loss) (1,116) (1,601)
Interest expense 169 258
Net income (loss) (1,053) (1,524)
BALANCE SHEET DATA:
Total assets $134,981 $173,964
Total long-term debt 125,000 154,407
Stockholders equity 4,148 11,048
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following analyses of the financial condition and results of operations
of the Company, A-3 and Holdings should be read in conjunction with the
respective entities Consolidated Financial Statements and notes thereto included
elsewhere in this Form 10-K report.
THE COMPANY
- - - -----------
The Company's revenues are derived principally from local and national
advertisers. Additional revenues are derived from network compensation from ABC,
commercial production and rental of broadcast towers. Substantially all of the
Company's revenue growth in the last three years has been due to increases in
advertising unit rates paid by its advertisers, which have been mostly
attributable to improvements in ratings among key demographics, strong
advertiser demand as well as the WUXP LMA and other acquisitions made in 1996.
The Company has been able to improve its ratings among key demographics due to
the availability of high quality programming, including programming provided by
Fox, programming provided by FCN, NFL football and first run programming. The
development of sales marketing programs, implemented to enhance the Stations'
image, has also contributed to the growth in revenues. The Stations conduct
local "Kids Expos" and live remote broadcasts, publish promotional advertising
print supplements and participate in joint marketing events with local
businesses and radio stations.
The Company's operating revenues are generally highest in the fourth quarter
of each year. This seasonality is primarily attributable to increased
expenditures by advertisers in anticipation of holiday retail spending and an
increase in viewership during the Fall/Winter season. Accordingly, accounts
receivable balances as of the end of each of the first three calendar quarterly
periods are generally substantially less than the balances as of the end of the
year. Each of the Stations
26
<PAGE>
generate positive Broadcast Cash Flow. Generally, Stations in larger markets
contribute higher Broadcast Cash Flow.
The Company's principal costs of operations are employee salaries and
commissions, programming, production, promotion and other expenses (such as
maintenance, supplies, insurance, rent and utilities).
On January 4, 1996, A-3 acquired substantially all of the outstanding stock
of Act III for approximately $517 million plus certain amounts defined in the
underlying purchase and sale agreement. See Note 3 of "Notes to Consolidated
Financial Statements."
A-3
- - - ---
A-3 and its sole stockholder, Holdings, were formed in 1995 to acquire the
outstanding capital stock of Act III. The operations of A-3 during 1995 were
principally related to the raising of funds through the issuance in a public
offering of $125 million of A-3 10 1/4% senior subordinated notes due 2005
(which notes are now obligations of SBC).
HOLDINGS
- - - --------
Holdings, and its 100% owned subsidiary A-3, were formed in 1995 to acquire
the outstanding capital stock of Act III. The operations of Holdings during
1995 were principally related to the raising of funds through the issuance in a
public offering of 35,000 units, each unit consisting of $1,000 principal amount
of Holdings 13 1/4% senior accrual debentures due 2006 and 16 shares of Holdings
Class B-1 Common Stock.
27
<PAGE>
RESULTS OF OPERATIONS
The Company
- - - -----------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Set forth below are selected consolidated financial data for the years ended
December 31, 1997 and December 31, 1996 and the percentage changes between the
periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1996 1997 Percentage Change
----------------------------- ----------------------------- ----------------------------------
Sullivan Sullivan Sullivan Sullivan Sullivan Sullivan
Broadcasting Broadcast Broadcasting Broadcast Broadcasting Broadcast
Company, Inc. Holdings, Inc. Company, Inc. Holdings, Inc. Company, Inc. Holdings, Inc.
------------- -------------- ------------- -------------- ----------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues (excluding trade
and barter) $107,714 $107,714 $120,124 $120,124 11.5% 11.5 %
Trade and barter revenues 14,808 14,808 17,650 17,650 19.2 19.2
Total net revenues 122,522 122,522 137,774 137,774 12.4 12.4
Operating expenses 15,005 15,005 17,301 17,301 15.3 15.3
Selling, general
and administrative expenses 23,402 23,921 27,516 28,319 17.6 18.4
Depreciation and amortization 74,724 74,724 72,417 72,417 (3.1) (3.1)
Operating income 9,391 8,872 20,540 19,737 118.7 122.5
Interest expense 34,411 41,187 35,057 40,711 1.9 (1.2)
Net loss 17,899 22,272 11,918 15,474 (33.4) (30.5)
Payments for programming rights 9,087 9,087 11,820 11,820 30.1 30.1
Broadcast Cash Flow 64,049 64,049 67,895 67,895 6.0 6.0
</TABLE>
Net revenues are net of commissions and exclude trade and barter revenues
and primarily include local and national spot advertising sales. Net revenues
increased to $120,124,000 in 1997 from $107,714,000 in 1996, an increase of $
12,410,000, or 11.5%. Approximately $4,044,000 of this increase was
attributable to the WMSN and WFXV station acquisitions made during mid-1996.
Additionally, net revenues increased due to higher advertising rates in 1997
when compared with 1996. During 1997, advertising spot rates were positively
impacted by the improving economy, resulting in greater advertising spending,
along with higher key demographic ratings from additional Fox programming and
other syndicated and first run programming. Of the advertising revenues
reported for 1997, 59.6% were from local advertising sales and 40.4% were from
national advertising sales.
Local revenues include gross revenues before commissions from local or
regional advertisers or their representative agencies. Local and regional areas
encompass the station's designated market area and its outlying areas. Local
revenues increased to $83,862,000 in 1997 from $72,073,000 in 1996, an increase
of $11,789,000, or 16.4%. The increase was due to station acquisitions made
during mid-1996, along with increased ratings and stronger advertising demand
resulting from the Company's emphasis on expanding local sales.
National revenues include gross revenues before commissions from national
advertisers or their representative agencies. National advertisers are
advertisers outside of the station's local market or region. National revenues
increased to $56,912,000 in 1997 from $55,795,000 in 1996, an increase of
$1,117,000, or 2.0%. As with local revenues, national revenues increased as a
result of stations acquisitions made during mid-1996, as well as increased
ratings and higher
28
<PAGE>
advertising rates in 1997 when compared with 1996, offset somewhat by the
Company successfully increasing local sales in 1997 over 1996.
Trade and barter revenues increased to $17,650,000 in 1997 from $14,808,000
in 1996, an increase of $2,842,000, or 19.2%. This change was primarily due to
higher advertising spot rates in 1997 compared to 1996 along with Station
acquisitions made in mid-1996 which resulted in an increase in the revenue
recognized therefrom.
Operating expenses include engineering, promotion, production, programming
operations and trade expenses. Operating expenses increased to $17,301,000 in
1997 from $15,005,000 in 1996, an increase of $2,296,000, or 15.3%. The
increase was primarily the result of operating the WMSN and WFXV stations for a
full twelve months in 1997 compared to only six months in 1996.
Selling, general and administrative expenses include sales, salaries,
commissions, insurance, supplies and general management salaries. Selling,
general and administrative expenses increased to $27,516,000 and $28,319,000 in
1997 from $23,402,000 and $23,921,000 in 1996, increases of $4,114,000, and
$4,398,000 or 17.6% and 18.4% for Sullivan Broadcasting Company, Inc. and
Sullivan Broadcast Holdings, Inc., respectively. These increases were the
result of additional costs associated with the WMSN and WFXV station
acquisitions in mid-1996 along with higher compensation levels in 1997 over
1996.
Depreciation and amortization includes depreciation of property and
equipment, amortization of programming rights and amortization of intangibles.
Depreciation and amortization decreased to $72,417,000 in 1997 from $74,724,000
in 1996, a decrease of $2,307,000, or 3.1%, due to the retirement of certain
fixed and intangible assets, offset somewhat by increased amortization of
programming rights along with additional amortization of intangible assets and
depreciation of fixed assets associated with the acquisition of WMSN and WFXV
in mid-1996.
Operating income increased to $20,540,000 and $19,737,000 in 1997 from
$9,391,000 and $8,872,00 in 1996, increases of $11,149,000 and $10,865,000 or
118.7% and 122.5% for Sullivan Broadcasting Company, Inc. and Sullivan Broadcast
Holdings, Inc., respectively, due to the reasons discussed above.
Interest expense includes interest charged on all outstanding debt and the
amortization of debt issuance costs and debt discount over the life of the
underlying debt. Interest expense increased to $35,057,000 and decreased to
$40,711,000 in 1997 from $34,411,000 and $41,187,000 in 1996, an increase of
$646,000 and a decrease of $476,000 or 1.9% and 1.2% for Sullivan Broadcasting
Company, Inc. and Sullivan Broadcast Holdings, Inc., respectively. The increase
in Sullivan Broadcasting Company, Inc. was the result of interest costs incurred
on the additional borrowings utilized to fund the WMSN and WFXV acquisitions,
further increased by slightly higher amortization of debt issuance costs while
the decrease in Sullivan Broadcast Holdings, Inc. interest expense was
attributable to lower amortization of debt issue costs and debt discount offset
somewhat by the compounding of unpaid interest and those increases attributable
to the Sullivan Broadcasting Company, Inc. debt.
The income tax benefit decreased to $2,591,000 and $5,488,000 in 1997 from
$7,252,000 and $10,174,000 in 1996, decreases of $4,661,000 and $4,686,000 or
64.3% and 46.1% for Sullivan Broadcasting Company, Inc. and Sullivan Broadcast
Holdings, Inc., respectively. This decrease is due to an increase in current
income tax expense coupled with a decrease in the deferred income tax benefit.
These fluctuations relate to improving operating results as well as timing
differences between book and tax for items such as depreciation and
amortization.
29
<PAGE>
Net loss decreased to $11,918,000 and $15,474,000 in 1997 from $17,899,000
and $22,272,000 in 1996, decreases of $5,981,000 and $6,798,000 or 33.4% and
30.5% for Sullivan Broadcasting Company, Inc. and Sullivan Broadcast Holdings,
Inc., respectively, due to the reasons discussed above.
Payments for programming rights increased to $11,820,000 in 1997 from
$9,087,000 in 1996, an increase of $2,733,000, or 30.1%. This increase is a
result of increased programming demands relating to the WMSN and WFXV stations
acquired in mid-1996.
Broadcast Cash Flow increased to $67,895,000 in 1997 from $64,049,000 in
1996, an increase of $3,846,000, or 6.0%. This increase is a result of the
aforementioned increased in revenue with a smaller proportional increase in
operating, selling, and general and administrative expenses in the aggregate.
The Company believes that Broadcast Cash Flow, which is operating income
exclusive of amortization, depreciation, barter revenue and expense less the
amount of any cash film payments made during the period, is important in
measuring the Company's financial results and its ability to pay principal and
interest on its debt because broadcasting companies traditionally have large
amounts of non-cash expense attributable to amortization of programming rights
and other intangibles. Broadcast Cash Flow does not purport to represent cash
provided by operating activities as reflected in the Company's consolidated
financial statements, 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.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Set forth below are selected consolidated financial data for the years ended
December 31, 1996 and December 31, 1995 and the percentage changes between the
periods.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 (Predecessor) 1996 Percentage Change
----------------------------- ------------------------------ -------------------------------
Sullivan Sullivan Sullivan Sullivan Sullivan Sullivan
Broadcasting Broadcast Broadcasting Broadcast Broadcasting Broadcast
Company, Inc. Holdings, Inc. Company, Inc. Holding, Inc. Company, Inc. Holdings, Inc.
------------- -------------- -------------- -------------- -------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues (excluding trade
and barter) $ 92,125 $ 92,125 $107,714 $107,714 16.9 % 16.9 %
Trade and barter revenues 7,876 7,876 14,808 14,808 88.0 88.0
Total net revenues 100,001 100,001 122,522 122,522 22.5 22.5
Operating expenses 11,136 11,136 15,005 15,005 34.7 34.7
Selling, general
and administrative expenses 23,447 23,447 23,402 23,921 (0.2) 2.0
Depreciation and amortization 29,813 29,813 74,724 74,724 150.6 150.6
Operating income 35,605 35,605 9,391 8,872 (73.6) (75.1)
Interest expense 17,777 17,777 34,411 41,187 93.6 131.7
Net income (loss) 22,343 22,343 (17,899) (22,272) (180.1) (199.7)
Payments for programming rights 8,368 8,368 9,087 9,087 8.6 8.6
Broadcast Cash Flow 53,985 53,985 64,049 64,049 18.6 18.6
</TABLE>
Net revenues are net of commissions and exclude trade and barter revenues
and primarily include local and national spot advertising sales. Net revenues
increased to $107,714,000 in 1996 from $92,125,000 in 1995, an increase of
$15,589,000, or 16.9%. Furthermore, net revenues increased at all of the
Stations in 1996 from 1995. Approximately $10,800,000 of this increase was
attributable to the addition of the WUXP LMA and Station acquisitions made
during 1996. Additionally, net revenues
30
<PAGE>
increased due to reduced national sales representative commission rates which
commenced concurrent with the Acquisition along with higher advertising rates in
1996 when compared with 1995. During 1996, advertising spot rates were
positively impacted by the improving economy, resulting in greater advertising
spending, along with higher key demographic ratings from additional Fox
programming and other syndicated and first run programming. Of the advertising
revenues reported for 1996, 56.3% were from local advertising sales and 43.7%
were from national advertising sales.
Local revenues include gross revenues before commissions from local or
regional advertisers or their representative agencies. Local and regional areas
encompass the station's designated market area and its outlying areas. Local
revenues increased to $72,073,000 in 1996 from $59,036,000 in 1995, an increase
of $13,037,000, or 22.1%. Of this increase, approximately $6,700,000 was
attributable to the addition of the WUXP LMA and Stations acquired in 1996.
Furthermore, the increase is due to increased ratings as well as strong
advertising demand.
National revenues include gross revenues before commissions from national
advertisers or their representative agencies. National advertisers are
advertisers outside of the station's local market or region. National/Canadian
revenues increased to $55,795,000 in 1996 from $50,413,000 in 1995, an increase
of $5,382,000, or 10.7%. Approximately $4,630,000 of this increase was related
to the WUXP LMA along with Stations acquired during 1996. Additionally, as with
local revenues, national revenues increased as a result of higher ratings as
well as stronger advertising demand in 1996 when compared with 1995.
Trade and barter revenues increased to $14,808,000 in 1996 from $7,876,000
in 1995, an increase of $6,932,000, or 88.0%. This change was primarily due to
the increase in the value of barter programming rights recorded in the purchase
accounting for the Acquisition as well as other acquisitions made in 1996 which
resulted in an increase in the revenue recognized therefrom.
Operating expenses include engineering, promotion, production, programming
operations and trade expenses. Operating expenses increased to $15,005,000 in
1996 from $11,136,000 in 1995, an increase of $3,869,000, or 34.7%. The
increase was primarily due to the WXLV affiliation switch from Fox Broadcasting
Company to the American Broadcasting Company, Inc. in September 1995, as the
Company is now producing local news at WXLV, which increased operating expenses
by $1,785,000 in 1996. Additionally, operating expenses were further increased
by approximately $1,323,000 due to the addition of the WUXP LMA as well as
Station acquisitions made during 1996.
Selling, general and administrative expenses include sales, salaries,
commissions, insurance, supplies and general management salaries. Selling,
general and administrative expenses decreased to $23,402,000 and increased to
$23,921,000 in 1996 from $23,447,000 in 1995, a decrease of $45,000 and an
increase of $474,000, or 0.2% and 2.0% for Sullivan Broadcasting Company, Inc.
and Sullivan Broadcast Holdings, Inc., respectively. These changes are the
result of higher salary costs due to an overall headcount increase, offset
somewhat by reduced corporate overhead.
Depreciation and amortization includes depreciation of property and
equipment, amortization of programming rights and amortization of intangibles.
Depreciation and amortization increased to $74,724,000 in 1996 from $29,813,000
in 1995, an increase of $44,911,000, or 150.6%, due to the increased value of
all fixed assets, programming rights and intangible assets recorded in the
purchase accounting for the Acquisition, and other acquisitions made in 1996.
Operating income decreased to $9,391,000 and $8,872,000 in 1996 from
$35,605,000 in 1995, decreases of $26,214,000 and $26,733,000 or 73.6% and 75.1%
for Sullivan Broadcasting Company, Inc. and Sullivan Broadcast Holdings, Inc.,
respectively, due to the reasons discussed above.
31
<PAGE>
Interest expense increased to $34,411,000 and $41,187,000 from $17,777,000,
increases of $16,634,000 and $23,410,000 or 93.6% and 131.7% for Sullivan
Broadcasting Company, Inc. and Sullivan Broadcast Holdings, Inc. respectively.
These increases were the result of interest costs incurred on the debt utilized
to fund the Acquisition and additional borrowings to fund other acquisitions
made during the period.
Sullivan Broadcasting Company, Inc. and Sullivan Broadcast Holdings, Inc.
had net losses of $17,899,00 and $22,272,000, respectively, compared to net
income of $22,343,000 in 1995, decreases of $40,242,000 and $44,615,000 due to
the reasons discussed above.
Payments for programming rights increased to $9,087,000 in 1996 from
$8,368,000 in 1995, an increase of $719,000, or 8.6%. This increase was a
result of increased programming demands relating to the WUXP LMA, an independent
station, and other Station acquisitions made during 1996.
Broadcast Cash Flow increased to $64,049,000 in 1996 from $53,985,000 in
1995, an increase of $10,064,000, or 18.6%. This increase was a result of the
aforementioned increased in revenue with a smaller proportional increase in
operating, selling, and general and administrative expenses in the aggregate.
The Company believes that Broadcast Cash Flow, which is operating income
exclusive of amortization, depreciation, barter revenue and expense less the
amount of any cash film payments made during the period, is important in
measuring the Company's financial results and its ability to pay principal and
interest on its debt because broadcasting companies traditionally have large
amounts of non-cash expense attributable to amortization of programming rights
and other intangibles. Broadcast Cash Flow does not purport to represent cash
provided by operating activities as reflected in the Company's consolidated
financial statements, 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.
YEAR ENDED DECEMBER 31, 1995
Set forth below is selected consolidated financial data for the year ended
December 31, 1995.
(DOLLARS IN THOUSANDS)
A-3 HOLDINGS
1995 1995
---- ----
Total net revenues $ - $ -
Selling, general and administrative expenses 1,116 1,601
Operating income (loss) (1,116) (1,601)
Net income (loss) (1,053) (1,524)
Selling, general and administrative expenses include salaries and payments
required under an agreement executed with an executive's former employer related
to the executive's termination.
32
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
- - - -----------
The Company's primary source of liquidity is cash provided by operations. Cash
provided by operations was $21,342,000 and $21,361,000 during 1997 and
$27,170,000 and $16,663,000 in 1996 for Sullivan Broadcasting Company, Inc. and
Sullivan Broadcast Holdings, Inc., respectively. Cash provided by operations
was $21,820,000 during 1995. The changes in cashflow from operations for these
periods was attributable primarily to improvements in the Company's operating
results, offset somewhat by the timing of interest payments.
Such cash provided by operations is after payments for programming rights,
which amounted to $11,820,000, $9,087,000, and $8,368,000 respectively, for the
years ended 1997, 1996 and 1995. The Company prepaid certain obligations for
programming rights in connection with the Acquisition in 1996. After giving
effect to such prepayments, the Company has cash program payment commitments
(including contracts not yet recordable as assets) of $46,253,000 of which
$14,798,000 are payable in 1998, $11,437,000 in 1999, $9,351,000 in 2000,
$5,868,000 in 2001, $3,632,000 in 2002 and $1,167,000 thereafter.
The Company's primary capital requirements have been for capital expenditures.
Capital expenditures totaled $4,439,000, $3,105,000, and $5,560,000 for 1997,
1996 and 1995, respectively. Expenditures for 1997, 1996 and 1995 reflect work
associated with the replacement of WUTV's transmitter, tower and antenna. The
Company anticipates a lower level of capital expenditures in 1998 compared to
1997, which expenditures the Company anticipates will maintain the Company's
operations as well as allow for the completion of the replacement of the
transmitter system at WUTV.
The Company's primary financing activities have been related to borrowings
under the existing debt facility to fund the station acquisitions made during
1996. At December 31, 1997, the Company had $6,000,000 of revolver borrowings
outstanding under a $30,000,000 revolving credit facility.
A-3
- - - ---
A-3's only source of liquidity as of December 31, 1995 was from the proceeds of
capital stock purchases and funds raised through the issuance, in a public
offering, of $125,000,000 of senior subordinated notes due 2006.
HOLDINGS
- - - --------
Holdings' only source of liquidity as of December 31, 1995 was from the
proceeds of capital stock purchases and funds raised through the issuance in a
public offering of 35,000 units, each unit consisting of $1,000 principal amount
of Holdings 13 1/4% senior accrual debentures due 2006 and 16 shares of Holdings
Class B-1 Common Stock.
FORWARD-LOOKING STATEMENTS
This documents contains forward-looking statements. In addition, when used in
this document, 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 station, pricing fluctuations in local and national
advertising and volatility in programming costs. 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.
33
<PAGE>
RISK OF LOSS OF TAX BENEFITS
At December 31, 1997, there were net operating loss carryforwards for federal
income tax purposes, available to reduce future taxable income of approximately
$99,863,000 and $109,857,000 for Sullivan Broadcasting Company, Inc. and
Sullivan Broadcast Holdings, Inc., respectively. Additionally, there were
charitable contributions carryforwards of approximately $10,000,000 for federal
income tax purposes, available to reduce future taxable income for both Sullivan
Broadcasting Company, Inc. and Sullivan Broadcast Holdings, Inc. To the extent
not used, federal net operating loss carryforwards expire in varying amounts
beginning in 2003. In addition, there were net operating loss carryforwards of
approximately $31,590,000 and $38,604,000 for Sullivan Broadcasting Company,
Inc. and Sullivan Broadcast Holdings, Inc., respectively, regarding state and
local income tax purposes in various jurisdictions.
A corporation that undergoes a "change of ownership" pursuant to Section 382 of
the Internal Revenue Code is subject to limitations on the amount of its net
operating loss carryforwards which may be used in the future. An ownership
change occurred on January 4, 1996. The annual limitation on the use of the net
operating loss is $10,050,000. The Company estimates the limitation on the net
operating loss will not have a material adverse impact on the Company's
consolidated financial position or results of operations. No assurance can be
given that an ownership change will not occur as a result of other transactions
entered into by the Company, or by certain other parties over which the Company
has no control. If a "change in ownership" for income tax purposes occurs, the
Company's ability to use "pre-change losses" could be postponed or reduced,
possibly resulting in accelerated or additional tax payments which, with respect
to tax periods beyond 1997, could have a material adverse impact on the
Company's consolidated financial position or results of operations.
INFLATION
For the three years ended December 31, 1997, inflation and changing prices
have not had a significant impact on the Company's results of operations and
financial condition.
SEASONALITY
The Company's operating revenues are generally highest in the fourth quarter
of each year. This seasonality is primarily attributable to increased
expenditures by advertisers in anticipation of holiday retail spending and on
increases in viewership during the Fall/Winter season.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements (together with report of independent
accountants) of Act III and the Company and its subsidiaries and financial
statement schedules are included on pages F-1 through F-58 of this report on
Form 10-K.
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Directors and Executive Officers of SBC and Holdings as of March 15, 1998. All
directors will hold office until the next annual meeting of the stockholders and
until their successors are duly elected and qualified or until their earlier
death, resignation or removal. All officers will hold office until their
successors are duly elected or until their death, resignation or removal.
Name Age Position
---- --- --------
Peni Garber 35 Director
Peggy Koenig 41 Director
Tim R. Palmer 40 Director
J. Daniel Sullivan 46 Director, President and Chief Executive Officer
Royce Yudkoff 42 Director
Patrick Bratton 32 Vice President and Chief Financial Officer
David Pulido 43 Executive Vice President-Programming and
Legal Affairs and Secretary
The following sets forth certain biographical information with respect to the
individuals identified above.
Peni Garber joined ABRY I (the predecessor fund to ABRY) in 1990. She is a
principal and is responsible for investment analysis, working with the portfolio
companies of ABRY on an ongoing basis and arranging the disposition of ABRY's
investments. Prior to joining ABRY I, Ms. Garber served as Senior Accountant in
the Audit Division of Price Waterhouse LLP, an international accounting firm,
from 1985 to 1990.
Peggy Koenig joined ABRY in 1995. She is a partner and is responsible for
initiating investment opportunities and arranging debt and equity financing.
From 1992 until joining ABRY, Ms. Koenig was President of Koenig Management
Group, Inc., a financial management company which provided advisory services to
broadcast related companies, including ABRY I. From 1988 to 1992, Ms. Koenig
was Vice President, partner and member of the Board of Directors of Sillerman
Communications Management Corporation, a merchant bank, which makes investments
principally in the radio industry.
Tim R. Palmer is a Managing Director of Harvard Private Capital Group, Inc.
("Harvard Private Capital"), which manages the direct investment portfolio of
the Harvard University endowment fund and is a wholly owned subsidiary of the
President and Fellows of Harvard College. Prior to joining Harvard Private
Capital in 1990, Mr. Palmer was Manager, Business Development for The Field
Corporation, a Chicago-based investment management firm specializing in direct
investments in the communications industry, and an attorney with Sidley & Austin
in Chicago. Mr. Palmer serves on the board of directors of NHP Incorporated,
PriCellular Corporation and several private companies.
J. Daniel Sullivan is President and Chief Executive Officer of Holdings and
the Company. From 1988 to September 1995 (when he signed the Sullivan
Employment Agreement (as defined)), Mr. Sullivan was the President and Chief
Executive Officer of Clear Channel, a wholly owned subsidiary of Clear Channel
Communications, Inc., which owned and/or programmed fourteen television stations
as of June
35
<PAGE>
30, 1995. Mr. Sullivan has been an executive in the television broadcasting
business for 22 years. Mr. Sullivan serves on the Holdings Board of Directors
pursuant to the Sullivan Employment Agreement.
Royce Yudkoff co-founded ABRY I in 1989 with Andrew Banks. Mr. Yudkoff has
managing partner responsibilities for ABRY and had similar responsibilities for
ABRY I. Prior to the formation of ABRY I, Mr. Yudkoff was affiliated with Bain
& Company ("Bain"), an international consulting firm. He was a partner at Bain
from 1985 until the time he co-founded ABRY I. While at Bain, Mr. Yudkoff had
significant responsibility for Bain's media practice.
Patrick Bratton is Vice President and Chief Financial Officer of Holdings
and the Company. From October 1993 until November 1995 (when he signed the
Bratton Employment Agreement (as defined)), Mr. Bratton was the controller of
Honeywell DMC Services, Inc., an energy conservation services company.
Previously, Mr. Bratton was a manager with Price Waterhouse LLP, an
international accounting firm, which he joined in August 1988.
David Pulido is Executive Vice President--Programming and Legal Affairs and
Secretary of Holdings and the Company. Mr. Pulido joined ABRY I in 1990 and was
a partner prior to joining SBC, with responsibility for evaluating investment
opportunities and overseeing on-going programming, legal and regulatory matters
related to ABRY's investments. Prior to joining ABRY I, Mr. Pulido spent eight
years in the television business at MCA, Paramount Pictures and Columbia
Pictures, most recently as Director of Legal and Business Affairs for MCA
Television from 1986 to 1990.
ITEM 11. EXECUTIVE COMPENSATION
ACT III
- - - -------
Compensation of Directors. Those directors who are not also officers or
employees of the Company receive reimbursement for expenses in attending each
meeting of the Board of Directors and for each committee meeting attended.
Compensation of Executive Officers. The following table summarizes the
compensation paid to the Chief Executive Officer and the Company's most highly
compensated officers as to whom the total annual salary and bonus exceeded
$100,000 in 1995, for services rendered to the Company. These officers are no
longer employed by the Company effective as of the Acquisition.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name PRINCIPAL POSITION YEAR SALARY BONUS
- - - ---- ------------------ ---- ------ -----
Hal Gaba Chief Executive Officer 1995 $200,000 $ 50,000
Richard M. Ballinger President, Chief Operating 1995 $306,000 $300,000
Officer
John F. DeLorenzo Executive Vice President, 1995 $201,000 $160,000
Chief Financial Officer
36
<PAGE>
Compensation for Executive Officers was determined by the Compensation
Committee of the Board of Directors of the Company. Executive Officer
compensation was principally in the form of annual salary and cash bonuses paid
on a quarterly basis. In making compensation determinations, the Compensation
Committee considered several criteria, including the Company's performance and
growth, industry standards for similarly situated companies and the experience
and qualitative performance of such Executive Officers.
Specifically, the Company's financial performance for the fiscal year and
quarters were analyzed and compared against budgeted performance goals for such
periods. However, commencing June 1, 1993, the annual salaries of Mr. Ballinger
and Mr. DeLorenzo were set by their respective employment agreements at a
minimum base of $250,000 and $175,000, respectively, plus bonuses.
Quarterly bonuses for the Company's Executive Officers were set exclusively
on comparison of the Company's quarterly financial performance to budgeted
goals. The extent to which such quarterly goals were surpassed or not achieved
affected the bonuses paid to the Executive Officers. In the past, the Company's
performance had approximated budgeted goals, resulting in regular quarterly
bonuses for Executive Officers. Typically, bonuses were established at the
beginning of each fiscal year by the Chief Executive Officer.
Long-term compensation of Executive Officers and certain other Company
employees were in the form of options to purchase Class B Common Stock (as
defined) under the Company's 1989 Management Stock Option Plan, as amended.
Awards of such stock options were determined by the Stock Option Plan Committee
of the Board of Directors. These option awards were generally not considered or
intended to be part of the Executive Officers' annual compensation, but rather
to provide long-term incentive and motivation through equity ownership in the
Company.
No options were granted by the Company in 1995 to the Executive Officers
named in the Summary Compensation Table fiscal year-end option values for the
Executive Officers named in the Summary Compensation Table. All outstanding
options were exercised by such individuals in 1996.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES - 1995
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
---------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Hal Gaba 5.00 13.00 $ 14,250 $28,500
Richard M. Ballinger 74.00 15.50 814,400 73,850
John F. DeLorenzo 22.83 13.67 242,159 87,066
</TABLE>
(1) Based upon the value of $11,850 per Class B Share.
37
<PAGE>
The Company, A-3 and Holdings
- - - -----------------------------
Compensation of Directors. Those Directors who are not also officers or
employees of the Company receive reimbursement for expenses in attending each
meeting of the Board of Directors and for each committee meeting attended.
Compensation of Executive Officers. The following table summarizes the
compensation paid to the Chief Executive Officer and the Company's most highly
compensated officers as to whom the total annual salary and bonus exceeded
$100,000 in 1996 and 1997, for services rendered to the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME PRINCIPAL POSITION YEAR SALARY BONUS
- - - ---- ------------------ -----------------------------
J. Daniel Sullivan Chief Executive Officer 1997 $375,000 $150,000
1996 $411,305 $150,000
1995 $ 94,231 --
David Pulido Executive Vice President, 1997 $185,000 $ 55,000
Programming and Legal 1996 $173,343 $ 72,250
Affairs
Patrick Bratton Vice President and 1997 $ 90,000 $ 25,000
Chief Financial Officer 1996 $ 75,085 $ 37,300
Compensation for Executive Officers is determined based upon the respective
officer's employment agreement. Increases to the contractual salaries and
annual non-contractual discretionary bonuses are determined by the Board of
Directors based upon the Company's overall performance against financial targets
and the individual's performance during the past year.
EMPLOYMENT AGREEMENTS OF HOLDINGS AND SBC
SULLIVAN EMPLOYMENT AGREEMENT
SBC, Holdings and Mr. Sullivan are parties to an Executive Employment
Agreement, dated as of September 13, 1995 ( the "Sullivan Employment
Agreement"), under which, Mr. Sullivan will serve as President and Chief
Executive Officer of Holdings and as a director and member of the executive
committee, if any, of the Board of Directors of Holdings and SBC. Additionally,
under the Sullivan Employment Agreement, Holdings will cause Mr. Sullivan to be
elected President and Chief Executive Officer of any of its wholly-owned direct
or indirect subsidiaries which is the holder of any FCC license to operate
television, radio or other broadcast properties (including SBC). The Sullivan
Employment Agreement is for an initial term through September 13, 2000 (with
automatic successive one-year renewals thereafter unless either party gives 180
days prior notice of its intent to terminate), subject to earlier termination as
described below. The Sullivan Employment Agreement provides for an annual base
salary of $350,000, an annual guaranteed bonus of $150,000 (the "Guaranteed
Bonus") and an additional bonus each year as determined by the Holdings Board of
Directors in its sole discretion based upon Holdings' overall performance and
the satisfaction of the personal goals of Mr. Sullivan as established by the
Holdings Board of Directors. Mr. Sullivan has purchased at the Closing, 200,000
shares of Class B-2 Common Stock for $10.00 per share and 347,512 shares of
Class C Common Stock for $0.5720665 per share, for an aggregate purchase price
of $2,198,800.
38
<PAGE>
The Sullivan Employment Agreement will terminate under the following
circumstances: (i) Mr. Sullivan's death, (ii) the illness, physical or mental
disability or other incapacity of Mr. Sullivan resulting in an inability to
perform his duties under the Sullivan Employment Agreement for six consecutive
months and (iii) a Sale of Holdings (as defined in the Sullivan Employment
Agreement). In addition, (i) Holdings may terminate the Sullivan Employment
Agreement for any reason on or after September 13, 1996 upon thirty days notice
and subject to the obligation to make termination payments described below and
(ii) Mr. Sullivan may terminate the Sullivan Employment Agreement at any time
for Good Reason (as defined in the Sullivan Employment Agreement), and for any
reason on or after September 13, 1996 upon thirty days notice, provided that in
the latter case Holdings will have the right, exercisable at any time within
ninety days after the date of termination, to repurchase 69,502 shares of the
Holdings Class C Common Stock at $0.5720665 per share (which is Mr. Sullivan's
original purchase price per share). Holdings may also require Mr. Sullivan to
retire upon attaining age 65.
Under the Sullivan Employment Agreement, in the event Mr. Sullivan's
employment with Holdings is terminated other than by reason of Mr. Sullivan's
death or following a Sale of Holdings, then Holdings will have the right,
exercisable at any time within 90 days after the date of termination of
employment, to repurchase for cash that number of Mr. Sullivan's shares of
Holdings Class C Common Stock for $0.5720665 (which is Mr. Sullivan's original
purchase price per share) as follows:
Shares Which May be
Repurchased
-----------
Termination on or after 9/13/97 but before 9/13/98.. 208,507
Termination on or after 9/13/98 but before 9/13/99.. 139,005
Termination on or after 9/13/99 but before 9/13/00.. 69,502
Termination on or after 9/13/00..................... 0
Under the Sullivan Employment Agreement, in the event Mr. Sullivan's
employment is terminated under certain limited circumstances, then Holdings will
be required to purchase all of the shares of Holdings Class C Common Stock held
by Mr. Sullivan for a purchase price stated within the agreement.
Under the Sullivan Employment Agreement, if Mr. Sullivan's employment is
terminated by reason of Mr. Sullivan's death, following a Sale of Holdings or by
Mr. Sullivan without Good Reason, Holdings will pay to Mr. Sullivan (or his
estate, as the case may be) any accrued and unpaid base salary as of the date of
termination and the Guaranteed Bonus, prorated through the date of termination.
Under the Sullivan Employment Agreement, if Mr. Sullivan's employment is
terminated by reason of Mr. Sullivan's disability, then Mr. Sullivan will
continue to receive his base salary and the Guaranteed Bonus, less any amounts
paid to Mr. Sullivan pursuant to disability insurance, for 12 months after the
date of termination, and if Mr. Sullivan's employment is voluntarily terminated
by Holdings for any reason or by Mr. Sullivan for Good Reason, Mr. Sullivan will
continue to receive his base salary and the Guaranteed Bonus for one year after
the date of termination. A "Sale of Holdings" will occur when Holdings
consolidates with or merges with and into any other entity, effects a share
exchange, sells all or substantially all of its assets or enters into a
comparable capital transaction pursuant to which Holdings is not the continuing
or surviving corporation or a sale of a majority of the outstanding voting power
of Holdings equity securities to a third party occurs such that the beneficial
owners of Holdings have substantially changed and, in such transaction, the
stockholders of Holdings receive at least 50% of the value of their Holdings
Common Stock held immediately prior to such consolidation, merger, share
exchange, asset sale, stock sale or comparable transaction of Holdings. For
purposes of the Sullivan Employment Agreement, termination of Mr. Sullivan's
employment following a transaction described in the definition of a "Sale of
Holdings" in which the stockholders of Holdings do not receive at least 50% of
such value will be considered to be a voluntary termination by Holdings.
39
<PAGE>
BRATTON EMPLOYMENT AGREEMENT
SBC, Holdings and Mr. Bratton are parties to an Executive Employment
Agreement, dated as of November 10, 1995 ( the "Bratton Employment Agreement"),
under which Mr. Bratton will serve as Chief Financial Officer of each of
Holdings and the SBC. Under the Bratton Employment Agreement, Mr. Bratton's
employment was for an initial term through December 31, 1996 (the "Initial
Term") and, after the Initial Term, will continue on a month-by-month basis.
The Bratton Employment Agreement provides for an annual base salary of $100,000
and a guaranteed bonus of $25,000. Mr. Bratton purchased, at the Closing, 6,000
shares of Holdings Class C Common Stock and an additional 10,000 shares of
Holdings Class C Common Stock in December 1996, each at $0.5720665 per share
(for an aggregate purchase price of $9,153).
SBC's employment of Mr. Bratton under the Bratton Employment Agreement will
terminate under the following circumstances: (i) Mr. Bratton's death, (ii) the
illness, physical or mental disability or other incapacity of Mr. Bratton
resulting in an inability to perform his duties under the Bratton Employment
Agreement for three consecutive months, subject to certain notice requirements,
and (iii) if, after the Initial Term, Holdings consolidates or merges with and
into any other entity, effects a share exchange, sells all or substantially all
of its assets or enters into a comparable capital transaction pursuant to which
Holdings is not the continuing or surviving corporation or a sale of a majority
of the outstanding voting power to a third party such that the beneficial owners
of Holdings have substantially changed. In addition, (I) SBC may terminate Mr.
Bratton's employment for any reason or for Company's Good Reason (as defined in
the Bratton Employment Agreement) and (ii) Mr. Bratton may terminate his
employment at any time with or without Executive Good Reason (as defined in the
Bratton Employment Agreement). SBC may also require Mr. Bratton to retire upon
attaining age 65.
Under the Bratton Employment Agreement, in the event Mr. Bratton's
employment with SBC is terminated other than following a Sale of Holdings, then
Holdings will have the right, exercisable at any time within 90 days after the
date of termination of employment, to repurchase for cash, from Mr. Bratton or
his estate, executors and/or personal representatives, as the case may be, that
number of Mr. Bratton's shares of Holdings Class C Common Stock for $0.5720665
(which is Mr. Bratton's original purchase price per share) as follows:
SHARES WHICH
MAY BE
REPURCHASED
-----------
Termination on or after 11/20/97 but before 11/20/98.. 9,600
Termination on or after 11/20/98 but before 11/20/99.. 6,400
Termination on or after 11/20/99 but before 11/20/00.. 3,200
Termination on or after 11/20/00...................... 0
Under the Bratton Employment Agreement, if Mr. Bratton's employment is
terminated by reason of Mr. Bratton's death, following a Sale of Holdings, by
Holdings with Good Reason, or by Mr. Bratton without Good Reason, then SBC will
pay to Mr. Bratton (or his estate, as the case may be) any accrued and unpaid
base salary as of the date of termination. If Mr. Bratton's employment is
terminated by reason of Mr. Bratton's disability, then Mr. Bratton will continue
to receive his base salary, less any amounts paid to Mr. Bratton pursuant to
disability insurance, for three months after the date of termination, and if Mr.
Bratton's employment is voluntarily terminated by SBC without Good Reason or by
Mr. Bratton for Good Reason, Mr. Bratton will continue to receive his base
salary for the remainder of the initial term for such reason after the Initial
Term. For purposes of the Bratton Employment Agreement, termination of Mr.
Bratton's employment following a transaction described in the definition of a
"Sale of Holdings" in
40
<PAGE>
which the stockholders of Holdings do not receive at least 50% of such value
will be considered to be voluntary termination by the Company.
PULIDO EMPLOYMENT AGREEMENT
SBC and Mr. Pulido have executed an Executive Employment Agreement (the
"Pulido Employment Agreement") under which Mr. Pulido serves as Executive Vice
President--Programming and Legal Affairs and Secretary of each of Holdings and
SBC.
Mr. Pulido purchased, at the Closing, 10,000 shares of Holdings Class B-1
Common Stock for $10.00 per share (for an aggregate purchase price of $100,000)
and 61,500 shares of Holdings Class C Common Stock for $0.5720665 per share (for
an aggregate purchase price of $35,182) In addition, Mr. Pulido acquired 20,000
shares of Holdings Class C Common Stock in December 1996, each at $0.5720665 per
share (for an aggregate purchase price of $11,441).
The Pulido Employment Agreement has an initial term and will terminate under
comparable circumstances to those set forth in the Sullivan Employment
Agreement. The Pulido Employment Agreement provides for an annual base salary
of $185,000 and a guaranteed bonus of $55,000. The Pulido Agreement is also
expected to contain provisions comparable to the Sullivan Employment Agreement
giving Holdings the right to repurchase shares of Holdings Class B-1 Common
Stock and Holdings' Class C Common Stock held by Mr. Pulido and requiring
payments to Mr. Pulido under certain circumstances upon employment termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
HOLDINGS
- - - --------
Ownership
The following table sets forth certain information regarding the beneficial
ownership of Holdings Common Stock as of March 15, 1998 by (i) holders having
beneficial ownership of more than five percent of Holdings Common Stock by vote,
(ii) each director of Holdings, (iii) the executive officers of Holdings, and
(iv) all such directors and executive officers as a group. The general managers
of the Stations own as a group 45,000 shares of Class B-1 Common Stock and
573,860 shares of Class C Common Stock.
41
<PAGE>
<TABLE>
<CAPTION>
HOLDINGS COMMON STOCK
---------------------------------------
TYPE OF NUMBER OF PERCENT
NAME OF BENEFICIAL OWNER SHARES OWNED SHARES OF CLASS(a)
- - - ------------------------ ------------ ------ -----------
<S> <C> <C> <C>
ABRY Broadcase Partners II, L.P. (b).......... Class B-2 5,958,211 79.8%
18 Newbury Street
Boston, MA 02116
Patrick Bratton (c)(d)........................ Class C 16,000 *
Peni Garber (c)............................... Class B-1 500 *
Peggy Koenig (c).............................. Class B-1 1,688 *
David Pulido (c)(d)........................... Class B-1 10,000 1.1
Class C 81,500
Tim R. Palmer (f)............................. Class B-1 941,598 1.3
Harvard Private Capital
600 Atlantic Avenue, 26th Floor
Boston, MA 02210
J. Daniel Sullivan (g)........................ Class B-2 200,000 7.3
4431 Dyke Bennet Road Class C 347,512
Franklin, TN 37064
Royce Yudkoff (c)(h).......................... Class B-1 9,205 79.8
Class B-2 5,958,211
Directors and executive officers as a group... Class B-1 962,991 89.6
Class B-2 6,158,211
Class C 415,012
</TABLE>
- - - ------------------------
(a) For such purpose, all shares of Holdings Common Stock are treated as a
single class. Percentages are based on the percentage of total voting power
and are rounded to the nearest one-tenth of one percent. An asterisk
indicates less than 1.0%.
(b) ABRY Holdings, Inc., the general partner of ABRY Capital, which is the
general partner of ABRY, is wholly owned by Mr. Yudkoff.
(c) The business address of Mr. Bratton, Ms. Garber, Ms. Koenig, Mr. Pulido and
Mr. Yudkoff is 18 Newbury Street, Boston, MA 02116.
(d) Mr. Bratton's shares are subject to the Bratton Employment Agreement. See
"Management--Bratton Employment Agreement."
(e) Mr. Pulido's shares are subject to the Pulido Employment Agreement. See
"Management--Pulido Employment Agreement."
(f) Represents shares that Harvard Private Capital has the right to acquire
under Holdings Warrants and other shares purchased by Harvard Private
Capital. Mr. Palmer has neither sole investment power not sole voting
power over such shares, and disclaims beneficial ownership thereof.
42
<PAGE>
(g) Mr. Sullivan's shares are subject to the Sullivan Employment Agreement.
See "Management--Sullivan Employment Agreement."
(h) Mr. Yudkoff may be deemed to be the beneficial owner of the Holdings Common
Stock held by ABRY. See Note (b) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Acquisition, the Company and Holdings paid ABRY a
fee of $500,000. The Company, Holdings and ABRY Partners, Inc. are parties to
an agreement pursuant to which ABRY Partners provides management, financial and
other corporate advisory services to SBC and Holdings. Under such agreement,
ABRY Partners, Inc. will receive an annual fee of $250,000 (adjusted upward
annually for increases, if any, in the consumer price index) plus reimbursement
of expenses. ABRY has determined that such annual fee is an appropriate level
of compensation for the management services expected to be provided. In
connection with the Closing, SBC and Holdings reimbursed ABRY for expenditures
incurred in connection with SBC and Holdings and paid on their behalf by ABRY of
approximately $1.5 million.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SULLIVAN BROADCASTING COMPANY, INC. (FORMERLY ACT III BROADCASTING, INC.)
- - - -------------------------------------------------------------------------
Page
(a) (1) Financial Statements
Sullivan Broadcasting Co., Inc. and Subsidiaries (formerly Act III Broadcasting,
Inc. as Successor by Merger with A-3 Acquisitions, Inc.)
Report of Independent Public Accountants for the Year Ended
December 31, 1995 F-1
Consolidated Statement of Operations for the Year Ended
December 31, 1995 F-2
Consolidated Statement of Changes in Shareholders'
Equity for the Year Ended December 31, 1995 F-3
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1995 F-4
Notes to Consolidated Financial Statements F-5
Sullivan Broadcasting Company, Inc. (formerly
Act III Broadcasting, Inc. as Successor
by Merger with A-3 Acquisitions, Inc.)
Report of Independent Accountants for the Period from Inception
(June 2, 1995) through December 31, 1995 and
the Years Ended December 31, 1996 and 1997 F-18
Consolidated Balance Sheet at December 31, 1996 and 1997 F-19
43
<PAGE>
Consolidated Statement of Operations for the period from Inception
(June 2, 1995) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997 F-21
Consolidated Statement of Changes in Shareholders' Equity for
the Period from Inception (June 2, 1995) through December 31, 1995
and the Years Ended December 31, 1996 and 1997 F-22
Consolidated Statement of Cash flows for the Period from Inception
(June 2, 1995) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997 F-23
Note to Consolidated Financial Statements F-24
(a) (2) Financial Statements
Schedule II - Valuation and Qualifying Accounts F-37
SULLIVAN BROADCAST HOLDINGS, INC.
- - - ---------------------------------
Page
(a) (1) Financial Statements
Report of Independent Accountants for the Period from Inception
(June 2, 1995) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997 F-38
Consolidated Balance Sheet at December 31, 1996 and 1997 F-39
Consolidated Statement of Operations for the period from Inception
(June 2, 1995) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997 F-41
Consolidated Statement of Changes in Shareholders' Equity
for the Period from Inception (June 2, 1995) through
December 31, 1995 and the Years Ended December 31, 1996 and 1997 F-42
Consolidated Statement of Cash flows for the Period from Inception
(June 2, 1995) through December 31, 1995 and the Years Ended
December 31, 1996 and 1997 F-43
Note to Consolidated Financial Statements F-44
(a) (2) Financial Statements
Schedule II - Valuation and Qualifying Accounts F-58
44
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number DESCRIPTION OF EXHIBIT
- - - ------ ----------------------
<C> <S>
10.1 Fourth Supplemental Indenture dated as of January 7, 1997 between Sullivan
Broadcasting Company, Inc. (as successor to A-3 ) and State Street Bank
and Trust Company, as trustee (the "Trustee") relating to the Notes.*
10.2 Seventh Supplemental Indenture dated as of January 7, 1997 between Sullivan
Broadcasting Company, Inc. (as successor to A-3 ) and State Street Bank
and Trust Company, as trustee (the "Trustee") relating to the Notes.*
10.3 Fourth Amendment to Credit Agreement and Limited Wavier and Consent dated
as of June 26, 1997 by and among Sullivan Broadcasting Company, Inc. as successor
to A-3 Acquisitions, Inc., NationsBank of Texas, N.A. and certain other lenders.*
10.4 Fifth Amendment to Credit Agreement dated as of December 31, 1997 by
and among Sullivan Broadcasting Company, Inc. as successor to
A-3 Acquisitions, Inc., NationsBank of Texas, N.A. and certain other
lenders.
10.5 Sixth Amendment to Credit Agreement and Limited Consent dated as of January 30,
1998 by and among Sullivan Broadcasting Company, Inc. as successor to
A-3 Acquisitions, Inc., NationsBank of Texas, N.A. and certain other
lenders.
10.6 Agreement and Plan of Merger among Sullivan Broadcast Holdings, Inc., Sinclair
Broadcast Group, Inc. and ABRY Partners, Inc. effective as of February 23, 1998.
10.7 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.
10.8 Agreement and Plan of Merger among Sullivan Broadcasting Company III, Inc.,
Glencairn, LTD., and ABRY Partners, Inc. effective as of February 23, 1998.
10.9 Indemnity Agreement among Sullivan Broadcast Holdings, Inc., Sullivan Broadcasting
Company II, Inc., Sullivan Broadcasting Company III, Inc., Sinclair Broadcast
Group, Inc., Glencairn, Ltd. and ABRY Partner, Inc. effective February 23, 1998.
12.1 Computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of Sullivan Broadcast Holdings, Inc.
</TABLE>
* Incorporated herein by reference from the Company's 10-Q for the
quarterly period ended June 30, 1997.
(b) No reports on Form 8-K were filed during the quarter ending December 31,
1997.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SULLIVAN BROADCASTING COMPANY, INC.
SULLIVAN BROADCAST HOLDINGS, INC.
By:
--------------------------------------
J. Daniel Sullivan
President and Chief Executive Officer
Date:
------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and the dates indicated.
<TABLE>
<S> <C> <C>
- - - --------------------- --------- President, Chief Executive Officer and Director
J. Daniel Sullivan Date (Principal Executive Officer)
- - - --------------------- --------- Chief Financial Officer (Principal Financial
Patrick Bratton Date Officer and Principal Accounting Officer)
- - - --------------------- --------- Director
Peggy Koenig Date
- - - --------------------- --------- Director
Peni Garber Date
</TABLE>
46
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Sullivan Broadcasting Company, Inc.
(formerly Act III Broadcasting, Inc. as successor by
merger with A-3 Acquisition, Inc.)
In our opinion, the accompanying consolidated statements of operations, of cash
flows and of changes in shareholders' deficit present fairly, in all material
respects, the results of operations and of cash flows of Sullivan Broadcasting
Company, Inc. and its subsidiaries (the "Company") for the year ended December
31, 1995, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
March 25, 1996
F-1
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Statement of Operations
(dollars in thousands)
- - - --------------------------------------------------------------------------------
Year ended
December 31,
1995
Revenues $ 112,039
Less - commissions 19,914
------------
Net revenues 92,125
Barter revenues 7,876
------------
Total net revenues 100,001
------------
Expenses:
Operating expenses 11,136
Selling, general and administrative 23,447
Amortization of programming rights 18,033
Depreciation and amortization 11,780
------------
64,396
------------
Operating income 35,605
Interest expense, including amortization of
debt discount and deferred loan costs 17,777
Other expenses 247
------------
Income before income tax benefit 17,581
Income tax benefit (4,762)
------------
Net income $ 22,343
============
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Deficit
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class C Additional Total
Common Stock Common Stock Paid-in Accumulated Deferred Shareholders'
Shares Amount Shares Amount Capital Deficit Compensation Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 893.720 $ 9 666.879 $ 7 $ 6,285 $(114,639) $ (153) $ (108,491)
Accretion of discount and
dividends on 8% Cumulative
Redeemable Preferred Stock - - - - (2,518) - - (2,518)
Amortization of deferred
compensation - - - - - - 153 153
Net income - - - - - 22,343 - 22,343
------- --- ------- --- ------- ---------- ------ ----------
Balance at December 31, 1995 893.720 $ 9 666.879 $ 7 $ 3,767 $ (92,296) $ - $ (88,513)
======= === ======= === ======= ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Statement of Operations
(dollars in thousands)
- - - --------------------------------------------------------------------------------
Year ended
December 31,
1995
Cash flows from operating activities:
Net income $ 22,343
Adjustments to reconcile net income to net cash provided
by operating activities:
Adjustment to goodwill relating to realization of
net operating loss 484
Depreciation of property and equipment 3,147
Amortization of intangibles 8,633
Amortization of programming rights, excluding barter 10,728
Payments for programming rights (8,368)
Prepayment of WGGT time brokerage fees (6,000)
Amortization of debt issuance costs and discount 851
Loss on sale or retirement of fixed assets 24
Increase in interest payable 95
Amortization of deferred compensation 153
Changes in assets and liabilities:
Increase in accounts receivable (3,121)
Increase in prepaid expenses and other assets (515)
Increase in deferred tax assets (7,326)
Increase in taxes payable 1,105
Decrease in accounts payable and other accrued
liabilities (413)
------------
Net cash provided by operating activities 21,820
------------
Cash flows from investing activities:
Payment for WGGT option (1,000)
Purchase of fixed assets (5,560)
------------
Net cash used for investing activities (6,560)
------------
Cash flows from financing activities:
Payment of principal amounts (14,971)
------------
Net cash used for financing activities (14,971)
------------
Net increase in cash and cash equivalents 289
Cash and cash equivalents, beginning of year 3,295
------------
Cash and cash equivalents, end of year $ 3,584
============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
1. Basis of Presentation and Summary of Significant Accounting Policies
On January 4, 1996, all of the outstanding capital stock of Act III
Broadcasting (the "Company") was purchased by and the Company was merged
with and into A-3 Acquisition, Inc. The Company then changed its name to
Sullivan Broadcasting Company, Inc. (Note 11).
The Company was incorporated in Delaware in 1986 and at December 31, 1995
owned, operated and/or programmed, through its subsidiaries, seven Fox
Broadcasting Company ("Fox") affiliated stations, one television station
affiliated with the American Broadcasting Companies, Inc. ("ABC"), and two
independent television stations that the Company programs under time
brokerage agreements throughout the Northeast, Southeast, and Mid-Atlantic
states. Television broadcasting is subject to the jurisdiction of the
Federal Communications Commission ("FCC") under the Communications Act of
1934, as amended (the "Communications Act"). The Communications Act
prohibits the operation of television broadcasting stations except under a
license issued by the FCC and empowers the FCC, among other things, to
issue, revoke and modify broadcasting licenses, determine the location of
the stations, regulate the equipment used by the stations, adopt
regulations to carry out the provisions of the Communications Act and
impose penalties for violation of such regulations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions
have been eliminated in consolidation.
As of December 31, 1995, Act III Communications Holdings, L.P.
("Holdings") directly owned approximately 15%, 100% and 6% of the
Company's 8% Cumulative Redeemable Preferred Stock ("Senior Preferred
Stock"), Class A Common Stock and Class C Common Stock, respectively.
Revenue Recognition
Advertising revenues are recognized in the period during which the time
spots are aired. Revenues from other sources are recognized in the period
when the services are provided.
Trade and Barter Transactions
The Company trades certain advertising time for various goods and services.
These transactions are recorded at the estimated fair value of the goods or
services received. The related revenue is recognized when commercials are
broadcast. Goods or services received are recorded as assets or expenses
when received or used, respectively.
The Company barters advertising time for certain program material. These
transactions are recorded at management's estimate of the value of the
advertising time exchanged, which approximates the fair value of the
program material received.
F-5
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Programming Rights and Contracts Payable
Programming rights, primarily in the form of syndicated programs and
feature film packages, represent amounts paid or payable to program
suppliers for the limited right to broadcast the suppliers' programming and
are recorded when available for use. Programming rights are stated at the
lower of unamortized cost or net realizable value. Amortization is computed
using the straight-line method based on the license period or based on
usage, whichever yields the greater accumulated amortization for each
program.
Property and Equipment
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Expenditures for renewals and
improvements that significantly add to productive capacity or extend the
useful life of an asset are capitalized. Expenditures for maintenance and
repairs are charged to income when incurred. Depreciation is computed on
the straight-line basis over the estimated useful lives of the assets which
range from 3 to 37 years.
Intangible Assets
Intangible assets represent the estimated fair value of both identifiable
assets and goodwill resulting from acquisitions. Identifiable intangibles
include FCC broadcast licenses, non-competition agreements, favorable
leases, accelerated market growth assets and underdeveloped market
competition assets and are being amortized on a straight-line basis over
periods ranging from 5 to 15 years. Goodwill is being amortized over 40
years using the straight-line method. The Company evaluates the
recoverability of its intangible assets whenever adverse events or changes
in business climate indicate that the expected undiscounted future cash
flows from the related intangible assets may be less than previously
anticipated. If the net book value of the related intangible asset exceeds
the undiscounted future cash flows of the intangible asset, the carrying
value would be reduced to the present value of its expected future cash
flows and an impairment loss would be recognized. The Company did not
recognize any impairment loss for the year ended December 31, 1995.
Deferred Loan Costs
Deferred loan costs represent costs incurred in obtaining long-term
financing. These costs are expensed as interest over the lives of the
related loan using the effective interest method.
Accounting for Income Taxes
The Company accounts for income taxes under the liability method of
accounting as set forth in Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". Under the method prescribed by this
statement, deferred income taxes are recognized at enacted tax rates to
reflect the future effects of income tax carryforwards and temporary
differences arising between the tax basis of assets and liabilities and
their financial reporting amounts at each period end.
F-6
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
use assumptions that affect the reported amounts of assets and liabilities
and the disclosure for contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results may vary from
estimates used.
Supplementary Statement of Operations Information
Included in operating expenses for the year ended December 31, 1995 were
advertising costs of $1,694,000 and music license fees of $548,000.
2. Time Brokerage Agreement
On September 30, 1991, the Company entered into a time brokerage agreement
with Guilford Telectasters, Inc. ("Guilford") for WGGT, an independent
television station in Greensboro, North Carolina. The purchase price was
$2,000,000, plus the assumption of $821,000 in film liabilities. Under the
terms of the agreement, Guilford sells certain broadcast time of WGGT to
the Company for the purpose of retransmitting the signal of WXLV, the
Company's television station in Winston-Salem, North Carolina. In addition
to the purchase price, the Company will remit quarterly payments, not to be
lower than $50,000, to Guilford based on a specified calculation. The term
of the contract is five years with a five-year extension that may be
exercised by Guilford.
On June 30, 1995, the Company and Guilford amended the time brokerage
agreement. Under the terms of the amended agreement, the Company paid
Guilford $6,000,000 in exchange for the right to broadcast the signal of
WXLV on WGGT through September 30, 2001. This payment released the Company
from the quarterly payments originally required under the agreement. This
amount is being amortized on a straight line basis, over the term of the
agreement.
In conjunction with the amendment, the Company also paid Guilford
$1,000,000 and Guilford granted to a third party an option to purchase
certain assets of WGGT of an exercise price of $1,000,000. The third party
granted the Company the right to require such third party to assign this
option to the Company or another third party.
F-7
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
3. Long-Term Debt
Long-term debt consisted of the following:
December 31,
1995
Senior Debt:
Bank Credit Agreement, $60,000,000 revolving
credit, commitment reducing year by year, due
December 31, 2000 $ 24,000,000
Series A Senior Notes, interest at 11.34%
payable semi-annually, principal payable in
semi-annual installments commencing
June 30, 1993 15,260,000
Less: unamortized discount (109,000)
-------------
15,151,000
-------------
Series B Senior Notes, interest at 12.03%
payable semi-annually, principal payable in
semi-annual installments commencing
June 30, 1993 2,723,000
Series C Senior Notes, interest at 12.60%
payable semi-annually, principal due on
December 31, 1996 13,432,000
Less: unamortized discount (61,000)
-------------
13,371,000
-------------
Series D Senior Notes, interest at 13.31%
payable semi-annually, principal due on
December 31, 1996 4,368,000
Senior Acquisition Notes, interest at 12.92%
payable semi-annually, principal payable
in semi-annual installments commencing
June 30, 1993 3,363,000
-------------
62,976,000
Less: current maturities (24,078,000)
-------------
$ 38,898,000
=============
F-8
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
December 31,
1995
Subordinated Debt:
Senior Subordinated Notes, interest
at 9.625% payable semi-annually,
principal due December 15, 2003 $100,000,000
============
On December 22, 1993, the Company refinanced a substantial portion of its
outstanding debt. The Company secured a revolving credit facility (the
"Bank Credit Agreement") originally in the amount of $50 million, currently
at $57.6 million, to mature on December 31, 2000, and issued $100 million
of 9-5/8% Senior Subordinated Notes due December 2003 ("Notes"). With the
proceeds from these transactions, the Company repaid $35,000,000 of its
Floating Rate Senior Notes, $36,867,000 Series A Senior Notes, $10,054,000
Series B Senior Notes, $8,689,000 Senior Acquisition Notes, $7,568,000
Series A Subordinated Notes and $9,632,000 of its Series B Subordinated
Notes. In connection with the issuance of the Notes and Bank Credit
Agreement, the Company amended its existing loan agreement (the "Amended
Existing Agreement") which extended the maturity of a portion of the
Company's existing senior and subordinated debt from its then current
maturity of December 31, 1996 to December 31, 1997. Of the $40,615,000 of
remaining notes under the Amended Existing Agreement, $15 million is due
December 31, 1997. All the notes under the Amended Existing Agreement rank
pari passu with the debt issued under the Bank Credit Agreement. Concurrent
with the refinancing, the Company redeemed 17.2 shares of 8% Cumulative
Redeemable Preferred Stock ("Senior Preferred Stock") at a price of
$22,865,000 (see Note 5) and 606,478 shares of Class C Common Stock at a
price of $16,557,000 (see Note 6).
The interest rate under the Bank Credit Agreement will be based, at the
Company's option, on the lender's (I) ABR; (ii) Eurodollar or (iii) CD
rates (each as defined therein), each plus an applicable margin which is
based on the Company's ratio of Total Funded Debt to Operating Cash Flow
(as defined therein). Interest rates will be adjusted monthly, with the
applicable margins varying between .5% to 1.5% for the ABR rate, 1.5% to
2.5% for the Eurodollar rate, and 1.625% to 2.625% for the CD rate. The
Company is required to pay to the lender an annual commitment and an annual
agency fee. The interest rate at December 31, 1995 was 7.25%.
Borrowings under the Bank Credit Agreement are subject to a maximum
available amount (the "Maximum Amount"), currently $57.6 million, and may
be repaid and reborrowed at any time. The Maximum Amount is being reduced
in varying quarterly amounts beginning June 30, 1995 through December 31,
2000. Principal amounts outstanding on such dates must be repaid to reduce
total outstanding principal to at least the Maximum Amount. Generally, the
Company may prepay a greater amount of borrowed funds than is required
without premium or penalty, except for certain breakage costs associated
with prepayment of CD and Eurodollar loans.
F-9
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The Series A Senior Notes require principal payments of $260,000 on each
June 30 and December 31 through June 30, 1996, with the remaining
$15,000,000 due on December 31, 1997. In consideration for extending this
maturity to 1997 the Company will be required to pay a 3% premium or
$450,000 upon maturity. The Company has recorded the liability for this
premium. The Series B Senior Notes require principal payments of $359,000
on each June 30 and December 31 through June 30, 1996 with the remaining
$2,364,000 due December 31, 1996. The Series C Senior Notes and Series D
Senior Notes are due in full on December 31, 1996. A principal payment on
Senior Acquisition Notes totaling $214,000 is due on June 30, 1996 with the
remaining $3,147,000 due on December 31, 1996. Interest is payable in semi-
annual installments on June 30 and December 31.
The Notes mature on December 15, 2003. Interest on the Notes accrues at the
rate of 9-5/8% per annum and will be payable semiannually in arrears on
June 15, and December 15. Although the Notes are general unsecured
obligations of the Company and are subordinate to all indebtedness, the
Notes are guaranteed jointly and severally by each of the Company's
subsidiaries.
As of December 31, 1995, scheduled maturities, including discounts, are
summarized as follows:
1996 $ 24,145,000
1997 15,000,000
1998 -
1999 9,000,000
2000 15,000,000
Thereafter 100,000,000
-------------
$ 163,145,000
=============
The Notes, Bank Credit Agreement and Amended Existing Agreement of the
Company contain covenants which, among other restrictions, require the
maintenance of certain financial ratios and cash flow, restrict asset
purchases and the encumbrance of existing assets, require lender approval
for proposed acquisitions, and limit the incurrence of additional
indebtedness and the payment of dividends.
The Company has estimated the fair value of long-term debt at December 31,
1995 to approximate the carrying value. The fair value was estimated by
discounting the future cash flows of loans with similar terms and remaining
maturities at the Company's current borrowing rate.
F-10
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
4. Income Taxes
The Company accounts for income taxes in accordance with Financial
Accounting Standards Statement No. 109, "Accounting for Income Taxes" ("FAS
109"), which mandates the liability method for computing deferred income
taxes. The provision for income taxes charged to continuing operations was
as follows:
Year ended
December 31,
1995
Current tax expense:
Federal $ 373,000
State 1,265,000
------------
1,638,000
------------
Deferred tax expense (benefit):
Federal (7,000,000)
State 116,000
------------
(6,884,000)
------------
Benefit of acquired loss carryforward
used to reduce goodwill 484,000
------------
Total benefit $ (4,762,000)
============
Reconciling amounts, stated below as a percentage of pretax income, between
the statutory federal income tax rate and the Company's effective tax rate
are as follows:
Year ended
December 31,
1995
U.S. federal statutory rate 35.0%
State and local taxes, net 5.1%
Amortization of goodwill 1.3%
Realized benefit for net operating losses (27.1)%
Other 0.3%
Change in valuation allowance (41.7)%
------------
Effective tax rate (27.1)%
============
F-11
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The components of the net deferred tax asset are as follows:
December 31,
1995
Property and equipment $ (744,000)
Programming rights 3,498,000
Bad debts 443,000
Intangible assets 745,000
Music license fees 12,000
Net operating loss carryforwards 25,373,000
Other (944,000)
-----------
28,383,000
Less - valuation allowance (21,057,000)
-----------
Net deferred tax asset $ 7,326,000
===========
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $60,303,000 for federal income tax purposes, available to
reduce future taxable income. To the extent not used, federal net operating
loss carryforwards expire in varying amounts beginning in 2002. In
addition, the Company had net operating loss carryforwards of approximately
$44,147,000 for state and local income tax purposes in various
jurisdictions. Under FAS 109, the Company has recorded valuation allowances
against the realization of the federal and state and local tax benefits
resulting from net operating losses in the amounts of $16,647,000 at
December 31, 1995. In 1995, the valuation allowance decreased by
$11,438,000, of this $7,326,000 was a result of the determination by
management that it is more likely than not that certain deferred tax assets
will be utilized in future periods. The remaining valuation allowances are
based on management's estimates and analysis, which include the impact of
tax laws which may limit the Company's ability to utilize such loss
carryforwards.
A corporation that undergoes a "change of ownership" pursuant to Section
382 of the Internal Revenue Code is subject to limitations on the amount of
its net operating loss carryforwards which may be used in the future. An
ownership change occurred on January 4, 1996. The Company estimates the
limitation on the net operating loss will not have a material adverse
impact on the Company's consolidated financial position or results of
operation. No assurance can be given that an ownership change will not
occur as a result of other transactions entered into by the Company, or by
certain other parties over which the Company has no control. If a "change
in ownership" for income tax purposes occurs, the Company's ability to use
"pre-change losses" could be postponed or reduced, possibly resulting in
accelerated or additional tax payments which, with respect to tax periods
beyond 1995, could have a material adverse impact on the Company's
consolidated financial position or results of operations.
F-12
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
In addition, net operating loss carryforwards acquired through the
acquisition of a corporation are also subject to limitations on the amount
which may be used in the future. If the acquired net operating loss
carryforwards are utilized, the tax benefit will result in an adjustment to
the purchase price allocations of the acquired corporation. As a result of
the acquisition of Act III Broadcasting of Dayton, Inc. (formerly Meridian
Communications Corporation) and Act III Broadcasting of West Virginia, Inc.
(formerly West Virginia Telecasting, Inc.) by the Company, federal tax net
operating loss carryforwards were acquired. During 1995, the Company
utilized approximately $1.4 million of the acquired net operating loss
carryforwards with a resulting reduction of approximately $.5 million to
goodwill.
5. 8% Cumulative Redeemable Preferred Stock ("Senior Preferred Stock")
Dividends accrue on the outstanding shares of the Senior Preferred Stock at
a rate of 8% per annum of the dividend base. The dividend base is the
number of shares outstanding times $1,000,000 per share plus accrued
dividends and is adjusted on December 31, of each year for dividends
accrued during the year. The accrued dividends converted to shares of
Senior Preferred Stock on December 31, 1995, at $1,000,000 per share. All
dividends earned subsequent to that date shall be paid, in cash, on each
December 31. With the exception of stock dividends on securities that are
subordinate to the Senior Preferred Stock, dividends may not be paid on the
Class A Common Stock or Class C Common Stock until all accrued dividends
relating to the Senior Preferred Stock are paid and there is no outstanding
mandatory redemption obligation. Accretion to record the value of the
Senior Preferred Stock at its redemption value on its scheduled redemption
date is calculated using the effective interest method. Such amounts have
been charged to additional paid-in capital in the accompanying financial
statements. Holders of the Senior Preferred Stock are entitled to elect one
director if any dividends payable are in arrears and unpaid for two
consecutive periods or the Company fails to discharge its mandatory
redemption obligation and have no voting rights except under certain
specified circumstances.
The Company has estimated the fair value of the Senior Preferred Stock at
December 31, 1995 to approximate the carrying value based on the recently
negotiated redemption values.
In connection with the issuance of the Notes and the Bank Credit Agreement,
the Company redeemed 17.2 shares of Senior Preferred Stock at a price of
$1,000,000 per share plus accrued dividends totaling $22,865,000. The
mandatory redemption on the remaining 16.627 shares of Senior Preferred
Stock has been extended from December 31, 1996 to December 31, 2004.
Beginning January 1, 1994, the dividend on the Senior Preferred Stock
increased to 9% from 8%. On January 1, 1997, the dividend rate will
increase to 11% per annum. Dividends are payable in cash or in-kind at the
Company's option. The Senior Preferred Stock will be redeemable, in whole
or in part, at anytime without premium. If the Senior Preferred Stock is
outstanding after December 31, 1996, the holders are entitled to a one-time
2% dividend payable at redemption. Beginning January 1, 2000, the Company
will issue to the holders of Senior Preferred Stock, warrants to purchase
Class C Common Stock every three months.
F-13
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Each holder will receive thirty-six and one-half warrants for each share of
Senior Preferred Stock owned. Each warrant will entitle the holder to
purchase one share of Class C Common Stock at a price of $27,397 per share.
A warrant may be exercised with cash or by tendering to the Company Senior
Preferred Stock. The warrants expire at the end of each three month period.
6. Shareholders' Deficit
Class C Common Stock is convertible into Class A Common Stock on a one-to-
one ratio upon the occurrence of certain events. Any necessary approval of
the FCC must be obtained prior to all stock conversions.
Holders of the Class A Common Stock are entitled to one vote per share on
all matters submitted to shareholder vote. Holders of Class C Common Stock
have no voting rights except under certain specified circumstances.
In the event of liquidation, dissolution or winding-up of the affairs of
the Company, the holders of Class A Common Stock and Class C Common Stock
are entitled to share ratably, based on the number of shares held by each
holder, in the remaining assets of the Company.
Holdings has pledged all of its Class A Common Stock of the Company (the
"Holdings Pledge") to secure a promissory note (the "Holdings Note") in the
amount of $12 million held by Mediafin USA Incorporated, a Delaware
corporation ("Mediafin") and a wholly owned subsidiary of Tractebel S.A., a
Belgian company. Any foreclosure by Mediafin on the Company's stock,
however, would require prior approval of the FCC. Current FCC rules
restrict foreign ownership of broadcast companies and Mediafin is owned by
a foreign entity. The Holdings Note is assignable in whole or in part,
however, the Holdings Pledge of the Company's Class A Common Stock to
Mediafin is not assignable without Holdings' consent.
On November 30, 1989, the Company implemented a stock option plan (the
"Plan") whereby 250 shares of the authorized but unissued shares of Class B
Common Stock have been reserved for issuance upon the exercise of
nonqualified stock options to be granted to certain key personnel. These
options are exercisable for a period of up to ten years from the date of
grant. The Class B Common Stock is convertible into Class A Common Stock at
a ratio of one-to-one upon the occurrence of certain events.
F-14
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The following options were outstanding under the Plan at December 31, 1995:
Per
Share
Exercise
Number Price
------ -----
Options outstanding at December 31, 1994 250.0
Option granted during 1995 33.0 $ 11,850
------------
Options outstanding at December 31, 1995 283.0
============
No options were exercised during the year ended December 31, 1995. There is
no compensation expense associated with the options granted in 1995 as the
exercise price approximates the fair value at the date of the grant.
7. Leases
The Company has operating lease agreements for land, office space, office
equipment and other property which expire on various dates through 2005.
Rental expense was $691,000 during the year ended December 31, 1995.
As of December 31, 1995, minimum required annual payments under
noncancellable operating leases are as follows:
1996 $ 650,000
1997 620,000
1998 594,000
1999 595,000
2000 510,000
Thereafter 2,518,000
------------
$ 5,487,000
============
F-15
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
8. Supplemental Disclosures of Cash Flow Information
The Company paid interest of $16,862,000 during the year ended December 31,
1995.
During the year ended December 31, 1995 the programming rights increased
$12,913,000, due to the assumption of programming liabilities.
During the year ended December 31, 1995 the Company paid approximately
$995,000 for income taxes.
9. Commitments and Contingencies
The Company has executed contracts for programming rights totaling
approximately $18,961,000 at December 31, 1995, for which the broadcast
period has not begun. Accordingly, the asset and related liability are not
recorded at such dates.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. In the opinion of management, no
existing or contingent claims will have a material adverse effect on the
Company's financial position or results of operations.
The Company has entered into employment contracts with two of its executive
officers in the minimum aggregate amount of $425,000 payable annually
commencing June 1, 1993 and ending December 31, 1996. In addition, the
Company has quarterly bonus arrangements for its executive officers which
are based on achieving budgeted performance goals. Such budgeted
performance goals have been met historically.
The Company has no post-retirement or post-employment benefit plans.
10. Related Party Transactions
The Company has a management agreement with Holdings to reimburse certain
salary and operating expenses incurred on behalf of the Company. Operating
expenses include reimbursements to Holdings for $6,100 per month
representing an allocable share of rent paid by Holdings under its lease.
During the year ended December 31, 1995, the Company paid $913,000 in
management fees and other charges to Holdings. Such amounts have been
included in selling, general and administrative expenses in the Company's
consolidated statements of operations.
F-16
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
A former member of the Company's Board of Directors, who was a member from
1990 through October 1993, also serves as Chairman and President of the
Buffalo Sabres, a professional hockey team. Total programming rights fees
payable to the Buffalo Sabres are $340,000 at December 31, 1995.
11. Subsequent Event
On January 4, 1996, A-3 Acquisition, Inc. ("A-3") acquired substantially
all of the outstanding stock of the Company for approximately $517,000,000
plus certain amounts defined in the purchase and sale agreement which are
based on working capital and less the amounts necessary to repurchase or
repay the existing indebtedness of the Company. The acquisition will be
accounted for by the purchase method. Accordingly, the results of
operations of the Company will be included with those of A-3 for periods
subsequent to the date of acquisition.
The unaudited pro forma combined condensed balance sheet of the Company and
A-3 as of December 31, 1995 after giving effect to certain pro forma
adjustments is as follows:
Assets
Current assets $ 49,728,000
Property and equipment, net 44,164,000
Other assets and intangible assets 649,054,000
-------------
$ 742,946,000
=============
Liabilities and Shareholders' Equity
Current liabilities $ 29,043,000
Long-term debt 488,395,000
Shareholders' equity 225,508,000
-------------
$ 742,946,000
=============
The unaudited pro forma combined results of operations of the Company and
A-3 for the year ended December 31, 1995 after giving effect to certain pro
forma adjustments are as follows:
Net revenues $ 101,082,000
=============
Net loss $ (10,367,000)
=============
F-17
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder
of Sullivan Broadcasting Company, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Sullivan Broadcasting Company, Inc. and its subsidiaries (the "Company") at
December 31, 1996 and 1997, and the results of their operations and their cash
flows for the period from inception (June 2, 1995) through December 31, 1995 and
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
March 10, 1998
F-18
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Balance Sheet
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,443 $ 3,837
Accounts receivable, net of allowance for doubtful
accounts of $1,297 and $1,325 31,686 34,990
Current portion of programming rights 23,360 22,850
Current deferred tax asset 3,968 3,588
Prepaid expenses and other current assets 733 941
-------------- --------------
Total current assets 66,190 66,206
Property and equipment, net 44,454 39,723
Programming rights, net of current portion 21,319 23,432
Deferred financing costs, net of accumulated amortization
of $793 and $1,655 12,292 11,430
Intangible assets, net 591,085 567,209
-------------- --------------
Total assets $ 735,340 $ 708,000
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Balance Sheet (cont'd)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Liabilities and Shareholder's Equity
Current liabilities:
Current portion of senior debt $ 18,583 $ 23,562
Interest payable 4,362 3,882
Accounts payable 1,925 2,262
Current portion of programming contracts payable 24,281 24,944
Current taxes payable 2,910 194
Accrued expenses 3,650 4,297
Due to related parties 7,080 6,036
------------- -------------
Total current liabilities 62,791 65,177
Senior debt, net of current portion 195,917 171,820
Borrowings under revolving line of credit 56,500 59,500
Subordinated debt 125,185 125,185
Programming contracts payable, net of current portion 20,392 22,710
Deferred tax liability and other non-current liabilities 86,705 87,676
------------- -------------
Total liabilities 547,490 532,068
------------- -------------
Commitments and contingencies (Note 11) - -
Shareholder's equity:
Common stock, $.01 par value;
800,000 shares authorized; 520,105 shares issued and
outstanding 5 5
Additional paid-in capital 206,797 206,797
Accumulated deficit (18,952) (30,870)
------------- -------------
Total shareholder's equity 187,850 175,932
------------- -------------
Total liabilities and shareholder's equity $ 735,340 $ 708,000
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Statement of Operations
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
Revenues (excluding barter) $ - $ 129,711 $ 144,169
Less: commissions - 21,997 24,045
----------- ------------ ---------------
Net revenues (excluding barter) - 107,714 120,124
Trade and barter revenues - 14,808 17,650
----------- ------------ ---------------
Total net revenues - 122,522 137,774
Expenses:
Operating expenses 1,116 15,005 17,301
Selling, general and administrative - 23,402 27,516
Amortization of programming rights - 26,673 30,197
Depreciation and amortization - 48,051 42,220
----------- ------------ ---------------
1,116 113,131 117,234
----------- ------------ ---------------
Operating (loss) income (1,116) 9,391 20,540
Interest expense, net, including amortization of
debt discount and deferred loan costs 169 34,411 35,057
Other expenses (income) - 131 (9)
----------- ------------ ---------------
Loss before benefit for income taxes (1,285) (25,151) (14,508)
Income tax benefit 232 7,252 2,590
----------- ------------ ---------------
Net loss $ (1,053) $ (17,899) $ (11,918)
=========== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholder's Equity
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Shareholder's
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Issuance of common stock 520,105 $ 5 $ 5,196 $ - $ 5,201
Net loss - - - (1,053) (1,053)
------------- ---------- ------------- ------------ --------------
Balance at December 31, 1995 520,105 5 5,196 (1,053) 4,148
Additional investment by shareholder - - 201,601 - 201,601
Net loss - - - (17,899) (17,899)
------------- ---------- ------------- ------------ --------------
Balance at December 31, 1996 520,105 5 206,797 (18,952) 187,850
Net loss - - - (11,918) (11,918)
------------- ---------- ------------- ------------ --------------
Balance at December 31, 1997 520,105 $ 5 $ 206,797 $ (30,870) $ 175,932
============= ========== ============= ============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,053) $ (17,899) $ (11,918)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Deferred income taxes (236) (8,843) (5,196)
Depreciation of property and equipment - 7,865 9,251
Amortization of intangible assets - 40,186 32,969
Amortization of programming rights (excluding barter) - 12,911 13,198
Payments for programming rights - (9,087) (11,820)
Amortization of deferred financing costs 21 793 862
Changes in assets and liabilities:
Increase in accounts receivable - (2,707) (3,048)
Increase in prepaid expenses and other assets - (478) (131)
Increase (decrease) in amounts due to related party 494 5,416 (1,044)
Increase (decrease) in income taxes payable 4 (85) (1,392)
Increase (decrease) in interest payable 356 4,006 (480)
Increase in accounts payable - 383 337
Decrease in accrued expenses (149) (5,291) (150)
Decrease in non-current liabilities - - (96)
------------------ ------------- -------------
Net cash (used for) provided by operating activities (563) 27,170 21,342
------------------ ------------- -------------
Cash flows from investing activities:
(Increase) decrease in restricted cash (126,916) 126,916 -
Acquisition of Act III Broadcasting, Inc., net of cash -
acquired (Note 3) - (550,045) 751
Acquisition of WFXV and WPNY (Note 3) - (792) -
Acquisition of WMSN (Note 3) - (26,584) -
Purchase of CTBC stock (Note 3) - (26,950) -
Payments for purchase options (Note 3) - (2,800) -
Acquisition of Cascom stock - - (4,142)
Capital expenditures - (3,105) (4,439)
------------------ ------------- -------------
Net cash used for investing activities (126,916) (483,360) (7,830)
------------------ ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 5,201 - -
Proceeds from senior subordinated debt 125,000 - -
Proceeds from long-term debt - 220,000 -
Proceeds from borrowings under credit facilities - 56,500 3,000
Proceeds from bridge loan 1,300 - -
Proceeds from stockholder contribution - 201,601 -
Repayment of long-term debt - (5,500) (19,118)
Payment of debt issuance costs (4,022) (5,572) -
Advance buydown of programming rights - (4,396) -
------------------ ------------- -------------
Net cash provided (used for) by financing activities 127,479 462,633 (16,118)
------------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents - 6,443 (2,606)
Cash and cash equivalents, beginning of period - - 6,443
------------------ ------------- -------------
Cash and cash equivalents, end of period $ - $ 6,443 $ 3,837
================== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
1. Organization and Business Operations
A-3 Acquisition Inc. ("A-3") was incorporated on June 2, 1995 in the
State of Delaware for the sole purpose of acquiring 100% of the
outstanding capital stock of Act III Broadcasting, Inc. ("Act III")
under a purchase agreement dated June 19, 1995. The purchase of Act
III was consummated on January 4, 1996 (the "Act III Acquisition"), at
which time A-3 merged with and into Act III and changed its name to
Sullivan Broadcasting Company, Inc. ("SBC" or the "Company") (Note 3).
Sullivan Broadcast Holdings, Inc. ("Holdings") owns 100% of the
Company's common stock.
The Company currently owns, operates and programs, through its
subsidiaries, nine Fox Broadcasting Company ("Fox") affiliated
stations, one television station affiliated with the American
Broadcasting Companies, Inc. ("ABC"), and one independent television
station throughout the Northeast, Southeast, and the Mid-Atlantic
states. Additionally, the Company programs two independent television
stations under local marketing agreements ("LMA") in markets where the
Company owns another television station (Note 4). Television
broadcasting is subject to the jurisdiction of the Federal
Communications Commission ("FCC") under the Communications Act of
1934, as amended, (the "Communications Act"). The Communications Act
prohibits the operation of television broadcasting stations except
under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke, and modify broadcasting licenses, determine
the location of the stations, regulate the equipment used by the
stations, adopt regulations to carry out the provision of the
Communications Act, and impose penalties for violation of such
regulations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of ninety days or less to be cash equivalents.
Revenue Recognition
Advertising revenues are recognized in the period during which the
advertising spots are aired. Revenues from other sources are
recognized in the period when the services are provided.
Trade and Barter Transactions
The Company trades certain advertising time for various goods and
services. These transactions are recorded at the estimated fair value
of the goods or services received. Revenues from trade transactions
are recognized when advertisements are broadcast and services or
merchandise received are charged to expense when received or used.
The Company barters advertising time for certain program material.
These transactions are recorded at management's estimate of the value
of the advertising time exchanged, which approximates the fair value
of the program material received.
F-24
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Concentration of Credit Risk
Financial instruments which potentially expose the Company to a
concentration of credit risk include cash, cash equivalents and
accounts receivable. The Company maintains cash in excess of federally
insured deposits at several financial institutions at December 31,
1997. The Company does not believe that such deposits are subject to
any unusual credit risk beyond the normal credit risk associated with
operating its business. The Company maintains reserves for potential
credit losses and such losses, in the aggregate, have not historically
exceeded management's expectations.
Programming Rights and Contracts Payable
Programming rights, primarily in the form of syndicated programs and
feature film packages, represent amounts paid or payable to program
suppliers for the limited right to broadcast the suppliers' programming
and are recorded when available for use. Programming rights are stated
at the lower of unamortized cost or net realizable value. Amortization
is computed using the straight-line method based on the license period
or based on usage, whichever yields the greater accumulated
amortization for each program. The current portion of programming
rights represents those rights available for broadcast which will be
amortized in the succeeding year.
The Company has estimated the fair value of these programming contracts
payable at approximately $49,480,000 as of December 31, 1997 based on
future cash flows discounted at the Company's current borrowing rate.
Property and Equipment
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Major renewals and betterments are
capitalized and ordinary repairs and maintenance are charged to expense
in the period incurred. Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets which range from
three to thirty-nine years.
Intangible Assets
Intangible assets represent the estimated fair value of both
identifiable intangible assets and goodwill resulting from
acquisitions. Identifiable intangibles include FCC broadcast licenses,
network affiliation agreements, non-competition agreements, and
favorable leases and are being amortized on a straight-line basis over
periods ranging from 5 to 15 years. Goodwill is the excess of the
purchase price over the fair value of the net assets acquired,
determined through an independent appraisal, and is amortized over 40
years using the straight-line method. The Company evaluates the
recoverability of its intangible assets whenever adverse events or
changes in business climate indicate that the expected undiscounted
future cash flows from the related intangible assets may be less than
previously anticipated. If the net book value of the related intangible
asset exceeds the undiscounted future cash flows of the intangible
asset, the carrying value would be reduced to the present value of its
expected future cash flows and an impairment loss would be recognized.
The Company did not recognize any impairment loss during the years
ended December 31, 1996 and 1997.
F-25
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Deferred Financing Costs
Deferred financing costs represent costs incurred in obtaining
long-term financing. These costs are expensed as interest over the life
of the related loan, using the effective interest method.
Accounting for Income Taxes
The Company accounts for income taxes under the liability method of
accounting as set forth in Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes". Under the method prescribed by
this statement, deferred income taxes are recognized at enacted tax
rates to reflect the future effects of income tax carryforwards and
temporary differences arising between the tax basis of assets and
liabilities and their financial reporting amounts at each period end.
Interest Rate Risk Management
The Company enters into interest rate swap agreements with commercial
banks to mitigate the risk of possible rising interest rates. These
agreements are designated as hedges of interest rates, and the
differential to be paid or received on interest rate swaps is accrued
as an adjustment to interest expense as interest rates change. The
Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements; however, the
Company does not anticipate nonperformance by the counterparties.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and use assumptions that affect the reported amounts of assets and
liabilities and the disclosure for contingent assets and liabilities at
the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results may
vary from estimates used.
3. Acquisitions
In 1996 and 1997, the Company made the acquisitions set forth below,
each of which has been accounted for as a purchase. The consolidated
financial statements include the operating results of each business
from the date of acquisition, except for the Act III Acquisition which
includes the operating results of Act III from January 1, 1996 through
January 4, 1996 due to the immateriality of the results in relation to
the financial statements taken as a whole. Pro forma results of
operations related to the other acquisitions made in 1996 and 1997 have
not been presented as they are not considered material.
The Act III Acquisition
On January 4, 1996, the Company acquired all of the outstanding stock
of Act III. The acquisition cost consisted of the following:
Cash paid to Act III shareholders $ 359,108,000
Cash paid to retire debt 167,764,000
Acquisition costs 23,173,000
----------------
$ 550,045,000
----------------
F-26
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The excess of the purchase price over the fair value of the net assets
acquired was $208,861,000. In 1997, the Company received $751,000 from
the sellers due to the settlement of certain items for which funds were
being held in escrow. This amount, net of expenses, was recorded as a
reduction of goodwill during the year ended December 31, 1997.
The Utica Acquisition
On February 7, 1996, the Company executed an asset purchase agreement
to acquire certain assets of Mohawk Valley Broadcasting, Inc.
("Mohawk") and Acme T.V. Corporation ("Acme"), the owners and operators
of WFXV and WPNY in Utica, New York, for a total purchase price of
$400,000. In addition, the Company paid $2,600,000 for the option to
purchase the remaining assets of Mohawk and Acme pending FCC approval
for $250,000 and simultaneously entered into a LMA with Mohawk and Acme
(Note 4). On June 24, 1996, the FCC granted approval for the Company to
purchase the remaining assets at which time the LMA with Mohawk and
Acme was terminated and the remaining assets were purchased. The
Company allocated the total cost of $3,250,000 plus fees and expenses
of $142,000 to the net assets acquired. The excess of the purchase
price over the fair value of the net assets acquired was $1,322,000.
The Madison Acquisition
On July 1, 1996, the Company acquired substantially all of the assets
of Channel 47 Limited Partnership, owner and operator of a television
station in Madison, Wisconsin (WMSN) for a total purchase price of
$26,500,000 plus fees and expenses of $84,000. The excess of the
purchase price over the fair value of the net assets acquired was
$4,155,000.
The Nashville Acquisition
On February 22, 1996, the Company entered into a LMA with Central
Tennessee Broadcasting Corporation ("CTBC"), owner and operator of
WXMT, an independent television station in Nashville, Tennessee.
Additionally, the Company paid $200,000 for the option to acquire the
stock of CTBC based upon certain events defined in the underlying
agreement for $13,710,000 in cash plus the repayment of $13,030,000 of
CTBC's debt. On July 12, 1996, the Company exercised the option and
purchased the stock of CTBC. The cost plus fees of $210,000 were
allocated to the net assets acquired. The excess of the purchase price
over the fair value of the net assets acquired was $17,505,000.
The Cascom Acquisition
On January 2, 1997, the Company acquired substantially all of the
assets of Cascom International, Inc. and related film libraries for
$4,038,000 plus fees and expenses of $104,000. The excess of the
purchase price over the fair value of the assets acquired was
$1,877,000.
4. Local Marketing Agreements
As part of the Act III Acquisition, the Company was assigned Act III's
right, title and interest in a LMA with Guilford Telecasters, Inc.
("Guilford"), owner of WUPN (formerly WGGT), an independent television
station in Greensboro, North Carolina (the "WUPN LMA"). Under the WUPN
LMA, the Company sells and collects the advertising revenues of WUPN,
programs WUPN, and reimburses Guilford for operating expenses. In
connection with the Act III Acquisition, the Company also acquired Act
III's right, title and interest in a prepayment made under the WUPN
LMA, which released the Company from quarterly payments based on the
cash flows of WUPN which were initially required under the WUPN LMA. In
July 1996, Guilford sold the assets of WUPN to Mission Broadcasting II,
Inc. ("Mission II") and assigned their right, title and interest in the
WUPN LMA to Mission II under substantially similar terms.
F-27
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
On July 12, 1996, the Company entered into an LMA with Mission
Broadcasting I, Inc. ("Mission I"), owner of WUXP (formerly WXMT), an
independent station in Nashville, Tennessee (the "WUXP LMA"). Under the
terms of the WUXP LMA, the Company sells and collects the advertising
revenues of WUXP and reimburses Mission I for operating expenses and
debt service requirements.
Net revenues of $7,121,000 and $11,989,000, respectively, and expenses
of $2,818,000, and $3,397,000, respectively, related to the WUXP and
WUPN LMAs have been included in the Company's consolidated statement of
operations for the years ended December 31, 1996 and 1997. The Company
has guaranteed an aggregate amount of debt of $3,850,000 related to
WUXP and WUPN as of December 31, 1997.
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31,
(years) 1996 1997
<S> <C> <C> <C>
Land - $ 1,385,000 $ 1,426,000
Broadcasting equipment 3-5 39,978,000 43,845,000
Buildings and improvements 15-39 6,262,000 6,556,000
Furniture and other equipment 5-7 3,070,000 3,724,000
Construction in progress - 1,624,000 1,288,000
--------------- ---------------
52,319,000 56,839,000
Less: accumulated depreciation
and amortization 7,865,000 17,116,000
--------------- ---------------
$ 44,454,000 $ 39,723,000
=============== ===============
</TABLE>
F-28
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
6. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
Amortization
Period December 31,
(years) 1996 1997
<S> <C> <C> <C>
Commercial advertising contracts 15 $ 148,986,000 $ 148,986,000
Goodwill 40 231,607,000 238,621,000
Affiliation agreements 10 98,445,000 98,445,000
FCC licenses 15 81,297,000 81,297,000
Canadian cable rights 10 59,000,000 59,000,000
Other intangible assets 5-15 11,936,000 14,015,000
-------------- --------------
631,271,000 640,364,000
Less: accumulated amortization 40,186,000 73,155,000
-------------- --------------
$ 591,085,000 $ 567,209,000
============== ==============
</TABLE>
7. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1997
Senior Debt:
<S> <C> <C>
Revolving credit facility $ 30,000,000 $ 6,000,000
Acquisition credit facility 26,500,000 53,500,000
Term loan 214,500,000 195,382,000
-------------- --------------
271,000,000 254,882,000
Less: current portion 18,583,000 23,562,000
-------------- --------------
$ 252,417,000 $ 231,320,000
============== ==============
</TABLE>
F-29
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1997
Subordinated Debt:
<S> <C> <C>
Senior subordinated notes, interest at 10.25%
payable semi-annually, principal due
December 15, 2005 $ 125,000,000 $ 125,000,000
Senior subordinated notes, interest at 9.625%
payable semi-annually, principal due
December 31, 2003 185,000 185,000
-------------- --------------
$ 125,185,000 $ 125,185,000
============== ==============
</TABLE>
On January 4, 1996, the Company entered into a Credit Agreement (the
"Credit Agreement") to provide a $220,000,000 term loan to finance the
Act III Acquisition. The Credit Agreement also provides a revolving
credit facility and an acquisition credit facility allowing for
borrowings of $30,000,000 and $75,000,000, respectively, through 2003.
During 1997, the Company rolled $24,000,000 of borrowings under the
revolving credit facility into the acquisition credit facility per the
lenders permission as the borrowings were utilized to finance
acquisitions. All borrowings under the Credit Agreement bear interest
at the lender's base rate plus a percentage determined based upon the
Company's most recent quarterly leverage ratio as defined in the Credit
Agreement (8.49% at December 31, 1997). The interest is payable
quarterly or at other increments if the Company has chosen a LIBOR
interest rate for a period greater than 90 days. These borrowings are
secured by substantially all of the Company's assets. The term loan is
payable in varying quarterly installments beginning in December 1996
through December 2003. The lender may require prepayments of the term
loan based upon the meeting of certain cash flow criteria as defined in
the Credit Agreement.
The Credit Agreement requires the Company to enter into interest rate
swap agreements for notional amounts of at least 50% of its total
outstanding floating rate debt under the Credit Agreement. At
December 31, 1997, the Company had several interest rate swap
agreements. These financial instruments, which are not held for trading
purposes, expire from 1998 to 2001. The swap agreements set rates in
the range of 5.14% to 5.61%. The notional amount related to these
agreements was $200,000,000 at December 31, 1997. The Company has no
intentions of terminating these instruments prior to their expiration
dates unless it repays a portion of its bank debt in advance of
scheduled payments. The Company estimates the fair value of these
instruments at December 31, 1997 to be $1,576,000.
F-30
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
On December 21, 1995, the Company issued and sold $125,000,000 of
10.25% senior subordinated note (the "Notes") due December 15, 2005 in
a public offering, the proceeds of which were used to finance the Act
III Acquisition. The Notes are unsecured and are subordinated to all
existing and future debt of the Company.
Interest on the Notes is payable semiannually on June 15 and December
15 of each year, commencing June 15, 1996. The Notes are subject to
redemption on or after December 15, 2000 at the option of the Company
at redemption prices specified in the debt agreement. In addition, on
or prior to December 15, 1998, the Company may redeem additional
principal amounts of the Notes with the proceeds from an initial public
offering of equity at redemption prices specified in the agreement, so
long as 67% of the original principal of the Notes is still
outstanding.
Concurrent with the Act III Acquisition, the Company made a tender
offer for $100,000,000 9 5/8% senior subordinated notes (the "9 5/8
Notes") originally issued by Act III. At December 31, 1997, $185,000 of
the 9 5/8 Notes were still outstanding.
The Credit Agreement and Notes contain covenants which, among other
restrictions, require the Company to comply with certain financial
ratios and provisions and limit the Company's ability to incur
additional indebtedness and pay dividends. The Company was in
compliance with all covenants as of December 31, 1997.
The Company has estimated the fair value of long-term debt at December
31, 1996 and 1997 to approximate the carrying value. The fair value was
estimated by discounting the future cash flows of loans with similar
terms and remaining maturities at the Company's current borrowing rate.
As of December 31, 1997, scheduled maturities are summarized as
follows:
1998 $ 23,562,000
1999 31,513,000
2000 42,017,000
2001 42,963,000
2002 42,963,000
Thereafter 197,049,000
-------------
$ 380,067,000
=============
F-31
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
8. Income Taxes
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
Current tax expense:
Federal $ - $ - $ 166,000
State 4,000 1,591,000 2,440,000
-------------------- ----------------- ------------------
4,000 1,591,000 2,606,000
Deferred tax benefit:
Federal $ (219,000) $ (6,223,000) $ (3,180,000)
State (17,000) (2,620,000) (2,016,000)
-------------------- ----------------- ------------------
(236,000) (8,843,000) (5,196,000)
-------------------- ----------------- ------------------
Net income tax benefit $ (232,000) $ (7,252,000) $ (2,590,000)
==================== ================= ==================
</TABLE>
Reconciling amounts, stated below as a percentage of pretax income,
between the statutory federal income tax rate and the Company's
effective tax rate are as follows:
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
U.S. federal statutory rate 35.00 % 35.00 % 35.00 %
State and local taxes, net 1.50 4.09 (2.90)
Amortization of goodwill - (10.25) (14.67)
Change in valuation allowance (18.40) - -
------------------- --------------- ---------------
Effective tax rate 18.10 % 28.84 % 17.43 %
=================== =============== ===============
</TABLE>
F-32
<PAGE>
Sullivan Broadcasting Company, Inc. and Subdidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The components of the net deferred tax liability at December 31, 1996
and 1997, are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Property and equipment $ (9,699,000) $ (7,624,000)
Programming rights 770,000 239,000
Bad debts 1,739,000 1,885,000
Intangible assets (131,965,000) (119,855,000)
Net operating loss carryforwards 58,763,000 40,530,000
Other assets 2,649,000 2,879,000
Other (4,861,000) (2,095,000)
---------------- ----------------
Net deferred tax liability $ (82,604,000) $ (84,041,000)
================ ================
</TABLE>
At December 31, 1997, the Company had net operating loss and charitable
contribution carryforwards of approximately $99,863,000 and
$10,000,000, respectively, for federal income tax purposes, available
to reduce future taxable income. To the extent not used, federal net
operating loss carryforwards expire in varying amounts beginning in
2003. In addition, the Company had net operating loss carryforwards of
approximately $31,590,000 for state and local income tax purposes in
various jurisdictions.
A corporation that undergoes a "change of ownership" pursuant to
Section 382 of the Internal Revenue Code is subject to limitations on
the amount of its net operating loss carryforwards which may be used in
the future. An ownership change occurred on January 4, 1996. The annual
limitation on the use of the net operating loss is $10,050,000. The
Company estimates the limitation on the net operating loss will not
have a material adverse impact on the Company's consolidated financial
position or results of operation. No assurance can be given that an
ownership change will not occur as a result of other transactions
entered into by the Company, or by certain other parties over which the
Company has no control. If a "change in ownership" for income tax
purposes occurs, the Company's ability to use "pre-change losses" could
be postponed or reduced, possibly resulting in accelerated or
additional tax payments which, with respect to tax periods beyond 1997,
could have a material adverse impact on the Company's consolidated
financial position or results of operations.
In 1996, the tax benefit related to the repurchase of stock options of
approximately $3,850,000 was recorded as a reduction of goodwill. In
1997, an adjustment of approximately $4,487,000 was made to goodwill
resulting from a change in management's estimate of the ultimate tax
benefit of acquired assets, liabilities and carryforwards related to
the Act III Acquisition.
F-33
<PAGE>
Sullivan Broadcasting Company, Inc. and Subidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
9. Shareholder's Equity
On August 31, 1995, Holdings made an initial investment in the Company
of $100 to acquire 10 shares of the Company's common stock. On December
21, 1995 concurrent with the issuances of the Notes (Note 7), Holdings
made a second investment in the Company of $5,201,000 to acquire an
additional 520,095 shares of the Company's common stock. Concurrent
with the Act III Acquisition, Holdings made an additional investment in
the Company of $201,601,000.
10. Supplemental Disclosures of Cash Flow Information
The Company paid interest of $33,828,000 and $34,666,000 during the
years ended December 31, 1996 and 1997, respectively.
During the years ended December 31, 1996 and 1997, the programming
rights increased $44,679,000 and $31,850,000, respectively due to the
assumption of programming liabilities.
During the years ended December 31, 1996 and 1997, the Company paid
approximately $1,749,000 and $3,400,000, respectively for income taxes.
11. Commitments and Contingencies
Leases
The Company has operating lease agreements for land, office space,
office equipment and other property which expire on various dates
through 2005. Rental expense was $750,000 and $884,000 during
the years ended December 31, 1996 and 1997, respectively. As of
December 31, 1997, minimum required annual payments under
noncancellable operating leases are as follows:
1998 $ 978,000
1999 968,000
2000 984,000
2001 836,000
2002 715,000
Thereafter 1,230,000
-----------------
$ 5,711,000
=================
F-34
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Programming Contracts
Programming contracts acquired under license agreements are recorded as
an asset and a corresponding liability at the inception of the license
period. In addition to the programming contracts payable at December
31, 1997, the Company has $17,575,000 of commitments to acquire
programming rights for which the license period has not commenced and,
accordingly, for which no asset or liability has been recorded. Future
minimum payments arising from such commitments outstanding at December
31, 1997, excluding $18,976,000 of barter commitments, are as follows:
1998 $ 14,798,000
1999 11,437,000
2000 9,351,000
2001 5,868,000
2002 3,632,000
Thereafter 1,167,000
----------------
$ 46,253,000
================
Litigation
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. In the opinion of
management, no existing or contingent claims will have a material
adverse effect on the Company's financial position or results of
operations.
Employment Contracts
The Company has entered into an employment contract with an executive
officer of the Company providing for a minimum aggregate amount of
$500,000 payable annually commencing September 13, 1995 for an initial
term of eight years. Additionally, the Company has guaranteed annual
bonus arrangements with two other executive officers which have
historically been paid.
12. Related Party Transactions
Operating expenses include reimbursements to ABRY Partners, Inc.
("ABRY"), an entity related through common ownership, for the Company's
allocable share of rent paid by ABRY for the Company. These expenses
approximated $73,000 and $106,000 for the years ended December 31, 1996
and 1997, respectively, and are included in selling, general and
administrative expenses in the Company's consolidated statement of
operations.
The Company charges a management fee to Holdings. Management fees
approximated $252,000 and $265,000 for the years ended December 31,
1996 and 1997, respectively, and are included as a reduction in
selling, general and administrative expenses in the Company's
consolidated statement of operations.
F-35
<PAGE>
Sullivan Broadcasting Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
13. Subsequent Event
On February 23, 1998, Holdings entered into a Plan of Merger (the
"Merger"). Under the terms of the Merger, 100% of the issued and
outstanding common stock of Holdings will be acquired by means of a
merger. The Merger is subject to approval of the FCC and is expected to
close prior to August 1998.
F-36
<PAGE>
Sullivan Broadcasting Company, Inc.
Sullivan Broadcast Holdings, Inc.
Valuation and Qualifying Accounts Schedule II
(in Thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Charged to
Beginning Costs and Ending
Balanace Expenses Deductions Balance
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:(a)
Allowance for Doubtful Accounts 1,482,000 404,000 (903,000) 983,000
Year Ended December 31, 1996:(a)
Allowance for Doubtful Accounts 983,000 876,000 (562,000) 1,297,000
Year Ended December 31, 1997:(a)
Allowance for Doubtful Accounts 1,297,000 892,000 (864,000) 1,325,000
</TABLE>
F-37
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Sullivan Broadcast Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Sullivan Broadcast Holdings, Inc. and its subsidiaries (the "Company") at
December 31, 1996 and 1997, and the results of their operations and their cash
flows for the period from inception (June 2, 1995) through December 31, 1995 and
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
March 10, 1998
F-38
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Consolidated Balance Sheet
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,469 $ 3,840
Accounts receivable, net of allowance for doubtful accounts
of $1,297 and $1,325 31,686 34,990
Current portion of programming rights 23,360 22,850
Current deferred tax asset 4,535 4,310
Prepaid expenses and other current assets 733 941
------------ ------------
Total current assets 66,783 66,931
Property and equipment, net 44,454 39,723
Programming rights, net of current portion 21,319 23,432
Deferred financing costs, net of accumulated amortization of
$1,238 and $2,120 14,016 13,134
Intangible assets, net 590,972 567,096
------------ ------------
Total assets $ 737,544 $ 710,316
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of senior debt $ 18,583 $ 23,562
Interest payable 4,362 3,882
Accounts payable 1,925 2,262
Current portion of programming contracts payable 24,281 24,944
Income taxes payable 2,865 195
Accrued expenses 3,771 4,367
------------- -------------
Total current liabilities 55,787 59,212
Senior debt, net of current portion 195,917 171,820
Borrowings under revolving lines of credit 56,500 59,500
Subordinated debt 155,326 155,508
Interest payable 4,942 10,394
Programming contracts payable, net of current portion 20,392 22,710
Deferred tax liability and other non-current liabilities 84,124 82,132
------------- -------------
Total liabilities 572,988 561,276
------------- -------------
15% Mandatorily redeemable cumulative preferred stock,
non-voting, $.001 par value; 1,500,000 shares authorized;
1,150,000 shares issued and outstanding 111,483 133,185
------------- -------------
Commitments and contingencies (Note 11) - -
Shareholders' equity:
Class B-1 common stock, $.001 par value; 5,000,000 shares authorized;
1,204,077 and 1,201,577 shares issued
and outstanding at December 31, 1996 and 1997, respectively 1 1
Class B-2 common stock; $.001 par value; 7,000,000
shares authorized; 6,158,211 shares issued
and outstanding at December 31, 1996 and 1997 6 6
Class C common stock, $.001 par value; 2,000,000
shares authorized; 896,229 and 853,854 shares issued and
outstanding at December 31, 1996 and 1997, respectively 1 1
Additional paid-in capital 76,861 55,117
Accumulated deficit (23,796) (39,270)
------------- -------------
Total shareholders' equity 53,073 15,855
------------- -------------
Total liabilities and shareholders' equity $ 737,544 $ 710,316
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Consolidated Statement of Operations
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
Revenues (excluding barter) $ - $ 129,711 $ 144,169
Less: commissions - 21,997 24,045
---------------- --------------- ---------------
Net revenues (excluding barter) - 107,714 120,124
Trade and barter revenues - 14,808 17,650
---------------- --------------- ---------------
Total net revenues - 122,522 137,774
---------------- --------------- ---------------
Expenses:
Operating expenses 1,601 15,005 17,301
Selling, general and administrative - 23,921 28,319
Amortization of programming rights - 26,673 30,197
Depreciation and amortization - 48,051 42,220
---------------- --------------- ---------------
1,601 113,650 118,037
---------------- --------------- ---------------
Operating (loss) income (1,601) 8,872 19,737
Interest expense, net, including amortization of debt
discount and deferred loan costs 258 41,187 40,711
Other expenses (income) - 131 (12)
---------------- --------------- ---------------
Loss before income taxes (1,859) (32,446) (20,962)
Income tax benefit 335 10,174 5,488
---------------- --------------- ---------------
Net loss $ (1,524) $ (22,272) $ (15,474)
================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B-1 Class B-2 Class C
common stock common stock common stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Issuance of Class B-1 common stock 560,000 $ 1 - $ - - $ -
Issuance of Class B-2 common stock - - 697,243 1 - -
Net loss - - - - - -
----------- ------ ----------- ------ ----------- ------
Balance at December 31, 1995 560,000 1 697,243 1 - -
Issuance of Class B-1 common stock 651,577 - - - - -
Repurchase of Class B-1 common stock (7,500) - - - - -
Issuance of Class B-2 common stock - - 5,460,968 5 - -
Issuance of Class C common stock - - - - 990,979 1
Repurchase of Class C common stock - - - - (94,750) -
Issuance of common stock purchase
warrants - - - - - -
Accretion of preferred stock - - - - - -
Net loss - - - - - -
----------- ------ ----------- ------ ----------- ------
Balance at December 31, 1996 1,204,077 1 6,158,211 6 896,229 1
Repurchase of Class B-1 common stock (2,500) - - - - -
Issuance of Class C common stock - - - - 5,000 -
Repurchase of Class C common stock - - - - (47,375) -
Accretion of preferred stock - - - - - -
Net loss - - - - - -
----------- ------ ----------- ------ ----------- ------
Balance at December 31, 1997 1,201,577 $ 1 6,158,211 $ 6 853,854 $ 1
=========== ====== =========== ====== =========== ======
<CAPTION>
Additional Total
paid-in Accumulated shareholders'
capital deficit equity
<S> <C> <C> <C>
Issuance of Class B-1 common stock $ 5,599 $ - $ 5,600
Issuance of Class B-2 common stock 6,971 - 6,972
Net loss - (1,524) (1,524)
----------- ------------ -------------
Balance at December 31, 1995 12,570 (1,524) 11,048
Issuance of Class B-1 common stock 6,515 - 6,515
Repurchase of Class B-1 common stock (75) - (75)
Issuance of Class B-2 common stock 54,605 - 54,610
Issuance of Class C common stock 566 - 567
Repurchase of Class C common stock (54) - (54)
Issuance of common stock purchase
warrants 24,063 - 24,063
Accretion of preferred stock (21,329) - (21,329)
Net loss - (22,272) (22,272)
----------- ------------ -------------
Balance at December 31, 1996 76,861 (23,796) 53,073
Repurchase of Class B-1 common stock (25) - (25)
Issuance of Class C common stock 10 - 10
Repurchase of Class C common stock (27) - (27)
Accretion of preferred stock (21,702) - (21,702)
Net loss - (15,474) (15,474)
----------- ------------ -------------
Balance at December 31, 1997 $ 55,117 $ (39,270) $ 15,855
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
inception
(June 2,
1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ ( 1,524) $ (22,272) $ (15,474)
Adjustments to reconcile net loss to net cash (used for) provided by
operating activities:
Deferred income taxes (349) (11,767) (8,332)
Depreciation of property and equipment - 7,865 9,251
Amortization of intangible assets - 40,186 32,969
Amortization of programming rights (excluding barter) - 12,911 13,198
Payments for programming rights - (9,087) (11,820)
Amortization of deferred financing costs and debt discount 38 2,765 1,064
Changes in assets and liabilities:
Increase in accounts receivable - (2,707) (3,048)
Increase in prepaid expenses and other assets - (477) (131)
Increase (decrease) in amounts due to related party 1,547 (2,717) -
Increase (decrease) in income taxes payable 14 (179) (1,328)
Increase in interest payable 485 8,819 4,972
Increase in deferred debt issuance costs (6,647) - -
Increase in accounts payable - 383 337
Increase (decrease) in accrued expenses 5,163 (7,060) (201)
Decrease in non-current liabilities - - (96)
-------------- ------------ ------------
Net cash (used for) provided by operating activities (1,273) 16,663 21,361
-------------- ------------ ------------
Cash flows from investing activities:
(Increase) decrease in restricted cash (162,599) 162,599 -
Acquisition of Act III Broadcasting, Inc., net of cash acquired - (550,045) 751
Acquisition of WFXV and WPNY (Note 3) - (792) -
Acquisition of WMSN (Note 3) - (26,584) -
Purchase of CTBC stock (Note 3) - (26,950) -
Payments for purchase options - (2,800) -
Acquisition of Cascom stock (Note 3) - - (4,142)
Capital expenditures - (3,105) (4,439)
-------------- ------------ ------------
Net cash used for investing activities (162,599) (447,677) (7,830)
-------------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,972 61,692 10
Proceeds from issuance of subordinated debt 125,000 - -
Proceeds from issuance of long-term debt - 220,000 -
Proceeds from borrowings under credit facilities - 56,500 3,000
Proceeds from bridge loan 1,300 - -
Proceeds from issuance of preferred stock - 115,000 -
Proceeds from issuance of senior accrual debentures 35,000 - -
Repayment of long-term debt - (5,500) (19,118)
Repurchase of common stock - (129) (52)
Debt and preferred stock issuance costs (4,400) (5,684) -
Advance buydown of programming rights - (4,396) -
-------------- ------------ ------------
Net cash provided by (used for) financing activities 163,872 437,483 (16,160)
-------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents - 6,469 (2,629)
Cash and cash equivalents, beginning of period - - 6,469
-------------- ------------ ------------
Cash and cash equivalents, end of period $ - $ 6,469 $ 3,840
============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Statement of Cash Flows
- - - --------------------------------------------------------------------------------
1. Organization and Business Operations
A-3 Holdings Inc. ("Holdings" or the "Company") was incorporated on June 2,
1995 in the State of Delaware for the sole purpose of acquiring 100% of the
outstanding capital stock of Act III Broadcasting, Inc. ("Act III"),
through its wholly owned subsidiary A-3 Acquisition, Inc. ("A-3"), under a
purchase agreement dated June 19, 1995. The purchase of Act III was
consummated on January 4, 1996 (the "Act III Acquisition"), at which time
A-3 merged with and into Act III and changed its name to Sullivan
Broadcasting Company, Inc. ("SBC") (Note 3).
The Company currently owns, operates and programs, through its
subsidiaries, nine Fox Broadcasting Company ("Fox") affiliated television
stations, one television station affiliated with the American Broadcasting
Companies, Inc. ("ABC"), and one independent television station throughout
the Northeast, Southeast, and the Mid-Atlantic states. The Company programs
two independent television stations under local marketing agreements
("LMA") in markets where the Company owns another television station (Note
4). Television broadcasting is subject to the jurisdiction of the Federal
Communications Commission ("FCC") under the Communications Act of 1934, as
amended (the "Communications Act"). The Communications Act prohibits the
operation of television broadcasting stations except under a license issued
by the FCC and empowers the FCC, among other things, to issue, revoke, and
modify broadcasting licenses, determine the location of the stations,
regulate the equipment used by the stations, adopt regulations to carry out
the provision of the Communications Act, and impose penalties for violation
of such regulations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of ninety days or less to be cash equivalents.
Revenue Recognition
Advertising revenues are recognized in the period during which the
advertising spots are aired. Revenues from other sources are recognized
in the period when the services are provided.
Trade and Barter Transactions
The Company trades certain advertising time for various goods and services.
These transactions are recorded at the estimated fair value of the goods or
services received. Revenues from trade transactions are recognized when
advertisements are broadcast and services or merchandise received are
charged to expense when received or used.
The Company barters advertising time for certain program material. These
transactions are recorded at management's estimate of the value of the
advertising time exchanged, which approximates the fair value of the
program material received.
F-44
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Concentration of Credit Risk
Financial instruments which potentially expose the Company to a
concentration of credit risk include cash, cash equivalents and accounts
receivable. The Company maintains cash in excess of federally insured
deposits at several financial institutions at December 31, 1997. The
Company does not believe that such deposits are subject to any unusual
credit risk beyond the normal credit risk associated with operating its
business. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not historically exceeded management's
expectations.
Programming Rights and Contracts Payable
Programming rights, primarily in the form of syndicated programs and
feature film packages, represent amounts paid or payable to program
suppliers for the limited right to broadcast the suppliers' programming and
are recorded when available for use. Programming rights are stated at the
lower of unamortized cost or net realizable value. Amortization is computed
using the straight-line method based on the license period or based on
usage, whichever yields the greater accumulated amortization for each
program. The current portion of programming rights represents those rights
available for broadcast which will be amortized in the succeeding year.
The Company has estimated the fair value of these programming contracts
payable at approximately $49,480,000 as of December 31, 1997 based on
future cash flows discounted at the Company's current borrowing rate.
Property and Equipment
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Major renewals and betterments are
capitalized and ordinary repairs and maintenance are charged to expense in
the period incurred. Depreciation is computed on the straight-line basis
over the estimated useful lives of the assets which range from three to
thirty-nine years.
Intangible Assets
Intangible assets represent the estimated fair value of both identifiable
intangible assets and goodwill resulting from acquisitions. Identifiable
intangibles include FCC broadcast licenses, network affiliation agreements,
non-competition agreements, and favorable leases and are being amortized on
a straight-line basis over periods ranging from 5 to 15 years. Goodwill is
the excess of the purchase price over the fair value of the net assets
acquired, determined through an independent appraisal, and is amortized
over 40 years using the straight-line method. The Company evaluates the
recoverability of its intangible assets whenever adverse events or changes
in business climate indicate that the expected undiscounted future cash
flows from the related intangible assets may be less than previously
anticipated. If the net book value of the related intangible asset exceeds
the undiscounted future cash flows of the intangible asset, the carrying
value would be reduced to the present value of its expected future cash
flows and an impairment loss would be recognized. The Company did not
recognize any impairment loss during the years ended December 31, 1996 and
1997.
F-45
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Deferred Financing Costs
Deferred financing costs represent costs incurred in obtaining long-term
financing. These costs are expensed as interest over the lives of the
related loans, using the effective interest method.
Accounting for Income Taxes
The Company accounts for income taxes under the liability method of
accounting as set forth in Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes". Under the method prescribed by
this statement, deferred income taxes are recognized at enacted tax rates
to reflect the future effects of income tax carryforwards and temporary
differences arising between the tax basis of assets and liabilities and
their financial reporting amounts at each period end.
Interest Rate Risk Management
The Company enters into interest rate swap agreements with commercial banks
to mitigate the risk of possible rising interest rates. These agreements
are designated as hedges of interest rates, and the differential to be paid
or received on interest rate swaps is accrued as an adjustment to interest
expense as interest rates change. The Company is exposed to credit loss in
the event of nonperformance by the other parties to the interest rate swap
agreements; however, the Company does not anticipate nonperformance by the
counterparties.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
use assumptions that affect the reported amounts of assets and liabilities
and the disclosure for contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results may vary from
estimates used.
3. Acquisitions
In 1996 and 1997, the Company made the acquisitions set forth below, each
of which has been accounted for as a purchase. The consolidated financial
statements include the operating results of each business from the date of
acquisition, except for the Act III Acquisition which includes the
operating results of Act III from January 1, 1996 through January 4, 1996
due to the immateriality of the results in relation to the financial
statements taken as a whole. Pro forma results of operations of the other
acquisitions made in 1996 and 1997 are not considered material.
F-46
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The Act III Acquisition
On January 4, 1996, the Company acquired all of the outstanding stock of
Act III. The acquisition cost consisted of the following:
Cash paid to Act III shareholders $ 359,108,000
Cash paid to retire debt 167,764,000
Acquisition costs 23,173,000
---------------
$ 550,045,000
---------------
The excess of the purchase price over the fair value of the net assets
acquired was $208,861,000. In 1997, the Company received $751,000 from
the sellers due to the settlement of certain items for which funds were
being held in escrow. This amount, net of expenses, was recorded as a
reduction of goodwill during the year ended December 31, 1997.
The Utica Acquisition
On February 7, 1996, the Company executed an asset purchase agreement to
acquire certain assets of Mohawk Valley Broadcasting, Inc. ("Mohawk") and
Acme T. V. Corporation ("Acme"), the owners and operators of WFXV and WPNY
in Utica, New York, for a total purchase price of $400,000. In addition,
the Company paid $2,600,000 for the option to purchase the remaining assets
of Mohawk and Acme pending FCC approval for $250,000 and simultaneously
entered into a LMA with Mohawk and Acme (Note 4). On June 24, 1996, the FCC
granted approval for the Company to purchase the remaining assets at which
time the LMA with Mohawk and Acme was terminated and the remaining assets
were purchased. The Company allocated the total cost of $3,250,000 plus
fees and expenses of $142,000 to the net assets acquired. The excess of the
purchase price over the fair value of the net assets acquired was
$1,322,000.
The Madison Acquisition
On July 1, 1996, the Company acquired substantially all of the assets of
Channel 47 Limited Partnership, owner and operator of a television station
in Madison, Wisconsin (WMSN) for a total purchase price of $26,500,000 plus
fees and expenses of $84,000. The excess of the purchase price over the
fair value of the net assets acquired was $4,155,000.
The Nashville Acquisition
On February 22, 1996, the Company entered into a LMA with Central Tennessee
Broadcasting Corporation ("CTBC"), owner and operator of WXMT, an
independent television station in Nashville, Tennessee. Additionally, the
Company paid $200,000 for the option to acquire the stock of CTBC based
upon certain events defined in the underlying agreement for $13,710,000 in
cash plus the repayment of $13,030,000 of CTBC's debt. On July 12, 1996,
the Company exercised the option and purchased the stock of CTBC. The cost
plus fees of $210,000 were allocated to the net assets acquired. The excess
of the purchase price over the fair value of the net assets acquired was
$17,505,000.
F-47
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The Cascom Acquisition
On January 2, 1997, the Company acquired substantially all of the assets
of Cascom International, Inc. and related film libraries for $4,038,000
plus fees and expenses of $104,000. The excess of the purchase price over
the fair value of the net asset acquired was $1,877,000.
4. Local Marketing Agreements
As part of the Act III Acquisition, the Company was assigned Act III's
right, title and interest in a LMA with Guilford Telecasters, Inc.
("Guilford"), owner of WUPN (formerly WGGT), an independent television
station in Greensboro, North Carolina (the "WUPN LMA"). Under the WUPN LMA,
the Company sells and collects the advertising revenues of WUPN, programs
WUPN, and reimburses Guilford for operating expenses. In connection with
the Act III Acquisition, the Company also acquired Act III's right, title
and interest in a prepayment made under the WUPN LMA, which released the
Company from the quarterly payments based on the cash flows of WUPN which
were initially required under the WUPN LMA. In July 1996, Guilford sold the
assets of WUPN to Mission Broadcasting II, Inc. ("Mission II") and assigned
their right, title and interest in the WUPN LMA to Mission II under
substantially similar terms.
On July 12, 1996, the Company entered into an LMA with Mission Broadcasting
I, Inc. ("Mission I"), owner of WUXP (formerly WXMT), an independent
station in Nashville, Tennessee (the "WUXP LMA"). Under the terms of the
WUXP LMA, the Company sells and collects the advertising revenues of WUXP
and reimburses Mission I for operating expenses and debt service
requirements.
Net revenues of $7,121,000 and $11,989,000, respectively, and expenses of
$2,818,000, and $3,397,000, respectively, related to the WUXP and WUPN LMAs
have been included in the Company's consolidated statement of operations
for the years ended December 31, 1996 and 1997. The Company has guaranteed
an aggregate amount of debt of $3,850,000 related to WUXP and WUPN as of
December 31, 1997.
F-48
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31,
(years) 1996 1997
<S> <C> <C> <C>
Land - $ 1,385,000 $ 1,426,000
Buildings and improvements 15-39 6,262,000 6,556,000
Broadcasting equipment 3-5 39,978,000 43,845,000
Furniture and other equipment 5-7 3,070,000 3,724,000
Construction in progress - 1,624,000 1,288,000
--------------- ---------------
52,319,000 56,839,000
Less: accumulated depreciation
and amortization 7,865,000 17,116,000
--------------- ---------------
$ 44,454,000 $ 39,723,000
=============== ===============
</TABLE>
6. Intangible Assets
Intangible assets consists of the following:
<TABLE>
<CAPTION>
Amortization
period December 31,
(years) 1996 1997
<S> <C> <C> <C>
Commercial advertising contracts 15 $ 148,986,000 $ 148,986,000
Goodwill 40 231,494,000 238,508,000
Affiliation agreements 10 98,445,000 98,445,000
FCC licenses 15 81,297,000 81,297,000
Canadian cable rights 10 59,000,000 59,000,000
Other intangible assets 5-15 11,936,000 14,015,000
--------------- ---------------
631,158,000 640,251,000
Less: accumulated amortization 40,186,000 73,155,000
--------------- ---------------
$ 590,972,000 $ 567,096,000
=============== ===============
</TABLE>
F-49
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
7. Long-Term Debt
Long term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Senior Debt:
Revolving credit facility $ 30,000,000 $ 6,000,000
Acquisition credit facility 26,500,000 53,500,000
Term loan 214,500,000 195,382,000
---------------- ----------------
271,000,000 254,882,000
Less: current portion 18,583,000 23,562,000
---------------- ----------------
$ 252,417,000 $ 231,320,000
================ ================
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Subordinated Debt:
Senior accrual debentures, interest at
13.25% compounded semi-annually
payable on June 15, 2001 and payable
semi-annual thereafter, principal due
December 15, 2005 $ 35,000,000 $ 35,000,000
Less: unamortized discount (4,859,000) (4,677,000)
---------------- ----------------
30,141,000 30,323,000
Senior subordinated notes, interest at
10.25% payable semi-annually,
principal due December 15, 2005 125,000,000 125,000,000
Senior subordinated notes, interest at 9.625%
payable semi-annually, principal due
December 31, 2003 185,000 185,000
---------------- ----------------
$ 155,326,000 $ 155,508,000
================ ================
</TABLE>
F-50
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
On January 4, 1996, the Company entered into a Credit Agreement (the
"Credit Agreement") to provide a $220,000,000 term loan to finance the Act
III Acquisition. The Credit Agreement also provides for a revolving credit
facility and an acquisition credit facility allowing for borrowings of
$30,000,000 and $75,000,000, respectively, through 2003. During 1997, the
Company rolled $24,000,000 of borrowings under the revolving credit
facility into the acquisition credit facility per the lenders permission as
the borrowings were utilized to finance acquisitions. All borrowings under
the Credit Agreement bear interest at the lender's base rate plus a
percentage determined based upon the Company's most recent quarterly
leverage ratio as defined in the Credit Agreement (8.49% at December 31,
1997). The interest is payable quarterly or at other increments if the
Company has chosen a LIBOR interest rate for a period greater than 90 days.
These borrowings are secured by substantially all of the Company's assets.
The term loan is payable in varying quarterly installments beginning in
December 1996 through December 2003. The lender may require prepayments
based upon the meeting of certain cash flow criteria as defined in the
Credit Agreement.
The Credit Agreement requires the Company to enter into interest rate swap
agreements for notional amounts of at least 50% of its total outstanding
floating rate debt under the Credit Agreement. At December 31, 1997, the
Company had several interest rate swap agreements. These financial
instruments, which are not held for trading purposes, expire from 1998 to
2001. The swap agreements set rates in the range of 5.14% to 5.61%. The
notional amount related to these agreements was $200,000,000 at December
31, 1997. The Company has no intentions of terminating these instruments
prior to their expiration dates unless it repays a portion of its bank debt
in advance of scheduled payments. The Company estimates the fair value of
these instruments at December 31, 1997 to be $1,576,000.
On December 21, 1995, the Company issued and sold 35,000 units through a
public offering consisting in the aggregate of $35,000,000 in principal
amount of 13.25% senior accrual debentures (the "Debentures") due in 2006
and 560,000 shares of Holdings Class B-1 common stock, the proceeds of
which were used to finance the acquisition of Act III. An estimated value
of $5,600,000 was assigned to the shares of Class B-1 common stock
resulting in a discount of the same amount on the Debentures. This discount
is being amortized through charges to interest expense over the life of the
Debentures using the effective interest method.
Interest on the Debentures for the period of issuance until June 15, 2001
will accrue at the stated interest rate, compounded on a semi-annual basis,
and will be payable in cash on that date in an aggregate amount of
$35,879,000. Thereafter, interest on the Debentures will accrue at the
stated rate and will be payable semi-annually in arrears on June 15 and
December 15 of each year, commencing December 15, 2001. The Company is
required to redeem $2,772,000 in aggregated principal of the Debentures on
June 15, 2001.
On December 21, 1995, the Company issued and sold $125,000,000 of 10.25%
senior subordinated notes (the "Notes") due on December 15, 2005 in a
public offering, the proceeds of which were used to finance the Act III
Acquisition. The Notes are unsecured and are subordinated to all existing
and future debt of the Company.
F-51
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Interest on the Notes is payable semi-annually on June 15 and December 15
of each year, commencing June 15, 1996. The Notes are subject to
redemption on or after December 15, 2000 at the option of the Company at
redemption prices specified in the debt agreement. In addition, on or
prior to December 15, 1998, the Company may redeem additional principal
amounts of the Notes with the proceeds from an initial public offering of
equity at redemption prices specified in the agreement, so long as 67% of
the original principal of the Notes is still outstanding.
Concurrent with the Act III Acquisition, the Company made a tender offer
for $100,000,000 9 5/8% senior subordinated notes (the "9 5/8 Notes")
originally issued by Act III. At December 31, 1997, $185,000 of the 9 5/8
Notes were still outstanding.
The Credit Agreement, Debentures and Notes contain covenants which, among
other restrictions, require the Company to comply with certain financial
ratios and provisions and limit the Company's ability to incur additional
indebtedness and pay dividends. The Company was in compliance with all
covenants as of December 31, 1997.
The Company has estimated the fair value of long-term debt at December
31, 1996 and 1997 to approximate the carrying value. The fair value was
estimated by discounting the future cash flows of loans with similar
terms and remaining maturities at the Company's current borrowing rate.
As of December 31, 1997, scheduled maturities, including debt discount,
are summarized as follows:
1998 $ 23,562,000
1999 31,513,000
2000 42,017,000
2001 42,963,000
2002 42,963,000
Thereafter 232,049,000
-----------------
$ 415,067,000
=================
F-52
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
8. Income Taxes
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
Current tax expense:
Federal $ - $ - $ 166,000
State 14,000 1,593,000 2,678,000
----------------- ----------------- -----------------
14,000 1,593,000 2,844,000
Deferred tax benefit:
Federal (324,000) (8,779,000) (5,884,000)
State (25,000) (2,988,000) (2,448,000)
----------------- ----------------- -----------------
(349,000) (11,767,000) (8,332,000)
----------------- ----------------- -----------------
Net income tax benefit $ (335,000) $ (10,174,000) $ (5,488,000)
================= ================= =================
</TABLE>
F-53
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Reconciling amounts, stated below as a percentage of pretax income, between
the statutory federal income tax rate and the Company's effective tax rate
are as follows:
<TABLE>
<CAPTION>
Period from
inception
(June 2, 1995)
through Year ended
December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net 1.2 4.3 (1.5)
Amortization of goodwill - (7.9) (9.5)
Other 0.6 - -
Change in valuation allowance (18.8) - -
---------------- --------------- --------------
Effective tax rate 18.0% 31.4% 24.0%
================ =============== ==============
</TABLE>
The components of the net deferred tax liability at December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1997
<S> <C> <C>
Property and equipment $ (9,699,000) $ (7,624,000)
Programming rights 770,000 239,000
Bad debts 1,739,000 1,885,000
Intangible assets (131,966,000) (119,912,000)
Accrued interest 576,000 783,000
Net operating loss and charitable carryforwards 61,357,000 46,073,000
Other assets 2,649,000 2,879,000
Other (4,882,000) (2,098,000)
------------------- -------------------
Net deferred tax liability $ (79,456,000) $ (77,775,000)
=================== ===================
</TABLE>
At December 31, 1997, the Company had net operating loss and charitable
contribution carryforwards of approximately $109,857,000 and $10,000,000,
respectively, for federal income tax purposes, available to reduce future
taxable income. To the extent not used, federal net operating loss
carryforwards expire in varying amounts beginning in 2003. In addition,
the Company had net operating loss carryforwards of approximately
$38,604,000 for state and local income tax purposes in various
jurisdictions.
A corporation that undergoes a "change of ownership" pursuant to Section
382 of the Internal Revenue Code is subject to limitations on the amount
of its net operating loss carryforwards which may be used in the future.
An ownership change occurred on January 4, 1996. The annual limitation on
the use of the net operating loss is $10,050,000. The Company estimates
the
F-54
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
consolidated financial position or results of operations. No assurance
can be given that an ownership change will not occur as a result of other
transactions entered into by the Company, or by certain other parties
over which the Company has no control. If a "change in ownership" for
income tax purposes occurs, the Company's ability to use "pre-change
losses" could be postponed or reduced, possibly resulting in accelerated
or additional tax payments which, with respect to tax periods beyond
1997, could have a material adverse impact on the Company's consolidated
financial position or results of operations.
In 1996, the tax benefit related to the repurchase of stock options of
approximately $3,850,000 was recorded as a reduction of goodwill. In
1997, an adjustment of approximately $4,500,000 was made to goodwill
resulting from a change in management's estimate of the ultimate tax
benefit of acquired assets, liabilities and carryforwards related to the
Act III Acquisition.
9. Mandatorily Redeemable Cumulative Preferred Stock
On January 4, 1996, the Company issued $115,000,000, 15% mandatorily
redeemable cumulative preferred stock (the "Preferred Stock"). Dividends
accrue on the outstanding shares of Preferred Stock at a rate of 15% per
year compounding annually. Accrued dividends are payable on March 15,
2001 and will be payable annually subsequent to that date. In connection
with the issuance of the Preferred Stock, the Company issued 2,406,307
warrants to purchase Class B-1 common stock at $.001 per share. These
warrants are currently exercisable and do not expire. Accretion to record
the value of the Preferred Stock at its redemption value is calculated
using the effective interest method. Such amounts have been charged to
additional-paid-in-capital.
10. Supplemental Disclosures of Cash Flow Information
The Company paid interest of $33,828,000 and $34,666,000 during the years
ended December 31, 1996 and 1997, respectively.
During the years ended December 31, 1996 and 1997, the programming rights
increased $44,679,000 and $31,800,000 due to the assumption of
programming liabilities.
During the years ended December 31, 1996 and 1997, the Company paid
approximately $1,749,000 and $3,600,000, respectively, for income taxes.
F-55
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
11. Commitments and Contingencies
Leases
The Company has operating lease agreements for land, office space, office
equipment and other property which expire on various dates through 2005.
Rental expense was $750,000 and $884,000 during the years ended December
31, 1996 and 1997, respectively. As of December 31, 1997, minimum required
annual payments under noncancellable operating leases are as follows:
1998 $ 978,000
1999 968,000
2000 984,000
2001 836,000
2002 715,000
Thereafter 1,230,000
--------------
$ 5,711,000
==============
Programming Contracts
Programming contracts acquired under license agreements are recorded as an
asset and a corresponding liability at the inception of the license period.
In addition to the programming contracts payable at December 31, 1997, the
Company has $17,575,000 of commitments to acquire programming rights for
which the license period has not commenced and, accordingly, for which no
asset or liability has been recorded. Future minimum payments arising from
such commitments outstanding at December 31, 1997, excluding $18,976,000 of
barter commitments, are as follows:
1998 $ 14,798,000
1999 11,437,000
2000 9,351,000
2001 5,868,000
2002 3,632,000
Thereafter 1,167,000
--------------
$ 46,253,000
==============
Litigation
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. In the opinion of management, no
existing or contingent claims will have a material adverse effect on the
Company's financial position or results of operations.
Employment Contracts
The Company has entered into an employment contract with an executive
officer of the Company providing for a minimum aggregate amount of $500,000
payable annually commencing September 13, 1995 for an initial term of eight
years. Additionally, the Company has guaranteed annual bonus arrangements
with two other executive officers which have historically been paid.
F-56
<PAGE>
Sullivan Broadcast Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
12. Related Party Transactions
Operating expenses include reimbursements to ABRY Partners, Inc. ("ABRY"),
an entity related through common ownership, for the Company's allocable
share of rent paid by ABRY for the Company. These expenses approximated
$73,000 and $106,000 for the years ended December 31, 1996 and 1997,
respectively, and are included in selling, general and administrative
expenses in the Company's consolidated statement of operations.
The Company also pays ABRY a management fee for financial and other
advisory services. Management fees paid to ABRY approximated $252,000 and
$265,000 for the years ended December 31, 1997 and 1997, respectively, and
are included in selling, general and administrative expenses in the
Company's consolidated statement of operations.
13. Subsequent Event
On February 23, 1998, the Company entered into a Plan of Merger (the
"Merger"). Under the terms of the Merger, 100% of the issued and
outstanding common stock of the Company will be acquired by means of a
merger. The Merger is subject to approval of the FCC and is expected to
close prior to August 1998.
F-57
<PAGE>
Sullivan Broadcasting Company, Inc.
Valuation and Qualifying Accounts Schedule II
(in Thousands)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Charged to
Beginning Costs and Ending
Balanace Expenses Deductions Balance
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:(a)
Allowance for Doubtful Accounts 1,182,000 1,051,000 (751,000) 1,482,000
Year Ended December 31, 1995:(a)
Allowance for Doubtful Accounts 1,482,000 404,000 (903,000) 983,000
Year Ended December 31, 1996:(a)
Allowance for Doubtful Accounts 983,000 876,000 (562,000) 1,297,000
</TABLE>
F-58
<PAGE>
EXHIBIT 10.4
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth Amendment"),
---------------
dated effective as of December 31, 1997, is entered into by and among Sullivan
Broadcasting Company, Inc. (the "Borrower"), a Delaware corporation formerly
--------
known as Act III Broadcasting, Inc. and successor by merger to A-3 Acquisition,
Inc., Sullivan Broadcast Holdings, Inc. (the "Parent"), a Delaware corporation
------
formerly known as A-3 Holdings, Inc., the Lenders parties hereto, and
NationsBank of Texas, N.A., as Administrative Agent for the Lenders and as a
Lender, with reference to the hereinafter described Credit Agreement.
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to them in such Credit Agreement.
RECITALS
A. A-3 Acquisition, Inc., a Delaware corporation, predecessor in
interest to the Borrower, A-3 Holdings, Inc., a Delaware corporation,
precedessor in interest to the Parent, the Administrative Agent, the other
members of the Agent Group and the Lenders entered into that certain Credit
Agreement, dated January 4, 1996 (as amended, modified, restated, supplemented,
renewed, extended, rearranged or substituted from time to time, the "Credit
------
Agreement").
- - - ---------
B. The Borrower, the Parent and the Majority Lenders entered into
(i) that certain First Amendment to Credit Agreement and Limited Waiver and
Consent, dated as of May 24, 1996, (ii) that certain Second Amendment to Credit
Agreement, dated as of July 10, 1996, (iii) that certain Third Amendment to
Credit Agreement, dated as of December 31, 1996 and (iv) that certain Fourth
Amendment to Credit Agreement, dated as of June 26, 1997 (collectively, the
"Amendments").
- - - -----------
C. The Borrower, the Parent and the Lenders parties hereto wish to
enter into this Fifth Amendment in order to further amend the Credit Agreement
as hereinafter set forth.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. AMENDMENT TO CREDIT AGREEMENT
Subject to the terms and conditions set forth herein, and in reliance
upon the representations and warranties of the Borrower and the Parent herein
contained, the Borrower, the Parent and the Lenders parties hereto, who
constitute not less than the Majority Lenders, hereby amend Section 8.1(f) of
--------------
the Credit Agreement by deleting the number "$3,000,000" in item (ii) thereof
and replacing in lieu thereof the number "$4,000,000".
<PAGE>
Section 2. REPRESENTATIONS AND WARRANTIES
The Borrower and the Parent hereby represent and warrant to the
Administrative Agent and the Lenders that (a) the execution, delivery and
performance of this Fifth Amendment has been authorized by all requisite
corporate action on the part of the Borrower and the Parent; and (b) this Fifth
Amendment constitutes a legal, valid, and binding obligation of the Borrower and
the Parent, enforceable in accordance with the terms hereof.
Section 3. MISCELLANEOUS
(a) Consent of Parent. Parent hereby consents to the amendments to
the Credit Agreement set forth in this Fifth Amendment and the other Amendments
and confirms and agrees that its obligations under Section 11 of the Credit
----------
Agreement are and remain in full force and effect and that no defenses exist
which the Parent may assert against any of the Lenders with respect to the
enforcement of the Lenders' rights under Section 11 of the Credit Agreement.
----------
(b) Conditions Precedent. The effectiveness of this Fifth Amendment
is subject to the Administrative Agent's receipt of a fully executed copy of the
Consent and Acknowledgment of the Subsidiaries of the Borrower in the form
attached hereto as Exhibit A.
---------
(c) Ratification and Confirmation of Loan Documents. Except as
specifically amended hereby, the Credit Agreement and other Loan Documents
remain in full force and effect and are hereby ratified and confirmed by the
Borrower and the Parent, and the execution and delivery of this Fifth Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any right, power or remedy of the Administrative Agent, the Lenders or
the Managing Agents under the Credit Agreement.
(d) Headings. Section and subsection headings in this Fifth Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Fifth Amendment for any other purpose or be given any substantive
effect.
(e) APPLICABLE LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(f) Counterparts. This Fifth Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
2
<PAGE>
(g) FINAL AGREEMENT. THIS FIFTH AMENDMENT, TOGETHER WITH THE
AMENDMENTS, THE CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By: /s/ Patrick Bratton
--------------------------------
Name: PATRICK BRATTON
Title: C.F.O.
SULLIVAN BROADCAST HOLDINGS, INC.
By: /s/ Patrick Bratton
--------------------------------
Name: PATRICK BRATTON
Title: C.F.O.
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By:
--------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By:
--------------------------------
Name:
Title:
SULLIVAN BROADCAST HOLDINGS, INC.
By:
--------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By: /s/ Roselyn Reid
--------------------------------
Name: Roselyn Reid
Title: Vice President
BANKERS TRUST COMPANY,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By:
--------------------------------
Name:
Title:
SULLIVAN BROADCAST HOLDINGS, INC.
By:
--------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By:
--------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as a Lender
By: /s/ Gina S. Thompson
--------------------------------
Name: GINA S. THOMPSON
Title: VICE PRESIDENT
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By: /s/ Robert F. Milordi
--------------------------------
Name: ROBERT F MILORDI
Title: MANAGING DIRECTOR
THE CHASE MANHATTAN BANK,
as a Lender
By:
--------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as a Lender
By: /s/ Ann B. Kerns
--------------------------------
Name: ANN B. KERNS
Title: VICE PRESIDENT
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as a Lender
By:
--------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By:/s/ Adam G. Clemens
--------------------------------
Name: ADAM G. CLEMENS
Title: MANAGING DIRECTOR
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By: /s/ Carl F. Salas
--------------------------------
Name: Carl F. Salas
Title: Vice President
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By:
--------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By:
--------------------------------
Name:
Title:
BANQUE PARIBAS,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By:
--------------------------------
Name:
Title:
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By: /s/ Yvonne Bos
--------------------------------
Name: YVONNE BOS
Title: SENIOR VICE PRESIDENT
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By:
--------------------------------
Name:
Title:
BANQUE PARIBAS,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By:
--------------------------------
Name:
Title:
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By:
--------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By: /s/ Evan S. Kraus /s/[SIGNATURE APPEARS HERE]
----------------------------------------------
Name: EVAN S. KRAUS [NAME APPEARS HERE]
Title: ASSOCIATE VICE PRESIDENT
BANQUE PARIBAS,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By:
--------------------------------
Name:
Title:
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By:
--------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By:
--------------------------------
Name:
Title:
BANQUE PARIBAS,
as a Lender
By: /s/ Lynne S. Randall
--------------------------------
Name: Lynne S. Randall
Title: Director
<PAGE>
CIBC INC.,
as a Lender
By: /s/ Susan Hanna
--------------------------------
Name: SUSAN HANNA
Title: EXECUTIVE DIRECTOR
CIBC Oppenheimer Corp, AS AGENT
CORESTATES BANK, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
--------------------------------
Name:
Title:
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
CIBC INC.,
as a Lender
By:
--------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender
By: /s/ [SIGNATURE APPEARS HERE]
--------------------------------
Name:
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
--------------------------------
Name:
Title:
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
CIBC INC.,
as a Lender
By:
--------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By: /s/ Joseph P. Matteo
--------------------------------
Name: JOSEPH P. MATTEO
Title: AUTHORIZED SIGNATORY
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
CIBC INC.,
as a Lender
By:
--------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender
By:
--------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
--------------------------------
Name:
Title:
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By: /s/ Jeffery J. McLaughlin
--------------------------------
Name: Jeffery J. Mclaughlin
Title: Supervisor
<PAGE>
SOCIETE GENERALE,
as a Lender
By: /s/ John Sadik-Khan
--------------------------------
Name: JOHN SADIK-KHAN
Title: VICE PRESIDENT
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By:
--------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
as a Lender
By:
--------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By: /s/ John W. Petchler
--------------------------------
Name: JOHN W. PETCHLER
Title: Second Vice President
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
as a Lender
By:
--------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By:
--------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By: /s/ Michael K. McShane
--------------------------------
Name: Michael K. McShane
Title: Senior Vice President
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST, as a Lender
By: /s/ Jeffrey W. Maillet
--------------------------------
Name: JEFFREY W. MAILLET
Title: Senior Vice President & Director
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By: /s/ Jeffrey W. Maillet
------------------------------------
Name: JEFFREY W. MAILLET
Title: Senior Vice President & Director
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION,
as a Lender
By: NEW YORK LIFE INSURANCE
COMPANY
By:
------------------------------------
Name:
Title:
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST, as a Lender
By:
--------------------------------
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By:
------------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION,
as a Lender
By: NEW YORK LIFE INSURANCE
COMPANY
By: /s/ Adam G. Clemens
------------------------------------
Name: ADAM G. CLEMENS
Title: MANAGING DIRECTOR
<PAGE>
AERIES FINANCE LTD.,
as a Lender
By: /s/ Andrew Ian Wignall
--------------------------------
Name: Andrew Ian Wignall
Title: Director
SENIOR DEBT PORTFOLIO,
as a Lender
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By:
----------------------------
Name:
Title:
KZH HOLDING CORPORATION III,
as a Lender
By:
-----------------------------------
Name:
Title:
<PAGE>
AERIES FINANCE LTD.,
as a Lender
By:
--------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO,
as a Lender
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By: /s/ Payson F. Swaffield
----------------------------
Name: PAYSON F. SWAFFIELD
Title: Vice President
KZH HOLDING CORPORATION III,
as a Lender
By:
-----------------------------------
Name:
Title:
<PAGE>
AERIES FINANCE LTD.,
as a Lender
By:
--------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO,
as a Lender
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By:
---------------------------------
Name:
Title:
KZH HOLDING CORPORATION III,
as a Lender
By: /s/ V. Conway
----------------------------------------
Name: Virginia R. Conway
Title: Authorized Agent
<PAGE>
EXHIBIT 10.5
SIXTH AMENDMENT TO CREDIT AGREEMENT
AND LIMITED CONSENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT AND LIMITED CONSENT (this
"Sixth Amendment"), dated effective as of January 30, 1998, is entered into by
- - - ----------------
and among Sullivan Broadcasting Company, Inc. (the "Borrower"), a Delaware
--------
corporation formerly known as Act III Broadcasting, Inc. and successor by merger
to A-3 Acquisition, Inc., Sullivan Broadcast Holdings, Inc. (the "Parent"), a
------
Delaware corporation formerly known as A-3 Holdings, Inc., the Lenders parties
hereto, and NationsBank of Texas, N.A., as Administrative Agent for the Lenders
and as a Lender, with reference to the hereinafter described Credit Agreement.
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to them in such Credit Agreement.
RECITALS
A. A-3 Acquisition, Inc., a Delaware corporation, predecessor in
interest to the Borrower, A-3 Holdings, Inc., a Delaware corporation,
predecessor in interest to the Parent, the Administrative Agent, the other
members of the Agent Group and the Lenders entered into that certain Credit
Agreement, dated January 4, 1996 (as amended, modified, restated, supplemented,
renewed, extended, rearranged or substituted from time to time, the "Credit
------
Agreement").
- - - ---------
B. The Credit Agreement has previously been amended by (i) that
certain First Amendment to Credit Agreement and Limited Waiver and Consent,
dated as of May 24, 1996, (ii) that certain Second Amendment to Credit
Agreement, dated as of July 10, 1996, (iii) that certain Third Amendment to
Credit Agreement, dated as of December 31, 1996, (iv) that certain Fourth
Amendment to Credit Agreement, dated as of June 26, 1997 and (v) that certain
Fifth Amendment to Credit Agreement, dated effective as of December 31, 1997
(collectively, the "Amendments").
----------
C. Sullivan Broadcasting of Oklahoma City, Inc. ("Sullivan Oklahoma
-----------------
City") and Sullivan Broadcasting License Holder, Inc. ("Sullivan License"), both
- - - ---- ----------------
Subsidiaries of the Borrower, have entered into that certain Asset Purchase
Agreement with Sinclair Broadcast Group, Inc. dated as of January 6, 1998 (the
"Oklahoma City Purchase Agreement"), pursuant to which Sullivan Oklahoma City
- - - ---------------------------------
and Sullivan License intend to acquire substantially all of the assets
(including, without limitation, FCC Licenses) used in connection with the
operation of television broadcast station KOKH-TV Channel 25, Oklahoma City,
Oklahoma (the "Oklahoma City Station" and such acquisition, the "Oklahoma City
--------------------- -------------
Acquisition").
- - - -----------
D. In connection with the Oklahoma City Acquisition, Sullivan
Oklahoma City and Sullivan License intend to enter into the following: (i) an
Option Agreement (the "Oklahoma
--------
<PAGE>
City Option Agreement") with Sinclair Broadcast Group, Inc. or one or more of
- - - ---------------------
its subsidiaries (collectively, "Sinclair"), pursuant to which Sullivan Oklahoma
--------
City and Sullivan License will grant Sinclair or its assigns an option to
purchase substantially all of the assets (including, without limitation, FCC
Licenses) used in connection with the operation of the Oklahoma City Station,
upon the terms and conditions set forth therein; and (ii) an Option Agreement
(the "Charleston Option Agreement" and together with the Oklahoma City Option
---------------------------
Agreement, the "Option Agreements") with WSTR, Inc. and WCHS Licensee, Inc.
-----------------
(collectively, "Sinclair Charleston"), pursuant to which Sinclair Charleston
-------------------
will grant Sullivan Oklahoma City and Sullivan License or their assigns an
option to purchase substantially all of the assets (including, without
limitation, FCC Licenses) used in connection with the operation of television
broadcast station WCHS-TV Channel 8, Charleston, West Virginia (the "Charleston
----------
Station"), upon the terms and conditions set forth therein.
- - - -------
E. The Borrower, the Parent and the Lenders parties hereto wish to
enter into this Sixth Amendment in order to (i) amend the Credit Agreement to
increase the aggregate Revolving Credit Commitments from $30,000,000 to
$40,000,000 in order to permit the Oklahoma City Acquisition to be financed with
the proceeds of Revolving Credit Loans, (ii) effect certain assignments and
acceptances of Revolving Credit Commitments, (iii) amend the Credit Agreement in
certain other respects as hereinafter set forth and (iv) evidence the Lenders'
consent to the execution and delivery of the Option Agreements, subject to the
terms and conditions set forth herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. AMENDMENTS TO CREDIT AGREEMENT
Subject to the terms and conditions set forth herein, and in reliance
upon the representations and warranties of the Borrower and the Parent herein
contained, the Borrower, the Parent and the Lenders hereby amend the Credit
Agreement as follows:
(a) Amendments Adding Definitions. Section 1.1 of the Credit
-----------
Agreement is amended by adding the following definitions in the appropriate
alphabetical positions:
""Completed Acquisition": An acquisition (including the entry into an LMA)
---------------------
by the Borrower, directly or indirectly through a Wholly Owned Subsidiary,
previously consummated in accordance with Sections 6.2 and 8.8."
""Pro Forma Compliance Certificate": a Compliance Certificate giving
--------------------------------
effect to the relevant proposed transaction for which the Compliance
Certificate is being delivered and any other transactions relating thereto
(as though such transactions had taken place as of the beginning of the
period or on the date being tested, as applicable) based on the financial
information of the Borrower and the Subsidiaries set forth in the Financial
Statements most recently delivered to the Lenders pursuant to Section
2
<PAGE>
7.1(a) or (b) and demonstrating that no Default exists both before and
after giving effect to such proposed transactions."
(b) Amendment Increasing Aggregate Revolving Credit Commitments.
Section 2.1 of the Credit Agreement is amended by deleting the first sentence
- - - -----------
thereof in its entirety and replacing it with the following:
"The aggregate amount of the Revolving Credit Commitments as of January 30,
1998 equals $40,000,000."
(c) Amendments to Annex I to Credit Agreement. Annex I to the Credit
-------
Agreement is amended by deleting it in its entirety and replacing it with Annex
-----
I attached to this Sixth Amendment.
- - - -
(d) Amendments Clarifying Permitted Uses of Proceeds of Acquisition
Credit Loans.
(i) Section 2.6(a) of the Credit Agreement is amended by deleting it
--------------
in its entirety and replacing it with the following:
"(a) So long as no Default has occurred and is continuing, the
Borrower may request from time to time, subject to the terms and conditions
hereof, that the Lenders commit to make revolving credit loans
("Acquisition Credit Loans") to the Borrower by giving written notice
--------------------------
thereof to the Managing Agents (an "Acquisition Credit Request"),
--------------------------
specifying therein (i) the aggregate amount of the requested Acquisition
Credit Commitments; provided, however, that after giving effect to such
-------- -------
Acquisition Credit Request, the Total Acquisition Credit Commitment shall
not exceed the Available Acquisition Credit; provided further, however, if
-------- -------
such Acquisition Credit Request is made at such time as the Leverage Ratio
of the Borrower as of the last day of the immediately preceding fiscal
quarter for which Financial Statements have been delivered pursuant to
Section 7.1 is equal to or greater than 6.25 to 1.00, after giving effect
to such Acquisition Credit Request, the Total Acquisition Credit Commitment
shall not exceed the lesser of (A) $35,000,000, and (B) the Available
Acquisition Credit, (ii) the proposed acquisition to be financed or
Completed Acquisition to be refinanced in whole or in part by the
Acquisition Loans to be made under such Acquisition Credit Facility and
describing such proposed acquisition or Completed Acquisition, (iii) in the
case of a financing of a proposed acquisition, facts evidencing that the
proposed acquisition satisfies the Acquisition Criteria or one or more of
the Acquisition Criteria have been waived by the Majority Lenders and (iv)
the date on or before which the proposed acquisition or refinancing of a
Completed Acquisition will be consummated. Such Acquisition Credit Request
shall be accompanied by the financial information required by Section
2.6(b). Upon receipt of any such Acquisition Credit Request, the financial
information required by Section 2.6(b) and such other information as the
Managing
3
<PAGE>
Agents shall reasonably request in connection therewith, and, in the case
of a financing of a proposed acquisition, after the determination by the
Managing Agents that the proposed acquisition satisfies the Acquisition
Criteria (which shall be within 10 Business Days after receipt of all such
information by the Managing Agents), the Administrative Agent shall
promptly notify the Lenders thereof. No Lender shall be obligated to commit
to any requested Acquisition Credit Facility."
(ii) Section 2.6(b) of the Credit Agreement is amended by adding the
--------------
following immediately after the term "Acquisition Credit Request" in the
first line thereof:
"for the financing of a proposed acquisition"
(iii) Section 2.6(c) of the Credit Agreement is amended by adding the
--------------
following at the end of the third sentence thereof:
"or refinancing in whole or in part a Completed Acquisition"
(iv) Section 5.15 of the Credit Agreement is amended by adding the
------------
following at the end of the last sentence thereof:
"or to refinance in whole or in part Completed Acquisitions."
(e) Amendments to Acquisition Loan Conditions. Section 6.2 of the
-----------
Credit Agreement is amended by deleting it in its entirety and replacing it with
the following:
"6.2 Conditions to Each Loan for a Subject Acquisition. The obligation of
-------------------------------------------------
each applicable Lender to make its Loans (whether Acquisition Loans or
Revolving Credit Loans) to finance any Subject Acquisition is subject to
the satisfaction, immediately prior to or concurrently with the making of
such Loans on the applicable funding date, of the following conditions
precedent, each in a manner reasonably satisfactory to the Lenders:
(a) Initial Conditions Satisfied. Each of the conditions set forth
----------------------------
in Section 6.1 and with respect to Acquisition Loans, Section 2.6, shall
have been satisfied and shall continue to be satisfied on the date of such
Loans.
(b) Pro Forma Balance Sheets. The Lenders (through the
------------------------
Administrative Agent) shall have received (i) pro forma balance sheets of
the Borrower and the Subsidiaries as at the applicable funding date (after
giving effect to the Subject Acquisition and the financing contemplated
hereby and thereby) consistent with a proposed "Sources and Uses" table
attached to the Notice of Borrowing or Acquisition Credit Request, as
applicable, and (ii) a Compliance Certificate of the Vice President -
Finance of the Borrower demonstrating that no Default exists both
4
<PAGE>
before and after giving effect to the Subject Acquisition and the
transactions contemplated thereby.
(b) Pro Forma Financial Statements/Compliance Certificate. The
-----------------------------------------------------
Lenders (through the Administrative Agent) shall have received (i) pro
forma financial statements for the preceding four fiscal quarters of the
Borrower for which Financial Statements have been delivered to the Lenders
pursuant to Section 7.1(a) or (b), giving effect to the Subject
Acquisition, consisting of a consolidated balance sheet as at the end of
such most recently ended fiscal quarter of the Borrower and the related
consolidated statements of operations and cash flows for such period of
four fiscal quarters and the notes related thereto, together with a Pro
Forma Compliance Certificate, giving effect to such Subject Acquisition
demonstrating that no Default exists both before and after giving effect to
the Subject Acquisition and the transactions contemplated thereby and (ii)
a "Sources and Uses" table.
(c) Governmental and Third Party Approvals. All material
--------------------------------------
Authorizations and third party approvals (including, without limitation,
all FCC Licenses and consents) necessary or appropriate in connection with
the Subject Acquisition shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose materially adverse conditions on the
Subject Acquisition or the financing thereof.
(d) No Material Litigation. No Litigation, injunction or restraining
----------------------
order shall be pending, entered or threatened in writing which would
reasonably be expected to have a material adverse effect on the Subject
Acquisition.
(e) No Material Adverse Effect. There shall not have occurred any
--------------------------
change, development or event which would reasonably be expected to have a
Material Adverse Effect and the applicable Lenders shall not have become
aware of any materially adverse information with respect to the Subject
Acquisition.
(f) Acquisition Criteria Satisfied. All Acquisition Criteria shall
------------------------------
have been fully satisfied.
(g) Appraisals. The applicable Lenders shall have copies of all
----------
appraisals made available to the Borrower or conducted by or on behalf of
the Borrower with respect to the Subject Acquisition.
(h) Environmental Audits. The Lenders shall have received copies of
--------------------
all environmental audits made available to the Borrower or conducted by or
on behalf of the Borrower with respect to the Subject Acquisition.
5
<PAGE>
(i) Consummation of Acquisition. The applicable Lenders shall have
---------------------------
received satisfactory evidence that the Subject Acquisition shall have been
consummated prior to or concurrently with the making of the Revolving
Credit Loans or Acquisition Loans, as applicable.
(j) Additional Loan Documents. The appropriate Persons shall have
-------------------------
executed and delivered to the Administrative Agent the Loan Documents
required by Section 7.9, together with certificates and documents of the
types described in Section 6.1(f), (g), (h), (i), (j), (k), (l), (m), (n),
(o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (dd) and (hh), as
applicable, with respect to the enterprise to be acquired and the
applicable Loan Parties.
(k) All Proceedings Satisfactory. All corporate and other
----------------------------
proceedings taken prior to or at the closing in connection with the Subject
Acquisition and all documents and evidences incident thereto shall be
reasonably satisfactory in form and substance to the applicable Lenders,
and such Lenders shall have received such copies thereof and such other
materials (certified, if requested) as they may have reasonably requested
in connection therewith.
(l) Other Conditions. The satisfaction of such other conditions as
----------------
the applicable Lenders may reasonably require, including, without
limitation, in the case of Acquisition Credit Loans, the execution and
delivery of all Acquisition Credit Facility Documents for the applicable
Acquisition Facility."
Section 2. LIMITED CONSENT
Subject to the terms and conditions set forth herein, and in reliance
upon the representations and warranties of the Borrower and the Parent set forth
herein, the Lenders parties hereto hereby consent to the execution, delivery and
performance by Sullivan Oklahoma and Sullivan License of the Option Agreements;
provided, that (a) such Option Agreements are substantially identical to the
- - - --------
draft Option Agreements dated January 19, 1998 (with respect to the Charleston
Station) and January 22, 1998 (with respect to the Oklahoma City Station),
respectively, copies of which have previously been delivered to each of the
Lenders; and (b) such consent shall not be deemed (i) an approval by the Lenders
of the acquisition by Sullivan Oklahoma City and Sullivan License (or their
assigns) of the Charleston Station, the consummation of which acquisition shall
remain subject to the applicable terms of the Credit Agreement, (ii) an
acknowledgment or agreement by the Administrative Agent or any Lender that the
proposed acquisition of the Charleston Station constitutes a Permitted
Acquisition or satisfies the Acquisition Criteria, or that the Lenders have
modified or waived any such Acquisition Criteria or (iii) a waiver or
modification of the Borrower's or any Subsidiary's compliance with any other
provision of the Credit Agreement, including without limitation, Section 8.5
-----------
(Limitation on Sale of Assets) and Section 8.8 (Limitation on Acquisitions,
-----------
Investments, Loans and Advances).
6
<PAGE>
Section 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Sixth Amendment, the Borrower and the Parent hereby jointly and severally
represent and warrant to the Administrative Agent and the Lenders as of the date
hereof as follows:
(a) Corporate Authorization; No Contravention. The execution,
delivery and performance by the Borrower and the Parent of this Sixth Amendment
have been duly authorized by all necessary corporate action, and do not and will
not (i) contravene the terms of any Charter Documents of any Loan Party, (ii)
conflict with or result in any breach or contravention of, or the creation of
any Lien under, any document evidencing any Contractual Obligation to which any
Loan Party is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Loan Party is a party or its property is
subject or (iii) violate any Requirement of Law.
(b) Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by the Borrower or the Parent of this Sixth
Amendment.
(c) Binding Effect. This Sixth Amendment constitutes the legal, valid
and binding obligation of each of the Borrower and the Parent, enforceable
against each in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability.
(d) No Default. No Default or Event of Default exists. As of the
date hereof, no Loan Party is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would, if such default had occurred after the date hereof, give rise to
an Event of Default under the Credit Agreement.
(e) Full Disclosure. As of the date hereof, all information that has
been made available to the Administrative Agent or any Lender by or on behalf of
the Borrower and the Parent in connection with the transactions contemplated
herein is, taken together, true and correct in all material respects (other than
financial budgets and projections) and does not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements maintained therein not materially misleading in light of the
circumstances under which such statements were made.
(f) Representations and Warranties. The representations and
warranties made by the Company and the Parent in the Credit Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date hereof, before and after giving effect to the effectiveness of this
Sixth Amendment, as if made on and as of the date hereof.
7
<PAGE>
Section 4. CONDITIONS PRECEDENT
The effectiveness of this Sixth Amendment is subject to the
satisfaction in full of each of the following conditions precedent, each in a
manner satisfactory to the Administrative Agent:
(a) Consent and Acknowledgment of Subsidiaries. The Administrative
Agent shall have received a fully executed copy of the Consent and
Acknowledgment of the Subsidiaries of the Borrower in the form attached hereto
as Exhibit A.
---------
(b) Assignment and Acceptance. The Administrative Agent shall have
received a fully executed copy of the Assignment and Acceptance among the
Revolving Credit Lenders, in the form attached hereto as Exhibit B, whereby
---------
immediately prior to the effectiveness of this Sixth Amendment the Revolving
Credit Lenders shall have sold and assigned, or purchased and accepted, as
applicable among themselves and in the proportionate amounts set forth therein,
the rights, titles, interests and obligations of the Revolving Credit Lenders
under the Credit Agreement, the Collateral and all the Loan Documents executed
in connection therewith.
(c) Exchange of Notes. The Administrative Agent shall have received
Amended and Restated Revolving Credit Notes, each dated as of the effective date
of this Sixth Amendment and executed and delivered by the Borrower in exchange
for the previously outstanding Revolving Credit Notes, which Amended and
Restated Revolving Credit Notes shall be payable to the order of the Revolving
Credit Lenders in the respective appropriate principal amounts and shall
evidence the Revolving Credit Lenders' respective Revolving Credit Commitments,
after giving effect to the increase in the aggregate Revolving Credit
Commitments effected hereby and to the above-described Assignment and
Acceptance.
Section 5. MISCELLANEOUS
(a) Consent of Parent. Parent hereby consents to the amendments to
the Credit Agreement set forth in this Sixth Amendment and the other Amendments
and confirms and agrees that its obligations under Section 11 of the Credit
----------
Agreement are and remain in full force and effect and that no defenses exist
which the Parent may assert against any of the Lenders with respect to the
enforcement of the Lenders' rights under Section 11 of the Credit Agreement.
----------
(b) Ratification and Confirmation of Loan Documents. Except as
specifically amended hereby, the Credit Agreement and other Loan Documents
remain in full force and effect and are hereby ratified and confirmed by the
Borrower and the Parent, and the execution and delivery of this Sixth Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any right, power or remedy of the Administrative Agent, the Lenders or
the Managing Agents under the Credit Agreement or operate as an approval of the
terms and conditions of any other agreement of the Borrower or any Subsidiary.
8
<PAGE>
(c) Headings. Section and subsection headings in this Sixth
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Sixth Amendment for any other purpose or be given any
substantive effect.
(d) APPLICABLE LAW. THIS SIXTH AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(e) Counterparts. This Sixth Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(f) FINAL AGREEMENT. THIS SIXTH AMENDMENT, TOGETHER WITH THE
AMENDMENTS, THE CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By: /s/ Patricia Bratton
-------------------------------------
Name: Patricia Bratton
Title: CFO
SULLIVAN BROADCAST HOLDINGS, INC.
By: /s/ Patricia Bratton
-------------------------------------
Name: Patricia Bratton
Title: CFO
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By:
-------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as a Lender
By:
-------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
SULLIVAN BROADCAST HOLDINGS, INC.
By:
-------------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By: /s/ Roselyn Reid
-------------------------------------
Name: Roselyn Reid
Title: Vice President
BANKERS TRUST COMPANY,
as a Lender
By:
-------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By:
-------------------------------------
Name:
Title:
SULLIVAN BROADCAST HOLDINGS, INC.
By:
-------------------------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By:
-------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as a Lender
By: /s/ James Reilly
-------------------------------------
Name: JAMES REILLY
Title: VICE PRESIDENT
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By: /s/ Robert F. Milordi
------------------------------------
Name: ROBERT F. MILORDI
Title: MANAGING DIRECTOR
THE CHASE MANHATTAN BANK,
as a Lender
By:
------------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By:
------------------------------------
Name:
Title:
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By:
------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as a Lender
By: /s/ Ann B. Kerns
------------------------------------
Name: ANN B. KERNS
Title: VICE PRESIDENT
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By:
------------------------------------
Name:
Title:
<PAGE>
BANKBOSTON, N.A.,
as a Lender
By:
------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as a Lender
By:
------------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By: /s/ James M. Barker, V
------------------------------------
Name: James Barker
Title: Investment Manager
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By: /s/ Carl F. Selas
------------------------------------
Name: Carl F. Selas
Title: Vice President
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By:
------------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By:
------------------------------------
Name:
Title:
BANQUE PARIBAS,
as a Lender
By:
------------------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By:
------------------------------------
Name:
Title:
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By: /s/ Patrick Kebler
------------------------------------
Name: Patrick Kebler
Title: Director
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By:
------------------------------------
Name:
Title:
BANQUE PARIBAS,
as a Lender
By:
------------------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By:
------------------------------------
Name:
Title:
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By:
------------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By: /s/ Evan S. Kraus G. Kevin Dooley
------------------------------------
Name: EVAN S. KRAUS G. KEVIN DOOLEY
Title: ASSOCIATE VICE PRESIDENT
BANQUE PARIBAS,
as a Lender
By:
------------------------------------
Name:
Title:
<PAGE>
BANK OF AMERICA NT & SA,
as a Lender
By:
------------------------------------
Name:
Title:
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By:
------------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur,
as a Lender
By:
------------------------------------
Name:
Title:
BANQUE PARIBAS,
as a Lender
By: /s/ Lynne S. Randall
------------------------------------
Name: Lynne S. Randall
Title: Director
By: /s/ William B. Schink
------------------------------------
Name: William B. Schink
Title: Director
<PAGE>
CIBC INC.,
as a Lender
By: /s/ Susan Hanna
---------------------------------
Name: SUSAN HANNA
Title: EXECUTIVE DIRECTOR
CIBC Oppenheimer Corp., AS AGENT
CORESTATES BANK, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
---------------------------------
Name:
Title:
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
CIBC INC.,
as a Lender
By:
---------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender
By: /s/ (SIGNATURE APPEARS HERE)
---------------------------------
Name:
Title: VICE PRESIDENT
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
---------------------------------
Name:
Title:
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
CIBC INC.,
as a Lender
By:
---------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By: /s/ Joseph P. Matteo
---------------------------------
Name: JOSEPH P. MATTEO
Title: AUTHORIZED SIGNATORY
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
CIBC INC.,
as a Lender
By:
---------------------------------
Name:
Title:
CORESTATES BANK, N.A.,
as a Lender
By:
---------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By:
----------------------------------
Name:
Title:
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.,
as a Lender
By: /s/ William Weiss
---------------------------------
Name: WILLIAM WEISS
Title: ASSISTANT VICE PRESIDENT
<PAGE>
SOCIETE GENERALE,
as a Lender
By: /s/ John Sadik-Khan
---------------------------------
Name: JOHN SADIK-KHAN
Title: VICE PRESIDENT
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By:
---------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By:
---------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
as a Lender
By:
---------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By: /s/ John W. Petchler
---------------------------------
Name: JOHN W. PETCHLER
Title: Second Vice President
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By:
---------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
as a Lender
By:
---------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By:
---------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By: /s/ Michael K. McShane
---------------------------------
Name: MICHAEL K. MCSHANE
Title: SENIOR VICE PRESIDENT
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
as a Lender
By:
---------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By:
---------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By:
---------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST, as a Lender
By: /s/ Jeffrey W. Maillet
---------------------------------
Name: JEFFREY W. MAILLET
Title: SR. VICE PRES. & DIRECTOR
<PAGE>
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By: /s/ Jeffrey W. Maillet
---------------------------------------
Name: JEFFREY W. MAILLET
Title: SR. VICE PRES. & DIRECTOR
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION, as a Lender
By: NEW YORK LIFE INSURANCE
COMPANY
By:
---------------------------------------
Name:
Title:
AERIES FINANCE LTD.,
as a Lender
By:
----------------------------------------------
Name:
Title:
<PAGE>
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By:
--------------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION, as a Lender
By: NEW YORK LIFE INSURANCE
COMPANY
By: /s/ James M. Barker
--------------------------------------
Name: James M. Barker
Title: Investment Manager
AERIES FINANCE LTD.,
as a Lender
By:
----------------------------------------------
Name:
Title:
<PAGE>
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By:
---------------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION,
as a Lender
By: NEW YORK LIFE INSURANCE
COMPANY
By:
---------------------------------------
Name:
Title:
AERIES FINANCE LTD.,
as a Lender
By: /s/ Andrew Ian Wignall
----------------------------------------------
Name: Andrew Ian Wignall
Title: Director
<PAGE>
SENIOR DEBT PORTFOLIO,
as a Lender
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By: /s/ Payson F. Swaffield
--------------------------------------
Name: Payson F. Swaffield
Title: Vice President
NATIONSBANK, N.A. (CAROLINAS),
as a Lender
By:
---------------------------------------------
Name:
Title:
KZH HOLDING CORPORATION III,
as a Lender
By:
---------------------------------------------
Name:
Title:
<PAGE>
SENIOR DEBT PORTFOLIO,
as a Lender
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By:
--------------------------------------
Name:
Title:
NATIONSBANK, N.A. (CAROLINAS),
as a Lender
By: /s/ Kerry Shute
---------------------------------------------
Name: KERRY SHUTE
Title: VP
KZH HOLDING CORPORATION III,
as a Lender
By:
---------------------------------------------
Name:
Title:
<PAGE>
SENIOR DEBT PORTFOLIO,
as a Lender
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By:
--------------------------------
Name:
Title:
NATIONSBANK, N.A. (CAROLINAS),
as a Lender
By:
---------------------------------------
Name:
Title:
KZH HOLDING CORPORATION III,
as a Lender
By: /s/ Virginia R. Conway
---------------------------------------
Name: Virginia R. Conway
Title: Authorized Agent
<PAGE>
EXHIBIT A
---------
CONSENT AND ACKNOWLEDGMENT
The undersigned hereby consent to this Sixth Amendment, and agree that
the execution and delivery of the Sixth Amendment shall in no way release,
diminish, impair, reduce, or otherwise affect the respective obligations and
liabilities of each of the undersigned under the Guaranty Agreement, dated
January 4, 1996, executed or joined in by each of the undersigned in favor of
Lenders, the Administrative Agent and the other members of the Agent Group, or
under any other Loan Documents to which any of the undersigned are parties, and
such Guaranty Agreement and other Loan Documents shall continue in full force
and effect. This Consent and Acknowledgment shall be binding upon the
undersigned and their respective successors and assigns, and shall inure to the
benefit of the Lenders, the Administrative Agent, the other members of the Agent
Group and their respective successors and assigns.
IN WITNESS WHEREOF, each of the undersigned has caused this Consent
and Acknowledgment to be duly executed and delivered by a proper and duly
authorized officer as of the day and year first above written.
SULLIVAN BROADCASTING OF NEVADA, INC.
SULLIVAN BROADCASTING OF DAYTON, INC.
SULLIVAN BROADCASTING OF CHARLESTON, INC.
SULLIVAN BROADCASTING OF NASHVILLE, INC.
SULLIVAN BROADCASTING OF WEST VIRGINIA, INC.
SULLIVAN BROADCASTING OF BUFFALO, INC.
SULLIVAN BROADCASTING LICENSE HOLDER, INC.
SULLIVAN BROADCASTING MANAGEMENT
SERVICES, INC.
SULLIVAN BROADCASTING OF UTICA, INC.
SULLIVAN BROADCASTING OF TENNESSEE, INC.
CASCOM INTERNATIONAL, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:____________ of each of the above-named
corporations
<PAGE>
EXHIBIT B
---------
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated January 4, 1996 (as
amended, supplemented and otherwise modified from time to time, including,
without limitation, all extensions, renewals, restatements, rearrangements and
refundings thereof, the "Credit Agreement"), among A-3 Acquisition, Inc., a
----------------
Delaware corporation ("A-3 Acquisition"), A-3 Holdings, Inc., a Delaware
---------------
corporation, the Lenders from time to time parties thereto, NationsBank of
Texas, N.A., as the Administrative Agent for the Lenders, and the other members
of the Agent Group named therein. Sullivan Broadcasting Company, Inc. (formerly
known as Act III Broadcasting, Inc.) is the "Borrower" under the Credit
Agreement as a result of the merger of Sullivan Broadcasting Company, Inc. with
A-3 Acquisition on the Initial Funding Date after consummation of the Act III
Acquisition contemplated by the Credit Agreement. Unless otherwise defined
herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
The undersigned Revolving Credit Lenders, in their capacity as assignors of
the interests (the "Assigned Interests") specified in Schedule 1 (in such
------------------ ----------
capacity, the "Assignors") and in their capacity as assignees of such Assigned
---------
Interests (in such capacity, the "Assignees") agree as follows:
---------
1. In accordance with Section 12.6, each of the Assignors hereby
------------
irrevocably sells and assigns to the Assignees without recourse to such
Assignor, and each of the Assignees hereby irrevocably purchases and assumes
from the Assignors without recourse to the Assignors, as of January 30, 1998
(the "Transfer Effective Date"), the Assigned Interests as specified in Schedule
----------------------- --------
1 in and to such Assignors' rights and obligations under the Credit Agreement
- - - -
and the other Loan Documents with respect to the Revolving Credit Facility
provided for in the Credit Agreement as set forth on Schedule 1 (the "Assigned
---------- --------
Facility"), in principal amounts as set forth on Schedule 1 (including, without
- - - -------- ----------
limitation, interests in such Assignor's outstanding Revolving Credit Loans,
including outstanding Eurodollar Loans at the Eurodollar Rate in effect as of
the Transfer Effective Date).
2. Each Assignor (a) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto, other than that it has not created any
adverse claim upon the interest being assigned by it hereunder and that such
interest is free and clear of any such adverse claim; and (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Parent, the Borrower or any other Loan Party or the
performance or observance by the Parent, the Borrower or any other Loan Party of
any of their respective obligations under the Credit Agreement, any other Loan
Document or any other
<PAGE>
instrument or document furnished pursuant hereto or thereto.
3. Each Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement, together with copies of such
financial statements of the Parent, the Borrower and the other Loan Parties and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and Acceptance
and to become thereby a party to the Credit Agreement; (c) agrees that it will,
independently and without reliance upon any Assignor, the Administrative Agent
or any other Lender and based on such financial statements, documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement, the
other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; (d) appoints and authorizes the Administrative Agent and the
Managing Agents to take such action as agent on its behalf and to exercise such
powers and discretion under the Credit Agreement, the other Loan Documents or
any other instrument or document furnished pursuant hereto or thereto as are
delegated to the Administrative Agent or the Managing Agents by the terms
thereof, together with such powers as are incidental thereto; and (e) agrees
that it will be bound by the provisions of the Credit Agreement and will perform
in accordance with its terms all the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender, and, if it is a
Non-U.S. Lender, its obligations pursuant to Section 4.10(b) of the Credit
---------------
Agreement.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance by it and recording by the
Administrative Agent pursuant to Section 12.6 of the Credit Agreement, and it
------------
shall be effective as of the Transfer Effective Date.
5. Upon such acceptance and recording, from and after the Transfer
Effective Date, the Administrative Agent shall make all payments in respect of
the Assigned Interests (including payments of principal, interest, fees and
other amounts) to the Assignees, whether such amounts have accrued prior to the
Transfer Effective Date or accrue subsequent to the Transfer Effective Date.
The Assignors and the Assignees shall make all appropriate adjustments through
the Administrative Agent for payments by the Administrative Agent for periods
prior to the Transfer Effective Date or with respect to the making of this
assignment.
6. From and after the Transfer Effective Date, (a) each of the Assignees
shall be a party to the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the other Loan Documents and shall be bound by the
provisions thereof and (b) each of the Assignors shall, to the extent of its
assignment pursuant to this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement, but shall
nevertheless continue to be entitled to the benefits of Sections 4.9, 4.10, 4.11
------------ ---- ----
and 12.5 thereof.
----
7. Notwithstanding any other provision hereof, if the consents of the
Borrower
B-2
<PAGE>
and the Administrative Agent hereto are required under Section 12.6 of the
------------
Credit Agreement, this Assignment and Acceptance shall not be effective unless
such consents shall have been obtained as evidenced by the signatures below of
their respective duly authorized officers.
8. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
9. This Assignment and Acceptance may be executed by one or more of the
parties to this Assignment and Acceptance on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
B-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the dates indicated below by the signatures of
their respective duly authorized officers.
NATIONSBANK OF TEXAS, N.A.,
By:
-----------------------------
Name:
Title:
BANKERS TRUST COMPANY
By:
-----------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
By:
-----------------------------
Name:
Title:
BANK OF AMERICA NT & SA
By:
-----------------------------
Name:
Title:
<PAGE>
BANK OF MONTREAL, CHICAGO BRANCH
By:
------------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, formerly known as
Banque Francaise du Commerce Exterieur
By:
------------------------------------
Name:
Title:
BANQUE PARIBAS
By:
------------------------------------
Name:
Title:
CIBC INC.
By:
------------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By:
------------------------------------
Name:
Title:
<PAGE>
FLEET NATIONAL BANK,
formerly known as Shawmut Bank Connecticut, N.A.
By:
---------------------------------------------
Name:
Title:
SOCIETE GENERALE
By:
---------------------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank
By:
---------------------------------------------
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral Manager
By:
---------------------------------------------
Name:
Title:
<PAGE>
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT AND
RESEARCH, as Investment Advisor
By:
-------------------------------------
Name:
Title:
Consented to and accepted for recording
in the Register:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Date:
-----------------------------------
<PAGE>
SCHEDULE 1 TO
ASSIGNMENT AND ACCEPTANCE
Re: Credit Agreement, dated January 4, 1996, among A-3 Acquisition,
Inc., A-3 Holdings, Inc., the Lenders from time to time parties
thereto, NationsBank of Texas, N.A., as the Administrative Agent
for such Lenders, and the other members of the Agent Group named
therein
1. Name of Revolving Credit Lender: NationsBank of Texas, N.A.
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
13.56382976700000%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 4,069,148.93
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
15.69148937500000%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 6,276,595.75
2. Name of Revolving Credit Lender: Bankers Trust Company
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
8.77659573300000%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 2,632,978.72
B-8
<PAGE>
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
8.77659573300000%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 3,510,638.29
3. Name of Revolving Credit Lender: The Chase Manhattan Bank
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as a
percentage of all Revolving Credit
Commitments)
5.85106383333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,755,319.15
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
5.85106383333333%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 2,340,425.53
4. Name of Revolving Credit Lender: Bank of America NT & SA
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
18.08510636666700%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 5,425,531.91
B-9
<PAGE>
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
18.08510636666700%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 7,234,042.55
5. Name of Revolving Credit Lender: Bank of Montreal, Chicago Branch
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
11.70212766666650%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 3,510,638.30
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
11.70212766666650%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 4,680,851.07
B-10
<PAGE>
6. Name of Revolving Credit Lender: Natexis Banque BFCE, formerly known
as Banque Francaise du Commerce Exterieur
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
2.65957443333333%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 797,872.33
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
2.65957443333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,063,829.77
7. Name of Revolving Credit Lender: Banque Paribas
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
6.91489363333333%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 2,074,468.09
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
6.91489363333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 2,765,957.45
B-11
<PAGE>
8. Name of Revolving Credit Lender: CIBC, Inc.
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.78723403333333%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 1,436,170.21
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.78723403333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,914,893.61
9. Name of Revolving Credit Lender: CoreStates Bank, N.A.
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.25531916666670%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,276,595.75
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
4.25531916666670%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,702,127.67
B-12
<PAGE>
10. Name of Revolving Credit Lender: Fleet National Bank, formerly known as
Shawmut Bank Connecticut, N.A.
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.25531916666670%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 1,276,595.75
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
4.25531916666670%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,702,127.67
11. Name of Revolving Credit Lender: Societe Generale
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.25531916666670%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 1,276,595.75
B-13
<PAGE>
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
3.19148937500000%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,276,595.75
12. Name of Revolving Credit Lender: Union Bank of California, N.A.,
successor by merger to Union Bank
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.78723403333333%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 1,436,170.21
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
4.78723403333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,914,893.61
13. Name of Revolving Credit Lender: Van Kampen CLO I, Limited
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
4.25531916666670%
(ii) Revolving Credit Commitment (expressed
in Dollars)
$ 1,276,595.75
B-14
<PAGE>
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
3.19148937500000%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,276,595.75
14. Name of Revolving Credit Lender: Senior Debt Portfolio
a. Prior to Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed
as a percentage of all Revolving Credit
Commitments)
5.85106383333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 1,755,319.15
b. After Assignment (and aggregate Revolving Credit
Commitment increase), Revolving Credit Lender's:
(i) Revolving Credit Commitment (expressed as
a percentage of all Revolving Credit
Commitments)
5.85106383333333%
(ii) Revolving Credit Commitment (expressed in
Dollars)
$ 2,340,425.53
B-15
<PAGE>
ANNEX 1
TO CREDIT AGREEMENT
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
NATIONSBANK OF $5,851,063.83 $12,348,100.77
TEXAS, N.A.
Notice Address: 901 Main Street
Dallas, Texas 75202-3714
Attention: Roselyn Reid
Telephone: 214-508-0988
Telecopier: 214-508-9390
Domestic Lending Office 901 Main Street
(if different from Notice Dallas, Texas 75202-3714
Address): Attention: Kay Maleeny
Telephone: 214-508-0989
Telecopier: 214-508-2515
Eurodollar Lending Office 901 Main Street
(if different from Notice Dallas, Texas 75202-3714
Address): Attention: Kay Maleeny
Telephone: 214-508-0989
Telecopier: 214-508-2515
-1-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
BANKERS TRUST $3,510,638.29 $12,313,100.79
COMPANY
Notice Address: 130 Liberty Street
New York, New York 10006
Attention: Bill Archer
Telephone: 212-250-2252
Telecopier: 212-250-7218
Domestic Lending Office 130 Liberty Street
(if different from Notice New York, New York 10006
Address): Attention: Mary Jo Jolly
Telephone: 212-250-5860
Telecopier: 212-250-7351
Eurodollar Lending Office 130 Liberty Street
(if different from Notice New York, New York 10006
Address): Attention: Mary Jo Jolly
Telephone: 212-250-5860
Telecopier: 212-250-7351
-2-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
BANKBOSTON, N.A. $ 0.00 $10,447,479.45
Notice Address: 100 Federal Street, 01-08-08
Boston, Massachusetts 02110
Attention: Robert F. Milordi
Telephone: 617-434-8092
Telecopier: 617-434-3401
Domestic Lending Office Commercial Loan Services
(if different from Notice 100 Federal Street, 01-08-04
Address): Boston, Massachusetts 02110
Attention: Stephen Lynn
Telephone: 617-434-9627
Telecopier: 617-434-9820
Eurodollar Lender Office Commercial Loan Services
(if different from Notice 100 Federal Street, 01-08-04
Address): Boston, Massachusetts 02110
Attention: Stephen Lynn
Telephone: 617-434-9627
Telecopier: 617-434-9820
-3-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
THE CHASE $2,340,425.53 $8,208,733.85
MANHATTAN BANK
Notice Address: 270 Park Avenue
Media & Telecommunications Group
37th Floor
New York, New York 10017
Attention: Ann B. Kerns
Telephone: 212-270-9320
Telecopier: 212-270-4584
Domestic Lending Office Chase Loan Agency Services Group
(if different from Notice One Chase Manhattan Plaza, 8th Floor
Address): New York, New York 10008
Attention: Ganesh Persaud
Telephone: 212-552-7447
Telecopier: 212-552-5700
Eurodollar Lending Office Chase Loan Agency Services Group
(if different from Notice One Chase Manhattan Plaza, 8th Floor
Address): New York, New York 10008
Attention: Ganesh Persaud
Telephone: 212-552-7447
Telecopier: 212-552-5700
-4-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
NEW YORK LIFE $ 0.00 $5,969,988.24
INSURANCE COMPANY
Notice Address, Domestic 51 Madison Avenue
Lending Office and New York, New York 10010
Eurodollar Lending Office: Attention: Investment Department
Private Finance Group
Room 206
Telecopier: 212-447-4122
With a copy to:
Office of General Counsel
Investment Section,
Room 10SB
Telecopier: 212-576-8340
-5-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
NEW YORK LIFE $ 0.00 $3,731,242.66
INSURANCE AND
ANNUITY
CORPORATION
Notice Address,
Domestic Lending Office c/o New York Life Insurance
and Eurodollar Lending Company 51 Madison Avenue
Office: New York, New York 10010-1603
Attention: Investment Department
Private Finance Group
Room 206
Telecopier:
212-447-4122
With a copy to:
Office of General Counsel
Investment Section,
Room 10SB
Telecopier: 212-576-8340
-6-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
BANK OF AMERICA $ 7,234,042.55 $ 6,716,236.79
NT & SA
Notice Address: Bank of America
333 South Beaudry Avenue
Los Angeles, California 90017
Attention: Youlando Harper
Telephone: (213) 345-6343
Telecopier: (213) 345-6550
with a copy to:
Bank of America
335 Madison Avenue
New York, New York 10017
Attention: Carl Salas
Telephone: (212) 503-8425
Telecopier: (212) 503-7173
Domestic Lending Office Bank of America
(if different from Notice 333 South Beaudry Avenue
Address): Los Angeles, California 90017
Attention: Youlando Harper
Telephone: (213) 345-6343
Telecopier: (213) 345-6550
Eurodollar Lending Office Bank of America
(if different from Notice 333 South Beaudry Avenue
Address): Los Angeles, California 90017
Attention: Youlando Harper
Telephone: (213) 345-6343
Telecopier: (213) 345-6550
-7-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ --------------------- -------------
BANK OF MONTREAL, $ 4,680,851.07 $ 6,716,236.79
CHICAGO BRANCH
Notice Address: 430 Park Avenue
New York, New York 10022
Attention: Pat Keleher
Telephone: 212-605-1477
Telecopier: 212-605-1648
Domestic Loan Office Bank of Montreal, Chicago Branch
(if different from Notice 115 South LaSalle Street
Address) Chicago, Illinois 60603
Attention: Gail Bartoszek
Telephone: 212-605-1437
Telecopier: 212-605-1525
Eurodollar Lending Office Bank of Montreal, Chicago Branch
(if different from Notice 115 South LaSalle Street
Address) Chicago, Illinois 60603
Attention: Gail Bartoszek
Telephone: 212-605-1437
Telecopier: 212-605-1525
-8-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ --------------------- --------------
NATEXIS BANQUE BFCE, $ 1,063,829.77 3,731,242.66
f/k/a BANQUE FRANCAISE
DU COMMERCE
EXTERIEUR
Notice Address, Domestic 645 Fifth Avenue, 20th Floor
Loan Office and Eurodollar New York, New York 10022
Loan Office: Attention: Rick Kammler
Telephone: 212-872-5041
Telecopier: 212-872-5045
-9-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ --------------------- -------------
BANQUE PARIBAS $2,765,957.45 $9,701,230.91
Notice Address, Domestic 787 Seventh Avenue, 32nd Floor
Lending Office and New York, New York 10019
Eurodollar Lending Office: Attention: Lynne S. Randall
Telephone: 212-841-2595
Telecopier: 212-841-2369
-10-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
CIBC, INC. $1,914,893.61 $6,716,236.79
Notice Address: 425 Lexington Avenue
New York, New York 10017
Attention: Susan Hanna
Telephone: 212-856-3839
Telecopier: 212-856-3558
Domestic Lending Office Canadian Imperial Bank of Commerce
(if different from Notice 2727 Paces Ferry Road, Suite 1200
Address): Atlanta, Georgia 30319
Attention: Heather Taylor
Telephone: 770-319-4846
Telecopier: 770-319-4950
Eurodollar Lending Office Canadian Imperial Bank of Commerce
(if different from Notice 2727 Paces Ferry Road, Suite 1200
Address): Atlanta, Georgia 30319
Attention: Heather Taylor
Telephone: 770-319-4846
Telecopier: 770-319-4950
-11-
<PAGE>
<TABLE>
<CAPTION>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
<S> <C> <C>
CORESTATES BANK, N.A. $1,702,127.67 $ 5,969,988.24
Notice Address: 1339 Chesnut Street
FC 1-8-10-73
Philadelphia, Pennsylvania 19101-7618
Attention: Ed Kittrell
Telephone: 215-786-4368
Telecopier: 215-786-7721
Domestic Lending Office Send all borrowing/loan information to:
(if different from Notice
Address): CoreStates Bank, N.A.
1339 Chesnut Street
FC 1-8-10-73
Philadelphia, Pennsylvania 19101
Attention: Diane Quinn
Telephone: 215-786-7721
Telecopier: 215-786-7721
Eurodollar Lending Office Send all borrowing/loan information to:
(if different from Notice
Address): CoreStates Bank, N.A.
1339 Chesnut Street
FC 1-8-10-73
Philadelphia, Pennsylvania 19101
Attention: Diane Quinn
Telephone: 215-786-4343
Telecopier: 215-786-7721
</TABLE>
-12-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
MERRILL LYNCH SENIOR $ 0.00 $ 8,879,412.92
FLOATING RATE FUND,
INC.
Notice Address, Domestic 800 Scudders Mill Road, Area 2C
Lending Office and Plainsboro, New Jersey 08536
Eurodollar Lending Office: Attention: Joseph Matteo
Telephone: 609-282-2055
Telecopier: 609-282-2756
-13-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- -------------
FLEET BANK, N.A. f/k/a $1,702,127.67 $5,969,988.24
SHAWMUT BANK
CONNECTICUT N.A.
Notice Address, Domestic One Federal Street
Lending Office and MA-OF-DO3D
Eurodollar Lending Office: Boston, Massachusetts 02110
Attention: Jeff McGloughlin
Telephone: 617-346-4373
Telecopier: 617-346-3777
-14-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ --------------------- -------------
SOCIETE GENERALE $ 1,276,595.75 $ 5,969,988.24
Notice Address: 1221 Avenue of the Americas
New York, New York 10020
Attention: John Sadik-Khan
Telephone: 212-278-6873
Telecopier: 212-278-6240
Domestic Loan Office Societe Generale
(if different from Notice 1221 Avenue of the Americas
Address) New York, New York 10020
Attention: Kris Coticchio
Telephone: 212-278-6482
Telecopier: 212-278-6240
Eurodollar Lending Office Societe Generale
(if different from Notice 1221 Avenue of the Americas
Address) New York, New York 10020
Attention: Kris Coticchio
Telephone: 212-278-6482
Telecopier: 212-278-6240
-15-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ --------------------- --------------
THE TRAVELERS $ 0.00 $ 8,879,412.92
INSURANCE COMPANY
Notice Address, Domestic 205 Columbus Blvd.
Lending Office and 9 Plaza Building
Eurodollar Lending Office Hartford, Connecticut 06183-2030
Attention: John Petchler
Telephone: 203-277-5346
Telecopier: 203-954-5243
-16-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- --------------
UNION BANK OF $ 1,914,893.61 $ 6,716,236.79
CALIFORNIA, N.A.
Notice Address, Domestic 445 South Figueroa Street
Lending Office and 15th Floor
Eurodollar Lending Office: Los Angeles, California 90071
Attention: Mike McShane
Telephone: 213-236-5812
Telecopier: 213-236-5747
-17-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- --------------
VAN KAMPEN $ 0.00 $ 9,767,354.20
AMERICAN CAPITAL
PRIME RATE INCOME
TRUST
Notice Address, Domestic One Parkview Plaza
Lending Office and Oakbrook Terrace, Illinois 60181
Eurodollar Lending Office: Attention: Jeff Maillett
Telephone: 630-684-6438
Telecopier: 630-684-6740
VAN KAMPEN CLO I, $ 1,702,127.67 $ 5,969,988.24
LIMITED
Notice Address, Domestic One Parkview Plaza
Lending Office and Oakbrook Terrace, Illinois 60181
Eurodollar Lending Office: Attention: Jeff Maillett
Telephone: 630-684-6438
Telecopier: 630-684-6740
-18-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- --------------
NATIONSBANK, N.A. $ 0.00 $ 8,879,412.92
(CAROLINAS)
Notice Address, Domestic NationsBank, N.A.
Lending Office and Corporate Credit Services
Eurodollar Lending Office: 101 N. Tryon, 15th Floor
Charlotte, North Carolina 28255
Attention: Edward Harmon
Telephone: (704) 386-2004
Telecopier: (704) 386-8694
-19-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- --------------
SENIOR DEBT $ 2,340,425.53 $32,013,117.39
PORTFOLIO
Notice Address, Domestic c/o Eaton Vance Management, Inc.
Lending Office and 24 Federal Street
Eurodollar Lending Office: Boston, Massachusetts 02110
Attention: Craig Russ
Telephone: (617) 348-0193
Telecopier: (617) 695-9594
-20-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- --------------
AERIES FINANCE LTD. $ 0.00 $ 4,439,706.45
Notice Address and c/o Moore Management Services
Eurodollar Lending Office: Limited
Elizabeth House, Castle Street
St. Helier, Jersey
Channel Islands, Great Britain
Attention: Director
Telephone: 011-441-534-613900
Telecopier: 011-441-534-616900
with a copy to:
Chancellor LGT Senior Secured
Management
1166 Avenue of the Americas,
27th Floor
New York, New York 10036
Telephone: (212) 278-9669
Telecopier: (212) 278-9619
-21-
<PAGE>
REVOLVING CREDIT TERM LOAN
LENDER COMMITMENT COMMITMENT
- - - ------ ---------------- ----------
Eurodollar Lending Office KZH Holding Corporation III
(if different from Notice c/o The Chase Manhattan Bank
Address): 450 West 33rd Street - 15th Floor
New York, New York 10001
Attention: Virginia Conway
Telephone: 212-946 7575
Telecopier: 212-946-7776
and
The Chase Manhattan Bank
Loan & Agency Services
1 Chase Manhattan Plaza - 8th Floor
New York, New York 10081
Attention: Joseph Nerich
Telephone: 212-552-7247
Telecopier: 212-552-5642
-23-
<PAGE>
EXHIBIT 10.6
AGREEMENT AND PLAN OF MERGER
AMONG
SULLIVAN BROADCAST HOLDINGS, INC.,
SINCLAIR BROADCAST GROUP, INC.,
and
ABRY PARTNERS, INC.
(as Stockholder Representative)
EFFECTIVE AS OF
FEBRUARY 23, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is entered into on March 16, 1998,
but is effective as of February 23, 1998, among Sullivan Broadcast Holdings,
Inc., a Delaware corporation ("Sullivan"), Sinclair Broadcast Group, Inc., a
--------
Maryland corporation ("Sinclair"), on behalf of itself and a subsidiary to be
--------
formed by it pursuant to Section 1.A below, and ABRY Partners, Inc., a Delaware
corporation ("ABRY Partners"), solely in its capacity as the Stockholder
---- --------
Representative referred to in this Agreement.
WHEREAS, the parties to this Agreement are among the parties to an
Agreement and Plan of Merger dated as of February 23, 1998 (the "Prior
-----
Agreement"), and the parties to the Prior Agreement have agreed to restate the
- - - ---------
Prior Agreement by entering into this Agreement and certain other agreements;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows,
effective as of the date of the Prior Agreement:
ARTICLE I
THE SPIN-OFF TRANSACTIONS
1.A. Formation of Merger Sub. On or prior to March 20, 1998, Sinclair
--------- -- ------ ---
will form a wholly-owned Subsidiary which will be a Delaware corporation. Such
Subsidiary will be the "Merger Sub" referred to in this Agreement. Sinclair
will cause such Subsidiary to become a party to this Agreement, the Indemnity
Agreement, the Earnest Money Escrow Agreement, the Estimate Escrow Agreement and
the Indemnity Escrow Agreement by executing and delivering to Sullivan a
counterpart thereof.
1.B. Sullivan Two Spin-Off. At or prior to the time of the Closing,
-------- --- --------
so long as all required Consents of the FCC for the Sullivan Two Spin-Off are
then effective and any other required Consent for the Sullivan Two Spin-Off has
been obtained and is then effective, Sullivan will, and will cause its
Subsidiaries to, take such actions as may be required to (1) cause the capital
stock of Sullivan Two to be distributed to the holders of the Sullivan Common
Share Equivalents immediately prior to such distribution, with each such holder
receiving a number of shares of common stock which is equal to the number of
shares of common stock of Sullivan then held by such holders (on a fully-
diluted, as-exercised basis) and with such shares of common stock of Sullivan
Two having the same relative voting rights as such shares of common stock of
Sullivan which are then held by each of them (on a similar fully-diluted, as-
exercised basis), and (2) cause the FCC Authorizations relating to the Sullivan
Two Stations and the other assets described in the attached Exhibit A to be
---------
transferred to Sullivan Two in consideration for a promissory note of Sullivan
Two in a principal amount equal to the amount specified on the attached Exhibit
-------
A. The transactions described the preceding sentence are referred to as the
- - - -
"Sullivan Two Spin-Off."
- - - --------- --- --------
1
<PAGE>
1.C Sullivan Three Spin-Off. At or prior to the time of the Closing,
-------- ----- --------
so long as all required Consents of the FCC for the Sullivan Three Spin-Off are
then effective and any other required Consent for the Sullivan Three Spin-Off
has been obtained and is then effective, Sullivan will, and will cause its
Subsidiaries to, take such actions as may be required to (1) cause the capital
stock of Sullivan Three to be distributed to the holders of the Sullivan Common
Share Equivalents immediately prior to such distribution, with each such holder
receiving a number of shares of common stock which is equal to the number of
shares of common stock of Sullivan then held by such holders (on a fully-
diluted, as-exercised basis) and with such shares of common stock of Sullivan
Three having the same relative voting rights as such shares of common stock of
Sullivan which are then held by each of them (on a similar fully-diluted, as-
exercised basis), and (2) cause the FCC Authorizations relating to the Sullivan
Three Stations and the other assets described in the attached Exhibit B to be
transferred to Sullivan Three in consideration for a promissory note of Sullivan
Three in a principal amount equal to the amount specified on the attached
Exhibit B. The transactions described in the preceding sentence are referred to
- - - ------- -
as the "Sullivan Three Spin-Off," and each of the Sullivan Two Spin-Off and the
-------- ----- --------
Sullivan Three Spin-Off is referred to as a "Spin-Off."
--------
1.D Spin-Off Taxes. Sullivan and its Subsidiaries will be
-------- -----
responsible for the payment of any Tax arising solely by reason of either Spin-
Off (a "Spin-Off Tax"). To the extent not paid at the Effective Time, the
-------- ---
liability of Sullivan and its Subsidiaries (if any) for any Spin-Off Tax arising
by reason of the Sullivan Three Spin-Off (as determined in accordance with
Section 3.D(6)) will be reflected in the computation of the Current Liabilities.
ARTICLE II
THE MERGER
2.A General. Upon and subject to the terms and conditions stated in
-------
this Agreement, on the Closing Date, effective as of the Effective Time, the
Merger Sub will merge with and into Sullivan in accordance with the terms and
conditions of this Agreement. Sullivan will be the corporation which survives
such merger (the "Merger") and in such capacity is sometimes referred to in
------
this Agreement as "Post-Merger Sullivan."
2.B Effect on Sullivan Share Equivalents. Immediately after the
------ -- -------- ----- -----------
Closing, effective at the Effective Time, subject to the terms and conditions of
this Agreement (1) the Merger will be effected by the filing with the Secretary
of the State of Delaware of a Certificate of Merger; (2) each Sullivan Share
Equivalent outstanding at the Effective Time, by said occurrence and with no
further action on the part of the holder thereof, will be transformed and
converted into the right to receive the Merger Consideration for such Sullivan
Share Equivalent, without interest or any similar payment thereon or with
respect thereto, upon surrender of the certificate representing such Sullivan
Share Equivalent; (3) each share of common stock of the Merger Sub outstanding
immediately prior to the Effective Time will, by said occurrence and with no
further action on the part of the holder thereof, be transformed and converted
into one share of common stock of Post-Merger Sullivan, so that immediately
thereafter Sinclair will be the sole and exclusive owner of all equity
securities of Post-Merger Sullivan; and (4) Post-Merger Sullivan will be the
owner of the
2
<PAGE>
business, assets, rights, privileges, immunities, powers, franchises and other
attributes of Sullivan and the Merger Sub.
2.C Certificate of Incorporation. Immediately after the Effective
----------- -- -------------
Time, the certificate of incorporation of Post-Merger Sullivan will be the
certificate of incorporation of the Merger Sub as in effect immediately prior to
the Effective Time.
2.D Bylaws. Immediately after the Effective Time, the bylaws of
------
Post-Merger Sullivan will be the bylaws of the Merger Sub as in effect
immediately prior to the Effective Time.
2.E Board of Directors and Officers. The board of directors and
----- -- --------- --- --------
officers of the Merger Sub immediately prior to the Effective Time will be the
board of directors and the officers, respectively, of Post-Merger Sullivan
immediately after the Effective Time, and such individuals will serve in such
positions for the respective terms provided by applicable Legal Requirements or
in the bylaws of Post-Merger Sullivan until their respective successors are
elected and qualified.
2.F Name. The name of Post-Merger Sullivan will be designated by
----
Sinclair.
2.G Exchange Procedures. At or after the Closing, each holder of
-------- ----------
record of Sullivan Share Equivalents will deliver to Post-Merger Sullivan for
cancellation the certificate(s) representing such Sullivan Share Equivalents
(the "Old Sullivan Certificates"). Upon surrender of any Old Sullivan
--- -------- ------------
Certificate for cancellation, subject to the provisions of this Agreement, (a)
the holder of such Old Sullivan Certificate will receive in exchange therefor
the Merger Consideration for the Sullivan Share Equivalents represented by such
Old Sullivan Certificate, and (b) such Old Sullivan Certificate will be
canceled. Until surrendered as contemplated by this Section 2.G, each Old
Sullivan Certificate will, at and after the Effective Time, be deemed to
represent only the right to receive, upon surrender of such Old Sullivan
Certificate, the Merger Consideration for the Sullivan Share Equivalents
represented by such Old Sullivan Certificate.
2.H No Further Rights; Transfer of Sullivan Stock. The Merger
-- ------- ------- -------- -- -------- -----
Consideration paid for any Sullivan Share Equivalent in accordance with the
terms of this Agreement will be deemed to have been paid in full satisfaction of
all rights pertaining to such Sullivan Share Equivalent. At the Effective Time,
the stock transfer books of Sullivan will be closed and no transfer of Sullivan
Share Equivalents will thereafter be made.
3
<PAGE>
ARTICLE III
MERGER CONSIDERATION AND CLOSING
3.A Merger Consideration.
------ -------------
(1) Amount for all Sullivan Share Equivalents in the Aggregate.
------ --- --- -------- ----- ----------- -- --- ---------
The amount of the aggregate "Merger Consideration" for all Sullivan Share
Equivalents will an amount equal to the result of:
(a) (i) the sum of (x) the product of the Cash Flow Multiplier
and the Annualized Trailing Cash Flow plus (y) if the Cash Flow
Multiplier is 12.00 and the Annualized Trailing Cash Flow is not less
than the amount of the Target Cash Flow, then $2,620,000, plus (ii)
the KOKH Amount, plus (iii) the Adjustment Amount (the amount
described in this clause (a) being the "Base Merger Consideration")
---- ------ -------------
plus
(b) an amount equal to the Sullivan Receivable Proceeds (the
"Receivable Merger Consideration"), which amount will be payable as
----------- ------ -------------
provided in Section 3.G;
provided that, if the Closing occurs on or prior to September 21, 1998,
then the amount described in clauses (a)(i) above will not exceed
$970,000,000. Subject to Section 3.A(4), the "Cash Flow Multiplier" means
(x) 12.00, if the Closing occurs on or prior to June 23, 1998; (y) 12.25,
if the Closing occurs after June 23, 1998 and on or prior to September 21,
1998; and (z) 12.5, if the Closing occurs after September 21, 1998. The
"Target Cash Flow" means $78,115,000 plus the amount of all discretionary
------- ---- ----
contributions actually made by Sullivan and its Subsidiaries to the 401(k)
Plan with respect to any period after December 31, 1997.
(2) Amount for any Particular Sullivan Share Equivalent. With
------ --- --- ---------- -------- ----- ----------
respect to any particular Sullivan Share Equivalent, the "Merger
Consideration" means the portion of the aggregate Merger Consideration for
all Sullivan Share Equivalents which is equal to the amount that the holder
of such Sullivan Share Equivalent would receive in respect of such Sullivan
Share Equivalent if:
(a) all Sullivan Rights outstanding immediately prior to the
Effective Time were converted into or exercised or exchanged for
Sullivan Shares to the fullest extent permitted by the terms of such
Sullivan Rights, immediately prior to the Effective Time,
(b) Sullivan (instead of the Old Sullivan Stockholders)
received an amount equal to the aggregate Merger Consideration for all
Sullivan Share Equivalents and applied a portion of such aggregate
Merger Consideration to the redemption in full, in accordance with the
provisions of its certificate of incorporation, of all preferred stock
of Sullivan, if any, which is outstanding
4
<PAGE>
immediately prior to the Effective Time, and
(c) Sullivan thereafter distributed to the holders of the
Sullivan Shares outstanding immediately prior to the Effective Time
(after giving effect to the conversions, exercises and exchanges
referred to in clause (a) above and the redemption described in clause
(b) above), in accordance with the provisions of its certificate of
incorporation, an amount equal to the aggregate Merger Consideration
for the Sullivan Share Equivalents reduced by the amount required to
effect the redemption described in clause (b) above,
reduced, in the case of any Sullivan Right, by the exercise price (if any)
payable upon the exercise of such Sullivan Right as described in clause (a)
above. Sullivan will cause the holders of all Sullivan Rights to accept
the Merger Consideration for such Sullivan Right in consideration for the
cancellation of such Sullivan Right.
(3) Form of Merger Consideration.
---- -- ------ -------------
(a) For Sullivan Preferred Stock. Subject to the provisions
--- -------- --------- -----
of Article II regarding the surrender of Old Sullivan Certificates,
the amount of the aggregate Merger Consideration for the Sullivan
Preferred Stock will be paid on behalf of the holders of Sullivan
Preferred Stock on the Closing Date in cash by wire transfer of
immediately available funds to such bank account(s) as the Stockholder
Representative may designate to the Merger Sub not less than two (2)
Business Days prior to the Closing Date.
(b) For Other Sullivan Share Equivalents. Subject to the
--- ----- -------- ------ ----------
provisions of Article II regarding the surrender of Old Sullivan
Certificates, the Receivable Merger Consideration will be paid as
provided in Section 3.G, and:
(i) at the option of the Merger Sub, up to One Hundred
Million Dollars ($100,000,000) of the aggregate amount of the
estimated Base Merger Consideration for the Sullivan Share
Equivalents which are not Sullivan Preferred Stock (the "Sullivan
--------
Common Share Equivalents") will be paid to the holders of
------ ----- -----------
Sullivan Common Share Equivalents on the Closing Date (the "Old
---
Sullivan Common Stockholders") by the issuance of validly-issued,
-------- ------ ------------
fully-paid and nonassessable shares of Sinclair Common Stock
which have been registered under the Securities Act (and which
therefore will be tradeable on the Nasdaq National Market upon
receipt thereof), and
(ii) the remainder of the estimated amount of such aggregate
Base Merger Consideration will be paid for the account of the Old
Sullivan Common Stockholders on the Closing Date in cash by wire
transfer of immediately available funds to such bank account(s)
as the Stockholder Representative may designate to the Merger Sub
not less than two (2) Business Days prior to the Closing Date.
5
<PAGE>
The portion of the Base Merger Consideration which is payable in
respect of the Sullivan Common Share Equivalents is referred to as the
"Sullivan Common Base Merger Consideration." For purposes of this
-------- ------ ---- ------ -------------
Section 3.A(3)(b), shares of Sinclair Common Stock will be valued at
the Average Trading Price. Notwithstanding the foregoing, the entire
amount of the Sullivan Common Base Merger Consideration will be
payable in cash in the manner provided in clause (ii) above if on the
Closing Date shares of Sinclair Common Stock are not registered under
the Securities Exchange Act, the registration described in clause (i)
above has not been effected, and/or shares of Sinclair Common Stock
are not traded on the Nasdaq National Market or a domestic national
securities exchange. The respective portions of the Sullivan Common
Base Merger Consideration which are payable in Sinclair Common Stock
and cash will be allocated among the Old Sullivan Common Stockholders
pro rata according to the respective amounts of the Sullivan Common
Base Merger Consideration to be received by them, as determined in
accordance with Section 3.A(2); provided that, in lieu of issuing a
--------
fractional share of Sinclair Common Stock to any Old Sullivan Common
Stockholder, Sinclair or the Merger Sub will pay the Stockholder
Representative as provided in clause (ii) above (for the account of
such Old Sullivan Stockholder) an amount in cash equal to a
corresponding fraction of the Average Trading Price.
(c) Share Certificates for ABRY Fund Partners. Sinclair and
----- ------------ --- ---- ---- --------
the Merger Sub acknowledge that at or after the time of the Closing
the ABRY Fund will distribute to its partners (who may in turn
distribute to their partners, and so on) any or all of the shares of
the Sinclair Common Stock which may be issuable to the ABRY Fund as
part of the Sullivan Common Base Merger Consideration. At the request
of the Stockholder Representative, the Merger Sub will cause to be
issued and delivered to the Stockholder Representative (for the
account of the ABRY Fund) certificates for any or all of such shares
of Sinclair Common Stock, issued in such whole-number denominations
and registered in such names or nominees, as the Stockholder
Representative may request. Such certificates will be issued in whole
number of shares only, and in lieu of any fractional share Sinclair or
the Merger Sub will pay the Stockholder Representative (for the
account of the ABRY Fund) an amount in cash equal to a corresponding
fraction of the Average Trading Price.
(d) Escrow Deposit Under Certain Circumstances.
------ ------- ----- ------- -------------
Notwithstanding the foregoing, if the Estimated Receivable Amount set
forth in Sullivan's Estimate Report (as it may be revised by Sullivan
as provided in the penultimate sentence of Section 3.E(2)) is less
than $24,000,000, then an amount equal to the excess of $24,000,000
over such Estimated Receivable Amount will be withheld from the cash
portion of the Sullivan Common Base Merger Consideration to be paid
to the Stockholder Representative pursuant to Section 3.A(3)(b) and
will instead be deposited with the Estimate Escrow Agent as the
Estimate Fund.
6
<PAGE>
(4) Effect of Delay.
------ -- -----
(a) If Caused by Sullivan. If the Closing is delayed (a
-- ------ -- --------
"Delay") solely by reason of (i) a breach by Sullivan of its
------
obligations under this Agreement, (ii) the failure of a Sullivan
Consent to be obtained, (iii) any loss, damage, impairment,
condemnation, confiscation or interruption described in Section 7.L(1)
or 7.L(2), and/or (iv) a delay in the Grant of any Required FCC
Consent for a Spin-Off, or in the expiration of the applicable waiting
period under the Hart-Scott-Rodino Act, solely as a result of actions
taken by Sullivan or its Subsidiaries (items described in clauses (i),
(ii), (iii), and (iv) being "Causes"), then for purposes of
------
determining the Cash Flow Multiplier and the amount described in
Section 3.D(1)(b), the Closing will be deemed to have occurred on the
day upon which it would have occurred but for such breach, failure,
loss, damage, impairment, condemnation, confiscation or interruption.
(b) If Caused by Gross Revenue Shortfall. As part of the
-- ------ -- ----- ------- ---------
Cash Flow Report delivered pursuant to Section 7.C(1) for each of
March, April and May of 1998, Sullivan will deliver to Sinclair its
good faith determination of the amount of the Gross Revenues,
determined as if the last day of the month in question were the
Measurement Date (such amount being the "Estimated Gross Revenues" for
--------- ----- --------
such month). If the Estimated Gross Revenues for each of March, April
and May of 1998 set forth in the corresponding Cash Flow Reports is
less than the corresponding amount set forth in Section 10.E and all
conditions to the Closing set forth in Articles IX and X (other than
Section 10.E) have been satisfied or waived in writing (or would be
satisfied by the delivery of documents or taking of other actions to
be delivered or taken at the Closing) on June 23, 1998, then for
purposes of determining the Cash Flow Multiplier, the Closing will be
deemed to have occurred prior to June 23, 1998, if the Closing
actually occurs on or prior to the fifth (5th) Business Day after the
delivery of the Monthly Cash Flow Report for June, 1998.
3.B Annualized Trailing Cash Flow.
---------- -------- ---- ----
(1) Trailing Cash Flow -- Basic Definition. Subject to Sections
-------- ---- ------------- ----------
3.B(2), 3.B(3), 3.B(4), 3.B(5), 3.B(6), and 13.Q, the "Trailing Cash Flow"
-------- ---- ----
means the amount of
(a) the consolidated net operating income of Sullivan and its
Subsidiaries for the period (the "Measurement Period") beginning on
----------- ------
January 1, 1998 and ending on the earlier of (i) the last day of the
last full calendar month ended prior to the Closing Date and (ii)
August 31, 1998 (such earlier date being the "Measurement Date"),
----------- ----
(b) increased by the amount of all non-recurring items incurred
other than in the ordinary course of business, corporate overhead
(including management and consulting fees, reimbursements paid or
payable to ABRY Partners and all
7
<PAGE>
discretionary profit-sharing and 401(k) plan contributions), income
taxes, interest expense, depreciation and amortization (including
amortization in respect of Film Obligations) deducted in computing
such net operating income,
(c) reduced by the aggregate amount of all Film Obligations which
were actually paid in cash pursuant to Program Contracts with respect
to the Stations during such period and which became due after
September 30, 1997 (determined under the terms and conditions of the
related Program Contracts as in effect on December 31, 1997, or as
initially entered into, if entered into after December 31, 1997), and
(d) further reduced by the aggregate amount of all Film
Obligations which were not paid in cash on or prior to the Measurement
Date and which became due prior to the three-calendar-month-period
ending on the Measurement Date (determined under the terms and
conditions of the related Program Contracts as in effect on December
31, 1997, or as initially entered into, if entered into after December
31, 1997).
For purposes of clause (b) above, except as provided in Section 3.B(3),
"corporate overhead" is understood and agreed to include all expenses
---------- --------
incurred in connection with the activities of the Corporate Personnel and
(without duplication) all expenses which are not incurred for the benefit
of a single Station (with an LMA Station and the Owned Station serving the
same market being considered a single "Station" for purposes of this
sentence) and which would not be incurred for the benefit of a single
Station under customary industry practice.
(2) Treatment of Barter-Related Items. Notwithstanding GAAP to
--------- -- -------------- -----
the extent GAAP are to the contrary, the Trailing Cash Flow will be
determined exclusive of the value of any consideration received in barter
for time on any Station pursuant to any Trade and expenses pertaining to
air time provided in barter for products or services pursuant to any Trade.
(3) Lobbying Expenses. For purposes of determining the Trailing
-------- --------
Cash Flow, and notwithstanding GAAP to the extent GAAP are to the contrary,
50% (and only 50%) of the amounts paid or payable to Policy Communications,
Inc. and which are attributable to the Measurement Period will be deemed to
constitute a part of corporate overhead, and therefore will be added
pursuant to clause (b) of Section 3.B(1).
(4) Treatment of Certain Cascom Items. For purposes of
--------- -- ------- ------ -----
determining the Trailing Cash Flow, and notwithstanding GAAP to the extent
GAAP are to the contrary, any payment or accrual in respect of the "Cascom
Bonus" (as that term is defined in the Executive Employment Agreement dated
as of December 9, 1996 among Sullivan, Sullivan Broadcasting and Victor
Rumore ("Rumore")) (so long as, by its terms, such Cascom Bonus will not
------
continue to accrue after the Closing Date), and any expense relating to or
arising out of the issuance in February, 1998 of shares of Sullivan Common
Stock to Rumore, will be disregarded.
8
<PAGE>
(5) Treatment of Certain LMA Payments. For purposes of
--------- -- ------- --- --------
determining the Trailing Cash Flow, and notwithstanding GAAP to the extent
GAAP are to the contrary, a portion of the amount payable by Sullivan or a
Subsidiary of Sullivan under an Existing LMA for any period which is equal
to the amount of the interest expense of the Person to whom such amount is
payable for such period, plus the amount of all repayments of the principal
amount of indebtedness of such Person from the proceeds of any such payment
by Sullivan or a Subsidiary of Sullivan, will be treated as if it were
interest expense of Sullivan and its Subsidiaries.
(6) Application of GAAP. Except as otherwise provided in this
----------- -- ----
Agreement, the Trailing Cash Flow will be determined in accordance with
GAAP.
(7) Annualized Trailing Cash Flow Defined. The "Annualized
---------- -------- ---- ---- -------
Trailing Cash Flow" means the product of the Trailing Cash Flow multiplied
by the amount (the "Annualization Factor") set forth below for the date
------------- ------
which is the Measurement Date:
Measurement Date Annualization Factor
----------- ---- ------------- ------
March 31, 1998 5.81419
April 30, 1998 3.87381
May 31, 1998 2.90996
June 30, 1998 2.34386
July 31, 1998 2.02835
August 31, 1998 1.76026
3.C KOKH Amount. The "KOKH Amount" means the result of:
---- ------ ---- ------
(1) $30,066,000, plus a yield on such amount from January 30,
1998 to the date of the Closing computed at the Yield Rate, plus
----
(2) for each payment made by Sullivan or any of its Subsidiaries
after January 30, 1998 in respect of the "Purchase Price" under the KOKH
Purchase Agreement or any out-of-pocket expense incurred in connection with
the transactions contemplated by the KOKH Purchase Agreement, the amount of
such payment plus a yield on such amount from the date it was paid to the
Closing Date (or, if earlier in the case of any such expense which is later
reimbursed by Sinclair, the date it is reimbursed by Sinclair), computed at
the Yield Rate, plus
----
(3) for each capital contribution, loan or advance to Sullivan
Broadcasting of Oklahoma City, Inc., a Delaware corporation ("SBOC"), or
----
Sullivan Broadcasting License Holder, Inc., a Nevada corporation ("SBLH"),
----
by Sullivan or another Subsidiary of Sullivan after January 30, 1998 and
prior to the Closing, to the extent the proceeds thereof were used in
connection with the operations of Station KOKH, the amount of such capital
contribution, loan or advance, plus a yield on such amount from the date of
such capital contribution, loan or advance to the Closing Date (or, if
earlier, the date upon which such capital contribution,
9
<PAGE>
loan or advance is repaid) computed at the Yield Rate, less
----
(4) the amount of each payment made to Sullivan or any of its
Subsidiaries after January 30, 1998 pursuant to the KOKH Purchase Agreement
representing a reduction in the "Purchase Price" thereunder or a
reimbursement of expenses incurred by SBOC or SBLH, and less
--- ----
(5) the amount of any capital contribution, loan or advance
described in clause (3) above which is repaid prior to the Adjustment Time.
The "Yield Rate" will be 7.125% per annum.
----- ----
3.D Adjustment Amount.
---------- ------
(1) Basic Definition. Subject to the provisions of Sections
----- ----------
3.D(2) through 3.D(6), the "Adjustment Amount" means:
---------- ------
(a) the result of the following, as of the Adjustment Time,
for Sullivan and its Subsidiaries (including Sullivan Two and Sullivan
Three, as if it each were a Subsidiary of Sullivan at the Adjustment
Time), determined on a consolidated basis:
(i) the aggregate amount of all cash, cash equivalents,
marketable securities, prepaid expenses, deposits (other than
film deposits, if any) held by others and any current assets
(including amounts receivable from employees and independent
contractors and co-op receivables, and amounts payable to
Sullivan or any of its Subsidiaries by reason of the termination
of any interest rate hedging arrangement, assuming such
arrangement were terminated immediately prior to the Adjustment
Time) not otherwise described in this clause (i), other than the
Sullivan Receivables (collectively, but excluding the Sullivan
Receivables, the "Current Assets"), reduced (below zero, if
------- ------ ------- ------ ----- --
necessary) by
---------- --
(ii) the aggregate principal amount of all outstanding
Funded Indebtedness and the aggregate principal amount of the
outstanding indebtedness guaranteed by Sullivan Broadcasting
pursuant to the Mission Guarantees, in each case together with
the amount of all unpaid accrued interest thereon, unpaid
commitment fees and costs incurred in connection with the
termination of any interest rate hedging arrangements, assuming
such arrangement were terminated immediately prior to the
Adjustment Time, but excluding any change of control, prepayment
or other premium in respect of any such indebtedness, and
excluding in all events the indebtedness of Sullivan Two and
Sullivan Three represented by the promissory notes issued by them
in connection with the Spin-Offs, and further reduced (below
--- ------- ------- ------
zero, if necessary) by
----- -- ---------- --
10
<PAGE>
(iii) without duplication of any amount reflected in
clause (ii) above, all trade accounts payable, accrued expenses
(including accrued vacation pay) and other current liabilities
(collectively, the "Current Liabilities"), and further reduced
------- ----------- --- ------- -------
(below zero, if necessary) by
------ ----- -- ---------- --
(iv) the aggregate amount of the proceeds (net of taxes
and disposition costs) of all Designated Sales (as that term is
defined in Section 7.A(5)(a)(y) consummated after the date of
this Agreement and prior to the Adjustment Time; increased by
--------- --
(b) the applicable amount set forth below, if the Closing
occurs on or after October 21, 1998
Closing Date Amount
------------ ------
On or after October 21, 1998 but
prior to November 20, 1998 $10,000,000
On or after November 20, 1998 but
prior to December 20, 1998 $20,000,000
On or after December 20, 1998 but
prior to January 19, 1999 $30,000,000
On or after January 19, 1999 but
prior to February 18, 1999 $40,000,000
On or after February 18, 1999 but
prior to March 20, 1999 $50,000,000
On or after March 20, 1999 but
prior to April 19, 1998 $60,000,000
On or after April 19, 1998 $70,000,000
and reduced by
--- ------- --
(c) the excess, if any, of (i) the product of $1,985,422 and
a fraction, the numerator of which is the number of days during
calendar year 1998 prior to the Closing Date and the denominator of
which is 365, over (ii) the aggregate amount of the capital
expenditures made by Sullivan and its Subsidiaries during calendar
year 1998 and prior to the Adjustment Time.
(2) Current Portion of Funded Indebtedness. For purposes of
------- ------- -- ------ ------------
11
<PAGE>
determining the Adjustment Amount, and notwithstanding GAAP to the extent
GAAP are to the contrary, the "Current Liabilities" will not include the
current portion of any Funded Indebtedness or any accrued interest thereon.
(3) Transaction Expenses. For purposes of determining the
----------- --------
Adjustment Amount, and notwithstanding GAAP to the extent GAAP are to the
contrary, the "Current Liabilities" will include (i) all amounts incurred
by Sullivan or any of its Subsidiaries (including on behalf of any Old
Sullivan Stockholder, and including the fees and disbursements of advisors
to Sullivan, Sullivan Two, Sullivan Three, the Old Sullivan Stockholders
and the Stockholder Representative), in connection with the negotiation of,
the execution of, the performance of Sullivan's, Sullivan Two's and
Sullivan Three's obligations under, and the consummation or preparation for
consummation of the transactions contemplated by, this Agreement and not
paid prior to the Adjustment Time (all of which amounts Sinclair and Post-
Merger Sullivan will pay and satisfy, or cause to be paid and satisfied, in
full), other than any item which this Agreement specifies is to be at any
Acquiring Party's expense, (ii) all amounts required to be paid by, or
other obligations of Sullivan, any of its Subsidiaries, Sullivan Two or
Sullivan Three from and after the Adjustment Time pursuant to the various
employment agreements among Sullivan, Sullivan Broadcasting and the
Corporate Personnel (each of whom it is understood will resign or be
terminated as of the Effective Time), and (iii) all amounts required to be
paid by Sullivan, any of its Subsidiaries, Sullivan Two or Sullivan Three
from and after the Adjustment Time in connection with the termination of
employment by Sullivan and its Subsidiaries of the Corporate Personnel or
any Non-Continuing Station Manager effective as of the Closing Date.
(4) Trade-Out Items. For purposes of determining the Adjustment
--------- -----
Amount, and notwithstanding GAAP to the extent GAAP are to the contrary,
with respect to Trade-Out Receivables and Trade-Out Payables:
(a) the amount of Sullivan's or any of its Subsidiaries'
obligations under, and the amount of the goods, services and other
items to be received under, any Trade will be determined in accordance
with standard industry valuation methods as of the date of this
Agreement (provided that, in the case of goods, services and other
--------
items to be so received, no such item will be valued at an amount
which is greater than the fair value of such item at the Adjustment
Time);
(b) the "Current Assets" will not include Trade-Out
Receivables with respect to any Station;
(c) the "Current Liabilities" will not include Trade-Out
Payables with respect to any Station except to the extent (and only to
the extent) that the aggregate amount of the Trade-Out Payables with
respect to such Station as of the Adjustment Time exceeds the
aggregate amount of the Trade-Out Receivables with respect to such
Station as of the Adjustment Time by more than $50,000; and
12
<PAGE>
(d) for purposes of this Agreement (including clause (c)
above), each Station which is a television translator station will be
considered together with the related Station which is a full-power
television station and all other related television translator
stations.
(5) Program Payments. For purposes of determining the Adjustment
------- --------
Amount, and notwithstanding GAAP to the extent GAAP are to the contrary,
"Current Assets" and "Current Liabilities" will not include any amounts in
respect of Film Obligations, except that:
(a) the Current Liabilities will include the aggregate
amount of all Film Obligations which become due prior to the first day
of the calendar month which includes the Closing Date (determined
under the terms and conditions of the related Program Contracts as
then in effect) and which are not paid prior to the Adjustment Time;
(b) the Current Liabilities will include an amount equal to
(i) the aggregate amount of all Film Obligations which are not paid
prior to the Adjustment Time and which become due during the calendar
month which includes the Closing Date (determined under the terms and
conditions of the related Program Contracts as then in effect),
multiplied by (ii) a fraction, the numerator of which is the number of
days during such calendar month prior to, but not including, the
Closing Date, and the denominator of which is the number of days
during such calendar month;/1/
(c) the Current Assets will include an amount equal to (i)
the aggregate amount of all Film Obligations which are paid prior to
the Adjustment Time and which become due during the calendar month
which includes the Closing Date (determined under the terms and
conditions of the related Program Contracts as then in effect),
multiplied by (ii) a fraction, the numerator of which is the number of
days during such calendar month on and after, but not prior to, the
Closing Date, and the denominator of which is the number of days
during such calendar month;/2/ and
(d) the Current Assets will include an amount equal to the
aggregate amount of all Film Obligations which become due after the
final day of the calendar month which includes the Closing Date
(determined under the terms and conditions of the related Program
Contracts as then in effect) and which are paid prior to the
Adjustment Time.
- - - -----------------
/1/ e.g., if the Closing occurs on June 20, 1998, then the fraction described
in this clause (b) will be 19/30.
/2/ e.g., if the Closing occurs on June 20, 1998, then the fraction described
in this clause (c) will be 11/30.
13
<PAGE>
(6) Tax Matters. For purposes of determining the Adjustment
--- -------
Amount and notwithstanding GAAP to the extent GAAP are to the contrary:
(a) Closing of Books. The Tax liabilities for each Straddle
------- -- -----
Period will be determined by closing the books and records of
Sullivan, its Subsidiaries, Sullivan Two and Sullivan Three as of the
Adjustment Time, and by treating the portion of such Straddle Period
ending on (and including) the day prior to the Closing Date and the
portion of the Straddle Period beginning on the Closing Date as if
they were separate Tax periods, and by employing accounting methods
which are consistent with those employed in preparing the Tax Returns
for Sullivan, its Subsidiaries, Sullivan Two and Sullivan Three in
prior periods except as otherwise required by applicable law, and
which do not have the effect of distorting income or expenses (taking
into account the transactions contemplated by this Agreement), except
that Taxes based on items other than income or sales (for this
purpose, a Tax imposed under alternative methods, at least one of
which is based on income, will be considered an income Tax) will be
computed for such Straddle Period by prorating on a time basis between
the portion of the Straddle Period beginning on the first day of the
applicable Straddle Period and ending on (and including) the day prior
to the Closing Date and the period beginning on the Closing Date and
ending on the last day of such Straddle Period; provided that (x) with
respect to any Tax which is not in effect during the entire Straddle
Period, the proration of such Tax will be based on the period during
the Straddle Period that such Tax was in effect, and (y) for all such
purposes, the Sullivan Two Spin-Off will be deemed to have occurred
after the Adjustment Time and the Sullivan Three Spin-Off will be
deemed to have occurred prior to the Adjustment Time, with the effect
that any liability for Spin-Off Taxes relating to the Sullivan Three
Spin-Off, but not Spin-Off Taxes relating to the Sullivan Two Spin-
Off, will constitute Current Liabilities.
(b) Determination of Spin-Off Tax Liabilities. The
------------- -- -------- --- -----------
respective amounts of Sullivan's, its Subsidiaries', Sullivan Two's
and Sullivan Three's aggregate liabilities for the Spin-Off Taxes
arising from the Sullivan Two Spin-Off (the "Sullivan Two Spin-Off Tax
-------- --- -------- ---
Liability") and the Sullivan Three Spin-Off (the "Sullivan Three Spin-
--------- -------- ----- ----
Off Tax Liability") will be determined by applying all available net
--- --- ---------
operating losses and other items of deduction and credit
(collectively, "Tax Benefits"). Those Tax Benefits which are
--- --------
permitted under the applicable Legal Requirements to be applied to
reduce either the Sullivan Two Spin-Off Tax Liability or Sullivan
Three Spin-Off Tax Liability (as distinct from those Tax Benefits
which are only permitted to be applied to reduce one such Tax
Liability but not the other) will be applied pro rata, based on the
respective amounts of the Sullivan Two Spin-Off Tax Liability for the
Tax in question and the Sullivan Three Spin-Off Tax Liability for the
Tax in question determined prior to the application of such Tax
Benefits.
(7) Application of GAAP. Except as otherwise provided in this
----------- -- ----
Agreement, the Adjustment Amount will be determined in accordance with
GAAP.
14
<PAGE>
3.E Estimates of Annualized Trailing Cash Flow, KOKH Amount and
--------- -- ---------- -------- ---- ----- ---- ------ ---
Adjustment Amount for Closing Purposes.
- - - ---------- ------ --- ------- --------
(1) Estimates to be Given Effect. For purposes of determining
--------- -- -- ----- ------
the amount of Base Merger Consideration to be paid at the Closing, the
Annualized Trailing Cash Flow, the KOKH Amount and the Adjustment Amount
will be deemed to be equal to the Estimated Annualized Trailing Cash Flow,
the Estimated KOKH Amount and the Estimated Adjustment Amount,
respectively, determined under this Section 3.E. Notwithstanding this
Section 3.E and Section 3.F, if the Annualized Trailing Cash Flow has been
finally determined pursuant to Section 3.J, then the amount so finally
determined will be used to determine the amount of the Sullivan Base Merger
Consideration to be paid at the Closing and the ultimate amount of the
Sullivan Common Base Merger Consideration, and the provisions of this
Section 3.E and Section 3.F will apply only to the KOKH Amount and the
Adjustment Amount and not the Annualized Trailing Cash Flow. For purposes
of determining the Estimated Adjustment Amount, the aggregate amount of the
Current Liabilities will be assumed to be $5,600,000 (unless Sullivan
proposes a larger amount in Sullivan's Estimate Report).
(2) Sullivan's Estimate Report. At least five Business Days
---------- -------- ------
prior to any date scheduled for the Closing pursuant to Section 3.H,
Sullivan will prepare and deliver to Sinclair a written report ("Sullivan's
----------
Estimate Report") setting forth in reasonable detail Sullivan's good faith
-------- ------
estimates of the Annualized Trailing Cash Flow, the KOKH Amount and the
Adjustment Amount as of such scheduled Closing date and Sullivan's good
faith estimate of the gross amount of all Sullivan Receivables for which
the date of the underlying invoice is not earlier than the 120th day prior
to the Closing Date (the amount of such latter estimate being the
"Estimated Receivable Amount"). After delivery of Sullivan's Estimate
---------- ---------- --------
Report, Sullivan will (and will cause its Subsidiaries to) allow Sinclair
and its legal and accounting representatives and advisors reasonable access
to Sullivan's and its Subsidiaries' books and records to enable Sinclair to
verify the accuracy of the estimated amounts set forth in Sullivan's
Estimate Report. Sullivan will, in good faith, consider and make revisions
to such estimated amounts, but will not be obligated to make any adjustment
with which, in good faith, it does not agree. The estimates of the
Annualized Trailing Cash Flow, the KOKH Amount and the Adjustment Amount
set forth in Sullivan's Estimate Report," as they may be adjusted by
Sullivan as described in the preceding sentence, will be the "Estimated
---------
Annualized Trailing Cash Flow," the "Estimated KOKH Amount" and the
---------- -------- ---- ---- --------- ---- ------
"Estimated Adjustment Amount," respectively, for the scheduled Closing date
---------- ---------- ------
in question.
3.F Final Determination of Base Merger Consideration after the
----- ------------- -- ---- ------ ------------- ----- ---
Closing.
- - - -------
(1) Post-Closing Report. On or prior to the one hundred tenth
------------ ------
(110th) day after the Closing Date, Post-Closing Sullivan will prepare and
submit to the Stockholder Representative consolidated and consolidating
statements of income for Sullivan and its Subsidiaries for the period
beginning on January 1, 1998 and ending on the Measurement Date and
consolidated and consolidating balance sheets for Sullivan and its
Subsidiaries (including each of Sullivan Two and Sullivan Three, as if it
were a Subsidiary
15
<PAGE>
of Sullivan as of the Adjustment Time) as of the Adjustment Time, together
with Post-Merger Sullivan's determination of the aggregate Base Merger
Consideration (the "Post-Closing Report"); provided that, if the Annualized
------------ ------ --------
Trailing Cash Flow has been finally determined prior to the Closing
pursuant to Section 3.J, then the Post-Closing Report need not contain such
consolidated and consolidating statements of income. The Acquiring Parties
will (and will cause their respective Subsidiaries to) allow the
Stockholder Representative and its legal and accounting representatives and
advisors reasonable access to Post-Merger Sullivan's and its Subsidiaries'
books and records to enable the Stockholder Representative to timely review
and dispute the contents of the Post-Closing Report. Post-Closing
Sullivan's determination of the aggregate Sullivan Common Base Merger
Consideration set forth in the Post-Closing Report will become final and
binding upon the Parties and the Old Sullivan Common Stockholders on the
thirtieth (30th) day after the Post-Closing Report is given to the
Stockholder Representative unless, prior to such thirtieth (30th) day, the
Stockholder Representative gives Post-Closing Sullivan written notice
stating that the Stockholder Representative disagrees with such
determination and stating in reasonable detail the nature, extent of, and
basis for, the Stockholder Representative's disagreement and the
Stockholder Representative's determination of the aggregate Sullivan Common
Base Merger Consideration.
(2) Good Faith Resolution. If the Stockholder Representative
---- ----- ----------
timely gives Post-Closing Sullivan such a dispute notice, then, during the
thirty (30) days after the Stockholder Representative gives such dispute
notice, the Stockholder Representative and Post-Merger Sullivan will
attempt in good faith to resolve such disagreement, and any mutual
determination of the amount of the aggregate Sullivan Common Base Merger
Consideration by the Stockholder Representative and Post-Merger Sullivan
will be final and binding upon the Parties and the Old Sullivan
Stockholders on the date of such mutual determination.
(3) Arbitration of Dispute. If any such dispute cannot be
----------- -- -------
resolved by the Stockholder Representative and Post-Merger Sullivan on or
prior to such thirtieth (30th) day, then such dispute will be referred to
Ernst & Young, and such firm's determination of the aggregate Sullivan
Common Base Merger Consideration will be final and binding upon the Parties
and the Old Sullivan Common Stockholders on the date such firm's report of
its determination of the aggregate Sullivan Common Base Merger
Consideration has been delivered to Post-Merger Sullivan and the
Stockholder Representative.
(4) Computation and Entitlement to Payment after Resolution. If
----------- --- ----------- -- ------- ----- ----------
the amount of the aggregate Sullivan Common Base Merger Consideration
finally determined in accordance with this Section 3.F exceeds the amount
of the estimated Sullivan Common Base Merger Consideration paid to the
Stockholder Representative for the account of the Old Sullivan Common
Stockholders at the Closing (disregarding the amount, if any, deposited in
the Estimate Fund pursuant to Section 3.A(3)(d)) (the "Estimated Sullivan
--------- --------
Common Base Merger Consideration"), then (subject to the provisions of
------ ---- ------ -------------
Article II regarding the surrender of Old Sullivan Certificates) the Old
Sullivan Common Stockholders will be entitled to receive the amount of such
excess pursuant to Section 3.F(5). If the Estimated Sullivan
16
<PAGE>
Common Base Merger Consideration exceeds the amount of the aggregate
Sullivan Common Base Merger Consideration finally determined in accordance
with this Section 3.F, then (subject to the limitation set forth in Section
3.F(5)) Post-Merger Sullivan will be entitled to receive the amount of such
excess pursuant to Section 3.F(5). Any amount which becomes payable
pursuant to this Section 3.F(4) (except to the extent paid to Post-Merger
Sullivan from the Estimate Fund) will constitute an adjustment of the
aggregate Sullivan Common Base Merger Consideration paid at the Closing.
(5) Payment after Resolution.
------- ----- ----------
(a) If Payable to the Old Sullivan Stockholders. Any amount
-- ------- -- --- --- -------- ------------
which becomes payable to the Old Sullivan Common Stockholders pursuant
to Section 3.F(4) will be paid to the Stockholder Representative, for
distribution by the Stockholder Representative to the Old Sullivan
Common Stockholders, pro rata according to the remaining amounts of
the Sullivan Common Base Merger Consideration payable to them. Any
such amount will be paid to the Stockholder Representative from the
amount (if any) deposited in the Estimate Fund pursuant to Section
3.A(3)(d), to the extent of the amount so deposited. If no such
deposit is made, or if such deposit is made and the amount to be paid
to the Old Sullivan Common Stockholders pursuant to Section 3.F(4)
exceeds the amount so deposited, then the amount (or the remaining
amount, as applicable) so payable (for the Old Sullivan Stockholders'
benefit) will be paid by Post-Merger Sullivan.
(b) If Payable to Post-Merger Sullivan. Any amount which
-- ------- -- ----------- --------
becomes payable to Post-Merger Sullivan pursuant to Section 3.F(4)
will be paid from the amount (if any) deposited in the Estimate Fund
pursuant to Section 3.A(3)(d), to the extent of the amount so
deposited. If no such deposit is made, or if such deposit is made and
the amount to be paid to Post-Merger Sullivan pursuant to Section
3.F(4) exceeds the amount so deposited, then the amount (or the
remaining amount, as applicable) so payable to Post-Merger Sullivan
may be recovered by Post-Merger Sullivan from either or both of (i)
the proceeds of the Sullivan Receivables received by Sinclair and its
Subsidiaries during the Collection Period as provided in Section
3.G(4) and (ii) the amounts deposited in the Indemnity Fund, and no
additional amount will be payable to Post-Merger Sullivan (the amount,
if any, deposited in the Estimate Fund pursuant to Section 3.A(3)(d),
the amount of such proceeds of the Sullivan Receivables, and the
amounts deposited in the Indemnity Fund pursuant to Section 3.G(4)
being Post-Merger Sullivan's sole source of payment of any amount
which may be owing to Post-Merger Sullivan by reason of the estimated
amount of the aggregate Sullivan Common Base Merger Consideration paid
to the Stockholder Representative at the Closing being greater than
the Sullivan Common Base Merger Consideration as finally determined
pursuant to this Section 3.F).
(c) Interest on Certain Amounts. Any amount payable by
-------- -- ------- -------
Post-Merger Sullivan pursuant to this Section 3.F(5) will bear
interest at the rate of 18%
17
<PAGE>
per annum from the third (3rd) Business Day after the date upon which
the aggregate Sullivan Common Base Merger Consideration is finally
determined in accordance with this Section 3.F through and including
the date upon which such amount and all such interest are paid in full
(it being understood that in no event will interest be payable to any
Old Sullivan Common Stockholder in respect of any period prior to the
date upon which such Old Sullivan Common Stockholder surrenders the
Old Sullivan Certificate representing the Sullivan Common Share
Equivalent in question).
(d) Payment of Undisputed Amount. To the extent the
------- -- ---------- ------
aggregate Sullivan Common Base Merger Consideration and the resulting
amount of any payment which may be required pursuant to Section 3.F(4)
are not in dispute, Post-Merger Sullivan may retain proceeds of
Sullivan Receivables as provided in Section 3.G(4), Post-Merger
Sullivan or the Stockholder Representative will be entitled to
withdraw amounts from the Estimate Fund and/or the Indemnity Fund, and
the Stockholder Representative will be entitled to receive payments
from Post-Merger Sullivan (for the account of the Old Sullivan Common
Stockholders) of the amounts payable to the Old Sullivan Common
Stockholders, as the case may be./3/
(e) Payments from Escrow Funds. All payments made from the
-------- ---- ------ -----
Estimate Fund or the Indemnity Fund pursuant to this Section 3.F(5)
will be requested and made in accordance with the terms of the
Estimate Escrow Agreement or the Indemnity Escrow Agreement, as
applicable. Earnings on the amount (if any) deposited in the Estimate
Fund or the Indemnity Fund will be paid to the Person(s) ultimately
entitled to receive the amount so deposited, pro rata based on the
respective portions of the amount deposited in such Fund to be paid to
them.
(6) Costs of Dispute Resolution. The prevailing party in any
----- -- ------- ----------
determination pursuant to Section 3.F(3) will be entitled to recover from
the non-prevailing party such prevailing party's reasonable attorneys' fees
and disbursements in addition to any amount owing to it at the Closing, and
the nonprevailing party also will be required to pay all other reasonable
costs and expenses associated with such determination; provided that (a) if
--------
the independent public accounting firm which makes such determination is
unable to determine that a party is the prevailing party, then such costs
and expenses will be equitably
- - - ----------------
/3/ By way of illustration, assume that (a) the Estimated Adjustment Amount is
$20,000,000, (b) neither the amount of the Annualized Trailing Cash Flow nor the
KOKH Amount is in dispute, and (c) no amount is deposited in the Estimate Fund.
If the Post-Closing Report indicates that the Adjustment Amount is $18,500,000
and the Stockholder Representative disputes that determination and asserts that
the Adjustment Amount is $19,000,000, then only $500,000 is in dispute. In that
case, even prior to the resolution of such dispute, Post-Merger Sullivan will be
entitled to retain from the proceeds of the Sullivan Receivables as provided in
Section 3.G(4), or withdraw from the Indemnity Fund, $1,000,000 (along with a
proportionate share of the "Escrow Income" referred to in the Indemnity Escrow
Agreement, in the case of such a withdrawal from the Indemnity Fund).
18
<PAGE>
allocated by such firm upon the basis of the outcome of such determination, and
(b) if such firm is unable to allocate such costs and expenses in such a manner,
then the costs and expenses of such arbitration will be paid one-half by Post-
Merger Sullivan and one-half by the Stockholder Representative (on behalf of the
Old Sullivan Stockholders), and each of them will pay the out-of-pocket expenses
incurred by it. Such independent accounting firm may designate the prevailing
party for purposes of this Section 3.F(6).
3.G Sullivan Receivables.
-------- -----------
(1) Defined. The "Sullivan Receivables" means all trade and
------- -------- -----------
other accounts and notes receivable of Sullivan and its Subsidiaries
(including each of Sullivan Two and Sullivan Three, for this purpose)
arising from the sale of advertising time (including so-called
"infomercials") and other paid programming time on the Stations, determined
on a consolidated basis as of the Adjustment Time.
(2) Collection and Application. On, and during the 120 days
---------- --- -----------
after, the Closing Date (the "Collection Period"), Post-Merger Sullivan and
---------- ------
Sinclair will, and will cause their respective Subsidiaries to, use
reasonable efforts in accordance with their respective normal business
practices (not including resorting to or threatening litigation) to collect
the Sullivan Receivables, including issuing invoices for those Sullivan
Receivables for which invoices have not been issued prior to the Closing
Date. Collections from any Person which is a debtor with respect to any
Sullivan Receivable (a "Sullivan Debtor") will be applied in the
-------- ------
chronological order of the billings of Sullivan, Sullivan Two, Sullivan
Three, Post-Merger Sullivan and their respective Subsidiaries, as
applicable, to such Sullivan Debtor (i.e., to the oldest unpaid billing
first) unless (i) such Sullivan Debtor disputes in writing its obligation
to pay such billing, (ii) such Sullivan Debtor indicates in writing that
such payment is to be applied in another, specified manner, or (iii) other
facts or circumstances exist in light of which it would be reasonable to
conclude that such Sullivan Debtor does not intend such payment to be
applied in such a manner.
(3) Efforts by Stockholder Representative or Old Sullivan
------- -- ----------- -------------- -- --- --------
Stockholders. So long as Post-Merger Sullivan and Sinclair are in
------------
compliance with this Section 3.G, neither the Stockholder Representative
nor any Old Sullivan Stockholder will make any direct solicitation of any
Sullivan Debtor for purposes of collecting any Sullivan Receivable during
the Collection Period, except as may be agreed to by Post-Merger Sullivan
and the Stockholder Representative and except with respect to those
Sullivan Receivables which may be or become more than 180 days past due and
those Sullivan Receivables with respect to which Post-Merger Sullivan,
Sinclair or any of their respective Subsidiaries has received written
notice of a dispute from the related Sullivan Debtor (a copy of which
notice Post-Merger Sullivan will promptly forward to the Stockholder
Representative).
(4) Payment of Proceeds. After the end of the Collection Period
------- -- --------
and on or prior to the 150th day after the Closing Date, Post-Merger
Sullivan will pay over an amount equal to the aggregate proceeds received
by Sinclair and its Subsidiaries in respect of Sullivan Receivables during
the Collection Period, plus interest thereon computed
19
<PAGE>
as described below (collectively, the "Sullivan Receivable Proceeds"), as
-------- ---------- --------
follows (without set-off in respect of any other liability or obligation of
any Person, whether arising pursuant to this Agreement or otherwise except
as expressly provided in this Section 3.G(4)):
(a) the sum of (x) an amount equal to the aggregate amount of all
Loss and Expense (as that term is defined in the Indemnity Agreement)
asserted in writing pursuant to Section 2 of the Indemnity Agreement
as recoverable under Section 3 of the Indemnity Agreement and (y) the
amount which Post-Merger Sullivan asserts in good faith it will be
owed pursuant to Section 3.F(4), if the amount of the aggregate
Sullivan Common Base Merger Consideration has not been finally
determined in accordance with Section 3.F (or, if less than such sum,
the entire amount of the Sullivan Receivable Proceeds) will be paid to
the Indemnity Escrow Agent and deposited in the Indemnity Fund, and
(b) the remainder of the Sullivan Receivable Proceeds will be
paid to the Stockholder Representative, for the account of the Old
Sullivan Common Stockholders, as part of the Merger Consideration for
the Sullivan Common Share Equivalents,
in each case by wire transfer of immediately available funds to the account
specified by the recipient thereof; provided that, from and after the time
--------
when the amount of the aggregate Sullivan Common Base Merger Consideration
is finally determined in accordance with Section 3.F, if any amount is
payable to Post-Merger Sullivan pursuant to Section 3.F(4) based on such
determination, then Post-Merger Sullivan may retain from the aggregate
proceeds received by Sinclair and its Subsidiaries in respect of the
Sullivan Receivables during the Collection Period the amount so owed to it,
and the Sullivan Receivable Proceeds will be reduced by such amount. At
the time of the payments described in clauses (a) and (b) above, Post-
Merger Sullivan will deliver to the Stockholder Representative a report
which specifies the application to the Sullivan Receivables and other
accounts receivable of the collections received during the Collection
Period. Interest will be computed on the full amount of the Sullivan
Receivable Proceeds (exclusive of interest which is part thereof) from and
after the 74th day after the Closing to the date upon which the payments
described in clauses (a) and (b) above are made), at the rate of 7.125% per
annum.
(5) Transfer after Collection Period. Immediately following the
-------- ----- ---------- ------
last day of the Collection Period, Post-Merger Sullivan and Sinclair will,
and will cause their respective Subsidiaries to, transfer and assign to the
Stockholder Representative (for the account of the Old Sullivan Common
Stockholders) all rights with respect to the Sullivan Receivables to the
extent they have not then been collected in full, together with all files
concerning such Sullivan Receivables, and Post-Merger Sullivan, Sinclair
and their respective Subsidiaries will have no further responsibilities
pursuant to this Section 3.G with respect to any Sullivan Receivable except
to remit to the Stockholder Representative (on behalf of the Old Sullivan
Stockholders) as provided in Section 3.G(4) any Sullivan Receivable
Proceeds received after the Collection Period. Such transfer, assignment
and remittance will constitute a part of the payment of the Sullivan Common
Merger
20
<PAGE>
Consideration.
(6) Access to Information. During and after the Collection
------ -- -----------
Period, the Acquiring Parties will, and will cause their respective
Subsidiaries to, furnish the Stockholder Representative and its agents,
representatives and advisors with all information (including reasonable
access to their respective books and records) which the Stockholder
Representative reasonably requests in order to monitor, confirm or dispute
the Acquiring Parties' compliance with this Section 3.G.
3.H Closing Time and Place. Subject to Section 12.A, the
consummation of the Merger and the payment of the Base Merger Consideration for
Sullivan Share Equivalents to be paid at such time (the "Closing") will be held
-------
in the offices of Kirkland & Ellis, in New York, New York, at 10:00 a.m., local
time, on the date determined pursuant to the following two sentences, or at such
other place and/or at such other time and date as the Merger Sub and Sullivan
may agree in writing. The Closing will occur on a date designated by the Merger
Sub by written notice to Sullivan not less than ten Business Days in advance of
such date (which designated date will be not later than the Expiration Date).
Notwithstanding the foregoing, but subject to Section 12.A, if on a date for the
Closing described in the preceding sentence or specified pursuant to this
sentence any condition of the Merger Sub or Sullivan specified in Article IX or
X has not been satisfied (and will not be satisfied by the delivery of documents
at the Closing) or waived in writing, then the date for the Closing will be
extended to any date specified by the Merger Sub to Sullivan with not less than
10 Business Days' notice to the other (subject to the Merger Sub's and
Sullivan's respective conditions to the Closing set forth in Articles IX and X
being satisfied or waived in writing on such specified date); provided that any
--------
such specified date will be on or prior to the Expiration Date.
3.I Deliveries at the Closing. All actions on the Closing Date
(including those described in Sections 11.D and 11.E) will be deemed to occur
simultaneously, and no document or payment to be delivered or made on the
Closing Date will be deemed to be delivered or made until all such documents and
payments are delivered or made to the reasonable satisfaction of Sullivan, the
Merger Sub, the Stockholder Representative and their respective legal counsel.
(1) Delivery of Earnest Money. At the Closing, to the extent
-------- -- ------- -----
then held by the Earnest Money Escrow Agent, the Earnest Money Fund
(together with all Earnest Money Income, if any, received and held by the
Earnest Money Escrow Agent and the right to receive all Earnest Money
Income, if any, not yet received by the Earnest Money Escrow Agent) will be
delivered to the Merger Sub.
(2) Deliveries by Sullivan. At the Closing, Sullivan will
---------- -- --------
deliver to the Merger Sub the following:
(a) the minute book, stock transfer book and other records
relating to the internal corporate affairs of Sullivan and each
Subsidiary of Sullivan (other than Sullivan Two and Sullivan Three)
which are in Sullivan's and its Subsidiaries' possession, and
resignations of the officers and directors of each of Sullivan and the
Subsidiaries of Sullivan, which
21
<PAGE>
resignations will be effective as of the Effective Time;
(b) all mortgage discharges or releases of Liens that, upon
the repayment in full of all outstanding Funded Indebtedness and other
obligations of Sullivan and its Subsidiaries (other than Sullivan Two
and Sullivan Three) under the Sullivan Senior Debt Arrangements as
described in Section 11.E and all other Funded Indebtedness of
Sullivan and its Subsidiaries (other than Sullivan Two and Sullivan
Three) and all related interest and other obligations, the release of
the Mission Guarantees, any required execution and delivery thereof by
Sullivan or a Subsidiary of Sullivan (other than Sullivan Two and
Sullivan Three), and any requisite filing thereof, will be sufficient
to cause the Station Assets held by Sullivan and its Subsidiaries
(other than the assets and properties transferred in the Spin-Offs)
and the capital stock of Sullivan's Subsidiaries (other than Sullivan
Two and Sullivan Three) to be as described in the second sentence of
Section 4.G(1) and in Sections 4.G(4) and 4.Q;
(c) a certificate of the President or Chief Executive
Officer of Sullivan dated the Closing Date to the effect that, except
as specified in such certificate, to the best of such officer's
knowledge, the conditions set forth in Sections 10.A(1) and 10.A(2)
have been fulfilled;
(d) a certificate of Sullivan dated the Closing Date to the
effect that, except as specified in such certificate, the conditions
set forth in Sections 10.A(1) and 10.A(2) have been fulfilled;
(e) a certified copy of the resolutions or action by written
consent of the board of directors and stockholders of Sullivan
authorizing the Merger and Sullivan's execution, delivery and
performance of this Agreement;
(f) certificates as to the existence and/or good standing of
Sullivan and each of its Subsidiaries (other than Sullivan Two and
Sullivan Three), in each case issued by the Secretary of State or a
comparable official of each jurisdiction specified for such
corporation on the attached Schedule 4O and dated on or after the
fifth Business Day prior to the Closing Date, certifying as to the
existence and/or good standing of such corporation in such
jurisdictions;
(g) one or more opinions of counsel or special counsel to
Sullivan, each dated the Closing Date, as to the matters set forth in
the attached Exhibit C; and
------- -
(h) such other documents, instruments and receipts as the
Merger Sub may reasonably request in order to effectuate the Merger
and the other transactions contemplated by this Agreement to be
consummated at the Closing.
Each of the foregoing will be reasonably satisfactory in form to the Merger
Sub and its legal counsel.
22
<PAGE>
(3) Deliveries by the Merger Sub. At the Closing, the Merger Sub
---------- -- --- ------ ---
will deliver or cause to be delivered to the Stockholder Representative
stock certificates for Sinclair Common Stock (if shares of Sinclair Common
Stock are to be part of the Merger Consideration) and cash as described in
Section 3.A representing the aggregate Base Merger Consideration in respect
of the Sullivan Share Equivalents, determined based upon the Estimated
Annualized Trailing Cash Flow (or the Annualized Trailing Cash Flow, if it
has been finally determined pursuant to Section 3.J), the Estimated KOKH
Amount and the Estimated Adjustment Amount (subject to the provisions of
Article II), together with the following:
(a) a certificate of an officer or similar official of the
Merger Sub dated the Closing Date to the effect that, except as
specified in such certificate, to the best of such officer's or
official's knowledge, the conditions set forth in Section 9.A(1) and
9.A(2) have been fulfilled;
(b) a certificate of an officer or similar official of
Sinclair dated the Closing Date to the effect that, except as
specified in such certificate, to the best of such officer's or
official's knowledge, the conditions set forth in Sections 9.A(1) and
9.A(2) have been fulfilled;
(c) a certificate of the Merger Sub dated the Closing Date
to the effect that, except as specified in such certificate, the
conditions set forth in Sections 9.A(1) and 9.A(2) have been
fulfilled;
(d) a certificate of Sinclair dated the Closing Date to the
effect that, except as specified in such certificate, the conditions
set forth in Sections 9.A(1) and 9.A(2) have been fulfilled;
(e) a certified copy of the resolutions or action by written
consent of the board of directors and stockholders of the Merger Sub
authorizing the Merger and the Merger Sub's execution, delivery and
performance of this Agreement;
(f) a certified copy of the resolutions or action by written
consent of the board of directors of Sinclair authorizing Sinclair's
execution, delivery and performance of this Agreement;
(g) certificates as to the existence and/or good standing of
Sinclair and the Merger Sub, in each case issued by the Secretary of
State or a comparable official of such jurisdictions as Sullivan may
reasonably request and dated on or after the fifth Business Day prior
to the Closing Date, certifying as to the existence and/or good
standing of such corporation in such jurisdictions;
(h) one or more opinions of counsel or special counsel to
Sinclair and the Merger Sub, each dated the Closing Date, as to the
matters set forth in the attached Exhibit D; and
------- -
23
<PAGE>
(i) such other documents, instruments and receipts as
Sullivan may reasonably request in order to effectuate the Merger and
the other transactions contemplated by this Agreement to be
consummated at the Closing (including the registration and issuance of
any Sinclair Common Stock which is part of the Merger Consideration).
Each of the foregoing will be reasonably satisfactory in form to Sullivan
and its legal counsel.
3.J Determination of Trailing Cash Flow and Gross Revenues.
------------- -- -------- ---- ---- --- ----- --------
(1) Gross Revenues Defined. The "Gross Revenues" for any period
----- -------- ------- ----- --------
means the amount of the gross revenues of Sullivan and its Subsidiaries
from all sources, determined in accordance with GAAP on a consolidated
basis, but excluding revenues (other than from the sale of advertising or
paid programming time on the Stations) of a non-recurring nature generated
other than in the ordinary course of business.
(2) Examination of Cash Flow Reports. Without limiting Section
----------- -- ---- ---- -------
7.C(2), Sullivan will (and will cause its Subsidiaries to) allow Sinclair
and its legal and accounting representatives and advisors reasonable access
to Sullivan's and its Subsidiaries' books and records to enable Sinclair to
evaluate and dispute Sullivan's determination of the Trailing Cash Flow and
the Gross Revenues set forth in each Cash Flow Report. Sullivan's
determination of the Trailing Cash Flow or the Gross Revenues set forth in
any Cash Flow Report will become final and binding upon the parties to this
Agreement and the Old Sullivan Stockholders on the fifteenth (15th)
Business Day after such Cash Flow Report is given to Sinclair unless, prior
to such fifteenth (15th) Business Day, Sinclair gives Sullivan written
notice stating that Sinclair disagrees with such determination and stating
in reasonable detail the nature, extent of, and basis for, Sinclair's
disagreement and Sinclair's determination of the Trailing Cash Flow or
Gross Revenues, as the case may be, for the period in question.
(3) Good Faith Resolution. If Sinclair timely gives Sullivan
---- ----- ----------
such a dispute notice, then, during the five (5) Business Days after
Sinclair gives such dispute notice, Sullivan and Sinclair will attempt in
good faith to resolve such disagreement, and any mutual determination of
the amount of the Gross Revenues or the Trailing Cash Flow, as the case may
be, for the period in question by Sullivan and Sinclair will be final and
binding upon the parties to this Agreement and the Old Sullivan
Stockholders on the date of such mutual determination.
(4) Arbitration of Dispute. If any such dispute cannot be
----------- -- -------
resolved by Sullivan and Sinclair on or prior to such fifth (5th) Business
Day, then such dispute will be referred to Ernst & Young, and such firm's
determination of the Gross Revenues or the Trailing Cash Flow, as the case
may be, for the period in question will be final and binding upon the
parties to this Agreement and the Old Sullivan Stockholders on the date
such firm's
24
<PAGE>
report of its determination of the Gross Revenues or the Trailing Cash
Flow, as the case may be, for such period has been delivered to Sullivan
and Sinclair.
(5) Costs of Dispute Resolution. The prevailing party in any
----- -- ------- ----------
determination pursuant to Section 3.J(4) will be entitled to recover from
the non-prevailing party such prevailing party's reasonable attorneys' fees
and disbursements, and the nonprevailing party also will be required to pay
all other reasonable costs and expenses associated with such determination;
provided that (a) if the independent public accounting firm which makes
such determination is unable to determine that a party is the prevailing
party, then such costs and expenses will be equitably allocated by such
firm upon the basis of the outcome of such determination, and (b) if such
firm is unable to allocate such costs and expenses in such a manner, then
the costs and expenses of such arbitration will be paid one-half by
Sullivan and one-half by Sinclair, and each of them will pay the out-of-
pocket expenses incurred by it. Such independent accounting firm may
designate the prevailing party for purposes of this Section 3.J(5).
(6) Outdated Determination. If the Trailing Cash Flow or the
-------- -------------
Gross Revenues for any period believed to be the Measurement Period are
determined in accordance with this Section 3.J but such period is not the
actual Measurement Period, then the Trailing Cash Flow or the Gross
Revenues, as the case may be, will later be determined for the actual
Measurement Period in accordance with this Section 3.J.
3.K Mandatory Payment to Sullivan.
--------- ------- -- --------
(1) When Mandatory Payment Becomes Owing and Due. Except as
---- --------- ------- ------- ----- --- ---
provided in Section 12.B(4)(d), on the Approval Date a payment in the
amount of Seventy Five Million Dollars ($75,000,000) will become owing to
Sullivan by the Merger Sub. Whether or not this Agreement is thereafter
terminated pursuant to Section 12.A, such payment (the "Mandatory Payment")
--------- --------
will be due and payable upon the termination of this Agreement pursuant to
Section 12.A (or, if earlier, the later of June 23, 1998 and the fifth
Business Day after the Approval Date), unless the Closing has occurred or
the circumstances described in Section 12.B(4)(d) apply. If the Merger Sub
does not pay such amount on or prior to such later date, then Sullivan may
seek payment of such amount from the Earnest Money Fund (including by means
a drawing under the Earnest Money Letter of Credit), in accordance with the
terms of the Earnest Money Escrow Agreement, unless the circumstances
described in Section 12.B(4)(d) exist.
(2) Return of Earnest Money Fund. Upon the making of the
------ -- ------- ----- ----
Mandatory Payment, the Merger Sub will be entitled to a return of the
Earnest Money Fund. Any such return to the Merger Sub of the Earnest Money
Fund may be requested, and will be effected, in accordance with the terms
of the Earnest Money Escrow Agreement. After receipt of the Mandatory
Payment by Sullivan, at the Merger Sub's request Sullivan will execute and
deliver to the Merger Sub such joint written instructions to the Earnest
Money Escrow Agent as the Merger Sub may reasonably request in order to
effect the return of the Earnest Money Fund to the Merger Sub.
25
<PAGE>
(3) Treatment of Mandatory Payment. The Parties intend that, if
--------- -- --------- -------
the Mandatory Payment is required to be made, then the Mandatory Payment
will become the property of Sullivan, for the benefit of its
securityholders, and (whether or not the Closing occurs) will be required
to be repaid by Sullivan only as expressly provided in Section 12.B(4)(d).
If the Mandatory Payment is made, then the amount of the Mandatory Payment
will constitute a prepayment of the portion of the aggregate Base Merger
Consideration payable in respect of the Sullivan Share Equivalents and will
be credited against the amount of such portion of the aggregate Base Merger
Consideration to be paid at the Closing in cash. If this Agreement is
terminated pursuant to Section 12.A after the Mandatory Payment is made,
then Sullivan may retain the Mandatory Payment except under the
circumstances described in Section 12.B(4)(d). If this Agreement is
terminated pursuant to Section 12.A prior to the making of the Mandatory
Payment, then the Mandatory Payment will thereupon become due and payable,
except under the circumstances described in Section 12.A(4)(d), and the
Earnest Money Fund will not be released (except to Sullivan) until the
Mandatory Payment has been made. Unless this Agreement has been terminated
pursuant to Section 12.A and Sullivan is entitled to retain the Mandatory
Payment, Sullivan will not distribute or loan the proceeds of the Mandatory
Payment to its stockholders or their respective Affiliates (other than
Sullivan's Subsidiaries), but may utilize all or a portion of such proceeds
to repay Indebtedness of Sullivan and its Subsidiaries (so long as the
amount repaid may be reborrowed, subject to the satisfaction of customary
conditions for the purpose of repaying such amount to Sinclair as provided
in Section 12.B(4)(d)) or for any other purpose not prohibited hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SULLIVAN
Subject to Section 13.Q, Sullivan makes the following representations
and warranties:
4.A Organization. Sullivan is a corporation which is duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business or has similar status under the laws of each
jurisdiction in which such qualification is required by applicable Legal
Requirements. Sullivan has the power and authority to carry on the business
being conducted by it, to own and operate the Station Assets owned and operated
by it, and to enter into and consummate the transactions contemplated to be
consummated by it pursuant to this Agreement.
4.B Action. Each action necessary to be taken by or on the part of
------
Sullivan in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated to be consummated by Sullivan
pursuant to this Agreement and necessary to make the same effective will be duly
and validly taken by, and be effective at, the time by which such action is
required to be taken. This Agreement has been duly and validly authorized,
executed, and delivered by Sullivan and constitutes its valid and binding
agreement, enforceable against
26
<PAGE>
Sullivan in accordance with and subject to its terms, subject to the effect of
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
arrangement, moratorium or similar laws affecting the rights of creditors
generally and the availability of equitable remedies.
4.C Financial Statements.
--------- ----------
(1) Description of Statements. Attached to this Agreement as
----------- -- ----------
Schedule 4C are copies of (a) the audited consolidated balance sheet of
Sullivan as at December 31, 1996, and the related statements of operations
and cash flows for the period from January 4, 1996 (the date upon which
Sullivan acquired Act III) to December 31, 1996, and related notes, all
reported on by Sullivan's independent certified public accountants
(collectively, the "12/31/96 Financial Statements"), and (b) the internally
-------- --------- ----------
prepared unaudited consolidated balance sheet of Sullivan as at September
30, 1997 and the related statement of operations for the nine-month period
ended September 30, 1997 (the "9/30/97 Financial Statements").
(2) Representations as to 1996 Statements. The 12/31/96
--------------- -- -- ---- ----------
Financial Statements are, in all material respects, (a) as of December 31,
1996, correct, complete and in agreement with the books and records
regularly maintained by Sullivan and its Subsidiaries, and (b) prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with past practice throughout the year involved. The 12/31/96
Financial Statements present fairly, in all material respects, the
financial position of Sullivan and its Subsidiaries as at December 31, 1996
and the results of the operations and cash flow of Sullivan and its
Subsidiaries for the period covered thereby.
(3) Representations as to 1997 Statements. When they are
--------------- -- -- ---- ----------
delivered as provided in Section 7.C, the 12/31/97 Financial Statements
will be, in all material respects, (a) as of December 31, 1997, correct,
complete and in agreement with the books and records regularly maintained
by Sullivan and its Subsidiaries, and (b) prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
past practice throughout the year involved, and will present fairly in all
material respects, the financial position of Sullivan and its Subsidiaries
as at December 31, 1997 and the results of the operations and cash flow of
Sullivan and its Subsidiaries for the period covered thereby.
(4) Representations as to Interim Statements. Subject to the
--------------- -- -- ------- ----------
effect of year-end adjustments which normally would arise in the course of
an audit, the 9/30/97 Financial Statements are, as of September 30, 1997,
in all material respects, correct, complete and in agreement with the books
and records regularly maintained by Sullivan and its Subsidiaries, and,
taken together, present fairly, in all material respects, the financial
position of Sullivan and its Subsidiaries as at September 30, 1997 and the
results of the operations of Sullivan and its Subsidiaries for the nine
months then ended.
4.D Business Since September 30, 1997. Since September 30, 1997,
-------- ----- --------- --- ----
except to the extent required or permitted by this Agreement or as set forth on
the attached Schedule 4D, the
-------- --
27
<PAGE>
business of the Stations has in all material respects been conducted in the
ordinary course of business and in the same manner as it had been conducted by
Sullivan and its Subsidiaries from January 4, 1996 (the date upon which Sullivan
acquired Act III) through December 31, 1996.
4.E FCC Authorizations. As of the date of this Agreement, each
--- --------------
Person specified in the attached Schedule 4E as the holder of an FCC
-------- --
Authorization has been authorized by the FCC to hold and is the holder of each
of the FCC Authorizations specified for such Person on the attached Schedule 4E.
-------- --
Except as set forth on the attached Schedule 4E, (i) such FCC Authorizations
-------- --
constitute all of the licenses and authorizations required under the
Communications Act, or the current rules, regulations, and policies of the FCC,
for the operation of the Stations as now conducted; (ii) such FCC Authorizations
are in full force and effect and are subject to or scheduled for renewal on the
respective dates specified on the attached Schedule 4E (unless theretofore
-------- --
renewed after the date of this Agreement); (iii) such FCC Authorizations are
valid for the full respective terms thereof; (iv) none of Sullivan, its
Subsidiaries, Sullivan Two and Sullivan Three has any reason to believe that
such FCC Authorizations will not be renewed for a full and customary term in the
ordinary course with no materially adverse conditions (except with respect to
general rule-making and similar matters relating generally to television
broadcast stations); (v) there is not pending, or, to the knowledge of Sullivan
or any of its Subsidiaries, threatened, any action by or before the FCC to
revoke, cancel, rescind, modify, or refuse to renew in the ordinary course any
of the FCC Authorizations, and there is not now pending, or, to the knowledge of
any such Person, threatened, issued, or outstanding by or before the FCC, any
investigation, order to show cause, notice of violation, notice of apparent
liability, or notice of forfeiture or complaint against Sullivan, any of its
Subsidiaries, Sullivan Two or Sullivan Three with respect to any Station; (vi)
the Stations are operating in compliance, in all material respects, with the FCC
Authorizations, the Communications Act, and the current rules, regulations and
policies of the FCC; (vii) to the knowledge of Sullivan and its Subsidiaries, no
Station (other than any Station which is a low-power television station) is
short-spaced, on a grandfathered basis or otherwise, to any existing broadcast
television station, outstanding construction permit or pending application
therefor, domestic or international, or to any existing or proposed TV
allotment, domestic or international; (viii) neither Sullivan, any of its
Subsidiaries, Sullivan Two nor Sullivan Three has received any written notice to
the effect that it is causing objectionable interference to the transmissions of
any other television station or communications facility or has received any
written complaints with respect thereto; (ix) no other television station or
communications facility is causing objectionable interference to any Station's
transmissions or the public's reception of such transmissions; and (x) all
documents required by 47 C.F.R. Section 73.3526 to be kept in each Station's
public inspection file are in such file, and such file will be maintained in
proper order and complete up to and through the Closing Date. Except with
respect to Market Cable Systems that are parties to retransmission agreements,
for each Station, there has been made a valid election of must carry with
respect to each Market Cable System. Except as set forth on Schedule 4.E, no
-------- ---
Market Cable System has advised Sullivan, its Subsidiaries, Sullivan Two or
Sullivan Three of any signal quality deficiency or copyright indemnity or other
prerequisite to cable carriage of any Station's signal, and no Market Cable
System has declined or threatened to decline such carriage of such Station or
failed to respond to a request for carriage of such Station or sought any form
of relief from carriage of such Station from the FCC. Sullivan, its
Subsidiaries, Sullivan Two and Sullivan Three have filed with the FCC, on a
timely basis, all material reports and other material
28
<PAGE>
reports and other material filings required to be filed by them in connection
with the Stations pursuant to the Communications Act and the rules, regulations
and policies of the FCC.
4.F Condition of Assets. Except as set forth on the attached
--------- -- ------
Schedule 4F, the material tangible assets of Sullivan and its Subsidiaries and
- - - -------- --
the improvements on the Realty which are used by them (a) are in all material
respects in good and technically sound operating condition (ordinary wear and
tear excepted) and are not in need of repair, (b) are in all material respects
in a condition which would be sufficient to permit the owner thereof to operate
or program the Stations (in the manner in which the Stations are operated or
programmed by Sullivan and its Subsidiaries as of the date of this Agreement) in
compliance with the terms of the FCC Authorizations, the Communications Act and
current FCC rules and regulations, and (c) have in all material respects been
maintained in a manner consistent with generally accepted standards of good
engineering practice and to the knowledge of Sullivan, all applicable federal,
state and local statutes, ordinances, rules and regulations, including, without
limitation, all applicable tower painting and lighting requirements.
4.G Title, Etc.
------ ---
(1) Realty. The attached Schedule 4G contains a description of
------ -------- ---
all parcels of Realty owned by Sullivan, its Subsidiaries, Sullivan Two and
Sullivan Three (collectively, the "Owned Realty"). The Person designated as
----- ------
the "Titleholder" on the attached Schedule 4G has good and marketable fee
-------- --
title to such parcel, free and clear of all Liens, except for Permitted
Encumbrances. Included in the attached Schedule 4G is a copy of the policy
-------- --
(if any) insuring the Titleholder's title thereto as of the date of this
Agreement. Sullivan and its Subsidiaries have valid leasehold interests in
all real property subject to the leases (the "Leases") described on the
------
attached Schedule 4G. The attached Schedule 4G contains a description of
-------- -- -------- --
all the material Leases to which Sullivan, any Subsidiary of Sullivan,
Sullivan Two or Sullivan Three is a party as a tenant (or subtenant) or
landlord with respect to any Station as of the date of this Agreement,
other than any lease pursuant to which Sullivan or a Subsidiary (as lessor)
leases space on a tower on terms which were customary when such lease was
entered into. Neither Sullivan, any of its Subsidiaries, Sullivan Two nor
Sullivan Three is in material default under any of the Leases, and
Sullivan, any Sullivan Subsidiary, Sullivan Two or Sullivan Three is the
holder of the leaseholds purported to be granted to it under the Leases
under which it is a lessee. Each of the Leases (x) is valid as to
Sullivan, any Sullivan Subsidiary, Sullivan Two or Sullivan Three and, to
the knowledge of Sullivan, is valid as to any other party thereto, (y) is
in full force and effect and constitutes a legal and binding obligation of,
and is legally enforceable against, Sullivan, any Sullivan Subsidiary,
Sullivan Two or Sullivan Three and, to Sullivan's knowledge, each other
party thereto, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies, and (z) grants substantially the leasehold interest it
purports to grant, including any rights to nondisturbance and peaceful and
quiet enjoyment that may be contained therein. To Sullivan's knowledge,
each party other than Sullivan, any Sullivan Subsidiary, Sullivan Two or
Sullivan Three is in compliance in all material respects with the
provisions of the Leases. The Owned Realty and the real property
29
<PAGE>
subject to the Leases listed in the attached Schedule 4G constitute all of
-------- --
the real property owned, leased or used by Sullivan, any Sullivan
Subsidiary, Sullivan Two or Sullivan Three in the business and operations
of the Stations which is material to the businesses and operations of the
Stations.
(2) Compliance. The Owned Realty and its present uses comply in
----------
all material respects with all applicable zoning laws and ordinances and no
material exemption or waiver thereunder will expire or be terminated by
reason of the Merger. To the knowledge of Sullivan and its Subsidiaries,
there exists no notice of any material uncorrected violations of housing,
building, safety, or fire ordinances with respect to the Owned Realty or
the real property leased by Sullivan or a Subsidiary pursuant to any Lease.
Except as disclosed on the attached Schedule 4G, the Owned Realty is
-------- --
currently serviced by a community sewage system.
(3) Condemnation or Disposition. Neither Sullivan, any of its
------------ -- -----------
Subsidiaries, Sullivan Two nor Sullivan Three has received any notice of,
and none of them has knowledge of, any pending, threatened, or contemplated
condemnation proceeding affecting the Owned Realty or the real property
leased by Sullivan or a Subsidiary pursuant to any Lease, or any part
thereof, or of any sale or other disposition of the Owned Realty or any
portion thereof in lieu of condemnation.
(4) Non-Realty. Taken together, Sullivan, its Subsidiaries,
----------
Sullivan Two and Sullivan Three have good title to, or a valid leasehold
in, the tangible assets (other than the Realty) and personal property
included in the Station Assets, and all such assets and personal property
will on the Closing Date (after the repayment in full of the Funded
Indebtedness of Sullivan and its Subsidiaries and all related interest and
other obligations and the release of all related Liens and the Mission
Guarantees) be free and clear of all Liens other than Permitted
Encumbrances.
4.H Call Letters, Trademarks, Etc. Taken together, Sullivan, its
---- -------- ----------- ---
Subsidiaries, Sullivan Two and Sullivan Three possess (and immediately after
the Merger, will possess) adequate rights, licenses, or other authority to use
the call letters presently used by the Stations and all trademarks and trade
names relating to the Stations which are required for the operation of the
Stations or which are material to the conduct of the business of the Stations,
in each case as presently conducted by Sullivan and its Subsidiaries, and have
good title to such call letters, trademarks and trade names which they purport
to own, and Sullivan's, its Subsidiaries', Sullivan Two's and Sullivan's Three's
respective rights thereto are free and clear of all Liens other than Permitted
Encumbrances. None of Sullivan, its Subsidiaries, Sullivan Two and Sullivan
Three has received any written notice with respect to any alleged infringement
or unlawful or improper use of any copyright, trademark, trade name, or other
intangible property right owned or alleged to be owned by others and used in
connection with the Stations.
4.I Insurance. The attached Schedule 4I is, in all material
--------- -------- --
respects, a correct and complete summary of the material terms of each material
policy of insurance which is in effect on the date of this Agreement insuring
Sullivan and its Subsidiaries against loss or damage to any
30
<PAGE>
Station Assets by fire, casualty and other hazards and risks relating to their
tangible assets, and each such policy of insurance is in full force and effect
in all material respects.
4.J Contracts. The attached Schedule 4J contains a list of each of
--------- -------- --
the following to which any of Sullivan or its Subsidiaries is a party on the
date of this Agreement (other than any Contract (i) which does not require
Sullivan and its Subsidiaries to furnish consideration in an aggregate amount
for such Contract of more than $25,000, (ii) which is terminable by Sullivan or
any of its Subsidiaries without penalty upon advance notice of thirty (30) days
or less, (iii) which is a barter programming contract pursuant to which the
remaining telecasting term as of December 31, 1997 was twelve months or less, or
(iv) which is a Time Sale Contract):
(1) television network affiliation agreements;
(2) Trades which could require the furnishing of advertising time
on any Station at any time after the Closing Date;
(3) sales agency or advertising representation contracts;
(4) employment contracts;
(5) licenses or other contracts under which Sullivan or any of
its Subsidiaries is authorized to broadcast on any Station filmed or taped
programming supplied by others;
(6) leases of personal property which have a term, including
renewal options exercisable by any party thereto other than Sullivan or any
of its Subsidiaries, ending more than one year after the date of this
Agreement; and
(7) any other contract which is material to the business and
operation of the Stations.
Neither Sullivan, any of its Subsidiaries, Sullivan Two nor Sullivan Three is in
material breach of any contract or agreement described on the attached Schedule
--------
4J, nor is there any fact or circumstance which, with the giving of notice or
- - - --
the passage of time, or both, would constitute such a breach. Each material
Contract described on the attached Schedule 4J (other than any such Contract
-------- --
which expires or is terminated in the ordinary course of business after the date
of this Agreement) is in all material respects in full force and effect, valid
and binding and enforceable as to Sullivan, its Subsidiaries, Sullivan Two
and/or Sullivan Three, as applicable, and, to Sullivan's knowledge, each other
party thereto (subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies).
4.K Employees. The attached Schedule 4K lists all employees of
--------- -------- --
Sullivan or any of its Subsidiaries as of December 31, 1997 and their respective
current budgeted annual base salary and bonus or annualized wages as of such
date and their respective dates of hire. Except as
31
<PAGE>
described on the attached Schedule 4J or the attached Schedule 4K, on the date
-------- -- -------- --
of this Agreement (a) Sullivan and its Subsidiaries have no written or oral
contract of employment with any such employee (other than a Contract for
employment at the will of the employer), and (b) Sullivan and its Subsidiaries
are not a party to or subject to any collective bargaining agreement with
respect to any such employee or any contract with any labor union or other labor
organization with respect to the Stations. Sullivan and its Subsidiaries are not
parties to any pending labor dispute affecting the Stations, nor, to the
knowledge of Sullivan, is any such dispute threatened, on the date of this
Agreement and, on the Closing Date, no such pending or threatened dispute will
be material. With respect to employees of and service providers to Sullivan and
its Subsidiaries, Sullivan and the Subsidiaries are and have been in compliance
in all material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and have not and are not
engaged in any unfair labor practice. The persons classified by Sullivan and the
Subsidiaries as independent contractors do satisfy and have satisfied the
requirements of law to be so classified, and Sullivan and its Subsidiaries have
in all material respects fully and accurately reported their compensation on IRS
Forms 1099 when required to do so.
4.L Litigation. Except as set forth on the attached Schedule 4L:
---------- -------- --
(1) on the date of this Agreement, Sullivan and its Subsidiaries
are not operating under or subject to or in default with respect to any
order, writ, injunction, or decree of any court or federal, state,
municipal, or other governmental department, commission, board, agency, or
instrumentality arising out of a proceeding to which it is or was a party,
and on the Closing Date, no such item will have or reasonably be expected
to result in a Material Adverse Change; and
(2) on the date of this Agreement, there is no litigation pending
by or against, or to the knowledge of Sullivan threatened against, Sullivan
or any of its Subsidiaries which interferes with, or could reasonably be
expected to interfere with, (a) the operations of the Stations as presently
conducted or (b) the ability of Sullivan to carry out the transactions
contemplated to be carried out by it pursuant to this Agreement, and on the
Closing Date, no such pending or threatened litigation will have or will
reasonably be expected to result in a Material Adverse Change.
There are no attachments, executions, or assignments for the benefit of
creditors or voluntary or involuntary proceedings in bankruptcy initiated or
contemplated by, or, to the knowledge of Sullivan, threatened or pending
against, Sullivan or any of its Subsidiaries.
4.M Compliance with Laws. Other than with respect to matters
---------- ---- ----
disclosed in the attached Schedule 4E or the attached Schedule 4L, subject to
-------- -- -------- --
obtaining all applicable Consents: (a) Sullivan and its Subsidiaries, with
respect to the Station Assets, are in compliance in all material respects with
all applicable Legal Requirements, and (b) the present uses by Sullivan and its
Subsidiaries of the Station Assets which they own do not in any material respect
violate any such
32
<PAGE>
Legal Requirements.
4.N No Defaults. Except for (w) any item described on the attached
-- --------
Schedule 4N, (x) the requisite approval of the FCC, (y) compliance with the
- - - -------- --
requirements of the Hart-Scott-Rodino Act, and (z) any Consent which may be
required under any Contract, on the Closing Date (after giving effect to all
Consents which have been obtained) neither the execution and delivery by
Sullivan of this Agreement, nor the consummation by Sullivan of the Merger or
the other transactions contemplated by this Agreement to be consummated by
Sullivan, requires any Consent under, will constitute, or, with the giving of
notice or the passage of time or both, would constitute, a material violation of
or would conflict in any material respect with or result in any material breach
of or any material default under, or will result in the creation of any Lien
(other than any Permitted Encumbrance or any Lien in favor of one or more of the
Acquiring Parties) under, any of the terms, conditions, or provisions of any
Legal Requirement to which Sullivan or any of its Subsidiaries is subject, or of
the certificate of incorporation or by-laws of Sullivan or any of its
Subsidiaries. No Lease for the main studio site of any Station, no lease
pursuant to which Sullivan, any of its Subsidiaries, Sullivan Two or Sullivan
Three leases (as lessee) space on a transmission tower for the location of any
transmission equipment of any Station, and neither Existing LMA, contains any
provision which expressly requires a Consent by reason of a merger or change of
control or ownership of Sullivan.
4.O Subsidiaries.
------------
(1) Subsidiaries' Stock. All of the issued and outstanding
------------- -----
capital stock of each of the corporations named on the attached Schedule 4O
-------- --
(other than Sullivan, and other than Sullivan Two and Sullivan Three, as of
the Closing Date) is owned of record (directly or indirectly through one or
more of its Subsidiaries) by Sullivan free and clear of all Liens other
than Permitted Encumbrances. All such capital stock has been validly
issued and is fully paid and nonassessable, there is not outstanding any
right to acquire any capital stock or other equity securities of any
Subsidiary of Sullivan (by exercise of any right or by conversion, exchange
or otherwise), and such capital stock is not subject to any option,
warrant, voting trust, outstanding proxy, registration rights agreement or
other agreement regarding voting rights, other than any Permitted
Encumbrance.
(2) Subsidiaries' Status. Each of Sullivan's Subsidiaries named
------------- ------
on the attached Schedule 4O is a corporation duly organized, validly
-------- --
existing and in good standing (or having comparable active status) under
the laws of the jurisdiction indicated on such Schedule under the heading
"Organization" and has the power and authority to carry on the business
conducted by it and own the properties owned by it under the laws of such
jurisdiction and each other jurisdiction in which it is required to have
such authority. A true and correct copy of the certificate or articles of
incorporation and by-laws of each of such Subsidiary has been provided to
the Merger Sub. On the Closing Date, neither Sullivan nor any other
corporation named on the attached Schedule 4O will own any shares of stock
-------- --
or other equity or debt securities of or any interest in any Person other
than another Person named on the attached Schedule 4O, Sullivan Two or
-------- --
Sullivan Three.
33
<PAGE>
4.P Tax Matters.
--- -------
(1) Tax Returns. Except as set forth on the attached Schedule 4P
--- ------- -------- --
or as has not caused and is not reasonably expected to cause a Material
Adverse Change: (a) all federal, state, local and foreign tax returns and
tax reports required to be filed by Sullivan or any of its Subsidiaries
have been timely filed (taking into account any extensions of which
Sullivan or any of its Subsidiaries may have availed itself) with the
appropriate governmental agencies in all jurisdictions in which such
returns and reports are required to be filed, and all of the foregoing
(including any summary balance sheets included therein) are true, correct,
and complete; (b) all federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, and other taxes
(including interest and penalties) due and payable by Sullivan and its
Subsidiaries have been fully paid; (c) no issues have been raised in
writing (or, to Sullivan's knowledge, orally) and are currently pending by
the Internal Revenue Service or any other taxing authority in connection
with any of such returns and reports; (d) no waivers of statutes of
limitations as to tax matters have been given or requested with respect to
Sullivan and its Subsidiaries; (e) the federal, state, local, and foreign
income tax and franchise tax returns of or with respect to Sullivan and its
Subsidiaries have not been examined by the Internal Revenue Service or by
appropriate state, provincial, or departmental tax authorities; (f) no
issue has been raised in writing (or, to Sullivan's knowledge, orally) with
Sullivan or any of its Subsidiaries by any taxing authority which can
reasonably be expected to result in a deficiency for any fiscal year or all
deficiencies asserted or assessments (including interest and penalties)
made as a result of any examinations have been fully paid, and no proposed
(but unassessed) additional taxes, interest, or penalties have been
asserted; (g) neither Sullivan nor any of its Subsidiaries is (or has ever
been) a party to any Tax sharing agreement with any Person who was not a
member of an affiliated group of corporations (as that term is defined in
Section 1504(a) of the Tax Code, or any analogous combined, consolidated or
unitary group defined under state, local or foreign Tax law) consisting in
whole or in part of the parties to such agreement, and neither Sullivan nor
any of its Subsidiaries has any liability for the Taxes of any other Person
(other than Sullivan and its Subsidiaries) pursuant to Reg. Section 1.1502-
6 under the Tax Code (or any similar provision of state, local or foreign
Tax law) or as a transferee or successor or by contract; and (h) Sullivan
has provided Sinclair with copies of all federal and state income or
franchise tax returns that have been filed with respect to Sullivan or any
of its Subsidiaries since January 4, 1996.
(2) Tax Elections and Special Tax Status. Except as set forth on
--- --------- --- ------- --- ------
the attached Schedule 4P: (a) neither Sullivan nor any of its Subsidiaries
-------- --
is or has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Tax Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Tax Code, and Sinclair is not
required to withhold tax in respect of the Merger Consideration for the
Sullivan Share Equivalents by reason of Section 1445 of the Tax Code; (b)
neither Sullivan nor any of its Subsidiaries has made any election or filed
any consent pursuant to Section 341(f) of the Tax Code relating to
collapsible corporations; (c) neither Sullivan nor any of its Subsidiaries
has entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a
nondeductible expense
34
<PAGE>
to Sullivan or any of its Subsidiaries pursuant to Section 280G of the Tax
Code or an excise tax to the recipient of such payment pursuant to Section
4999 of the Tax Code; and (d) Sullivan has not agreed to make, nor is it
required to make, any adjustment under Section 481(a) of the Tax Code by
reason of a change in accounting method or otherwise.
4.Q Capital Stock. As of the date of this Agreement, Sullivan has
------- -----
authorized capital stock consisting of 90,000,000 shares of capital stock, of
which (a) 25,000,000 shares are designated Class A Common Stock, par value
$0.001 per share, of which no shares are issued and outstanding, (b) 25,000,000
shares are designated Class B-1 Common Stock, par value $0.001 per share, of
which 1,201,577 shares are issued and outstanding, (c) 25,000,000 shares are
designated Class B-2 Common Stock, par value $0.001 per share, of which
6,158,211 shares are issued and outstanding, (d) 5,000,000 shares are designated
Class C Common Stock, par value $0.001 per share, of which 1,021,872 shares are
issued and outstanding, and (e) 10,000,000 shares are designated Preferred
Stock, $0.001 par value per share, of which 1,150,000 shares are issued and
outstanding. All of the issued and outstanding capital stock of Sullivan is
duly authorized and validly issued, fully paid and nonassessable, and there are
no preemptive rights in respect thereof in favor of any Person (other than any
Person which holds Sullivan Share Equivalents). Except for warrants which are
presently exercisable for 2,406,307 shares of Class B-1 Common Stock, there are
no outstanding options, warrants or other rights to subscribe for or purchase
from Sullivan, no contracts or commitments providing for the issuance of, or the
granting of rights to acquire, and no securities convertible into or
exchangeable for, any shares of capital stock or any other ownership interest of
Sullivan.
4.R Books and Records. The minute books of each of Sullivan and its
----- --- -------
Subsidiaries contain records which are complete and accurate in all material
respects of all meetings and other corporate actions of its stockholders, its
board of directors and all committees, if any, appointed by its board of
directors. The books of accounts, ledgers, order books, records and documents
of each of Sullivan and its Subsidiaries, in all material respects, accurately
and completely reflect information relating to its business, the nature,
acquisitions, maintenance and location of its assets and the transactions giving
rise to its obligations and accounts receivable.
4.S Absence of Significant Undisclosed Liabilities. Neither Sullivan
------- -- ----------- ----------- -----------
nor its Subsidiaries has any debt, liability or obligation of any kind, whether
accrued, absolute, contingent or otherwise, including any liability or
obligation on account of Taxes or any governmental charges or penalty, interest
or fines, which would be required to be reflected in Sullivan's consolidated
balance sheet prepared in accordance with GAAP and which would have, or which in
the case of contingent or inchoate liabilities, would have if accrued or
absolute, a material adverse effect on the financial condition of Sullivan and
its Subsidiaries, other than any liability or obligation (a) reflected in any
Financial Statement, (b) identified with particularity in any attached Schedule
or arising since September 30, 1997 under any Contract which is described, or
which is not required to be described, on any attached Schedule, (c) incurred in
the ordinary course of business since September 30, 1997, or (d) incurred in
connection with the transactions contemplated by this Agreement. Each of
Sullivan and Sullivan Broadcasting has filed with the Securities and Exchange
Commission all material documents required by the Securities Act or the
Securities Exchange Act to be filed by it since January 4, 1996 (the "Sullivan
--------
SEC Reports"). Neither Sullivan nor Sullivan Broadcasting has
- - - --- -------
35
<PAGE>
any liability by reason of any Sullivan SEC Report not complying in all material
respects at the time of the filing thereof with the requirements of the
Securities Act, and the rules and regulations thereunder, or the Securities
Exchange Act, and the rules and regulations thereunder, as the case may be, or
containing any untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.T Employee Benefit Plans. Except as set forth on the attached
-------- ------- -----
Schedule 4T, neither Sullivan nor its Subsidiaries maintains or is a party to or
- - - -------- --
makes contributions to any of the following: (a) any "employee pension benefit
plan," (as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974 ("ERISA")); or (b) any "employee welfare benefit
-----
plan" (as such term is defined in Section 3(a) of ERISA), whether written or
oral. All employee benefit plans and other Benefit Arrangements now or formerly
maintained by Sullivan or its Subsidiaries or to which Sullivan or its
Subsidiaries is obligated to contribute, are, and have in the past been, in all
material respects maintained, funded and administered in compliance with ERISA,
and other applicable law. No such employee benefit plan holds any securities
issued by Sullivan. Neither Sullivan nor any of its ERISA Affiliates has ever
sponsored or maintained, had any obligation to sponsor or maintain, or had any
liability (whether actual or contingent, with respect to any of its assets or
otherwise) with respect to any employee pension benefit plan subject to Section
302 of ERISA or Section 412 of the Tax Code or Title IV of ERISA (including any
multiemployer plan). Excluding routine claims for benefits, there are no
pending claims or lawsuits by, against, or relating to any employee benefit
plans or other Benefit Arrangements that would, if successful, result in
liability of Sullivan or any of its Subsidiaries. Neither Sullivan nor any
Subsidiary has maintained or contributed to any plan intended to qualify under
Section 401(a) of the Tax Code since January 4, 1996, other than the Sullivan
Broadcasting Company 401(k) Plan (the "401(k) Plan"). The 401(k) Plan has
always qualified in all material respects in form and operation under Section
401(a) of the Tax Code and has a currently applicable determination letter from
the Internal Revenue Service, and its trust has always been exempt under Section
501 of the Tax Code, and nothing has occurred with respect to such plan and
trust that could cause the loss of such qualification or exemption or the
imposition of any liability, lien, penalty, or tax under ERISA or the Tax Code.
The employee benefit plans and Benefit Arrangements maintained by Sullivan are
not presently under audit or examination (and have not received notice of
potential audit or examination) by any governmental authority, and no matters
are pending with respect to the 401(k) Plan under any governmental compliance
programs. No employee benefit plan or Benefit Arrangement contains any
provision or is subject to any law that would give rise to any vesting of
benefits, severance, termination, or other payments or liabilities as a result
of the transactions this Agreement contemplates, and Sullivan has not declared
or paid any bonus or other incentive compensation or established any severance
plan, program, or arrangement in contemplation of the transactions contemplated
by this Agreement, in each case other than those which have been paid or which
will be included as part of the Current Liabilities. Sullivan has made or has
recorded proper accruals for all required contributions to its employee benefit
plans as of the last day of each plan's most recent fiscal year, and all
benefits accrued under any unfunded Sullivan employee benefit plan or Benefit
Arrangement will have been paid, accrued, or otherwise adequately reserved in
accordance with GAAP. All group health plans of Sullivan and its ERISA
Affiliates have been operated in material compliance with the requirements of
Section 4980B (and its predecessor) and
36
<PAGE>
5000 of the Code. No employee or former employee of Sullivan or its
Subsidiaries, and no beneficiary of any such employee or former employee, is, by
reason of such employee's or former employee's employment by Sullivan or such
ERISA Affiliate, entitled to receive any benefits, including death or medical
benefits (whether or not insured) beyond retirement or other termination of
employment as described in Statement of Financial Accounting Standards No. 106,
other than continuation coverage mandated under Section 4980B of the Tax Code or
comparable state law.
4.U Brokers. There is no broker or finder or other Person who would
-------
have any valid claim against Sullivan, any Subsidiary thereof, or any Acquiring
Party for a commission or brokerage fee in connection with this Agreement or the
transactions contemplated hereby as a result of any agreement or understanding
of or action taken by Sullivan or any of its Affiliates.
4.V Disclosure. To the knowledge of Sullivan, no statement of a
----------
material fact set forth in this Article IV contains any statement of any
material fact which is untrue in any material respect or omits to state a
material fact which is necessary in order to make the statements set forth in
this Article IV not misleading in any material respect.
4.W Environmental. All of the operations of Sullivan and its
-------------
Subsidiaries at or from any Realty comply in all material respects with
applicable Environmental Laws. Neither Sullivan nor its Subsidiaries has engaged
in or permitted any operations or activities upon any of the Realty for the
purpose of or involving the treatment, storage, use, generation, release,
discharge, emission, or disposal of any Hazardous Materials at the Realty,
except in substantial compliance with applicable Environmental Laws. To the
knowledge of Sullivan, there are no conditions existing at the Realty that
require, or which with the giving of notice or the passage of time or both would
likely require remedial or corrective action, removal or closure pursuant to the
Environmental Laws. To the knowledge of Sullivan, Sullivan and its Subsidiaries
have all the material permits, authorizations, licenses, consents and approvals
necessary for the current operation of the Stations and for the operations on,
in or at the Realty which are required under applicable Environmental Laws and
are in substantial compliance with the terms and conditions of all such permits,
authorizations, licenses, consents and approvals.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
SINCLAIR AND THE MERGER SUB
Sinclair and the Merger Sub, jointly and severally, represent and
warrant as follows:
5.A Incorporation. Sinclair is a corporation duly organized, validly
-------------
existing, and in good standing (or has comparable active status) under the laws
of the State of Maryland, and Sinclair has the corporate power and authority to
enter into and consummate the transactions contemplated to be consummated by it
pursuant to this Agreement. From and after the time it is formed, the Merger
Sub will be a corporation duly organized, validly existing, and in good standing
(or has comparable active status) under the laws of the State of Delaware and
will have the corporate
37
<PAGE>
power and authority to enter into and consummate the transactions contemplated
to be consummated by it pursuant to this Agreement.
5.B Corporate Action. Each action necessary to be taken by or on the
--------- ------
part of either Sinclair or the Merger Sub in connection with the execution and
delivery of this Agreement and the consummation of transactions contemplated
hereby to be consummated by it and necessary to make the same effective duly and
validly taken by, and be effective at, the time by which such action is required
to be taken. This Agreement has been duly and validly authorized, executed, and
delivered by each of Sinclair and the Merger Sub and constitutes a valid and
binding agreement, enforceable against each of them in accordance with and
subject to its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, arrangement, moratorium or
similar laws affecting the rights of creditors generally and the availability of
equitable remedies.
5.C No Defaults. Except as set forth on the attached Schedule 4H,
-- -------- -------- --
the requisite approval of the FCC and compliance with the requirements of the
Hart-Scott-Rodino Act, on the Closing Date (after giving effect to all approvals
and consents which have been obtained), neither the execution and delivery by
Sinclair or the Merger Sub of this Agreement, nor the consummation by Sinclair
or the Merger Sub of the Merger and the other transactions contemplated by this
Agreement to be consummated by it, will constitute, or, with the giving of
notice or the passage of time or both, would constitute, a material violation of
or would conflict in any material respect with or result in any material breach
of or any material default under, any of the terms, conditions, or provisions of
any Legal Requirement to which Sinclair or the Merger Sub is subject, or of
Sinclair's or the Merger Sub's certificate of incorporation or by-laws or
similar organizational documents, or of any material contract, agreement, or
instrument to which Sinclair or the Merger Sub is a party or by which Sinclair
or the Merger Sub is bound.
5.D Brokers. There is no broker or finder or other Person who would
-------
have any valid claim against Sullivan (except after the Effective Time) or any
Old Sullivan Stockholder for a commission or brokerage fee in connection with
this Agreement or the transactions contemplated hereby as a result of any
agreement or understanding of or action taken by Sinclair, the Merger Sub or any
Affiliate of any of them.
5.E Litigation. There is no litigation pending by or against, or to
----------
Sinclair's or the Merger Sub's knowledge (after due inquiry) threatened against,
Sinclair or the Merger Sub related to or affecting Sinclair's or the Merger
Sub's ability fully to carry out the transactions contemplated to be consummated
by them pursuant to this Agreement. There are no attachments, executions, or
assignments for the benefit of creditors or voluntary or involuntary proceedings
in bankruptcy contemplated by, or, to Sinclair's or the Merger Sub's knowledge,
threatened or pending against, Sinclair or the Merger Sub.
5.F Sinclair Common Stock. The Sinclair Common Stock, if any, issued
-------- ------ -----
as part of the Merger Consideration will be duly authorized, validly issued,
fully-paid and nonassessable and will, upon issuance and registration under the
Securities Act, be tradeable on the NASDAQ National Market without further
registration under the Securities Act or any other federal or state
38
<PAGE>
securities law. Sinclair has filed with the Securities and Exchange Commission
all material documents required by the Securities Act or the Securities Exchange
Act to be filed by it since January 1, 1996 (the "Sinclair SEC Reports"). As of
-------- --- -------
their respective filing dates, the Sinclair SEC Reports complied in all material
respects with the requirements of the Securities Act, and the rules and
regulations thereunder, or the Securities Exchange Act, and the rules and
regulations thereunder, as the case may be, and at the time filed with the SEC
none of the SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Parties acknowledge that no representation or
warranty will be deemed to be made pursuant to this Section 5.F if no Sinclair
Common Stock is issued as part of the Merger Consideration.
5.G Disclosure. To Sinclair's and the Merger Sub's knowledge, no
----------
statement of a material fact set forth in this Article V contains a statement of
any material fact which is untrue in any material respect or omits to state a
material fact which is necessary in order to make the statements set forth in
this Article V not misleading in any material respect.
ARTICLE VI
APPLICATIONS FOR REQUIRED FCC CONSENT
6.A For Spin-Offs. On or prior to March 2, 1998, Sullivan will, and
--- ---------
will cause its Subsidiaries to, complete the portions of the applications for
the Required FCC Consents and will file such applications with the FCC.
Sullivan will, and will cause its Subsidiaries to, diligently take or cooperate
in the taking of all steps which are reasonably within its ability to take and
which are necessary, proper, or desirable to expedite the prosecution of such
applications and to cause the Required FCC Consents expeditiously to be Granted
and expeditiously to become Final Orders, and will refrain from making any
filing or announcement or taking (or causing or assisting any other Person to
take) any other action which reasonably could be expected to delay in any
respect such Required FCC Consents being Granted or becoming Final Orders
without Sinclair's prior written consent. Sullivan will promptly provide
Sinclair with a copy of any pleading, order, or other document served on
Sullivan or any of its Subsidiaries relating to such applications (other than
any of the same which is addressed to or states that it is to be served upon or
delivered to Sinclair or its communications counsel).
ARTICLE VII
COVENANTS OF SULLIVAN
7.A Maintenance of Business until the Closing.
----------- -- -------- ----- --- -------
(1) Operation in Ordinary Course. Until the Closing, Sullivan
--------- -- -------- ------
will, and will cause its Subsidiaries to, (a) with respect to the Station
Assets, continue to carry on
39
<PAGE>
the business and operations of the Stations, keep the books of account,
records, and files of Sullivan and its Subsidiaries, realize upon the
accounts receivable of Sullivan and its Subsidiaries, and satisfy their
accounts payable, all of which will be carried on by Sullivan and its
Subsidiaries in the ordinary and usual course, in a manner which is
consistent with their respective past practices, (b) without limiting the
generality of the foregoing, not utilize Sullivan's and its Subsidiaries'
rights under any Program Contract in a manner which will render exhibitions
of programming thereunder unavailable to Post-Merger Sullivan and its
Subsidiaries after the Adjustment Time, except in accordance with their
past practices, (c) promptly execute and timely file any applications
reasonably required for renewal of the FCC Authorizations, (d) timely file
(taking into account any extensions of which Sullivan or any of its
Subsidiaries may avail itself) true, correct and complete federal, state,
local and foreign tax returns and tax reports required to be filed by
Sullivan or any of its Subsidiaries, (e) fully pay all federal, state,
local and foreign income, profits, franchise, sales, use, occupation,
property, excise and other taxes (including interest and penalties) due and
payable by Sullivan and its Subsidiaries, and (f) sell advertising time on
the Stations only in the ordinary and usual course in a manner consistent
with their respective past practices, and (g) to the extent necessary to
the conduct of its business, use reasonable efforts to (i) perform its
obligations under all Station Contracts to which it is a party, (ii)
preserve the Station Assets held by it, and (iii) maintain in full force
and effect the FCC Authorizations.
(2) Maintenance of Insurance. Sullivan will, and will cause its
----------- -- ---------
Subsidiaries to, maintain in full force and effect through the Closing
property damage insurance with respect to the Station Assets which is not
materially less comprehensive, and in amounts which are not materially less
than, the insurance coverage described on the attached Schedule 4I,
including timely paying the premiums associated therewith.
(3) Additional Program Contracts. Until the Closing, Sullivan
---------- ------- ---------
may, and may cause or permit its Subsidiaries to, enter into any Program
Contract, or effect any such amendment, termination or modification, which
is material only with the prior consent of Sinclair, which consent may be
withheld in Sinclair's sole discretion and will be deemed given if not
denied by written notice by Sinclair to Sullivan within five (5) Business
Days after it is requested in writing; provided that such notice and
--------
consent will not be required as to the entry into any such Program
Contracts so long as (x) the aggregate amount of the cash payment
obligations under such Program Contracts as to which such consent is not
given and not deemed given does not exceed $50,000 for any Station, and (y)
if Sullivan or any of its Subsidiaries is required to provide advertising
time in consideration for the use of any programming covered by such
Program Contract, then the term during which such advertising time may be
required to be provided commences prior to May 31, 1999 and does not exceed
one (1) year in duration.
(4) Other Contracts. From the date of this Agreement to and
----- ---------
including the Closing, Sullivan will be entitled to, and will be entitled
to cause or permit its Subsidiaries to, renew or extend the term of any
Time Sale Contract or any other Contract which, by its terms, has expired
at the time of such renewal or extension or which would expire prior to the
sixtieth day after the effective date of such renewal or extension, and, in
40
<PAGE>
connection therewith, to agree to increase the amounts payable or other
obligations thereunder during any such renewal or extended term in
accordance with Sullivan's and its Subsidiaries' past practice in the
operation of the Stations, and to enter into any new Contract (other than a
Program Contract or except as prohibited by Section 7.A(5)) in the ordinary
course of its business or which is reasonably required in order to enable
it to comply with its obligations under this Agreement
(5) Restrictions. Prior to the Closing, except (i) as otherwise
------------
permitted by Section 7.A(3) or 7.A(4), (ii) as required as part of a Spin-
Off, (iii) the transfer of the Headquarters Assets to ABRY Partners or an
Affiliate thereof for value and/or to one or more of the Corporate
Personnel as compensation, or (iv) as disclosed on the attached Schedule
4F, Sullivan will not, and will not cause or permit any of its Subsidiaries
to, without the prior written consent of Sinclair (to the extent the
following restrictions are permitted by the FCC and all other applicable
Legal Requirements):
(a) other than in the ordinary course of business, sell,
lease (as lessor), transfer, or agree to sell, lease (as lessor), or
transfer, or agree to sell, lease (as lessor) or transfer, any Station
Assets
(x) which are required for the operation of any
Station, or
(y) which have individually or in the aggregate
(together with all other Station Assets transferred by Sullivan
or any of its Subsidiaries since the date of this Agreement other
than in the ordinary course of business and not replaced with
functionally equivalent or superior assets of substantially equal
or greater value) a replacement cost in excess of $130,000 (it
being understood that sales, leases and/or transfers of Station
Assets described in this clause (y) and having an aggregate
replacement cost of $130,000 or less ("Designated Sales") will
---------- -----
not be prohibited by this Agreement)
without replacement thereof with a functionally equivalent or superior
asset of substantially equal or greater value;
(b) enter into any contract of employment (other than (x)
any contract for employment at the will of the employer, (y) any
contract for employment entered into in the ordinary course of
business and providing for consideration payable upon or after
termination which is consistent with that payable under employment
contracts for present or former employees of Sullivan and its
Subsidiaries having similar seniority or responsibilities, or (z) any
contract or Benefit Arrangement not described in clause (y) with
respect to the employment of any Person whose employment will be
terminated at the time of the Closing, it being understood that the
costs of severance and other payments to be made under any contract or
Benefit Arrangement described in this clause (z) in connection with or
after such termination will be reflected in the Current Liabilities)
or collective
41
<PAGE>
bargaining agreement which will be binding on Post-Merger Sullivan
after the Merger, or permit any increases in the compensation of the
employees of Sullivan or any of its Subsidiaries with respect to the
Stations (but excluding the Corporate Personnel), in each case except
to the extent consistent with Sullivan's and its Subsidiaries' past
practices; provided that Sullivan and its Subsidiaries may pay bonuses
--------
to any of their employees, grant raises in salary and wages which do
not represent, in the aggregate, an increase in the employees'
aggregate annualized base compensation of more than 4% of the
employees' present annualized base compensation, and enter into any
employment agreement with on-air talent under which the annual salary
payable does not exceed $50,000 during any twelve-month period;
(c) enter into any new Trade arrangement which will
involves the furnishing of advertising time in exchange for services
or merchandise after the Adjustment Time on any Station, other than
any Trade arrangement which (i) does not involve goods and services
having an aggregate fair value in excess of $25,000, (ii) together
with all other Trade arrangements for such Station entered into after
the date of this Agreement by Sullivan and its Subsidiaries does not
involve goods and services having an aggregate fair value in excess of
$50,000, and (iii) does not have a duration in excess of twelve months
(it being understood that Sullivan and its Subsidiaries may perform
their obligations and exercise their rights under such Trade
arrangements and all Trade arrangements in effect on the date of this
Agreement);
(d) apply to the FCC for any construction permit that would
materially restrict any Station's present operations or make any
material adverse change in the buildings or leasehold improvements
which constitute Station Assets;
(e) merge or consolidate, or agree to merge or consolidate,
with or into any other Person, other than Sullivan or a Subsidiary of
Sullivan;
(f) enter into any Contract with any of its Affiliates
(other than Sullivan or any of its Subsidiaries) which will not be
performed in its entirety or by its terms terminate at or prior to the
time of the Closing;
(g) cause any of its assets or properties to become subject
to any Lien, other than any Permitted Encumbrance;
(h) commit any material breach of any Contract which is
described on the attached Schedule 4J or any material Contract entered
into by it after the date of this Agreement; or
(i) change any material tax election, or make any material
change in accounting practice or policy, if such change could
reasonably be expected to have an adverse effect on Post-Merger
Sullivan, except to the extent required by any Legal Requirement, any
Contract or GAAP.
42
<PAGE>
(6) Efforts to Pursue Certain Remedies. Without limiting the
------- -- ------ ------- --------
foregoing, prior to the Closing, Sullivan will (and will cause its
Subsidiaries to), use reasonable efforts to assert and prosecute any
claims, and resolve any unresolved claims, for indemnity or other payment
which they may have pursuant to the Act III Purchase Agreement and, upon
request, will keep Sinclair reasonably informed of the status of any such
claim.
7.B Organization/Goodwill. Prior to the Closing, Sullivan will, and
---------------------
will cause its Subsidiaries to, use reasonable efforts to preserve the business
organization of the Stations and preserve the goodwill of the Stations'
suppliers, customers, and others having business relations with Sullivan and its
Subsidiaries. This Section 7.B will not apply to the Corporate Personnel or any
Non-Continuing Station Manager, with respect to continued service by them after
the Closing (it being understood that the Corporate Personnel intend to resign
their respective positions with Sullivan and its Subsidiaries effective as of
the Effective Time).
7.C Reports; Access to Facilities, Files, and Records.
-------- ------ -- ----------- ------ --- -------
(1) Interim Reports. On or prior to March __, 1998, Sullivan
---------------
will provide to Sinclair copies of the audited consolidated balance sheet
of Sullivan and its Subsidiaries as of December 31, 1997 and the related
audited statements of income and cash flows for the twelve-month period
then ended (the "12/31/97 Financial Statements)". In addition, prior to the
-------- --------- ----------
Closing, Sullivan will provide to Sinclair (x) within twenty (20) days
after the end of each calendar month, (i) an income statement for such
month, substantially in the form in which Sullivan and its Subsidiaries
have prepared such statements for internal purposes prior to the date of
this Agreement, and (ii) in the case of the months of March, April, May,
June, July and August 1998, a report setting forth in reasonable detail
Sullivan's good faith determination of the Trailing Cash Flow and the Gross
Revenues, each determined as if the last day of the applicable month were
the Measurement Date (the "Cash Flow Report" for such month), and (z) on or
---- ---- ------
prior to the Wednesday of each week, a pacing report for the prior week,
substantially in the form furnished to Sinclair by Sullivan prior to the
date of this Agreement. The statements and reports described in the
preceding sentence will be prepared in good faith consistent with past
practices but will be furnished to the Acquiring Parties without
representation or warranty as to their contents or otherwise.
(2) Access Generally. From time to time at the request of any
------ ---------
Acquiring Party, Sullivan will give or cause to be given to the officers,
employees, accountants, counsel, and representatives of each Acquiring
Party
(a) access (in the presence of any representative
designated by Sullivan, at Sullivan's option), upon reasonable prior
notice, during normal business hours, to all facilities, property,
accounts, books, deeds, title papers, insurance policies, licenses,
agreements, contracts, commitments, records, equipment, machinery,
fixtures, furniture, vehicles, accounts payable and receivable, and
inventories of Sullivan and its Subsidiaries (but, in any event, not
personnel, unless Sullivan otherwise consents) related to the
Stations, including for purposes of
43
<PAGE>
permitting the Acquiring Parties to perform "Phase One" (and, after
consulting with Sullivan as to the scope thereof, "Phase Two")
environmental surveys with respect to the Station Assets,
(b) Sullivan will use its commercially reasonable efforts
to obtain the consent of its auditors to permit inclusion of the
Financial Statements in applicable securities filings of Sinclair and,
if Sinclair requests, it shall have the right to have the access
provided by Section 7.C(2)(a) to conduct an audit of each Station's
financial information, and, subject to the foregoing, Sullivan shall
cooperate with Sinclair's reasonable requests in connection with such
audit, including giving all reasonable consents in connection
therewith; and
(c) all such other information in Sullivan's and its
Subsidiaries' possession concerning the affairs of the Stations as
such Acquiring Party may reasonably request,
in each case at the Acquiring Parties' expense; provided that the foregoing
--------
does not disrupt or interfere with the business and operations of Sullivan,
its Subsidiaries or any Station in any material respect ("materiality," for
purposes of this proviso, being determined by reference to Sullivan, each
of its Subsidiaries and each Station individually, and not taken as a
whole).
7.D Hart-Scott-Rodino Matters. As soon as practicable, but in any
----------------- -------
event not later than March 20, 1998, Sullivan will complete all documents
required to be filed with the Federal Trade Commission (the "FTC") and the
---
United States Department of Justice (the "DOJ") with respect to itself and/or
---
its Affiliate(s) and concerning the Merger in order to comply with the Hart-
Scott-Rodino Act and together with Sinclair and/or the appropriate Affiliate(s)
of Sinclair who are required to join in such filings, will file the same with
the FTC and the DOJ. Sullivan will reimburse Sinclair for one-half of the
filing fees associated with all such filings. Sullivan will promptly furnish
all materials thereafter required by the FTC, the DOJ or any other governmental
entity having jurisdiction over such filings, and will take all reasonable
actions and will file and use reasonable efforts to have declared effective or
approved all documents and notifications with any such governmental entity, as
may be required under the Hart-Scott-Rodino Act or other federal antitrust laws
for the consummation of the Merger.
7.E Consents. Except as provided in Sections 6.A and 7.D, it is
--------
agreed that (1) as between Sullivan and the Acquiring Parties, it will be the
sole responsibility of the Acquiring Parties to timely obtain all Acquiring
Party Consents, including with respect to the Stations' network affiliations and
Program Contracts and with respect to the Sullivan Indentures, (2) so long as
Sullivan complies with its obligations pursuant to the following sentence and
Sections 6.A and 7.D, Sullivan, the Old Sullivan Stockholders and the
Stockholder Representative will not be liable to any Person for any failure to
obtain or other absence of any effective Acquiring Party Consent, and (3) except
as provided in Sections 10.C and 10.D, the absence of any effective Consent will
not excuse any Acquiring Party from consummating the Merger. Sullivan will send
notices requesting all Consents required under Program Contracts, and will use
reasonable efforts (without being
44
<PAGE>
required to make any payment not specifically required by the terms of any
licenses, leases, and other contracts), including executing any related
agreement or undertaking which does not take effect until the Effective Time, to
obtain the Sullivan Consents and to assist the Acquiring Parties (at the
Acquiring Parties' request and expense) to (a) timely obtain prior all Acquiring
Party Consents or, in the absence of any Acquiring Party Consent (where
applicable), one or more replacement agreements, and (b) cause each Consent or
replacement agreement to become effective as of the time of the Sullivan Two
Spin-Off, the time of Sullivan Three Spin-Off or the Effective Time as
applicable.
7.F Notice of Proceedings. Prior to the Closing, Sullivan will
------ -- -----------
promptly notify Sinclair in writing upon becoming aware of any order or decree
or any complaint praying for an order or decree restraining or enjoining the
consummation of either Spin-Off, the Merger or any other transaction
contemplated by this Agreement, or upon receiving any notice from any
governmental department, court, agency, or commission of its intention to
institute an investigation into or institute a suit or proceeding to restrain or
enjoin the consummation of either Spin-Off, the Merger or any such other
transaction, or to nullify or render ineffective this Agreement, either Spin-
Off, the Merger or any such other transaction if consummated.
7.G Confidential Information. If for any reason the transactions
------------ -----------
contemplated in this Agreement are not consummated, Sullivan will not use or
disclose to any Person (except to its agents, representatives and advisors, to
its lenders and security holders and their respective agents, representatives
and advisors, or as may be required by any Legal Requirement) any confidential
information received from any Acquiring Party or any of their respective agents,
representatives and advisors (each a "disclosing party" for purposes of this
Section 7.G) in the course of investigating, negotiating, and completing the
transactions contemplated by this Agreement. Nothing will be deemed to be
confidential information for purposes of this Section 7.G that: (a) is or was
known to any Sullivan-Related Entity at the time of its initial disclosure by a
disclosing party to any Sullivan-Related Entity; (b) has become or becomes
publicly known or available other than through disclosure by any Sullivan-
Related Entity; (c) is or was rightfully received by any Sullivan-Related Entity
from any Person unrelated to any Sullivan-Related Entity (other than any Person
engaged by any Sullivan-Related Entity in connection with the transactions
contemplated by this Agreement); or (d) is or was independently developed by any
Sullivan-Related Entity.
7.H Efforts to Consummate. Subject to the provisions of Article IX
------- -- ----------
and Section 12.A, Sullivan will use reasonable efforts to fulfill and perform
all conditions and obligations on its part to be fulfilled and performed under
this Agreement and to cause the conditions set forth in Articles IX and X to be
fulfilled and cause the Spin-Offs, the Merger and the other transactions
contemplated by this Agreement in connection with the Merger to be fully carried
out. Without limiting the foregoing, Sullivan will use, and will cause its
Subsidiaries to use, reasonable efforts to consummate the Merger in a manner to
avoid the increase in the Cash Flow Multiplier caused by any delay in the
Closing and the increase in the element of the Adjustment Amount described in
Section 3.D(1)(b). In addition, promptly after Sullivan becomes aware prior to
the Closing of a breach of any fact or circumstance which constitutes or would
constitute a breach of any other Party's representation or warranty set forth in
this Agreement, Sullivan will give such Party notice thereof so that such Party
may attempt to cure the same.
45
<PAGE>
7.I Notice of Certain Developments. Sullivan will give prompt
------ -- ------- ------------
written notice to Sinclair if, prior to the Closing: (1) Sullivan or any of its
Subsidiaries receives a National Labor Relations Board union election petition
relating to employees of any Station, (2) Sullivan or any of its Subsidiaries
receives notice from any Market Cable System currently carrying a Station's
signal of such Market Cable System's intention to delete such Station from
carriage or change such Station's channel position on such Market Cable System,
or (3) Sullivan becomes aware of any breach of any representation or warranty of
Sullivan set forth in Article IV.
7.J Updated Information. Sullivan agrees to provide to Sinclair and
------- -----------
the Merger Sub at or prior to the Closing, for informational purposes only,
copies of all Contracts in existence at the time of the Closing which would have
been required to be described on the attached Schedule 4J if such Contracts had
existed on the date of this Agreement and which are not so disclosed.
7.K Non-Solicitation. From the date of this Agreement until the
----------------
Closing or the earlier termination of this Agreement, each of ABRY Partners and
Sullivan will not, and each of them will not cause (and will use reasonable
efforts not to permit) any of its Subsidiaries, affiliates, directors, officers,
employees, representatives or agents to, directly or indirectly solicit, or
initiate, entertain or enter into any discussions or transactions with, or
encourage or provide any information to, any Person (other than any Person
described in Section 7.C(2)), concerning any sale of any of the assets of
Sullivan or its Subsidiaries (other than any sale which is not prohibited by
Section 7.A(5)) or any merger, stock acquisition or similar transaction
involving Sullivan or its Subsidiaries (other than an issuance of capital stock
or capital stock equivalents by Sullivan and the Spin-Offs); provided that
--------
nothing in this Section 7.K will prohibit ABRY Partners or Sullivan from
furnishing, or causing or permitting any other Person to furnish, information
concerning Sullivan or its Subsidiaries to any governmental authority or court
of competent jurisdiction or any other Person as may be required by any Legal
Requirement.
7.L Interruption of Broadcast Transmission.
------------ -- --------- ------------
(1) Notice of Loss or Damage. In the event of any loss, damage,
------ -- ---- -- ------
impairment, confiscation or condemnation of any of the Station Assets prior
to the Approval Date that interferes with the normal operations of the
Stations, Sullivan will notify Sinclair of the same in writing promptly
after Sullivan becomes aware thereof, specifying with reasonable
particularity the loss, damage or impairment, confiscation or condemnation
incurred, the cause thereof, if known or reasonably ascertainable, and any
applicable insurance coverage. To the extent thereof, Sullivan will apply
the proceeds of any insurance policy, judgment or award with respect
thereto as necessary to repair, replace or restore such Station Assets to
their prior condition as soon as practicable after such loss, damage,
impairment, confiscation or condemnation.
(2) Interruption of Transmission. If before the Approval Date,
------------ -- ------------
due to damage or destruction of the assets of any Station, the regular
broadcast transmission of one (1) or more of the Stations in the normal and
usual manner is interrupted for a period of twelve (12) continuous hours or
more, Sullivan will give prompt written notice thereof to
46
<PAGE>
Sinclair. If prior to the Approval Date, due to damage or destruction of
the assets of one (1) or more of the Stations, the regular broadcast
transmission of one (1) or more Stations in the normal and usual manner is
interrupted such that the regular broadcast signal of any such Station
(including its effective radiated power) is diminished in any material
respect, then (i) Sullivan will give written notice to Sinclair promptly
after Sullivan becomes aware thereof, and (ii) Sinclair shall have the
right, by giving prompt written notice to Sullivan to postpone the Closing
for a period up to sixty (60) days.
(3) Failure to Resume Transmission. In the event any one (1) or
------- -- ------ ------------
more Stations' normal and usual transmission has not been substantially
resumed by the date scheduled for the Closing, as postponed pursuant to
Section 7.L(2) above, Sinclair may, pursuant to Section 12.A(2)(c),
terminate this Agreement by written notice to Sullivan. Notwithstanding
the foregoing, however, Sinclair may, at its option, proceed to complete
the Merger and complete the restoration and replacement of any damaged
assets of the Station in question after the Closing Date, in which event:
(a) all insurance or other proceeds received in connection therewith, to
the extent such proceeds are received by Sullivan and have not therefore
been used in the restoration or replacement of such assets, will be
excluded from the Current Assets, and (b) the lesser of $5,000,000 and the
excess (if any) of the reasonable cost to complete such restoration or
replacement over the amount of such proceeds will be included in the
computation of the Current Liabilities (the exclusion of such proceeds and
the inclusion of such cost being in lieu and to the exclusion of any remedy
pursuant to the Indemnity Agreement in respect of the failure of such
restoration or replacement to be completed).
(4) Interruption Notice/Termination. If before the Approval
------------ ------------------
Date, due to damage or destruction of the Station Assets, the regular
broadcast transmission of any Station in the normal and usual manner is
interrupted for a period of seven (7) continuous days or more, Sullivan
shall give prompt written notice thereof (the "Interruption Notice") to
------------ ------
Sinclair. During the two (2) Business Days after the receipt of the
Interruption Notice, Sinclair shall have the right, in its sole and
absolute discretion, by giving written notice thereof to Sullivan to
terminate this Agreement pursuant to Section 12.A(2)(c).
7.M No Premature Assumption of Control. Nothing contained in this
-- --------- ---------- -- -------
Agreement will give any Acquiring Party any right to control the programming,
operations, or any other matter relating to the Stations, and the respective
licensees thereof, will have complete control of the programming, operations,
and all other matters relating to the Stations (it being agreed that in any
event Sinclair will have the right to withhold its Consent to any Program
Contract to the extent provided in Section 7.A(3), if not deemed granted as
provided therein).
ARTICLE VIII
COVENANTS OF SINCLAIR AND THE MERGER SUB
8.A Hart-Scott-Rodino Matters. On or prior to March 20, 1998,
----------------- -------
Sinclair will
47
<PAGE>
complete all documents required to be filed with the FTC and the DOJ with
respect to itself and/or its Affiliate(s) and concerning the Merger in order to
comply with the Hart-Scott-Rodino Act and together with Sullivan and/or the
appropriate Affiliate(s) of Sullivan who are required to join in such filings,
will file the same with the FTC and the DOJ. Sinclair will pay the filing fees
associated with all such filings (subject to partial reimbursement by Sullivan
as provided in Section 7.D). Sinclair and the Merger Sub will promptly furnish
all materials thereafter required by the FTC, the DOJ or any other governmental
entity having jurisdiction over such filings, and will take all reasonable
actions and will file and use reasonable efforts to have declared effective or
approved all documents and notifications with any such governmental entity, as
may be required under the Hart-Scott-Rodino Act or other federal antitrust laws
for the consummation of the Merger.
8.B Confidential Information. If for any reason the transactions
------------ -----------
contemplated in this Agreement are not consummated, each of Sinclair and the
Merger Sub will not use or disclose to any Person (except to its agents,
representatives and advisors, to its lenders and their respective agents,
representatives and advisors, or as may be required by any Legal Requirement)
any confidential information received from Sullivan, any of its Subsidiaries,
Sullivan Two or Sullivan Three or any of their respective agents,
representatives and advisors (each a "disclosing party" for purposes of this
Section 8.B) in the course of investigating, negotiating, and completing the
transactions contemplated by this Agreement. Nothing will be deemed to be
confidential information for purposes of this Section 8.B that: (a) is or was
known to any Sinclair-Related Entity at the time of its initial disclosure by a
disclosing party to any Sinclair-Related Entity; (b) has become or becomes
publicly known or available other than through disclosure by any Sinclair-
Related Entity; (c) is or was rightfully received by any Sinclair-Related Entity
from any Person unrelated to any Sinclair-Related Entity (other than any Person
engaged by any Sinclair-Related Entity in connection with the transactions
contemplated by this Agreement); or (d) is or was independently developed by any
Sinclair-Related Entity. In addition, the Merger Sub agrees to be bound by the
same obligations as Sinclair is bound pursuant to the confidentiality agreement
dated as of November 20, 1997 between Sinclair and Sullivan Broadcasting, which
confidentiality agreement will survive the execution and delivery of this
Agreement and will survive the execution and termination of this Agreement, and
no provision of this Section 8.B will be deemed to supersede or in any way limit
any obligation or right under such confidentiality agreement.
8.C Efforts to Consummate. Subject to the provisions of Article X
------- -- ----------
and Section 12.A, each of Sinclair and the Merger Sub will use reasonable
efforts to fulfill and perform all conditions and obligations on its part to be
fulfilled and performed under this Agreement and to cause the conditions set
forth in Articles IX and X to be fulfilled and cause each Spin-Off, the Merger
and the transactions contemplated by this Agreement in connection with the
Merger to be fully carried out. In addition, promptly after Sinclair or the
Merger Sub becomes aware prior to the Closing of a breach of any fact or
circumstance which constitutes or would constitute a breach of any
representation or warranty of Sullivan set forth in this Agreement, Sinclair
will give Sullivan notice thereof so that Sullivan may attempt to cure the same.
8.D Notice of Proceedings. Each of Sinclair and the Merger Sub will
------ -- -----------
promptly notify Sullivan (prior to the Closing) or the Stockholder
Representative (after the Closing) in writing upon becoming aware of any order
or decree or any complaint praying for an order or decree
48
<PAGE>
restraining or enjoining the consummation of either Spin-Off, the Merger or any
other transaction contemplated by this Agreement, or upon receiving any notice
from any governmental department, court, agency, or commission of its intention
to institute an investigation into or institute a suit or proceeding to restrain
or enjoin the consummation of either Spin-Off, the Merger or any such other
transaction, or to nullify or render ineffective this Agreement, either Spin-
Off, the Merger or any such other transaction, if consummated. Sinclair will
give the Stockholder Representative prompt written notice if any Acquiring Party
becomes aware of any breach of any representation or warranty of any Acquiring
Party set forth in Article V.
8.E Continued Employment.
--------- ----------
(1) Generally. Except as provided in Section 8.E(2), the Merger
---------
Sub, in its capacity as Post-Merger Sullivan after the Effective Time,
agrees to employ after the Closing, directly or indirectly through one or
more of its Subsidiaries, all of those Persons who are common law employees
of Sullivan and its Subsidiaries at the time of the Closing at the same
rates of base pay and the other terms and conditions applicable to such
employment at such time, and Sinclair and the Merger Sub agree to indemnify
and hold harmless the Old Sullivan Stockholders, the Stockholder
Representative and the present and former officers, directors, employees
and agents of each of the Old Sullivan Stockholders, the Stockholder
Representative, Sullivan and their respective Subsidiaries in respect of
any loss, liability, cost, damage, claim or expense which may be incurred
by or asserted against any of them arising out of or relating to any
failure or refusal to so employ any such Person (including any change in
any term or condition of such employment), or the termination of the
employment of any such Person, at or after the Closing. Without limiting
the foregoing indemnity, it is acknowledged that except as provided in any
agreement referred to on the attached Schedule 4J, such employees will
continue to be at-will employees, and the respective employers may
terminate their employment or change their terms of employment at will,
and/or Post-Merger Sullivan or its Subsidiaries may cover such employees
under existing or new benefit plans, programs, and arrangements, and may
amend or terminate the terms of any such plans, programs, or arrangements
at any time (in each case, without reducing the indemnity obligation set
forth in the preceding sentence). No employee or beneficiary of Post-
Merger Sullivan or its Subsidiaries may sue to enforce the terms of this
Agreement, including specifically this Section 8.E, and no such employee or
beneficiary shall be treated as a third party beneficiary of this
Agreement.
(2) Excluded Employees. The provisions of Section 8.E(1) will
-------- ---------
not apply to the Corporate Personnel, the Non-Continuing Station Managers
or any Person employed by Sullivan or any of its Subsidiaries pursuant to
an agreement of a type described in clause (z) of Section 7.A(5)(b).
Sullivan will cause the employment of each Non-Continuing Manager and the
Corporate Personnel to be terminated, effective as of the time of the
Closing. The liabilities of Sullivan and its Subsidiaries for amounts
required to be paid in connection with or after the termination of any such
excluded Person whose employment is terminated prior to or at the time of
the Closing will be reflected in the computation of the Current
Liabilities.
49
<PAGE>
8.F Section 338 Election. Without the Stockholder Representative's
------- --- --------
prior written consent, Sinclair will not, and will not cause or permit any of
its Subsidiaries to, make an election under Section 338 of the Tax Code, or
under any analogous provision of any other Legal Requirements relating to Taxes,
with respect to the Merger.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF SULLIVANAT THE CLOSING
The obligation of Sullivan to consummate the Merger is, at Sullivan's
option, subject to the fulfillment of the following conditions at the time of
the Closing (Sullivan expressly acknowledging that the effectiveness of the
Sullivan Consents is not a condition to such obligation):
9.A Representations, Warranties, Covenants.
---------------- ----------- ---------
(1) Each of the representations and warranties of the Acquiring
Parties set forth in Article V, considered without regard to any
materiality qualifiers contained therein, will be deemed to be made again
at and as of the time of the Closing (other than any such representation or
warranty which is expressly made with reference to a time prior to the time
of the Closing, which will be deemed remade as of such time only), and
taken as a whole such representations and warranties, as so remade, will
have been true and accurate in all material respects, except to the extent
of deviations therefrom permitted or contemplated by this Agreement; and
(2) each Acquiring Party will in all material respects have
performed and complied with the covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the time of
the Closing, taken as a whole (other than the delivery of the Merger
Consideration for the Sullivan Share Equivalents, which the Merger Sub will
have established to Sullivan's reasonable satisfaction that it is prepared
to deliver).
9.B Proceedings.
-----------
(1) No action or proceeding will have been instituted and be
pending before any court or governmental body to restrain or prohibit, or
to obtain a material amount of damages in respect of, the consummation of
the transactions contemplated by this Agreement that, in the reasonable
opinion of Sullivan, may reasonably be expected to result in a preliminary
or permanent injunction against such consummation or, if the transactions
contemplated hereby were consummated, an order to nullify or render
ineffective this Agreement or such transactions or for the recovery against
any Sullivan-Related Entity or any officer, director or stockholder of any
Sullivan-Related Entity of a material amount of damages; and
(2) no Party will have received written notice from any
governmental body of (a) such governmental body's intention to institute
any action or proceeding to
50
<PAGE>
restrain or enjoin or nullify this Agreement or the transactions
contemplated hereby, or to commence any investigation (other than a routine
letter of inquiry, including, without limitation, a routine Civil
Investigative Demand) into the consummation of the transactions
contemplated by this Agreement, or (b) the actual commencement of such an
investigation, in each case unless the same has been withdrawn, resolved,
concluded or abandoned.
9.C Hart-Scott-Rodino. The requisite waiting period under the Hart-
-----------------
Scott-Rodino Act for the consummation of the Merger will have expired or been
terminated.
9.D Spin-Offs. The Required FCC Consent for each Spin-Off will have
---------
been Granted and be in full force and effect and all Acquiring Party Consents
for the Spin-Offs will have been obtained and be in full force and effect;
provided that the Grant and effectiveness of such Required FCC Consent and the
- - - --------
effectiveness of such Acquiring Party Consents will not be conditions to
Sullivan's obligation to consummate the Merger so long as any Sullivan Consent
for the Spin-Offs is not in effect.
9.E Sufficient Funds to Satisfy Obligations. Sullivan will have
---------------------------------------
received evidence which is reasonably satisfactory to Sullivan to the effect
that the Merger Sub and Post-Merger Sullivan and/or its Subsidiaries have or
will have the funds described in Section 11.E.
9.F Sinclair Common Stock. If the Merger Sub has elected to pay part
---------------------
of the Merger Consideration for the Sullivan Share Equivalents in the form of
shares of Sinclair Common Stock as provided in Section 3.A(3), then Sinclair
will have taken such actions as may be required, or are reasonably requested by
the Stockholder Representative, in order that the Sinclair Common Stock be
registered and tradeable as described in Section 3.C(3), including any
registration, notice of issuance or other action or notice to or by NASDAQ,
Nasdaq National Market or any relevant securities exchange in order that such
shares of Sinclair Common Stock be tradeable thereon.
9.G Other. The Merger Sub will have delivered, or will stand ready
-----
to deliver, to Sullivan such instruments, documents, and certificates as are
contemplated by Section 3.I(3).
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF
THE MERGER SUB AT THE CLOSING
The obligations of the Merger Sub to pay the Merger Consideration for
the Sullivan Share Equivalents and consummate the Merger on the Closing Date
are, at the Merger Sub's option, subject to the fulfillment of the following
conditions at the time of the Closing (Sinclair and the Merger Sub expressly
acknowledging that neither the availability to the Merger Sub of funds
sufficient to pay such Merger Consideration and to fulfill the obligations under
Section 11.E, nor the effectiveness of the Acquiring Party Consents, is a
condition to such obligations):
51
<PAGE>
10.A Representations, Warranties, Covenants.
--------------------------------------
(1) Each of the representations and warranties of Sullivan and
set forth in Article IV (other than any representation or warranty which
speaks as of a time after the Closing), considered without regard to any
materiality qualifiers contained therein, will be deemed to be made again
at and as of the time of the Closing (other than any such representation or
warranty which is expressly made with reference to a time prior to the time
of the Closing, which will be deemed remade as of such time only), and
taken as a whole such representations and warranties, as so remade, will
have been true and accurate, except to the extent of deviations therefrom
which are permitted or contemplated by this Agreement or which, in the
aggregate, do not constitute and have not caused a Material Adverse Change;
and
(2) Sullivan will in all material respects have performed and
complied with the covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the time of the Closing,
taken as a whole.
10.B Proceedings.
-----------
(1) No action or proceeding will have been instituted and be
pending before any court or governmental body to restrain or prohibit, or
to obtain a material amount of damages in respect of, the consummation of
the transactions contemplated by this Agreement that, in the reasonable
opinion of Sinclair, may reasonably be expected to result in a preliminary
or permanent injunction against such consummation or, if the transactions
contemplated hereby were consummated, an order to nullify or render
ineffective this Agreement or such transactions or for the recovery against
any Sinclair-Related Entity or any officer, director or stockholder of any
Sinclair-Related Entity of a material amount of damages; and
(2) no Party will have received written notice from any
governmental body of (a) such governmental body's intention to institute
any action or proceeding to restrain or enjoin or nullify this Agreement or
the transactions contemplated hereby, or to commence any investigation
(other than a routine letter of inquiry, including, without limitation, a
routine Civil Investigative Demand) into the consummation of the
transactions contemplated by this Agreement, or (b) the actual commencement
of such an investigation, in each case unless the same has been withdrawn,
resolved, concluded or abandoned.
10.C Hart-Scott-Rodino and Other Consents. The requisite waiting
------------------------------------
period under the Hart-Scott-Rodino Act for the consummation of the Merger will
have expired or been terminated and all Sullivan Consents will have been
obtained and be effective. If the representation and warranty set forth in the
final sentence of Section 4.N is untrue, then each Consent of a type described
therein will have been obtained and be effective.
10.D Spin-Offs. The Required FCC Consents for the Spin-Offs will have
---------
been Granted and be in full force and effect and Sullivan will stand ready to
effect, or will have effected,
52
<PAGE>
the Spin-Offs, and each of Sullivan Two and Sullivan Three will have entered
into the New LMA applicable to it; provided that the foregoing will not be
--------
conditions to the Merger Sub's obligation to consummate the Merger so long as
any Acquiring Party Consent to a Spin-Off or the Merger is not in effect.
10.E Minimum Gross Revenues. The amount of the Gross Revenues for the
----------------------
Measurement Period will have been determined in accordance with Section 3.J and
will be not less than the amount set forth below:
Last Day of
Measurement Period Gross Revenues
------------------ --------------
March 31, 1998 $32,042,000
April 30, 1998 $44,913,000
May 31, 1998 $58,693,000
June 30, 1998 $71,630,000
July 31, 1998 $82,729,000
August 31, 1998 $94,391,000
10.F Limit on Dissenters. The holders of Sullivan Common Stock who
-------------------
have demanded appraisal pursuant to Section 262 of the Delaware General
Corporation Act and who have not subsequently withdrawn or waived (or been
deemed to have withdrawn or waived) or who are not otherwise barred from
requiring any such appraisal, if there are any such holders at the time of the
Closing, will not hold Sullivan Common Stock which (absent such right of
appraisal) would be entitled to receive in excess of 6% of the aggregate Merger
Consideration for the Sullivan Share Equivalents (determined based on the
Estimated Annualized Trailing Cash Flow, or the Annualized Trailing Cash Flow,
if it has been finally determined in accordance with Section 3.J, and the
Estimated KOKH Amount and the Estimated Adjustment Amount determined pursuant to
Section 3.E) if the Merger were consummated.
10.G Other Instruments. Sullivan will have delivered, or will stand
-----------------
ready to deliver, to the Merger Sub such instruments, documents, and
certificates as are contemplated by Section 3.I(2).
ARTICLE XI
POST-CLOSING MATTERS
11.A Survival. The representations, warranties and certifications of
--------
the Parties contained in or made pursuant to this Agreement (including any
certification contained in any certificate to be delivered pursuant to Section
3.I) will survive the execution of this Agreement and the Closing only to the
extent expressly provided in the Indemnity Agreement. The covenants and
agreements of the Parties set forth in this Agreement will survive until
performed and discharged
53
<PAGE>
in full.
11.B Limitation of Recourse. Except as provided in the Indemnity
----------------------
Agreement, after the Closing, no claim may be brought or maintained against any
Party or any Old Sullivan Stockholder or any of their respective present or
former officers, directors, employees or other affiliates by any Party or Old
Sullivan Stockholder or any of its successors or assigns, and no recourse may be
sought or granted against any Person, by virtue of or based upon any alleged
misstatement, omission, inaccuracy in, or breach of any representation, warranty
or certification of any Party set forth in or made pursuant to this Agreement,
and in no event will Sinclair or Post-Merger Sullivan be entitled to claim or
seek any rescission of the Merger or any of the other transactions consummated
pursuant to the Transaction Documents, any such right of rescission or rights to
damages which any such Party might otherwise have being hereby expressly waived
and any claims or judgments being limited accordingly; provided that nothing in
--------
this Agreement will constitute a waiver of or limit any Old Sullivan
Stockholder's recourse or remedy pursuant to any federal or state securities
laws arising out of or relating to the offering or issuance of Sinclair Common
Stock hereunder.
11.C Acknowledgment by the Acquiring Parties. Each of the Acquiring
---------------------------------------
Parties has conducted, to its satisfaction, an independent investigation and
verification of Sullivan, its Subsidiaries, the Stations and the Station Assets
and the financial condition, results of operations, assets, liabilities,
properties and projected operations of Sullivan, its Subsidiaries, the Stations
and the Station Assets. In determining to enter into this Agreement and proceed
with the transactions contemplated by this Agreement, each Acquiring Person has
relied on the covenants of Sullivan, the results of such independent
investigation and verification and the representations and warranties of
Sullivan (in conjunction with the Schedules hereto) set forth in this Agreement
(including the certifications to be made in any certificate to be delivered
pursuant to Section 3.I), all of which each Acquiring Party acknowledges and
agrees will survive for a limited duration. SUCH REPRESENTATIONS, WARRANTIES AND
CERTIFICATIONS CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS, WARRANTIES
AND CERTIFICATIONS WITH RESPECT TO SULLIVAN, ITS SUBSIDIARIES, THE STATIONS AND
THE STATION ASSETS TO THE ACQUIRING PARTIES IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY, AND EACH ACQUIRING PARTY UNDERSTANDS, ACKNOWLEDGES AND
AGREES THAT ALL OTHER REPRESENTATIONS, WARRANTIES AND CERTIFICATIONS OF ANY KIND
OR NATURE AND WHETHER ORAL OR CONTAINED IN ANY WRITING OTHER THAN THIS AGREEMENT
OR ANY SUCH CERTIFICATE (INCLUDING WITHOUT LIMITATION, ANY REPRESENTATION,
WARRANTY OR CERTIFICATION RELATING TO THE PROJECTED, FUTURE OR HISTORICAL
FINANCIAL CONDITION, RESULTS OR OPERATIONS, ASSETS OR LIABILITIES RELATING TO
THE STATIONS) ARE SPECIFICALLY DISCLAIMED BY SULLIVAN, THE STOCKHOLDER
REPRESENTATIVE, THE OFFICERS OF SULLIVAN AND ITS SUBSIDIARIES AND THE OLD
SULLIVAN STOCKHOLDERS.
11.D Corporate Names. After the Merger (but on the Closing Date),
---------------
Post-Merger Sullivan will take and will cause its Subsidiaries to take such
action as is necessary to change its
54
<PAGE>
corporate name in its certificate or articles of incorporation filed with the
Secretary of State or similar official of the jurisdiction of its incorporation
to a name which does not include, and is not confusingly similar to, the name
"Sullivan" and will cease the use of all Sullivan Broadcasting logos or any
similar mark. Notwithstanding anything in this Agreement to the contrary, Post-
Merger Sullivan and its Subsidiaries will be entitled to continue to use its
present corporate name until such time as such name change is effective and to
the extent necessary to accomplish such name change, and may endorse checks and
other instruments in such name.
11.E Satisfaction of Certain Obligations. On the Closing Date,
-----------------------------------
immediately after the Effective Time, the Merger Sub will, and Sinclair will
cause Post-Merger Sullivan and each of Post-Merger Sullivan's Subsidiaries to,
pay in full all Funded Indebtedness of Sullivan and its Subsidiaries pursuant
to, and otherwise satisfy all obligations of Sullivan and its Subsidiaries
under, the Sullivan Senior Debt Arrangements and the Mission Guarantees (other
than Funded Indebtedness incurred pursuant to any Sullivan Indenture, to the
extent any Consent necessary to permit the same to remain outstanding after the
Closing) . Without limiting the foregoing, Sinclair will cause Post-Merger
Sullivan and/or one or more of its Subsidiaries to have on the Closing Date
funds which are sufficient to permit Post-Merger Sullivan and/or its
Subsidiaries to take the actions contemplated by this Section 11.E and will
cause the Merger Sub to have funds necessary to permit the Merger Sub to pay the
Merger Consideration for the Sullivan Share Equivalents and make the deposit (if
any) in the Estimate Fund pursuant to Section 3.A(3)(d).
ARTICLE XII
TERMINATION
12.A Termination of Agreement Prior to Closing. Subject to Section
-----------------------------------------
12.A(3), this Agreement may be terminated at any time prior to the Closing as
follows:
(1) By Sullivan. By Sullivan, by written notice (a "Sullivan
----------- --------
Termination Notice") to Sinclair:
------------------
(a) at any time when any material breach by any Acquiring
Party of its obligations pursuant to this Agreement has occurred and
is continuing, if both
(i) such breach materially and adversely affects the
likelihood that any of the conditions set forth in any of Article
IX or Article X which has not been satisfied or waived will be
satisfied or materially and adversely affects any Party's ability
to comply with its obligations pursuant to this Agreement, and
(ii) at least thirty days have elapsed since Sullivan
gave Sinclair written notice requesting that such Acquiring Party
cure such breach,
unless prior to the giving of the Sullivan Termination Notice each
such breaching
55
<PAGE>
Acquiring Party has cured such breach;
(b) at any time after the Merger Sub has failed to make the
Mandatory Payment when required by Section 3.K(1), if the Merger Sub
has not made the Mandatory Payment prior to the giving of such
Sullivan Termination Notice (in which event the termination of this
Agreement pursuant to the delivery of such Sullivan Termination Notice
will be effective at 5:00 p.m., Boston, Massachusetts, time, on the
second Business Day after such Notice is given, unless the Mandatory
Payment is made prior to such time);
(c) at any time after the Expiration Dat, if
(i) as of the Expiration Date, each of Sullivan's and
the Merger Sub's conditions to closing set forth in Articles IX
and X was satisfied or waived in writing,
(ii) as of the Expiration Date, (x) each of Sullivan's
and the Merger Sub's conditions to closing set forth in Articles
IX and X (other than any set forth in Sections 9.D and 10.D) was
satisfied or waived in writing, (y) the Required FCC Consent has
been Granted and each Sullivan Consent for the Spin-Offs had been
obtained, and (z) any Acquiring Party Consent for a Spin-Off was
not obtained,
(iii) the absence of satisfaction of each of Sullivan's
and the Merger Sub's conditions to closing set forth in Articles
IX and X which was not waived in writing or satisfied as of the
Expiration Date was caused by a breach by one or more of the
Acquiring Parties of any of its or their representations,
warranties and/or obligations under this Agreement and/or the
failure of any Acquiring Party Consent to have been obtained,
(iv) the Approval Date had not occurred on or prior to
the Expiration Date as a result of any breach by one or more of
the Acquiring Parties of any provision of this Agreement, or
(v) one or more of the Acquiring Parties and the
Affiliates thereof refused, failed or declined to take any action
(other than divesting itself of a broadcast television or radio
station of which it or one of its Subsidiaries is the licensee or
terminating any time brokerage or similar arrangement) which the
FCC, the FTC, the DOJ or the staff of any of them indicates to
any Acquiring Party or agent thereof is a condition to the grant
of the Required FCC Consent or the expiration or termination of
the requisite waiting period under the Hart-Scott-Rodino Act for
the Merger; or
(d) at any time after the Expiration Date, in any
circumstance
56
<PAGE>
which is not described in Section 12.A(1)(c), unless the absence of
satisfaction of each of Sullivan's and the Merger Sub's closing
conditions set forth in Articles IX and X which has not been satisfied
or waived in writing has been caused by a breach by Sullivan of its
obligations under this Agreement.
(2) By Sinclair. By Sinclair, by written notice (a "Sinclair
----------- --------
Termination Notice") to Sullivan:
------------------
(a) at any time when any material breach by Sullivan of its
obligations pursuant to this Agreement has occurred and is continuing,
if both
(i) such breach materially and adversely affects the
likelihood that any of the conditions set forth in Article IX or
Article X will be satisfied or materially and adversely affects
any Party's ability to comply with its obligations pursuant to
this Agreement and
(ii) at least thirty days have elapsed since Sinclair
gave Sullivan written notice requesting that Sullivan cure such
breach,
unless prior to the giving of such Sinclair Termination Notice
Sullivan has cured such breach;
(b) at any time on or prior to the fifth (5th) Business Day
after Sullivan delivers to Sinclair any amendment and restatement or
modification of any attached Schedule pursuant to Section 13.P, if
such amendment and restatement or modification reflects any fact or
circumstance which (alone or in the aggregate with all other facts and
circumstances reflected in the attached Schedules as so amended and
restated or modified and not reflected in the attached Schedules as
initially attached to this Agreement) represents or has caused a
Material Adverse Change;
(c) (i) at any time when there has occurred a Material
Adverse Change and at least 30 days have elapsed since Sinclair gave
Sullivan notice of the occurrence of such Material Adverse Change,
unless the facts or circumstances causing or constituting such
Material Adverse Change have been cured or otherwise no longer exist,
or (ii) under the circumstances described in Section 7.L(3) or 7.L(4);
(d) at any time during the five (5) Business Days after the
amount of the Gross Revenues (as if the Measurement Date were June 30,
1998) is finally determined pursuant to Section 3.J, if such amount is
less than $71,630,000;
(e) at any time after the Expiration Date, under any
circumstances described in Section 12.A(1)(c); or
(f) at any time after the Expiration Date, in any case not
described in Section 12.A(2)(e).
57
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(3) When Termination Not Permitted. Sullivan may not terminate this
------------------------------
Agreement pursuant to Section 12.A(1) at any time when Sullivan is in
material breach of a material obligation under this Agreement. Sinclair
may not terminate this Agreement pursuant to Section 12.A(2) (other than
pursuant to Section 12.A(2)(e)) at any time when any Acquiring Party is in
material breach of a material obligation under this Agreement.
12.B Survival of Certain Provisions; Remedies.
----------------------------------------
(1) General. No Party will have any liability to any other Party
-------
for costs, expenses, damages (consequential or otherwise), loss of
anticipated profits, or otherwise as a result of a termination pursuant to
Section 12.A, except as provided in Section 12.B(2), 12.B(3) or 12.B(4).
The Parties agree that time is of the essence with respect to the
provisions of Sections 3.H., 3.K and 12.A. Sections 7.G and 7.B, this
Article XII and Article XIII will survive the termination of this Agreement
pursuant to Section 12.A.
(2) Disposition of Earnest Money Fund and Income. If this
--------------------------------------------
Agreement is terminated pursuant to any of Sections 12.A(1)(a), 12.A(1)(b),
12.A(1)(c) or 12.A(2)(e), then the Earnest Money Fund will be paid to
Sullivan (unless the Mandatory Payment has theretofore been made to
Sullivan), and all Earnest Money Income will be paid to Sinclair. If this
Agreement is terminated pursuant to any of Sections 12.A(1)(d), 12.A(2)(a),
12.A(2)(b), 12.A(2)(c), 12.A(2)(d) or 12.A(2)(f), then the Earnest Money
Fund and all Earnest Money Income will be paid to Sinclair (unless the
Mandatory Payment is due and payable and has not been paid, in which case
the Mandatory Payment will be made from the Earnest Money Fund and the
Earnest Money Income, and the remainder thereof will be paid to Sinclair).
Any payment to be made pursuant to this Section 12.B(2) may be requested,
and will be made, in accordance with the Earnest Money Escrow Agreement.
(3) For Sullivan. Sullivan's sole and exclusive remedy for any
------------
termination of this Agreement or any failure of performance or compliance
by any Acquiring Party with any covenant or agreement contained in this
Agreement prior to the Closing will be Sullivan's right (if any) to receive
the Earnest Money Fund as provided in the Earnest Money Escrow Agreement
(or its right, if any, to receive or retain the Mandatory Payment, unless
otherwise expressly provided in Section 12.B(4)(d), as liquidated damages
and not as a penalty).
(4) For the Acquiring Parties. The Acquiring Parties' sole and
-------------------------
exclusive remedies for the termination of this Agreement or any failure of
performance or compliance by Sullivan with any covenant or agreement
contained in this Agreement prior to the Closing will be
(a) in the case of any such termination pursuant to Section
12.A, Sinclair's right (if any) to receive the Earnest Money Fund and
the Earnest Money Income (including the right to any Earnest Money
Income not yet received by the Earnest Money Escrow Agent) as provided
in Section 12.B(2) and the Earnest
58
<PAGE>
Money Escrow Agreement;
(b) in the case of any such failure, their respective rights
(if any) under applicable law or equitable principles to seek damages
in respect of their direct out-of-pocket losses or expenses (but not
any damages in respect of lost profits or other similar or
consequential or incidental damages) occasioned by and as a
consequence of such breach;
(c) their respective rights (if any) under applicable law or
equitable principles to seek specific enforcement of this Agreement
against Sullivan, including specific enforecement of Sullivan's
obligation to consummate the Merger (subject to FCC approval and other
required Consents being obtained), it being acknowledged by Sullivan
that the Acquiring Parties would not have an adequate remedy at law in
the event of any such failure, provided that no Acquiring Party will
--------
be entitled to such specific performance unless (i) each Acquiring
Party has complied in all material respects with its material
obligations under this Agreement and (ii) either (A) each condition to
closing of Sullivan set forth in Article IX has been satisfied or
waived in writing or (B) the absence of satisfaction of each such
condition to closing which has not been satisfied or waived in writing
is caused solely by a breach by Sullivan of its obligations under this
Agreement;
(d) in the case of any such failure after the Approval Date,
the release of the Merger Sub from the obligation to pay, or the
return of, as the case may be, the Mandatory Payment, if (i) Sinclair
has terminated this Agreement pursuant to Section 12.A(2)(a) or
Section 12.A(2)(d), (ii) each Acquiring Party complied in all material
respects with its material obligations under this Agreement prior to
such termination, and (iii) if Sinclair terminated this Agreement
pursuant to Section 12.A(2)(a), then either (A) each condition to
closing set forth in Articles IX was satisfied or waived in writing as
of the Expiration Date or (B) the absence of satisfaction of each such
condition which was not satisfied or waived in writing as of the
Expiration Date was caused solely by a breach by Sullivan of its
obligations under this Agreement (it being agreed that, except as
expressly provided in this Section 12.B(4)(d), if the Approval Date
occurs and this Agreement is terminated prior to the Closing, then the
Merger Sub will nonetheless be required to make the Mandatory Payment
and, if the Mandatory Payment has been made prior to such termination,
then Sullivan will be entitled to retain the Mandatory Payment); and
(e) if (i) Sinclair has terminated this Agreement pursuant
to Section 12.A(2)(a) based on a willful breach of this Agreement by
Sullivan, (ii) the circumstances described in clauses (ii) and (iii)
of Section 12.B(4)(d) apply, and (iii) Sinclair has disclaimed in
writing its right to seek specific performance as described in Section
12.B(4)(c) or Sinclair has asserted such right and such remedy has
been denied in a final, nonappealable judgment on the grounds that the
obligation of Sullivan to consummate the Merger hereunder is not of a
type for which specific enforcement is an available remedy, then in
addition to Sinclair's right to receive the
59
<PAGE>
Earnest Money Fund as the Earnest Money Income as provided in Section
12.B(4)(a), upon the occurrence of the event described in clause (iii)
above, Sullivan will pay to Sinclair the amount of Seventy Five
Million Dollars ($75,000,000) in cash as liquidated damages.
ARTICLE XIII
MISCELLANEOUS
13.A Expenses. Except as otherwise expressly provided in this
--------
Agreement, Sullivan will bear all of the expenses incurred prior to the Closing
by Sullivan and the Stockholder Representative in connection with the
transactions contemplated by this Agreemen, and each of the Acquiring Parties
will bear all of its expenses incurred in connection with the transactions
contemplated by this Agreement, in each case including, without limitation,
accounting and legal fees incurred in connection herewith.
13.B Assignments.
-----------
(1) By Sullivan. This Agreement may not be assigned by Sullivan
-----------
without the prior written consent of the Acquiring Parties.
(2) By Sinclair or the Merger Sub. Prior to the Closing, this
-----------------------------
Agreement may be assigned by Sinclair or the Merger Sub (or the Merger Sub
may cease to be a wholly-owned Subsidiary of Sinclair prior to the Closing)
only with the prior written consent of Sullivan, except that at any time
Sinclair or the Merger Sub may assign its rights and interests hereunder
absolutely to one or more directly or indirectly wholly-owned Subsidiaries
of Sinclair without obtaining such consent; provided in each case, that the
--------
assigning Person gives Sullivan, prior to the Closing, or the Stockholder
Representative, after the Closing, prior written notice of such assignment
and that such assignment will not delay the satisfaction of any condition
to closing set forth in this Agreement, and provided further that any such
--------------------
assignment will not relieve the assigning Person of any of its obligations
or liabilities hereunder.
(3) Exceptions. Notwithstanding the foregoing, any Party may
----------
assign its rights under this Agreement for collateral purposes only to any
lender to it, or any agent for any such lender(s), without the consent of
any other Party, and any such lender or agent may transfer such rights
pursuant to the exercise of remedies with respect to such collateral
security to any other Person (it being understood that any such lender or
agent will be a third-party beneficiary of the agreement constituted by
this Section 13.B(3)).
(4) General Rules. Any attempt to assign this Agreement or any
-------------
rights or obligations hereunder without first obtaining any consent which
is required by this Section 13.B will be void. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Each Old Sullivan
60
<PAGE>
Stockholder is an express third-party beneficiary of this Agreement.
13.C Further Assurances. From time to time prior to, at, and after
------------------
the Closing, each Party will execute all such instruments and take all such
actions as any other of them, being advised by counsel, may reasonably request
in connection with carrying out and effectuating the intent and purpose hereof,
and all transactions and things contemplated by this Agreement, including the
execution and delivery of any and all consents, confirmatory and other
instruments, in addition to those to be delivered at the Closing, and any and
all actions which may reasonably be necessary to complete the transactions
contemplated hereby.
13.D Notices. All notices, demands, and other communications which
-------
may or are required to be given under or with respect to this Agreement will be
in writing, will be delivered personally or sent by nationally recognized
overnight delivery service, charges prepaid, or by registered or certified mail,
return-receipt requested, and will be deemed to have been given or made when
personally delivered, or on the next Business Day after delivery to such
overnight delivery service, or on the fifth day after it is deposited in the
mail, registered or certified, first class postage prepaid, as the case may be,
if addressed as follows:
(1) If to Sullivan (prior to the Closing) or the Stockholder
--------------------------------------------------------
Representative:
--------------
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attn: Royce Yudkoff, President
with a copy (which will not constitute notice to Sullivan or the
Stockholder Representative) to:
John L. Kuehn, Esq.
Kirkland & Ellis
153 E. 53rd Street
New York, New York 10022
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to the Acquiring Parties given in accordance with this Section
13.D.
(2) If to Sinclair, the Merger Sub or Post-Merger Sullivan:
-------------------------------------------------------
Sinclair Broadcast Group, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: David D. Smith, President
with a copy (which will not constitute notice to Sinclair, the
Merger Sub or
61
<PAGE>
Post-Merger Sullivan) to:
Steven A. Thomas, Esq.
Thomas & Libowitz, P.A.
100 Light Street, Suite 1100
Baltimore, Maryland 21202
and
---
Sinclair Communications, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: General Counsel
and
---
George Stamas, Esq.
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to Sullivan (if prior to the Closing) and the Stockholder
Representative given in accordance with this Section 13.D.
13.E Captions. The captions of Articles and Sections of this
--------
Agreement are for convenience only, and will not control or affect the meaning
or construction of any of the provisions of this Agreement.
13.F Law Governing. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED,
-------------
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCES TO THE PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF NEW YORK,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE UNITED STATES GOVERNS THE
TRANSACTIONS CONTEMPLATED HEREBY.
13.G Waiver of Provisions. The terms, covenants, representations,
--------------------
warranties, and conditions of this Agreement may be waived as to any Party only
by a written instrument executed by such Party. The terms, covenants,
representations, warranties, and conditions of this Agreement may be waived as
to any Old Sullivan Stockholder only by a written instrument executed by
Sullivan, prior to the Closing, or the Stockholder Representative, after the
Closing. The failure of any Party or any Old Sullivan Stockholder at any time or
times to require performance of any provision of this Agreement will in no
manner affect the right at a later date to enforce the same. No waiver by or on
behalf of any Party to this Agreement or any Old Sullivan Stockholder of any
condition or the breach of any provision, term, covenant, representation, or
warranty contained in
62
<PAGE>
this Agreement, whether by conduct or otherwise, in any one or more instances,
will be deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation, or warranty of this Agreement.
13.H Counterparts. This Agreement may be executed in two (2) or more
-----------
counterparts, and all counterparts so executed will constitute one (1) agreement
binding on all of the parties hereto, notwithstanding that all the parties
hereto are not signatory to the same counterpart.
13.I Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto) and the confidentiality agreement referred to in Section 8.C
(including the Acquiring Parties' obligations with respect thereto, as provided
in Section 8.C), constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersede any and all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, between them relating to the subject matter hereof.
13.J Access to Books and Records.
---------------------------
(1) Post-Merger Sullivan will, and will cause its Subsidiaries
to, preserve for not less than five (5) years after the Closing Date all
books and records included in the Station Assets. After such five-year
period, Post-Merger Sullivan will not, and will not cause or permit its
Subsidiaries to, destroy any books or records relating to the conduct of
business of the Stations prior to the Effective Time unless Post-Merger
Sullivan first offers to transfer such books and records to the Stockholder
Representative at no cost to the Stockholder Representative, and if Post-
Merger Sullivan is requested to do so, Post-Merger Sullivan will transfer,
or cause a Subsidiary of Post-Merger Sullivan to transfer, such books or
records to the Stockholder Representative.
(2) At the request of the Stockholder Representative, Post-Merger
Sullivan will, and will cause each of its Subsidiaries to, permit the
Stockholder Representative (including its officers, employees, accountants,
and counsel) any access, upon reasonable prior written notice during normal
business hours, to all of its property, accounts, books, contracts,
records, accounts payable and receivable, records of employees, FCC logs
and other information concerning the affairs or operation of the Stations
as the Stockholder Representative may reasonably request for any reasonable
purpose relating to the transactions contemplated by this Agreement or the
ownership or operation of any Station prior to the Effective Time, and to
make extracts or copies from the foregoing at the Stockholder
Representative's expense. At Post-Merger Sullivan's request, prior to
receiving any such requested information, the Stockholder Representative
will execute a confidentiality agreement with respect thereto which is
reasonably acceptable to Post-Merger Sullivan.
13.K Public Announcements. Prior to the Closing, no Party will,
--------------------
except by mutual agreement of Sullivan and Sinclair (including agreement as to
content, text and method of distribution or release), make any press release or
other public announcement or disclosure concerning the transactions contemplated
by this Agreement, except as may be required by any Legal
63
<PAGE>
Requirement (including filings and reports required to be made with or pursuant
to the rules of the Securities and Exchange Commission); provided that, prior to
--------
making any such announcement or disclosure required by any Legal Requirement, to
the extent practicable, the disclosing Party gives each Person named above prior
written notice of the context, text and content of, the method of distribution
or release of, and all other material facts concerning, such disclosure.
13.L Disclosure. If and to the extent that any information required
----------
to be furnished by Sullivan in any attached Schedule is contained in this
Agreement or in any attached Schedule, such information will be deemed to have
been included in each other attached Schedule in which such information is
required to be included to the extent its relevance to such latter Schedule is
reasonably apparent. By including any information in any attached Schedule,
Sullivan will not be deemed to have admitted or acknowledged that such
information is material to or outside the ordinary course of the business of
Sullivan or any Station.
13.M Definitional Provisions.
-----------------------
(1) Terms Defined in Appendix. Each capitalized term which is
-------------------------
used and not otherwise defined in this Agreement or any attached Schedule
has the meaning which is specified for such term in the Appendix which is
attached to this Agreement.
(2) Materiality. For purposes of Sections 9.A(2), and 10.A(2),
-----------
materiality (as embodied in the phrase "in all material respects" will be
measured by reference to the business or operations of the Stations, taken
as a whole, the value of the Station Assets, taken as a whole, or the
ability of Sullivan or Sinclair and the Merger Sub, taken as a whole, as
the case may be, to perform or carry out the transactions contemplated by
this Agreement, as the context requires.
(3) Knowledge. As used in this Agreement, the term "knowledge"
---------
of Sullivan will refer only to the actual knowledge, without any particular
inquiry (except as specified in this Agreement), of the Corporate
Personnel, Andrew Banks and Royce Yudkoff, after inquiry of the general
managers of the Stations; and the "knowledge" of Sinclair or the Merger Sub
will refer only to the actual knowledge, without any particular inquiry
(except as specified in this Agreement) of David Smith and David Amy.
(4) Interpretation. Words used in this Agreement, regardless of
--------------
the gender and number specifically used, will be deemed and construed to
include any other gender, masculine, feminine or neuter, and any other
number, singular or plural, as the context requires. Whether or not used
in conjunction with the words "without limitation" or words of similar
import, the term "including" as used in this Agreement imports that the
items referred to are illustrative only and do not purport to be a complete
listing of the items of the type in question. The wording of the
provisions of this Agreement is the result of arms-length negotiations
among the parties to this Agreement and was selected by them to reflect
their mutual intentions; therefore, no party will be deemed the "drafter"
of this Agreement and no rule of strict construction will be applied
against or in favor of any party to this Agreement.
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<PAGE>
13.N Arbitration.
-----------
(1) Generally. Except as expressly provided in the Estimate
---------
Escrow Agreement or the Indemnity Escrow Agreement or for purposes of
pursuing any remedy pursuant to Section 12.B(3)(b), the arbitration
procedures described in this Section 13.N will be the sole and exclusive
method of resolving and remedying claims arising under this Agreement and
the other Transaction Documents ("Disputes"); provided that nothing in this
-------- --------
Section 13.N will prohibit a Party from instituting litigation to enforce
any Final Arbitration Award. Except as otherwise provided in the
Commercial Arbitration Rules of the American Arbitration Association as in
effect from time to time (the "AAA Rules"), the arbitration procedures
---------
described in this Section 13.N and any Final Arbitration Award will be
governed by, and will be enforceable pursuant to, the Uniform Arbitration
Act as in effect in the State of New York from time to time. No Person
will be entitled to claim or recover punitive damages in any such
proceeding.
(2) Notice of Arbitration. If a Party asserts that there exists
---------------------
a Dispute, then such Person (the "Disputing Person") will give each other
----------------
Person involved in such Dispute a written notice setting forth the nature
of the asserted Dispute. If all such Persons do not resolve any such
asserted Dispute prior to the tenth Business Day after such notice is
given, then the Disputing Person may commence arbitration pursuant to this
Section 13.N by giving each other Person involved in such Dispute a written
notice to that effect (an "Arbitration Notice"), setting forth any matters
------------------
which are required to be set forth therein in accordance with the AAA
Rules. Unless otherwise notified, the Acquiring Parties are entitled to
assume that the Stockholder Representative is authorized to act on behalf
of each Old Sullivan Stockholder with respect to any Dispute.
(3) Selection of Arbitrator. The Persons involved in such
-----------------------
Dispute will attempt to select a single arbitrator by mutual agreement. If
no such arbitrator is selected prior to the twentieth Business Day after
the related Arbitration Notice is given, then an arbitrator which is
experienced in matters of the type which are the subject matter of the
Dispute will be selected in accordance with the AAA Rules.
(4) Conduct of Arbitration. The arbitration will be conducted
----------------------
under the AAA Rules, as modified by any written agreement among the Persons
involved in such Dispute. The arbitrator will conduct the arbitration in a
manner so that the final result, determination, finding, judgment or award
determined by the arbitrator (the "Final Arbitration Award") is made or
-----------------------
rendered as soon as practicable, and the Persons involved in such Dispute
will use reasonable efforts to cause a Final Arbitration Award to occur not
later than the sixtieth day after the arbitrator is selected. Any Final
Arbitration Award will be final and binding upon the Persons involved in
such Dispute, and there will be no appeal from or reexamination of any
Final Arbitration Award, except as provided in the Uniform Arbitration Act,
as in effect in the State of New York from time to time.
(5) Enforcement. A Final Arbitration Award may be enforced in
-----------
any state or federal court having jurisdiction over the subject matter of
the related Dispute.
65
<PAGE>
(6) Expenses. The prevailing Person(s) in any arbitration
--------
proceeding in connection with this Agreement will be entitled to recover
from the non-prevailing Person(s) their reasonable attorneys' fees and
disbursements in addition to any damages or other remedies awarded to such
prevailing Person(s), and the non-prevailing Person(s) will be required to
pay all other costs and expenses associated with the arbitration; provided
--------
that (i) if an arbitrator is unable to determine that a Person is a
prevailing Person in any such arbitration proceeding, then such costs and
expenses will be equitably allocated by such arbitrator upon the basis of
the outcome of such arbitration proceeding, and (ii) if such arbitrator is
unable to allocate such costs and expenses in such a manner, then the costs
and expenses of such arbitration will be paid one-half by Sullivan and one-
half by Sinclair, and each Party will pay the out-of-pocket expenses
incurred by it. As part of any Final Arbitration Award, the arbitrator may
designate the prevailing Person(s) for purposes of this Section 13.N(6).
Except as provided in the preceding sentences, each Person involved in a
Dispute will bear its own costs and expenses (including legal fees and
disbursements) in connection with any such proceeding or submission.
13.O Stockholder Representative.
--------------------------
(1) Appointment; Authority Generally. On behalf of the Old
--------------------------------
Sullivan Stockholders, Sullivan hereby appoints ABRY Partners as the
initial Stockholder Representative under this Agreement, to serve in
accordance with the terms, conditions and provisions of this Agreement, and
ABRY Partners, by its execution of this Agreement, hereby agrees to act as
such, upon the terms, conditions and provisions of this Agreement. From
and after the Closing, the Stockholder Representative will be authorized to
act on behalf of the Old Sullivan Stockholders in accordance with this
Agreement.
(2) Authorization. The Stockholder Representative, in such
-------------
capacity, will be entitled to take all actions on behalf of the holders of
Sullivan Shares or the Old Sullivan Stockholders, as the case may be, with
respect to this Agreement and the other agreements contemplated hereby, and
omit to take any action, each as directed by
(a) prior to the Effective Time, the holders of capital
stock of Sullivan having a majority of the voting power represented by
the outstanding capital stock of Sullivan at the time in question, and
(b) after the Effective Time, Persons who immediately prior
to the Effective Time held Sullivan Shares which represented a
majority of the voting power of the Sullivan Shares,
(in either case, the "Majority Sullivan Stockholders"). The Stockholder
------------------------------
Representative may be removed and replaced from time to time as the
representative of the holders of the Sullivan Shares or the Old Sullivan
Stockholders by written notice given by the Majority Sullivan Stockholders
to Sullivan (prior to the Effective Time) and the Acquiring Parties.
(3) Responsibility. The Stockholder Representative will have no
--------------
duties
66
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or responsibilities except those expressly set forth in this Agreement or
any other agreement which may be entered into by it hereunder. The
Stockholder Representative will have no responsibility for the validity of
this Agreement or any agreement referred to in this Agreement or for the
performance of any such agreements by any party thereto or for the
interpretation of any of the provisions of any such agreements. The
Stockholder Representative's liability in fulfilling its duties will be
limited to bad faith, willful misconduct or gross negligence on its part.
The Stockholder Representative will be protected in acting upon any
certificate, notice or other instrument whatsoever received by the
Stockholder Representative as to its due execution, the validity and
effectiveness of its provisions, and the truth and accuracy of any
information therein contained that the Stockholder Representative in good
faith believes to be genuine and to have been signed or presented by a
proper Person or Persons. The Stockholder Representative may, in its sole
discretion, consult with and obtain advice from legal counsel and any other
Person in the event of any question as to any of the provisions of this
Agreement, any other agreement entered into in connection herewith or its
duties hereunder or thereunder. The reasonable cost of such services, to
the extent not borne by Sullivan, will be borne among the Old Sullivan
Stockholders who held Sullivan Shares immediately prior to the Merger
Effective Time, pro rata in accordance with the respective amounts of the
Merger Consideration to be received by them in respect of the Sullivan
Shares.
(4) Resignation; Replacement. The Stockholder Representative
------------------------
will have the right, in its sole discretion, to resign as the Stockholder
Representative (in its capacity as the representative of the holders of
Sullivan Shares or the Old Sullivan Stockholders) at any time by giving at
least 30 days prior written notice to Sullivan (prior to the Effective
Time) and the Acquiring Parties. In such event, Sullivan (prior to the
Effective Time) or the Majority Sullivan Stockholders (after the Effective
Time) will promptly appoint another Stockholder Representative to represent
the holders of Sullivan Shares and the Old Sullivan Stockholders and give
notice of such selection to the Acquiring Parties and the Old Sullivan
Stockholders (after the Effective Time). Such resignation of the
Stockholder Representative will be effective upon such notice being given
and such new Stockholder Representative's acceptance of such appointment
and will relieve the resigning Stockholder Representative of all duties and
responsibilities of the Stockholder Representative in such capacity
thereafter arising.
13.P Completion of Sullivan's Schedules. The Acquiring Parties
----------------------------------
acknowledge that Sullivan has executed this Agreement without having the
opportunity to request of personnel of the Stations information which may be
material to the preparation of the attached Schedules referred to in Article IV
(and that, therefore, some or all of such attached Schedules may not be correct
and complete and, as a result, some or all of the representations and warranties
set forth in Article IV which refer to such attached Schedules may not be true
and correct). On or prior to March 9, 1998, Sullivan may deliver to Sinclair an
amendment and restatement of any such attached Schedule, or any portion thereof,
or a supplement to any such attached Schedule or any portion thereof, which may
be required in order to accurately depict facts and circumstances which exist on
the date of this Agreement (or any other applicable date referred to in any such
representation or warranty), and the attached Schedule or portion thereof in
question will be deemed to have been so
67
<PAGE>
amended and restated or modified, as the case may be, as of the time of the
execution and delivery of this Agreement. The Acquiring Parties' sole and
exclusive remedy under this Agreement with respect to any matter which may be
disclosed by any such amendment and restatement or supplement will be Sinclair's
right (if any) to terminate this Agreement as described in Section 12.A(2)(b).
13.Q Treatment of Station KOKH. Each Acquiring Party acknowledges
-------------------------
that, notwithstanding any language to the contrary in this Agreement, Sullivan
has not made and will not make any representation, warranty or certification of
any kind with respect to Station KOKH (including with respect to the assets,
liabilities and operations related to Station KOKH), and no representation or
warranty set forth in Article IV, and no certification relating thereto
delivered pursuant to Sections 3.I, will be deemed to apply to Station KOKH
(including to any related asset, liability or operations). The Annualized
Trailing Cash Flow, the Gross Revenues, the Current Assets, the Current
Liabilities and the Sullivan Receivables will be determined without regard to
the results of operations and assets of Station KOKH.
[SIGNATURE PAGES TO FOLLOW
-- REST OF PAGE LEFT INTENTIONALLY BLANK]
68
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be duly executed by their duly authorized officers, all as of the day
and year first above written.
SULLIVAN BROADCAST HOLDINGS, INC.
By:
-----------------------------------------
Its:
----------------------------------------
SINCLAIR BROADCAST GROUP, INC.,
in its own right and on behalf of a Subsidiary
to be formed by it
By:
-----------------------------------------
Its:
----------------------------------------
ABRY PARTNERS, INC.
By:
-----------------------------------------
Its:
----------------------------------------
69
<PAGE>
APPENDIX
Additional Defined Terms. The following capitalized terms have the
---------- ------- -----
following meanings when used in this Agreement and the Schedules attached to
this Agreement:
"ABRY Fund" means ABRY Broadcast Partners II, L.P., a Delaware limited
---- ----
partnership and a stockholder of Sullivan.
"Acquiring Parties" means Sinclair, the Merger Sub and Post-Merger
--------- -------
Sullivan.
"Acquiring Party Consents" means all Consents other than the Required
--------- ----- --------
FCC Consent, any Consent required under the Hart-Scott-Rodino Act, or any
Sullivan Consent.
"Act III" means Act III Broadcasting, Inc., a predecessor by merger to
--- ---
Sullivan Broadcasting.
"Act III Purchase Agreement" means the Stock Purchase Agreement dated
--- --- -------- ---------
as of June 19, 1995, among A-3 Acquisition, Inc., Act III and certain of
the stockholders of Act III, as amended and in effect from time to time.
"Adjustment Time" means, with respect to each Station, 12:01 a.m.,
---------- ----
local time, on the Closing Date.
"Affiliate" of any Person means any other Person which is controlled
---------
by, controls, or is under common control with, such first Person.
"Affiliated Group" means an affiliated group of corporations, as that
---------- -----
term is defined in Section 1504(a) of the Tax Code (or in any analogous
combined, consolidated or unitary group defined under state, local or
foreign income Tax law).
"Approval Date" means the first day upon which the Required FCC
-------- ----
Consent has been Granted and the requisite waiting period under the Hart-
Scott-Rodino Act for the consummation of such Merger has expired or been
terminated.
"Average Trading Price" means the average of the Closing Trading
------- ------- -----
Prices for the third Business Day prior to the Closing Date and the nine
(9) preceding Business Days. The "Closing Trading Price" for any day means
------- ------- -----
the closing price of Sinclair Common Stock on the Nasdaq National Market as
of 4:00 P.M., New York time, on such day.
"Benefit Arrangement" means any benefit arrangement, obligation,
------- -----------
custom, or practice to provide benefits, other than salary, as compensation
for services rendered, to present or former directors, employees, agents,
or independent contractors (other than any obligation, arrangement, custom
or practice that is an employee benefit plan under ERISA),
70
<PAGE>
including employment agreements, severance agreements, executive
compensation arrangements, stock options, restricted stock rights and
performance unit awards, incentive programs or arrangements, sick leave,
vacation pay, severance pay policies, plant closing benefits, salary
continuation for disability, consulting, or other compensation
arrangements, workers' compensation, retirement, deferred compensation,
bonus, stock purchase, 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
Tax 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.
A "Business Day" means any day other than a Saturday, a Sunday or
-------- ---
another day upon which banks in New York, New York generally are not open
for business.
"Closing Date" means the date upon which the Closing occurs.
------- ----
"Communications Act" means the Communications Act of 1934, as amended
-------------- ---
and as in effect from time to time.
"Consent" means any consent, order, approval, authorization or other
-------
action of, or any filing with or notice to or other action by or with
respect to, any Person which is required for any of the execution, delivery
or performance of this Agreement, the consummation of either Spin-Off, the
Merger, or the conduct of the business of Sullivan Two, Sullivan Three or
Post-Merger Sullivan or any of its Subsidiaries or the holding or
utilization of any Station Asset thereafter, whether such requirement
arises pursuant to any Legal Requirement, Contract, a Person's
organizational documents or otherwise, including any of the foregoing which
is required in order to prevent a breach of or a default under or a
termination or modification of any Contract.
"Contract" means any agreement, lease, arrangement, commitment, or
--------
understanding to which Sullivan or any of its Subsidiaries, with respect to
the Stations, is a party.
"Corporate Personnel" means J. Daniel Sullivan, David Pulido, Patrick
--------- ---------
Bratton, Richard Montgomery, Barry Charbonneau and any successor to any of
them in his capacity as an employee of Sullivan and its Subsidiaries,
Sullivan Two or Sullivan Three.
"Earnest Money Escrow Agent" means the "Escrow Agent" to which the
------- ----- ------ -----
Earnest Money Escrow Agreement refers.
"Earnest Money Escrow Agreement" means the Escrow Agreement entered
------- ----- ------ ---------
into among Sullivan, Sinclair (on behalf of the Merger Sub) and The Chase
Manhattan Bank (as Escrow Agent) dated as of the date of this Agreement, as
such agreement is in effect from time to time.
71
<PAGE>
"Earnest Money Fund" means the "Escrow Fund" to which the Earnest
------- ----- ----
Money Escrow Agreement refers.
"Earnest Money Income" means the "Escrow Income" to which the Earnest
------- ----- ------
Money Escrow Agreement refers.
"Earnest Money Letter of Credit" means a stand-by letter of credit
------- ----- ------ -- ------
delivered to the Earnest Money Escrow Agent on the date of this Agreement
issued by The Chase Manhattan Bank in the face amount of $75,000,000 and
otherwise substantially in the form of the attached Exhibit E, or any
------- -
replacement stand-by letter of credit delivered to the Earnest Money Escrow
Agent in accordance with the Earnest Money Escrow Agreement.
"Environmental Laws" means the rules and regulations of the FCC, the
------------- ----
United States Environmental Protection Agency and any other federal, state
or local government authority pertaining to human exposure to RF radiation
and all applicable rules and regulations of federal, state and local laws,
including statutes, regulations, ordinances, codes, and rules, as amended,
relating to the discharge of air pollutants, water pollutants or process
waste water or hazardous or toxic substances, including the Federal Solid
Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act,
the Federal Resource Conservation and Recovery Act of 1976, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Occupational Safety and Health Act of 1970, each as amended,
regulations of the Occupational Safety and Health Administration and
regulations of any state department of natural resources or state
environmental protection agency now in effect.
"Effective Time" means the time of the filing of the Certificate of
--------- ----
Merger described in Article II.
"ERISA Affiliate" means any Person that, together with Sullivan, would
----- ---------
be or was at any time treated as a single employer under Section 414 of the
Code or 4001 of ERISA and any general partnership of which Sullivan or any
Subsidiary of Sullivan is or has been a general partner.
"Estimate Escrow Agent" means the "Escrow Agent" to which the Estimate
-------- ------ -----
Escrow Agreement refers.
"Estimate Escrow Agreement" means the Estimate Escrow Agreement
-------- ------ ---------
entered into among the Stockholder Representative, Sinclair (on behalf of
the Merger Sub) and The Chase Manhattan Bank (as Escrow Agent) dated as of
the date of this Agreement, as such agreement is in effect from time to
time.
"Estimate Fund" means the "Escrow Fund" to which the Estimate Escrow
-------- ----
Agreement refers.
"Existing LMAs" means the time brokerage and local marketing
-------- ----
agreements
72
<PAGE>
pursuant to which Sullivan and its Subsidiaries conduct their operations
with respect to the LMA Stations.
"Expiration Date" means May 16, 1999.
---------- ----
"FCC" means the Federal Communications Commission or any successor
---
thereto.
"FCC Authorizations" means the authorizations issued by the FCC and
--- --------------
described on the attached Schedule 4E.
"Film Obligations" means all cash payment obligations of Sullivan or
---- -----------
any of its Subsidiaries under any Program Contract.
A "Final Order" means the Required FCC Consent if (a) the Required FCC
----- -----
Consent has been Granted and has not been reversed, stayed, set aside,
enjoined, annulled or suspended (whether under Section 402 or 405 of the
Communications Act or otherwise) and (b) (i) no request has been filed for
administrative or judicial review, reconsideration, appeal, certiorari or
stay and the time for filing any such request and for the FCC to review the
Required FCC Consent on its own motion has expired, or (2) if such a
review, reconsideration or appeal has occurred, such review,
reconsideration or appeal has been denied and the time for further review,
reconsideration or appeal has expired.
"Funded Indebtedness" means the indebtedness for borrowed money of
------ ------------
Sullivan and its Subsidiaries under the Sullivan Senior Debt Arrangements,
the indebtedness for borrowed money of Sullivan and its Subsidiaries
represented by the Sullivan Notes, and all other indebtedness of Sullivan
and its Subsidiaries for money borrowed by them. As used herein, the term
"money borrowed" does not refer to the receipt or benefit of trade credit
for the purchase of goods or services.
"GAAP" means United States generally accepted accounting principles,
----
as in effect from time to time, as applied by Sullivan and its Subsidiaries
from time to time.
The Required FCC Consent is "Granted" on the effective date, as
-------
determined under the FCC's rules, regulations and policies, of the grant
thereof by the FCC or its staff.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
----------------- ---
Improvements Act of 1976, as in effect from time to time.
"Hazardous Material" means any substance or waste containing any
--------- --------
hazardous substance, pollutant or contaminant, as those terms are defined,
in the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. (S)9601 et seq., and any other substance
similarly defined or identified in any applicable Environmental Laws,
including toxic materials or harmful physical agents, as defined in the
Occupational Safety and Health Act of 1979, as amended, 29 U.S.C. (S)651 et
seq. "Hazardous Materials" includes asbestos, asbestos-containing
materials, petroleum and
73
<PAGE>
petroleum-based products, polycholorinated biphenyls (PCBs), infectious
wastes and radioactive materials and wastes.
"Headquarters Assets" means the assets of Sullivan and its
------------ ------
Subsidiaries located in the offices of Sullivan and its Subsidiaries
located in Franklin, Tennessee, and Boston, Massachusetts, and any so-
called "personal seat license" or other right of Sullivan or any of its
Subsidiaries to subscribe for tickets to events at the stadium presently
being constructed or proposed to be constructed in the Nashville,
Tennessee, metropolitan area.
"Indemnity Agreement" means the Indemnity Agreement entered into among
--------- ---------
Sullivan, Sinclair and certain other Persons dated as of the date of this
Agreement, as such agreement is in effect from time to time.
"Indemnity Escrow Agent" means the "Escrow Agent" to which the
--------- ------ -----
Indemnity Escrow Agreement refers.
"Indemnity Escrow Agreement" means the Escrow Agreement entered into
--------- ------ ---------
among the Stockholder Representative, Sinclair and certain other Persons
and The Chase Manhattan Bank (as Escrow Agent) dated as of the date of this
Agreement, as such agreement is in effect from time to time.
"Indemnity Fund" means the "Escrow Fund" to which the Indemnity Escrow
--------- ----
Agreement refers.
"KOKH Purchase Agreement" means the Asset Purchase Agreement dated as
---- -------- ---------
of January 6, 1998 among Sinclair, SBOC and SBLH, as in effect from time to
time.
"Legal Requirements" means the Communications Act, the rules,
----- ------------
regulations and published policies of the FCC, and all other federal, state
and local laws, rules, regulations, ordinances, judgments, orders and
decrees.
"Lien" means any mortgage, pledge, hypothecation, encumbrance, lien
----
(statutory or otherwise), preference, priority or other security agreement
of any kind or nature whatsoever (including any conditional sale or other
title retention agreement and any lease having substantially the same
effect as any of the foregoing and any assignment or deposit arrangement in
the nature of a security device).
"LMA Stations" means broadcast television station WUXP, Nashville,
--- --------
Tennessee; and broadcast television station WUPN-TV, Greensboro, North
Carolina; in each case together with all related translator stations (if
any).
"Market Cable System" means, with respect to any Station, any cable
------ ----- ------
television system located within such Station's television market, as that
term is defined in Section 76.55(e) of the rules of the FCC.
74
<PAGE>
"Material Adverse Change" means a material adverse change after the
-------- ------- ------
date of this Agreement in the operations, business, financial condition or
results of operations of the Stations, taken as a whole, or in the
condition of the Station Assets, taken as a whole (as compared with the
operations, business, financial condition and results of operations of the
Stations, taken as a whole, and the condition of the Station Assets, taken
as a whole, on the date of this Agreement) which occurs on or prior to the
Approval Date; provided that none of the following (or any combination
--------
thereof) will be a Material Adverse Change: (i) a change in the financial
performance of the Stations; (ii) any change caused in whole or in part by
(A) any change in employees, suppliers or customers of the Stations, (B) a
change in general economic, financial or capital market conditions on a
national, state, regional or local basis, (C) a change in conditions
(including legislation, regulations or competitive activities) applicable
to the broadcast television industry generally on a national, state,
regional or local basis, (D) any matter disclosed on the attached Schedules
to this Agreement, (E) the establishment of a union or collective
bargaining arrangement, or actual or threatened union organizing activity,
involving employees of Sullivan, any of its Subsidiaries, Sullivan Two or
Sullivan Three, (F) the departure of any employees of Sullivan, any of its
Subsidiaries, Sullivan Two or Sullivan Three after the date of this
Agreement, whether or not in anticipation of the Merger, or (G) the loss of
cable system carriage of any Station.
"Mission Guarantees" means the (i) Guaranty of Sullivan dated as of
------- ----------
July 11, 1996 in favor of NationsBank of Texas, N.A., and any other lenders
referred to therein relating to certain indebtedness of Mission
Broadcasting I, Inc., a Delaware corporation, and (ii) the Guaranty of
Sullivan dated as of July 29, 1996 in favor of NationsBank of Texas, N.A.,
and any other lenders referred to therein relating to certain indebtedness
of Mission Broadcasting II, Inc., a Delaware corporation, in each case as
in effect from time to time.
"9-5/8% Indenture" means the Indenture dated as of December 15, 1993
------ ---------
among Sullivan Broadcasting (as the successor by merger to Act III), its
Subsidiaries and The State Street Bank and Trust Company, as successor
trustee, as in effect from time to time.
"9-5/8% Notes" means the 9-5/8% Notes due 2003 of Sullivan
------ -----
Broadcasting (as the successor by merger to Act III) issued pursuant to the
9-5/8% Indenture, as such Notes are in effect from time to time.
"New LMAs" means the Sullivan Two LMA and the Sullivan Three LMA.
--- ----
"Non-Continuing Station Manager" means any general manager or general
-------------- ------- -------
sales manager of a Station, if Sinclair notifies Sullivan in writing not
fewer than 10 days prior to the Closing Date that Sinclair desires that the
employment of such general manager or general sales manager be terminated
effective as of the Closing Date and Sinclair does not withdraw such notice
by contrary written notice to Sullivan on or prior to the Closing Date.
"Old Sullivan Stockholder" means any holder of record of any Sullivan
--- -------- -----------
Share Equivalent immediately prior to the Effective Time.
75
<PAGE>
"ordinary course of business" means the ordinary course of the conduct
-------- ------ -- --------
of business by Sullivan and is Subsidiaries, substantially consistent with
their respective past practices.
"Owned Stations" means broadcast television station WZTV, Nashville,
----- --------
TN; broadcast television station WUTV, Buffalo, New York; broadcast
television station WXLV-TV, Winston-Salem, North Carolina; broadcast
television station WRGT-TV, Dayton, Ohio; broadcast television station
WRLH-TV, Richmond, Virginia; broadcast television station WVAH-TV,
Charleston, West Virginia; broadcast television station WUHF, Rochester,
New York; broadcast television station WTAT-TV, Charleston, South Carolina;
broadcast television station WFXV, Utica, New York; low-power television
station WPNY-LP, Rome, New York; broadcast television station WMSN-TV,
Madison, Wisconsin; and Station KOKH; in each case together with all
associated translator stations (if any) owned by Sullivan or any of its
Subsidiaries immediately prior to the Spin-Offs.
"Parties" means the parties to this Agreement.
-------
"Permitted Encumbrances" means (i) Liens arising by operation of law
--------- ------------
and securing the payment of Taxes which are not yet due and payable, (ii)
with respect to any property leased by Sullivan, any of its Subsidiaries,
Sullivan Two or Sullivan Three as lessee, the interest of the lessor in
such property, (iii) easements, rights-of-way, reservations of rights,
conditions or covenants, zoning, building or similar restrictions or other
non-monetary Liens or defects that do not, individually or in the
aggregate, materially interfere with the use of the affected property in
the operation of the Stations as currently conducted or as presently
proposed by Sullivan and its Subsidiaries to be conducted, (iv)
restrictions on transfer imposed under state or federal securities laws or
pursuant to the Communications Act or the FCC Regulations, (v) Liens
disclosed on the attached Schedule 4G, including those described in the
title policies which are a part of such Schedule, and (vi) Liens securing
indebtedness under the Sullivan Senior Debt Arrangements, other Funded
Indebtedness and the Mission Guarantees.
A "Person" means any individual, partnership, limited liability
------
company, joint venture, corporation, trust, unincorporated association or
government or department thereof.
"Program Contracts" means all program licenses and other Contracts
------- ---------
which authorize the broadcast of film product or programs on any Station,
including those described under the heading "Program Contracts" on the
attached Schedule 4J and any of the same entered into after the date of
this Agreement and prior to the Closing in accordance with this Agreement,
and any of the same which are not required to be described on any Schedule
to this Agreement by reason of the dollar-amount or term thresholds set
forth in Section 4.J, in each case to the extent existing and as in effect
from time to time.
"Realty" means all real property interests described on the attached
------
Schedule 4G.
"Required FCC Consent" means the action(s) or order(s) by the FCC
-------- --- -------
granting its Consent to the transfer of the FCC Authorizations in the Spin-
Offs, in each case without any
76
<PAGE>
condition which in the reasonable judgment of Sullivan and the Acquiring
Parties is adverse to such Person (or, in Sullivan's or the Stockholder
Representative's reasonable judgment, adverse to any of the Old Sullivan
Stockholders or the stockholders of Sullivan Two or Sullivan Three), as the
case may be, in any material respect.
"Sale of Sullivan" means any transfer, or transfer of control, of all
---- -- --------
or substantially all of the assets of Sullivan, its Subsidiaries, Sullivan
Two and Sullivan Three, taken as a whole, whether by means of a sale of
assets, merger, stock acquisition or similar transaction, other than to the
ABRY Fund or an Affiliate of the ABRY Fund.
"Securities Act" means the Securities Act of 1933, as amended and in
---------- ---
effect from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
---------- -------- ---
as amended and in effect from time to time.
"Sinclair Common Stock" means the Class A Common Stock of Sinclair,
-------- ------ -----
par value $0.01 per share.
"Sinclair-Related Entity" means Sinclair, the Merger Sub, any direct
---------------- ------
or indirect assignee or proposed assignee (by operation of law or
otherwise) of any of the rights of any of them pursuant to this Agreement
or any other agreement contemplated hereby, any direct or indirect
successor or proposed successor to Post-Merger Sullivan's and its
Subsidiaries' or Sullivan Two's business or operation with respect to any
Station, or any Affiliate or any of them.
"Station Assets" means all of Sullivan's and its Subsidiaries' rights
------- ------
in, to and under the assets and properties of the Stations, real and
personal, tangible and intangible, of every kind and description which are
owned and used by Sullivan or its Subsidiaries in connection with the
business and operations of the Stations, including rights under con tracts
and leases, real and personal property, plant and equipment, inventories,
intangibles, licenses and goodwill, and all other assets and properties of
Sullivan and its Subsidiaries used solely in connection with the operation
of any Station; provided that the Station Assets will not include the
--------
Headquarters Assets.
"Station KOKH" means broadcast television station KOKH-TV, Oklahoma
------- ----
City, Oklahoma, together with all related translator stations (if any)
owned by Sullivan and its Subsidiaries immediately prior to the Spin-Offs.
"Stations" means the Owned Stations and the LMA Stations.
--------
"Stockholder Representative" means ABRY Partners, Inc., a Delaware
----------- --------------
corporation, or any successor thereto as the Stockholder Representative
designated pursuant to Section 13.O.
77
<PAGE>
"Straddle Period" means any Taxable period beginning before and ending
-------- ------
on or after the Closing Date.
With respect to any Person, a "Subsidiary" means any corporation,
----------
partnership, limited liability company, association or other business
entity of which, at the time of such reference, (i) if a corporation, a
majority of the total voting power of shares of stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or a majority economic interest,
is at the time owned or controlled, directly or indirectly, by that Person
or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, limited liability company, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons will be
deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons will be allocated a majority of partnership, company, association
or other business entity gains or losses or will be or control the managing
director or general partner of such partnership, company, association or
other business entity.
"Sullivan Broadcasting" means Sullivan Broadcasting Company, Inc., a
-------- ------------
Delaware corporation.
"Sullivan Common Stock" means Sullivan Shares which are common stock.
-------- ------ -----
"Sullivan Consents" means all Consents of the board of directors or
-------- --------
stockholders of Sullivan or any of its Subsidiaries and all Consents (if
any) for a Spin-Off required under any lease under which Sullivan or a
Subsidiary (as lessee) leases space on a tower for the location of any
assets described on the attached Exhibit A or the attached Exhibit B.
------- - ------- -
"Sullivan Indentures" means the 9-5/8% Indenture, the 10-1/4%
-------- ----------
Indenture and the 13-1/4% Indenture.
"Sullivan Notes" means the 9-5/8% Notes, the 10-1/4% Notes and the 13-
-------- -----
1/4% Notes.
"Sullivan Preferred Stock" means the Series A Preferred Stock of
-------- --------- -----
Sullivan, par value $0.001 per share.
"Sullivan-Related Entity" means any Affiliate of ABRY Partners Inc. or
---------------- ------
ABRY Broadcast Partners II, L.P., including Sullivan and each of its
Subsidiaries, prior to the Effective Time.
"Sullivan Right" means any security or right issued by Sullivan which
-------- -----
is not a Sullivan Share, which is outstanding immediately prior to the
Effective Time and which is directly or indirectly convertible into or
exercisable or exchangeable for any capital stock of
78
<PAGE>
Sullivan at such time.
"Sullivan Senior Debt Arrangements" means the Credit Agreement dated
-------- ------ -----------------
as of January 4, 1996 among Sullivan, Sullivan Broadcasting, the various
Agents and co-Agents referred to therein, and the several Lenders from time
to time parties thereto, together with all "Loan Documents" and other
documents and instruments relating to the "Obligations" referred to
therein, in each case as in effect from time to time.
"Sullivan Share" means any share of capital stock of Sullivan which is
-------- -----
outstanding immediately prior to the Effective Time.
"Sullivan Share Equivalent" means any Sullivan Right or Sullivan
-------- ----- ----------
Share.
"Sullivan Three" means Sullivan Broadcasting Company III, Inc., a
-------- -----
Delaware corporation.
"Sullivan Three LMA" means a local marketing or time brokerage
-------- ---------
agreement to be entered into at the time of the Closing pursuant to which
Sinclair or a Subsidiary of Sinclair will have the right to sell all or
substantially all of the advertising time on the Sullivan Three Stations
and having such other terms and conditions as Sinclair may propose and
which are reasonably acceptable to Sullivan Three.
"Sullivan Three Stations" means broadcast television station WRGT-TV,
-------- --------------
Dayton, Ohio; broadcast television station WVAH-TV, Charleston, West
Virginia; broadcast television station WTAT-TV, Charleston, South Carolina;
broadcast television station WFXV-TV, Utica, New York; low-power television
station WPNY-LP, Rome, New York; and Station KOKH; in each case together
with all associated translator stations (if any) owned by Sullivan or any
of its Subsidiaries immediately prior to the Spin-Offs.
"Sullivan Two" means Sullivan Broadcasting Company II, Inc., a
-------- ---
Delaware corporation.
"Sullivan Two LMA" means a local marketing or time brokerage agreement
-------- --- ---
to be entered into at the time of the Closing pursuant to which Sinclair or
a Subsidiary of Sinclair will have the right to sell all or substantially
all of the advertising time on the Sullivan Two Stations and having such
other terms and conditions as Sinclair may propose and which are reasonably
acceptable to Sullivan Two.
"Sullivan Two Stations" means the Stations which are not Sullivan
-------- --- --------
Three Stations.
"Tax" (and, with correlative meaning, "Taxes", "Taxable" and "Taxing")
---
means any (A) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profits, environmental (including
under Section 59A of the Tax Code), customs, duties, real property, real
property gains,
79
<PAGE>
personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax
of any kind whatsoever, including any interest, penalties or additions to
tax or additional amounts in respect of the foregoing; (B) liability of any
corporation for the payment of any amounts of the type described in clause
(A) arising as a result of being (or ceasing to be) a member of any
Affiliated Group (or being included in any Tax Return relating thereto);
and (C) liability for the payment of any amounts of the type described in
clause (A) or (B) as a result of any express or implied obligation to
indemnify or otherwise assume or succeed to the liability of any other
Person.
"Tax Code" means the Internal Revenue Code of 1986, as amended
--- ----
(including, where applicable, the Internal Revenue Code of 1954, as
amended).
"10-1/4% Indenture" means the Indenture dated as of December 21, 1995
------- ---------
among Sullivan Broadcasting, its Subsidiaries and The State Street Bank and
Trust Company, as trustee, as in effect from time to time.
"10-1/4% Notes" means the 10-1/4% Senior Subordinated Notes due 2005
------- -----
of Sullivan Broadcasting issued pursuant to the 10-1/4%Indenture, as such
Notes are in effect from time to time.
"13-1/4% Indenture" means the Indenture dated as of December 21, 1995
------- ---------
among Sullivan and the Bank of New York, as trustee, as in effect from time
to time.
"13-1/4% Notes" means the 13-1/4% Senior Accrual Debentures due 2006
------- -----
of Sullivan issued pursuant to the 13-1/4% Indenture, as such Debentures
are in effect from time to time.
"Time Sale Contracts" means all orders, agreements and other Contracts
---- ---- ---------
existing on the date of this Agreement, or entered into in the ordinary
course of business of any Stations, or as otherwise permitted by this
Agreement, between the date of this Agreement and the Closing, for the sale
of advertising time (other than any Trades) on any Station; provided that
any so-called barter Program Contract will be deemed to constitute a
"Program Contract," and not a "Time Sale Contract," for purposes of this
Agreement.
"Trade" means any trade, barter or similar arrangement for the sale of
-----
advertising time other than for cash (other than any film or program barter
arrangements and radio barter arrangements) on any Station; provided that
any so-called barter Program Contract will be deemed to constitute a
"Program Contract," and not a "Trade," for purposes of this Agreement.
"Trade-Out Payables" means all obligations of Sullivan or any of its
--------- --------
Subsidiaries to provide advertising time arising under any Trade
arrangement, whenever made.
"Trade-Out Receivables" means all current assets of Sullivan or any of
--------- -----------
its Subsidiaries which are goods or services receivable by Sullivan or any
of its Subsidiaries
80
<PAGE>
arising under any Trade arrangement, whenever made, and all other accounts
receivable of Sullivan or any of its Subsidiaries which at the option of
the obligor thereof may be satisfied or discharged other than in money.
"Transaction Documents" means this Agreement and all agreements
----------- ---------
between or among any or all of the Sullivan-Related Entities and the
Sinclair-Related Entities relating thereto, in each case as in effect from
time to time.
81
<PAGE>
LIST OF SCHEDULES
Schedule 4C Financial Statements
Schedule 4D Certain Developments
Schedule 4E FCC Matters
Schedule 4F Certain Asset-Related Matters
Schedule 4G Ownership and Other Matters
Schedule 4I Insurance
Schedule 4J Contracts
Schedule 4K Employees
Schedule 4L Litigation
Schedule 4N Conflicts
Schedule 4O Subsidiaries, Organization and Qualification
Schedule 4P Tax Matters
Schedule 4T Employee Benefit Matters
Schedule 5E Sinclair's FCC-Related Disclosures
LIST OF EXHIBITS
Exhibit A Sullivan Two Spin-Off Assets
Exhibit B Sullivan Three Spin-Off Assets
Exhibit C Opinions of Sullivan's Counsel
Exhibit D Opinions of Sinclair's and the Merger Sub's Counsel
Exhibit E Form of Earnest Money Letter of Credit
82
<PAGE>
EXHIBIT 10.7
Draft 3/13/98
AGREEMENT AND PLAN OF MERGER
AMONG
SULLIVAN BROADCASTING COMPANY II, INC.
SINCLAIR BROADCAST GROUP, INC.,
and
ABRY PARTNERS, INC.
(as Stockholder Representative)
EFFECTIVE AS OF
FEBRUARY 23, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is entered into on March 16, 1998,
but is effective as of March 16, 1998, among Sullivan Broadcasting Company II,
Inc., a Delaware corporation ("Sullivan"), Sinclair Broadcast Group, Inc., a
--------
Maryland corporation ("Sinclair"), on behalf of itself and a subsidiary to be
--------
formed by it pursuant to Article I below, and ABRY Partners, Inc., a Delaware
corporation ("ABRY Partners"), solely in its capacity as the Stockholder
---- --------
Representative referred to in this Agreement.
WHEREAS, the parties to this Agreement are among the parties to an
Agreement and Plan of Merger dated as of February 23, 1998 (the "Prior
-----
Agreement"), and the parties to the Prior Agreement have agreed to restate the
- - - ---------
Prior Agreement by entering into this Agreement and certain other agreements;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows,
effective as of the date of the Prior Agreement:
ARTICLE I
FORMATION OF SUBSIDIARY
On or prior to March 20, 1998, Sinclair will form a wholly-owned Subsidiary
which will be a Delaware corporation. Such Subsidiary will be the "Merger Sub"
referred to in this Agreement. Sinclair will cause such Subsidiary to become a
party to this Agreement and the Indemnity Escrow Agreement by executing and
delivering to Sullivan a counterpart thereof.
ARTICLE II
MERGER
2.A General. Upon and subject to the terms and conditions stated in
-------
this Agreement, on the Closing Date, effective as of the Effective Time, the
Merger Sub will merge with and into Sullivan in accordance with the terms and
conditions of this Agreement. Sullivan will be the corporation which survives
such merger (the "Merger") and in such capacity is sometimes referred to in
------
this Agreement as "Post-Merger Sullivan."
2.B Effect on Sullivan Shares. Immediately after the Closing,
------ -- -------- ------
effective at the Effective Time, subject to the terms and conditions of this
Agreement (1) the Merger will be effected by the filing with the Secretary of
the State of Delaware of a Certificate of Merger; (2) each Sullivan Share
outstanding at the Effective Time, by said occurrence and with no further action
on the part
<PAGE>
of the holder thereof, will be canceled without consideration; (3) each share of
common stock of the Merger Sub outstanding immediately prior to the Effective
Time will, by said occurrence and with no further action on the part of the
holder thereof, be transformed and converted into one share of common stock of
Post-Merger Sullivan, so that immediately thereafter Sinclair will be the sole
and exclusive owner of all equity securities of Post-Merger Sullivan; and (4)
Post-Merger Sullivan will be the owner of the business, assets, rights,
privileges, immunities, powers, franchises and other attributes of Sullivan and
the Merger Sub.
2.C Certificate of Incorporation. Immediately after the Effective
----------- -- -------------
Time, the certificate of incorporation of Post-Merger Sullivan will be the
certificate of incorporation of the Merger Sub as in effect immediately prior to
the Effective Time.
2.D Bylaws. Immediately after the Effective Time, the bylaws of
------
Post-Merger Sullivan will be the bylaws of the Merger Sub as in effect
immediately prior to the Effective Time.
2.E Board of Directors and Officers. The board of directors and
----- -- --------- --- --------
officers of the Merger Sub immediately prior to the Effective Time will be the
board of directors and the officers, respectively, of Post-Merger Sullivan
immediately after the Effective Time, and such individuals will serve in such
positions for the respective terms provided by applicable Legal Requirements or
in the bylaws of Post-Merger Sullivan until their respective successors are
elected and qualified.
2.F Name. The name of Post-Merger Sullivan will be designated by
----
Sinclair.
2.G Transfer of Sullivan Stock. At the Effective Time, the stock
-------- -- -------- -----
transfer books of Sullivan will be closed and no transfer of Sullivan Shares
will thereafter be made.
ARTICLE III
MERGER CONSIDERATION AND CLOSING
3.A Merger Consideration. No consideration will be payable to the
------ -------------
holders of Sullivan Shares by reason of or in connection with the Merger.
3.B Closing Time and Place. Subject to Section 12.A, the
------- ---- --- -----
consummation of the Merger (the "Closing") will be held in the offices of
-------
Kirkland & Ellis, in New York, New York, at 10:00 a.m., local time, on the date
determined pursuant to the following two sentences, or at such other place
and/or at such other time and date as the Merger Sub and Sullivan
2
<PAGE>
may agree in writing. The Merger Closing will occur on a date designated by the
Merger Sub by written notice to Sullivan not less than ten Business Days in
advance of such date (which designated date will be not later than the
Expiration Date). Notwithstanding the foregoing, but subject to Section 12.A, if
on a date for the Closing described in the preceding sentence or specified
pursuant to this sentence any condition of the Merger Sub or Sullivan specified
in Article IX or X has not been satisfied (and will not be satisfied by the
delivery of documents at the Closing) or waived in writing, then the date for
the Closing will be extended to any date specified by the Merger Sub to Sullivan
with not less than 10 Business Days' notice to the other (subject to the Merger
Sub's and Sullivan's respective conditions to the Closing set forth in Articles
IX and X being satisfied or waived in writing on such specified date); provided
--------
that any such specified date will be on or prior to the Expiration Date.
3.C Deliveries at the Closing. All actions on the Closing Date
---------- -- --- -------
(including those described in Section 11.D) will be deemed to occur
simultaneously, and no document or payment to be delivered or made on the
Closing Date will be deemed to be delivered or made until all such documents and
payments are delivered or made to the reasonable satisfaction of Sullivan, the
Merger Sub, the Stockholder Representative and their respective legal counsel.
(1) Deliveries by Sullivan. At the Closing, Sullivan will
---------- -- --------
deliver to the Merger Sub the following:
(a) the minute book, stock transfer book and other records
relating to the internal corporate affairs of Sullivan which are in
Sullivan's possession, and resignations of the officers and directors
of Sullivan, which resignations will be effective as of the Effective
Time;
(b) all mortgage discharges or releases of Liens, if any,
that will be sufficient to cause the Station Assets held by Sullivan
to be as described in Section 4.E;
(c) a certificate of the President or Chief Executive
Officer of Sullivan dated the Closing Date to the effect that, except
as specified in such certificate, to the best of such officer's
knowledge, the conditions set forth in Sections 10.A(1) and 10.A(2)
have been fulfilled;
(d) a certificate of Sullivan dated the Closing Date to the
effect that, except as specified in such certificate, the conditions
set forth in Sections 10.A(1) and 10.A(2) have been fulfilled;
(e) a certified copy of the resolutions or action by written
consent of the board of directors and stockholders of Sullivan
authorizing the Merger and Sullivan's execution, delivery and
performance of this Agreement;
3
<PAGE>
(f) certificates as to the existence and/or good standing of
Sullivan, in each case issued by the Secretary of State or a
comparable official of Delaware and each other jurisdiction (if any)
in which it is then required to be qualified to do business,
certifying as to the existence and/or good standing of such
corporation in such jurisdictions;
(g) one or more opinions of counsel or special counsel to
Sullivan, each dated the Closing Date, as to the matters set forth in
the attached Exhibit A; and
------- -
(h) such other documents, instruments and receipts as the
Merger Sub may reasonably request in order to effectuate the Merger
and the other transactions contemplated by this Agreement to be
consummated at the Closing.
Each of the foregoing will be reasonably satisfactory in form to the Merger
Sub and its legal counsel.
(2) Deliveries by the Merger Sub. At the Closing, the Merger Sub
---------- -- --- ----------
will deliver to the Stockholder Representative the following:
(a) a certificate of an officer or similar official of the
Merger Sub dated the Closing Date to the effect that, except as
specified in such certificate, to the best of such officer's or
official's knowledge, the conditions set forth in Sections 9.A(1) and
9.A(2) have been fulfilled;
(b) a certificate of an officer or similar official of
Sinclair dated the Closing Date to the effect that, except as
specified in such certificate, to the best of such officer's or
official's knowledge, the conditions set forth in Sections 9.A(1) and
9.A(2) have been fulfilled;
(c) a certificate of the Merger Sub dated the Closing Date
to the effect that, except as specified in such certificate, the
conditions set forth in Sections 9.A(1) and 9.A(2) have been
fulfilled;
(d) a certificate of Sinclair dated the Closing Date to the
effect that, except as specified in such certificate, the conditions
set forth in Sections 9.A(1) and 9.A(2) have been fulfilled;
(e) a certified copy of the resolutions or action by written
consent of the board of directors and stockholders of the Merger Sub
authorizing the Merger and the Merger Sub's execution, delivery and
performance of this Agreement;
(f) a certified copy of the resolutions or action by written
consent of the board of directors of Sinclair authorizing Sinclair's
execution, delivery and
4
<PAGE>
performance of this Agreement;
(g) certificates as to the existence and/or good standing of
Sinclair and the Merger Sub, in each case issued by the Secretary of
State or a comparable official of such jurisdictions as Sullivan may
reasonably request and dated on or after the fifth Business Day prior
to the Closing Date, certifying as to the existence and/or good
standing of such corporation in such jurisdictions;
(h) one or more opinions of counsel or special counsel to
Sinclair and the Merger Sub, each dated the Closing Date, as to the
matters set forth in the attached Exhibit B; and
------- -
(i) such other documents, instruments and receipts as
Sullivan may reasonably request in order to effectuate the Merger and
the other transactions contemplated by this Agreement to be
consummated at the Closing.
Each of the foregoing will be reasonably satisfactory in form to Sullivan
and its legal counsel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SULLIVAN
Subject to Section 13.Q, Sullivan makes the following representations
and warranties:
4.A Organization. Sullivan is a corporation which is duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
From and after the Spin-Off, Sullivan will be qualified to do business or have
similar status under the laws of each jurisdiction in which such qualification
is required by applicable Legal Requirements. Sullivan has the power and
authority to carry on the business being conducted by it, to own and operate the
Station Assets owned and operated by it, and to enter into and consummate the
transactions contemplated to be consummated by it pursuant to this Agreement.
4.B Action. Each action necessary to be taken by or on the part of
------
Sullivan in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated to be consummated by Sullivan
pursuant to this Agreement and necessary to make the same effective will be duly
and validly taken by, and be effective at, the time by which such action is
required to be taken. This Agreement has been duly and validly authorized,
executed, and delivered by Sullivan and constitutes its valid and binding
agreement, enforceable against Sullivan in accordance with and subject to its
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies.
5
<PAGE>
4.C FCC Authorizations. As of the time of the Closing, Sullivan will
--- --------------
be the holder of the FCC Authorizations. As of the time of the Closing, except
as set forth on the attached Schedule 4C, (i) the Authorizations will constitute
-------- --
all of the licenses and authorizations required under the Communications Act, or
the current rules, regulations, and policies of the FCC, for the operation of
the Stations as now conducted; (ii) the FCC Authorizations will be in full force
and effect and are subject to or scheduled for renewal on the respective dates
specified on the attached Schedule 4C (unless theretofore renewed after the date
-------- --
of this Agreement); (iii) the FCC Authorizations will be valid for the full
respective terms thereof; (iv) Sullivan will have no reason to believe that the
FCC Authorizations will not be renewed for a full and customary term in the
ordinary course with no materially adverse conditions (except with respect to
general rule-making and similar matters relating generally to television
broadcast stations by reason of any action or omission of Sinclair or any of its
Subsidiaries); (v) there will not be not pending, or, to the knowledge of
Sullivan, threatened, any action by or before the FCC to revoke, cancel,
rescind, modify, or refuse to renew in the ordinary course any of the FCC
Authorizations, and there will not be pending, or, to the knowledge of any such
Person, threatened, issued, or outstanding by or before the FCC, any
investigation, order to show cause, notice of violation, notice of apparent
liability, or notice of forfeiture or complaint against Sullivan with respect to
any Station, in each case other than by reason of any actual or alleged action
or omission of Sinclair or any of its Subsidiaries; (vi) Sullivan will have
complied in all material respects with the FCC Authorizations, the
Communications Act, and the current rules, regulations and policies of the FCC;
and (vii) all documents required by 47 C.F.R. Section 73.3526 to be kept in each
Station's public inspection file are in such file and such file will be
maintained in proper order and complete up to and through the Closing Date.
4.D Condition of Assets. Except as set forth on the attached
--------- -- ------
Schedule 4D, the material tangible assets of Sullivan and the improvements on
- - - -------- --
any real property which are used by it (a) at the time of the Spin-Off and on
the Closing Date will in all material respects be in good and technically sound
operating condition (ordinary wear and tear excepted) and are not in need of
repair and in a condition which would be sufficient to permit the owner thereof
to operate the Stations (in the manner in which the Stations are operated or
programmed by Sullivan Holdings and its Subsidiaries as of the date of this
Agreement) in compliance with the terms of the FCC Authorizations, the
Communications Act and current FCC rules and regulations (if such owner had the
right to use the Station Assets not owned by Sullivan and such Station Assets
were in at least such condition), and (b) have in all material respects been
maintained in a manner consistent with generally accepted standards of good
engineering practice and to the knowledge of Sullivan, all applicable federal,
state and local statutes, ordinances, rules and regulations, including, without
limitation, all applicable tower painting and lighting requirements.
4.E Title, Etc. Immediately after the Spin-Off, Sullivan will have
------ ---
good title to, or a valid leasehold in, the tangible assets and personal
property included in the Station Assets, and all such assets and personal
property will on the Closing Date (after the repayment in full of the
indebtedness of Sullivan and all related interest and other obligations and the
release of all related Liens and the Mission Guarantees) be free and clear of
all Liens other than Permitted Encumbrances.
6
<PAGE>
Sullivan possesses (and immediately after the Merger, will possess) adequate
rights, licenses, or other authority to use the call letters presently used by
the Stations, free and clear of all Liens other than Permitted Encumbrances.
4.F Litigation. Except as set forth on the attached Schedule 4F:
---------- -------- --
(1) on the date of this Agreement, Sullivan is not operating
under or subject to or in default with respect to any order, writ,
injunction, or decree of any court or federal, state, municipal, or other
governmental department, commission, board, agency, or instrumentality
arising out of a proceeding to which it is or was a party, and on the
Closing Date, no such item will have or reasonably be expected to result in
a Material Adverse Change; and
(2) on the date of this Agreement, there is no litigation pending
by or against, or to the knowledge of Sullivan threatened against, Sullivan
which interferes with, or could reasonably be expected to interfere with,
(a) the operations of the Stations as presently conducted or (b) the
ability of Sullivan to carry out the transactions contemplated to be
carried out by it pursuant to this Agreement, and on the Closing Date, no
such pending or threatened litigation will have or will reasonably be
expected to result in a Material Adverse Change.
There are no attachments, executions, or assignments for the benefit of
creditors or voluntary or involuntary proceedings in bankruptcy initiated or
contemplated by, or, to the knowledge of Sullivan, threatened or pending
against, Sullivan.
4.G Compliance with Laws. Other than with respect to matters
---------- ---- -----
disclosed in the attached Schedule 4C or the attached Schedule 4F, subject to
-------- -- -------- --
obtaining all applicable Consents: (a) Sullivan, with respect to the Station
Assets, is in compliance in all material respects with all applicable Legal
Requirements, and (b) the present uses by Sullivan of the Station Assets which
it owns do not in any material respect violate any such Legal Requirements.
4.H No Defaults. Except for (w) any item on the attached Schedule
-- -------- --------
4H, (x) the requisite approval of the FCC, (y) compliance with the requirements
- - - --
of the Hart-Scott-Rodino Act, and (z) any Consent which may be required under
any Contract, on the Closing Date (after giving effect to all Consents which
have been obtained) neither the execution and delivery by Sullivan of this
Agreement, nor the consummation by Sullivan of the Merger or the other
transactions contemplated by this Agreement to be consummated by Sullivan,
requires any Consent under, will constitute, or, with the giving of notice or
the passage of time or both, would constitute, a material violation of or would
conflict in any material respect with or result in any material breach of or any
material default under, or will result in the creation of any Lien (other than
any Permitted Encumbrance or any Lien in favor of one or more of the Acquiring
Parties) under, any of the terms, conditions, or provisions of any Legal
Requirement to which Sullivan is subject, or of the certificate of incorporation
or by-laws of Sullivan.
7
<PAGE>
4.I Subsidiaries. Sullivan does not own any shares of stock or other
------------
equity or debt securities of or any interest in any Person.
4.J Tax Matters.
--- -------
(1) Tax Returns. Except as set forth on the attached Schedule 4J
--- ------- -------- --
or as has not caused and is not reasonably expected to cause a Material
Adverse Change: (a) all federal, state, local and foreign tax returns and
tax reports required to be filed by Sullivan have been timely filed (taking
into account any extensions of which Sullivan may have availed itself) with
the appropriate governmental agencies in all jurisdictions in which such
returns and reports are required to be filed, and all of the foregoing
(including any summary balance sheets included therein) are true, correct,
and complete; (b) all federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, and other taxes
(including interest and penalties) due and payable by Sullivan have been
fully paid; (c) no issues have been raised in writing (or, to Sullivan's
knowledge, orally) and are currently pending by the Internal Revenue
Service or any other taxing authority in connection with any of such
returns and reports; (d) no waivers of statutes of limitations as to tax
matters have been given or requested with respect to Sullivan; (e) the
federal, state, local, and foreign income tax and franchise tax returns of
or with respect to Sullivan have not been examined by the Internal Revenue
Service or by appropriate state, provincial, or departmental tax
authorities; (f) no issue has been raised in writing (or, to Sullivan's
knowledge, orally) with Sullivan by any taxing authority which can
reasonably be expected to result in a deficiency for any fiscal year or all
deficiencies asserted or assessments (including interest and penalties)
made as a result of any examinations have been fully paid, and no proposed
(but unassessed) additional taxes, interest, or penalties have been
asserted; (h) Sullivan is not (and has never been) a party to any Tax
sharing agreement with any Person who was not a member of an Affiliated
Group consisting in whole or in part of the parties to such agreement, and
Sullivan has no liability for the Taxes of any other Person (other than
Sullivan Holdings and its Subsidiaries) pursuant to Reg. Section 1.1502-6
under the Tax Code (or any similar provision of state, local or foreign Tax
law) or as a transferee or successor or by contract.
(2) Tax Elections and Special Tax Status. Except as set forth on
--- --------- --- ------- --- ------
the attached Schedule 4J: (a) Sullivan is not and has never been a United
-------- --
States real property holding corporation within the meaning of Section
897(c)(2) of the Tax Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Tax Code; (b) Sullivan has not made any election or
filed any consent pursuant to Section 341(f) of the Tax Code relating to
collapsible corporations; (c) Sullivan has not entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to Sullivan
pursuant to Section 280G of the Tax Code or an excise tax to the recipient
of such payment pursuant to Section 4999 of the Tax Code; and (d) Sullivan
has not agreed to make, nor is it required to make, any adjustment under
Section 481(a) of the Tax Code by reason of a change in accounting method
or otherwise.
8
<PAGE>
4.K Capital Stock. As of the date of this Agreement, Sullivan has
------- -----
authorized capital stock consisting of 80,000,000 shares of capital stock, of
which (a) 25,000,000 shares will be designated Class A One Common Stock, par
value $0.001 per share, (b) 25,000,000 shares will be designated Class B-1
Common Stock, par value $0.001 per share, (c) 25,000,000 shares will be
designated Class B-2 Common Stock, par value $0.001 per share, and (d) 5,000,000
shares will be designated Class C Common Stock, par value $0.001 per share. As
of the Closing Date, all of the issued and outstanding capital stock of Sullivan
will be duly authorized and validly issued, fully paid and nonassessable, and
there will be no preemptive rights in respect thereof in favor of any Person
(other than any Person which holds Sullivan Shares). There are no outstanding
options, warrants or other rights to subscribe for or purchase from Sullivan, no
contracts or commitments providing for the issuance of, or the granting of
rights to acquire, and no securities convertible into or exchangeable for, any
shares of capital stock or any other ownership interest of Sullivan.
4.L Books and Records. The minute books of Sullivan contain records
----- --- -------
which are complete and accurate in all material respects of all meetings and
other corporate actions of its stockholders, its board of directors and all
committees, if any, appointed by its board of directors. The books of accounts,
ledgers, order books, records and documents of Sullivan, in all material
respects, accurately and completely reflect information relating to its
business, the nature, acquisitions, maintenance and location of its assets and
the transactions giving rise to its obligations and accounts receivable.
4.M Absence of Significant Undisclosed Liabilities. Sullivan has no
------- -- ----------- ----------- -----------
debt, liability or obligation of any kind, whether accrued, absolute, contingent
or otherwise, including any liability or obligation on account of Taxes or any
governmental charges or penalty, interest or fines, which would be required to
be reflected in its balance sheet prepared in accordance with GAAP and which
would have, or which in the case of contingent or inchoate liabilities, would
have if accrued or absolute, a material adverse effect on the financial
condition of Sullivan, viewed as a whole with Sullivan Holdings, its
Subsidiaries and Sullivan Three as of the Closing Date, other than any liability
or obligation (a) reflected in any Sullivan Holdings Financial Statement, (b)
identified with particularity in any attached Schedule or arising under any
Contract which is described, or which is not required to be described, on any
attached Schedule or the Contracts Schedule, (c) incurred in the ordinary course
of business since September 30, 1997, (d) incurred in connection with the
transactions contemplated by this Agreement, or (e) pursuant to the promissory
note issued to Sullivan Holdings and its Subsidiaries in connection with the
Spin-Off.
4.N Employee Benefit Plans. Other than any plan described on the
-------- ------- -----
attached Schedule 4N, (a) Sullivan does not maintain, is not a party to and
-------- --
make no contributions to any of the following: (i) any "employee pension
benefit plan," (as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA")); or (ii) any "employee welfare
-----
benefit plan" (as such term is defined in Section 3(a) of ERISA), whether
written or oral; and (b) Sullivan has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
employee pension benefit plan subject to Section 302 of ERISA or Section 412 of
the Tax Code
9
<PAGE>
or Title IV of ERISA (including any multiemployer plan). No employee or former
employee of Sullivan, and no beneficiary of any such employee or former employee
is, by reason of such employee's or former employee's employment, entitled to
receive any benefits, including death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than continuation
coverage mandated under Section 4980B of the Tax Code or comparable state law.
4.O Brokers. There is no broker or finder or other Person who would
-------
have any valid claim against Sullivan or any Acquiring Party for a commission or
brokerage fee in connection with this Agreement or the transactions contemplated
hereby as a result of any agreement or understanding of or action taken by
Sullivan or any of its Affiliates.
4.P Disclosure. To the knowledge of Sullivan, no statement of a
----------
material fact set forth in this Article IV contains any statement of any
material fact which is untrue in any material respect or omits to state a
material fact which is necessary in order to make the statements set forth in
this Article IV not misleading in any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
SINCLAIR AND THE MERGER SUB
Sinclair and the Merger Sub, jointly and severally, represent and
warrant as follows:
5.A Incorporation. Sinclair is a corporation duly organized, validly
-------------
existing, and in good standing (or has comparable active status) under the laws
of the State of Maryland, and Sinclair has the corporate power and authority to
enter into and consummate the transactions contemplated to be consummated by it
pursuant to this Agreement. From and after the time it is formed, the Merger
Sub will be a corporation duly organized, validly existing, and in good standing
(or has comparable active status) under the laws of the State of Delaware and
will have the corporate power and authority to enter into and consummate the
transactions contemplated to be consummated by it pursuant to this Agreement.
5.B Corporate Action. Each action necessary to be taken by or on the
--------- ------
part of either Sinclair or the Merger Sub in connection with the execution and
delivery of this Agreement and the consummation of transactions contemplated
hereby to be consummated by it and necessary to make the same effective duly and
validly taken by, and be effective at, the time by which such action is required
to be taken. This Agreement has been duly and validly authorized, executed, and
delivered by each of Sinclair and the Merger Sub and constitutes a valid and
binding agreement, enforceable against each of them in accordance with and
subject to its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, arrangement, moratorium or
similar laws affecting the rights of creditors generally and the availability of
equitable
10
<PAGE>
remedies.
5.C No Defaults. Except as set forth on the attached Schedule 4H,
-- -------- -------- --
the requisite approval of the FCC and compliance with the requirements of the
Hart-Scott-Rodino Act, on the Closing Date (after giving effect to all approvals
and consents which have been obtained), neither the execution and delivery by
Sinclair or the Merger Sub of this Agreement, nor the consummation by Sinclair
or the Merger Sub of the Merger and the other transactions contemplated by this
Agreement to be consummated by it, will constitute, or, with the giving of
notice or the passage of time or both, would constitute, a material violation of
or would conflict in any material respect with or result in any material breach
of or any material default under, any of the terms, conditions, or provisions of
any Legal Requirement to which Sinclair or the Merger Sub is subject, or of
Sinclair's or the Merger Sub's certificate of incorporation or by-laws or
similar organizational documents, or of any material contract, agreement, or
instrument to which Sinclair or the Merger Sub is a party or by which Sinclair
or the Merger Sub is bound.
5.D Brokers. There is no broker or finder or other Person who would
-------
have any valid claim against Sullivan (except after the Effective Time) or any
Old Sullivan Stockholder for a commission or brokerage fee in connection with
this Agreement or the transactions contemplated hereby as a result of any
agreement or understanding of or action taken by Sinclair, the Merger Sub or any
Affiliate of any of them.
5.E Qualification as a Broadcast Licensee. Sinclair and the Merger
------------- -- - --------- --------
Sub will, at the time of the filing of the applications for the Required FCC
Consent described in Section 6.A, be legally and financially qualified under the
Communications Act, and the rules and regulations promulgated by the FCC
thereunder, to control Sullivan (in the case of Sinclair) or be the successor by
merger to Sullivan and the holder of the FCC Authorizations (in the case of the
Merger Sub). To Sinclair's and the Merger Sub's knowledge, no fact exists as of
the date of this Agreement that would, under the Communications Act, the
existing rules, regulations, policies, and practices of the FCC or any other
Legal Requirement, disqualify either Sinclair or the Merger Sub as the direct or
indirect holder of any FCC Authorization or as owner and operator of the related
Station Assets or any related Station.
5.F Litigation. There is no litigation pending by or against, or to
----------
Sinclair's or the Merger Sub's knowledge (after due inquiry) threatened against,
Sinclair or the Merger Sub related to or affecting Sinclair's or the Merger
Sub's ability fully to carry out the transactions contemplated to be consummated
by them pursuant to this Agreement. There are no attachments, executions, or
assignments for the benefit of creditors or voluntary or involuntary proceedings
in bankruptcy contemplated by, or, to Sinclair's or the Merger Sub's knowledge,
threatened or pending against, Sinclair or the Merger Sub.
5.G Disclosure. To Sinclair's and the Merger Sub's knowledge, no
----------
statement of a material fact set forth in this Article V contains a statement of
any material fact which is untrue in any material respect or omits to state a
material fact which is necessary in order to make the
11
<PAGE>
statements set forth in this Article V not misleading in any material respect.
ARTICLE VI
APPLICATIONS FOR REQUIRED FCC CONSENT
6.A Preparation and Filing. Within 30 Business Days after Sinclair's
----------- --- ------
or its own written request after the Spin-Off, each of Sullivan and Sinclair
will, and will cause its Subsidiaries to, complete the portions of the
applications for the Required FCC Consent which pertain to it and jointly file
such applications with the FCC. Each of Sullivan and Sinclair will, and will
cause its Subsidiaries to, diligently take or cooperate in the taking of all
steps which are reasonably within its ability to take and which are necessary,
proper, or desirable to expedite the prosecution of such applications and to
cause the Required FCC Consent expeditiously to become Granted and expeditiously
to become a Final Order.
6.B Certain Actions. Sullivan will refrain from making any filing or
------- -------
announcement or taking (or causing or assisting any other Person to take) any
other action which reasonably could be expected to delay the Required FCC
Consent being Granted or becoming a Final Order in any respect without
Sinclair's prior written consent. Without limiting Section 6.D, Sinclair will,
and will cause its Subsidiaries to, refrain from making any filing or
announcement or taking (or causing or assisting any other Person to take) any
other action which reasonably could be expected to delay the Required FCC
Consent being Granted or becoming a Final Order in any respect without the prior
written consent of Sullivan (or, after the Closing, the Stockholder
Representative).
6.C Notice of Objections, etc. Sullivan will promptly provide
------ -- ----------- ---
Sinclair (or, after the Closing, the Stockholder Representative) with a copy of
any pleading, order, or other document served on Sullivan relating to such
applications (other than any of the same which is addressed to or states that it
is to be served upon or delivered to the Person to whom such copy is to be
provided or such Person's communications counsel). Sinclair will promptly
provide Sullivan (or, after the Closing, the Stockholder Representative) with a
copy of any pleading, order, or other document served on Sinclair or any of its
Subsidiaries relating to such applications (other than any of the same which is
addressed to or states that it is to be served upon or delivered to the Person
to whom such copy is to be provided or such Person's communications counsel).
6.D Prohibited Actions. Sinclair will not, and will not cause or
---------- -------
permit any of its Subsidiaries to, make any "major amendment" (as that term is
used in Section 73.3578(b) of the rules of the FCC (Ch. 47 C.F.R.)) in respect
of any such application other than (i) with prior written consent of Sullivan
(prior to the Closing) or the Stockholder Representative (after the Closing),
(ii) in order to reflect any change in the proposed operating or ownership
structure of the Merger Sub or any Station which the FCC or its staff has
indicated to Sinclair or any Affiliate or agent of Sinclair is a condition to
the Required FCC Consent to be Granted, or (iii) if required by a change in the
12
<PAGE>
rules, regulations or policies of the FCC to disclose any attributable interest
which Sinclair or any of its Subsidiaries may be deemed to have by virtue of any
local marketing, time brokerage or similar arrangement in effect on the date of
this Agreement.
13
<PAGE>
ARTICLE VII
COVENANTS OF SULLIVAN
7.A Actions after Spin-Off and prior to Merger.
------- ----- -------- --- ----- -- ------
(1) Operation Generally. After the Spin-Off and until the
--------- ---------
Closing, Sullivan will (a) with respect to Station Assets, keep books of
account, records, and files substantially in accordance with the practices
of Sullivan Holdings and its Subsidiaries with respect to such assets of
such type prior to the Spin-Off, (b) promptly execute and timely file any
applications reasonably required for renewal of the FCC Authorizations, (c)
timely file (taking into account any extensions of which Sullivan may avail
itself) true, correct and complete federal, state, local and foreign tax
returns and tax reports required to be filed by Sullivan, (d) fully pay all
federal, state, local and foreign income, profits, franchise, sales, use,
occupation, property, excise and other taxes (including interest and
penalties) due and payable by Sullivan, (e) to the extent necessary to the
conduct of its business: use reasonable efforts to (i) perform its
obligations under all Station Contracts to which it is a party, (ii)
preserve the Station Assets held by it, and (iii) maintain in full force
and effect the FCC Authorizations, and (f) maintain property damage
insurance in such amounts, and insuring against such risks, as Sinclair may
reasonably request.
(2) Contracts. After the Spin-Off and until to the Closing,
---------
Sullivan will be entitled to renew or extend the term of any Contract
which, by its terms, has expired at the time of such renewal or extension
or which would expire prior to the sixtieth day after the effective date of
such renewal or extension, and, in connection therewith, to agree to
increase the amounts payable thereunder during any such renewal or extended
term in accordance with Sullivan Holdings' and its Subsidiaries' past
practice in the operation of the Stations, or enter into any other Contract
which is reasonably required in order to enable it to comply with its
obligations under this Agreement.
(3) Restrictions. After the Spin-Off and until to the Merger
------------
Closing, Sullivan will not without the prior written consent of Sinclair
(to the extent the following restrictions are permitted by the FCC and all
other applicable Legal Requirements):
(a) other than in the ordinary course of business, sell,
lease (as lessor), transfer, or agree to sell, lease (as lessor), or
transfer any Station Assets which are required for the operation of
any Station without replacement thereof with a functionally equivalent
or superior asset of substantially equal or greater value;
(b) apply to the FCC for any construction permit that would
materially restrict any Station's present operations or make any
material adverse change in the buildings or leasehold improvements
which constitute Station Assets;
14
<PAGE>
(c) merge or consolidate, or agree to merge or consolidate,
with or into any Person;
(d) enter into any Contract with any of its Affiliates which
will not be performed in its entirety or by its terms terminate at or
prior to the time of the Closing;
(e) cause any of its assets or properties to become subject
to any Lien, other than any Permitted Encumbrance;
(f) commit any material breach of any material Contract to
which it is a party; or
(g) change any material tax election if such change could
reasonably be expected to adversely affect Post-Merger Sullivan,
except to the extent required by any Legal Requirement, any Contract
or GAAP.
(4) No Premature Assumption of Control. Nothing contained in
-- --------- ---------- -- -------
this Agreement will give any Acquiring Party any right to control the
programming, operations, or any other matter relating to the Stations prior
to the Closing, and Sullivan will have complete control of the programming,
operations, and all other matters relating to the Stations up to the time
of the Closing.
7.B Organization/Goodwill. After the Spin-Off and until to the
---------------------
Closing, Sullivan will use reasonable efforts to preserve the business
organization of Sullivan with respect to the Stations and preserve the goodwill
of the Stations' suppliers, customers, and others, to the extent such Persons
have business relations with Sullivan. This Section 7.B will not apply to the
Corporate Personnel, with respect to continued service by them after the Closing
(it being understood that the Corporate Personnel intend to resign their
respective positions with Sullivan effective as of the Effective Time).
7.C Access to Facilities, Files, and Records. From time to time at
------ -- ----------- ------ --- -------
the request of Sinclair after the Spin-Off and prior to the Closing, Sullivan
will give or cause to be given to the officers, employees, accountants, counsel,
and representatives of Sinclair and the Merger Sub
(a) access (in the presence of any representative designated
by Sullivan, at Sullivan's option), upon reasonable prior notice,
during normal business hours, to all facilities, property, accounts,
books, deeds, title papers, insurance policies, licenses, agreements,
contracts, commitments, records, equipment, machinery, fixtures,
furniture, vehicles, accounts payable and receivable, and inventories
of Sullivan (but, in any event, not personnel, unless Sullivan
otherwise consents) related to the Stations, including for purposes of
permitting Sinclair to perform "Phase One" (and, after consulting with
Sullivan as to the scope thereof,
15
<PAGE>
"Phase Two") environmental surveys with respect to the Station Assets,
and
(b) all such other information in Sullivan's possession
concerning the affairs of the Stations as Sinclair may reasonably
request,
in each case at Sinclair's expense; provided that the foregoing does not
--------
disrupt or interfere with the business and operations of Sullivan or any
Station in any material respect ("materiality," for purposes of this
proviso, being determined by reference to each Station individually, and
not taken as a whole).
7.D Hart-Scott-Rodino Matters. Within thirty (30) days after
-------------------------
Sinclair's or its own request after the Spin-Off, Sullivan will complete all
documents (if any) required to be filed with the Federal Trade Commission (the
"FTC") and the United States Department of Justice (the "DOJ") with respect to
--- ---
itself and/or its Affiliate(s) and concerning the Merger in order to comply with
the Hart-Scott-Rodino Act and together with Sinclair and/or the appropriate
Affiliate(s) of Sinclair who are required to join in such filings, will file the
same with the FTC and the DOJ. Sullivan will promptly furnish all materials
thereafter required by the FTC, the DOJ or any other governmental entity having
jurisdiction over such filings, and will take all reasonable actions and will
file and use reasonable efforts to have declared effective or approved all
documents and notifications with any such governmental entity, as may be
required under the Hart-Scott-Rodino Act or other federal antitrust laws for the
consummation of the Merger.
7.E Consents. Except as provided in Article VI and Section 7.D, it
--------
is agreed that (1) as among Sullivan and the Acquiring Parties, it will be the
sole responsibility of the Acquiring Parties to timely obtain all Acquiring
Party Consents, (2) so long as Sullivan complies with its obligations pursuant
to the following sentence and Article VI and Section 7.D, Sullivan, the Old
Sullivan Stockholders and the Stockholder Representative will not be liable to
any Person for any failure to obtain or other absence of any effective Acquiring
Party Consent, and (3) except as provided in Sections 10.C and 10.D, the absence
of any effective Consent will not excuse any Acquiring Party from consummating
the Merger. Sullivan will use reasonable efforts (without being required to
make any payment not specifically required by the terms of any licenses, leases,
and other contracts), including executing any related agreement or undertaking
which does not take effect until the Effective Time, to obtain the Sullivan
Consents and to assist the Acquiring Parties (at the Acquiring Parties' request
and expense) to (a) timely obtain all Acquiring Party Consents or, in the
absence of any Acquiring Party Consent (where applicable), one or more
replacement agreements, and (b) cause each Consent or replacement agreement to
become effective as of the time of the Spin-Off or the Effective Time, as
applicable.
7.F Notice of Proceedings. After the Spin-Off and prior to the
---------------------
Closing, Sullivan will promptly notify Sinclair in writing upon becoming aware
of any order or decree or any complaint praying for an order or decree
restraining or enjoining the consummation of the Merger or any other transaction
contemplated by this Agreement to be consummated
16
<PAGE>
by Sullivan, or upon receiving any notice from any governmental department,
court, agency, or commission of its intention to institute an investigation into
or institute a suit or proceeding to restrain or enjoin the consummation of the
Merger or any such other transaction, or to nullify or render ineffective this
Agreement, the Merger or any such other transaction if consummated.
7.G Confidential Information. If for any reason the transactions
------------ -----------
contemplated in this Agreement are not consummated, Sullivan will not use or
disclose to any Person (except to its agents, representatives and advisors, to
its lenders and securityholders and their respective agents, representatives and
advisors, or as may be required by any Legal Requirement) any confidential
information received from any Acquiring Party or any of their respective agents,
representatives and advisors (each a "disclosing party" for purposes of this
Section 7.G) in the course of investigating, negotiating, and completing the
transactions contemplated by this Agreement. Nothing will be deemed to be
confidential information for purposes of this Section 7.G that: (a) is or was
known to any Sullivan-Related Entity at the time of its initial disclosure by a
disclosing party to any Sullivan-Related Entity; (b) has become or becomes
publicly known or available other than through disclosure by any Sullivan-
Related Entity; (c) is or was rightfully received by any Sullivan-Related Entity
from any Person unrelated to any Sullivan-Related Entity (other than any Person
engaged by any Sullivan-Related Entity in connection with the transactions
contemplated by this Agreement); or (d) is or was independently developed by any
Sullivan-Related Entity.
7.H Efforts to Consummate. Subject to the provisions of Article IX
------- -- ----------
and Section 12.A, Sullivan will use reasonable efforts to fulfill and perform
all conditions and obligations on its part to be fulfilled and performed under
this Agreement and to cause the conditions set forth in Articles IX and X to be
fulfilled and cause the Merger and the other transactions contemplated by this
Agreement in connection with the Closing to be fully carried out. In addition,
promptly after Sullivan becomes aware prior to the Closing of a breach of any
fact or circumstance which constitutes or would constitute a breach of any other
Party's representation or warranty set forth in this Agreement, Sullivan will
give such Party notice thereof so that such Party may attempt to cure the same.
7.I Notice of Certain Developments. Sullivan will give prompt
------ -- ------- ------------
written notice to Sinclair if, after the Spin-Off and prior to the Closing: (1)
Sullivan receives notice from any Market Cable System currently carrying a
Station's signal of such Market Cable System's intention to delete such Station
from carriage or change such Station's channel position on such Market Cable
System, or (2) Sullivan becomes aware of any breach of any representation or
warranty of Sullivan set forth in Article IV.
7.J Updated Information. Sullivan agrees to provide to Sinclair and
------- -----------
the Merger Sub at or prior to the Closing, for informational purposes only,
copies of all material Contracts in existence at the time of the Closing and
which are entered into after the Spin-Off and prior to the Closing.
17
<PAGE>
7.K Non-Solicitation. After the Spin-Off and prior to the Closing or
----------------
the earlier termination of this Agreement, each of ABRY Partners and Sullivan
will not, and each of them will not cause (and will use reasonable efforts not
to permit) any of its Subsidiaries, affiliates, directors, officers, employees,
representatives or agents to, directly or indirectly solicit, or initiate,
entertain or enter into any discussions or transactions with, or encourage or
provide any information to, any Person (other than any Person described in
Section 7.C), concerning any sale of any of the assets of Sullivan (other than
any sale which is not prohibited by Section 7.A(3)) or any merger, stock
acquisition or similar transaction involving Sullivan (other than an issuance of
capital stock or capital stock equivalents by Sullivan); provided that nothing
--------
in this Section 7.K will prohibit ABRY Partners or Sullivan from furnishing, or
causing or permitting any other Person to furnish, information concerning
Sullivan to any governmental authority or court of competent jurisdiction or any
other Person as may be required by any Legal Requirement.
ARTICLE VIII
COVENANTS OF SINCLAIR AND THE MERGER SUB
8.A Hart-Scott-Rodino Matters. Within 30 days after Sullivan's or its
----------------- -------
own request after the Spin-Off, Sinclair will complete all documents (if any)
required to be filed with the FTC and the DOJ with respect to itself and/or its
Affiliate(s) and concerning Merger in order to comply with the Hart-Scott-
Rodino Act and together with Sullivan and/or the appropriate Affiliate(s) of
Sullivan who are required to join in such filings, will file the same with the
FTC and the DOJ. Sinclair will pay the filing fees associated with all such
filings and the filings described in Section 6.A. Sinclair and the Merger Sub
will promptly furnish all materials thereafter required by the FTC, the DOJ or
any other governmental entity having jurisdiction over such filings, and will
take all reasonable actions and will file and use reasonable efforts to have
declared effective or approved all documents and notifications with any such
governmental entity, as may be required under the Hart-Scott-Rodino Act or other
federal antitrust laws for the consummation of the Merger.
8.B Confidential Information. If for any reason the transactions
------------ -----------
contemplated in this Agreement are not consummated, each of Sinclair and the
Merger Sub will not use or disclose to any Person (except to its agents,
representatives and advisors, to its lenders and their respective agents,
representatives and advisors, or as may be required by any Legal Requirement)
any confidential information received from Sullivan Holdings, any of its
Subsidiaries, Sullivan or any of their respective agents, representatives and
advisors (each a "disclosing party" for purposes of this Section 8.B) in the
course of investigating, negotiating, and completing the transactions
contemplated by this Agreement. Nothing will be deemed to be confidential
information for purposes of this Section 8.B that: (a) is or was known to any
Sinclair-Related Entity at the time of its initial disclosure by a disclosing
party to any Sinclair-Related Entity; (b) has become or becomes publicly known
or available other than through disclosure by any Sinclair-Related Entity; (c)
is or was rightfully received by any Sinclair-Related Entity from any Person
unrelated to any Sinclair-
18
<PAGE>
Related Entity (other than any Person engaged by any Sinclair-Related Entity in
connection with the transactions contemplated by this Agreement); or (d) is or
was independently developed by any Sinclair-Related Entity. In addition, the
Merger Sub agrees to be bound by the same obligations as Sinclair is bound
pursuant to the confidentiality agreement dated as of November 20, 1997 between
Sinclair and Sullivan Broadcasting, which confidentiality agreement will survive
the execution and delivery of this Agreement and will survive the execution and
termination of this Agreement, and no provision of this Section 8.B will be
deemed to supersede or in any way limit any obligation or right under such
confidentiality agreement.
8.C Efforts to Consummate. Subject to the provisions of Article X
------- -- ----------
and Section 12.A, each of Sinclair and the Merger Sub will use reasonable
efforts to fulfill and perform all conditions and obligations on its part to be
fulfilled and performed under this Agreement and to cause the conditions set
forth in Articles IX and X to be fulfilled and cause the Merger and the
transactions contemplated by this Agreement in connection with the Merger to be
fully carried out. In addition, promptly after Sinclair or the Merger Sub
becomes aware prior to the Closing of a breach of any fact or circumstance which
constitutes or would constitute a breach of any representation or warranty of
Sullivan set forth in this Agreement, Sinclair will give Sullivan notice thereof
so that Sullivan may attempt to cure the same.
8.D Notice of Proceedings. Each of Sinclair and the Merger Sub will
------ -- -----------
promptly notify Sullivan (prior to the Closing) or the Stockholder
Representative (after the Closing) in writing upon becoming aware of any order
or decree or any complaint praying for an order or decree restraining or
enjoining the consummation of the Merger or any other transaction contemplated
by this Agreement, or upon receiving any notice from any governmental
department, court, agency, or commission of its intention to institute an
investigation into or institute a suit or proceeding to restrain or enjoin the
consummation of the Merger or any such other transaction, or to nullify or
render ineffective this Agreement, the Merger or any such other transaction, if
consummated. Sinclair will give the Stockholder Representative prompt written
notice if any Acquiring Party becomes aware of any breach of any representation
or warranty of any Acquiring Party set forth in Article V.
8.E Section 338 Election. Without the Stockholder Representative's
------- --- --------
prior written consent, Sinclair will not, and will not cause or permit any of
its Subsidiaries to, make an election under Section 338 of the Tax Code, or
under any analogous provision of any other Legal Requirements relating to Taxes,
with respect to the Merger.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF SULLIVAN AT THE CLOSING
The obligation of Sullivan to consummate the Merger is, at Sullivan's
option, subject to the fulfillment of the following conditions at the time of
the Closing (Sullivan expressly
19
<PAGE>
acknowledging that the effectiveness of the Sullivan Consents is not a condition
to such obligation):
9.A Representations, Warranties, Covenants.
--------------------------------------
(1) Each of the representations and warranties of Sinclair and
the Merger Sub set forth in Article V, considered without regard to any
materiality qualifiers contained therein, will be deemed to be made again
at and as of the time of the Closing (other than any such representation or
warranty which is expressly made with reference to a time prior to the time
of the Closing, which will be deemed remade as of such time only), and
taken as a whole such representations and warranties, as so remade, will
have been true and accurate in all material respects, except to the extent
of deviations therefrom permitted or contemplated by this Agreement; and
(2) each of Sinclair and the Merger Sub will in all material
respects have performed and complied with the covenants and agreements
required by this Agreement to be performed or complied with by it prior to
or at the time of the Closing, taken as a whole.
9.B Proceedings.
-----------
(1) No action or proceeding will have been instituted and be
pending before any court or governmental body to restrain or prohibit, or
to obtain a material amount of damages in respect of, the consummation of
the transactions contemplated by this Agreement that, in the reasonable
opinion of Sullivan, may reasonably be expected to result in a preliminary
or permanent injunction against such consummation or, if the transactions
contemplated hereby were consummated, an order to nullify or render
ineffective this Agreement or such transactions or for the recovery against
any Sullivan-Related Entity or any officer, director or stockholder of any
Sullivan-Related Entity of a material amount of damages; and
(2) no Party will have received written notice from any
governmental body of (a) such governmental body's intention to institute
any action or proceeding to restrain or enjoin or nullify this Agreement or
the transactions contemplated hereby, or to commence any investigation
(other than a routine letter of inquiry, including, without limitation, a
routine Civil Investigative Demand) into the consummation of the
transactions contemplated by this Agreement, or (b) the actual commencement
of such an investigation, in each case unless the same has been withdrawn,
resolved, concluded or abandoned.
9.C Hart-Scott-Rodino and FCC Matters. The Approval Date will have
---------------------------------
occurred and the Required FCC Consent will be in full force and effect.
9.D Spin-Off. The Spin-Off will have been consummated.
--------
9.E Other Deliveries. The Merger Sub will have delivered, or will
----------------
stand ready
20
<PAGE>
to deliver to Sullivan such instruments, documents, and certificates as are
contemplated by Section 3.B(1).
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE MERGER SUB AT THE CLOSING
The obligations of the Merger Sub to consummate the Merger on the
Closing Date are, at the Merger Sub's option, subject to the fulfillment of the
following conditions at the time of the Closing (Sinclair and the Merger Sub
expressly acknowledging that the effectiveness of the Acquiring Party Consents
is not a condition to such obligations):
10.A Representations, Warranties, Covenants.
--------------------------------------
(1) Each of the representations and warranties of Sullivan set
forth in Article IV, considered without regard to any materiality
qualifiers contained therein, will be deemed to be made again at and as of
the time of the Closing (other than any such representation or warranty
which is expressly made with reference to a time prior to the time of the
Closing, which will be deemed remade as of such time only), and taken as a
whole such representations and warranties, as so remade, will have been
true and accurate, except to the extent of deviations therefrom which are
permitted or contemplated by this Agreement or which, in the aggregate, do
not constitute and have not caused a Material Adverse Change; and
(2) Sullivan will in all material respects have performed and
complied with the covenants agreements required by this Agreement to be
performed or complied with by it prior to or at the time of the Closing,
taken as a whole, and Sullivan will in all material respects have performed
and complied with the covenants and agreements required by this Agreement
to be performed or complied with by it prior to or at the time of the
Closing, taken as a whole.
10.B Proceedings.
-----------
(1) No action or proceeding will have been instituted and be
pending before any court or governmental body to restrain or prohibit, or
to obtain a material amount of damages in respect of, the consummation of
the transactions contemplated by this Agreement that, in the reasonable
opinion of Sinclair, may reasonably be expected to result in a preliminary
or permanent injunction against such consummation or, if the transactions
contemplated hereby were consummated, an order to nullify or render
ineffective this Agreement or such transactions or for the recovery against
any Sinclair-Related Entity or any officer, director or stockholder of any
Sinclair-Related Entity of a material amount of damages; and
21
<PAGE>
(2) no Party will have received written notice from any
governmental body of (a) such governmental body's intention to institute
any action or proceeding to restrain or enjoin or nullify this Agreement or
the transactions contemplated hereby, or to commence any investigation
(other than a routine letter of inquiry, including, without limitation, a
routine Civil Investigative Demand) into the consummation of the
transactions contemplated by this Agreement, or (b) the actual commencement
of such an investigation, in each case unless the same has been withdrawn,
resolved, concluded or abandoned.
10.C Hart-Scott-Rodino and FCC Matters. The Approval Date will have
---------------------------------
occurred and the Required FCC Consent will be in full force and effect.
10.D Other Instruments. Sullivan will have delivered, or will stand
-----------------
ready to deliver, to the Merger Sub such instruments, documents, and
certificates as are contemplated by Section 3.C(1).
ARTICLE XI
POST-CLOSING MATTERS
11.A Survival. The representations, warranties and certifications of
--------
the Parties contained in or made pursuant to this Agreement (including any
certification contained in any certificate to be delivered pursuant to Section
3.C) will survive the execution of this Agreement and the Closing only to the
extent expressly provided in the Indemnity Agreement. The covenants and
agreements of the Parties set forth in this Agreement will survive until
performed and discharged in full.
11.I Limitation of Recourse. Except as provided in the Indemnity
----------------------
Agreement, after the Closing, no claim may be brought or maintained against any
Party or any Old Sullivan Stockholder or any of their respective present or
former officers, directors, employees or other affiliates by any Party or Old
Sullivan Stockholder or any of its successors or assigns, and no recourse may be
sought or granted against any Person, by virtue of or based upon any alleged
misstatement, omission, inaccuracy in, or breach of any representation, warranty
or certification of any Party set forth in or made pursuant to this Agreement,
and in no event will Sinclair or Post-Merger Sullivan be entitled to claim or
seek any rescission of the Merger or any of the other transactions consummated
pursuant to the Transaction Documents, any such right of rescission or rights to
damages which any such Party might otherwise have being hereby expressly waived
and any claims or judgments being limited accordingly.
11.C Acknowledgment by the Acquiring Parties. Each of the Acquiring
---------------------------------------
Parties has conducted, to its satisfaction, an independent investigation and
verification of Sullivan, its Subsidiaries, the Stations and the Station Assets
and the financial condition, results of operations, assets, liabilities,
properties and projected operations of Sullivan, its Subsidiaries, the Stations
and
22
<PAGE>
the Station Assets. In determining to enter into this Agreement and proceed
with the transactions contemplated by this Agreement, each Acquiring Person has
relied on the covenants of Sullivan, the results of such independent
investigation and verification and the representations and warranties of
Sullivan (in conjunction with the Schedules hereto) set forth in this Agreement
(including the certifications to be made in any certificate to be delivered
pursuant to Section 3.C), all of which each Acquiring Party acknowledges and
agrees will survive for a limited duration. SUCH REPRESENTATIONS, WARRANTIES AND
CERTIFICATIONS CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS, WARRANTIES
AND CERTIFICATIONS WITH RESPECT TO SULLIVAN, ITS SUBSIDIARIES, THE STATIONS AND
THE STATION ASSETS TO THE ACQUIRING PARTIES IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY, AND EACH ACQUIRING PARTY UNDERSTANDS, ACKNOWLEDGES AND
AGREES THAT ALL OTHER REPRESENTATIONS, WARRANTIES AND CERTIFICATIONS OF ANY KIND
OR NATURE AND WHETHER ORAL OR CONTAINED IN ANY WRITING OTHER THAN THIS AGREEMENT
OR ANY SUCH CERTIFICATE (INCLUDING WITHOUT LIMITATION, ANY REPRESENTATION,
WARRANTY OR CERTIFICATION RELATING TO THE PROJECTED, FUTURE OR HISTORICAL
FINANCIAL CONDITION, RESULTS OR OPERATIONS, ASSETS OR LIABILITIES RELATING TO
THE STATIONS) ARE SPECIFICALLY DISCLAIMED BY SULLIVAN, THE STOCKHOLDER
REPRESENTATIVE, THE OFFICERS OF SULLIVAN AND ITS SUBSIDIARIES AND THE OLD
SULLIVAN STOCKHOLDERS.
11.D Corporate Name. After the Merger (but on the Closing Date),
--------------
Post-Merger Sullivan will take and will cause its Subsidiaries to take such
action as is necessary to change its corporate name in its certificate or
articles of incorporation filed with the Secretary of State or similar official
of the jurisdiction of its incorporation to a name which does not include, and
is not confusingly similar to, the name "Sullivan" and will cease the use of all
Sullivan Broadcasting logos or any similar mark. Notwithstanding anything in
this Agreement to the contrary, Post-Merger Sullivan will be entitled to
continue to use its present corporate name until such time as such name change
is effective and to the extent necessary to accomplish such name change, and may
endorse checks and other instruments in such name.
ARTICLE XII
TERMINATION
12.A Termination of Agreement Prior to Closing. Subject to Section
-----------------------------------------
12.A(3), this Agreement may be terminated at any time prior to the Closing as
follows:
(1) By Sullivan. By Sullivan, by written notice (a "Sullivan
----------- --------
Termination Notice") to Sinclair:
------------------
23
<PAGE>
(a) at any time when any material breach by any Acquiring
Party of its obligations pursuant to this Agreement has occurred and
is continuing, if both
(i) such breach materially and adversely affects the
likelihood that any of the conditions set forth in Article IX or
X which has not been satisfied or waived will be satisfied or
materially and adversely affects any Party's ability to comply
with its obligations pursuant to this Agreement, and
(ii) at least thirty days have elapsed since Sullivan
gave Sinclair written notice requesting that such Person cure
such breach,
unless prior to the giving of the Sullivan gave each such breaching
Acquiring Party has cured such breach;
(b) at any time after the Expiration Date, if
(i) as of the Expiration Date, each of Sullivan's and
the Merger Sub's conditions to closing set forth in Articles IX
and X was satisfied or waived in writing,
(ii) the absence of satisfaction of each of Sullivan's
and the Merger Sub's conditions to closing set forth in Articles
IX and X which was not waived in writing or satisfied as of the
Expiration Date was caused by a breach by one or more of the
Acquiring Parties of any of its or their representations,
warranties and/or obligations under this Agreement and/or the
failure of any Acquiring Party Consent to have been obtained,
(iii) the Approval Date had not occurred on or prior
to the Expiration Date as a result of any breach by one or more
of the Acquiring Parties of any provision of this Agreement, or
(iv) one or more of the Acquiring Parties and the
Affiliates thereof refused, failed or declined to take any action
(other than divesting itself of an broadcast television or radio
station of which it or one of its Subsidiaries is the licensee or
terminating any time brokerage or similar arrangement) which the
FCC, the FTC, the DOJ or the staff of any of them indicates to
any Acquiring Party or agent thereof is a condition to the grant
of the Required FCC Consent or the expiration or termination of
the requisite waiting period under the Hart-Scott-Rodino Act for
the Merger; or
(c) at any time after the Expiration Date, in any
circumstance
24
<PAGE>
which is not described in Section 12.A(1)(b), unless the absence of
satisfaction of each of Sullivan's and the Merger Sub's closing
conditions set forth in Articles IX and X which has not been satisfied
or waived in writing has been caused by a breach by Sullivan of its
obligations under this Agreement.
(2) By Sinclair. By Sinclair, by written notice (a "Sinclair
----------- --------
Termination Notice") to Sullivan:
------------------
(a) at any time when any material breach by Sullivan of its
obligations pursuant to this Agreement has occurred and is continuing,
if both
(i) such breach materially and adversely affects the
likelihood that any of the conditions set forth in Article IX or
X will be satisfied or materially and adversely affects any
Party's ability to comply with its obligations pursuant to this
Agreement and
(ii) at least thirty days have elapsed since Sinclair
gave Sullivan written notice requesting that Sullivan cure such
breach,
unless prior to the giving of such Sinclair Termination Notice
Sullivan has cured such breach; or
(b) at any time after the Expiration Date, under any
circumstances described in Section 12.A(1)(b) or Section 12.A(1)(c).
(3) When Termination Not Permitted. Sullivan may not terminate
------------------------------
this Agreement pursuant to Section 12.A(1) at any time when Sullivan is in
material breach of a material obligation under this Agreement. Sinclair
may not terminate this Agreement pursuant to Section 12.A(2) at any time
when any Acquiring Party is in material breach of a material obligation
under this Agreement.
12.B Survival of Certain Provisions; Remedies.
----------------------------------------
(1) General. No Party will have any liability to any other Party
-------
for costs, expenses, damages (consequential or otherwise), loss of
anticipated profits, or otherwise as a result of a termination pursuant to
Section 12.A except as provided in Section 12.B(2) or 12.B(3). The Parties
agree that time is of the essence with respect to the provisions of
Sections 3.B and 12.A. Sections 7.G and 8.G, this Article XII and Article
XIII will survive the termination of this Agreement pursuant to Section
12.A.
(2) For Sullivan. Sullivan will have such remedies as it may
------------
have at law or in equity in the event of a termination of this Agreement
pursuant to Section 12.A.
25
<PAGE>
(3) For the Acquiring Parties. The Acquiring Parties' sole and
-------------------------
exclusive remedies for the termination of this Agreement or any failure of
performance or compliance by Sullivan with any covenant or agreement
contained in this Agreement prior to the Closing, or by Sullivan with any
covenant or agreement contained in this Agreement prior to the Closing,
will be
(a) their respective rights (if any) under applicable law or
equitable principles to seek damages in respect of their direct out-
of-pocket losses or expenses (but not any damages in respect of lost
profits or other similar or consequential or incidental damages)
occasioned by and as a consequence of such breach;
(b) their respective rights (if any) under applicable law or
equitable principles to seek specific enforcement of this Agreement
against Sullivan, including specific enforcement of Sullivan's
obligation to consummate the Merger (subject to FCC approval and other
required Consents being obtained), it being acknowledged by Sullivan
that the Acquiring Parties would not have an adequate remedy at law in
the event of any such failure, provided that no Acquiring Party will
--------
be entitled to such specific performance unless (i) each Acquiring
Party has complied in all material respects with its material
obligations under this Agreement and (ii) either (A) each condition to
closing of Sullivan set forth in Article IX has been satisfied or
waived in writing or (B) the absence of satisfaction of each such
condition to closing which has not been satisfied or waived in writing
is caused solely by a breach by Sullivan of its obligations under this
Agreement.
ARTICLE XIII
MISCELLANEOUS
13.A Expenses. Except as otherwise expressly provided in this
--------
Agreement, Sullivan will bear all of the expenses incurred prior to the Closing
by Sullivan and the Stockholder Representative in connection with the
transactions contemplated by this Agreement, and each of the Acquiring Parties
will bear all of its expenses incurred in connection with the transactions
contemplated by this Agreement, in each case including, without limitation,
account ing and legal fees incurred in connection herewith.
13.B Assignments.
-----------
(1) By Sullivan. This Agreement may not be assigned by Sullivan
-----------
without the prior written consent of the Acquiring Parties.
Notwithstanding the foregoing, Sullivan may assign its rights under this
Agreement for collateral purposes only to any lender to it, or any agent
for any such lender(s), without the consent of any other Party, and any
26
<PAGE>
such lender or agent may transfer such rights pursuant to the exercise of
remedies with respect to such collateral security to any other Person (it
being understood that any such lender or agent will be a third-party
beneficiary of the agreement constituted by this Section 13.B(1)).
(2) By Sinclair. Sinclair or the Merger Sub may assign its
-----------
rights under this Agreement without the consent of Sullivan or the
Stockholder Representative.
(3) General Rules. Any attempt to assign this Agreement or any
-------------
rights or obligations hereunder without first obtaining any consent which
is required by this Section 13.B will be void. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Each Old Sullivan Stockholder
is an express third-party beneficiary of this Agreement.
13.C Further Assurances. From time to time prior to, at, and after
------------------
the Closing, each Party will execute all such instruments and take all such
actions as any other of them, being advised by counsel, may reasonably request
in connection with carrying out and effectuating the intent and purpose hereof,
and all transactions and things contemplated by this Agreement, including the
execution and delivery of any and all consents, confirmatory and other
instruments, in addition to those to be delivered at the Closing, and any and
all actions which may reasonably be necessary to complete the transactions
contemplated hereby.
13.D Notices. All notices, demands, and other communications which
-------
may or are required to be given under or with respect to this Agreement will be
in writing, will be delivered personally or sent by nationally recognized
overnight delivery service, charges prepaid, or by registered or certified mail,
return-receipt requested, and will be deemed to have been given or made when
personally delivered, or on the next Business Day after delivery to such
overnight delivery service, or on the fifth day after it is deposited in the
mail, registered or certified, first class postage prepaid, as the case may be,
if addressed as follows:
(1) If to Sullivan (prior to the Closing) or the Stockholder
--------------------------------------------------------
Representative:
--------------
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attn: Royce Yudkoff, President
27
<PAGE>
with a copy (which will not constitute notice to Sullivan or the
Stockholder Representative) to:
John L. Kuehn, Esq.
Kirkland & Ellis
153 E. 53rd Street
New York, New York 10022
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to the Acquiring Parties given in accordance with this Section
13.D.
(2) If to Sinclair, the Merger Sub or Post-Merger Sullivan:
-- -- --------- --- ------ --- -- ----------- --------
Sinclair Broadcast Group, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: David D. Smith, President
with a copy (which will not constitute notice to Sinclair, the
Merger Sub or Post-Merger Sullivan) to:
Steven A. Thomas, Esq.
Thomas & Libowitz, P.A.
100 Light Street, Suite 1100
Baltimore, Maryland 21202
and
---
Sinclair Communications, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: General Counsel
or to such other address and/or with such other copies as the Person
to whom such
28
<PAGE>
notice is to be given may from time to time designate by notice to
Sullivan (if prior to the Closing) and the Stockholder Representative
given in accordance with this Section 13.D.
13.E Captions. The captions of Articles and Sections of this
--------
Agreement are for convenience only, and will not control or affect the meaning
or construction of any of the provisions of this Agreement.
13.F Law Governing. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED,
-------------
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCES TO THE PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF NEW YORK,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE UNITED STATES GOVERNS THE
TRANSACTIONS CONTEMPLATED HEREBY.
13.G Waiver of Provisions. The terms, covenants, representations,
--------------------
warranties, and conditions of this Agreement may be waived as to any Party only
by a written instrument executed by such Party. The terms, covenants,
representations, warranties, and conditions of this Agreement may be waived as
to any Old Sullivan Stockholder only by a written instrument executed by
Sullivan, prior to the Closing, or the Stockholder Representative, after the
Closing. The failure of any Party or any Old Sullivan Stockholder at any time or
times to require performance of any provision of this Agreement will in no
manner affect the right at a later date to enforce the same. No waiver by or on
behalf of any Party to this Agreement or any Old Sullivan Stockholder of any
condition or the breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
13.H Counterparts. This Agreement may be executed in two (2) or more
-----------
counterparts, and all counterparts so executed will constitute one (1) agreement
binding on all of the parties hereto, notwithstanding that all the parties
hereto are not signatory to the same counterpart.
13.I Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto) and the confidentiality agreement referred to in Section 8.C
(including the Acquiring Parties' obligations with respect thereto, as provided
in Section 8.C), constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersede any and all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, between them relating to the subject matter hereof.
13.J Access to Books and Records.
---------------------------
(1) Post-Merger Sullivan will, and will cause its Subsidiaries
to, preserve for not less than five (5) years after the Closing Date all
books and records included in the Station Assets. After such five-year
period, Post-Merger Sullivan will not, and will not
29
<PAGE>
cause or permit its Subsidiaries to, destroy any books or records relating
to the conduct of business of the Stations prior to the Effective Time
unless Post-Merger Sullivan first offers to transfer such books and records
to the Stockholder Representative at no cost to the Stockholder
Representative, and if Post-Merger Sullivan is requested to do so, Post-
Merger Sullivan will transfer, or cause a Subsidiary of Post-Merger
Sullivan to transfer, such books or records to the Stockholder
Representative.
(2) At the request of the Stockholder Representative, Post-Merger
Sullivan will, and will cause each of its Subsidiaries to, permit the
Stockholder Representative (including its officers, employees, accountants,
and counsel) any access, upon reasonable prior written notice during normal
business hours, to all of its property, accounts, books, contracts,
records, accounts payable and receivable, records of employees, FCC logs
and other information concerning the affairs or operation of the Stations
as the Stockholder Representative may reasonably request for any reasonable
purpose relating to the transactions contemplated by this Agreement or the
ownership or operation of any Station prior to the Effective Time, and to
make extracts or copies from the foregoing at the Stockholder
Representative's expense. At Post-Merger Sullivan's request, prior to
receiving any such requested information, the Stockholder Representative
will execute a confidentiality agreement with respect thereto which is
reasonably acceptable to Post-Merger Sullivan.
13.K Public Announcements. Prior to the Closing, no Party will,
------ -------------
except by mutual agreement of Sullivan and Sinclair (including agreement as to
content, text and method of distribution or release), make any press release or
other public announcement or disclosure concerning the transactions contemplated
by this Agreement, except as may be required by any Legal Requirement (including
filings and reports required to be made with or pursuant to the rules of the
Securities and Exchange Commission); provided that, prior to making any such
--------
announcement or disclosure required by any Legal Requirement, to the extent
practicable, the disclosing Party gives each Person named above prior written
notice of the context, text and content of, the method of distribution or
release of, and all other material facts concerning, such disclosure.
13.L Disclosure. If and to the extent that any information required
----------
to be furnished by Sullivan in any attached Schedule is contained in this
Agreement or in any attached Schedule, such information will be deemed to have
been included in each other attached Schedule in which such information is
required to be included to the extent its relevance to such latter Schedule is
reasonably apparent. By including any information in any attached Schedule,
Sullivan will not be deemed to have admitted or acknowledged that such
information is material to or outside the ordinary course of the business of
Sullivan or any Station.
13.M Definitional Provisions.
------------ ----------
(1) Terms Defined in Appendix. Each capitalized term which is
----- ------- -- --------
used and not otherwise defined in this Agreement or any attached Schedule
has the meaning
30
<PAGE>
which is specified for such term in the Appendix which is attached to this
Agreement.
(2) Knowledge. As used in this Agreement, the term "knowledge"
---------
of Sullivan will refer only to the actual knowledge, without any particular
inquiry (except as specified in this Agreement), of the Corporate
Personnel, Andrew Banks and Royce Yudkoff, after inquiry of the general
managers of the Stations; and the "knowledge" of Sinclair or the Merger Sub
will refer only to the actual knowledge, without any particular inquiry
(except as specified in this Agreement) of David Smith and David Amy.
(3) Interpretation. Words used in this Agreement, regardless of
--------------
the gender and number specifically used, will be deemed and construed to
include any other gender, masculine, feminine or neuter, and any other
number, singular or plural, as the context requires. Whether or not used
in conjunction with the words "without limitation" or words of similar
import, the term "including" as used in this Agreement imports that the
items referred to are illustrative only and do not purport to be a complete
listing of the items of the type in question. The wording of the
provisions of this Agreement is the result of arms-length negotiations
among the parties to this Agreement and was selected by them to reflect
their mutual intentions; therefore, no party will be deemed the "drafter"
of this Agreement and no rule of strict construction will be applied
against or in favor of any party to this Agreement.
13.N Arbitration.
-----------
(1) Generally. Except as expressly provided in the Indemnity
---------
Escrow Agreement or for purposes of pursuing any remedy pursuant to Section
12.B(3)(b), the arbitration procedures described in this Section 13.N will
be the sole and exclusive method of resolving and remedying claims arising
under this Agreement and the other Transaction Documents ("Disputes");
--------
provided that nothing in this Section 13.N will prohibit a Party from
--------
instituting litigation to enforce any Final Arbitration Award. Except as
otherwise provided in the Commercial Arbitration Rules of the American
Arbitration Association as in effect from time to time (the "AAA Rules"),
--- -----
the arbitration procedures described in this Section 13.N and any Final
Arbitration Award will be governed by, and will be enforceable pursuant to,
the Uniform Arbitration Act as in effect in the State of New York from time
to time. No Person will be entitled to claim or recover punitive damages
in any such proceeding.
(2) Notice of Arbitration. If a Party asserts that there exists
------ -- -----------
a Dispute, then such Person (the "Disputing Person") will give each other
--------- ------
Person involved in such Dispute a written notice setting forth the nature
of the asserted Dispute. If all such Persons do not resolve any such
asserted Dispute prior to the tenth Business Day after such notice is
given, then the Disputing Person may commence arbitration pursuant to this
Section 13.N by giving each other Person involved in such Dispute a written
notice to that effect (an "Arbitration Notice"), setting forth any matters
----------- ------
which are required to be set forth therein in
31
<PAGE>
accordance with the AAA Rules. Unless otherwise notified, the Acquiring
Parties are entitled to assume that the Stockholder Representative is
authorized to act on behalf of each Old Sullivan Stockholder with respect
to any Dispute.
(3) Selection of Arbitrator. The Persons involved in such
--------- -- ----------
Dispute will attempt to select a single arbitrator by mutual agreement. If
no such arbitrator is selected prior to the twentieth Business Day after
the related Arbitration Notice is given, then an arbitrator which is
experienced in matters of the type which are the subject matter of the
Dispute will be selected in accordance with the AAA Rules.
(4) Conduct of Arbitration. The arbitration will be conducted
------- -- -----------
under the AAA Rules, as modified by any written agreement among the Persons
involved in such Dispute. The arbitrator will conduct the arbitration in a
manner so that the final result, determination, finding, judgment or award
determined by the arbitrator (the "Final Arbitration Award") is made or
----- ----------- -----
rendered as soon as practicable, and the Persons involved in such Dispute
will use reasonable efforts to cause a Final Arbitration Award to occur not
later than the sixtieth day after the arbitrator is selected. Any Final
Arbitration Award will be final and binding upon the Persons involved in
such Dispute, and there will be no appeal from or reexamination of any
Final Arbitration Award, except as provided in the Uniform Arbitration Act,
as in effect in the State of New York from time to time.
(5) Enforcement. A Final Arbitration Award may be enforced in
-----------
any state or federal court having jurisdiction over the subject matter of
the related Dispute.
(6) Expenses. The prevailing Person(s) in any arbitration
--------
proceeding in connection with this Agreement will be entitled to recover
from the non-prevailing Person(s) their reasonable attorneys' fees and
disbursements in addition to any damages or other remedies awarded to such
prevailing Person(s), and the non-prevailing Person(s) will be required to
pay all other costs and expenses associated with the arbitration; provided
--------
that (i) if an arbitrator is unable to determine that a Person is a
prevailing Person in any such arbitration proceeding, then such costs and
expenses will be equitably allocated by such arbitrator upon the basis of
the outcome of such arbitration proceeding, and (ii) if such arbitrator is
unable to allocate such costs and expenses in such a manner, then the costs
and expenses of such arbitration will be paid one-half by Sullivan and one-
half by Sinclair, and each Party will pay the out-of-pocket expenses
incurred by it. As part of any Final Arbitration Award, the arbitrator may
designate the prevailing Person(s) for purposes of this Section 13.N(6).
Except as provided in the preceding sentences, each Person involved in a
Dispute will bear its own costs and expenses (including legal fees and
disbursements) in connection with any such proceeding or submission.
13.O Stockholder Representative.
----------- --------------
(1) Appointment; Authority Generally. On behalf of the Old
------------ --------- ---------
Sullivan
32
<PAGE>
Stockholders, Sullivan hereby appoints ABRY Partners as the initial
Stockholder Representative under this Agreement, to serve in accordance
with the terms, conditions and provisions of this Agreement, and ABRY
Partners, by its execution of this Agreement, hereby agrees to act as such,
upon the terms, conditions and provisions of this Agreement. From and after
the Closing, the Stockholder Representative will be authorized to act on
behalf of the Old Sullivan Stockholders in accordance with this Agreement.
(2) Authorization. The Stockholder Representative, in such
-------------
capacity, will be entitled to take all actions on behalf of the holders of
Sullivan Shares or the Old Sullivan Stockholders, as the case may be, with
respect to this Agreement and the other agreements contemplated hereby, and
omit to take any action, each as directed by
(a) prior to the Effective Time, the holders of capital
stock of Sullivan having a majority of the voting power represented by
the outstanding capital stock of Sullivan at the time in question, and
(b) after the Effective Time, Persons who immediately prior
to the Effective Time held Sullivan Shares which represented a
majority of the voting power of the Sullivan Shares,
(in either case, the "Majority Sullivan Stockholders"). The Stockholder
-------- -------- ------------
Representative may be removed and replaced from time to time as the
representative of the holders of the Sullivan Shares or the Old Sullivan
Stockholders by written notice given by the Majority Sullivan Stockholders
to Sullivan (prior to the Effective Time) and the Acquiring Parties.
(3) Responsibility. The Stockholder Representative will have no
--------------
duties or responsibilities except those expressly set forth in this
Agreement or any other agreement which may be entered into by it hereunder.
The Stockholder Representative will have no responsibility for the validity
of this Agreement or any agreement referred to in this Agreement or for the
performance of any such agreements by any party thereto or for the
interpretation of any of the provisions of any such agreements. The
Stockholder Representative's liability in fulfilling its duties will be
limited to bad faith, willful misconduct or gross negligence on its part.
The Stockholder Representative will be protected in acting upon any
certificate, notice or other instrument whatsoever received by the
Stockholder Representative as to its due execution, the validity and
effectiveness of its provisions, and the truth and accuracy of any
information therein contained that the Stockholder Representative in good
faith believes to be genuine and to have been signed or presented by a
proper Person or Persons. The Stockholder Representative may, in its sole
discretion, consult with and obtain advice from legal counsel and any other
Person in the event of any question as to any of the provisions of this
Agreement, any other agreement entered into in connection herewith or its
duties hereunder or thereunder. The reasonable cost of such services, to
the extent not borne by Sullivan, will be borne among the Old Sullivan
Stockholders who held Sullivan Shares immediately prior to the Effective
Time, pro
33
<PAGE>
rata in accordance with the respective amounts of the Merger Consideration
to be received by them in respect of the Sullivan Shares.
(4) Resignation; Replacement. The Stockholder Representative
------------ -----------
will have the right, in its sole discretion, to resign as the Stockholder
Representative (in its capacity as the representative of the holders of
Sullivan Shares or the Old Sullivan Stockholders) at any time by giving at
least 30 days prior written notice to Sullivan (prior to the Effective
Time) and the Acquiring Parties. In such event, Sullivan (prior to the
Effective Time) or the Majority Sullivan Stockholders (after the Effective
Time) will promptly appoint another Stockholder Representative to represent
the holders of Sullivan Shares and the Old Sullivan Stockholders and give
notice of such selection to the Acquiring Parties and the Old Sullivan
Stockholders (after the Effective Time). Such resignation of the
Stockholder Representative will be effective upon such notice being given
and such new Stockholder Representative's acceptance of such appointment
and will relieve the resigning Stockholder Representative of all duties and
responsibilities of the Stockholder Representative in such capacity
thereafter arising.
13.P Completion of Sullivan's Schedules. The Acquiring Parties
---------- -- ---------- ---------
acknowledge that Sullivan has executed this Agreement without having the
opportunity to request of personnel of the Stations information which may be
material to the preparation of the attached Schedules referred to in Article IV
(and that, therefore, some or all of such attached Schedules may not be correct
and complete and, as a result, some or all of the representations and warranties
set forth in Article IV which refer to such attached Schedules may not be true
and correct). On or prior to March 9, 1998, Sullivan may deliver to Sinclair an
amendment and restatement of any such attached Schedule, or any portion thereof,
or a supplement to any such attached Schedule or any portion thereof, which may
be required in order to accurately depict facts and circumstances which exist on
the date of this Agreement (or any other applicable date referred to in any such
representation or warranty), and the attached Schedule or portion thereof in
question will be deemed to have been so amended and restated or modified, as the
case may be, as of the time of the execution and delivery of this Agreement.
13.Q Treatment of Station KOKH. Each Acquiring Party acknowledges
--------- -- ------- ----
that, notwithstanding any language to the contrary in this Agreement, Sullivan
has made and will make no representation, warranty or certification of any kind
with respect to Station KOKH (including with respect to the assets, liabilities
and operations related to Station KOKH), and no representation or warranty set
forth in Article IV, and no certification relating thereto delivered pursuant to
Section 3.C, will be deemed to apply to Station KOKH (including to any related
asset, liability or operations).
[SIGNATURE PAGES TO FOLLOW
--REST OF PAGE LEFT INTENTIONALLY BLANK]
34
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be duly executed by their duly authorized officers, all as of the day
and year first above written.
SULLIVAN BROADCASTING COMPANY II, INC.
By:
-----------------------------------------
Its:
----------------------------------------
SINCLAIR BROADCAST GROUP, INC.,
in its own right and on behalf of a Subsidiary
to be formed by it
By:
-----------------------------------------
Its:
----------------------------------------
ABRY PARTNERS, INC.
By:
-----------------------------------------
Its:
----------------------------------------
35
<PAGE>
APPENDIX
Additional Defined Terms. The following capitalized terms have the
---------- ------- -----
following meanings when used in this Agreement and the Schedules attached to
this Agreement:
"ABRY Fund" means ABRY Broadcast Partners II, L.P., a Delaware limited
---- ----
partnership.
"Acquiring Parties" means Sinclair, the Merger Sub and Post-Merger
--------- -------
Sullivan.
"Acquiring Party Consents" means all Consents other than the Required
--------- ----- --------
FCC Consent, any Consent required under the Hart-Scott-Rodino Act, or any
Sullivan Consent.
"Affiliate" of any Person means any other Person which is controlled
---------
by, controls, or is under common control with, such first Person.
"Affiliated Group" means an affiliated group of corporations, as that
---------- -----
term is defined in Section 1504(a) of the Tax Code (or in any analogous
combined, consolidated or unitary group defined under state, local or
foreign income Tax law).
"Approval Date" means the first day upon which the Required FCC
-------- ----
Consent has been Granted and the requisite waiting period under the Hart-
Scott-Rodino Act for the consummation of the Merger has expired or been
terminated.
A "Business Day" means any day other than a Saturday, a Sunday or
-------- ---
another day upon which banks in New York, New York generally are not open
for business.
"Closing Date" means the date upon which the Closing occurs.
------- ----
"Communications Act" means the Communications Act of 1934, as amended
-------------- ---
and as in effect from time to time.
"Consent" means any consent, order, approval, authorization or other
-------
action of, or any filing with or notice to or other action by or with
respect to, any Person which is required for any of the execution, delivery
or performance of this Agreement, the consummation of the Spin-Off, the
Merger, or the conduct of the business of Sullivan or Post-Merger Sullivan
or the holding or utilization of any Station Asset thereafter, whether such
requirement arises pursuant to any Legal Requirement, Contract, a Person's
organizational documents or otherwise, including any of the foregoing which
is required in order to prevent a breach of or a default under or a
termination or modification of any Contract.
36
<PAGE>
"Contract" means any agreement, lease, arrangement, commitment, or
--------
understanding to which Sullivan, with respect to the Stations, is a party.
"Contracts Schedule" means the attached Exhibit C.
--------- -------- ------- -
"Corporate Personnel" means J. Daniel Sullivan, David Pulido, Patrick
--------- ---------
Bratton, Richard Montgomery, Barry Charbonneau and any successor to any of
them in his capacity as an employee and/or officer of Sullivan.
"Effective Time" means the time of the filing of the Certificate of
--------- ----
Merger described in Article II.
"Expiration Date" means the earlier of (a) the last to occur of the
---------- ----
15th day after the date upon which the Required FCC Consent is Granted and
the last day of the calendar month during which the Required FCC Consent is
Granted, and (b) December 31, 2008.
"FCC" means the Federal Communications Commission or any successor
---
thereto.
"FCC Authorizations" means the authorizations issued by the FCC and
--- --------------
described on the attached Schedule 4C.
-------- --
A "Final Order" means the Required FCC Consent if (a) the Required FCC
----- -----
Consent has been Granted and has not been reversed, stayed, set aside,
enjoined, annulled or suspended (whether under Section 402 or 405 of the
Communications Act or otherwise) and (b) (i) no request has been filed for
administrative or judicial review, reconsideration, appeal, certiorari or
stay and the time for filing any such request and for the FCC to review the
Required FCC Consent on its own motion has expired, or (2) if such a
review, reconsideration or appeal has occurred, such review,
reconsideration or appeal has been denied and the time for further review,
reconsideration or appeal has expired.
"GAAP" means United States generally accepted accounting principles,
----
as in effect from time to time, as applied by Sullivan and its Subsidiaries
from time to time.
The Required FCC Consent is "Granted" on the effective date, as
-------
determined under the FCC's rules, regulations and policies, of the grant
thereof by the FCC or its staff.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
----------------- ---
Improvements Act of 1976, as in effect from time to time.
"Headquarters Assets" means the assets of Sullivan Holdings and its
------------ ------
Subsidiaries located in the offices of Sullivan Holdings and its
Subsidiaries located in Franklin, Tennessee, and Boston, Massachusetts, and
any so-called "personal seat license" or other right of Sullivan Holdings
or any of its Subsidiaries to subscribe for tickets to events at the
37
<PAGE>
stadium presently being constructed or proposed to be constructed in the
Nashville, Tennessee, metropolitan area.
"Indemnity Agreement" means the Indemnity Agreement entered into among
--------- ---------
Sullivan, Sinclair and certain other Persons dated as of the date of this
Agreement, as such agreement is in effect from time to time.
"Indemnity Escrow Agreement" means the Indemnity Escrow Agreement
--------- ------ ---------
entered into among the Stockholder Representative, Sinclair and certain
other Persons dated as of the date of this Agreement, as such agreement is
in effect from time to time.
"Legal Requirements" means the Communications Act, the rules,
----- ------------
regulations and published policies of the FCC, and all other federal, state
and local laws, rules, regulations, ordinances, judgments, orders and
decrees.
"Lien" means any mortgage, pledge, hypothecation, encumbrance, lien
----
(statutory or otherwise), preference, priority or other security agreement
of any kind or nature whatsoever (including any conditional sale or other
title retention agreement and any lease having substantially the same
effect as any of the foregoing and any assignment or deposit arrangement in
the nature of a security device).
"Market Cable System" means, with respect to any Station, any cable
------ ----- ------
television system located within such Station's television market, as that
term is defined in Section 76.55(e) of the rules of the FCC.
"Mission Guarantees" means the (i) Guaranty of Sullivan Broadcasting
------- ----------
dated as of July 11, 1996 in favor of NationsBank of Texas, N.A., and any
other lenders referred to therein relating to certain indebtedness of
Mission Broadcasting I, Inc., a Delaware corporation, and (ii) the Guaranty
of Sullivan Broadcasting dated as of July 29, 1996 in favor of NationsBank
of Texas, N.A., and any other lenders referred to therein relating to
certain indebtedness of Mission Broadcasting II, Inc., a Delaware
corporation, in each case as in effect from time to time.
"Old Sullivan Stockholder" means any holder of record of any Sullivan
--- -------- -----------
Share immediately prior to the Effective Time.
"ordinary course of business" means the ordinary course of the conduct
-------- ------ -- --------
of business by Sullivan Holdings and is Subsidiaries, substantially
consistent with their respective past practices.
"Parties" means the parties to this Agreement.
-------
"Permitted Encumbrances" means (i) Liens arising by operation of law
--------- ------------
and
38
<PAGE>
securing the payment of Taxes which are not yet due and payable, (ii) with
respect to any property leased by Sullivan as lessee, the interest of the
lessor in such property, (iii) easements, rights-of-way, reservations of
rights, conditions or covenants, zoning, building or similar restrictions
or other non-monetary Liens or defects that do not, individually or in the
aggregate, materially interfere with the use of the affected property in
the operation of the Stations as currently conducted or as presently
proposed by Sullivan Holdings and its Subsidiaries to be conducted, (iv)
restrictions on transfer imposed under state or federal securities laws or
pursuant to the Communications Act or the FCC Regulations, and (v) Liens
securing indebtedness under the Sullivan Senior Debt Arrangements, other
indebtedness and the Mission Guarantees.
A "Person" means any individual, partnership, limited liability
------
company, joint venture, corporation, trust, unincorporated association or
government or department thereof.
"Required FCC Consent" means the action(s) or order(s) by the FCC
-------- --- -------
granting its Consent to the transfer of control of Sullivan by reason of
the Merger, without any condition which in the reasonable judgment of the
Sullivan and the Acquiring Parties is adverse to such Person (or, in
Sullivan's or the Stockholder Representative's reasonable judgment, adverse
to any of the Old Sullivan Stockholders), as the case may be, in any
material respect.
"Sinclair-Related Entity" means Sinclair, the Merger Sub, any direct
---------------- ------
or indirect assignee or proposed assignee (by operation of law or
otherwise) of any of the rights of any of them pursuant to this Agreement
or any other agreement contemplated hereby, any direct or indirect
successor or proposed successor to Post-Merger Sullivan's business or
operation with respect to any Station, or any Affiliate or any of them.
"Spin-Off" means the transfer of the assets described on the attached
--------
Exhibit D to Sullivan by Sullivan Holdings and its Subsidiaries.
------- -
"Station Assets" means all of Sullivan's rights in, to and under the
------- ------
assets and properties of the Stations, real and personal, tangible and
intangible, of every kind and description which are owned and used by
Sullivan in connection with the business and operations of the Stations,
including rights under contracts and leases, real and personal property,
plant and equipment, inventories, intangibles, licenses and goodwill, and
all other assets and properties of Sullivan used solely in connection with
the operation of any Station; provided that the Station Assets will not
include the Headquarters Assets.
"Station KOKH" means broadcast television station KOKH-TV, Oklahoma
------- ----
City, Oklahoma, together with all related translator stations (if any)
owned by Sullivan.
"Stations" means broadcast television station WZTV, Nashville, TN;
--------
broadcast television station WUTV, Buffalo, New York; broadcast television
station WXLV-TV, Winston-Salem, North Carolina; broadcast television
station WRLH-TV, Richmond,
39
<PAGE>
Virginia; broadcast television station WUHF, Rochester, New York; and
broadcast television station WMSN-TV, Madison, Wisconsin; in each case
together with all associated translator stations (if any) owned by Sullivan
Holdings or any of its Subsidiaries immediately prior to the Spin-Off.
"Stockholder Representative" means ABRY Partners, Inc., a Delaware
----------- --------------
corporation, or any successor thereto as the Stockholder Representative
designated pursuant to Section 13.O.
With respect to any Person, a "Subsidiary" means any corporation,
----------
partnership, limited liability company, association or other business
entity of which, at the time of such reference, (i) if a corporation, a
majority of the total voting power of shares of stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or a majority economic interest,
is at the time owned or controlled, directly or indirectly, by that Person
or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, limited liability company, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons will be
deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons will be allocated a majority of partnership, company, association
or other business entity gains or losses or will be or control the managing
director or general partner of such partnership, company, association or
other business entity.
"Sullivan Broadcasting" means Sullivan Broadcasting Company, Inc., a
-------- ------------
Delaware corporation.
"Sullivan Common Stock" means Sullivan Shares which are common stock.
-------- ------ -----
"Sullivan Consents" means all Consents of the board of directors or
-------- --------
stockholders of Sullivan.
"Sullivan Holdings" means Sullivan Broadcast Holdings, Inc., a
-------- --------
Delaware corporation.
"Sullivan Holdings Financial Statements" means the Financial
-------- -------- --------- ----------
Statements attached to this Agreement as Exhibit E.
---------
"Sullivan-Related Entity" means any Affiliate of ABRY Partners Inc. or
---------------- ------
ABRY Broadcast Partners II, L.P., including Sullivan, prior to the
Effective Time.
"Sullivan Senior Debt Arrangements" means the Credit Agreement dated
-------- ------ ---- ------------
as of
40
<PAGE>
January 4, 1996 among Sullivan Holdings, Sullivan Broadcasting, the various
Agents and co-Agents referred to therein, and the several Lenders from time
to time parties thereto, together with all "Loan Documents" and other
documents and instruments relating to the "Obligations" referred to
therein, in each case as in effect from time to time.
"Sullivan Share" means any share of capital stock of Sullivan which is
-------- -----
outstanding immediately prior to the Effective Time.
"Sullivan Station Assets" means all of Sullivan Holdings', its
-------- ------- ------
Subsidiaries, Sullivan's and Sullivan Three's rights in, to and under the
assets and properties of the Sullivan Stations, real and personal, tangible
and intangible, of every kind and description which are owned and used by
Sullivan Holdings, its Subsidiaries, Sullivan or Sullivan Three in
connection with the business and operations of the Sullivan Stations,
including rights under contracts and leases, real and personal property,
plant and equipment, inventories, intangibles, licenses and goodwill, and
all other assets and properties of Sullivan, its Subsidiaries, Sullivan and
Sullivan Three used solely in connection with the operation of any Sullivan
Station; provided that the Sullivan Station Assets will not include the
--------
Headquarters Assets.
"Sullivan Stations" means broadcast television station WZTV,
-------- --------
Nashville, TN; broadcast television station WUTV, Buffalo, New York;
broadcast television station WXLV-TV, Winston-Salem, North Carolina;
broadcast television station WRGT-TV, Dayton, Ohio; broadcast television
station WRLH-TV, Richmond, Virginia; broadcast television station WVAH-TV,
Charleston, West Virginia; broadcast television station WUHF, Rochester,
New York; broadcast television station WTAT-TV, Charleston, South Carolina;
broadcast television station WFXV, Utica, New York; low-power television
station WPNY-LP, Rome, New York; broadcast television station WMSN-TV,
Madison, Wisconsin; Station KOKH; broadcast television station WUXP,
Nashville, Tennessee; and broadcast television station WUPN-TV, Greensboro,
North Carolina; in each case together with all associated translator
stations (if any).
"Sullivan Three" means Sullivan Broadcasting Company III, Inc., a
-------- -----
Delaware corporation.
"Tax" (and, with correlative meaning, "Taxes", "Taxable" and "Taxing")
---
means any (A) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profits, environmental (including
under Section 59A of the Tax Code), customs, duties, real property, real
property gains, personal property, capital stock, social security,
unemployment, disability, payroll, license, employee or other withholding,
or other tax of any kind whatsoever, including any interest, penalties or
additions to tax or additional amounts in respect of the foregoing; (B)
liability of any corporation for the payment of any amounts of the type
described in clause (A) arising
41
<PAGE>
as a result of being (or ceasing to be) a member of any Affiliated Group
(or being included in any Tax Return relating thereto); and (C) liability
for the payment of any amounts of the type described in clause (A) or (B)
as a result of any express or implied obligation to indemnify or otherwise
assume or succeed to the liability of any other Person.
"Tax Code" means the Internal Revenue Code of 1986, as amended
--- ----
(including, where applicable, the Internal Revenue Code of 1954, as
amended).
"Transaction Documents" means this Agreement and all agreements
----------- ---------
between or among any or all of the Sullivan-Related Entities and the
Sinclair-Related Entities relating thereto, in each case as in effect from
time to time.
42
<PAGE>
LIST OF SCHEDULES
Schedule 4C FCC Matters
Schedule 4D Certain Asset-Related Matters
Schedule 4F Litigation
Schedule 4H Conflicts
Schedule 4J Tax Matters
Schedule 4N Employee Benefit Matters
LIST OF EXHIBITS
Exhibit A Opinions of Sullivan's Counsel
Exhibit B Opinions of Sinclair's and the Merger Sub's Counsel
Exhibit C Contracts Schedule
Exhibit D Spin-Off Assets
Exhibit E Sullivan Holdings Financial Statements
43
<PAGE>
EHIBIT 10.8
Draft 3/13/98
AGREEMENT AND PLAN OF MERGER
AMONG
SULLIVAN BROADCASTING COMPANY III, INC.
GLENCAIRN, LTD.,
and
ABRY PARTNERS, INC.
(as Stockholder Representative)
EFFECTIVE AS OF
FEBRUARY 23, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is entered into on March16, 1998,
but is effective as of February 23, 1998, among Sullivan Broadcasting Company
III, Inc., a Delaware corporation ("Sullivan"), Glencairn, Ltd, a Maryland
--------
corporation ("Glencairn"), on behalf of itself and a subsidiary to be formed by
---------
it pursuant to Article I below, and ABRY Partners, Inc., a Delaware corporation
("ABRY Partners"), solely in its capacity as the Stockholder Representative
---- --------
referred to in this Agreement.
WHEREAS, the parties to this Agreement are among the parties to an
Agreement and Plan of Merger dated as of February 23, 1998 (the "Prior
-----
Agreement"), and the parties to the Prior Agreement have agreed to restate the
- - - ---------
Prior Agreement by entering into this Agreement and certain other agreements;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows,
effective as of the date of the Prior Agreement:
ARTICLE I
FORMATION OF SUBSIDIARY
On or prior to March 20, 1998, Glencairn will form a wholly-owned Subsidiary
which will be a Delaware corporation. Such Subsidiary will be the "Merger Sub"
referred to in this Agreement. Glencairn will cause such Subsidiary to become a
party to this Agreement and the Indemnity Escrow Agreement by executing and
delivering to Sullivan a counterpart thereof.
ARTICLE II
MERGER
2.A General. Upon and subject to the terms and conditions stated in
-------
this Agreement, on the Closing Date, effective as of the Effective Time, the
Merger Sub will merge with and into Sullivan in accordance with the terms and
conditions of this Agreement. Sullivan will be the corporation which survives
such merger (the "Merger") and in such capacity is sometimes referred to in
------
this Agreement as "Post-Merger Sullivan."
2.B Effect on Sullivan Shares. Immediately after the Closing,
------ -- -------- ------
effective at the Effective Time, subject to the terms and conditions of this
Agreement (1) the Merger will be effected by the filing with the Secretary of
the State of Delaware of a Certificate of Merger; (2) each Sullivan Share
outstanding at the Effective Time, by said occurrence and with no further action
on the part of the holder thereof, will be canceled without consideration; (3)
each share of common stock of the Merger Sub outstanding immediately prior to
the Effective Time will, by said occurrence and with no further action on the
part of the holder thereof, be transformed and converted into one share of
common stock of Post-Merger Sullivan, so that immediately thereafter Glencairn
will be the sole and exclusive owner of all equity securities of Post-Merger
Sullivan; and (4) Post-Merger Sullivan will be the owner of the business,
assets, rights, privileges, immunities, powers, franchises and other attributes
of Sullivan and the Merger Sub.
2.C Certificate of Incorporation. Immediately after the Effective
----------- -- -------------
Time, the certificate of incorporation of Post-Merger Sullivan will be the
certificate of incorporation of the Merger Sub as in effect immediately prior to
the Effective Time.
2.D Bylaws. Immediately after the Effective Time, the bylaws of Post-
------
Merger Sullivan will be the bylaws of the Merger Sub as in effect immediately
prior to the Effective Time.
2.E Board of Directors and Officers. The board of directors and
----- -- --------- --- --------
officers of the Merger Sub immediately prior to the Effective Time will be the
board of directors and the officers, respectively, of Post-Merger Sullivan
immediately after the Effective Time, and such individuals will serve in such
positions for the respective terms provided by applicable Legal Requirements or
in the bylaws of Post-Merger Sullivan until their respective successors are
elected and qualified.
2.F Name. The name of Post-Merger Sullivan will be designated by
----
Glencairn.
2.G Transfer of Sullivan Stock. At the Effective Time, the stock
-------- -- -------- -----
transfer books of Sullivan will be closed and no transfer of Sullivan Shares
will thereafter be made.
ARTICLE III
MERGER CONSIDERATION AND CLOSING
3.A Merger Consideration. No consideration will be payable to the
--------------------
holders of Sullivan Shares by reason of or in connection with the Merger.
3.B Closing Time and Place. Subject to Section 12.A, the
----------------------
consummation of the Merger (the "Closing") will be held in the offices of
-------
Kirkland & Ellis, in New York, New York, at 10:00 a.m., local time, on the date
determined pursuant to the following two sentences, or at such other place
and/or at such other time and date as the Merger Sub and Sullivan may agree in
writing. The Merger Closing will occur on a date designated by the Merger Sub
by written notice to Sullivan not less than ten Business Days in advance of such
date (which designated
1
<PAGE>
date will be not later than the Expiration Date). Notwithstanding the foregoing,
but subject to Section 12.A, if on a date for the Closing described in the
preceding sentence or specified pursuant to this sentence any condition of the
Merger Sub or Sullivan specified in Article IX or X has not been satisfied (and
will not be satisfied by the delivery of documents at the Closing) or waived in
writing, then the date for the Closing will be extended to any date specified by
the Merger Sub to Sullivan with not less than 10 Business Days' notice to the
other (subject to the Merger Sub's and Sullivan's respective conditions to the
Closing set forth in Articles IX and X being satisfied or waived in writing on
such specified date); provided that any such specified date will be on or prior
--------
to the Expiration Date.
3.C Deliveries at the Closing. All actions on the Closing Date
---------- -- --- -------
(including those described in Section 11.D) will be deemed to occur
simultaneously, and no document or payment to be delivered or made on the
Closing Date will be deemed to be delivered or made until all such documents and
payments are delivered or made to the reasonable satisfaction of Sullivan, the
Merger Sub, the Stockholder Representative and their respective legal counsel.
(1) Deliveries by Sullivan. At the Closing, Sullivan will
---------- -- --------
deliver to the Merger Sub the following:
(a) the minute book, stock transfer book and other records
relating to the internal corporate affairs of Sullivan which are in
Sullivan's possession, and resignations of the officers and directors
of Sullivan, which resignations will be effective as of the Effective
Time;
(b) all mortgage discharges or releases of Liens, if any,
that will be sufficient to cause the Station Assets held by Sullivan
to be as described in Section 4.E;
(c) a certificate of the President or Chief Executive
Officer of Sullivan dated the Closing Date to the effect that, except
as specified in such certificate, to the best of such officer's
knowledge, the conditions set forth in Sections 10.A(1) and 10.A(2)
have been fulfilled;
(d) a certificate of Sullivan dated the Closing Date to the
effect that, except as specified in such certificate, the conditions
set forth in Sections 10.A(1) and 10.A(2) have been fulfilled;
(e) a certified copy of the resolutions or action by written
consent of the board of directors and stockholders of Sullivan
authorizing the Merger and Sullivan's execution, delivery and
performance of this Agreement;
(f) certificates as to the existence and/or good standing of
Sullivan, in each case issued by the Secretary of State or a
comparable official of Delaware and each other jurisdiction (if any)
in which it is then required to be qualified to do business,
certifying as to the existence and/or good standing of such
2
<PAGE>
corporation in such jurisdictions;
(g) one or more opinions of counsel or special counsel to
Sullivan, each dated the Closing Date, as to the matters set forth in
the attached Exhibit A; and
------- -
(h) such other documents, instruments and receipts as the
Merger Sub may reasonably request in order to effectuate the Merger
and the other transactions contemplated by this Agreement to be
consummated at the Closing.
Each of the foregoing will be reasonably satisfactory in form to the Merger
Sub and its legal counsel.
(2) Deliveries by the Merger Sub. At the Closing, the Merger Sub
---------- -- --- ------ ---
will deliver to the Stockholder Representative the following:
(a) a certificate of an officer or similar official of the
Merger Sub dated the Closing Date to the effect that, except as
specified in such certificate, to the best of such officer's or
official's knowledge, the conditions set forth in Sections 9.A(1) and
9.A(2) have been fulfilled;
(b) a certificate of an officer or similar official of
Glencairn dated the Closing Date to the effect that, except as
specified in such certificate, to the best of such officer's or
official's knowledge, the conditions set forth in Sections 9.A(1) and
9.A(2) have been fulfilled;
(c) a certificate of the Merger Sub dated the Closing Date
to the effect that, except as specified in such certificate, the
conditions set forth in Sections 9.A(1) and 9.A(2) have been
fulfilled;
(d) a certificate of Glencairn dated the Closing Date to the
effect that, except as specified in such certificate, the conditions
set forth in Sections 9.A(1) and 9.A(2) have been fulfilled;
(e) a certified copy of the resolutions or action by written
consent of the board of directors and stockholders of the Merger Sub
authorizing the Merger and the Merger Sub's execution, delivery and
performance of this Agreement;
(f) a certified copy of the resolutions or action by written
consent of the board of directors of Glencairn authorizing Glencairn's
execution, delivery and performance of this Agreement;
(g) certificates as to the existence and/or good standing of
Glencairn and the Merger Sub, in each case issued by the Secretary of
State or a comparable official of such jurisdictions as Sullivan may
reasonably request and dated on or after the fifth Business Day prior
to the Closing Date, certifying as to the
3
<PAGE>
existence and/or good standing of such corporation in such
jurisdictions;
(h) one or more opinions of counsel or special counsel to
Glencairn and the Merger Sub, each dated the Closing Date, as to the
matters set forth in the attached Exhibit B; and
------- -
(i) such other documents, instruments and receipts as
Sullivan may reasonably request in order to effectuate the Merger and
the other transactions contemplated by this Agreement to be
consummated at the Closing.
Each of the foregoing will be reasonably satisfactory in form to Sullivan
and its legal counsel.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SULLIVAN
Subject to Section 13.Q, Sullivan makes the following representations
and warranties:
4.A Organization. Sullivan is a corporation which is duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
From and after the Spin-Off, Sullivan will be qualified to do business or have
similar status under the laws of each jurisdiction in which such qualification
is required by applicable Legal Requirements. Sullivan has the power and
authority to carry on the business being conducted by it, to own and operate the
Station Assets owned and operated by it, and to enter into and consummate the
transactions contemplated to be consummated by it pursuant to this Agreement.
4.B Action. Each action necessary to be taken by or on the part of
------
Sullivan in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated to be consummated by Sullivan
pursuant to this Agreement and necessary to make the same effective will be duly
and validly taken by, and be effective at, the time by which such action is
required to be taken. This Agreement has been duly and validly authorized,
executed, and delivered by Sullivan and constitutes its valid and binding
agreement, enforceable against Sullivan in accordance with and subject to its
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium or similar laws
affecting the rights of creditors generally and the availability of equitable
remedies.
4.C FCC Authorizations. As of the time of the Closing, Sullivan will
--- --------------
be the holder of the FCC Authorizations. As of the time of the Closing, except
as set forth on the attached Schedule 4C, (i) the Authorizations will constitute
-------- --
all of the licenses and authorizations required under the Communications Act, or
the current rules, regulations, and policies of the FCC, for the operation of
the Stations as now conducted; (ii) the FCC Authorizations will be in full force
and effect and are subject to or scheduled for renewal on the respective dates
specified on the attached Schedule 4C (unless theretofore renewed after the date
-------- --
of this Agreement); (iii) the FCC
4
<PAGE>
Authorizations will be valid for the full respective terms thereof; (iv)
Sullivan will have no reason to believe that the FCC Authorizations will not be
renewed for a full and customary term in the ordinary course with no materially
adverse conditions (except with respect to general rule-making and similar
matters relating generally to television broadcast stations by reason of any
action or omission of Glencairn or any of its Subsidiaries); (v) there will not
be not pending, or, to the knowledge of Sullivan, threatened, any action by or
before the FCC to revoke, cancel, rescind, modify, or refuse to renew in the
ordinary course any of the FCC Authorizations, and there will not be pending,
or, to the knowledge of any such Person, threatened, issued, or outstanding by
or before the FCC, any investigation, order to show cause, notice of violation,
notice of apparent liability, or notice of forfeiture or complaint against
Sullivan with respect to any Station, in each case other than by reason of any
actual or alleged action or omission of Glencairn or any of its Subsidiaries;
(vi) Sullivan will have complied in all material respects with the FCC
Authorizations, the Communications Act, and the current rules, regulations and
policies of the FCC; and (vii) all documents required by 47 C.F.R. Section
73.3526 to be kept in each Station's public inspection file are in such file and
such file will be maintained in proper order and complete up to and through the
Closing Date.
4.D Condition of Assets. Except as set forth on the attached
--------- -- ------
Schedule 4D, the material tangible assets of Sullivan and the improvements on
- - - -------- --
any real property which are used by it (a) at the time of the Spin-Off and on
the Closing Date will in all material respects be in good and technically sound
operating condition (ordinary wear and tear excepted) and are not in need of
repair and in a condition which would be sufficient to permit the owner thereof
to operate the Stations (in the manner in which the Stations are operated or
programmed by Sullivan Holdings and its Subsidiaries as of the date of this
Agreement) in compliance with the terms of the FCC Authorizations, the
Communications Act and current FCC rules and regulations (if such owner had the
right to use the Station Assets not owned by Sullivan and such Station Assets
were in at least such condition), and (b) have in all material respects been
maintained in a manner consistent with generally accepted standards of good
engineering practice and to the knowledge of Sullivan, all applicable federal,
state and local statutes, ordinances, rules and regulations, including, without
limitation, all applicable tower painting and lighting requirements.
4.E Title, Etc. Immediately after the Spin-Off, Sullivan will have
------ ---
good title to, or a valid leasehold in, the tangible assets and personal
property included in the Station Assets, and all such assets and personal
property will on the Closing Date (after the repayment in full of the
indebtedness of Sullivan and all related interest and other obligations and the
release of all related Liens and the Mission Guarantees) be free and clear of
all Liens other than Permitted Encumbrances. Sullivan possesses (and
immediately after the Merger, will possess) adequate rights, licenses, or other
authority to use the call letters presently used by the Stations, free and clear
of all Liens other than Permitted Encumbrances.
4.F Litigation. Except as set forth on the attached Schedule 4F:
---------- -------- --
(1) on the date of this Agreement, Sullivan is not operating
under or subject to or in default with respect to any order, writ,
injunction, or decree of any court or federal, state, municipal, or other
governmental department, commission, board, agency, or
5
<PAGE>
instrumentality arising out of a proceeding to which it is or was a party,
and on the Closing Date, no such item will have or reasonably be expected
to result in a Material Adverse Change; and
(2) on the date of this Agreement, there is no litigation pending
by or against, or to the knowledge of Sullivan threatened against, Sullivan
which interferes with, or could reasonably be expected to interfere with,
(a) the operations of the Stations as presently conducted or (b) the
ability of Sullivan to carry out the transactions contemplated to be
carried out by it pursuant to this Agreement, and on the Closing Date, no
such pending or threatened litigation will have or will reasonably be
expected to result in a Material Adverse Change.
There are no attachments, executions, or assignments for the benefit of
creditors or voluntary or involuntary proceedings in bankruptcy initiated or
contemplated by, or, to the knowledge of Sullivan, threatened or pending
against, Sullivan.
4.G Compliance with Laws. Other than with respect to matters
---------- ---- ----
disclosed in the attached Schedule 4C or the attached Schedule 4F, subject to
-------- -- -------- --
obtaining all applicable Consents: (a) Sullivan, with respect to the Station
Assets, is in compliance in all material respects with all applicable Legal
Requirements, and (b) the present uses by Sullivan of the Station Assets which
it owns do not in any material respect violate any such Legal Requirements.
4.H No Defaults. Except for (w) any item described on the attached
-- --------
Schedule 4H, (x) the requisite approval of the FCC, (y) compliance with the
- - - -------- --
requirements of the Hart-Scott-Rodino Act, and (z) any Consent which may be
required under any Contract, on the Closing Date (after giving effect to all
Consents which have been obtained) neither the execution and delivery by
Sullivan of this Agreement, nor the consummation by Sullivan of the Merger or
the other transactions contemplated by this Agreement to be consummated by
Sullivan, requires any Consent under, will constitute, or, with the giving of
notice or the passage of time or both, would constitute, a material violation of
or would conflict in any material respect with or result in any material breach
of or any material default under, or will result in the creation of any Lien
(other than any Permitted Encumbrance or any Lien in favor of one or more of the
Acquiring Parties) under, any of the terms, conditions, or provisions of any
Legal Requirement to which Sullivan is subject, or of the certificate of
incorporation or by-laws of Sullivan.
4.I Subsidiaries. Sullivan does not own any shares of stock or other
------------
equity or debt securities of or any interest in any Person.
4.J Tax Matters.
--- -------
(1) Tax Returns. Except as set forth on the attached Schedule 4J
--- ------- -------- --
or as has not caused and is not reasonably expected to cause a Material
Adverse Change: (a) all federal, state, local and foreign tax returns and
tax reports required to be filed by Sullivan have been timely filed (taking
into account any extensions of which Sullivan may have availed itself) with
the appropriate governmental agencies in all jurisdictions in which such
6
<PAGE>
returns and reports are required to be filed, and all of the foregoing
(including any summary balance sheets included therein) are true, correct,
and complete; (b) all federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise, and other taxes
(including interest and penalties) due and payable by Sullivan have been
fully paid; (c) no issues have been raised in writing (or, to Sullivan's
knowledge, orally) and are currently pending by the Internal Revenue
Service or any other taxing authority in connection with any of such
returns and reports; (d) no waivers of statutes of limitations as to tax
matters have been given or requested with respect to Sullivan; (e) the
federal, state, local, and foreign income tax and franchise tax returns of
or with respect to Sullivan have not been examined by the Internal Revenue
Service or by appropriate state, provincial, or departmental tax
authorities; (f) no issue has been raised in writing (or, to Sullivan's
knowledge, orally) with Sullivan by any taxing authority which can
reasonably be expected to result in a deficiency for any fiscal year or all
deficiencies asserted or assessments (including interest and penalties)
made as a result of any examinations have been fully paid, and no proposed
(but unassessed) additional taxes, interest, or penalties have been
asserted; (h) Sullivan is not (and has never been) a party to any Tax
sharing agreement with any Person who was not a member of an Affiliated
Group consisting in whole or in part of the parties to such agreement, and
Sullivan has no liability for the Taxes of any other Person (other than
Sullivan Holdings and its Subsidiaries) pursuant to Reg. Section 1.1502-6
under the Tax Code (or any similar provision of state, local or foreign Tax
law) or as a transferee or successor or by contract.
(2) Tax Elections and Special Tax Status. Except as set forth on
--- --------- --- ------- --- ------
the attached Schedule 4J: (a) Sullivan is not and has never been a United
-------- --
States real property holding corporation within the meaning of Section
897(c)(2) of the Tax Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Tax Code; (b) Sullivan has not made any election or
filed any consent pursuant to Section 341(f) of the Tax Code relating to
collapsible corporations; (c) Sullivan has not entered into any
compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense to Sullivan
pursuant to Section 280G of the Tax Code or an excise tax to the recipient
of such payment pursuant to Section 4999 of the Tax Code; and (d) Sullivan
has not agreed to make, nor is it required to make, any adjustment under
Section 481(a) of the Tax Code by reason of a change in accounting method
or otherwise.
4.K Capital Stock. As of the date of this Agreement, Sullivan has
------- -----
authorized capital stock consisting of 80,000,000 shares of capital stock, of
which (a) 25,000,000 shares will be designated Class A One Common Stock, par
value $0.001 per share, (b) 25,000,000 shares will be designated Class B-1
Common Stock, par value $0.001 per share, (c) 25,000,000 shares will be
designated Class B-2 Common Stock, par value $0.001 per share, and (d) 5,000,000
shares will be designated Class C Common Stock, par value $0.001 per share. As
of the Closing Date, all of the issued and outstanding capital stock of Sullivan
will be duly authorized and validly issued, fully paid and nonassessable, and
there will be no preemptive rights in respect thereof in favor of any Person
(other than any Person which holds Sullivan Shares). There are no outstanding
options, warrants or other rights to subscribe for or purchase from Sullivan, no
contracts or commitments providing for the issuance of, or the granting of
rights to acquire, and no securities convertible into or
7
<PAGE>
exchangeable for, any shares of capital stock or any other ownership interest of
Sullivan.
4.L Books and Records. The minute books of Sullivan contain records
----- --- -------
which are complete and accurate in all material respects of all meetings and
other corporate actions of its stockholders, its board of directors and all
committees, if any, appointed by its board of directors. The books of accounts,
ledgers, order books, records and documents of Sullivan, in all material
respects, accurately and completely reflect information relating to its
business, the nature, acquisitions, maintenance and location of its assets and
the transactions giving rise to its obligations and accounts receivable.
4.M Absence of Significant Undisclosed Liabilities. Sullivan has no
------- -- ----------- ----------- -----------
debt, liability or obligation of any kind, whether accrued, absolute, contingent
or otherwise, including any liability or obligation on account of Taxes or any
governmental charges or penalty, interest or fines, which would be required to
be reflected in its balance sheet prepared in accordance with GAAP and which
would have, or which in the case of contingent or inchoate liabilities, would
have if accrued or absolute, a material adverse effect on the financial
condition of Sullivan, viewed as a whole with Sullivan Holdings, its
Subsidiaries and Sullivan Two as of the Closing Date, other than any liability
or obligation (a) reflected in any Sullivan Holdings Financial Statement, (b)
identified with particularity in any attached Schedule or arising under any
Contract which is described, or which is not required to be described, on any
attached Schedule or the Contracts Schedule, (c) incurred in the ordinary course
of business since September 30, 1997, (d) incurred in connection with the
transactions contemplated by this Agreement, or (e) pursuant to the promissory
note issued to Sullivan Holdings and its Subsidiaries in connection with the
Spin-Off.
4.N Employee Benefit Plans. Other than any plan described on the
-------- ------- -----
attached Schedule 4N, (a) Sullivan does not maintain, is not a party to and
-----------
make no contributions to any of the following: (i) any "employee pension
benefit plan," (as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA")); or (ii) any "employee welfare
-----
benefit plan" (as such term is defined in Section 3(a) of ERISA), whether
written or oral; and (b) Sullivan has never sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
employee pension benefit plan subject to Section 302 of ERISA or Section 412 of
the Tax Code or Title IV of ERISA (including any multiemployer plan). No
employee or former employee of Sullivan, and no beneficiary of any such employee
or former employee is, by reason of such employee's or former employee's
employment, entitled to receive any benefits, including death or medical
benefits (whether or not insured) beyond retirement or other termination of
employment as described in Statement of Financial Accounting Standards No. 106,
other than continuation coverage mandated under Section 4980B of the Tax Code or
comparable state law.
4.O Brokers. There is no broker or finder or other Person who would
-------
have any valid claim against Sullivan or any Acquiring Party for a commission or
brokerage fee in connection with this Agreement or the transactions contemplated
hereby as a result of any agreement or understanding of or action taken by
Sullivan or any of its Affiliates.
4.P Disclosure. To the knowledge of Sullivan, no statement of a
----------
material fact set
8
<PAGE>
forth in this Article IV contains any statement of any material fact which is
untrue in any material respect or omits to state a material fact which is
necessary in order to make the statements set forth in this Article IV not
misleading in any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
GLENCAIRN AND THE MERGER SUB
Glencairn and the Merger Sub, jointly and severally, represent and
warrant as follows:
5.A Incorporation. Glencairn is a corporation duly organized,
-------------
validly existing, and in good standing (or has comparable active status) under
the laws of the State of Maryland, and Glencairn has the corporate power and
authority to enter into and consummate the transactions contemplated to be
consummated by it pursuant to this Agreement. From and after the time it is
formed, the Merger Sub will be a corporation duly organized, validly existing,
and in good standing (or has comparable active status) under the laws of the
State of Delaware and will have the corporate power and authority to enter into
and consummate the transactions contemplated to be consummated by it pursuant to
this Agreement.
5.B Corporate Action. Each action necessary to be taken by or on the
--------- ------
part of either Glencairn or the Merger Sub in connection with the execution and
delivery of this Agreement and the consummation of transactions contemplated
hereby to be consummated by it and necessary to make the same effective duly and
validly taken by, and be effective at, the time by which such action is required
to be taken. This Agreement has been duly and validly authorized, executed, and
delivered by each of Glencairn and the Merger Sub and constitutes a valid and
binding agreement, enforceable against each of them in accordance with and
subject to its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, arrangement, moratorium or
similar laws affecting the rights of creditors generally and the availability of
equitable remedies.
5.C No Defaults. Except as set forth on the attached Schedule 4H,
-- -------- -------- --
the requisite approval of the FCC and compliance with the requirements of the
Hart-Scott-Rodino Act, on the Closing Date (after giving effect to all approvals
and consents which have been obtained), neither the execution and delivery by
Glencairn or the Merger Sub of this Agreement, nor the consummation by Glencairn
or the Merger Sub of the Merger and the other transactions contemplated by this
Agreement to be consummated by it, will constitute, or, with the giving of
notice or the passage of time or both, would constitute, a material violation of
or would conflict in any material respect with or result in any material breach
of or any material default under, any of the terms, conditions, or provisions of
any Legal Requirement to which Glencairn or the Merger Sub is subject, or of
Glencairn's or the Merger Sub's certificate of incorporation or by-laws or
similar organizational documents, or of any material contract, agreement, or
instrument to which Glencairn or the Merger Sub is a party or by which Glencairn
or the Merger Sub is bound.
9
<PAGE>
5.D Brokers. There is no broker or finder or other Person who would
-------
have any valid claim against Sullivan (except after the Effective Time) or any
Old Sullivan Stockholder for a commission or brokerage fee in connection with
this Agreement or the transactions contemplated hereby as a result of any
agreement or understanding of or action taken by Glencairn, the Merger Sub or
any Affiliate of any of them.
5.E Qualification as a Broadcast Licensee. Glencairn and the Merger
------------- -- - --------- --------
Sub will, at the time of the filing of the applications for the Required FCC
Consent described in Section 6.A, be legally and financially qualified under the
Communications Act, and the rules and regulations promulgated by the FCC
thereunder, to control Sullivan (in the case of Glencairn) or be the successor
by merger to Sullivan and the holder of the FCC Authorizations (in the case of
the Merger Sub). To Glencairn's and the Merger Sub's knowledge, no fact exists
as of the date of this Agreement that would, under the Communications Act, the
existing rules, regulations, policies, and practices of the FCC or any other
Legal Requirement, disqualify either Glencairn or the Merger Sub as the direct
or indirect holder of any FCC Authorization or as owner and operator of the
related Station Assets or any related Station.
5.F Litigation. There is no litigation pending by or against, or to
----------
Glencairn's or the Merger Sub's knowledge (after due inquiry) threatened
against, Glencairn or the Merger Sub related to or affecting Glencairn's or the
Merger Sub's ability fully to carry out the transactions con templated to be
consummated by them pursuant to this Agreement. There are no attachments, execu
tions, or assignments for the benefit of creditors or voluntary or involuntary
proceedings in bankruptcy contemplated by, or, to Glencairn's or the Merger
Sub's knowledge, threatened or pending against, Glencairn or the Merger Sub.
5.G Disclosure. To Glencairn's and the Merger Sub's knowledge, no
----------
statement of a material fact set forth in this Article V contains a statement of
any material fact which is untrue in any material respect or omits to state a
material fact which is necessary in order to make the statements set forth in
this Article V not misleading in any material respect.
ARTICLE VI
APPLICATIONS FOR REQUIRED FCC CONSENT
6.A Preparation and Filing. Within 30 Business Days after
----------- --- ------
Glencairn's or its own written request after the Spin-Off, each of Sullivan and
Glencairn will, and will cause its Subsidiaries to, complete the portions of the
applications for the Required FCC Consent which pertain to it and jointly file
such applications with the FCC. Each of Sullivan and Glencairn will, and will
cause its Subsidiaries to, diligently take or cooperate in the taking of all
steps which are reasonably within its ability to take and which are necessary,
proper, or desirable to expedite the prosecution of such applications and to
cause the Required FCC Consent expeditiously to become Granted and expeditiously
to become a Final Order.
6.B Certain Actions. Sullivan will refrain from making any filing or
------- -------
10
<PAGE>
announcement or taking (or causing or assisting any other Person to take) any
other action which reasonably could be expected to delay the Required FCC
Consent being Granted or becoming a Final Order in any respect without
Glencairn's prior written consent. Without limiting Section 6.D, Glencairn
will, and will cause its Subsidiaries to, refrain from making any filing or
announcement or taking (or causing or assisting any other Person to take) any
other action which reasonably could be expected to delay the Required FCC
Consent being Granted or becoming a Final Order in any respect without the prior
written consent of Sullivan (or, after the Closing, the Stockholder
Representative).
6.C Notice of Objections, etc. Sullivan will promptly provide
------ -- ----------- ---
Glencairn (or, after the Closing, the Stockholder Representative) with a copy of
any pleading, order, or other document served on Sullivan relating to such
applications (other than any of the same which is addressed to or states that it
is to be served upon or delivered to the Person to whom such copy is to be
provided or such Person's communications counsel). Glencairn will promptly
provide Sullivan (or, after the Closing, the Stockholder Representative) with a
copy of any pleading, order, or other document served on Glencairn or any of its
Subsidiaries relating to such applications (other than any of the same which is
addressed to or states that it is to be served upon or delivered to the Person
to whom such copy is to be provided or such Person's communications counsel).
6.D Prohibited Actions. Glencairn will not, and will not cause or
---------- -------
permit any of its Subsidiaries to, make any "major amendment" (as that term is
used in Section 73.3578(b) of the rules of the FCC (Ch. 47 C.F.R.)) in respect
of any such application other than (i) with prior written consent of Sullivan
(prior to the Closing) or the Stockholder Representative (after the Closing),
(ii) in order to reflect any change in the proposed operating or ownership
structure of the Merger Sub or any Station which the FCC or its staff has
indicated to Glencairn or any Affiliate or agent of Glencairn is a condition to
the Required FCC Consent to be Granted, or (iii) if required by a change in the
rules, regulations or policies of the FCC to disclose any attributable interest
which Glencairn or any of its Subsidiaries may be deemed to have by virtue of
any local marketing, time brokerage or similar arrangement in effect on the date
of this Agreement.
ARTICLE VII
COVENANTS OF SULLIVAN
7.A Actions after Spin-Off and prior to Merger.
------- ----- -------- --- ----- -- ------
(1) Operation Generally. After the Spin-Off and until the
--------- ---------
Closing, Sullivan will (a) with respect to Station Assets, keep books of
account, records, and files substantially in accordance with the practices
of Sullivan Holdings and its Subsidiaries with respect to such assets of
such type prior to the Spin-Off, (b) promptly execute and timely file any
applications reasonably required for renewal of the FCC Authorizations, (c)
timely file (taking into account any extensions of which Sullivan may avail
itself) true, correct and complete federal, state, local and foreign tax
returns and tax reports required to be filed by Sullivan, (d) fully pay all
federal, state, local and foreign income, profits, franchise, sales,
11
<PAGE>
use, occupation, property, excise and other taxes (including interest and
penalties) due and payable by Sullivan, (e) to the extent necessary to the
conduct of its business: use reasonable efforts to (i) perform its
obligations under all Station Contracts to which it is a party, (ii)
preserve the Station Assets held by it, and (iii) maintain in full force
and effect the FCC Authorizations, and (f) maintain property damage
insurance in such amounts, and insuring against such risks, as Glencairn
may reasonably request.
(2) Contracts. After the Spin-Off and until to the Closing,
---------
Sullivan will be entitled to renew or extend the term of any Contract
which, by its terms, has expired at the time of such renewal or extension
or which would expire prior to the sixtieth day after the effective date of
such renewal or extension, and, in connection therewith, to agree to
increase the amounts payable thereunder during any such renewal or extended
term in accordance with Sullivan Holdings' and its Subsidiaries' past
practice in the operation of the Stations, or enter into any other Contract
which is reasonably required in order to enable it to comply with its
obligations under this Agreement.
(3) Restrictions. After the Spin-Off and until to the Merger
------------
Closing, Sullivan will not without the prior written consent of Glencairn
(to the extent the following restrictions are permitted by the FCC and all
other applicable Legal Requirements):
(a) other than in the ordinary course of business, sell,
lease (as lessor), transfer, or agree to sell, lease (as lessor), or
transfer any Station Assets which are required for the operation of
any Station without replacement thereof with a functionally equivalent
or superior asset of substantially equal or greater value;
(b) apply to the FCC for any construction permit that would
materially restrict any Station's present operations or make any
material adverse change in the buildings or leasehold improvements
which constitute Station Assets;
(c) merge or consolidate, or agree to merge or consolidate,
with or into any Person;
(d) enter into any Contract with any of its Affiliates which
will not be performed in its entirety or by its terms terminate at or
prior to the time of the Closing;
(e) cause any of its assets or properties to become subject
to any Lien, other than any Permitted Encumbrance;
(f) commit any material breach of any material Contract to
which it is a party; or
(g) change any material tax election if such change could
reasonably be expected to adversely affect Post-Merger Sullivan,
except to the extent required by any Legal Requirement, any Contract
or GAAP.
12
<PAGE>
(4) No Premature Assumption of Control. Nothing contained in
-- --------- ---------- -- -------
this Agreement will give any Acquiring Party any right to control the
programming, operations, or any other matter relating to the Stations prior
to the Closing, and Sullivan will have complete control of the programming,
operations, and all other matters relating to the Stations up to the time
of the Closing.
7.B Organization/Goodwill. After the Spin-Off and until to the
---------------------
Closing, Sullivan will use reasonable efforts to preserve the business
organization of Sullivan with respect to the Stations and preserve the goodwill
of the Stations' suppliers, customers, and others, to the extent such Persons
have business relations with Sullivan. This Section 7.B will not apply to the
Corporate Personnel, with respect to continued service by them after the Closing
(it being understood that the Corporate Personnel intend to resign their
respective positions with Sullivan effective as of the Effective Time).
7.C Access to Facilities, Files, and Records. From time to time at
------ -- ----------- ------ --- -------
the request of Glencairn after the Spin-Off and prior to the Closing, Sullivan
will give or cause to be given to the officers, employees, accountants, counsel,
and representatives of Glencairn and the Merger Sub
(a) access (in the presence of any representative designated
by Sullivan, at Sullivan's option), upon reasonable prior notice,
during normal business hours, to all facilities, property, accounts,
books, deeds, title papers, insurance policies, licenses, agreements,
contracts, commitments, records, equipment, machinery, fixtures,
furniture, vehicles, accounts payable and receivable, and inventories
of Sullivan (but, in any event, not personnel, unless Sullivan
otherwise consents) related to the Stations, including for purposes of
permitting Glencairn to perform "Phase One" (and, after consulting
with Sullivan as to the scope thereof, "Phase Two") environmental
surveys with respect to the Station Assets, and
(b) all such other information in Sullivan's possession
concerning the affairs of the Stations as Glencairn may reasonably
request,
in each case at Glencairn's expense; provided that the foregoing does not
--------
disrupt or interfere with the business and operations of Sullivan or any
Station in any material respect ("materiality," for purposes of this
proviso, being determined by reference to each Station individually, and
not taken as a whole).
7.D Hart-Scott-Rodino Matters. Within thirty (30) days after
----------------- -------
Glencairn's or its own request after the Spin-Off, Sullivan will complete all
documents (if any) required to be filed with the Federal Trade Commission (the
"FTC") and the United States Department of Justice (the "DOJ") with respect to
--- ---
itself and/or its Affiliate(s) and concerning the Merger in order to comply with
the Hart-Scott-Rodino Act and together with Glencairn and/or the appropriate
Affiliate(s) of Glencairn who are required to join in such filings, will file
the same with the FTC and the DOJ. Sullivan will promptly furnish all materials
thereafter required by the FTC, the DOJ or any other governmental entity having
jurisdiction over such filings, and will take all reasonable actions and will
file and use reasonable
13
<PAGE>
efforts to have declared effective or approved all documents and notifications
with any such governmental entity, as may be required under the Hart-Scott-
Rodino Act or other federal antitrust laws for the consummation of the Merger.
7.E Consents. Except as provided in Article VI and Section 7.D, it
--------
is agreed that (1) as among Sullivan and the Acquiring Parties, it will be the
sole responsibility of the Acquiring Parties to timely obtain all Acquiring
Party Consents, (2) so long as Sullivan complies with its obligations pursuant
to the following sentence and Article VI and Section 7.D, Sullivan, the Old
Sullivan Stockholders and the Stockholder Representative will not be liable to
any Person for any failure to obtain or other absence of any effective Acquiring
Party Consent, and (3) except as provided in Sections 10.C and 10.D, the absence
of any effective Consent will not excuse any Acquiring Party from consummating
the Merger. Sullivan will use reasonable efforts (without being required to
make any payment not specifically required by the terms of any licenses, leases,
and other contracts), including executing any related agreement or undertaking
which does not take effect until the Effective Time, to obtain the Sullivan
Consents and to assist the Acquiring Parties (at the Acquiring Parties' request
and expense) to (a) timely obtain all Acquiring Party Consents or, in the
absence of any Acquiring Party Consent (where applicable), one or more
replacement agreements, and (b) cause each Consent or replacement agreement to
become effective as of the time of the Spin-Off or the Effective Time, as
applicable.
7.F Notice of Proceedings. After the Spin-Off and prior to the
------ -- -----------
Closing, Sullivan will promptly notify Glencairn in writing upon becoming aware
of any order or decree or any complaint praying for an order or decree
restraining or enjoining the consummation of the Merger or any other transaction
contemplated by this Agreement to be consummated by Sullivan, or upon receiving
any notice from any governmental department, court, agency, or commission of its
intention to institute an investigation into or institute a suit or proceeding
to restrain or enjoin the consummation of the Merger or any such other
transaction, or to nullify or render ineffective this Agreement, the Merger or
any such other transaction if consummated.
7.G Confidential Information. If for any reason the transactions
------------ -----------
contemplated in this Agreement are not consummated, Sullivan will not use or
disclose to any Person (except to its agents, representatives and advisors, to
its lenders and securityholders and their respective agents, representatives and
advisors, or as may be required by any Legal Requirement) any confidential
information received from an Acquiring Party or any of their respective agents,
representatives and advisors (each a "disclosing party" for purposes of this
Section 7.G) in the course of investigating, negotiating, and completing the
transactions contemplated by this Agreement. Nothing will be deemed to be
confidential information for purposes of this Section 7.G that: (a) is or was
known to any Sullivan-Related Entity at the time of its initial disclosure by a
disclosing party to any Sullivan-Related Entity; (b) has become or becomes
publicly known or available other than through disclosure by any Sullivan-
Related Entity; (c) is or was rightfully received by any Sullivan-Related Entity
from any Person unrelated to any Sullivan-Related Entity (other than any Person
engaged by any Sullivan-Related Entity in connection with the transactions
contemplated by this Agreement); or (d) is or was independently developed by any
Sullivan-Related Entity.
14
<PAGE>
7.H Efforts to Consummate. Subject to the provisions of Article IX
------- -- ----------
and Section 12.A, Sullivan will use reasonable efforts to fulfill and perform
all conditions and obligations on its part to be fulfilled and performed under
this Agreement and to cause the conditions set forth in Articles IX and X to be
fulfilled and cause the Merger and the other transactions contemplated by this
Agreement in connection with the Closing to be fully carried out. In addition,
promptly after Sullivan becomes aware prior to the Closing of a breach of any
fact or circumstance which constitutes or would constitute a breach of any other
Party's representation or warranty set forth in this Agreement, Sullivan will
give such Party notice thereof so that such Party may attempt to cure the same.
7.I Notice of Certain Developments. Sullivan will give prompt
------ -- ------- -------------
written notice to Glencairn if, after the Spin-Off and prior to the Closing:
(1) Sullivan receives notice from any Market Cable System currently carrying a
Station's signal of such Market Cable System's intention to delete such Station
from carriage or change such Station's channel position on such Market Cable
System, or (2) Sullivan becomes aware of any breach of any representation or
warranty of Sullivan set forth in Article IV.
7.J Updated Information. Sullivan agrees to provide to Glencairn and
------- -----------
the Merger Sub at or prior to the Closing, for informational purposes only,
copies of all material Contracts in existence at the time of the Closing and
which are entered into after the Spin-Off and prior to the Closing.
7.K Non-Solicitation. After the Spin-Off and prior to the Closing or
----------------
the earlier termination of this Agreement, each of ABRY Partners and Sullivan
will not, and each of them will not cause (and will use reasonable efforts not
to permit) any of its Subsidiaries, affiliates, directors, officers, employees,
representatives or agents to, directly or indirectly solicit, or initiate,
entertain or enter into any discussions or transactions with, or encourage or
provide any information to, any Person (other than any Person described in
Section 7.C), concerning any sale of any of the assets of Sullivan (other than
any sale which is not prohibited by Section 7.A(3)) or any merger, stock
acquisition or similar transaction involving Sullivan (other than an issuance of
capital stock or capital stock equivalents by Sullivan); provided that nothing
--------
in this Section 7.K will prohibit ABRY Partners or Sullivan from furnishing, or
causing or permitting any other Person to furnish, information concerning
Sullivan to any governmental authority or court of competent jurisdiction or any
other Person as may be required by any Legal Requirement.
ARTICLE VIII
COVENANTS OF GLENCAIRN AND THE MERGER SUB
8.A Hart-Scott-Rodino Matters. Within 30 days after Sullivan's or its
----------------- -------
own request after the Spin-Off, Glencairn will complete all documents (if any)
required to be filed with the FTC and the DOJ with respect to itself and/or its
Affiliate(s) and concerning Merger in order to comply with the Hart-Scott-
Rodino Act and together with Sullivan and/or the appropriate Affiliate(s) of
Sullivan who
15
<PAGE>
are required to join in such filings, will file the same with the FTC and the
DOJ. Glencairn will pay the filing fees associated with all such filings and the
filings described in Section 6.A. Glencairn and the Merger Sub will promptly
furnish all materials thereafter required by the FTC, the DOJ or any other
governmental entity having jurisdiction over such filings, and will take all
reasonable actions and will file and use reasonable efforts to have declared
effective or approved all documents and notifications with any such governmental
entity, as may be required under the Hart-Scott-Rodino Act or other federal
antitrust laws for the consummation of the Merger.
8.B Confidential Information. If for any reason the transactions
------------ -----------
contemplated in this Agreement are not consummated, each of Glencairn and the
Merger Sub will not use or disclose to any Person (except to its agents,
representatives and advisors, to its lenders and their respective agents,
representatives and advisors, or as may be required by any Legal Requirement)
any confidential information received from Sullivan Holdings, any of its
Subsidiaries, Sullivan or any of their respective agents, representatives and
advisors (each a "disclosing party" for purposes of this Section 8.B) in the
course of investigating, negotiating, and completing the transactions
contemplated by this Agreement. Nothing will be deemed to be confidential
information for purposes of this Section 8.B that: (a) is or was known to any
Glencairn-Related Entity at the time of its initial disclosure by a disclosing
party to any Glencairn-Related Entity; (b) has become or becomes publicly known
or available other than through disclosure by any Glencairn-Related Entity; (c)
is or was rightfully received by any Glencairn-Related Entity from any Person
unrelated to any Glencairn-Related Entity (other than any Person engaged by any
Glencairn-Related Entity in connection with the transactions contemplated by
this Agreement); or (d) is or was independently developed by any Glencairn-
Related Entity. In addition, the Merger Sub agrees to be bound by the same
obligations as Glencairn is bound pursuant to the confidentiality agreement
dated as of November 20, 1997 between Sinclair Broadcast Group, Inc. and
Sullivan Broadcasting, which confidentiality agreement will survive the
execution and delivery of this Agreement and will survive the execution and
termination of this Agreement, and no provision of this Section 8.B will be
deemed to supersede or in any way limit any obligation or right under such
confidentiality agreement.
8.C Efforts to Consummate. Subject to the provisions of Article X
------- -- ----------
and Section 12.A, each of Glencairn and the Merger Sub will use reasonable
efforts to fulfill and perform all conditions and obligations on its part to be
fulfilled and performed under this Agreement and to cause the conditions set
forth in Articles IX and X to be fulfilled and cause the Merger and the
transactions contemplated by this Agreement in connection with the Merger to be
fully carried out. In addition, promptly after Glencairn or the Merger Sub
becomes aware prior to the Closing of a breach of any fact or circumstance which
constitutes or would constitute a breach of any representation or warranty of
Sullivan set forth in this Agreement, Glencairn will give Sullivan notice
thereof so that Sullivan may attempt to cure the same.
8.D Notice of Proceedings. Each of Glencairn and the Merger Sub will
------ -- -----------
promptly notify Sullivan (prior to the Closing) or the Stockholder
Representative (after the Closing) in writing upon becoming aware of any order
or decree or any complaint praying for an order or decree restraining or
enjoining the consummation of the Merger or any other transaction contemplated
by this Agreement, or upon receiving any notice from any governmental
16
<PAGE>
department, court, agency, or commission of its intention to institute an
investigation into or institute a suit or proceeding to restrain or enjoin the
consummation of the Merger or any such other transaction, or to nullify or
render ineffective this Agreement, the Merger or any such other transaction, if
consummated. Glencairn will give the Stockholder Representative prompt written
notice if any Acquiring Party becomes aware of any breach of any representation
or warranty of any Acquiring Party set forth in Article V.
8.E Section 338 Election. Without the Stockholder Representative's
------- --- --------
prior written consent, Glencairn will not, and will not cause or permit any of
its Subsidiaries to, make an election under Section 338 of the Tax Code, or
under any analogous provision of any other Legal Requirements relating to Taxes,
with respect to the Merger.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF SULLIVAN AT THE CLOSING
The obligation of Sullivan to consummate the Merger is, at Sullivan's
option, subject to the fulfillment of the following conditions at the time of
the Closing (Sullivan expressly acknowledging that the effectiveness of the
Sullivan Consents is not a condition to such obligation):
9.A Representations, Warranties, Covenants.
---------------- ----------- ---------
(1) Each of the representations and warranties of Glencairn and
the Merger Sub set forth in Article V, considered without regard to any
materiality qualifiers contained therein, will be deemed to be made again
at and as of the time of the Closing (other than any such representation or
warranty which is expressly made with reference to a time prior to the time
of the Closing, which will be deemed remade as of such time only), and
taken as a whole such representations and warranties, as so remade, will
have been true and accurate in all material respects, except to the extent
of deviations therefrom permitted or contemplated by this Agreement; and
(2) each of Glencairn and the Merger Sub will in all material
respects have performed and complied with the covenants and agreements
required by this Agreement to be performed or complied with by it prior to
or at the time of the Closing, taken as a whole.
9.B Proceedings.
-----------
(1) No action or proceeding will have been instituted and be
pending before any court or governmental body to restrain or prohibit, or
to obtain a material amount of damages in respect of, the consummation of
the transactions contemplated by this Agreement that, in the reasonable
opinion of Sullivan, may reasonably be expected to result in a preliminary
or permanent injunction against such consummation or, if the transactions
contemplated hereby were consummated, an order to nullify or render
ineffective this
17
<PAGE>
Agreement or such transactions or for the recovery against any Sullivan-
Related Entity or any officer, director or stockholder of any Sullivan-
Related Entity of a material amount of damages; and
(2) no Party will have received written notice from any
governmental body of (a) such governmental body's intention to institute
any action or proceeding to restrain or enjoin or nullify this Agreement or
the transactions contemplated hereby, or to commence any investigation
(other than a routine letter of inquiry, including, without limitation, a
routine Civil Investigative Demand) into the consummation of the
transactions contemplated by this Agreement, or (b) the actual commencement
of such an investigation, in each case unless the same has been withdrawn,
resolved, concluded or abandoned.
9.C Hart-Scott-Rodino and FCC Matters. The Approval Date will have
----------------- --- --- -------
occurred and the Required FCC Consent will be in full force and effect.
9.D Spin-Off. The Spin-Off will have been consummated.
--------
9.E Other Deliveries. The Merger Sub will have delivered, or will
----- ----------
stand ready to deliver, to Sullivan such instruments, documents, and
certificates as are contemplated by Section 3.B(1).
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE MERGER SUB AT THE CLOSING
The obligations of the Merger Sub to consummate the Merger on the
Closing Date are, at the Merger Sub's option, subject to the fulfillment of the
following conditions at the time of the Closing (Glencairn and the Merger Sub
expressly acknowledging that the effectiveness of the Acquiring Party Consents
is not a condition to such obligations):
10.A Representations, Warranties, Covenants.
---------------- ----------- ---------
(1) Each of the representations and warranties of Sullivan set
forth in Article IV, considered without regard to any materiality
qualifiers contained therein, will be deemed to be made again at and as of
the time of the Closing (other than any such representation or warranty
which is expressly made with reference to a time prior to the time of the
Closing, which will be deemed remade as of such time only), and taken as a
whole such representations and warranties, as so remade, will have been
true and accurate, except to the extent of deviations therefrom which are
permitted or contemplated by this Agreement or which, in the aggregate, do
not constitute and have not caused a Material Adverse Change; and
(2) Sullivan will in all material respects have performed and
complied with the covenants agreements required by this Agreement to be
performed or complied with
18
<PAGE>
by it prior to or at the time of the Closing, taken as a whole, and
Sullivan will in all material respects have performed and complied with the
covenants and agreements required by this Agreement to be performed or
complied with by it prior to or at the time of the Closing, taken as a
whole.
10.B Proceedings.
-----------
(1) No action or proceeding will have been instituted and be
pending before any court or governmental body to restrain or prohibit, or
to obtain a material amount of damages in respect of, the consummation of
the transactions contemplated by this Agreement that, in the reasonable
opinion of Glencairn, may reasonably be expected to result in a preliminary
or permanent injunction against such consummation or, if the transactions
contemplated hereby were consummated, an order to nullify or render
ineffective this Agreement or such transactions or for the recovery against
any Glencairn-Related Entity or any officer, director or stockholder of any
Glencairn-Related Entity of a material amount of damages; and
(2) no Party will have received written notice from any
governmental body of (a) such governmental body's intention to institute
any action or proceeding to restrain or enjoin or nullify this Agreement or
the transactions contemplated hereby, or to commence any investigation
(other than a routine letter of inquiry, including, without limitation, a
routine Civil Investigative Demand) into the consummation of the
transactions contemplated by this Agreement, or (b) the actual commencement
of such an investigation, in each case unless the same has been withdrawn,
resolved, concluded or abandoned.
10.C Hart-Scott-Rodino and FCC Matters. The Approval Date will have
----------------- --- --- -------
occurred and the Required FCC Consent will be in full force and effect.
10.D Other Instruments. Sullivan will have delivered, or will stand
----- -----------
ready to deliver, to the Merger Sub such instruments, documents, and
certificates as are contemplated by Section 3.C(1).
ARTICLE XI
POST-CLOSING MATTERS
11.A Survival. The representations, warranties and certifications of
--------
the Parties contained in or made pursuant to this Agreement (including any
certification contained in any certificate to be delivered pursuant to Section
3.C) will survive the execution of this Agreement and the Closing only to the
extent expressly provided in the Indemnity Agreement. The covenants and
agreements of the Parties set forth in this Agreement will survive until
performed and discharged in full.
11.I Limitation of Recourse. Except as provided in the Indemnity
---------- -- --------
Agreement,
19
<PAGE>
after the Closing, no claim may be brought or maintained against any Party or
any Old Sullivan Stockholder or any of their respective present or former
officers, directors, employees or other affiliates by any Party or Old Sullivan
Stockholder or any of its successors or assigns, and no recourse may be sought
or granted against any Person, by virtue of or based upon any alleged
misstatement, omission, inaccuracy in, or breach of any representation, warranty
or certification of any Party set forth in or made pursuant to this Agreement,
and in no event will Glencairn or Post-Merger Sullivan be entitled to claim or
seek any rescission of the Merger or any of the other transactions consummated
pursuant to the Transaction Documents, any such right of rescission or rights to
damages which any such Party might otherwise have being hereby expressly waived
and any claims or judgments being limited accordingly.
11.C Acknowledgment by the Acquiring Parties. Each of the Acquiring
-------------- -- --- --------- -------
Parties has conducted, to its satisfaction, an independent investigation and
verification of Sullivan, its Subsidiaries, the Stations and the Station Assets
and the financial condition, results of operations, assets, liabilities,
properties and projected operations of Sullivan, its Subsidiaries, the Stations
and the Station Assets. In determining to enter into this Agreement and proceed
with the transactions contemplated by this Agreement, each Acquiring Person has
relied on the covenants of Sullivan, the results of such independent
investigation and verification and the representations and warranties of
Sullivan (in conjunction with the Schedules hereto) set forth in this Agreement
(including the certifications to be made in any certificate to be delivered
pursuant to Section 3.C), all of which each Acquiring Party acknowledges and
agrees will survive for a limited duration. SUCH REPRESENTATIONS, WARRANTIES AND
CERTIFICATIONS CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS, WARRANTIES
AND CERTIFICATIONS WITH RESPECT TO SULLIVAN, ITS SUBSIDIARIES, THE STATIONS AND
THE STATION ASSETS TO THE ACQUIRING PARTIES IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY, AND EACH ACQUIRING PARTY UNDERSTANDS, ACKNOWLEDGES AND
AGREES THAT ALL OTHER REPRESENTATIONS, WARRANTIES AND CERTIFICATIONS OF ANY KIND
OR NATURE AND WHETHER ORAL OR CONTAINED IN ANY WRITING OTHER THAN THIS AGREEMENT
OR ANY SUCH CERTIFICATE (INCLUDING WITHOUT LIMITATION, ANY REPRESENTATION,
WARRANTY OR CERTIFICATION RELATING TO THE PROJECTED, FUTURE OR HISTORICAL
FINANCIAL CONDITION, RESULTS OR OPERATIONS, ASSETS OR LIABILITIES RELATING TO
THE STATIONS) ARE SPECIFICALLY DISCLAIMED BY SULLIVAN, THE STOCKHOLDER
REPRESENTATIVE, THE OFFICERS OF SULLIVAN AND ITS SUBSIDIARIES AND THE OLD
SULLIVAN STOCKHOLDERS.
11.D Corporate Name. After the Merger (but on the Closing Date),
--------- ----
Post-Merger Sullivan will take and will cause its Subsidiaries to take such
action as is necessary to change its corporate name in its certificate or
articles of incorporation filed with the Secretary of State or similar official
of the jurisdiction of its incorporation to a name which does not include, and
is not confusingly similar to, the name "Sullivan" and will cease the use of all
Sullivan Broadcasting logos or any similar mark. Notwithstanding anything in
this Agreement to the contrary, Post-Merger Sullivan will be entitled to
continue to use its present corporate name until such time as such name change
is effective and to the extent necessary to accomplish such name change, and may
endorse
20
<PAGE>
checks and other instruments in such name.
ARTICLE XII
TERMINATION
12.A Termination of Agreement Prior to Closing. Subject to Section
----------- -- --------- ----- -- -------
12.A(3), this Agreement may be terminated at any time prior to the Closing as
follows:
(1) By Sullivan. By Sullivan, by written notice (a "Sullivan
-- -------- --------
Termination Notice") to Glencairn:
----------- ------
(a) at any time when any material breach by any Acquiring
Party of its obligations pursuant to this Agreement has occurred and
is continuing, if both
(i) such breach materially and adversely affects the
likelihood that any of the conditions set forth in Article IX or
X which has not been satisfied or waived will be satisfied or
materially and adversely affects any Party's ability to comply
with its obligations pursuant to this Agreement, and
(ii) at least thirty days have elapsed since Sullivan
gave Glencairn written notice requesting that such Person cure
such breach,
unless prior to the giving of the Sullivan gave each such breaching
Acquiring Party has cured such breach;
(b) at any time after the Expiration Date, if
(i) as of the Expiration Date, each of Sullivan's and
the Merger Sub's conditions to closing set forth in Articles IX
and X was satisfied or waived in writing,
(ii) the absence of satisfaction of each of Sullivan's
and the Merger Sub's conditions to closing set forth in Articles
IX and X which was not waived in writing or satisfied as of the
Expiration Date was caused by a breach by one or more of the
Acquiring Parties of any of its or their representations,
warranties and/or obligations under this Agreement and/or the
failure of any Acquiring Party Consent to have been obtained,
(iii) the Approval Date had not occurred on or prior
to the Expiration Date as a result of any breach by one or more
of the Acquiring Parties of any provision of this Agreement, or
21
<PAGE>
(iv) one or more of the Acquiring Parties and the
Affiliates thereof refused, failed or declined to take any action
(other than divesting itself of an broadcast television or radio
station of which it or one of its Subsidiaries is the licensee or
terminating any time brokerage or similar arrangement) which the
FCC, the FTC, the DOJ or the staff of any of them indicates to
any Acquiring Party or agent thereof is a condition to the grant
of the Required FCC Consent or the expiration or termination of
the requisite waiting period under the Hart-Scott-Rodino Act for
the Merger; or
(c) at any time after the Expiration Date, in any
circumstance which is not described in Section 12.A(1)(b), unless the
absence of satisfaction of each of Sullivan's and the Merger Sub's
closing conditions set forth in Articles IX and X which has not been
satisfied or waived in writing has been caused by a breach by Sullivan
of its obligations under this Agreement.
(2) By Glencairn. By Glencairn, by written notice (a "Glencairn
-- --------- ---------
Termination Notice") to Sullivan:
----------- ------
(a) at any time when any material breach by Sullivan of its
obligations pursuant to this Agreement has occurred and is continuing,
if both
(i) such breach materially and adversely affects the
likelihood that any of the conditions set forth in Article IX or
X will be satisfied or materially and adversely affects any
Party's ability to comply with its obligations pursuant to this
Agreement and
(ii) at least thirty days have elapsed since Glencairn
gave Sullivan written notice requesting that Sullivan cure such
breach,
unless prior to the giving of such Glencairn Termination Notice
Sullivan has cured such breach; or
(b) at any time after the Expiration Date, under any
circumstances described in Section 12.A(1)(b) or Section 12.A(1)(c).
(3) When Termination Not Permitted. Sullivan may not terminate
---- ----------- --- ---------
this Agreement pursuant to Section 12.A(1) at any time when Sullivan is in
material breach of a material obligation under this Agreement. Glencairn
may not terminate this Agreement pursuant to Section 12.A(2) at any time
when any Acquiring Party is in material breach of a material obligation
under this Agreement.
12.B Survival of Certain Provisions; Remedies.
-------- -- ------- ----------- ---------
22
<PAGE>
(1) General. No Party will have any liability to any other Party
-------
for costs, expenses, damages (consequential or otherwise), loss of
anticipated profits, or otherwise as a result of a termination pursuant to
Section 12.A except as provided in Section 12.B(2) or 12.B(3). The Parties
agree that time is of the essence with respect to the provisions of
Sections 3.B and 12.A. Sections 7.G and 8.G, this Article XII and Article
XIII will survive the termination of this Agreement pursuant to Section
12.A.
(2) For Sullivan. Sullivan will have such remedies as it may
--- --------
have at law or in equity in the event of a termination of this Agreement
pursuant to Section 12.A.
(3) For the Acquiring Parties. The Acquiring Parties' sole and
--- --- --------- -------
exclusive remedies for the termination of this Agreement or any failure of
performance or compliance by Sullivan with any covenant or agreement
contained in this Agreement prior to the Closing, or by Sullivan with any
covenant or agreement contained in this Agreement prior to the Closing,
will be
(a) their respective rights (if any) under applicable law or
equitable principles to seek damages in respect of their direct out-
of-pocket losses or expenses (but not any damages in respect of lost
profits or other similar or consequential or incidental damages)
occasioned by and as a consequence of such breach;
(b) their respective rights (if any) under applicable law or
equitable principles to seek specific enforcement of this Agreement
against Sullivan, including specific enforcement of Sullivan's
obligation to consummate the Merger (subject to FCC approval and other
required Consents being obtained), it being acknowledged by Sullivan
that the Acquiring Parties would not have an adequate remedy at law in
the event of any such failure, provided that no Acquiring Party will
--------
be entitled to such specific performance unless (i) each Acquiring
Party has complied in all material respects with its material
obligations under this Agreement and (ii) either (A) each condition to
closing of Sullivan set forth in Article IX has been satisfied or
waived in writing or (B) the absence of satisfaction of each such
condition to closing which has not been satisfied or waived in writing
is caused solely by a breach by Sullivan of its obligations under this
Agreement.
ARTICLE XIII
MISCELLANEOUS
13.A Expenses. Except as otherwise expressly provided in this
--------
Agreement, Sullivan will bear all of the expenses incurred prior to the Closing
by Sullivan and the Stockholder Representative in connection with the
transactions contemplated by this Agreement, and each of the Acquiring Parties
will bear all of its expenses incurred in connection with the transactions
contemplated by this Agreement, in each case including, without limitation,
accounting
23
<PAGE>
and legal fees incurred in connection herewith.
13.B Assignments.
-----------
(1) By Sullivan. This Agreement may not be assigned by Sullivan
-- --------
without the prior written consent of the Acquiring Parties.
Notwithstanding the foregoing, Sullivan may assign its rights under this
Agreement for collateral purposes only to any lender to it, or any agent
for any such lender(s), without the consent of any other Party, and any
such lender or agent may transfer such rights pursuant to the exercise of
remedies with respect to such collateral security to any other Person (it
being understood that any such lender or agent will be a third-party
beneficiary of the agreement constituted by this Section 13.B(1)).
(2) By Glencairn. Glencairn or the Merger Sub may assign its
-- ---------
rights under this Agreement without the consent of Sullivan or the
Stockholder Representative.
(3) General Rules. Any attempt to assign this Agreement or any
------- -----
rights or obligations hereunder without first obtaining any consent which
is required by this Section 13.B will be void. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Each Old Sullivan Stockholder
is an express third-party beneficiary of this Agreement.
13.C Further Assurances. From time to time prior to, at, and after
------- ----------
the Closing, each Party will execute all such instruments and take all such
actions as any other of them, being advised by counsel, may reasonably request
in connection with carrying out and effectuating the intent and purpose hereof,
and all transactions and things contemplated by this Agreement, including the
execution and delivery of any and all consents, confirmatory and other
instruments, in addition to those to be delivered at the Closing, and any and
all actions which may reasonably be necessary to complete the transactions
contemplated hereby.
13.D Notices. All notices, demands, and other communications which
-------
may or are required to be given under or with respect to this Agreement will be
in writing, will be delivered personally or sent by nationally recognized
overnight delivery service, charges prepaid, or by registered or certified mail,
return-receipt requested, and will be deemed to have been given or made when
personally delivered, or on the next Business Day after delivery to such
overnight delivery service, or on the fifth day after it is deposited in the
mail, registered or certified, first class postage prepaid, as the case may be,
if addressed as follows:
(1) If to Sullivan (prior to the Closing) or the Stockholder
-- -- -------- ------ -- --- -------- -- --- -----------
Representative:
--------------
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attn: Royce Yudkoff, President
24
<PAGE>
with a copy (which will not constitute notice to Sullivan or the
Stockholder Representative) to:
John L. Kuehn, Esq.
Kirkland & Ellis
153 E. 53rd Street
New York, New York 10022
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to the Acquiring Parties given in accordance with this Section
13.D.
(2) If to Glencairn, the Merger Sub or Post-Merger Sullivan:
-- -- ---------- ---------- ------ --------------------
Glencairn, Ltd.
3474 William Penn Highway
Pittsburgh, Pennsylvania 15235
Attention: Edwin L. Edwards, Sr.
with a copy (which will not constitute notice to Glencairn,
the Merger Sub or Post-Merger Sullivan) to:
George Stamas, Esq.
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to Sullivan (if prior to the Closing) and the Stockholder
Representative given in accordance with this Section 13.D.
13.E Captions. The captions of Articles and Sections of this
--------
Agreement are for convenience only, and will not control or affect the meaning
or construction of any of the provisions of this Agreement.
13.F Law Governing. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED,
--- ---------
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCES TO THE PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF NEW YORK,
EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE UNITED STATES GOVERNS THE
TRANSACTIONS CONTEMPLATED HEREBY.
13.G Waiver of Provisions. The terms, covenants, representations,
------ -- ----------
warranties, and conditions of this Agreement may be waived as to any Party only
by a written instrument executed by such Party. The terms, covenants,
representations, warranties, and conditions of this Agreement
25
<PAGE>
may be waived as to any Old Sullivan Stockholder only by a written instrument
executed by Sullivan, prior to the Closing, or the Stockholder Representative,
after the Closing. The failure of any Party or any Old Sullivan Stockholder at
any time or times to require performance of any provision of this Agreement will
in no manner affect the right at a later date to enforce the same. No waiver by
or on behalf of any Party to this Agreement or any Old Sullivan Stockholder of
any condition or the breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
13.H Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, and all counterparts so executed will constitute one (1) agreement
binding on all of the parties hereto, notwithstanding that all the parties
hereto are not signatory to the same counterpart.
13.I Entire Agreement. This Agreement (including the Schedules and
------ ---------
Exhibits hereto) and the confidentiality agreement referred to in Section 8.C
(including the Acquiring Parties' obligations with respect thereto, as provided
in Section 8.C), constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersede any and all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, between them relating to the subject matter hereof.
13.J Access to Books and Records.
------ -- ----- --- -------
(1) Post-Merger Sullivan will, and will cause its Subsidiaries
to, preserve for not less than five (5) years after the Closing Date all
books and records included in the Station Assets. After such five-year
period, Post-Merger Sullivan will not, and will not cause or permit its
Subsidiaries to, destroy any books or records relating to the conduct of
business of the Stations prior to the Effective Time unless Post-Merger
Sullivan first offers to transfer such books and records to the Stockholder
Representative at no cost to the Stockholder Representative, and if Post-
Merger Sullivan is requested to do so, Post-Merger Sullivan will transfer,
or cause a Subsidiary of Post-Merger Sullivan to transfer, such books or
records to the Stockholder Representative.
(2) At the request of the Stockholder Representative, Post-Merger
Sullivan will, and will cause each of its Subsidiaries to, permit the
Stockholder Representative (including its officers, employees, accountants,
and counsel) any access, upon reasonable prior written notice during normal
business hours, to all of its property, accounts, books, contracts,
records, accounts payable and receivable, records of employees, FCC logs
and other information concerning the affairs or operation of the Stations
as the Stockholder Representative may reasonably request for any reasonable
purpose relating to the transactions contemplated by this Agreement or the
ownership or operation of any Station prior to the Effective Time, and to
make extracts or copies from the foregoing at the Stockholder
Representative's expense. At Post-Merger Sullivan's request, prior to
receiving any such requested information, the Stockholder Representative
will execute a confidentiality agreement with respect thereto which is
reasonably acceptable to Post-Merger
26
<PAGE>
Sullivan.
13.K Public Announcements. Prior to the Closing, no Party will,
------ -------------
except by mutual agreement of Sullivan and Glencairn (including agreement as to
content, text and method of distribution or release), make any press release or
other public announcement or disclosure concerning the transactions
contemplated by this Agreement, except as may be required by any Legal
Requirement (including filings and reports required to be made with or pursuant
to the rules of the Securities and Exchange Commission); provided that, prior to
--------
making any such announcement or disclosure required by any Legal Requirement, to
the extent practicable, the disclosing Party gives each Person named above prior
written notice of the context, text and content of, the method of distribution
or release of, and all other material facts concerning, such disclosure.
13.L Disclosure. If and to the extent that any information required
----------
to be furnished by Sullivan in any attached Schedule is contained in this
Agreement or in any attached Schedule, such information will be deemed to have
been included in each other attached Schedule in which such information is
required to be included to the extent its relevance to such latter Schedule is
reasonably apparent. By including any information in any attached Schedule,
Sullivan will not be deemed to have admitted or acknowledged that such
information is material to or outside the ordinary course of the business of
Sullivan or any Station.
13.M Definitional Provisions.
------------ ----------
(1) Terms Defined in Appendix. Each capitalized term which is
----- ------- -- --------
used and not otherwise defined in this Agreement or any attached Schedule
has the meaning which is specified for such term in the Appendix which is
attached to this Agreement.
(2) Knowledge. As used in this Agreement, the term "knowledge"
---------
of Sullivan will refer only to the actual knowledge, without any particular
inquiry (except as specified in this Agreement), of the Corporate
Personnel, Andrew Banks and Royce Yudkoff, after inquiry of the general
managers of the Stations; and the "knowledge" of Glencairn or the Merger
Sub will refer only to the actual knowledge, without any particular inquiry
(except as specified in this Agreement) of Edwin L. Edwards, Sr.
(3) Interpretation. Words used in this Agreement, regardless of
--------------
the gender and number specifically used, will be deemed and construed to
include any other gender, masculine, feminine or neuter, and any other
number, singular or plural, as the context requires. Whether or not used
in conjunction with the words "without limitation" or words of similar
import, the term "including" as used in this Agreement imports that the
items referred to are illustrative only and do not purport to be a complete
listing of the items of the type in question. The wording of the
provisions of this Agreement is the result of arms-length negotiations
among the parties to this Agreement and was selected by them to reflect
their mutual intentions; therefore, no party will be deemed the "drafter"
of this Agreement and no rule of strict construction will be applied
against or in favor of any party to this Agreement.
27
<PAGE>
13.N Arbitration.
-----------
(1) Generally. Except as expressly provided in the Indemnity
---------
Escrow Agreement or for purposes of pursuing any remedy pursuant to Section
12.B(3)(b), the arbitration procedures described in this Section 13.N will
be the sole and exclusive method of resolving and remedying claims arising
under this Agreement and the other Transaction Documents ("Disputes");
--------
provided that nothing in this Section 13.N will prohibit a Party from
--------
instituting litigation to enforce any Final Arbitration Award. Except as
otherwise provided in the Commercial Arbitration Rules of the American
Arbitration Association as in effect from time to time (the "AAA Rules"),
--- -----
the arbitration procedures described in this Section 13.N and any Final
Arbitration Award will be governed by, and will be enforceable pursuant to,
the Uniform Arbitration Act as in effect in the State of New York from time
to time. No Person will be entitled to claim or recover punitive damages
in any such proceeding.
(2) Notice of Arbitration. If a Party asserts that there exists
------ -- -----------
a Dispute, then such Person (the "Disputing Person") will give each other
--------- ------
Person involved in such Dispute a written notice setting forth the nature
of the asserted Dispute. If all such Persons do not resolve any such
asserted Dispute prior to the tenth Business Day after such notice is
given, then the Disputing Person may commence arbitration pursuant to this
Section 13.N by giving each other Person involved in such Dispute a written
notice to that effect (an "Arbitration Notice"), setting forth any matters
----------- ------
which are required to be set forth therein in accordance with the AAA
Rules. Unless otherwise notified, the Acquiring Parties are entitled to
assume that the Stockholder Representative is authorized to act on behalf
of each Old Sullivan Stockholder with respect to any Dispute.
(3) Selection of Arbitrator. The Persons involved in such
--------- -- ----------
Dispute will attempt to select a single arbitrator by mutual agreement. If
no such arbitrator is selected prior to the twentieth Business Day after
the related Arbitration Notice is given, then an arbitrator which is
experienced in matters of the type which are the subject matter of the
Dispute will be selected in accordance with the AAA Rules.
(4) Conduct of Arbitration. The arbitration will be conducted
------- -- -----------
under the AAA Rules, as modified by any written agreement among the Persons
involved in such Dispute. The arbitrator will conduct the arbitration in a
manner so that the final result, determination, finding, judgment or award
determined by the arbitrator (the "Final Arbitration Award") is made or
----- ----------- -----
rendered as soon as practicable, and the Persons involved in such Dispute
will use reasonable efforts to cause a Final Arbitration Award to occur not
later than the sixtieth day after the arbitrator is selected. Any Final
Arbitration Award will be final and binding upon the Persons involved in
such Dispute, and there will be no appeal from or reexamination of any
Final Arbitration Award, except as provided in the Uniform Arbitration Act,
as in effect in the State of New York from time to time.
(5) Enforcement. A Final Arbitration Award may be enforced in
-----------
any state or federal court having jurisdiction over the subject matter of
the related Dispute.
28
<PAGE>
(6) Expenses. The prevailing Person(s) in any arbitration
--------
proceeding in connection with this Agreement will be entitled to recover
from the non-prevailing Person(s) their reasonable attorneys' fees and
disbursements in addition to any damages or other remedies awarded to such
prevailing Person(s), and the non-prevailing Person(s) will be required to
pay all other costs and expenses associated with the arbitration; provided
--------
that (i) if an arbitrator is unable to determine that a Person is a
prevailing Person in any such arbitration proceeding, then such costs and
expenses will be equitably allocated by such arbitrator upon the basis of
the outcome of such arbitration proceeding, and (ii) if such arbitrator is
unable to allocate such costs and expenses in such a manner, then the costs
and expenses of such arbitration will be paid one-half by Sullivan and one-
half by Glencairn, and each Party will pay the out-of-pocket expenses
incurred by it. As part of any Final Arbitration Award, the arbitrator may
designate the prevailing Person(s) for purposes of this Section 13.N(6).
Except as provided in the preceding sentences, each Person involved in a
Dispute will bear its own costs and expenses (including legal fees and
disbursements) in connection with any such proceeding or submission.
13.O Stockholder Representative.
----------- --------------
(1) Appointment; Authority Generally. On behalf of the Old
------------ --------- ---------
Sullivan Stockholders, Sullivan hereby appoints ABRY Partners as the
initial Stockholder Representative under this Agreement, to serve in
accordance with the terms, conditions and provisions of this Agreement, and
ABRY Partners, by its execution of this Agreement, hereby agrees to act as
such, upon the terms, conditions and provisions of this Agreement. From and
after the Closing, the Stockholder Representative will be authorized to act
on behalf of the Old Sullivan Stockholders in accordance with this
Agreement.
(2) Authorization. The Stockholder Representative, in such
-------------
capacity, will be entitled to take all actions on behalf of the holders of
Sullivan Shares or the Old Sullivan Stockholders, as the case may be, with
respect to this Agreement and the other agreements contemplated hereby, and
omit to take any action, each as directed by
(a) prior to the Effective Time, the holders of capital
stock of Sullivan having a majority of the voting power represented by
the outstanding capital stock of Sullivan at the time in question, and
(b) after the Effective Time, Persons who immediately prior
to the Effective Time held Sullivan Shares which represented a
majority of the voting power of the Sullivan Shares,
(in either case, the "Majority Sullivan Stockholders"). The Stockholder
-------- -------- ------------
Representative may be removed and replaced from time to time as the
representative of the holders of the Sullivan Shares or the Old Sullivan
Stockholders by written notice given by the Majority Sullivan Stockholders
to Sullivan (prior to the Effective Time) and the Acquiring Parties.
(3) Responsibility. The Stockholder Representative will have no
--------------
duties
29
<PAGE>
or responsibilities except those expressly set forth in this Agreement or
any other agreement which may be entered into by it hereunder. The
Stockholder Representative will have no responsibility for the validity of
this Agreement or any agreement referred to in this Agreement or for the
performance of any such agreements by any party thereto or for the
interpretation of any of the provisions of any such agreements. The
Stockholder Representative's liability in fulfilling its duties will be
limited to bad faith, willful misconduct or gross negligence on its part.
The Stockholder Representative will be protected in acting upon any
certificate, notice or other instrument whatsoever received by the
Stockholder Representative as to its due execution, the validity and
effectiveness of its provisions, and the truth and accuracy of any
information therein contained that the Stockholder Representative in good
faith believes to be genuine and to have been signed or presented by a
proper Person or Persons. The Stockholder Representative may, in its sole
discretion, consult with and obtain advice from legal counsel and any other
Person in the event of any question as to any of the provisions of this
Agreement, any other agreement entered into in connection herewith or its
duties hereunder or thereunder. The reasonable cost of such services, to
the extent not borne by Sullivan, will be borne among the Old Sullivan
Stockholders who held Sullivan Shares immediately prior to the Effective
Time, pro rata in accordance with the respective amounts of the Merger
Consideration to be received by them in respect of the Sullivan Shares.
(4) Resignation; Replacement. The Stockholder Representative
------------ -----------
will have the right, in its sole discretion, to resign as the Stockholder
Representative (in its capacity as the representative of the holders of
Sullivan Shares or the Old Sullivan Stockholders) at any time by giving at
least 30 days prior written notice to Sullivan (prior to the Effective
Time) and the Acquiring Parties. In such event, Sullivan (prior to the
Effective Time) or the Majority Sullivan Stockholders (after the Effective
Time) will promptly appoint another Stockholder Representative to represent
the holders of Sullivan Shares and the Old Sullivan Stockholders and give
notice of such selection to the Acquiring Parties and the Old Sullivan
Stockholders (after the Effective Time). Such resignation of the
Stockholder Representative will be effective upon such notice being given
and such new Stockholder Representative's acceptance of such appointment
and will relieve the resigning Stockholder Representative of all duties and
responsibilities of the Stockholder Representative in such capacity
thereafter arising.
13.P Completion of Sullivan's Schedules. The Acquiring Parties
---------- -- ---------- ---------
acknowledge that Sullivan has executed this Agreement without having the
opportunity to request of personnel of the Stations information which may be
material to the preparation of the attached Schedules referred to in Article IV
(and that, therefore, some or all of such attached Schedules may not be correct
and complete and, as a result, some or all of the representations and warranties
set forth in Article IV which refer to such attached Schedules may not be true
and correct). On or prior to March 9, 1998, Sullivan may deliver to Glencairn
an amendment and restatement of any such attached Schedule, or any portion
thereof, or a supplement to any such attached Schedule or any portion thereof,
which may be required in order to accurately depict facts and circumstances
which exist on the date of this Agreement (or any other applicable date referred
to in any such representation or warranty), and the attached Schedule or portion
thereof in question will be deemed
30
<PAGE>
to have been so amended and restated or modified, as the case may be, as of the
time of the execution and delivery of this Agreement.
13.Q Treatment of Station KOKH. Each Acquiring Party acknowledges
--------- -- ------- ----
that, notwithstanding any language to the contrary in this Agreement, Sullivan
has made and will make no representation, warranty or certification of any kind
with respect to Station KOKH (including with respect to the assets, liabilities
and operations related to Station KOKH), and no representation or warranty set
forth in Article IV, and no certification relating thereto delivered pursuant to
Section 3.C, will be deemed to apply to Station KOKH (including to any related
asset, liability or operations).
[SIGNATURE PAGES TO FOLLOW
-- REST OF PAGE LEFT INTENTIONALLY BLANK]
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be duly executed by their duly authorized officers, all as of the day
and year first above written.
SULLIVAN BROADCASTING COMPANY II, INC.
By:
-----------------------------------
Its:
----------------------------------
GLENCAIRN, LTD., in its own right and
on behalf of a Subsidiary to be formed by it
By:
----------------------------------
Its:
---------------------------------
ABRY PARTNERS, INC.
By:
----------------------------------
Its:
---------------------------------
32
<PAGE>
APPENDIX
Additional Defined Terms. The following capitalized terms have the
---------- ------- -----
following meanings when used in this Agreement and the Schedules attached to
this Agreement:
"ABRY Fund" means ABRY Broadcast Partners II, L.P., a Delaware limited
---- ----
partnership.
"Acquiring Parties" means Glencairn, the Merger Sub and Post-Merger
--------- -------
Sullivan.
"Acquiring Party Consents" means all Consents other than the Required
--------- ----- --------
FCC Consent, any Consent required under the Hart-Scott-Rodino Act, or any
Sullivan Consent.
"Affiliate" of any Person means any other Person which is controlled
---------
by, controls, or is under common control with, such first Person.
"Affiliated Group" means an affiliated group of corporations, as that
---------- -----
term is defined in Section 1504(a) of the Tax Code (or in any analogous
combined, consolidated or unitary group defined under state, local or
foreign income Tax law).
"Approval Date" means the first day upon which the Required FCC
-------- ----
Consent has been Granted and the requisite waiting period under the Hart-
Scott-Rodino Act for the consummation of the Merger has expired or been
terminated.
A "Business Day" means any day other than a Saturday, a Sunday or
-------- ---
another day upon which banks in New York, New York generally are not open
for business.
"Closing Date" means the date upon which the Closing occurs.
------- ----
"Communications Act" means the Communications Act of 1934, as amended
-------------- ---
and as in effect from time to time.
"Consent" means any consent, order, approval, authorization or other
-------
action of, or any filing with or notice to or other action by or with
respect to, any Person which is required for any of the execution, delivery
or performance of this Agreement, the consummation of the Spin-Off, the
Merger, or the conduct of the business of Sullivan or Post-Merger Sullivan
or the holding or utilization of any Station Asset thereafter, whether such
requirement arises pursuant to any Legal Requirement, Contract, a Person's
organizational documents or otherwise, including any of the foregoing which
is required in order to prevent a breach of or a default under or a
termination or modification of any Contract.
"Contract" means any agreement, lease, arrangement, commitment, or
--------
understanding to which Sullivan, with respect to the Stations, is a party.
33
<PAGE>
"Contracts Schedule" means the attached Exhibit C.
--------- -------- ---------
"Corporate Personnel" means J. Daniel Sullivan, David Pulido, Patrick
--------- ---------
Bratton, Richard Montgomery, Barry Charbonneau and any successor to any of
them in his capacity as an employee and/or officer of Sullivan.
"Effective Time" means the time of the filing of the Certificate of
--------- ----
Merger described in Article II.
"Expiration Date" means the earlier of (a) the last to occur of the
---------- ----
15th day after the date upon which the Required FCC Consent is Granted and
the last day of the calendar month during which the Required FCC Consent is
Granted, and (b) December 31, 2008.
"FCC" means the Federal Communications Commission or any successor
---
thereto.
"FCC Authorizations" means the authorizations issued by the FCC and
--- --------------
described on the attached Schedule 4C.
-------- --
A "Final Order" means the Required FCC Consent if (a) the Required FCC
----- -----
Consent has been Granted and has not been reversed, stayed, set aside,
enjoined, annulled or suspended (whether under Section 402 or 405 of the
Communications Act or otherwise) and (b) (i) no request has been filed for
administrative or judicial review, reconsideration, appeal, certiorari or
stay and the time for filing any such request and for the FCC to review the
Required FCC Consent on its own motion has expired, or (2) if such a
review, reconsideration or appeal has occurred, such review,
reconsideration or appeal has been denied and the time for further review,
reconsideration or appeal has expired.
"GAAP" means United States generally accepted accounting principles,
----
as in effect from time to time, as applied by Sullivan and its Subsidiaries
from time to time.
"Glencairn-Related Entity" means Glencairn, the Merger Sub, any direct
----------------- ------
or indirect assignee or proposed assignee (by operation of law or
otherwise) of any of the rights of any of them pursuant to this Agreement
or any other agreement contemplated hereby, any direct or indirect
successor or proposed successor to Post-Merger Sullivan's business or
operation with respect to any Station, or any Affiliate or any of them.
The Required FCC Consent is "Granted" on the effective date, as
-------
determined under the FCC's rules, regulations and policies, of the grant
thereof by the FCC or its staff.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
----------------- ---
Improvements Act of 1976, as in effect from time to time.
"Headquarters Assets" means the assets of Sullivan Holdings and its
------------ ------
Subsidiaries located in the offices of Sullivan Holdings and its
Subsidiaries located in Franklin,
34
<PAGE>
Tennessee, and Boston, Massachusetts, and any so-called "personal seat
license" or other right of Sullivan Holdings or any of its Subsidiaries to
subscribe for tickets to events at the stadium presently being constructed
or proposed to be constructed in the Nashville, Tennessee, metropolitan
area.
"Indemnity Agreement" means the Indemnity Agreement entered into among
--------- ---------
Sullivan, Glencairn and certain other Persons dated as of the date of this
Agreement, as such agreement is in effect from time to time.
"Indemnity Escrow Agreement" means the Indemnity Escrow Agreement
--------- ------ ---------
entered into among the Stockholder Representative, Glencairn and certain
other Persons dated as of the date of this Agreement, as such agreement is
in effect from time to time.
"Legal Requirements" means the Communications Act, the rules,
----- ------------
regulations and published policies of the FCC, and all other federal, state
and local laws, rules, regulations, ordinances, judgments, orders and
decrees.
"Lien" means any mortgage, pledge, hypothecation, encumbrance, lien
----
(statutory or otherwise), preference, priority or other security agreement
of any kind or nature whatsoever (including any conditional sale or other
title retention agreement and any lease having substantially the same
effect as any of the foregoing and any assignment or deposit arrangement in
the nature of a security device).
"Market Cable System" means, with respect to any Station, any cable
------ ----- ------
television system located within such Station's television market, as that
term is defined in Section 76.55(e) of the rules of the FCC.
"Mission Guarantees" means the (i) Guaranty of Sullivan Broadcasting
------- ----------
dated as of July 11, 1996 in favor of NationsBank of Texas, N.A., and any
other lenders referred to therein relating to certain indebtedness of
Mission Broadcasting I, Inc., a Delaware corporation, and (ii) the Guaranty
of Sullivan Broadcasting dated as of July 29, 1996 in favor of NationsBank
of Texas, N.A., and any other lenders referred to therein relating to
certain indebtedness of Mission Broadcasting II, Inc., a Delaware
corporation, in each case as in effect from time to time.
"Old Sullivan Stockholder" means any holder of record of any Sullivan
--- -------- -----------
Share immediately prior to the Effective Time.
"ordinary course of business" means the ordinary course of the conduct
-------- ------ -- --------
of business by Sullivan Holdings and is Subsidiaries, substantially
consistent with their respective past practices.
"Parties" means the parties to this Agreement.
-------
"Permitted Encumbrances" means (i) Liens arising by operation of law
--------- ------------
and
35
<PAGE>
securing the payment of Taxes which are not yet due and payable, (ii)
with respect to any property leased by Sullivan as lessee, the interest of
the lessor in such property, (iii) easements, rights-of-way, reservations
of rights, conditions or covenants, zoning, building or similar
restrictions or other non-monetary Liens or defects that do not,
individually or in the aggregate, materially interfere with the use of the
affected property in the operation of the Stations as currently conducted
or as presently proposed by Sullivan Holdings and its Subsidiaries to be
conducted, (iv) restrictions on transfer imposed under state or federal
securities laws or pursuant to the Communications Act or the FCC
Regulations, and (v) Liens securing indebtedness under the Sullivan Senior
Debt Arrangements, other indebtedness and the Mission Guarantees.
A "Person" means any individual, partnership, limited liability
------
company, joint venture, corporation, trust, unincorporated association or
government or department thereof.
"Required FCC Consent" means the action(s) or order(s) by the FCC
-------- --- -------
granting its Consent to the transfer of control of Sullivan by reason of
the Merger, without any condition which in the reasonable judgment of the
Sullivan and the Acquiring Parties is adverse to such Person (or, in
Sullivan's or the Stockholder Representative's reasonable judgment, adverse
to any of the Old Sullivan Stockholders), as the case may be, in any
material respect.
"Spin-Off" means the transfer of the assets described on the attached
--------
Exhibit D to Sullivan by Sullivan Holdings and its Subsidiaries.
------- -
"Station Assets" means all of Sullivan's rights in, to and under the
------- ------
assets and properties of the Stations, real and personal, tangible and
intangible, of every kind and description which are owned and used by
Sullivan in connection with the business and operations of the Stations,
including rights under contracts and leases, real and personal property,
plant and equipment, inventories, intangibles, licenses and goodwill, and
all other assets and properties of Sullivan used solely in connection with
the operation of any Station; provided that the Station Assets will not
include the Headquarters Assets.
"Station KOKH" means broadcast television station KOKH-TV, Oklahoma
------- ----
City, Oklahoma, together with all related translator stations (if any)
owned by Sullivan.
"Stations" means broadcast television station WRGT-TV, Dayton, Ohio;
--------
broadcast television station WVAH-TV, Charleston, West Virginia; broadcast
television station WTAT-TV, Charleston, South Carolina; broadcast
television station
36
<PAGE>
WFXV-TV, Utica, New York; low-power television station WPNY-LP, Rome, New
York; and Station KOKH; in each case together with all associated
translator stations (if any) owned by Sullivan Holdings or any of its
Subsidiaries immediately prior to the Spin-Off.
"Stockholder Representative" means ABRY Partners, Inc., a Delaware
----------- --------------
corporation, or any successor thereto as the Stockholder Representative
designated pursuant to Section 13.O.
With respect to any Person, a "Subsidiary" means any corporation,
----------
partnership, limited liability company, association or other business
entity of which, at the time of such reference, (i) if a corporation, a
majority of the total voting power of shares of stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or a majority economic interest,
is at the time owned or con trolled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a partnership, limited liability company,
association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons will be deemed to have a majority ownership interest in
a partnership, limited liability company, association or other business
entity if such Person or Persons will be allocated a majority of
partnership, company, association or other business entity gains or losses
or will be or control the managing director or general partner of such
partnership, company, association or other business entity.
"Sullivan Broadcasting" means Sullivan Broadcasting Company, Inc., a
-------- ------------
Delaware corporation.
"Sullivan Common Stock" means Sullivan Shares which are common stock.
-------- ------ -----
"Sullivan Consents" means all Consents of the board of directors or
-------- --------
stockholders of Sullivan.
"Sullivan Holdings" means Sullivan Broadcast Holdings, Inc., a
-------- --------
Delaware corporation.
"Sullivan Holdings Financial Statements" means the Financial
-------- -------- --------- ----------
Statements attached to this Agreement as Exhibit E.
---------
"Sullivan-Related Entity" means any Affiliate of ABRY Partners Inc. or
---------------- ------
ABRY Broadcast Partners II, L.P., including Sullivan, prior to the
Effective Time.
"Sullivan Senior Debt Arrangements" means the Credit Agreement dated
-------- ------ ---- ------------
as of January 4, 1996 among Sullivan Holdings, Sullivan Broadcasting, the
various Agents and co-Agents referred to therein, and the several Lenders
from time to time parties thereto,
37
<PAGE>
together with all "Loan Documents" and other documents and instruments
relating to the "Obligations" referred to therein, in each case as in
effect from time to time.
"Sullivan Share" means any share of capital stock of Sullivan which is
-------- -----
outstanding immediately prior to the Effective Time.
"Sullivan Station Assets" means all of Sullivan Holdings', its
-------- ------- ------
Subsidiaries, Sullivan's and Sullivan Two's rights in, to and under the
assets and properties of the Sullivan Stations, real and personal, tangible
and intangible, of every kind and description which are owned and used by
Sullivan Holdings, its Subsidiaries, Sullivan or Sullivan Two in connection
with the business and operations of the Sullivan Stations, including rights
under contracts and leases, real and personal property, plant and
equipment, inventories, intangibles, licenses and goodwill, and all other
assets and properties of Sullivan, its Subsidiaries, Sullivan and Sullivan
Two used solely in connection with the operation of any Sullivan Station;
provided that the Sullivan Station Assets will not include the Headquarters
--------
Assets.
"Sullivan Stations" means broadcast television station WZTV,
-------- --------
Nashville, TN; broadcast television station WUTV, Buffalo, New York;
broadcast television station WXLV-TV, Winston-Salem, North Carolina;
broadcast television station WRGT-TV, Dayton, Ohio; broadcast television
station WRLH-TV, Richmond, Virginia; broadcast television station WVAH-TV,
Charleston, West Virginia; broadcast television station WUHF, Rochester,
New York; broadcast television station WTAT-TV, Charleston, South Carolina;
broadcast television station WFXV, Utica, New York; low-power television
station WPNY-LP, Rome, New York; broadcast television station WMSN-TV,
Madison, Wisconsin; Station KOKH; broadcast television station WUXP,
Nashville, Tennessee; and broadcast television station WUPN-TV, Greensboro,
North Carolina; in each case together with all associated translator
stations (if any).
"Sullivan Two" means Sullivan Broadcasting Company II, Inc., a
-------- ---
Delaware corporation.
"Tax" (and, with correlative meaning, "Taxes", "Taxable" and "Taxing")
---
means any (A) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profits, environmental (including
under Section 59A of the Tax Code), customs, duties, real property, real
property gains, personal property, capital stock, social security,
unemployment, disability, payroll, license, employee or other withholding,
or other tax of any kind whatsoever, including any interest, penalties or
additions to tax or additional amounts in respect of the foregoing; (B)
liability of any corporation for the payment of any amounts of the type
described in clause (A) arising as a result of being (or ceasing to be) a
member of any Affiliated Group (or being included in any Tax Return
relating thereto); and (C) liability for the payment of any amounts of the
type described in clause (A) or (B) as a result of any express or implied
obligation to indemnify or otherwise assume or succeed to the liability of
any other Person.
38
<PAGE>
"Tax Code" means the Internal Revenue Code of 1986, as amended
--- ----
(including, where applicable, the Internal Revenue Code of 1954, as
amended).
"Transaction Documents" means this Agreement and all agreements
----------- ---------
between or among any or all of the Sullivan-Related Entities and the
Glencairn-Related Entities relating thereto, in each case as in effect from
time to time.
39
<PAGE>
LIST OF SCHEDULES
Schedule 4C FCC Matters
Schedule 4D Certain Asset-Related Matters
Schedule 4F Litigation
Schedule 4H Conflicts
Schedule 4J Tax Matters
Schedule 4N Employee Benefit Matters
LIST OF EXHIBITS
Exhibit A Opinions of Sullivan's Counsel
Exhibit B Opinions of Glencairn's and the Merger Sub's Counsel
Exhibit C Contracts Schedule
Exhibit D Spin-Off Assets
Exhibit E Sullivan Holdings Financial Statements
40
<PAGE>
EXHIBIT 10.9
Draft 3/13/98
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is entered into on March 16, 1998, but is
effective February 23, 1998, among Sullivan Broadcast Holdings, Inc., a Delaware
corporation ("Sullivan"), Sullivan Broadcasting Company II, Inc., a Delaware
--------
corporation ("Sullivan Two"), Sullivan Broadcasting Company III, Inc., a
------------
Delaware corporation ("Sullivan Three" and, together with Sullivan and Sullivan
--------------
Two, the "Sullivan Companies"), Sinclair Broadcast Group, Inc., a Maryland
------------------
corporation ("Sinclair"), on behalf of itself and two subsidiaries to be formed
--------
by it as described in the recitals below, Glencairn, Ltd., a Maryland
corporation ("Glencairn"), on behalf of itself and a subsidiary to be formed by
---------
it as described in the recitals below, and ABRY Partners, Inc., a Delaware
corporation ("ABRY Partners"), in its various capacities as the Stockholder
-------------
Representative pursuant to the Merger Agreements described below.
As of February 23, 1998, the parties to this Agreement (the "Parties")
-------
entered into an Agreement and Plan of Merger (the "Prior Agreement"). On
---------------
March 16, 1998, but effective as of February 23, 1998, the Parties are entering
into this Agreement and the following agreements which, together, restate the
agreements set forth in the Prior Agreement:
(a) the Agreement and Plan of Merger among Sullivan, Sinclair, on
behalf of itself and the Merger Sub referred to therein ("Merger Sub One"),
--------------
and ABRY Partners, in its capacity as the Stockholder Representative
referred to therein (as in effect from time to time, the "Sullivan
--------
Agreement");
---------
(b) the Agreement and Plan of Merger among Sullivan Two, Sinclair,
on behalf of itself and the Merger Sub referred to therein ("Merger Sub
----------
Two" and, together with Merger Sub One, the "Sinclair Merger Subs"), and
--------------------
ABRY Partners, in its capacity as the Stockholder Representative referred
to therein (as in effect from time to time, the "Sullivan Two Agreement");
----------------------
and
(c) the Agreement and Plan of Merger among Sullivan Three,
Glencairn, on behalf of itself and the Merger Sub referred to therein
("Merger Sub Three" and, together with the Sinclair Merger Subs, the
----------------
"Merger Subs"), and ABRY Partners, in its capacity as the Stockholder
-----------
Representative referred to therein (as in effect from time to time, the
"Sullivan Three Agreement" and, together with the Sullivan Agreement and
------------------------
the Sullivan Two Agreement, the "Merger Agreements").
-----------------
1
<PAGE>
As used in this Agreement, the following terms have the meanings
assigned to those terms in the applicable Merger Agreement(s):
Acquiring Parties Acquiring Party Consents
Closing Date Dispute
Merger Old Sullivan Stockholders
Stockholder Representative Subsidiary
Sullivan Consents Tax
Parties
In connection with their entry into the Merger Agreements, certain of
the parties have also entered into the Estimate Escrow Agreement and the
Indemnity Escrow Agreement, and pursuant to the Sullivan Agreement, Merger Sub
One may establish the Estimate Fund and/or the Indemnity Fund (each capitalized
term used in this sentence and not otherwise defined in this Agreement having
the meaning which the Sullivan Agreement assigns to that term).
Pursuant to and subject to the terms and conditions of the Sullivan
Agreement, Merger Sub One will merge with and into Sullivan, with Sullivan being
the surviving corporation (in such capacity, "Post-Merger Sullivan"). The date
--------------------
of the Closing pursuant to the Sullivan Agreement is referred to as the
"Sullivan Closing Date," and such merger is referred to as the "Sullivan
--------------------- --------
Merger."
- - - ------
Pursuant to and subject to the terms and conditions of the Sullivan
Two Agreement, Merger Sub Two will merge with and into Sullivan Two, with
Sullivan Two being the surviving corporation (in such capacity, "Post-Merger
-----------
Sullivan Two"). The date of the Closing pursuant to the Sullivan Two Agreement
- - - ------------
is referred to as the "Sullivan Two Closing Date," and such merger is referred
-------------------------
to as the "Sullivan Two Merger."
-------------------
Pursuant to and subject to the terms and conditions of the Sullivan
Three Agreement, Merger Sub Three will merge with and into Sullivan Three, with
Sullivan Three being the surviving corporation (in such capacity, "Post-Merger
-----------
Sullivan Three" and, together with Post-Merger Sullivan and Post-Merger Sullivan
- - - --------------
Two, the "Post-Merger Corporations"). The date of the Closing pursuant to the
------------------------
Sullivan Three Agreement is referred to as the "Sullivan Three Closing Date,"
---------------------------
and such merger is referred to as the "Sullivan Three Merger." The Sullivan
---------------------
Merger, the Sullivan Two Merger and the Sullivan Three Merger are referred to as
the "Mergers".
-------
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows, effective as of the date of the Prior Agreement:
1. Survival Period. The representations, warranties and
---------------
certifications of the Parties contained in or made pursuant to the Merger
Agreements (including any certification contained in any certificate to be
delivered pursuant to Section 3.I of the Sullivan Agreement or
2
<PAGE>
Section 3.C of either the Sullivan Two Agreement or the Sulivan Three Agreement
(collectively, the "Closing Certificates")) will survive the execution of the
------- ------------
Merger Agreements and the Sullivan Merger for 150 days after the Sullivan
Closing Date (such 150-day period being the "Survival Period"); provided that,
-------- ------ --------
in any event, (x) for purposes of Sections 9.A(1) and 10.A(1) of the Sullivan
Two Merger Agreement only, the representations and warranties of Sullivan Two,
Sinclair and Merger Sub Two set forth in the Sullivan Two Agreement will survive
at least until the Sullivan Two Closing Date, and (y) for purposes of
Sections 9.A(1) and 10.A(1) of the Sullivan Three Agreement only, the
representations and warranties of Sullivan Three, Glencairn and Merger Sub Three
set forth in the Sullivan Three Agreement will survive at least until the
Sullivan Three Merger Closing.
2. Notice to Preserve Claim. No remedy may be sought or obtained in
------ -- -------- -----
respect of any representation, warranty or certification made in or pursuant to
any Merger Agreement (including in any Closing Certificate) unless notice of any
related Dispute is given to the Stockholder Representative (in the case of a
representation, warranty or certification of a Sullivan Company), or Sinclair
(in the case of a representation, warranty or certification of Sinclair or a
Sinclair Merger Sub), or Glencairn (in the case of a representation, warranty or
certification of Glencairn or Merger Sub Three), on or prior to the last day of
the Survival Period.
3. Indemnification on behalf of the Old Sullivan Stockholders.
--------------- -- ------ -- --- --- -------- ------------
After the Sullivan Closing Date, the Old Sullivan Stockholders (solely by
recourse to the Estimate Fund and the Indemnity Fund) will indemnify and hold
harmless the Acquiring Parties in respect of any and all damages, claims,
losses, expenses, costs, obligations, and liabilities including, without
limiting the generality of the foregoing, liabilities for reasonable attorneys'
fees and expenses (collectively, "Loss and Expense") suffered directly or
---- --- -------
indirectly by such Acquiring Party by reason of or arising out of
(a) any breach of representation or warranty of a Sullivan
Company set forth in Article IV of any Merger Agreement or any
certification made in any Closing Certificate delivered by any Sullivan
Company,
(b) any litigation, proceeding, or claim by any third party
arising from the business or operations of any Station prior to the
Adjustment Time (as that term is defined in the Sullivan Agreement), or
(c) the failure of any Sullivan Consent to be obtained or in
effect on the Closing Date for which such Sullivan Consent is required to
be obtained,
except, in each case, to the extent that such Loss and Expense constitutes a
liability which is reflected in the computation of the Adjustment Amount (as
that term is defined in the Sullivan Agreement); provided that:
--------
3
<PAGE>
(1) no Acquiring Party will be entitled to any remedy pursuant
to this Section 3 by reason of any matter described in clause (a) above
(other than any Loss and Expense resulting from actual fraud by a Sullivan
Company, which will not be subject to any limitation set forth in this
clause (1)) unless and until the aggregate amount of the Loss and Expense
incurred by the Acquiring Parties in respect of all such matters exceeds
$1,000,000, and the Acquiring Parties, taken together, will be entitled to
remedies pursuant to this Section 3 in respect of such matters only to the
extent that the aggregate amount of all such Loss and Expense exceeds such
amount,
(2) no Acquiring Party will be entitled to a remedy pursuant to
this Section 3 in respect of any matter unless notice of any related
Dispute is given to the Stockholder Representative on or prior to the last
day of the Survival Period,
(3) no Acquiring Party will be entitled to any remedy pursuant
to this Section 3 in respect of any Tax liability (other than the Sullivan
Three Spin-Off Tax Liability (as that term in defined in the Sullivan
Agreement), determined in accordance with Section 3.D(6) of the Sullivan
Agreement),
(4) it is agreed that the amount of the Loss and Expense
incurred by Post-Merger Sullivan by reason of the failure of Schedule 4J to
the Sullivan Agreement to identify any Program Contract (as that term is
defined in the Sullivan Agreement) which was in effect both on February 23,
1998 and on the Sullivan Closing Date and which was required to be
identified on such Schedule 4J will be an amount equal to the present value
of all cash payments to be made thereunder after the Sullivan Closing Date,
determined using a 10% compound annual discount rate, and
(5) no Acquiring Party will entitled to any remedy pursuant to
this Section 3 from any source other than the funds (if any) deposited in
the Estimate Fund and the Indemnity Fund.
4. Indemnification by Sinclair, Post-Merger Sullivan and Post,
--------------- -- --------- ----------- -------- --- -----
Merger Sub Two Merger Sullivan Two. After the Sullivan Closing Date, each of
- - - ------ --- --- ------ -------- ---
Sinclair, Post-Merger Sullivan and Post- Merger Sullivan Two will indemnify and
hold harmless the Old Sullivan Stockholders and the Stockholder Representative
from and against any and all Loss and Expense suffered directly or indirectly by
such Person by reason of or arising out of
(a) any breach of representation or warranty of Sinclair or
either Sinclair Merger Sub set forth in Article V of the Sullivan Agreement
or the Sullivan Two Agreement or any certification made in any Closing
Certificate delivered by Sinclair or either Sinclair Merger Sub,
4
<PAGE>
(b) any failure by Sinclair, either Sinclair Merger Sub, Post-
Merger Sullivan or Post-Merger Sullivan Two to perform or fulfill any of
its covenants or agreements set forth in the Sullivan Agreement or the
Sullivan Two Agreement,
(c) any failure by Post-Merger Sullivan or any of its
Subsidiaries to pay, perform, or discharge any of its liabilities or
obligations on or after the Sullivan Closing Date;
(d) any failure by Post-Merger Sullivan Two or any of its
Subsidiaries to pay, perform, or discharge any of its liabilities or
obligations on or after the Sullivan Two Closing Date;
(e) any litigation, proceeding, or claim by any third party
arising from the business or operations of any Station after the Adjustment
Time (as that term is defined in the Sullivan Agreement), or
(f) the failure of any Acquiring Party Consent to be obtained
or in effect on the Closing Date for which such Acquiring Party Consent is
required to be obtained;
provided that:
- - - --------
(1) no such Person will be entitled to any remedy pursuant to
this Section 4 by reason of any matter described in clause (a) above (other
than any Loss and Expense resulting from actual fraud by an Acquiring
Party, which will not be subject to any limitation set forth in this clause
(1)) unless and until the aggregate amount of the Loss and Expense incurred
by such Persons in respect of all such matters, together with the aggregate
amount of the Loss and Expense incurred by such Persons in respect of
matters described in clause (a) of Section 5, exceeds $1,000,000, and all
such Persons taken together will be entitled to remedies pursuant to this
Section 4 and Section 5 in respect of all such matters only to the extent
that the aggregate amount of all such Loss and Expense exceeds such amount,
and
(2) no such Person will be entitled to a remedy pursuant to
this Section 4 in respect of any matter unless notice of any related
Dispute is given to Sinclair on or prior to the last day of the Survival
Period.
All amounts payable to any Old Sullivan Stockholder pursuant to this Section 4
will be paid to the Stockholder Representative, for the account of such Old
Sullivan Stockholder.
5. Indemnification by Glencairn and Post-Merger Sullivan Three.
--------------- -- --------- --- ----------- -------- -----
After the Sullivan Closing Date, each of Glencairn, Merger Sub Three and Post-
Merger Sullivan Three will indemnify and hold harmless the Old Sullivan
Stockholders and the Stockholder
5
<PAGE>
Representative from and against any and all Loss and Expense suffered directly
or indirectly by such Person by reason of or arising out of
(a) any breach of representation or warranty of Glencairn or
Merger Sub Three set forth in Article VI of the Sullivan Three Agreement or
any certification made in any Closing Certificate delivered by Glencairn or
Merger Sub Three,
(b) any failure by Glencairn, Merger Sub Three or Post-Merger
Sullivan Three to perform or fulfill any of its covenants or agreements set
forth in the Sullivan Three Agreement,
(c) any failure by Glencairn or Post-Merger Sullivan Three to
pay, perform, or discharge any of its liabilities or obligations after the
Sullivan Three Closing,
(d) any litigation, proceeding, or claim by any third party
arising from the business or operations of any Station (as that term is
defined in the Sullivan Three Agreement) after the Adjustment Time (as that
term is defined in the Sullivan Agreement), or
(e) the failure of any Acquiring Party Consent to be obtained
or in effect on the Closing Date for which such Acquiring Party Consent is
required to be obtained;
provided that:
- - - --------
(1) no such Person will be entitled to any remedy pursuant to
this Section 5 by reason of any matter described in clause (a) above (other
than any Loss and Expense resulting from actual fraud by an Acquiring
Party, which will not be subject to any limitation set forth in this clause
(1)) unless and until the aggregate amount of the Loss and Expense incurred
by such Persons in respect of all such matters, together with the aggregate
amount of the Loss and Expense incurred by such Persons in respect of
matters described in clause (a) of Section 4, exceeds $1,000,000, and all
such Persons taken together will be entitled to remedies pursuant to
Section 4 and this Section 5 in respect of all such matters only to the
extent that the aggregate amount of all such Loss and Expense exceeds such
amount, and
(2) no such Person will be entitled to a remedy pursuant to
this Section 5 in respect of any matter unless notice of any related
Dispute is given to Glencairn on or prior to the last day of the Survival
Period.
All amounts payable to any Old Sullivan Stockholder pursuant to this Section 5
will be paid to the Stockholder Representative, for the account of such Old
Sullivan Stockholder.
6
<PAGE>
6. Limitation of Liability. No Party or Old Sullivan Stockholder
---------- -- ---------
will be entitled to obtain indemnification or reimbursement, or otherwise
exercise or obtain any remedy, pursuant to Section 3, 4 or 5 by means of set-off
against any liability or obligation (whether arising pursuant to this Agreement,
a Merger Agreement or otherwise) owing to any Party, Post-Merger Corporation or
Old Sullivan Stockholder, as the case may be.
7. Notice of Claims. If any Person believes that it will suffer or
------ -- ------
has suffered, or will incur or has incurred, any Loss and Expense as to which a
remedy may be had by it pursuant to Section 3, 4 or 5, such Person shall notify
the Stockholder Representative (in the case of a claim pursuant to Section 3),
Sinclair (in the case of a claim pursuant to Section 4), or Glencairn (in the
case of a claim pursuant to Section 5) (in each case, the "Notice Recipient"),
------ ---------
promptly in writing and, in any event, on or prior to the last day of the
Survival Period, describing such Loss and Expense, the amount thereof, if known,
and the method of computation of such Loss and Expense, all with reasonable
particularity and containing a reference to the provisions of this Agreement and
the applicable Merger Agreement(s) in respect of which such Loss and Expense has
occurred; provided that any such notice on behalf of any Old Sullivan
--------
Stockholder must be given on its behalf by the Stockholder Representative, who
will have the right to give any such notice on behalf of any of all of the Old
Sullivan Stockholders. If any action at law or suit in equity is instituted by a
third party with respect to which any Person (or the Stockholder Representative,
on behalf of any Old Sullivan Stockholder(s)) intends to claim any liability or
expense as Loss and Expense under this Agreement, then such Person shall
promptly notify the appropriate Notice Recipient of such action or suit.
8. Defense of Third Party Claims. Any indemnifying party (or the
------- -- ----- ----- ------
Stockholder Representative, on behalf of any Old Sullivan Stockholder(s)) will
have the right to conduct and control through counsel of its own choosing any
related third party claim, action, or suit, but the indemnified party (or the
Stockholder Representative, on behalf of any Old Sullivan Stockholder(s)) 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 indemnifying party (or the
--------
Stockholder Representative, as the case may be) fails to defend any such claim,
action, or suit, then the indemnified party (or the Stockholder Representative,
as the case may be) may
(a) defend such claim, action or suit through counsel of its
own choosing such claim, action, or suit,
(b) so long as it gives the indemnifying party (or the
Stockholder Representative, as the case may be) at least fifteen (15) days
prior written notice of the terms of the proposed settlement thereof and
permits the indemnifying party (or the Stockholder Representative, as the
case may be) to then undertake the defense thereof, settle such claim,
action, or suit, and
7
<PAGE>
(c) recover from the indemnifying party (or from the Indemnity
Fund of the Escrow Fund, as the case may be) the amount of such settlement
or of any judgment and the costs and expenses of such defense.
The indemnifying party (or the Stockholder Representative, as the case may be)
will not compromise or settle any such third party claim, action, or suit unless
(1) as a result of such compromise or settlement, the indemnified party will be
released from all liability to such third party or (2) the indemnifying party
(or the Stockholder Representative, as the case may be) obtains the prior
written consent of the indemnified party (or the Stockholder Representative, if
one or more Old Sullivan Stockholders are to be indemnified) to such compromise
or settlement, which consent will not be unreasonably withheld or delayed.
9. Subrogation. To the extent that a Party (a "Paying Party"), on
----------- ------ -----
behalf of itself or any other Person, pays to or on behalf of an indemnified
party pursuant to Section 3, 4 or 5 any amount for which any other Person is
liable to that indemnified party (including any of such indemnified party's
insurers, subsidiaries, officers, directors, employees and other agents and
affiliates), whether by reason of a contractual, statutory or common law right
of indemnification or contribution or otherwise, the Paying Party will be
entitled to seek and recover that amount from such other Person, and such
indemnified party (or the Stockholder Representative, in the case of any Old
Sullivan Stockholder) will (and will cause all Persons under its control to)
take all actions which the Paying Party reasonably requests to enable the Paying
Party to seek and recover such amount from the Person which is or may be so
liable. Any amount paid to Sinclair, Glencairn or a Post-Merger Corporation
from the Indemnity Fund or the Escrow Fund will be deemed to have been paid by
the Stockholder Representative, on behalf of the Old Sullivan Stockholders in
question, for purposes of this Section 9.
10. General.
-------
(a) Termination. This Agreement will terminate without any
-----------
action by any Party upon any termination of the Sullivan Agreement pursuant
to Section 12.A thereof.
(b) Notices. All notices, demands, and other communications
-------
which may or are required to be given under or with respect to this
Agreement will be in writing, will be delivered personally or sent by
nationally recognized overnight delivery service, charges prepaid, or by
registered or certified mail, return-receipt requested, and will be deemed
to have been given or made when personally delivered, or on the next
Business Day after delivery to such overnight delivery service, or on the
fifth day after it is deposited in the mail, registered or certified, first
class postage prepaid, as the case may be, if addressed as follows:
8
<PAGE>
(1) If to Sullivan (prior to the Sullivan Closing Date),
----------------------------------------------------
Sullivan Two (prior to the Sullivan Two Closing Date), Sullivan Three
---------------------------------------------------------------------
(prior to the Sullivan Three Closing Date) or the Stockholder
-------------------------------------------------------------
Representative (at any time):
----------------------------
c/o ABRY Partners, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attn: Royce Yudkoff, President
with a copy (which will not constitute notice to any Sullivan
Company or the Stockholder Representative) to:
John L. Kuehn, Esq.
Kirkland & Ellis
153 E. 53rd Street
New York, New York 10022
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to the Acquiring Parties given in accordance with this
Section 10(b).
(2) If to Sinclair, either Sinclair Merger Sub, Post-Merger
-------------------------------------------------------
Sullivan or Post-Merger Sullivan Two:
------------------------------------
Sinclair Broadcast Group, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
Attn: David D. Smith, President
with a copy (which will not constitute notice to Sinclair, either
Sinclair Merger Sub, Post-Merger Sullivan or Post-Merger Sullivan
Two) to:
Steven A. Thomas, Esq.
Thomas & Libowitz, P.A.
100 Light Street, Suite 1100
Baltimore, Maryland 21202
and
---
Sinclair Communications, Inc.
2000 W. 41st Street
Baltimore, Maryland 21211
9
<PAGE>
Attn: General Counsel
and
---
George Stamas, Esq.
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to Sullivan (if prior to the Sullivan Closing Date), Sullivan
Two (if prior to the Sullivan Two Closing Date), Sullivan Three (if
prior to the Sullivan Three Closing Date) and the Stockholder
Representative given in accordance with this Section 10(b).
(3) If to Glencairn, Merger Sub Three or Post-Merger Sullivan
---------------------------------------------------------
Three:
-----
Gleincairn, Ltd.
3474 William Penn Highway
Pittsburgh, Pennsylvania 15235
Attention: Edwin L. Edwards, Sr.
with a copy (which will not constitute notice to Glencairn,
-----------------------------------------------------------
Merger Sub Three or Post-Merger Sullivan Three) to:
--------------------------------------------------
George Stamas, Esq.
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
or to such other address and/or with such other copies as the Person
to whom such notice is to be given may from time to time designate by
notice to Sullivan (if prior to the Sullivan Closing Date), Sullivan
Two (if prior to the Sullivan Two Closing Date), Sullivan Three (if
prior to the Sullivan Three Closing Date) and the Stockholder
Representative given in accordance with this Section 10(b).
(c) Captions. The captions of Articles and Sections of this
--------
Agreement are for convenience only, and will not control or affect the
meaning or construction of any of the provisions of this Agreement.
(d) Law Governing. THIS AGREEMENT WILL BE GOVERNED BY,
-------------
CONSTRUED, AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
10
<PAGE>
STATE OF NEW YORK, WITHOUT REFERENCES TO THE PRINCIPLES OF CONFLICT OF LAWS
OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE
UNITED STATES GOVERNS THE TRANSACTIONS CONTEMPLATED HEREBY.
(e) Waiver of Provisions. The terms, covenants,
--------------------
representations, warranties, and conditions of this Agreement may be waived
as to any Party only by a written instrument executed by such Party. The
terms, covenants, representations, warranties, and conditions of this
Agreement may be waived as to the Old Sullivan Stockholders of any Sullivan
Company only by a written instrument executed by such Sullivan Company
(prior to the Merger to which it is a party) or the appropriate Stockholder
Representative (after such Merger). The failure of any Party or any Old
Sullivan Stockholder at any time or times to require performance of any
provision of this Agreement will in no manner affect the right at a later
date to enforce the same. No waiver by or on behalf of any Party or any Old
Sullivan Stockholder of any condition or the breach of any provision, term,
covenant, representation, or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, will be deemed to be
or construed as a further or continuing waiver of any such condition or of
the breach of any other provision, term, covenant, representation, or
warranty of this Agreement.
(f) Counterparts. This Agreement may be executed in two (2) or
-----------
more counterparts, and all counterparts so executed will constitute one (1)
agreement binding on all of the parties hereto, notwithstanding that all
the parties hereto are not signatory to the same counterpart.
(g) Entire Agreement. This Agreement and the other agreements
----------------
referred to herein constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersede any and all prior
agreements, understandings, negotiations, and discussions, whether oral or
written, between them relating to the subject matter hereof.
(h) Interpretation. Words used in this Agreement, regardless
--------------
of the gender and number specifically used, will be deemed and construed to
include any other gender, masculine, feminine or neuter, and any other
number, singular or plural, as the context requires. Whether or not used in
conjunction with the words "without limitation" or words of similar import,
the term "including" as used in this Agreement imports that the items
referred to are illustrative only and do not purport to be a complete
listing of the items of the type in question. The wording of the provisions
of this Agreement is the result of arms-length negotiations among the
parties to this Agreement and was selected by them to reflect their mutual
intentions; therefore, no Party will be deemed the "drafter" of this
Agreement and no rule of strict construction will be applied against or in
favor of any Party.
11
<PAGE>
[SIGNATURE PAGES TO FOLLOW
-- REST OF PAGE LEFT INTENTIONALLY BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indemnity Agreement
to be duly executed by their duly authorized officers, all as of the day and
year first above written.
SULLIVAN BROADCAST HOLDINGS, INC.
By:__________________________________________
Its:_________________________________________
SULLIVAN BROADCASTING COMPANY II, INC.
By:__________________________________________
Its:_________________________________________
SULLIVAN BROADCASTING COMPANY III, INC.
By:__________________________________________
Its:_________________________________________
SINCLAIR BROADCAST GROUP, INC.,
in its own right and on behalf of two
Subsidiaries to be formed by it
By:__________________________________________
Its:_________________________________________
13
<PAGE>
GLENCAIRN, LTD.,
in its own right and on behalf of a Subsidiary
to be formed by it
By:__________________________________________
Its:_________________________________________
ABRY PARTNERS, INC.
By:__________________________________________
Its:_________________________________________
14
<PAGE>
SULLIVAN BROADCASTING COMPANY, INC.
(IN THOUSANDS) EXHIBIT 12.1
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
======== ======== ======== ======== ========
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income (Loss) before provision for
income taxes, effect of
accounting change and
extraordinary item (2,595) 7,878 17,581 (25,151) (14,499)
FIXED CHARGES:
Interest expense, including
amortization of debt discount and
deferred debt issuance costs 17,648 18,587 17,777 34,411 35,057
INTEREST COMPONENT OF RENTAL EXPENSE:
30% of rent expense 187 191 207 225 207
------- ------- ------- ------- -------
TOTAL FIXED CHARGES 17,835 18,778 17,984 34,636 35,264
======= ======= ======= ======= =======
EARNINGS 15,240 26,656 35,565 9,485 20,765
======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES - 1.4 2.0 - -
======= ======= ======= ======= =======
DEFICIT OF EARNINGS TO FIXED CHARGES (2,595) - - (25,151) (14,499)
======= ======= ======= ======= =======
SULLIVAN BROADCAST HOLDINGS, INC.
(IN THOUSANDS)
1993 1994 1995 1996 1997
======== ======== ======== ======== ========
EARNINGS:
Income (Loss) before provision for
income taxes, effect of
accounting change and
extraordinary item (2,595) 7,878 17,581 (32,446) (19,725)
FIXED CHARGES:
Interest expense, including
amortization of debt discount and
deferred debt issuance costs 17,648 18,587 17,777 41,187 40,711
INTEREST COMPONENT OF RENTAL EXPENSE:
30% of rent expense 187 191 207 225 207
------- ------- ------- ------- -------
TOTAL FIXED CHARGES 17,835 18,778 17,984 41,412 40,918
======= ======= ======= ======= =======
EARNINGS 15,240 26,656 35,565 8,966 21,193
======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES - 1.4 2.0 - -
======= ======= ======= ======= =======
DEFICIT OF EARNINGS TO FIXED CHARGES (2,595) - - (32,446) (19,725)
======= ======= ======= ======= =======
</TABLE>
<PAGE>
SULLIVAN BROADCASTING COMPANY, INC.
SUBSIDIARIES OF SULLIVAN BROADCASTING COMPANY, INC. EXHIBIT 21.1
Sullivan Holdings of Nevada, Inc.
Sullivan Broadcasting of Tennessee, Inc.
Sullivan Broadcasting Management Services, Inc.
Sullivan Broadcasting of Dayton, Inc.
Sullivan Broadcasting of Charleston, Inc.
Sullivan Broadcasting of Rochester, Inc.
Sullivan Broadcasting of Nashville, Inc.
Sullivan Broadcasting of Richmond, Inc.
Sullivan Broadcasting of West Virginia, Inc.
Sullivan Broadcasting of Buffalo, Inc.
Sullivan Broadcasting of Utica, Inc.
Sullivan Broadcasting License Corp.
SULLIVAN BROADCAST HOLDINGS, INC.
SUBSIDIARIES OF SULLIVAN BROADCAST HOLDINGS, INC.
Sullivan Broadcasting Company, Inc.
Sullivan Holdings of Nevada, Inc.
Sullivan Broadcasting of Tennessee, Inc.
Sullivan Broadcasting Management Services, Inc.
Sullivan Broadcasting of Dayton, Inc.
Sullivan Broadcasting of Charleston, Inc.
Sullivan Broadcasting of Rochester, Inc.
Sullivan Broadcasting of Nashville, Inc.
Sullivan Broadcasting of Richmond, Inc.
Sullivan Broadcasting of West Virginia, Inc.
Sullivan Broadcasting of Buffalo, Inc.
Sullivan Broadcasting of Utica, Inc.
Sullivan Broadcasting License Corp.
Sullivan Broadcasting License Holder, Inc.
Cascom International, Inc.
<PAGE>
Sullivan Broadcasting Company, Inc.
Sullivan Broadcast Holdings, Inc.
Valuation and Qualifying Accounts Schedule II
(in Thousands)
<TABLE>
<CAPTION>
Beginning Charged to Ending
Balance Costs and Expenses Deductions Balance
================ =========================== ================ ================
<S> <C> <C> <C> <C>
Year Ended December 31, 1995: (a)
Allowance for Doubtful Accounts 1,482,000 404,000 (903,000) 983,000
Year Ended December 31, 1996: (a)
Allowance for Doubtful Accounts 983,000 876,000 (562,000) 1,297,000
Year Ended December 31, 1997: (a)
Allowance for Doubtful Accounts 1,297,000 892,000 (864,000) 1,325,000
Sullivan Broadcast Holdings, Inc.
Valuation and Qualifying Accounts Schedule II
(in Thousands)
Beginning Charged to Ending
Balance Costs and Expenses Deductions Balance
================ =========================== ================ ================
Year Ended December 31, 1994: (a)
Allowance for Doubtful Accounts 1,182,000 1,051,000 (751,000) 1,482,000
Year Ended December 31, 1995: (a)
Allowance for Doubtful Accounts 1,482,000 404,000 (903,000) 983,000
Year Ended December 31, 1996: (a)
Allowance for Doubtful Accounts 983,000 876,000 (562,000) 1,297,000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0003398434
<NAME> SULLIVAN BROADCAST HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 3,837 3,840
<SECURITIES> 0 0
<RECEIVABLES> 36,315 36,315
<ALLOWANCES> 1,325 1,325
<INVENTORY> 0 0
<CURRENT-ASSETS> 66,206 66,931
<PP&E> 56,839 56,839
<DEPRECIATION> 17,116 17,116
<TOTAL-ASSETS> 708,000 710,316
<CURRENT-LIABILITIES> 65,177 59,212
<BONDS> 125,185 155,508
0 133,185
0 0
<COMMON> 5 8
<OTHER-SE> 175,927 15,847
<TOTAL-LIABILITY-AND-EQUITY> 708,000 710,316
<SALES> 120,124 120,124
<TOTAL-REVENUES> 137,774 137,774
<CGS> 0 0
<TOTAL-COSTS> 117,234 118,037
<OTHER-EXPENSES> (9) (12)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 35,057 40,711
<INCOME-PRETAX> (14,508) (20,962)
<INCOME-TAX> (2,590) (5,488)
<INCOME-CONTINUING> (11,918) (15,474)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,918) (15,474)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
